S-1/A 1 d934466ds1a.htm AMENDMENT NO. 6 TO FORM S-1 Amendment No. 6 to Form S-1
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As filed with the Securities and Exchange Commission on June 8, 2015.

Registration No. 333-197085

 

 

 

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

 

 

Univar Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware 5169 26-1251958

(State or other jurisdiction of

incorporation)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

3075 Highland Parkway, Suite 200

Downers Grove, IL 60515

331-777-6000

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

 

 

Stephen N. Landsman, Esq.

Executive Vice President, General Counsel and Secretary

3075 Highland Parkway, Suite 200

Downers Grove, IL 60515

331-777-6000

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

 

 

With a copy to:

 

Steven J. Slutzky, Esq.

Debevoise & Plimpton LLP

919 Third Avenue

New York, New York 10022

(212) 909-6000

 

Kirk A. Davenport II, Esq.

Wesley C. Holmes, Esq.

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

(212) 906-1200

 

 

Approximate date of commencement of proposed sale of the securities 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, 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.

 

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities to be Registered   Proposed Maximum
Aggregate Offering
Price(1)
 

Amount of

Registration Fee(2)

Common stock, $0.01 par value per share

  $506,000,000   $60,058

 

 

 

(1) This amount represents the proposed maximum aggregate offering price of the securities registered hereunder. These figures are estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) The registrant previously paid $12,880.

 

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 or until this registration statement shall become effective on such date as the Securities and Exchange 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 may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion. Dated June 8, 2015.

20,000,000 Shares

 

LOGO

Univar Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Univar Inc.

Univar Inc. is offering 20,000,000 shares of its common stock.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $20.00 and $22.00. Our shares of common stock have been approved for listing on the New York Stock Exchange under the symbol “UNVR”.

 

 

See “Risk Factors” beginning on page 15 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per
Share
     Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $         $     

Proceeds, before expenses, to us

   $         $     

 

(1) We refer you to “Underwriting (Conflict of Interest)” on page 167 of this prospectus for additional information regarding underwriter compensation.

Dahlia Investments Pte. Ltd., an indirect wholly owned subsidiary of Temasek Holdings (Private) Limited, has entered into a stock purchase agreement pursuant to which it has agreed to purchase $350 million of newly issued shares of our common stock from us and up to $150 million of shares of our common stock from Univar N.V., an entity indirectly owned by funds advised by subsidiaries of CVC Capital Partners SICAV-FIS S.A. and certain other investors, and certain other of our stockholders, in each case at a price per share equal to the lower of the initial public offering price and $21.00 per share less the underwriting discounts and commissions (not to exceed     % per share) in separate private placement transactions that are expected to close concurrently with this offering.

To the extent that the underwriters sell more than 20,000,000 shares of our common stock, the underwriters have the option to purchase up to an additional 3,000,000 shares of our common stock from the selling stockholders at the initial public offering price less the underwriting discount. We will not receive any proceeds from any sale of shares of our common stock by the selling stockholders.

The underwriters expect to deliver the shares against payment in New York, New York on or about                 , 2015.

 

 

 

Deutsche Bank Securities   Goldman, Sachs & Co.   BofA Merrill Lynch

 

Barclays   Credit Suisse   J.P. Morgan   Jefferies   Morgan Stanley
Citigroup  

HSBC

 

Moelis & Company

 

Wells Fargo Securities

Lazard   SunTrust Robinson Humphrey   William Blair

 

 

Prospectus dated                 , 2015.


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LOGO


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TABLE OF CONTENTS

 

     Page  

Special Note Regarding Forward-Looking Statements and Information

     ii   

Market and Industry Data

     iv   

Trademarks, Service Marks and Brand Names

     iv   

Supplemental Information

     iv   

Prospectus Summary

     1   

Risk Factors

     15   

Use of Proceeds

     40   

Dividend Policy

     41   

Capitalization

     42   

Dilution

     44   

Anticipated Refinancing

     46   

Selected Consolidated Financial Data

     48   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     51   

Industry

     90   

Business

     94   

Management

     117   

Executive Compensation

     124   

Security Ownership of Certain Beneficial Owners and Management

     147   

Certain Relationships and Related Party Transactions

     150   

Description of Capital Stock

     152   

Shares of Common Stock Eligible for Future Sale

     157   

Description of Certain Indebtedness

     159   

U.S. Federal Tax Considerations for Non-U.S. Holders

     164   

Underwriting (Conflict of Interest)

     167   

Legal Matters

     176   

Where You Can Find More Information

     176   

Experts

     177   

Index to Consolidated Financial Statements

     F-1   

 

 

We, the selling stockholders and the underwriters have not authorized anyone to provide you with additional information or information different from that contained in this prospectus. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted.

 

 

Through and including                 , 2015, the 25th day after the date of this prospectus, all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This prospectus contains forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth strategies and the industries in which we operate and including, without limitation, statements relating to our estimated or anticipated financial performance or results.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including those reflected in forward-looking statements relating to our operations and business and the risks and uncertainties discussed in “Risk Factors.” Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:

 

    whether the concurrent private placement is successfully consummated;

 

    our ability to successfully complete the Anticipated Refinancings;

 

    general economic conditions, particularly fluctuations in industrial production;

 

    disruption in the supply of chemicals we distribute or our customers’ operations;

 

    termination of contracts or relationships by customers or producers on short notice;

 

    the price and availability of chemicals, or a decline in the demand for chemicals;

 

    our ability to pass through cost increases to our customers;

 

    trends in oil and gas prices;

 

    our ability to execute strategic investments, including pursuing acquisitions and/or dispositions, and successfully integrating and operating acquired companies;

 

    challenges associated with international operations, including securing producers and personnel, compliance with foreign laws and changes in economic or political conditions;

 

    our ability to effectively implement our strategies or achieve our business goals;

 

    exposure to interest rate and currency fluctuations;

 

    competitive pressures in the chemical distribution industry;

 

    our ability to implement and efficiently operate the systems needed to manage our operations;

 

    the risks associated with security threats, including cybersecurity threats;

 

    increases in transportation costs and changes in our relationship with third party carriers;

 

    the risks associated with hazardous materials and related activities;

 

    accidents, safety failures, environmental damage, product quality issues, major or systemic delivery failures involving our distribution network or the products we carry or adverse health effects or other harm related to the materials we blend, manage, handle, store, sell or transport;

 

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    evolving laws and regulations relating to hydraulic fracturing;

 

    losses due to potential product liability claims and recalls and asbestos claims;

 

    compliance with extensive environmental, health and safety laws, including laws relating to the investigation and remediation of contamination, that could require material expenditures or changes in our operations;

 

    general regulatory and tax requirements;

 

    operational risks for which we may not be adequately insured;

 

    ongoing litigation and other legal and regulatory actions and risks;

 

    potential impairment of goodwill;

 

    inability to generate sufficient working capital;

 

    loss of key personnel;

 

    labor disruptions and other costs associated with the unionized portion of our workforce;

 

    negative developments affecting our pension plans;

 

    the impact of labeling regulations;

 

    consolidation of our competitors; and

 

    our substantial indebtedness and the restrictions imposed by our debt instruments and indenture.

You should read this prospectus, including the uncertainties and factors discussed under “Risk Factors” completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this prospectus are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this prospectus and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise and changes in future operating results over time or otherwise.

Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

 

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MARKET AND INDUSTRY DATA

All statements made in this prospectus regarding our position in the markets in which we operate, including market data, certain economics data and forecasts, were based upon publicly available information, surveys or studies conducted by third parties and other industry or general publications and our own estimates based on our management’s knowledge and experience in the chemical distribution industry and end markets in which we operate. Unless otherwise indicated or unless the context so requires, all information on the markets in which we operate, including market data, certain economics data and forecasts, were based upon the report titled “Specialty Chemical Distribution—Market Update” published by The Boston Consulting Group, or BCG, in April 2014. Although we believe the information is accurate, we have not independently verified market and industry data from third party sources. This information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in surveys of market size.

 

 

TRADEMARKS, SERVICE MARKS AND BRAND NAMES

We use various trademarks, service marks and brand names, such as Univar, ChemPoint.com, Chemcare, Magnablend and the Univar logo that we deem particularly important to the advertising activities and operation of our business, and some of these marks are registered in the United States and, in some cases, other jurisdictions. This prospectus also refers to the trademarks, service marks and brand names of other companies. All trademarks, service marks and brand names cited in this prospectus are the property of their respective holders.

 

 

SUPPLEMENTAL INFORMATION

Unless the context otherwise indicates or requires, as used in this prospectus, (i) the terms “we,” “our,” “us,” “Univar” and the “Company,” refer to Univar Inc. and its consolidated subsidiaries, and (ii) the term “issuer” refers to Univar Inc. exclusive of its subsidiaries.

Unless the context otherwise indicates or requires, the term “selling stockholders” refers to Univar N.V., an entity indirectly owned by funds advised by subsidiaries of CVC Capital Partners SICAV-FIS S.A. and certain other investors, certain affiliates of Apollo Global Management, LLC, certain affiliates of GSO Capital Partners LP and certain affiliates of Goldman, Sachs & Co.

Our fiscal year ends on December 31, and references to “fiscal” when used in reference to any twelve month period ended December 31, refer to our fiscal years ended December 31.

The term “GAAP” refers to accounting principles generally accepted in the United States of America.

 

 

 

 

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PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider before investing in shares of our common stock. You should read carefully this entire prospectus before making an investment decision.

Our Company

We are a leading global chemical distributor and provider of innovative value-added services. For the fiscal year ended December 31, 2014, we held the #1 market position in North America and the #2 market position in Europe. We source chemicals from over 8,000 producers worldwide and provide a comprehensive array of products and services to over 110,000 customer locations in over 150 countries. Our scale and broad geographic reach, combined with our deep product knowledge, end market expertise and our differentiated value-added services, provide us with a distinct competitive advantage and enable us to offer customers a “one-stop shop” for their chemical needs. As a result, we believe we are strategically positioned for growth and to increase our market share.

The global chemical distribution industry is large, fragmented and growing, as producers and customers increasingly realize the benefits of outsourcing. Chemical producers rely on us to improve their market access and geographic reach and to reduce complexity and costs within their organizations by outsourcing not only the distribution of their products but also many of the services that their customers require. Customers who purchase products and services from us benefit from a lower total cost of ownership, as they are able to simplify the chemical sourcing process and outsource a variety of functions such as packaging, inventory management, mixing, blending and formulating.

Since hiring our President and CEO, Erik Fyrwald, in May 2012, we have implemented a series of transformational initiatives to drive growth and operating performance. These initiatives include:

 

    focusing increased efforts on strengthening our market, technical and product expertise in attractive, high-growth industry sectors;

 

    increasing and enhancing our value-added services, which have higher margins and are growing at a faster rate than chemical product sales;

 

    undertaking a series of measures to drive operational excellence, such as enhancing our supply chain and logistical expertise, our global sourcing capabilities and our working capital efficiency;

 

    pursuing commercial excellence programs, including significantly increasing our global sales force and establishing a performance driven sales culture; and

 

    continuing to improve upon our distribution industry leadership in safety performance, which serves as a differentiating factor for both producers and our customers.

As a result of these initiatives, we believe we are well-positioned to continue to capture market share and improve our margins. In the twelve months ended March 31, 2015, we generated $10.2 billion in net sales and $641.8 million in Adjusted EBITDA. For a reconciliation of Adjusted EBITDA to net income (loss), see “—Summary Consolidated Financial and Operating Data.”

While we seek to grow volumes across our business, our enhanced focus on end markets and regions with the most attractive growth prospects is a key element of our strategy, as demand within the majority of these end markets and regions is growing faster than overall global chemical distribution demand. We are focusing increased efforts on strengthening our market, technological and product expertise in these attractive, high-growth end markets, including oil, gas and mining, water treatment, agricultural sciences, food ingredients,

 

 

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pharmaceutical ingredients and personal care. We intend to grow our oil, gas and mining businesses in North America and internationally by increasing our customer base and leveraging our existing relationships with our largest oil, gas and mining customers, including the top three oil and gas service companies, to access other markets such as the Middle East and Mexico. We have improved our position in water treatment products and services in multiple end markets, including food ingredients and chemical manufacturing, by hiring highly experienced personnel with strong producer and customer relationships and expanding our product knowledge and service offerings. Our water treatment sales in 2014 represented over 5% of total sales and we believe that we are well positioned to capitalize on the expected 4% CAGR in global water consumption from 2013 to 2018. In addition, we continue to expand our presence within high-growth emerging markets such as China, Mexico and Brazil, as overall chemical consumption growth within these regions is expected to exceed global growth rate levels.

The following charts illustrate the geographical and end market diversity of our 2014 net sales:

 

2014 Net Sales by Region

2014 Net Sales by End Market

LOGO LOGO

We maintain strong, long-term relationships with both producers and our customers, many of which span multiple decades. We source materials from thousands of producers worldwide, including global leaders such as Dow Chemical Company, ExxonMobil, Eastman Chemical Company, LyondellBasell, Dow Corning, BASF and Formosa Chemicals. Our 10 largest producers accounted for approximately 32% of our total chemical expenditures in 2014. Similarly, we sell products to thousands of customers globally, ranging from small and medium-sized businesses to large industrial customers, including Akzo Nobel, Dow Chemical Company, Henkel, Ecolab, PPG, Valero Energy, FMC Corporation, Georgia-Pacific and Kellogg Company. Our top ten customers accounted for approximately 13% of our consolidated net sales for the year ended December 31, 2014.

 

 

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Our Segments

Our business is organized and managed in four geographical segments: Univar USA, or USA, Univar Canada, or Canada, Univar Europe and the Middle East and Africa, or EMEA, and Rest of the World, or Rest of World, which includes developing markets in Latin America, including Brazil and Mexico, and the Asia-Pacific region. The following table presents key operating metrics for each of these segments:

 

    USA       Canada   EMEA   Rest of World

2014 net sales(a)

  $6,081 million     $1,512 million   $2,230 million   $550 million

2014 Adjusted

EBITDA(b)

  $438 million     $107 million   $85 million   $18 million

    % margin(c)

  7.2%     7.1%   3.8%   3.3%

2013 Est. addressable market size

  $34 billion     $5 billion   $78 billion   $106 billion

2013 Est. market share(d)

  17.9%     30.2%   2.9%   Various(e)

2013 Est. market position

  #1(f)     #1(f)   #2   Various(e)

Top 3 as % of total market

    39.8%(g)     12.1%   <10%(e)

Historical market growth

(2008 – 2013)

    2.6%(g)     4.7%   12.7%

Market growth outlook

(2013 – 2018)

    4.9%(g)     4.4%   6.7%

Network

 

498 distribution facilities

2,527 tractors, tankers, and trailers

104 rail / barge terminals

17 deep sea terminals

   

148 distribution facilities

76 tractors, tankers, and trailers

13 rail / barge terminals

1 deep sea terminal

 

192 distribution facilities

201 tractors, tankers, and trailers

9 rail/barge terminals

13 deep sea terminals

 

45 distribution facilities

197 tractors, tankers and trailers

1 rail/barge terminal 7 deep sea terminals

 

(a) Amounts represent external sales, which exclude inter-segment sales.
(b) For a reconciliation of Adjusted EBTIDA to net income (loss), see “—Summary Consolidated Financial and Operating Data.”
(c) Percent margin is calculated as 2014 Adjusted EBITDA divided by 2014 net sales.
(d) Estimated market share is calculated as 2014 net sales divided by estimated 2013 addressable market size.
(e) Majority of emerging markets are highly fragmented with the top three producers accounting for less than 10% of total market.
(f) We are #1 in North America according to BCG. We believe that we are #1 in each of the United States and Canada.
(g) Metric represents figure for North America.

Industry Overview

The global chemical industry represents over $3.4 trillion in annual consumption. The industry is highly fragmented, with more than 100,000 producers supplying chemicals utilized in manufacturing a broad array of products in a diverse range of end markets. In order to supply the diversity of chemicals required in manufacturing chemical products, producers typically utilize a combination of direct sales and outsourced distribution, depending on the properties of their products and their customers’ requirements. The addressable market for chemical distributors, which excludes chemicals delivered through pipelines, is estimated to be $2.3 trillion, of which $223 billion, or 9.7%, is funneled through approximately 10,000 third-party chemical distributors. Between 2008 and 2013, overall chemical consumption grew at a 4.4% CAGR. As a result of the increased use of chemical distributors, which grew from 9.1% of the addressable chemical distribution market in 2008 to 9.7% in 2013, the amount of chemicals funneled through distributors grew at a 6.5% CAGR. As this trend continues, the global chemical distribution market is expected to expand at a 5.6% CAGR through 2018, which we expect will continue to outpace overall growth in the chemical industry.

The chemical distribution industry is characterized by high barriers to entry, including significant capital investments required for transportation and storage infrastructure, an increasingly complex regulatory,

 

 

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environmental and safety landscape and the need for specialized institutional product knowledge and market intelligence that require significant time and effort to cultivate. Additionally, scale provides significant advantages in the chemical distribution industry due to purchasing power derived from volume based discounts available to large distributors and the fact that most chemical producers and customers are seeking to streamline their supply chain and prefer established chemical distributors with the most comprehensive product and service offerings and broadest geographic reach.

Our Competitive Strengths

We believe that we benefit significantly from the following competitive strengths:

Leading global market position in a highly attractive, growing industry

We are well positioned to benefit from the anticipated growth of the chemical distribution market due to our scale, geographic reach, broad product offerings, product knowledge and market expertise, as well as our differentiated value-added service offerings. With a #1 market position in both the United States and Canada and a #2 market position in Europe, we are one of the world’s leading chemical distribution companies. We continue to focus on increasing our market share through organic growth, marketing alliances and strategic acquisitions in both established markets, such as the United States, which is experiencing a resurgence in chemical manufacturing, and high-growth emerging markets, such as the Asia-Pacific region, Latin America and the Middle East. We are also well positioned in attractive and high-growth end markets, including oil, gas and mining, water treatment, agricultural sciences, food ingredients, pharmaceutical ingredients and personal care.

Global sourcing and distribution network producing operational and scale efficiencies

With one of the most extensive chemical distribution networks in the world, we service an international customer base in both established and emerging markets, as well as in difficult-to-access areas such as wellsites in key oil and gas basins and the oil sands region of Northern Canada. Our purchasing power and global procurement relationships provide us with significant competitive advantages over local and regional competitors due to volume-based discounts we receive as well as our enhanced ability to manage our inventory and working capital.

Long-standing, strong relationships with a broad set of producers and customers

We believe that our scale, geographic reach, diversified distribution channels, broad product and value-added services offerings, as well as our deep technical expertise and knowledgeable sales force, have enabled us to develop strong, long-term relationships, often spanning several decades, with both producers and customers. We source chemicals from more than 8,000 producers, many of which are the premier global chemical producers, including Dow Chemical Company, ExxonMobil, Eastman Chemical Company, LyondellBasell, Dow Corning, BASF and Formosa Chemicals. We distribute products to over 110,000 customer locations, from small and medium-sized businesses to global industrial customers, including Akzo Nobel, Dow Chemical Company, Henkel, Ecolab, PPG, Valero Energy, FMC Corporation, Georgia-Pacific and Kellogg Company, across a diverse range of high-value and high-growth end markets.

Broad value-added service offerings driving customer loyalty

To complement our extensive product portfolio, we offer a broad range of value-added services, such as specialty product blending (Magnablend), automated tank monitoring and refill of less than truckload quantities (MiniBulk), chemical waste management (ChemCare) and digitally enabled marketing and sales (ChemPoint.com). Our deep technical expertise, combined with our knowledgeable sales force, allows us to provide tailored solutions to our customers’ specific needs. These value-added services have higher margins than our chemical product sales.

 

 

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Strategically positioned assets and sales force focused on high-growth end markets.

We have successfully focused our sales organization and operating assets to target high-growth end markets, including oil, gas and mining, water treatment, agricultural sciences, food ingredients, pharmaceutical ingredients and personal care. We have dedicated sales teams composed of professionals with technical and industry specific expertise, allowing us to connect a broad set of chemical producers to a broad set of end-user markets. Along with our broad end market exposure, we touch a majority of the manufacturing and industrial production sectors in the United States. Our close proximity to customers serves as a competitive advantage and we believe that nearly 100% of U.S. manufacturing GDP is located within 150 miles of a Univar location. In addition, the resurgence of industrial water treatment requirements in the oil and gas, mining and power generation industries, combined with increased demand for drinking and waste water treatment, has driven an increase in demand for the water treatment chemicals we distribute. We believe our technical expertise and the value-added services we provide to municipalities and industrial users will continue to deliver market share gains in our water vertical.

Resilient business platform with significant growth potential

We believe that the combination of our large geographic footprint, end market diversity, fragmented producer and customer base and broad product offerings provides us with a resilient business platform that enhances our flexibility and ability to take advantage of growth opportunities. We buy thousands of different chemical products in bulk quantities, process them, repack them in quantities that are matched to the needs of our customers, sell them and deliver them to customer locations in over 150 countries. In addition to our vast geographic reach, we serve a wide range of end markets with over 30,000 products and have no major exposure to any single end market or customer. We believe that the combination of our disciplined approach to cost control, our active asset management strategy and our low capital expenditure requirements has resulted in a strong business platform that is well positioned for growth and adaptable to changing industry dynamics.

Experienced and proven management team

Our management team is led by our Chief Executive Officer, Erik Fyrwald, formerly the President and Chief Executive Officer of Nalco Holding Company and President of Ecolab, Inc., who has over 30 years of experience in the chemical and distribution industries. Since mid-2012, our senior management team has implemented an enhanced business strategy and successfully transformed our pricing structure, sales force, capital efficiency and acquisition and integration strategy.

Our Growth Strategy

The key elements of our growth strategy are to:

Leverage our market leading position to grow organically in existing and new geographies and end markets

We seek to build upon our position as a global market leader by leveraging our scale and global network to capitalize on market opportunities as major chemical producers outsource an increasing portion of their distribution operations and rationalize their distributor relationships. Because many producers and our customers look for distributors with specialized industry or product knowledge, we will continue to develop our technical and industry-specific expertise to become the preferred distributor for an even broader range of chemical producers and customers in existing and new markets.

Focus on continued development of innovative value-added services

We are focused on developing and offering a range of value-added services that provide efficiency gains for producers and lower the total cost of ownership for our customers. We will also continue to partner with

 

 

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customers to develop tailored solutions to meet their specific requirements. Our high-growth and value-added service offerings, including Magnablend, MiniBulk, ChemCare and ChemPoint.com, are key differentiators for us relative to our competitors and also enhance our profitability and growth prospects.

Pursue commercial excellence initiatives

We intend to continue to identify areas where we can improve our sales strategy to drive growth. We are currently focused on implementing a number of key commercial excellence programs which include strengthening our sales planning and execution process by investing in and developing our sales force talent, product knowledge and end market expertise, as well as focusing our sales force on high-growth, high-value end markets. We are also expanding our utilization of proprietary intelligent mobile sales force tools which provide market and customer insights and pricing analytics, to drive improved productivity and profitability for producers and us.

Continue to implement additional productivity improvements and operational excellence initiatives

We are committed to continued operational excellence and have implemented several initiatives to further improve operating performance and margins. We are focused on improving our procurement organization through the implementation of robust inventory planning and stocking systems, and we are in the process of centralizing and consolidating our indirect-spend, including third party transportation, in an effort to reduce costs and improve the reliability and level of service we offer customers. In EMEA, we are undertaking a commercial realignment of our business, from a country-based structure to a pan-European platform, with increased focus on key growth markets, local knowledge and local profitability.

Undertake selective acquisitions and ventures

We will continue to evaluate selective acquisitions and ventures in both developed and emerging markets to complement our organic growth initiatives. We seek acquisition opportunities to increase our market share in key regions and end markets, in addition to expanding our product portfolio and our value-added services capabilities.

Risk Factors

An investment in our common stock involves a high degree of risk. Any of the factors set forth under “Risk Factors” may limit our ability to successfully execute our business strategy, and you should carefully consider all of the information set forth in this prospectus in deciding whether to invest in shares of our common stock. These risks are discussed more fully under the caption “Risk Factors” and include, but are not limited to, the following:

 

    potential disruption in the supply of chemicals we distribute or in the operations of our customers, which could negatively impact our relationships with producers and our customers and diminish our ability to grow organically in our end markets;

 

    our inability to manage our international operations effectively, including managing the risks related to international activities and foreign currency exchange rates, which could undermine the strategic positioning of our assets and our strategy of growing in existing and new geographies;

 

    accidents, safety failures, environmental damage, product quality issues, major or systemic delivery failures or adverse health effects or other harm related to the hazardous materials we blend, manage, store, sell, transport or dispose of, which could negatively impact the appeal of our value-added services and our ability to continue to develop our value-added services;

 

    compliance with and changes to environmental, health and safety laws, including laws relating to the investigation and remediation of contamination;

 

 

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    negative developments affecting our pension plans;

 

    despite our leading global market position, we have incurred net losses for each of the past five fiscal years, which could negatively impact our ability to pursue commercial excellence initiatives and to implement productivity improvements and operational excellence initiatives;

 

    as of March 31, 2015, on an as adjusted basis, after giving effect to this offering, the concurrent private placement and the application of net proceeds as described under “Use of Proceeds,” we would have had $3,113.6 million of total indebtedness outstanding, which carries a significant interest payment burden and could negatively impact our ability to undertake selective acquisitions and ventures;

 

    inability to carry forward the tax benefits of our historical NOLs, which may negatively impact our net income and cash flow; and

 

    litigation and other proceedings, including those related to asbestos.

Ownership

Because of our ownership structure, we expect to be a “controlled company” for the purposes of the New York Stock Exchange, or the NYSE, upon the consummation of this offering.

Clayton, Dubilier & Rice, LLC

Founded in 1978, Clayton, Dubilier & Rice, LLC, or CD&R, is a private equity firm composed of a combination of financial and operating executives pursuing an investment strategy predicated on building stronger, more profitable businesses. Since inception, CD&R has managed the investment of more than $19 billion in 59 businesses with an aggregate transaction value of more than $90 billion. CD&R has a disciplined and clearly defined investment strategy with a special focus on multi-location services and distribution businesses. CD&R has a long history of investing in market-leading distribution businesses, including VWR International, a leading global distributor of laboratory supplies, US Foods, the second largest broadline foodservice distributor in the United States, Rexel, the leading distributor worldwide of electrical supplies, Diversey, a leading global manufacturer and distributor of commercial cleaning, sanitation and hygiene solutions, and AssuraMed, a specialty retailer and distributor of medical supplies.

CVC Capital Partners Advisory (U.S.), Inc.

Founded in 1981, CVC Capital Partners Advisory (U.S.), Inc., or CVC, is one of the world’s leading private equity and investment advisory firms. CVC is a private equity and investment advisory firm with approximately $50 billion of capital under management and a network of 22 offices throughout Europe, Asia and the United States. Since its founding in 1981, CVC has completed over 300 investments in a wide range of industries and countries. CVC’s current investments in the U.S. include Univar, Pilot Flying J, BJ’s Wholesale Club, Leslie’s Poolmart, AlixPartners and Cunningham Lindsey.

Concurrent Private Placement

Dahlia Investments Pte. Ltd., an indirect wholly owned subsidiary of Temasek Holdings (Private) Limited, or Temasek, has entered into a stock purchase agreement pursuant to which it has agreed to purchase $350 million of newly issued shares of our common stock from us and up to $150 million of shares of our common stock from Univar N.V., an entity indirectly owned by funds advised by subsidiaries of CVC Capital Partners SICAV-FIS S.A. and certain other investors, and certain other of our stockholders including affiliates of Apollo Global Management, LLC, GSO Capital Partners LP, and Goldman, Sachs & Co. and certain former members of management, collectively the tagging stockholders, in each case at a price per share equal to the lower of the initial public offering price and $21.00 per share less the underwriting discounts and commissions (not to exceed     % per share) in separate private placement transactions that are expected to close concurrently with this offering. We refer to these private placement transactions as the “concurrent private placement” and we refer to Dahlia Investments Pte Ltd. as the “Temasek Investor.”

 

 

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Incorporated in 1974, Temasek is an investment company based in Singapore, with a S$223 billion (US$177 billion) portfolio as of March 31, 2014. Temasek’s portfolio encompasses companies across a broad spectrum of sectors, including financial services; transportation, logistics and industrials; telecommunications, media and technology; life sciences, consumer and real estate; and energy and resources. In addition to Singapore, Temasek has offices in 10 other cities around the world, including Beijing, Shanghai, Mumbai, São Paulo, Mexico City, London and New York.

Anticipated Refinancings

We have had preliminary discussions with potential financial intermediaries and advisors and prior to the completion of this offering we intend to opportunistically seek to refinance the $37.5 million of indebtedness under our ABL Term Facility (as defined herein) and the $2,812.7 million of indebtedness under our Senior Term Facility (as defined herein) that are expected to remain outstanding following the completion of this offering and the concurrent private placement. We refer to these refinancings as the “Anticipated Refinancings.” The Anticipated Refinancings are in addition to the repayment of our 2017 Subordinated Notes and our 2018 Subordinated Notes described in “Use of Proceeds.” Although we do not expect the Anticipated Refinancings to meaningfully impact the weighted average interest rate applicable to our indebtedness, we do expect that the maturity profile of our indebtedness will be extended. We also expect that our indebtedness following the completion of the Anticipated Refinancings will continue to require secured interests in certain of our assets and will contain covenants that impact our operations, including covenants relating to, among other things, limitations on indebtedness (including guarantees of additional indebtedness) and liens, mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, dividends and other restricted payments, repurchase of shares of capital stock, options to purchase shares of capital stock and certain transactions with affiliates and certain financial covenants. These covenants may be different from the covenants in the facilities which are being refinanced. See “Description of Certain Indebtedness” elsewhere in this prospectus. We would incur fees associated with the Anticipated Refinancings. The Anticipated Refinancings may be impacted by economic, market, industry, geopolitical and other conditions, most of which are beyond our control. There can be no assurance that we will be able to complete the Anticipated Refinancings on terms and conditions favorable to us or at all, and we may decide to terminate the Anticipated Refinancings before their completion. See “Anticipated Refinancings” elsewhere in this prospectus.

Second Quarter Update

We expect net sales and Adjusted EBITDA for the quarter to end June 30, 2015 to be down relative to net sales and Adjusted EBITDA for the quarter ended June 30, 2014, primarily due to the US dollar strengthening relative to other currencies and decreases in sales to our oil and gas customers. However, on a constant currency basis, we expect Adjusted EBITDA for the quarter to end June 30, 2015 to be approximately in line with Adjusted EBITDA for the quarter ended June 30, 2014 as weakness in oil and gas is expected to be offset by strength in our other end markets.

We have not yet closed our books for our second fiscal quarter, which will end June 30, 2015. Our actual results may differ materially from these expectations due to the completion of the quarter and our financial closing procedures, final adjustments and other developments that may arise between now and the time the financial results for our second quarter are finalized. We expect to complete our closing procedures for the quarter to end June 30, 2015 in August 2015.

Corporate Information

Univar Inc. is a Delaware corporation. Our principal executive offices are located at 3075 Highland Parkway, Suite 200, Downers Grove, IL 60515 and our telephone number at that address is (331) 777-6000. Our website is www.univar.com. Information on, and which can be accessed through, our website is not incorporated in this prospectus.

 

 

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THE OFFERING

 

Issuer

Univar Inc.

 

Common stock offered by us in this offering

20,000,000 shares.

 

Option to purchase additional shares of common stock from the selling stockholders in this offering


3,000,000 shares.

 

Common stock offered by us in the concurrent private placement

17,636,684 shares (assuming that the initial public offering price will be $21.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus).

 

Common stock outstanding immediately after the offering and the concurrent private placement

137,934,515 shares (assuming that the initial public offering price will be $21.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus).

 

Use of proceeds

We estimate that the net proceeds we will receive from the sale of 20,000,000 shares of our common stock in this offering, after deducting underwriter discounts and commissions and estimated offering expenses payable by us, assuming the shares are sold at the midpoint of the range on the cover of the prospectus, will be approximately $389.0 million. We estimate that the net proceeds we will receive from the sale of shares of our common stock in the concurrent private placement will be approximately $350.0 million.

 

  As described in “Use of Proceeds,” we intend to use the net proceeds of this offering and the concurrent private placement to (i) redeem, repurchase or otherwise acquire or retire $600 million of our outstanding 2017 Subordinated Notes and $50 million of our outstanding 2018 Subordinated Notes, (ii) pay related fees and expenses, (iii) pay CVC and CD&R, or the Equity Sponsors, an aggregate fee of approximately $26 million to terminate the consulting agreements described below under “Certain Relationships and Related Party Transactions—Consulting Agreements” and (iv) to use the remaining proceeds, if any, for general corporate purposes.

 

  We will not receive any proceeds from any sale of shares of our common stock by the selling stockholders and we will not receive any proceeds from the sale of shares of our common stock by Univar N.V. and certain other of our stockholders to the Temasek Investor.

 

Dividends

We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and the repayment of debt and do not anticipate paying any cash dividends in the foreseeable future. See “Dividend Policy.”

 

Proposed NYSE trading symbol

“UNVR”.

 

 

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Conflict of Interest

Because an affiliate of Goldman, Sachs & Co. will receive 5% or more of the net proceeds of this offering due to the use of a portion of the proceeds to redeem our 2017 Subordinated Notes and our 2018 Subordinated Notes, Goldman, Sachs & Co. is deemed to have a “conflict of interest” within the meaning of Rule 5121 of the Financial Industry Regulatory Authority, Inc., or FINRA. Accordingly, this offering will be conducted in accordance with Rule 5121, which requires, among other things, that a “qualified independent underwriter” participate in the preparation of, and exercise the usual standards of “due diligence” with respect to, the registration statement and this prospectus. Deutsche Bank Securities Inc. has agreed to act as a qualified independent underwriter for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act, specifically including those inherent in Section 11 thereof. Deutsche Bank Securities Inc. will not receive any additional fees for serving as a qualified independent underwriter in connection with this offering. We have agreed to indemnify Deutsche Bank Securities Inc. against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act. See “Underwriting (Conflict of Interest)—Conflict of Interest.”

 

Risk Factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors that you should carefully consider before deciding to invest in shares of our common stock.

The number of shares of our common stock to be outstanding immediately following this offering and the concurrent private placement is based on 100,297,831 shares outstanding as of March 31, 2015 and excludes any shares to be reserved for issuance under our stock option plans that may be adopted prior to the completion of this offering.

Unless otherwise indicated, all information in this prospectus:

 

    reflects a 1.9845 for 1 reverse stock split of our shares of common stock;

 

    assumes the issuance of 20,000,000 shares of our common stock in this offering;

 

    assumes the issuance of 17,636,684 shares of our common stock in the concurrent private placement;

 

    assumes that Univar N.V. and the tagging stockholders sell $150 million of shares of our common stock to the Temasek Investor in the concurrent private placement;

 

    assumes no exercise by the underwriters of their option to purchase additional shares;

 

    excludes 5,313,331 shares of common stock issuable upon exercise of options outstanding as of March 31, 2015 at a weighted average exercise price of $19.67 per share, of which 2,953,865 shares were exercisable as of March 31, 2015;

 

    excludes 327,542 shares of unvested restricted stock as of March 31, 2015;

 

    excludes approximately 748,000 shares of common stock reserved for future issuance under the Plan (as defined herein) as of March 31, 2015;

 

    assumes that the initial public offering price of our common stock will be $21.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus; and

 

    gives effect to amendments to our certificate of incorporation and by-laws to be adopted upon the completion of this offering.

Depending on market conditions at the time of pricing and other considerations, we may sell fewer or more shares of common stock than the number set forth in the cover page of this prospectus.

 

 

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table presents our summary consolidated financial and operating data as of and for the periods indicated. The summary consolidated financial data for the fiscal years ended December 31, 2014, 2013 and 2012 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of our management, our unaudited condensed consolidated financial statements contain all adjustments necessary for a fair presentation of our financial position, results of our operations and cash flows. Our historical consolidated financial data may not be indicative of our future performance.

This “Summary Consolidated Financial and Operating Data” should be read in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

    Fiscal Year Ended     Three Months Ended  
    December 31,
2014
    December 31,
2013
    December 31,
2012
    December 31,
2014
(as adjusted)(1)
    March 31,
2015
    March 31,
2014
    March 31,
2015
(as adjusted)(2)
 
   

(Dollars in millions, except share and per share data)

       
   

(audited)

    (unaudited)        

Consolidated Statements of Operations:

             

Net sales

  $  10,373.9      $ 10,324.6      $ 9,747.1      $ 10,373.9      $  2,299.1      $  2,516.4      $ 2,299.1   

Cost of goods sold (exclusive of depreciation)

    8,443.2        8,448.7        7,924.6        8,443.2        1,837.5        2,044.0        1,837.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    1,930.7        1,875.9        1,822.5        1,930.7        461.6        472.4        461.6   

Operating expenses:

             

Outbound freight and handling expenses

    365.5        326.0        308.2        365.5        84.5        87.8        84.5   

Warehousing, selling and administrative

    923.5        951.7        907.1        923.5        231.4        239.0        231.4   

Other operating expenses, net

    197.1        12.0        177.7        191.2        8.1        21.7        6.8   

Depreciation

    133.5        128.1        111.7        133.5        32.0        30.6        32.0   

Amortization

    96.0        100.0        93.3        96.0        21.9        23.7        21.9   

Impairment charges(3)

    0.3        135.6        75.8        0.3        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  1,715.9      1,653.4      1,673.8      1,710.0      377.9      402.8      376.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

  214.8      222.5      148.7      220.7      83.7      69.6      85.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other (expense) income

             

Interest income

    8.2        11.0        9.0        8.2        1.2        2.4        1.2   

Interest expense

    (258.8     (305.5     (277.1     (190.5     (64.4)        (66.3)        (47.3)   

Loss on extinguishment of debt

    (1.2     (2.5     (0.5     (1.2     —          (1.2     —     

Other income (expense), net

    1.1        (17.6     (1.9     1.1        6.8        (1.9     6.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

  (250.7   (314.6   (270.5   (182.4   (56.4   (67.0   (39.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

  (35.9   (92.1   (121.8   38.3      27.3      2.6      45.7   

Income tax expense (benefit)

  (15.8   (9.8   75.6      11.4      7.6      5.4      14.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  (20.1 $ (82.3 $ (197.4   26.9    $ 19.7    $ (2.8   31.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share(4):

             

Basic and Diluted

  $ (0.20   $ (0.83   $ (2.01   $ 0.20      $ 0.20      $ (0.03     0.23   

Weighted average common shares used in computing net income (loss) per share(4):

             

Basic

    99,718,998        99,299,892        98,355,548        134,355,682        99,892,821        99,645,738        134,529,505   

Diluted

    99,718,998        99,299,892        98,355,548        134,854,584        100,380,582        99,645,738        135,017,266   

 

 

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    As of     As of  
    March 31, 2015
(actual)
    March 31, 2015
(as adjusted)(2)
 
   

(Dollars in millions)

 
   

(unaudited)

 

Balance sheet data:

   

Cash and cash equivalents

  $ 181.4      $ 244.4   

Total assets

    5,916.3        5,972.9   

Long-term obligations

    4,222.4        3,575.0   

Stockholders’ equity

    150.2        866.6   

 

     Fiscal Year Ended     Three Months Ended  
     December 31,
2014
    December 31,
2013
    December 31,
2012
    March 31,
2015
    March 31,
2014
 
     (Dollars in millions)  
    

(audited)

    (unaudited)  

Other financial data:

          

Capital expenditures

   $ 113.9      $ 141.3      $ 170.1      $ 31.9      $ 24.9   

Adjusted EBITDA(5)

     641.7        598.2        607.2        145.7        145.6   

Adjusted EBITDA margin(5)

     6.2     5.8     6.2     6.3     5.8

 

(1) The statement of operations data for the fiscal year ended December 31, 2014 is presented on an as adjusted basis to give effect to the sale by us of shares of our common stock in this offering at an assumed initial public offering price of $21.00 per share (and after deducting estimated underwriting discounts and commissions and offering expenses payable by us), the concurrent private placement and the use of the net proceeds therefrom as described in “Use of Proceeds.” The statement of operations data presented on an as adjusted basis for the year ended December 31, 2014 includes a decrease in other operating expenses, net resulting from the termination of the consulting agreements with the Equity Sponsors, a decrease in interest expense resulting from the repayment of our 2017 Subordinated Notes and 2018 Subordinated Notes and the income tax impact of these changes.
(2)

The statement of operations and balance sheet data as of March 31, 2015 are presented on an as adjusted basis to give effect to the sale by us of shares of our common stock in this offering at an assumed initial public offering price of $21.00 per share the midpoint of the price range set forth on the cover of this prospectus (and after deducting estimated underwriting discounts and commissions and offering expenses payable by us), the sale by us of shares of our common stock in the concurrent private placement at a price of $21.00 per share, and the use of the net proceeds therefrom as described in “Use of Proceeds.” The statement of operations data presented on an as adjusted basis for the three months ended March 31, 2015 includes a decrease in other operating expenses, net resulting from the termination of the consulting agreements with the Equity Sponsors, a decrease in interest expense resulting from the repayment of our 2017 Subordinated Notes and 2018 Subordinated Notes and the income tax impact of these changes. The balance sheet data presented on an as adjusted basis as of March 31, 2015 includes an increase of $63.0 million in cash and cash equivalents from the residual cash balance after the application of the net proceeds of this offering and the concurrent private placement described in “Use of Proceeds,” an increase in total assets representing the increase in cash and cash equivalents partially offset by a decrease of $1.7 million related to the write-off of deferred costs directly attributable to the initial public offering and a decrease of $4.7 million related to the write-off of deferred financing fees in connection with the repayment of indebtedness, a decrease of $646.9 million which represents the repayment of $650.0 million of indebtedness and the related write-off of associated debt discount and an increase in stockholders’ equity representing the net impact of the offering and the use of proceeds as described in “Use of Proceeds” as well as the concurrent private placement inclusive of $ 31.0 million of current charges and $1.7 million of deferred charges related to the payment of costs directly attributable to the write off of the $4.7 million of deferred financing fees and $3.1 million of debt discount in connection with the repayment of $650.0 million of indebtedness, payment of the $26.0 million termination fee related to the consulting agreements with the Equity Sponsors, and the related tax impacts. A $1.00 increase or

 

 

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  decrease in the assumed initial public offering price of $21.00 per share (the midpoint of the price range set forth on the front cover of this prospectus) would increase or decrease cash and cash equivalents by $18.8 million, total assets by $18.8 million and stockholders’ equity by $18.8 million. A $1.00 increase or decrease in the assumed price of $21.00 per share in the concurrent private placement would increase or decrease cash and cash equivalents by $16.7 million, total assets by $16.7 million and stockholders’ equity by $16.7 million.
(3) The 2014 impairment charges primarily related to impairments of idle properties and equipment. The 2013 impairment charges primarily related to the write-off of goodwill related to the Rest of World segment as well as the write-off of capitalized software costs related to a global enterprise resource planning, or ERP, system. The 2012 impairment charges primarily related to the impairment of goodwill in the EMEA segment. See “Note 12: Goodwill and intangible assets” from our audited consolidated financial statements and related notes included elsewhere in this prospectus for further information.
(4) Reflects a 1.9845 for 1 reverse stock split of our outstanding shares of common stock to be effected prior to the completion of this offering.
(5) In addition to our net income (loss) determined in accordance with GAAP, we evaluate operating performance using Adjusted EBITDA, which we define as our consolidated net income (loss), plus the sum of interest expense, net of interest income, income tax expense (benefit), depreciation, amortization, other operating expenses, net (which primarily consists of pension mark to market adjustments, acquisition and integration related expenses, employee stock-based compensation expense, redundancy and restructuring costs, advisory fees paid to stockholders, and other unusual or non-recurring expenses), impairment charges, loss on extinguishment of debt and other income (expense), net (which consists of gains and losses on foreign currency transactions and undesignated derivative instruments, ineffective portion of cash flow hedges, debt refinancing costs and other nonoperating activity). We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.

 

     We believe that Adjusted EBITDA is an important indicator of operating performance because we report Adjusted EBITDA to our lenders as required under the covenants of our credit agreements. Adjusted EBITDA excludes the effects of income taxes, as well as the effects of financing and investing activities by eliminating the effects of interest, depreciation and amortization expenses. We consider gains (losses) on the acquisition, disposal and impairment of assets as resulting from investing decisions rather than ongoing operations; and other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results. We also present Adjusted EBITDA in this prospectus as a supplemental performance measure because we believe that this measure provides investors and securities analysts with important supplemental information with which to evaluate our performance and to enable them to assess our performance on the same basis as management.

 

     Adjusted EBITDA should not be considered as an alternative to net income (loss) or other performance measures presented in accordance with GAAP, or as an alternative to cash flow from operations as a measure of our liquidity. Adjusted EBITDA does not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Adjusted EBITDA as used in this prospectus should not be confused with “Compensation Adjusted EBITDA” used for calculating incentive compensation under our benefit plans as described in “Executive Compensation.”

 

 

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     We caution readers that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in calculating Adjusted EBITDA. For a complete discussion of the method of calculating Adjusted EBITDA and its usefulness, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Adjusted EBITDA,” included elsewhere in this prospectus. The following is a quantitative reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net income (loss):

 

     Fiscal Year Ended     Three Months Ended  
     December 31,
2014
    December 31,
2013
    December 31,
2012
    March 31,
2015
    March 31,
2014
 
           (Dollars in millions)        

Net income (loss)

   $ (20.1   $ (82.3   $ (197.4   $ 19.7      $ (2.8

Income tax expense (benefit)

     (15.8     (9.8     75.6        7.6        5.4   

Interest expense, net

     250.6        294.5        268.1        63.2        63.9   

Loss on extinguishment of debt

     1.2        2.5        0.5        —          1.2   

Amortization

     96.0        100.0        93.3        21.9        23.7   

Depreciation

     133.5        128.1        111.7        32.0        30.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

$ 445.4    $ 433.0    $ 351.8    $ 144.4    $ 122.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Impairment charges(a)

  0.3      135.6      75.8      —        —     

Other operating expenses, net(b)

  197.1      12.0      177.7      8.1      21.7   

Other (income) expense, net(c)

  (1.1   17.6      1.9      (6.8   1.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$ 641.7    $ 598.2    $ 607.2    $ 145.7    $ 145.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) The 2014 impairment charges primarily related to impairments of idle properties and equipment. The 2013 impairment charges primarily related to the write-off of goodwill related to the Rest of World segment as well as the write-off of capitalized software costs related to a global ERP system. The 2012 charges primarily related to the impairment of goodwill in the EMEA segment. See “Note 12: Goodwill and intangible assets” in our audited consolidated financial statements and related notes included elsewhere in this prospectus for further information.
(b) Other operating expense, net primarily consists of pension mark to market adjustments, acquisition and integration related expenses, employee stock-based compensation expense, redundancy and restructuring costs, advisory fees paid to stockholders, and other unusual and non-recurring expenses. See “Note 4: Other operating expenses, net” in our audited consolidated financial statements and related notes included elsewhere in this prospectus for further information.
(c) Other (income) expense, net consists of gains and losses on foreign currency transactions, undesignated derivative instruments, ineffective portion of cash flow hedges, debt refinancing costs and other nonoperating activity. See “Note 6: Other (income) expense, net” in our audited consolidated financial statements and related notes included elsewhere in this prospectus for further information.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you make your investment decision, you should carefully consider the risks described below and the other information contained in this prospectus, including our consolidated financial statements and the related notes. If any of the following risks actually occur, our business, financial position, results of operations or cash flows could be materially adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. The risks described below are not the only ones facing us. The occurrence of any of the following risks or future or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial position, results of operations or cash flows.

Risks Related to Our Business

We are affected by general economic conditions, particularly fluctuations in industrial production and consumption, and an economic downturn could adversely affect our operations and financial results.

We sell chemicals that are used in manufacturing processes and as components of or ingredients in other products and, as a result, our sales are correlated with and affected by fluctuations in the level of industrial production and manufacturing output and general economic activity. Producers of commodity and specialty chemicals, in particular, are likely to reduce their output in periods of significant contraction in industrial and consumer demand, while demand for the products we distribute depends largely on trends in demand in the end markets our customers serve. A majority of our sales are in North America and Europe and our business is therefore susceptible to downturns in those economies as well as, to a lesser extent, the economies in the rest of the world. Our profit margins, as well as overall demand for our products and services, could decline as a result of a large number of factors outside our control, including economic recessions, changes in industrial production processes or consumer preferences, changes in laws and regulations affecting the chemicals industry and the manner in which they are enforced, inflation, fluctuations in interest and currency exchange rates and changes in the fiscal or monetary policies of governments in the regions in which we operate.

General economic conditions and macroeconomic trends, as well as the creditworthiness of our customers, could affect overall demand for chemicals. Any overall decline in the demand for chemicals could significantly reduce our sales and profitability. If the creditworthiness of our customers declines, we would face increased credit risk. In addition, volatility and disruption in financial markets could adversely affect our sales and results of operations by limiting our customers’ ability to obtain financing necessary to maintain or expand their own operations.

A historical feature of past economic weakness has been significant destocking of inventories, including inventories of chemicals used in industrial and manufacturing processes. It is possible that an improvement in our net sales in a particular period may be attributable in part to restocking of inventories by our customers and represent a level of sales or sales growth that will not be sustainable over the longer term. Further economic weakness could lead to insolvencies among our customers or producers, as well as among financial institutions that are counterparties on financial instruments or accounts that we hold. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

Disruptions in the supply of chemicals we distribute or in the operations of our customers could adversely affect our business.

Our business depends on access to adequate supplies of the chemicals our customers purchase from us. From time to time, we may be unable to procure adequate quantities of certain chemicals because of supply disruptions due to natural disasters (including hurricanes and other extreme weather), industrial accidents, scheduled production outages, producer breaches of contract, high demand leading to difficulties allocating appropriate quantities, port closures and other transportation disruptions and other circumstances beyond our

 

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control, or we may be unable to purchase chemicals that we are obligated to deliver to our customers at prices that enable us to earn a profit. In addition, unpredictable events may have a significant impact on the industries in which many of our customers operate, reducing demand for products that we normally distribute in significant volumes. As examples, the Gulf of Mexico oil disaster in 2010 had a major impact on our customers that manufactured and operated offshore drilling equipment and recent impacts on supply sources for hydrochloric acid have impacted our ability to meet all of our customers’ demands for this product. Significant disruptions of supply and in customer industries could have a material adverse effect on our business, financial condition and results of operations.

Significant changes in the business strategies of producers could also disrupt our supply. Large chemical manufacturers may elect to sell certain products (or products in certain regions) directly to customers, instead of relying on distributors such as us. While we do not believe that our results depend materially on access to any individual producer’s products, a reversal of the trend toward more active use of distributors would likely result in increasing margin pressure or products becoming unavailable to us. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

To the extent we have contracts with producers and our customers, they are generally short term or terminable upon short notice or at will, and termination of our relationships with producers and customers could negatively affect our business.

Our purchases and sales of chemicals are typically made pursuant to purchase orders rather than long-term contracts. While some of our relationships for the distribution and sale of specialty chemicals have exclusivity or preference provisions, we may be unable to enforce these provisions effectively for legal or business reasons. Many of our contracts with both producers and our customers are terminable without cause upon 30 days’ or less notice to us from the producer or customer. Our business relationships and reputation may suffer if we are unable to meet our delivery obligations to our customers which may occur because many producers are not subject to contracts or can terminate contracts on short notice. In addition, renegotiation of purchase or sales terms to our disadvantage could reduce our sales margins. Any of these developments could adversely affect our business, financial condition and results of operations.

The prices and costs of the products we purchase may be subject to large and significant price increases. We might not be able to pass such cost increases through to our customers. We could experience financial losses if our inventories of one or more chemicals exceed our sales and the price of those chemicals decreases significantly while in our inventories or if our inventories fall short of our sales and the purchase price of those chemicals increases significantly.

We purchase and sell a wide variety of chemicals, the price and availability of which may fluctuate, and may be subject to large and significant price increases. Many of our contracts with producers include chemical prices that are not fixed or are tied to an index, which allows our producers to change the prices of the chemicals we purchase as the price of the chemicals fluctuates in the market. Our business is exposed to these fluctuations, as well as to fluctuations in our costs for transportation and distribution due to rising fuel prices or increases in charges from common carriers, rail companies and other third party transportation providers, as well as other factors. Recently, we have faced increases in transportation costs as the availability of trucks and drivers has tightened among the common carriers we use to ship products. Changes in chemical prices affect our net sales and cost of goods sold, as well as our working capital requirements, levels of debt and financing costs. We might not always be able to reflect increases in our chemical costs, transportation costs and other costs in our own pricing. Any inability to pass cost increases onto customers may adversely affect our business, financial condition and results of operations.

In order to meet customer demand, we typically maintain significant inventories and are therefore subject to a number of risks associated with our inventory levels, including the following:

 

    declines in the prices of chemicals that are held by us;

 

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    the need to maintain a significant inventory of chemicals that may be in limited supply and therefore difficult to procure;

 

    buying chemicals in bulk for the best pricing and thereby holding excess inventory;

 

    responding to the unpredictable demand for chemicals;

 

    cancellation of customer orders; and

 

    responding to customer requests for quick delivery.

In order to manage our inventories successfully, we must estimate demand from our customers and purchase chemicals that substantially correspond to that demand. If we overestimate demand and purchase too much of a particular chemical, we face a risk that the price of that chemical will fall, leaving us with inventory that we cannot sell profitably. In addition, we may have to write down such inventory if we are unable to sell it for its recorded value. If we underestimate demand and purchase insufficient quantities of a particular chemical and prices of that chemical rise, we could be forced to purchase that chemical at a higher price and forego profitability in order to meet customer demand. Our business, financial condition and results of operations could suffer a material adverse effect if either or both of these situations occur frequently or in large volumes. Shortages in the hydrochloric acid supply sources in recent months demonstrate this risk and as a result we have been unable to meet all of our customers’ demands. We also face the risk of dissatisfied customers and damage to our reputation if we cannot meet customer demand for a particular chemical because we are short on inventories.

We could lose our customers and suffer damage to our reputation if we are unable to meet customer demand for a particular product.

In addition, particularly in cases of pronounced cyclicality in our end markets, it can be difficult to anticipate our customers’ requirements for particular chemicals, and we could be asked to deliver larger-than-expected quantities of a particular chemical on short notice. If for any reason we experience widespread, systemic difficulties in filling customer orders, our customers may be dissatisfied and discontinue their relationship with us or we may be required to pay a higher price in order to obtain the needed chemical on short notice, thereby adversely affecting our margins.

Trends in oil, gas and mineral prices could adversely affect the level of exploration, development and production activity of certain of our customers and in turn the demand for our products and services.

Demand for our oil, gas and mining products and services is sensitive to the level of exploration, drilling, development and production activity of, and the corresponding capital spending by, oil, gas and mining companies and oilfield service providers. The level of exploration, drilling, development and production activity is directly affected by trends in oil, gas and mineral prices, which historically have been volatile and are likely to continue to be volatile. Many factors may affect these prices, including global market conditions, political conditions and weather. The unpredictability of these factors prevents any reasonable forecast on the movements of such prices.

Recently, there has been a significant decline in the prices of oil and gas. This or any other reduction in oil and gas prices could depress the immediate levels of exploration, drilling, development and production activity by certain of our customers. Even the perception of longer-term lower oil and gas prices by certain of our customers could similarly reduce or delay major expenditures by these customers given the long-term nature of many large-scale development projects. If any of these events were to occur, it could have an adverse effect on our business, results of operations and financial condition.

Our balance sheet includes significant goodwill and intangible assets, the impairment of which could affect our future operating results.

We carry significant goodwill and intangible assets on our balance sheet. As of March 31, 2015, our goodwill and intangible assets totaled approximately $1.7 billion and $0.5 billion, respectively, including

 

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approximately $1.2 billion in goodwill resulting from our 2007 acquisition by investment funds advised by CVC. We may also recognize additional goodwill and intangible assets in connection with future business acquisitions. Goodwill is not amortized for book purposes and is tested for impairment using a fair value based approach annually, or between annual tests if an event occurs or circumstances change that indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. The identification and measurement of impairment involves the estimation of the fair value of reporting units, which requires judgment and involves the use of significant estimates and assumptions by management. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment and incorporate management assumptions about expected future cash flows and contemplate other valuation techniques. Our estimates of future cash flows may differ from actual cash flows that are subsequently realized due to many factors, including future worldwide economic conditions and the expected benefits of our initiatives, among other things. Intangible assets are amortized for book purposes over their respective useful lives and are tested for impairment if any event occurs or circumstances change that indicates that carrying value may not be recoverable. Although we currently do not expect that our goodwill and intangible assets will be further impaired, we cannot guarantee that a material impairment will not occur, particularly in the event of a substantial deterioration in our future prospects either in total or in a particular reporting unit. See Note 12 to our audited consolidated financial statements included elsewhere in this prospectus for a discussion of our 2014 impairment review. In the past, we have taken goodwill impairment charges, including impairment charges of $169.4 million and $75.0 million, respectively, for our EMEA segment in 2011 and 2012, and impairment charges of $73.3 million for our Rest of World segment in 2013. If our goodwill and intangible assets become impaired, it could have a material adverse effect on our financial condition and results of operations.

We have in the past and may in the future make acquisitions, ventures and strategic investments, some of which may be significant in size and scope, which have involved in the past and will likely involve in the future numerous risks. We may not be able to address these risks without substantial expense, delay or other operational or financial problems.

We have made and may in the future make acquisitions of, or investments in, businesses or companies (including strategic partnerships with other companies). Acquisitions or investments have involved in the past and will likely involve in the future various risks, such as:

 

    integrating the operations and personnel of any acquired business;

 

    the potential disruption of our ongoing business, including the diversion of management attention;

 

    the possible inability to obtain the desired financial and strategic benefits from the acquisition or investment;

 

    customer attrition arising from preferences to maintain redundant sources of supply;

 

    supplier attrition arising from overlapping or competitive products;

 

    assumption of contingent or unanticipated liabilities or regulatory liabilities;

 

    dependence on the retention and performance of existing management and work force of acquired businesses for the future performance of these businesses;

 

    regulatory risks associated with acquired businesses (including the risk that we may be required for regulatory reasons to dispose of a portion of our existing or acquired businesses); and

 

    the risks inherent in entering geographic or product markets in which we have limited prior experience.

Future acquisitions and investments may need to be financed in part through additional financing from banks, through public offerings or private placements of debt or equity securities or through other arrangements, and could result in substantial cash expenditures. The necessary acquisition financing may not be available to us on acceptable terms if and when required, particularly because our current high leverage may make it difficult or impossible for us to secure additional financing for acquisitions.

 

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To the extent that we make acquisitions that result in our recording significant goodwill or other intangible assets, the requirement to review goodwill and other intangible assets for impairment periodically may result in impairments that could have a material adverse effect on our financial condition and results of operations.

In connection with acquisitions, ventures or divestitures, we may become subject to liabilities.

In connection with any acquisitions or ventures, we may acquire liabilities or defects such as legal claims, including but not limited to third party liability and other tort claims; claims for breach of contract; employment-related claims; environmental liabilities, conditions or damage; permitting, regulatory or other compliance with law issues; hazardous materials or liability for hazardous materials; or tax liabilities. If we acquire any of these liabilities, and they are not adequately covered by insurance or an enforceable indemnity or similar agreement from a creditworthy counterparty, we may be responsible for significant out-of-pocket expenditures. In connection with any divestitures, we may incur liabilities for breaches of representations and warranties or failure to comply with operating covenants under any agreement for a divestiture. In addition, we may indemnify a counterparty in a divestiture for certain liabilities of the subsidiary or operations subject to the divestiture transaction. These liabilities, if they materialize, could have a material adverse effect on our business, financial condition and results of operations.

We generate a significant portion of our net sales internationally and intend to continue to expand our international operations. We face particular challenges in emerging markets. Our results of operations could suffer if we are unable to manage our international operations effectively or as a result of various risks related to our international activities that are beyond our control.

During the year ended December 31, 2014, approximately 41% of our net sales were generated outside of the United States. We intend to continue to expand our penetration in certain foreign markets and to enter new and emerging foreign markets. Expansion of our international business will require significant management attention and resources. The profitability of our international operations will largely depend on our continued success in the following areas:

 

    securing key producer relationships to help establish our presence in international markets;

 

    hiring and training personnel capable of supporting producers and our customers and managing operations in foreign countries;

 

    localizing our business processes to meet the specific needs and preferences of foreign producers and customers, which may differ in certain respects from our experience in North America and Europe;

 

    building our reputation and awareness of our services among foreign producers and customers; and

 

    implementing new financial, management information and operational systems, procedures and controls to monitor our operations in new markets effectively, without causing undue disruptions to our operations and customer and producer relationships.

In addition, we are subject to risks associated with operating in foreign countries, including:

 

    varying and often unclear legal and regulatory requirements that may be subject to inconsistent or disparate enforcement, particularly regarding environmental, health and safety issues and security or other certification requirements, as well as other laws and business practices that favor local competitors, such as exposure to possible expropriation, nationalization, restrictions on investments by foreign companies or other governmental actions;

 

    less stable supply sources;

 

    competition from existing market participants that may have a longer history in and greater familiarity with the foreign markets where we operate;

 

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    tariffs, export duties, quotas and other barriers to trade; as well as possible limitations on the conversion of foreign currencies into U.S. dollars or remittance of dividends and other payments by our foreign subsidiaries;

 

    divergent labor regulations and cultural expectations regarding employment;

 

    different cultural expectations regarding industrialization, international business and business relationships;

 

    foreign taxes and related regulations, including foreign taxes that we may not be able to offset against taxes imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate earnings to the United States;

 

    extended payment terms and challenges in our ability to collect accounts receivable;

 

    changes in a specific country’s or region’s political or economic conditions;

 

    compliance with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and similar anti-bribery laws in other jurisdictions, the violation of which could expose us to severe criminal or civil sanctions;

 

    compliance with anti-boycott, privacy, economic sanctions, anti-dumping, antitrust, import and export laws and regulations by our employees or intermediaries acting on our behalf, the violation of which could expose us to significant fines, penalties or other sanctions; and

 

    in 2013, we paid a fine of $19.9 million imposed by the Autorité de la concurrence, France’s competition authority, for alleged price fixing prior to 2006.

If we fail to address the challenges and risks associated with international expansion, we may encounter difficulties implementing our strategy, thereby impeding our growth and harming our operating results.

Our operations in the Asia-Pacific region, Latin America and the Middle East and Africa are at an early stage. It may prove difficult to achieve our goals and take advantage of growth and acquisition opportunities in these or in other emerging markets due to a lack of comprehensive market knowledge and network and legal restrictions. Our growth in emerging markets may also be limited by other factors such as significant government influence over local economies, foreign investment restrictions, substantial fluctuations in economic growth, high levels of inflation and volatility in currency values, exchange controls or restrictions on expatriation of earnings, high domestic interest rates, wage and price controls, changes in governmental economic or tax policies, imposition of trade barriers, unexpected changes in regulation and overall political social and economic instability. In addition, the heightened exposure to terrorist attacks or acts of war or civil unrest in certain geographies, if they occur, could result in damage to our facilities, substantial financial losses or injuries to our personnel.

Although we exercise what we believe to be an appropriate level of central control and active supervision of our operations around the world, our local subsidiaries retain significant operational flexibility. There is a risk that our operations around the world will experience problems that could damage our reputation, or that could otherwise have a material adverse effect on our business, financial condition and results of operations.

We may be unable to effectively implement our strategies or achieve our business goals.

The breadth and scope of our business poses several challenges, such as:

 

    initiating or maintaining effective communication among and across all of our geographic business segments and industry groups;

 

    identifying new products and product lines and integrating them into our distribution network;

 

    allocating financial and other resources efficiently across all of our business segments and industry groups;

 

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    aligning organizational structure with management’s vision and direction;

 

    communicating ownership and accounting over business activities and ensuring responsibilities are properly understood throughout the organization;

 

    ensuring cultural and organizational changes are executed smoothly and efficiently and ensuring personnel resources are properly allocated to effect these changes; and

 

    establishing standardized processes across geographic business segments and industry groups.

As a result of these and other factors such as these, we may be unable to effectively implement our strategies or achieve our business goals. Any failure to effectively implement our strategies may adversely impact our future prospects and our results of operations and financial condition.

Fluctuations in currency exchange rates may adversely affect our results of operations.

We sell products in over 150 countries and we generated approximately 41% of our 2014 net sales outside the United States. The revenues we receive from such foreign sales are often denominated in currencies other than the U.S. dollar. We do not hedge our foreign currency exposure with respect to our investment in and earnings from our foreign businesses. Accordingly, we might suffer considerable losses if there is a significant adverse movement in exchange rates. For example, in 2014 the U.S. dollar appreciated in value compared to both the Canadian dollar and the euro. The results of operations in our Canada and EMEA segments were negatively impacted due to this appreciation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year Ended December 31, 2014 Compared to Year Ended December 31, 2013—Segment Results.”

In addition, we report our consolidated results in U.S. dollars. The results of operations and the financial position of our local operations are generally reported in the relevant local currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements, exposing us to currency translation risk. Consequently, any change in exchange rates between our foreign subsidiaries’ functional currencies and the U.S. dollar will affect our consolidated income statement and balance sheet when the results of those operating companies are translated into U.S. dollars for reporting purposes. Decreases in the value of our foreign subsidiaries’ functional currencies against the U.S. dollar will tend to reduce those operating companies’ contributions in dollar terms to our financial condition and results of operations. In 2014, our most significant currency exposures were to the euro, the Canadian dollar and the British pound sterling versus the U.S. dollar. The exchange rates between these and other foreign currencies and the U.S. dollar may fluctuate substantially and such fluctuations have had a significant effect on our results in recent periods. For additional details on our currency exposure and risk management practices, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk.”

The markets in which we operate are highly competitive.

The chemical distribution market is highly competitive. Chemicals can be purchased from a variety of sources, including traders, brokers, wholesalers and other distributors, as well as directly from producers. Many of the products we distribute are made to industry standard specifications, and are essentially fungible with products offered by our competition. The competitive pressure we face is particularly strong in sectors and markets where local competitors have strong positions. Increased competition from distributors of products similar to or competitive with ours could result in price reductions, reduced margins and a loss of market share.

We expect to continue to experience significant and increasing levels of competition in the future. We must also compete with smaller companies that have been able to develop strong local or regional customer bases. In certain countries, some of our competitors are more established, benefit from greater name recognition and have greater resources within those countries than we do.

 

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Consolidation of our competitors in the markets in which we operate could place us at a competitive disadvantage and reduce our profitability.

We operate in an industry which is highly fragmented on a global scale, but in which there has been a trend toward consolidation in recent years. Consolidations of our competitors may jeopardize the strength of our positions in one or more of the markets in which we operate and any advantages we currently enjoy due to the comparative scale of our operations. Losing some of those advantages could adversely affect our business, financial condition and results of operations, as well as our growth potential.

We rely on our computer and data processing systems, and a large-scale malfunction could disrupt our business or create potential liabilities.

Our ability to keep our business operating effectively depends on the functional and efficient operation of our enterprise resource planning, telecommunications systems, inventory tracking, billing and other information systems. We rely on these systems to track transactions, billings, payments and inventory, as well as to make a variety of day-to-day business decisions. Our systems are aging and susceptible to malfunctions, lack of support, interruptions (including due to equipment damage, power outages, computer viruses and a range of other hardware, software and network problems) and we may experience such malfunctions, interruptions or security breaches in the future. Our systems may also be older generations of software which are unable to perform as efficiently as, and fail to communicate well with, newer systems. As the development and implementation of our information technology systems continue, we may elect to modify, replace or discontinue certain technology initiatives, which would result in write-downs. For example, in 2013 we discontinued efforts to implement a global enterprise resource planning, or ERP, system. We recorded an impairment charge of $58.0 million in 2013 relating to this decision.

Although our systems are diversified, including multiple server locations and a range of software applications for different regions and functions, a significant or large-scale malfunction, interruption or security breach of our computer or data processing systems could adversely affect our ability to manage and keep our operations running efficiently and damage our reputation if we are unable to track transactions and receive products from producers or deliver products to our customers. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, financial condition and results of operations, as well as on the ability of management to align and optimize technology to implement business strategies. A security breach might also lead to potential claims from third parties or employees.

Our business could be negatively affected by security threats, including cybersecurity threats, and other disruptions.

We face various security threats, including cybersecurity threats to gain unauthorized access to sensitive information or to render data or systems unusable, threats to the security of our facilities, and threats from terrorist acts. The potential for such security threats subjects our operations to increased risks that could have a material adverse effect on our business. In particular, our implementation of various procedures and controls to monitor and mitigate security threats and to increase security for our information, facilities and infrastructure may result in increased capital and operating costs. Moreover, there can be no assurance that such procedures and controls will be sufficient to prevent security breaches from occurring. If any of these security breaches were to occur, they could lead to losses of sensitive information, critical infrastructure or capabilities essential to our operations and could have a material adverse effect on our reputation, financial position, results of operations or cash flows. Cybersecurity attacks in particular are becoming more sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data (either directly or through our vendors), and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. In addition, if any information about our customers and producers retained by us were the subject of a successful cybersecurity attack against us, we could

 

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be subject to litigation or other claims by the affected customers and producers. These events could damage our reputation and lead to financial losses from expenses related to remediation actions, loss of business or potential liability.

We depend on transportation assets, some of which we do not own, in order to deliver products to our customers.

Although we maintain a significant portfolio of owned and leased transportation assets, including trucks, trailers, railcars and barges, we also rely on transportation and warehousing provided by third parties (including common carriers and rail companies) to deliver products to our customers, particularly outside the U.S. and Canada. Our access to third party transportation is not guaranteed, and we may be unable to transport chemicals at economically attractive rates in certain circumstances, particularly in cases of adverse market conditions or disruptions to transportation infrastructure. We are also subject to increased costs that we may not always be able to recover from our customers, including rising fuel prices, as well as increases in the charges imposed by common carriers, leasing companies and other third parties involved in transportation. In particular, our U.S. operations rely to a significant extent on rail shipments, and we are therefore required to pay rail companies’ network access fees, which have increased significantly in recent years, while bulk shipping rates have also recently been highly volatile. We have recently incurred such increased costs as the availability of trucks and drivers has tightened among the common carriers we use to transport our products. We are also subject to the risks normally associated with product delivery, including inclement weather, disruptions in the transportation infrastructure, disruptions in our lease arrangements and the availability of fuel, as well as liabilities arising from accidents to the extent we are not adequately covered by insurance or misdelivery of products. Our business activities in the Gulf of Mexico, for example, have been impacted in recent years by hurricanes. Our failure to deliver products in a timely and accurate manner could harm our reputation and brand, which could adversely affect our business, financial condition and results of operations.

Our business exposes us to significant risks associated with hazardous materials and related activities, not all of which are covered by insurance.

Because we are engaged in the blending, managing, handling, storing, selling, transporting and disposing of chemicals, chemical waste products and other hazardous materials, product liability, health impacts, fire damage, safety and environmental risks are significant concerns for us. We maintain substantial reserves, as described below in “—We are subject to extensive general and product-specific environmental, health and safety laws and regulations. Compliance with and changes to these environmental, health and safety laws, including laws relating to the investigation and remediation of contamination, could have a material adverse effect on our business, financial condition and results of operations,” relating to remediation activities at our owned sites and third party sites which are subject to federal and state clean-up requirements. We are also subject in the United States to federal legislation enforced by the Occupational Safety and Health Administration, or OSHA, as well as to state safety and health laws. We are also exposed to present and future chemical exposure claims by employees, contractors on our premises, other persons located nearby, as well as related workers’ compensation claims. We carry insurance to protect us against many accident-related risks involved in the conduct of our business and we maintain environmental damage and pollution insurance coverage in accordance with our assessment of the risks involved, the ability to bear those risks and the cost and availability of insurance. Each of these insurance policies is subject to exclusions, deductibles and coverage limits we believe are generally in accordance with industry standards and practices. We do not insure against all risks and may not be able to insure adequately against certain risks (whether relating to our or a third party’s activities or other matters) and may not have insurance coverage that will pay any particular claim. We also may be unable to obtain at commercially reasonable rates in the future adequate insurance coverage for the risks we currently insure against, and certain risks are or could become completely uninsurable or eligible for coverage only to a reduced extent. In particular, more stringent environmental, health or safety regulations may increase our costs for, or impact the availability of, insurance against accident-related risks and the risks of environmental damage or pollution. Our business, financial

 

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condition and results of operations could be materially impaired by accidents and other environmental risks that substantially reduce our revenues, increase our costs or subject us to other liabilities in excess of available insurance.

Accidents, safety failures, environmental damage, product quality issues, major or systemic delivery failures involving our distribution network or the products we carry, or adverse health effects or other harm related to hazardous materials we blend, manage, handle, store, sell, transport or dispose of could damage our reputation and result in substantial damages or remedial obligations.

Our business depends to a significant extent on our customers’ and producers’ trust in our reputation for reliability, quality, safety and environmental responsibility. Actual or alleged instances of safety deficiencies, mistaken or incorrect deliveries, inferior product quality, exposure to hazardous materials resulting in illness, injury or other harm to persons, property or natural resources, or of damage caused by us or our products, could damage our reputation and lead to customers and producers curtailing the volume of business they do with us. Also, there may be safety, personal injury or other environmental risks related to our products which are not known today. Any of these events, outcomes or allegations could also subject us to substantial legal claims, and we could incur substantial expenses, including legal fees and other costs, in defending such legal claims which could materially impact our financial position and results of operations.

Actual or alleged accidents or other incidents at our facilities or that otherwise involve our personnel or operations could also subject us to claims for damages by third parties. Because many of the chemicals that we handle are dangerous, we are subject to the ongoing risk of hazards, including leaks, spills, releases, explosions and fires, which may cause property damage, illness, physical injury or death. We sell products used in hydraulic fracturing, a process that involves injecting water, sand and chemicals into subsurface rock formations to release and capture oil and natural gas. The use of such hydraulic fracturing fluids by our customers may result in releases that could impact the environment and third parties. Several of our distribution facilities, including our Los Angeles facility, one of our largest, are located near high-density population centers. If any such events occur, whether through our own fault, through preexisting conditions at our facilities, through the fault of a third party or through a natural disaster, terrorist incident or other event outside our control, our reputation could be damaged significantly. We could also become responsible, as a result of environmental or other laws or by court order, for substantial monetary damages or expensive investigative or remedial obligations related to such events, including but not limited to those resulting from third party lawsuits or environmental investigation and clean-up obligations on and off-site. The amount of any costs, including fines, damages and/or investigative and remedial obligations, that we may become obligated to pay under such circumstances could substantially exceed any insurance we have to cover such losses.

Any of these risks, if they materialize, could significantly harm our reputation, expose us to substantial liabilities and have a material adverse effect on our business, financial condition and results of operations.

Evolving environmental laws and regulations on hydraulic fracturing and other oil and gas production activities could have an impact on our financial performance.

Hydraulic fracturing is a common practice that is used to stimulate production of crude oil and/or natural gas from dense subsurface rock formations, and is primarily presently regulated by state agencies. Many states have adopted laws and/or regulations that require disclosure of the chemicals used in hydraulic fracturing, and are considering legal requirements that could impose more stringent permitting, disclosure and well construction requirements on oil and/or natural gas drilling activities as well as regulations relating to waste streams from such activities. The U.S. Environmental Protection Agency, or EPA, is also moving forward with various related regulatory actions, including regulations requiring, among other matters, “green completions” of hydraulically-fractured wells. Similarly, existing and new regulations in the United States and elsewhere relating to oil and gas production could impact the sale of some of our products into these markets.

 

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Our business exposes us to potential product liability claims and recalls, which could adversely affect our financial condition and performance.

The repackaging, blending, mixing and distribution of chemical products by us, including products used in hydraulic fracturing operations and products produced with food ingredients or with pharmaceutical and nutritional supplement applications, involve an inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity, including, without limitation, claims for exposure to our products, spills or escape of our products, personal injuries, food related claims and property damage or environmental claims. A product liability claim, judgment or recall against our customers could also result in substantial and unexpected expenditures for us, affect consumer confidence in our products and divert management’s attention from other responsibilities. Although we maintain product liability insurance, there can be no assurance that the type or level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on our business, financial condition and results of operation.

We are subject to extensive general and product-specific environmental, health and safety laws and regulations. Compliance with and changes to these environmental, health and safety laws, including laws relating to the investigation and remediation of contamination, could have a material adverse effect on our business, financial condition and results of operations.

Because we blend, manage, handle, store, sell, transport and arrange for the disposal of chemicals, hazardous materials and hazardous waste, we are subject to extensive environmental, health and safety laws and regulations in multiple jurisdictions. These include laws and regulations governing our management, storage, transportation and disposal of chemicals; product regulation; air, water and soil contamination; and the investigation and cleanup of contaminated sites, including any spills or releases that may result from our management, handling, storage, sale, transportation of chemicals and other products. We hold a number of environmental permits and licenses. Compliance with these laws, regulations, permits and licenses requires that we expend significant amounts for ongoing compliance, investigation and remediation. If we fail to comply with such laws, regulations, permits or licenses we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities.

Previous operations, including those of acquired companies, have resulted in contamination at a number of current and former sites, which must be investigated and remediated. We are currently investigating and/or remediating contamination, or contributing to cleanup costs, at approximately 124 currently or formerly owned, operated or used sites or other sites impacted by our operations. We have spent substantial sums on such investigation and remediation and we expect to continue to incur such expenditures in the future. Based on current estimates, we believe that these ongoing investigation and remediation costs will not materially affect our business. There is no guarantee, however, that our estimates will be accurate, that new contamination will not be discovered or that new environmental laws or regulations will not require us to incur additional costs. Any such inaccuracies, discoveries or new laws or regulations, or the interpretation of existing laws and regulations, could have a material adverse effect on our business, financial condition and results of operations. As of December 31, 2014, we reserved approximately $120 million for probable and reasonably estimable losses associated with remediation at currently or formerly owned, operated or used sites or other sites impacted by our operations. We may incur losses in connection with investigation and remediation obligations that exceed our environmental reserve. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Environmental Liabilities.” We also may incur substantial costs, including fines, damages, criminal or civil sanctions and investigation and remediation costs, or experience interruptions in our operations, for violations under environmental, health and safety laws or permit requirements.

We could be held liable for the costs to investigate, remediate or otherwise address contamination at any real property we have ever owned, leased, operated or used or other sites impacted by our operations. Some environmental laws could impose on us the entire cost of cleanup of contamination present at a site even though

 

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we did not cause all of the contamination. These laws often identify parties who can be strictly and jointly and severally liable for remediation. The discovery of previously unknown contamination at current or former sites or the imposition of other environmental liabilities or obligations in the future, including additional investigation or remediation obligations with respect to contamination that has impacted other properties, could lead to additional costs or the need for additional reserves that have a material adverse effect on our business, financial condition and results of operations. In addition, we may be required to pay damages or civil judgments related to third party claims, including those relating to personal injury (including exposure to hazardous materials or chemicals we blend, handle, store, sell, transport or dispose of), product quality issues, property damage or contribution to remedial obligations.

We have been identified as potentially responsible parties, or Potentially Responsible Parties, at various third party sites at which we have arranged for the disposal of our hazardous wastes. We may be identified as a Potentially Responsible Party at additional sites beyond those for which we currently have financial obligations. Such developments could have a material adverse effect on our business, financial condition and results of operations. See “Business—Regulatory Matters—Environmental, Health and Safety Matters.”

Certain agreements to which we are a party contain contractual provisions pursuant to which we agreed to indemnify other parties for contamination at certain real property. We have been, and may in the future be, subject to environmental indemnity claims asserted by other parties with respect to contamination at sites we have ever owned, leased, operated or used. We could incur significant costs in addressing existing and future environmental indemnification claims.

Societal concerns regarding the safety of chemicals in commerce and their potential impact on the environment have resulted in a growing trend towards increasing levels of product safety and environmental protection regulations. These concerns have led to, and could continue to result in, stringent regulatory intervention by governmental authorities. In addition, these concerns could influence public perceptions, impact the commercial viability of the products we sell and increase the costs to comply with increasingly complex regulations, which could have a negative impact on our business, financial condition and results of operations. Additional findings by government agencies that chemicals pose significant environmental, health or safety risks may lead to their prohibition in some or all of the jurisdictions in which we operate.

Environmental, health and safety laws and regulations vary significantly from country to country and change frequently. Future changes in laws and regulations, or the interpretation of existing laws and regulations, could have an adverse effect on us by adding restrictions, reducing our ability to do business, increasing our costs of doing business or reducing our profitability or reducing the demand for our products. See “Business—Regulatory Matters—Environmental, Health and Safety Matters.”

Current and future laws and regulations addressing greenhouse gas emissions enacted in the United States, Europe and other jurisdictions around the world could also have a material adverse effect on our business, financial condition and results of operation. Increased energy costs due to such laws and regulations, emissions associated with our customers’ products or development of alternative products having lower emissions of greenhouse gases and other pollutants could materially affect demand for our customers’ products and indirectly affect our business. Changes in and introductions of regulations have in the past caused us to devote significant management and capital resources to compliance programs and measures, and future regulations applicable to us would likely further increase these compliance costs and could have a material adverse effect on our business, financial condition and results of operations.

Our business is subject to additional general regulatory requirements and tax requirements which increase our cost of doing business, could result in regulatory or tax claims, and could restrict our business in the future.

Our general business operations are subject to a broad spectrum of general regulatory requirements, including antitrust regulations, food and drug regulations, human resources regulations, tax regulations,

 

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unclaimed property, banking and treasury regulations, among others. These regulations add cost to our conduct of business and could, in some instances, result in claims or enforcement actions or could reduce our ability to pursue business opportunities. Future changes could additional costs and restrictions to our business activities. In 2013, we paid a fine imposed by the Autorité de la concurrence, France’s competition authority, for alleged price fixing prior to 2006.

We may not be able to repatriate our cash and undistributed earnings held in foreign jurisdictions without incurring additional tax liabilities.

As of March 31, 2015, we had $181.4 million of cash and cash equivalents on our balance sheet, $167.0 million of which was cash and cash equivalents held in foreign jurisdictions, most notably in Canada. Except as required under U.S. tax laws, we do not provide for U.S. taxes on approximately $617.9 million of cumulative undistributed earnings of foreign subsidiaries that have not been previously taxed, as we expect to invest such undistributed earnings indefinitely outside of the United States. We may not be able to repatriate cash and cash equivalents or undistributed earnings held in foreign jurisdictions without incurring additional tax liabilities and higher effective tax rates. Accordingly, our cash and cash equivalents or undistributed earnings held in foreign jurisdictions may effectively be trapped in such foreign jurisdictions unless we are willing to incur additional tax liabilities. In addition, there have been proposals to change U.S. tax laws that would significantly affect how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form this proposed legislation may pass, if enacted it could have a material adverse effect on our tax expense and cash flow.

We are subject to asbestos claims.

In connection with our purchase of McKesson Chemical Company in 1986, our wholly-owned subsidiary Univar USA Inc. is obligated to indemnify McKesson Corporation, or McKesson, for claims alleging injury from exposure to asbestos-containing products by McKesson Chemical Company. As of March 31, 2015, we are defending lawsuits by more than one hundred plaintiffs claiming asbestos related injuries, including a small number of which name us as a defendant. See “Business—Legal Proceedings—Asbestos Claims”. As of March 31, 2015, Univar USA has not recorded a liability related to the pending litigation as any potential loss is neither probable nor estimable. Although our costs of defense to date have not been material, we cannot predict the ultimate outcome of these lawsuits, which, if determined adversely to us, may result in liability that would have a material adverse effect on our business, financial condition and results of operations. Furthermore, if the number of asbestos claims for which we are obligated to indemnify McKesson, or the number of asbestos claims naming us, were to increase substantially, particularly if the increase were associated with a significant increase in the average cost per lawsuit, our business, financial condition and results of operations could be materially adversely affected.

Our business is subject to many operational risks for which we might not be adequately insured.

We are exposed to risks including, but not limited to, accidents, contamination and environmental damage, safety claims, natural disasters, terrorism, acts of war and civil unrest and other events that could potentially interrupt our business operations and/or result in significant costs. Although we attempt to cover these risks with insurance to the extent that we consider appropriate, we may incur losses that are not covered by insurance or exceed the maximum amounts covered by our insurance policies. Damage to a major facility, whether or not insured, could impair our ability to operate our business in a geographic region and cause loss of business and related expenses. From time to time, insurance for chemical risks have not been available on commercially acceptable terms or, in some cases, not available at all. In the future we may not be able to maintain our current coverages. In addition, premiums, which have increased significantly in the last several years, may continue to increase in the future. Increased insurance premiums or our incurrence of significant uncovered losses could have a material adverse effect on our business, financial condition and results of operations. We have incurred environmental risks and losses, often from our historic activities, for which we have no available or remaining insurance.

 

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We are exposed to ongoing litigation and other legal and regulatory actions and risks in the ordinary course of our business, and we could incur significant liabilities and substantial legal fees.

We are subject to the risk of litigation, other legal claims and proceedings, and regulatory enforcement actions in the ordinary course of our business. Also, there may be safety or personal injury risks related to our products which are not known today. The results of legal proceedings cannot be predicted with certainty. We cannot guarantee that the results of current or future legal proceedings against McKesson and a few claims asserted directly against Univar USA Inc. will not materially harm our business, reputation or brand, nor can we guarantee that we will not incur losses in connection with current or future legal proceedings that exceed any provisions we may have set aside in respect of such proceedings or that exceed any applicable insurance coverage. We also cannot guarantee that any tax assessment previously made against us by the Canada Revenue Agency will not result in a material tax liability or that the issues raised by Customs and Border Patrol will not result in a material liability. The occurrence of any of these events could have a material adverse effect on our business, financial condition or results of operations. See “Business—Legal Proceedings.”

Many of the products we sell have “long-tail” exposures, giving rise to liabilities many years after their sale and use. Insurance purchased at the time of sale may not be available when costs arise in the future and producers may no longer be available to provide indemnification.

We require significant working capital, and we expect our working capital needs to increase in the future, which could result in having lower cash available for, among other things, capital expenditures and acquisition financing.

We require significant working capital to purchase chemicals from chemical producers and distributors and sell those chemicals efficiently and profitably to our customers. Our working capital needs also increase at certain times of the year, as our customers’ requirements for chemicals increase. For example, our customers in the agricultural sector require significant deliveries of chemicals within a growing season that can be very short and depend on weather patterns in a given year. We need inventory on hand to have product available to ensure timely delivery to our customers. If our working capital requirements increase and we are unable to finance our working capital on terms and conditions acceptable to us, we may not be able to obtain chemicals to respond to customer demand, which could result in a loss of sales.

In addition, the amount of working capital we require to run our business is expected to increase in the future due to expansions in our business activities. If our working capital needs increase, the amount of free cash we have at our disposal to devote to other uses will decrease. A decrease in free cash could, among other things, limit our flexibility, including our ability to make capital expenditures and to acquire suitable acquisition targets that we have identified. If increases in our working capital occur and have the effect of decreasing our free cash, it could have a material adverse effect on our business, financial condition and results of operations.

We have a history of net losses and may not achieve or sustain profitability in the future.

We have incurred net losses in each of the last five fiscal years, including net losses of $197.4 million, $82.3 million and $20.1 million in the years ended December 31, 2012, 2013 and 2014, respectively. Growth of our revenues may slow or revenues may decline for a number of possible reasons, including slowing demand for our products and services, increasing competition or decreasing growth of our overall market. Our cost of goods sold could increase for a number of possible reasons, including increases in chemical prices and increases in chemical handling expenses due to regulatory action or litigation. In addition, our ability to generate profits could be impacted by our substantial indebtedness and the related interest expense. The interest payments on our indebtedness have exceeded operating income in each of our last five fiscal years. All of these factors could contribute to further net losses and, if we are unable to meet these risks and challenges as we encounter them, our business may suffer. If we do achieve profitability, we may not be able to sustain or increase such profitability.

 

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We depend on a limited number of key personnel who would be difficult to replace. If we lose the services of these individuals, or are unable to attract new talent, our business will be adversely affected.

We depend upon the ability and experience of a number of our executive management and other key personnel who have substantial experience with our operations, the chemicals and chemical distribution industries and the selected markets in which we operate. The loss of the services of one or a combination of our senior executives or key employees could have a material adverse effect on our results of operations. We also might suffer an additional impact on our business if one of our senior executives or key employees is hired by a competitor. Our success also depends on our ability to continue to attract, manage and retain other qualified management and technical and clerical personnel as we grow. We may not be able to continue to attract or retain such personnel in the future.

A portion of our workforce is unionized and labor disruptions could decrease our profitability.

As of December 31, 2014, we had approximately 625 employees in the United States subject to various collective bargaining agreements, most of which have a three-year term. In addition, in several of our international facilities, particularly those in Europe, employees are represented by Works Councils appointed pursuant to local law consisting of employee representatives who have certain rights to negotiate working terms and to receive notice of significant actions. As of December 31, 2014, approximately 26% of our labor force is covered by a collective bargaining agreement, including approximately 13% of our labor force in the United States, approximately 23% of our labor force in Canada and approximately 56% of our labor force in Europe, and approximately 6% of our labor force is covered by a collective bargaining agreement that will expire within one year. These arrangements grant certain protections to employees and subject us to employment terms that are similar to collective bargaining agreements. We cannot guarantee that we will be able to negotiate these or other collective bargaining agreements or arrangements with Works Councils on the same or more favorable terms as the current agreements or arrangements, or at all, and without interruptions, including labor stoppages at the facility or facilities subject to any particular agreement or arrangement. A prolonged labor dispute, which could include a work stoppage, could have a material adverse effect on our business, financial condition and results of operations.

Negative developments affecting our pension plans and multi-employer pension plans in which we participate may occur.

We operate a number of pension plans for our employees and have obligations with respect to several multi-employer pension plans sponsored by labor unions in the United States. The terms of these plans vary from country to country. Generally, our defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates, investment returns, the market value of plan assets and actuarial assumptions can (1) affect the level of plan funding; (2) cause volatility in the net periodic benefit cost; and (3) increase our future contribution requirements. In or following an economic environment characterized by declining investment returns and interest rates, we may be required to make additional cash contributions to our pension plans to satisfy our funding requirements and recognize further increases in our net periodic benefit cost. A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic benefit costs and adversely affect our results of operations.

Our pension plans in the United States and certain other countries are not fully funded. The funded status of our pension plans is equal to the difference between the value of plan assets and projected benefit obligations. At March 31, 2015, our pension plans had an underfunded status of $280.0 million. This amount could increase or decrease depending on factors such as those mentioned above. Changes to the funded status of our pension plans as a result of updates to actuarial assumptions and actual experience that differs from our estimates will be recognized as gains or losses in the period incurred under our “mark to market” accounting policy, and could result in a requirement for additional funding which would have a direct effect on our cash position. Based on

 

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current projections of minimum funding requirements, we expect to make cash contributions of $52.0 million to our defined benefit pension plans in 2015. The timing for any such requirement in future years is uncertain given the implicit uncertainty regarding the future developments of factors mentioned above. The union sponsored multi-employer pension plans in which we participate are also underfunded, including the substantially underfunded Teamsters Central States, Southeast and Southwest Pension Plan, which has liabilities at a level twice that of its assets. This requires us to make often substantial withdrawal liability payments when we close a facility covered by one of these plans, which could hinder our ability to make otherwise appropriate management decisions to operate as efficiently as possible.

Labeling regulations could have an adverse impact on our business.

The United States has recently amended its Right-to-Know laws to require new content in labels affixed to chemical products being sold by chemical manufacturers and chemical distributors. The regulations and guidance from the U.S. Occupational, Health and Safety Administration, or OSHA, for the implementation of such new labeling requirements has indicated a transition date of June 1, 2015, but that distributors can continue to sell existing inventory with the pre-June 1 labels for a period up to December 1, 2015. Recent OSHA publications have caused some lack of clarity on this issue and the transition date for the sale of existing inventory. Although we believe we are properly complying with the transition rules, this lack of clarity in these regulations could impact the company in incremental labeling costs, delays or interruption in product supply and compliance issues.

Risks Related to Our Indebtedness

We may be unable to complete the Anticipated Refinancings and we may choose to terminate the Anticipated Refinancings.

We have had preliminary discussions with potential financial intermediaries and advisors and prior to the completion of this offering we intend to opportunistically seek to refinance the $37.5 million of indebtedness under our ABL Term Facility and the $2,812.7 million of indebtedness under our Senior Term Facility that are expected to remain outstanding following the completion of this offering and the concurrent private placement. The Anticipated Refinancings are in addition to the repayment of our 2017 Subordinated Notes and our 2018 Subordinated Notes described in “Use of Proceeds.” The Anticipated Refinancings may be impacted by economic, market, industry, geopolitical and other conditions, most of which are beyond our control. There can be no assurance that we will be able to complete the Anticipated Refinancings on terms and conditions favorable to us or at all, and we may decide to terminate the Anticipated Refinancings before their completion. If we are unable to complete the Anticipated Refinancings, or if we terminate the Anticipated Refinancings before their completion, there can be no assurance that we will be able to refinance our existing credit facilities prior to their maturity on terms and conditions favorable to us, or at all. See “Anticipated Refinancings” elsewhere in this prospectus.

We and our subsidiaries may incur additional debt in the future, which could substantially reduce our profitability, limit our ability to pursue certain business opportunities and reduce the value of your investment.

As of March 31, 2015, we had $2,812.7 million of debt outstanding under our Senior Term Facility, $304.5 million of debt outstanding under our Senior ABL Facility and no borrowings outstanding under our European ABL Facility, with approximately $725.0 million available for additional borrowing under these facilities. Our former European ABL Facility due 2016 was terminated on March 24, 2014, and all amounts outstanding under such facility were repaid. Subject to certain limitations set forth in these facilities, we or our subsidiaries may incur additional debt in the future, or other obligations that do not constitute indebtedness, which could increase the risks described below and lead to other risks. The amount of our debt or such other obligations could have important consequences for holders of our common stock, including, but not limited to:

 

    our ability to satisfy obligations to lenders may be impaired, resulting in possible defaults on and acceleration of our indebtedness;

 

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    our ability to obtain additional financing for refinancing of existing indebtedness, working capital, capital expenditures, including costs associated with our international expansion, product and service development, acquisitions, general corporate purposes and other purposes may be impaired;

 

    our assets that currently serve as collateral for our debt may be insufficient, or may not be available, to support future financings;

 

    a substantial portion of our cash flow from operations could be used to repay the principal and interest on our debt;

 

    we may be increasingly vulnerable to economic downturns and increases in interest rates;

 

    our flexibility in planning for and reacting to changes in our business and the markets in which we operate may be limited; and

 

    we may be placed at a competitive disadvantage relative to other companies in our industry with less debt or comparable debt at more favorable interest rates.

The agreements governing our indebtedness contain operating covenants and restrictions that limit our operations and could lead to adverse consequences if we fail to comply with them.

The agreements governing our indebtedness contain certain operating covenants and other restrictions relating to, among other things, limitations on indebtedness (including guarantees of additional indebtedness) and liens, mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, dividends and other restricted payments, repurchase of shares of capital stock and options to purchase shares of capital stock and certain transactions with affiliates. In addition, our Senior ABL Facility and European ABL Facility include certain financial covenants.

The restrictions in the agreements governing our indebtedness may prevent us from taking actions that we believe would be in the best interest of our business, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility.

Failure to comply with these financial and operating covenants could result from, among other things, changes in our results of operations, the incurrence of additional indebtedness, the pricing of our products, our success at implementing cost reduction initiatives, our ability to successfully implement our overall business strategy or changes in general economic conditions, which may be beyond our control. The breach of any of these covenants or restrictions could result in a default under the agreements that govern these facilities that would permit the lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay such amounts, lenders having secured obligations could proceed against the collateral securing these obligations. The collateral includes the capital stock of our domestic subsidiaries, 65% of the capital stock of our foreign subsidiaries and substantially all of our and our subsidiaries’ other tangible and intangible assets, subject in each case to certain exceptions. This could have serious consequences on our financial condition and results of operations and could cause us to become bankrupt or otherwise insolvent. In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our business and stockholders.

See “Description of Certain Indebtedness” for additional information about the financial and operating covenants set forth in the agreements governing our Amended Senior Term Facility, Senior ABL Facility and European ABL Facility.

Increases in interest rates would increase the cost of servicing our debt and could reduce our profitability.

Our debt outstanding under the Senior Term Facility, Senior ABL Facility and European ABL Facility bears interest at variable rates. As a result, increases in interest rates would increase the cost of servicing our debt and

 

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could materially reduce our profitability and cash flows. For additional information on our indebtedness, debt service obligations and sensitivity to interest rate fluctuations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Qualitative and Quantitative Disclosures About Market Risk” and “Description of Certain Indebtedness” included elsewhere in this prospectus.

We may have future capital needs and may not be able to obtain additional financing on acceptable terms, or at all.

We have historically relied on debt financing to fund our operations, capital expenditures and expansion. The market conditions and the macroeconomic conditions that affect the markets in which we operate could have a material adverse effect on our ability to secure financing on acceptable terms, if at all. We may be unable to secure additional financing on favorable terms or at all and our operating cash flow may be insufficient to satisfy our financial obligations under the indebtedness outstanding from time to time. The terms of additional financing may limit our financial and operating flexibility. Our ability to satisfy our financial obligations will depend upon our future operating performance, the availability of credit generally, economic conditions and financial, business and other factors, many of which are beyond our control. Furthermore, if financing is not available when needed, or is not available on acceptable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock, including shares of common stock sold in this offering. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.

Risks Related to Our Common Stock and This Offering

Our common stock has no prior public market and the market price of our common stock may be volatile and could decline after this offering.

Prior to this offering, there has not been a public market for our common stock, and an active market for our common stock may not develop or be sustained after this offering. We will negotiate the initial public offering price per share with the representatives of the underwriters and therefore, that price may not be indicative of the market price of our common stock after this offering. We cannot assure you that an active public market for our common stock will develop after this offering or, if it does develop, it may not be sustained. In the absence of a public trading market, you may not be able to liquidate your investment in our common stock. In addition, the market price of our common stock may fluctuate significantly. Among the factors that could affect our stock price are:

 

    industry or general market conditions;

 

    domestic and international economic factors unrelated to our performance;

 

    changes in our customers’ preferences;

 

    new regulatory pronouncements and changes in regulatory guidelines;

 

    legislative initiatives;

 

    adverse publicity related to us or another industry participant;

 

    actual or anticipated fluctuations in our quarterly operating results;

 

    changes in securities analysts’ estimates of our financial performance or lack of research and reports by industry analysts;

 

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    action by institutional stockholders or other large stockholders (including the Equity Sponsors and the Temasek Investor), including future sales;

 

    speculation in the press or investment community;

 

    investor perception of us and our industry;

 

    changes in market valuations or earnings of similar companies;

 

    announcements by us or our competitors of significant contracts, acquisitions or strategic partnerships;

 

    any future sales of our common stock or other securities; and

 

    additions or departures of key personnel.

In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price. The stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against such company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which would harm our business, operating results and financial condition.

Future sales of shares by existing stockholders or the Temasek Investor could cause our stock price to decline.

Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. Based on shares outstanding as of March 31, 2015, upon completion of this offering and the concurrent private placement, we will have 137,934,515 outstanding shares of common stock (assuming that the initial public offering price will be $21.00 per share which is the midpoint of the range set forth on the cover of this prospectus). All of the shares sold pursuant to this offering will be immediately tradable without restriction under the Securities Act unless held by “affiliates”, as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock outstanding as of March 31, 2015 will be restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject, in certain cases, to applicable volume, means of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701 under the Securities Act, subject to the terms of the lock-up agreements entered into among us, the representatives of the underwriters and certain of our stockholders and our directors and executive officers. Upon completion of this offering, we intend to file one or more registration statements under the Securities Act to register the shares of common stock to be issued under our equity compensation plans and, as a result, all shares of common stock acquired upon exercise of stock options granted under our plans will also be freely tradable under the Securities Act of 1933, or the Securities Act, subject to the terms of the lock-up agreements, unless purchased by our affiliates. As of March 31, 2015, there were stock options outstanding to purchase a total of 5,313,331 shares of our common stock. In addition, approximately 748,000 shares of common stock are reserved for future issuance under the Univar Inc. 2011 Stock Incentive Plan, or the Plan.

We and our directors, executive officers, the selling stockholders, the Temasek Investor and stockholders representing substantially all of our outstanding common stock have agreed to a “lock-up,” meaning that, subject to certain exceptions, neither we nor they will sell any shares of our common stock without the prior consent of the representatives of the underwriters, for 180 days after the date of this prospectus. Following the expiration of this 180-day lock-up period, approximately 137,934,515 shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. See “Shares of Common Stock Eligible for Future Sale” for a discussion of the shares of common stock that may be sold into the public market in the future. In addition, certain of our significant stockholders may distribute shares that they hold to their investors who themselves may then sell into the public market following the expiration of

 

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the lock-up period. Such sales may not be subject to the volume, manner of sale, holding period and other limitations of Rule 144. As resale restrictions end, the market price of our common stock could decline if the holders of those shares sell them or are perceived by the market as intending to sell them. The representatives of the underwriters may, in their sole discretion and at any time, release all or any portion of the securities subject to lock-up agreements entered into in connection with this offering. See “Underwriting (Conflict of Interest).” In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our common stock to decline.

The Temasek Investor has entered into a stock purchase agreement pursuant to which it has agreed to purchase $350 million of newly issued shares of our common stock from us in the concurrent private placement. The concurrent private placement will not be registered under the Securities Act. As a result, the shares of our common stock purchased by the Temasek Investor will be restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject to applicable restrictions under Rule 144 or pursuant to any other exemption from registration under the Securities Act, subject to the terms of the lock-up agreements entered into between the Temasek Investor and the representatives of the underwriters. In addition, in connection with the concurrent private placement, the Temasek Investor will become a party to the Fourth Amended and Restated Stockholders’ Agreement of Univar Inc., pursuant to which it will be granted certain registration rights. See “Certain Relationships and Related Party Transactions—Stockholders’ Agreement.”

If securities or industry analysts do not publish research or publish misleading 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 there is no coverage of our company by securities or industry analysts, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage; if one or more of these analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

The Equity Sponsors will control the direction of our business. In addition, the Temasek Investor has the right to nominate one member of our Board of Directors. If the ownership of our common stock continues to be highly concentrated, it could prevent you and other stockholders from influencing significant corporate decisions.

Following the completion of this offering and the concurrent private placement, the Equity Sponsors will collectively beneficially own approximately 62.2% of the outstanding shares of our common stock and the Temasek Investor will beneficially own approximately 18.3% of the outstanding shares of our common stock, assuming that the underwriters do not exercise their option to purchase additional shares, that the initial public offering price will be $21.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, and that Univar N.V. and the tagging stockholders sell $150 million of shares to the Temasek Investor in the concurrent private placement. As a result, the Equity Sponsors will exercise significant influence over all matters requiring stockholder approval for the foreseeable future, including approval of significant corporate transactions, which may reduce the market price of our common stock.

The Amended and Restated Stockholders’ Agreement will allow the Equity Sponsors to nominate six directors each as long as they own at least 50% of the shares of our common stock that the applicable Equity Sponsor owned on November 30, 2010, or any shares or other securities into which or for which such shares of common stock may have been converted or exchanged in connection with any exchange, reclassification,

 

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dividend, distribution, stock split, combination, subdivision, merger, spin-off, recapitalization, reorganization or similar transaction. In addition, the Amended and Restated Stockholders’ Agreement will allow the Temasek Investor to nominate and director for as long as it owns at least 10% of the outstanding shares of our common stock. This could allow the Equity Sponsors and the Temasek Investor to nominate the entire Board of Directors. In addition, we will be a “controlled company” for the purposes of the NYSE rules, which will provide us with exemptions from certain of the corporate governance standards imposed by the NYSE’s rules. These provisions will allow the Equity Sponsors to exercise significant control over our corporate decisions and limit the ability of the public stockholders to influence our decision making.

Our Third Amended and Restated Certificate of Incorporation and our Second Amended and Restated Bylaws will also include a number of provisions that may discourage, delay or prevent a change in our management or control for so long as the Equity Sponsors own specified percentages of our common stock. See “—Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.” These provisions not only could have a negative impact on the trading price of our common stock, but could also allow the Equity Sponsors to delay or prevent a corporate transaction that the public stockholders approve of.

Our Third Amended and Restated Certificate of Incorporation will provide that we will waive any interest or expectancy in corporate opportunities presented to the Equity Sponsors.

Our Third Amended and Restated Certificate of Incorporation will provide that we, on our behalf and on behalf of our subsidiaries, renounce and waive any interest or expectancy in, or in being offered an opportunity to participate in, corporate opportunities that are from time to time presented to the Equity Sponsors, or their respective officers, directors, agents, stockholders, members, partners, affiliates or subsidiaries, even if the opportunity is one that we or our subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so. None of the Equity Sponsors or their respective agents, stockholders, members, partners, affiliates or subsidiaries will generally be liable to us or any of our subsidiaries for breach of any fiduciary or other duty, as a director or otherwise, by reason of the fact that such person pursues, acquires or participates in such corporate opportunity, directs such corporate opportunity to another person or fails to present such corporate opportunity, or information regarding such corporate opportunity, to us or our subsidiaries unless, in the case of any such person who is a director or officer, such corporate opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer. Stockholders will be deemed to have notice of and consented to this provision of our Third Amended and Restated Certificate of Incorporation. This will allow the Equity Sponsors to compete with us. Strong competition for investment opportunities could result in fewer such opportunities for us. We likely will not always be able to compete successfully with our competitors and competitive pressures or other factors may also result in significant price competition, particularly during industry downturns, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002, will be expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.

Following this offering, we will be subject to the reporting and corporate governance requirements, the listing standards of the NYSE and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which apply to issuers of listed equity, which will impose certain new compliance costs and obligations upon us. The changes necessitated by publicly listing our equity will require a significant commitment of additional resources and management oversight which will increase our operating costs. These changes will also place additional demands on our finance and accounting staff and on our financial accounting and information systems. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses,

 

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investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we will be required, among other things, to:

 

    prepare and file periodic reports, and distribute other shareholder communications, in compliance with the federal securities laws and the NYSE rules;

 

    define and expand the roles and the duties of our Board of Directors and its committees; and

 

    institute more comprehensive compliance, investor relations and internal audit functions.

In particular, upon completion of this offering, the Sarbanes-Oxley Act will require us to document and test the effectiveness of our internal control over financial reporting in accordance with an established internal control framework, and to report on our conclusions as to the effectiveness of our internal controls. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. In addition, upon completion of this offering, we will be required under the Securities Exchange Act of 1934, as amended, or the Exchange Act, to maintain disclosure controls and procedures and internal control over financial reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in the reliability of our financial statements. This could result in a decrease in the value of our common shares. Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the Securities and Exchange Comission, or the SEC, the NYSE or other regulatory authorities, which would require additional financial and management resources.

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors. Moreover, we cannot be certain that these measures would ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we were to conclude, and our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. This, in turn, could have an adverse impact on trading prices for our shares of common stock, and could adversely affect our ability to access the capital markets.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

Our Third Amended and Restated Certificate of Incorporation and Second Amended and Restated By-laws will include a number of provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. For example, our Third Amended and Restated Certificate of Incorporation and Second Amended and Restated By-laws will:

 

    authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;

 

    establish a classified Board of Directors, as a result of which our board will be divided into three classes, with each class serving for staggered three-year terms, which prevents stockholders from electing an entirely new Board of Directors at an annual meeting;

 

    limit the ability of stockholders to remove directors if the Equity Sponsors collectively cease to own more than 25% of our voting common stock;

 

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    provide that vacancies on the Board of Directors, including newly-created directorships, may be filled only by a majority vote of directors then in office;

 

    prohibit stockholders from calling special meetings of stockholders if the Equity Sponsors collectively cease to own more than 50% of our voting common stock;

 

    prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders if the Equity Sponsors collectively cease to own more than 50% of our voting common stock;

 

    establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and

 

    require the approval of holders of at least 75% of the outstanding shares of our voting common stock to amend the Second Amended and Restated By-laws and certain provisions of the Third Amended and Restated Certificate of Incorporation if the Equity Sponsors collectively cease to own more than 50% of our common stock.

These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if the provisions are viewed as discouraging takeover attempts in the future. See “Description of Capital Stock—Anti-Takeover Effects of our Third Amended and Restated Certificate of Incorporation and Second Amended and Restated By-laws” Our Third Amended and Restated Certificate of Incorporation and Second Amended and Restated By-laws may also make it difficult for stockholders to replace or remove our management. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders.

Our Third Amended and Restated Certificate of Incorporation will include provisions limiting the personal liability of our directors for breaches of fiduciary duty under the DGCL.

Our Third Amended and Restated Certificate of Incorporation will contain provisions permitted under the DGCL relating to the liability of directors. These provisions will eliminate a director’s personal liability to the fullest extent permitted by the DGCL for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving:

 

    any breach of the director’s duty of loyalty;

 

    acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;

 

    under Section 174 of the DGCL (unlawful dividends); or

 

    any transaction from which the director derives an improper personal benefit.

The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an action for monetary damages against a director unless the stockholder can demonstrate a basis for liability for which indemnification is not available under the DGCL. These provisions, however, should not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s fiduciary duty. These provisions will not alter a director’s liability under federal securities laws. The inclusion of this provision in our Third Amended and Restated Certificate of Incorporation may discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited us and our stockholders.

 

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Our Third Amended and Restated Certificate of Incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our Third Amended and Restated Certificate of Incorporation will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, employees or agents, (iii) any action asserting a claim against us arising under the General Corporation Law of the State of Delaware, or the DGCL, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our Third Amended and Restated Certificate of Incorporation related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporation Third Amended and Restated Certificate of Incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Investors purchasing common stock in this offering will experience immediate and substantial dilution as a result of this offering and future equity issuances.

If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the book value of your stock, because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. The net tangible deficit per share, calculated as of March 31, 2015 and after giving effect to the offering, is $10.10. Investors purchasing common stock in this offering will experience immediate and substantial dilution of $31.10 per share. In addition, we have issued options to acquire common stock at prices significantly below the initial public offering price. To the extent outstanding options are ultimately exercised, there will be further dilution to investors in this offering. In addition, if the underwriters exercise their option to purchase additional shares from us, or if we issue additional equity securities in the future, investors purchasing common stock in this offering will experience additional dilution. See “Dilution.”

We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

We expect to be a “controlled company” within the meaning of the NYSE rules and, as a result, we will qualify for, and currently 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.

After completion of this offering and the concurrent private placement, we expect that the Equity Sponsors will collectively beneficially own approximately 62.2% of the outstanding shares of our common stock and the Temasek Investor will beneficially own approximately 18.3% of the outstanding shares of our common stock, assuming that the underwriters do not exercise their option to purchase additional shares, that the initial public offering price will be $21.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, and that Univar N.V. and the tagging stockholders sell $150 million of shares to the Temasek Investor in the concurrent private placement. We expect that the Equity Sponsors and the Temasek Investor will be a group within the meaning of the NYSE corporate governance rules immediately following this offering. If that occurs, we expect to qualify as a “controlled company” within the meaning of the NYSE corporate

 

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governance rules. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

    the requirement that a majority of the Board of Directors consist of independent directors;

 

    the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, or otherwise have director nominees selected by vote of a majority of the independent directors;

 

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

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

Accordingly, we intend to rely on exemptions from certain corporate governance requirements. As a result, we may not have a majority of independent directors, our compensation committee and nominating and corporate governance committee may not consist entirely of independent directors and the board committees may not be subject to annual performance evaluations. Additionally, we are only required to have one independent audit committee member upon the listing of our common stock on the NYSE, a majority of independent audit committee members within 90 days from the date of listing and all independent audit committee members within one year from the date of listing. Consequently, you will not have the same protections afforded to stockholders of companies that are subject to all applicable stock exchange corporate governance rules and requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

 

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USE OF PROCEEDS

Based upon an assumed initial public offering price of $21.00 per share, which is the mid-point of the price range set forth on the cover of this prospectus, we estimate that we will receive net proceeds from this offering of approximately $389.0 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us of approximately $31.0 million in connection with this offering. We estimate that the net proceeds we will receive from the sale of 17,636,684 shares of our common stock in the concurrent private placement will be approximately $350.0 million.

We intend to use the net proceeds from this offering and the concurrent private placement to (i) redeem, repurchase or otherwise acquire or retire $600.0 million of our outstanding 2017 Subordinated Notes and $50 million of our outstanding 2018 Subordinated Notes, (ii) pay related fees and expenses, (iii) pay the Equity Sponsors an aggregate fee of approximately $26 million to terminate the consulting agreements described below under “Certain Relationships and Related Party Transactions—Consulting Agreements” and (iv) to use the remaining proceeds, if any, for general corporate purposes.

Interest on the 2017 Subordinated Notes and the 2018 Subordinated Notes is payable in arrears quarterly at the rate of 10.50% per annum payable quarterly to holders of record as of the record date immediately preceding the interest payment date. The 2017 Subordinated Notes mature on September 30, 2017 and the 2018 Subordinated Notes mature on June 30, 2018.

A $1.00 increase or decrease in the assumed initial public offering price of $21.00 per share (the midpoint of the price range set forth on the front cover of this prospectus) would increase or decrease the net proceeds to us from this offering by $19 million, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease the net proceeds to us by $19,950,000, assuming the initial public offering price of $21.00 per share (the mid-point of the price range set forth on the front cover of this prospectus) remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the initial public offering price and other terms of this offering determined at pricing.

We will not receive any proceeds from any sale of shares of our common stock by the selling stockholders and we will not receive any proceeds from the sale of shares of our common stock by Univar N.V. and certain other of our stockholders to the Temasek Investor.

 

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DIVIDEND POLICY

We have not declared or paid cash dividends on our capital stock in our most recent three fiscal years or in 2015. We do not expect to pay any cash dividends for the foreseeable future. We currently intend to retain any future earnings to finance our operations and growth. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent on earnings, financial condition, operating results, capital requirements, any contractual restrictions and other factors that our Board of Directors deems relevant. In addition, our secured credit facilities contain limitations on our ability to declare and pay cash dividends. Pursuant to the terms of our Senior ABL Facility, we may pay dividends on our stock as long as (i) no default or event of default has occurred and (ii) either (a)(I) the total availability is at least 20% of the total borrowing base and (II) the U.S. availability is greater than 20% of the U.S. borrowing base or (b)(I) the total availability is greater than 12.5% of the total borrowing base, (II) the U.S. availability is greater than 12.5% of the U.S. borrowing base and (III) after giving effect to the dividend payment, we have a fixed charge coverage ratio of 1.0 to 1.0, subject to certain other restrictions in our Senior ABL Facility. Pursuant to the terms of our Senior Term Facility, we may pay dividends on our stock so long as no event of default has occurred and is continuing thereunder and provided that at the time of such payment of dividends, and after giving effect thereto, our consolidated total leverage ratio does not exceed 4.00 to 1.00 and the amount of such dividends does not exceed $20 million in the aggregate, subject to certain other restrictions in our Senior Term Facility. Pursuant to the terms of our European ABL Facility, we may pay dividends on our stock as long as (i) no default or event of default has occurred and (ii) either (a) the total availability is greater than the greater of (I) 20% of the total borrowing base and (II) €35 million or (b)(I) the total availability is greater than the greater of (x) 12.5% of the total borrowing base and (y) €20 million and (II) after giving effect to the dividend payment, we have a fixed charge coverage ratio of 1.0 to 1.0, subject to certain other restrictions in our European ABL Facility. For a description of our Senior ABL Facility, Senior Term Facility and European ABL Facility, see “Description of Certain Indebtedness.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization on a consolidated basis as of March 31, 2015:

 

    on an actual basis;

 

    on an as adjusted basis to give effect to the sale by us of shares of our common stock in this offering at an assumed initial public offering price of $21.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, (and after deducting estimated underwriting discounts and commissions and offering expenses payable by us) and the sale by us of shares of our common stock in the concurrent private placement at an assumed offering price of $21.00 per share and the use of the net proceeds therefrom as described in “Use of Proceeds.”

The as adjusted information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial offering price and other terms of this offering determined at pricing. You should read this table in conjunction with the sections of this prospectus entitled “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Certain Indebtedness” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of March 31, 2015  
     Actual      As
Adjusted(1)
 
            (unaudited)  
     (Dollars in millions except
per share data)
 

Cash and cash equivalents

   $ 181.4       $ 244.4   
  

 

 

    

 

 

 

Senior Term Loan Facilities:

Term B Loan due 2017(2)

$ 2,676.2    $ 2,676.2   

Euro Tranche Term Loan due 2017(2)

  136.5      136.5   

Asset Backed Loan (ABL) Facilities:

ABL Revolver due 2018

  267.0      267.0   

ABL Term Loan due 2016(2)

  37.5      37.5   

European ABL Facility due 2019

  —     

Senior Subordinated Notes:

Senior Subordinated Notes due 2017

  600.0      —     

Senior Subordinated Notes due 2018

  50.0      —     

Capital Lease Obligations

  13.5      13.5   
  

 

 

    

 

 

 

Total Debt Before Discount

  3,780.7      3,130.7   

Discount on Long-Term Debt

  (20.2   (17.1
  

 

 

    

 

 

 

Total Long Term Debt

  3,760.5      3,113.6   

Stockholders’ equity (deficit):

Common stock: (i) Actual: par value $0.000000028 per share, 370,181,733 shares authorized, 100,297,831 shares issued and outstanding (ii) As adjusted: par value $0.01 per share, 2,000,000,000 shares authorized, 137,934,515 shares issued and outstanding

  —        1.4   

Additional paid-in capital

  1,461.1      2,197.0   

Accumulated deficit

  (981.6   (1,002.5

Accumulated other comprehensive loss

  (329.3   (329.3
  

 

 

    

 

 

 

Total stockholders’ equity

  150.2      866.6   
  

 

 

    

 

 

 

Total capitalization

$ 3,910.7    $ 3,980.2   
  

 

 

    

 

 

 

 

(1)

A $1.00 increase or decrease in the assumed initial public offering price of $21.00 per share (the midpoint of the price range set forth on the front cover of this prospectus) would increase or decrease the net proceeds to

 

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  us from this offering by $19 million, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease the net proceeds to us by $19,950,000 assuming the initial public offering price of $21.00 per share (the mid-point of the price range set forth on the front cover of this prospectus) remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
(2) We intend to complete the Anticipated Refinancings after the consummation of this offering. If we are able to complete the Anticipated Refinancings, we intend to use the proceeds of the Anticipated Refinancings to repay all amounts outstanding under our Term B Loan due 2017, our Euro Tranche Term Loan due 2017 and our ABL Term Loan due 2016. There can be no assurance that we will be able to complete the Anticipated Refinancings on terms and conditions favorable to us or at all, and we may decide to terminate the Anticipated Refinancings before their completion. See “Anticipated Refinancings” elsewhere in this prospectus.

The share information as of March 31, 2015 shown in the table above excludes any shares to be reserved for issuance under our stock option plans that may be adopted prior to the completion of this offering.

 

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DILUTION

If you invest in our common stock, the book value of 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 immediately after this offering.

Our net tangible book value as of March 31, 2015 was $(2,109.9) million and net tangible book value per share was $(21.04). Net tangible book value per share before the offering has been determined by dividing net tangible book value (total book value of tangible assets less total liabilities) by the number of shares of common stock outstanding at March 31, 2015, after giving effect to a 1.9845 for 1 reverse stock split of our common stock effected on             , 2015.

After giving effect to the sale of shares of our common stock in this offering at an assumed initial public offering price of $21.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), the sale of shares of our common stock in the concurrent private placement at an assumed price of $21.00 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value at March 31, 2015 would have been $(1,393.5) million, or $(10.10) per share. This represents an immediate increase in net tangible book value per share of $10.94 to our existing stockholders and dilution in net tangible book value per share of $31.10 to new investors who purchase shares in this offering. The following table illustrates this per share dilution to new investors:

 

Initial public offering price per share

$ 21.00   

Net tangible book value (deficit) per share as of March 31, 2015

$ (21.04

Increase per share attributable to this offering and the concurrent private placement

  10.94   
  

 

 

   

Net tangible book value (deficit) per share after this offering and the concurrent private placement

$ (10.10
    

 

 

 

Dilution in net tangible book value (deficit) per share to new investors

$ 31.10   
    

 

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $21.00 per share (the midpoint of the price range set forth on the front cover of this prospectus) would increase or decrease the net proceeds to us from this offering by $19 million, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease the total consideration paid to us new investors by $19,950,000 assuming the initial public offering price of $21.00 per share, the mid-point of the price range set forth on the front cover of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from any sale of shares of our common stock by the selling stockholders. If the underwriters were to exercise their option to purchase additional shares of our common stock in full, the dilution in net tangible book value per share to new investors will be $31.10.

 

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The following table summarizes, as of March 31, 2015, the total number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by the existing stockholders who have purchased shares since January 1, 2010, Temasek Investor and the new investors purchasing shares in this offering, assuming that Univar N.V. and the tagging stockholders do not sell any shares to the Temasek Investor in the concurrent private placement:

 

     Shares Purchased     Total Consideration     Average
Price

Per
Share
 
     Number      Percent     Amount      Percent    
    

(Shares in

thousands)

   

(Dollars in

millions)

       

Existing stockholders purchasing since January 1, 2010

     45,388,154         55     889,474,663         54   $ 19.60   

Temasek Investor

     17,636,684         21     350,000,000         21   $ 19.85   

Investors in this offering

     20,000,000         24     420,000,000         25   $ 21.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

  83,024,838      100   1,659,474,663      100 $ 19.99   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

If the underwriters were to exercise their option to purchase additional shares in full, the percentage of shares of common stock held by existing stockholders who purchased shares prior to January 1, 2010 would be approximately 40%, the percentage of shares of common stock held by existing stockholders who purchased shares after January 1, 2010 would be approximately 33%, the percentage of shares of common stock held by the Temasek Investor would be approximately 13% and the percentage of shares of common stock held by investors in this offering would be approximately 14%, assuming that Univar N.V. and the tagging stockholders do not sell any shares to the Temasek Investor in the concurrent private placement.

The share information as of March 31, 2015 shown in the table above excludes any shares to be reserved for issuance under our stock option plans that may be adopted prior to the completion of this offering.

 

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ANTICIPATED REFINANCINGS

We have had preliminary discussions with potential lenders, financial intermediaries and advisors and prior to the completion of this offering we intend to opportunistically seek to refinance the $37.5 million of indebtedness under our ABL Term Facility and the $2,812.7 million of indebtedness under our Senior Term Facility that are expected to remain outstanding following the completion of this offering and the concurrent private placement. The Anticipated Refinancings are in addition to the repayment of our 2017 Subordinated Notes and our 2018 Subordinated Notes described in “Use of Proceeds”. The Anticipated Refinancings may be impacted by economic, market, industry, geopolitical and other conditions, most of which are beyond our control. This offering is not contingent upon our consummating the Anticipated Refinancings and the Anticipated Refinancings are not contingent upon the consummation of this offering. There can be no assurance that we will be able to complete the Anticipated Refinancings on terms and conditions favorable to us or at all, and we may decide to terminate the Anticipated Refinancings before their completion. If we are unable to complete the Anticipated Refinancings, or if we terminate the Anticipated Refinancings before their completion, there can be no assurance that we will be able to refinance our existing credit facilities prior to their maturity on terms and conditions favorable to us, or at all.

The following is a brief description of the anticipated principal terms of the Anticipated Refinancings. However, the relative principal amounts, applicable interest rates and other terms of the indebtedness that will be incurred may not be definitively determined until shortly before or after the closing date of this offering and may differ from those described below. If we are able to consummate the Anticipated Refinancings, we intend to repay all amounts outstanding under our ABL Term Facility and our Senior Term Facility on or prior to their maturity. It is expected that certain of the agents and/or lenders in the Anticipated Refinancings may be affiliates of the underwriters in this offering.

New Senior Term Facility

In connection with the Anticipated Refinancings, we intend to seek to enter into a new senior term loan facility, or the New Senior Term Facility. Under the New Senior Facility, we intend to seek to incur an approximately $2,050.0 million U.S. dollar denominated term loan and an approximately €250.0 million euro denominated term loan. We intend to seek to have the New Senior Term Facility provide for an uncommitted incremental term loan facility that will be available subject to the satisfaction of certain conditions.

We expect that obligations under the New Senior Term Facility would be guaranteed by certain of our U.S. subsidiaries and will be secured by (i) a first priority lien on substantially all of our assets as well as the assets of certain of our U.S. subsidiaries, other than inventory and accounts receivable and related collateral, or the Current Assets, and (ii) a second priority lien on the Current Assets, in each case subject to various limitations and exceptions.

We expect that the New Senior Term Facility would not contain financial covenants. We expect that the New Senior Term Facility would contain limitations on our ability to, among other things, incur indebtedness and liens, make distributions, investments, acquisitions and dividends, sell assets, engage in mergers, consolidations, liquidations and certain transactions with affiliates and change our lines of business. We expect that the New Senior Term Facility would require us to prepay the loans thereunder with a portion of our excess cash flow, the proceeds of certain indebtedness and, subject to certain re-investment rights, the proceeds of certain asset sales. We expect that the New Senior Term Facility would contain customary events of default including for failure to make payments, breaches of covenants, cross-default to other material indebtedness (other than in the case of any financial maintenance covenant), cross-acceleration to other material indebtedness, material unstayed judgments, certain events related to bankruptcy, insolvency and the Employee Retirement Income Security Act of 1974, as amended, or ERISA, failure of guarantees or security and change of control.

We expect that obligations under the New Senior Term Facility would mature on the date that is seven years from the date of the initial borrowings under the New Senior Term Facility.

 

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New Senior ABL Facility

In connection with the Anticipated Refinancings, we intend to seek to enter into a new senior asset-based loan facility, or the New Senior ABL Facility. We intend to seek to have the New Senior ABL Facility include a $1,300.0 million senior secured revolving credit facility in two tranches. We intend to seek to include a $100.0 million term loan facility in the New Senior ABL Facility. In addition, we expect that the New Senior ABL Facility would permit us to request increases in the amount available under the revolving portion of the New Senior ABL Facility by up to $500.0 million, and that up to $125.0 million of that increase can be provided in the form of a term loan.

We expect that the maximum amount available to borrow under the New ABL Revolving Facility would be determined by the amount of eligible inventory, accounts receivable and cash of Univar Inc. and certain of its subsidiaries.

We expect that the New Senior ABL Facility would be guaranteed by certain of our subsidiaries and secured by (i) a first priority lien on the borrowers and the guarantors’ accounts receivable and inventory and (ii) a second priority lien on substantially all other assets of these parties, in each case subject to various limitations and exceptions.

We expect that the New Senior ABL Facility would contain limitations on our ability to, among other things, incur indebtedness and liens, make distributions, investments, acquisitions and restricted junior payments and dividends, sell assets, engage in mergers, consolidations, liquidations and certain transactions with affiliates and change our lines of business. We expect that the New Senior ABL Facility would contain events of default including for failure to make payments under the New Senior ABL Facility, breaches of covenants, cross-default to other material indebtedness, material unstayed judgments, certain ERISA, bankruptcy and insolvency events, failure of guarantees or security and change of control.

We expect that obligations under the revolving portions of the New Senior ABL Facility would mature on the date that is five years from the date of the initial borrowings under the New Senior ABL Facility and obligations under the term portions of the New Senior ABL Facility would mature on the date that is three years from the date of the initial borrowings under the New Senior ABL Facility.

Additional New Senior Indebtedness

In connection with the Anticipated Refinancings, we also intend to seek to incur $400.0 million of additional new senior indebtedness. We expect that the covenants and events of default for this indebtedness would be similar in scope to the extent applicable to the covenants and events of default in the indentures that govern our 2017 Subordinated Notes and 2018 Subordinated Notes. We expect that this new indebtedness would have a term of eight years.

Impact on Statement of Operations

Depending on the applicable accounting treatment, we expect to record a non-cash charge for the write off of debt issuance costs associated with our existing debt as well as incremental expenses of the Anticipated Refinancings in the applicable period or periods during which the Anticipated Refinancings are consummated. We expect the total expenses before income taxes could be between approximately $25 million and $65 million.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents our summary consolidated financial data as of and for the periods indicated. The selected consolidated financial data as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data as of December 31, 2012, 2011 and 2010 and for the fiscal years ended December 31, 2011 and 2010 are derived from our audited consolidated financial statements which are not included in this prospectus. The summary consolidated financial data as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of our management, our unaudited condensed consolidated financial statements contain all adjustments necessary for a fair presentation of our financial position, results of our operations and cash flows. Our historical consolidated financial data may not be indicative of our future performance.

This “Selected Consolidated Financial Data” should be read in conjunction with “Prospectus Summary—Summary Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.

 

    Fiscal Year Ended     Three Months Ended  
    December 31,
2014
    December 31,
2013
    December 31,
2012
    December 31,
2011
    December 31,
2010
    March 31,
2015
    March 31,
2014
 
   

(Dollars in millions, except share and per share data)

 
   

(audited)

    (unaudited)  

Consolidated Statement of Operations:

             

Net sales

  $ 10,373.9      $ 10,324.6      $ 9,747.1      $ 9,718.5      $ 7,908.2      $  2,299.1      $  2,516.4   

Cost of goods sold (exclusive of depreciation)

    8,443.2        8,448.7        7,924.6        7,883.0        6,399.9        1,837.5        2,044.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  1,930.7      1,875.9      1,822.5      1,835.5      1,508.3      461.6      472.4   

Operating expenses:

Outbound freight and handling expenses

  365.5      326.0      308.2      294.1      209.4      84.5      87.8   

Warehousing, selling and administrative

  923.5      951.7      907.1      895.4      799.8      231.4      239.0   

Other operating expenses, net

  197.1      12.0      177.7      140.3      86.2      8.1      21.7   

Depreciation

  133.5      128.1      111.7      108.4      83.0      32.0      30.6   

Amortization

  96.0      100.0      93.3      90.0      45.6      21.9      23.7   

Impairment charges

  0.3      135.6      75.8      173.9      12.6      —        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  1,715.9      1,653.4      1,673.8      1,702.1      1,236.6      377.9      402.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

  214.8      222.5      148.7      133.4      271.7      83.7      69.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other (expense) income

Interest income

  8.2      11.0      9.0      7.1      7.7      1.2      2.4   

Interest expense

  (258.8   (305.5   (277.1   (280.7   (309.6   (64.4)      (66.3)   

Loss on extinguishment of debt

  (1.2   (2.5   (0.5   (16.1   (14.5   —        (1.2

Other income (expense), net

  1.1      (17.6   (1.9   (4.0   4.5      6.8      (1.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

  (250.7   (314.6   (270.5   (293.7   (311.9   (56.4   (67.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

  (35.9   (92.1   (121.8   (160.3   (40.2   27.3      2.6   

Income tax expense (benefit)

  (15.8   (9.8   75.6      15.9      30.4      7.6      5.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

$ (20.1 $ (82.3 $ (197.4 $ (176.2 $ (70.6 $ 19.7    $ (2.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Fiscal Year Ended     Three Months Ended  
    December 31,
2014
    December 31,
2013
    December 31,
2012
    December 31,
2011
    December 31,
2010
    March 31,
2015
    March 31,
2014
 
   

(Dollars in millions, except share and per share data)

 
   

(audited)

    (unaudited)  

Net income (loss) per share(1):

             

Basic and Diluted

  $ (0.20   $ (0.83   $ (2.01   $ (1.80   $ (0.95   $ 0.20      $ (0.03

Weighted average common shares used in computing net income (loss) per share(1):

             

Basic

    99,718,998        99,299,892        98,355,548        98,019,031        74,579,834        99,892,821        99,645,738   

Diluted

    99,718,998        99,299,892        98,355,548        98,019,031        74,579,834        100,380,582        99,645,738   

 

    As of     Three
Months
Ended
 
    December 31,
2014
    December 31,
2013
    December 31,
2012
    December 31,
2011
    December 31,
2010
    March 31,
2015
 
   

(Dollars in millions)

 
    (audited)     (unaudited)  

Balance sheet data:

           

Cash and cash equivalents

  $ 206.0      $ 180.4      $ 220.9      $ 96.3      $ 127.9      $ 181.4   

Total assets

    6,076.6        6,217.0        6,530.5        5,712.1        6,755.8        5,916.3   

Long-term obligations

    4,309.6        4,244.8        4,525.4        3,632.9        4,607.4        4,222.4   

Stockholders’ equity

    248.1        381.3        526.4        660.3        875.9        150.2   

 

    Fiscal Year Ended     Three Months Ended  
    December 31,
2014
    December 31,
2013
    December 31,
2012
    December 31,
2011
    December 31,
2010
    March 31,
2015
    March 31,
2014
 
   

(Dollars in millions)

(unaudited)

 

Other financial data:

             

Net cash provided (used) by operating activities

  $ 126.3      $ 289.3      $ 15.5      $ 262.4      $ 27.1      $ 88.1      $ (48.3

Net cash used by investing activities

    (148.2     (215.7     (657.1     (250.8     (789.6     (30.2     (23.7

Net cash provided (used) by financing activities

    84.1        (110.5     753.8        (35.1     749.0        (48.4     63.4   

Capital expenditures

    113.9        141.3        170.1        102.9        92.0        31.9        24.9   

Adjusted EBITDA(2)

    641.7        598.2        607.2        646.0        499.1        145.7        145.6   

Adjusted EBITDA margin(2)

    6.2     5.8     6.2     6.6     6.3     6.3     5.8

 

(1) Reflects a 1.9845 for 1 reverse stock split of our outstanding shares of common stock to be effected prior to the completion of this offering.

 

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(2) For a complete discussion of the method of calculating Adjusted EBITDA and its usefulness, refer to “Prospectus Summary—Summary Consolidated Financial and Operating Data,” included elsewhere in this prospectus. The following is a quantitative reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net income (loss):

 

    Fiscal Year Ended     Three Months Ended  
    December 31,
2014
    December 31,
2013
    December 31,
2012
    December 31,
2011
    December 31,
2010
    March 31,
2015
    March 31,
2014
 
   

(Dollars in millions)

 

Net income (loss)

  $ (20.1   $ (82.3   $ (197.4   $ (176.2   $ (70.6   $ 19.7      $ (2.8

Income tax expense (benefit)

    (15.8     (9.8     75.6        15.9        30.4        7.6        5.4   

Interest expense, net

    250.6        294.5        268.1        273.6        301.9        63.2        63.9   

Loss on extinguishment of debt

    1.2        2.5        0.5        16.1        14.5        —          1.2   

Amortization

    96.0        100.0        93.3        90.0        45.6        21.9        23.7   

Depreciation

    133.5        128.1        111.7        108.4        83.0        32.0        30.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

$ 445.4    $ 433.0    $ 351.8    $ 327.8    $ 404.8    $ 144.4    $ 122.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Impairment charges(a)

  0.3      135.6      75.8      173.9      12.6      —        —     

Other operating expenses, net(b)

  197.1      12.0      177.7      140.3      86.2      8.1      21.7   

Other (income) expense, net(c)

  (1.1   17.6      1.9      4.0      (4.5   (6.8   1.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$ 641.7    $ 598.2    $ 607.2    $ 646.0    $ 499.1    $ 145.7    $ 145.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) The 2014 impairment charges primarily related to impairments of idle properties and equipment. The 2013 impairment charges primarily related to the write-off of goodwill related to the Rest of World segment as well as the write-off of capitalized software costs related to a global ERP system. The 2012 and 2011 impairment charges primarily related to the impairment of goodwill in the EMEA segment. The 2010 impairment charges primarily related to impairments of idle properties and equipment.
(b) Other operating expense, net primarily consists of pension mark to market adjustments, acquisition and integration related expenses, employee stock based compensation expense, redundancy and restructuring costs, advisory fees paid to stockholders, and other unusual and non-recurring expenses.
(c) Other (income) expense, net consists of gains and losses on foreign currency transactions, undesignated derivative instruments, ineffective portion of cash flow hedges, debt refinancing costs and other nonoperating activity.

 

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

Overview

We are a leading global chemical distributor and provider of innovative value-added services. For the fiscal year ended December 31, 2014, we held the #1 market position in North America and the #2 market position in Europe. We source chemicals from over 8,000 producers worldwide and provide a comprehensive array of products and services to over 110,000 customer locations in over 150 countries. Our scale and broad geographic reach, combined with our deep product knowledge, end market expertise and our differentiated value-added services, provide us with a distinct competitive advantage and enable us to offer customers a “one-stop shop” for their chemical needs. As a result, we believe we are strategically positioned for significant growth and to increase our market share.

Since hiring our President and CEO, Erik Fyrwald, in May 2012, we have significantly enhanced our management team and have implemented a series of transformational initiatives to drive growth and operating performance. These initiatives include:

 

    focusing increased efforts on strengthening our market, technical and product expertise in attractive, high-growth industry sectors, such as oil, gas and mining, water treatment, agricultural sciences, food ingredients, cleaning and sanitization, pharmaceutical ingredients and personal care;

 

    increasing and enhancing our value-added services, such as specialty product blending, automated tank monitoring and refill of less than truckload quantities, chemical waste management and digitally-enabled marketing and sales;

 

    undertaking a series of measures to drive operational excellence, such as enhancing our supply chain and logistics expertise, enhancing our global sourcing capabilities, reducing procurement costs, streamlining back-office functions and improving our working capital efficiency;

 

    pursuing commercial excellence programs, including significantly increasing our global sales force, establishing a performance driven sales culture and developing our proprietary, analytics-based mobile sales force tools; and

 

    continuing to improve upon our distribution industry leadership in safety performance, which serves as a differentiating factor for both producers and our customers.

As a result of these initiatives, we believe we are well-positioned to continue to capture market share and improve our margins. In the twelve months ended March 31, 2015, we generated $10.2 billion in net sales and $641.8 million in Adjusted EBITDA. For a reconciliation of Adjusted EBITDA to net income (loss), see “Prospectus Summary—Summary Consolidated Financial and Operating Data.”

Key Business Metrics

Net sales. We generate net sales primarily through the sale of chemicals to our customers. Our net sales also include billings for freight and handling charges and fees earned for services provided, and is presented net of any discounts, returns, customer rebates and sales or other revenue-based tax.

Gross profit and gross margin. We believe that gross profit and gross margin are useful for evaluating our operating performance. We define gross profit as net sales less cost of goods sold (exclusive of depreciation). We define gross margin as gross profit divided by net sales. Our cost of goods sold includes all inventory costs, such as purchase prices from suppliers, net of any rebates received, as well as inbound freight and handling, direct labor and other costs incurred to blend and repackage the product and is exclusive of costs to deliver the products we buy from producers and depreciation expense. Cost of goods sold is recognized based on the weighted average cost of the inventory sold. Our gross profit may not be comparable to those of other companies, as other companies may include all of the costs related to their distribution network in cost of goods sold.

 

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Operating expenses. Our operating expenses consist of outbound freight and handling, warehousing, selling and administrative expenses, other operating expenses, net, depreciation, amortization and impairment charges. Outbound freight and handling expenses include direct costs in delivering products to customers, such as direct labor costs, fuel and common carrier activity. Warehousing, selling and administrative expenses include indirect labor costs, which consist of substantially all labor costs not related to blending and repackaging, and other general and administrative expenses such as occupancy, warehousing, marketing, selling, and information technology. Other operating expenses, net primarily consists of pension mark to market adjustments, acquisition and integration related expenses, employee stock-based compensation expense, redundancy and restructuring costs, advisory fees paid to stockholders, and other unusual and non-recurring expenses.

Adjusted EBITDA. In addition to our net income (loss) determined in accordance with GAAP, we evaluate operating performance using Adjusted EBITDA, which we define as our consolidated net income (loss), plus the sum of interest expense, net of interest income, income tax expense (benefit), depreciation, amortization, other operating expenses, net, impairment charges, loss on extinguishment of debt and other (income) expense, net (which consists of gains and losses on foreign currency transactions and undesignated derivative instruments, ineffective portion of cash flow hedges, debt refinancing costs and other nonoperating activity). We believe that Adjusted EBITDA is an important indicator of operating performance because:

 

    we report Adjusted EBITDA to our lenders as required under the covenants of our credit agreements;

 

    Adjusted EBITDA excludes the effects of income taxes, as well as the effects of financing and investing activities by eliminating the effects of interest, depreciation and amortization expenses;

 

    we consider gains (losses) on the acquisition, disposal and impairment of assets as resulting from investing decisions rather than ongoing operations; and

 

    other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results.

For reconciliations of Adjusted EBITDA to net income (loss), see “Prospectus Summary—Summary Consolidated Financial and Operating Data” and “Selected Financial Data.”

Key Factors Affecting Operating Results and Financial Condition

Economic conditions and industry trends. Our business depends on demand from customers for chemicals. Because the vast majority of the chemicals we sell are used in industrial production, the chemical market has historically performed in line with broader industrial production trends as well as trends in end markets affecting industrial production such as consumer goods. As general economic conditions improve or deteriorate, industrial production generally and chemicals consumption more specifically tend to move correspondingly, particularly in those industry sectors or geographic areas most directly affected by the changed economic conditions. Although these changes in industrial production and economic activity also affect chemical distribution, they tend to do so to a lesser extent. The changes in industrial production and economic activity have been mitigated by the trend toward outsourcing of distribution by larger chemical producers as well as specific strategies employed by chemical producers. The recent decline in oil and gas prices may lead to decreases in the volume and price of chemicals we sell to our oil and gas customers. However, these declines may also lead to decreases in transportation costs resulting from lower fuel prices and additional transportation capacity.

Acquisitions. From time to time we enter into strategic acquisitions to expand into new markets, new platforms and new geographies in an effort to better service existing customers and attract new ones. In accordance with GAAP, the results of the acquisitions we completed are reflected in our consolidated financial statements from the date of acquisition forward. We incur transaction and integration costs prior to fully realizing the benefits of acquisition synergies.

 

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On April 10, 2015, we acquired Key Chemical, Inc., or Key, one of the largest distributors of fluoride to municipalities in the United States, which we expect to help us expand our offerings into the municipal and other industrial markets.

On November 3, 2014, we acquired 100% of the equity interest in D’Altomare Quimica Ltda, or D’Altomare, a Brazilian distributor of specialty chemicals and ingredients. The acquisition expands our geographic footprint and market presence in Brazil and across Latin America.

On May 16, 2013, we acquired 100% of the equity interest in Quimicompuestos S.A. de C.V., or Quimicompuestos, a leading distributor of commodity chemicals in Mexico. The acquisition provides us with a strong platform for future growth in Mexico and enables us to offer its customers and suppliers the complete end to end value proposition with both specialty chemical and commodity offerings.

On December 11, 2012, we acquired 100% of the equity interest in Magnablend Holdings, Inc., or Magnablend, a Texas-based provider of custom specialty chemical manufacturing, blending and packaging solutions. The acquisition provides us with a strong platform for future growth in the rapidly growing North American oil and gas market.

See Note 17 to our audited consolidated financial statements included elsewhere in this prospectus for further information on these acquisitions.

Volume-based pricing. We generally procure chemicals through purchase orders rather than under long-term contracts with firm commitments. Our arrangements with key producers are typically embodied in agreements that we refer to as framework supply agreements. We work to develop strong relationships with a select group of producers that we target based on a number of factors, including price, breadth of product offering, quality, market recognition, delivery terms and schedules, continuity of supply and their strategic positioning. Our framework supply agreements with chemicals producers typically renew annually and, while they generally do not provide for specific product pricing, many include volume-based financial incentives that we earn by meeting or exceeding target purchase volumes. Our ability to earn these volume-based incentives is an important factor in improving our financial results.

Cost Savings. We are increasingly focusing on our procurement organization to reduce sourcing costs and are implementing robust inventory planning and stocking systems. We are also in the process of centralizing, improving and consolidating our indirect-spend, including third party transportation, all in an effort to reduce costs as well as improve reliability and improve the level of service we offer customers. We are also currently implementing a pan-European realignment to consolidate our European operations, including our information technology systems, raw materials procurement, logistics, route operations and the management of producer relationships in order to benefit from economies of scale and improve cost efficiency.

Working capital. In addition to affecting our net sales, fluctuations in chemical prices tend to result in changes in our reported inventories, trade receivables and trade payables even when our sales volumes and our rate of turnover of these working capital items remain relatively constant. Our business is characterized by a relatively high level of reported working capital, the effects of which can be compounded by increases in chemical prices. Our initiatives to improve realization of receivables and inventory management have enabled us to improve our working capital position (represented by the number of days of sales in working capital) by eight days from December 31, 2010 to December 31, 2014.

Foreign currencies. We operate an international business and deal in most major currencies. Although our multi-national operations provide some insulation against the effect of regional economic downturns, they also expose us to currency risk. In 2014, approximately 41% of our net sales came from outside the United States, most of which were foreign currency sales denominated in euro, Canadian dollars and British pounds sterling. The functional currency of our operations outside the United States is generally the local currency. Transactions in local markets are generally recorded in the local functional currency at the exchange rate prevailing on the date

 

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of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange prevailing at the balance sheet date. Fluctuations in exchange rates between the U.S. dollar and other currencies affect the translation of our financial results. We have not generally hedged this translation risk. In this Management’s Discussion and Analysis, we present the impact of foreign currency translation on our income statement information, which we calculate by applying the average of the daily currency exchange rates for the prior year period to the current year’s local currency results. Fluctuations in exchange rates also affect our consolidated balance sheet. Changes in the U.S. dollar values of our consolidated assets and liabilities resulting from exchange rate movements may also cause us to record foreign currency gains and losses. See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus.

In addition to currency translation risks, in some cases we incur costs in currencies other than those in which we record related net sales. Because of the local basis on which these exposures arise, however, and because they are typically of short duration, they tend not to be material to our results. In any event, we tend to hedge our transaction risk by using foreign-exchange forward contracts either through specific hedges for significant transactions or through hedging on a portfolio basis to address currency transaction mismatches embedded in the large number of our smaller transactions.

Quarterly results/seasonality. Seasonal changes may affect our business and results of operations. Our net sales are affected by the level of industrial production, which tends to decline in the fourth quarter of each year. Certain of our end markets also experience seasonal fluctuations, which also affect our net sales and results of operations. For example, our sales to the agricultural end market, particularly in Canada, tend to peak in the second and third quarters in each year, depending in part on weather-related variations in demand for agricultural chemicals. Sales to other end markets such as paints and coatings or water treatment may also be affected by changing seasonal weather conditions. See “—Quarterly Results of Operations Data.”

Reporting Segments

Our operations are structured into four operating segments that represent the geographic areas under which we operate and manage our business. These segments are Univar USA (“USA”), Univar Canada (“Canada”), Univar Europe and the Middle East and Africa (“EMEA”), and Rest of World (“Rest of World”), which includes developing businesses in Latin America (including Brazil and Mexico) and the Asia-Pacific region.

We monitor the results of our operating segments separately for the purposes of making decisions about resource allocation and performance assessment. We evaluate performance on the basis of Adjusted EBITDA.

We set transfer prices between operating segments on an arms-length basis in a similar manner to transactions with third parties. We allocate corporate operating expenses that directly benefit our operating segments on a basis that reasonably approximates our estimates of the use of these services.

Other/Eliminations represents the elimination of inter-segment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively. In the analysis of our results of operations, we discuss operating segment results for the current reporting period following our consolidated results of operations period-to-period comparison.

Second Quarter Update

We expect net sales and Adjusted EBITDA for the quarter to end June 30, 2015 to be down relative to net sales and Adjusted EBITDA for the quarter ended June 30, 2014, primarily due to the US dollar strengthening relative to other currencies and decreases in sales to our oil and gas customers. However, on a constant currency basis, we expect Adjusted EBITDA for the quarter to end June 30, 2015 to be approximately in line with Adjusted EBITDA for the quarter ended June 30, 2014 as weakness in oil and gas is expected to be offset by strength in our other end markets.

 

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We have not yet closed our books for our second fiscal quarter which will end June 30, 2015. Our actual results may differ materially from these expectations due to the completion of the quarter and our financial closing procedures, final adjustments and other developments that may arise between now and the time the financial results for our second quarter are finalized. We expect to complete our closing procedures for the quarter to end June 30, 2015 in August 2015.

Results of Operations

The following tables set forth, for the periods indicated, certain statements of operations data first on the basis of reported data and then as a percentage of total net sales for the relevant period. The financial data set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with our historical consolidated financial statements and accompanying notes included elsewhere herein.

Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014

 

     Three Month Ended     Favorable
(unfavorable)
    % Change     Impact of
currency*
 

(in millions)

   March 31, 2015     March 31, 2014        

Net sales

   $ 2,299.1        100.0   $ 2,516.4        100.0   $ (217.3     (8.6 )%      (6.0 )% 

Cost of goods sold (exclusive of depreciation)

     1,837.5        79.9     2,044.0        81.2     206.5        10.1     5.8
  

 

 

     

 

 

         

Gross profit

  461.6      20.1   472.4      18.8   (10.8   (2.3 )%    (6.5 )% 

Operating expenses:

Outbound freight and handling

  84.5      3.7   87.8      3.5   3.3      3.8   5.7

Warehousing, selling and administrative

  231.4      10.1   239.0      9.5   7.6      3.2   7.5

Other operating expenses, net

  8.1      0.4   21.7      0.9   13.6      62.7   2.3

Depreciation

  32.0      1.4   30.6      1.2   (1.4   (4.6 )%    7.6

Amortization

  21.9      1.0   23.7      0.9   1.8      7.6   3.8
  

 

 

     

 

 

         

Total operating expenses

  377.9      16.4   402.8      16.0   24.9      6.2   6.7
  

 

 

     

 

 

         

Operating income

  83.7      3.6   69.6      2.8   14.1      20.3   (5.6 )% 
  

 

 

     

 

 

         

Other (expense) income:

Interest income

  1.2      0.1   2.4      0.1   (1.2   (50.0 )%    (4.2 )% 

Interest expense

  (64.4   (2.8 )%    (66.3   (2.6 )%    1.9      2.9   1.2

Loss on extinguishment of debt

  —        —     (1.2   —     1.2      100.0   —  

Other income (expense), net

  6.8      0.3   (1.9   (0.1 )%    8.7      457.9   47.4
  

 

 

     

 

 

         

Total other expense

  (56.4   (2.5 )%    (67.0   (2.7 )%    10.6      15.8   2.4
  

 

 

     

 

 

         

Income before income taxes

  27.3      1.2   2.6      0.1   24.7      950.0   (84.6 )% 

Income tax expense

  7.6      0.3   5.4      0.2   (2.2   (40.7 )%    1.9
  

 

 

     

 

 

         

Net income (loss)

$ 19.7      0.9 $ (2.8   (0.1 )%    22.5      803.6   (78.6 )% 
  

 

 

     

 

 

         

 

* Foreign currency translation is included in the percentage change. Unfavorable impacts from foreign currency translation are designated with parentheses.

 

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Net sales

Net sales were $2,299.1 million in the three months ended March 31, 2015, representing a decrease of $217.3 million, or 8.6%, from the three months ended March 31, 2014. Foreign currency translation decreased net sales by 6.0% when compared to the three months ended March 31, 2014, due to the US dollar strengthening against all major currencies. Net sales decreased 3.7% due to a decrease in reported sales volumes as the result of decreases in the USA, Canada and EMEA segments partially offset by an increase in the Rest of World segment. Net sales increased 1.1% as a result of changes in sales pricing and product mix resulting from increases in the USA, Canada and Rest of World segments partially offset by a decrease in the EMEA segment. Refer to the “Segment results” for the three months ended March 31, 2015 discussion for additional information.

Gross profit

Gross profit decreased $10.8 million, or 2.3%, to $461.6 million for the three months ended March 31, 2015. Gross profit decreased by 3.7% due to decreases in reported sales volumes. Gross profit increased by 7.9% primarily due to changes in sales pricing, product costs and other adjustments resulting from increases across all segments. Foreign currency translation decreased gross profit by 6.5% when compared to the three months ended March 31, 2014 due to the US dollar strengthening against all major currencies. Gross margin, which we define as gross profit divided by net sales, increased to 20.1% in the three months ended March 31, 2015 from 18.8% in the three months ended March 31, 2014 due to improved gross margins in the USA, EMEA and Rest of World segments, partially offset by lower gross margins in the Canada segment. Refer to the “Segment results” for the three months ended March 31, 2015 discussion for additional information.

Outbound freight and handling

Outbound freight and handling expenses decreased $3.3 million, or 3.8%, to $84.5 million for the three months ended March 31, 2015. Foreign currency translation decreased outbound freight and handling expense by 5.7% or $5.0 million. On a constant currency basis, outbound freight and handling expenses increased 1.9% or $1.7 million, which was primarily attributable to a tighter supply environment in the third-party carrier market, partially offset by lower fuel costs and reported sales volumes. Refer to the “Segment results” for the three months ended March 31, 2015 discussion for additional information.

Warehousing, selling and administrative

Warehousing, selling and administrative expenses decreased $7.6 million, or 3.2%, to $231.4 million for the three months ended March 31, 2015. Foreign currency translation decreased warehousing, selling and administrative expenses by 7.6% or $18.1 million. On a constant currency basis, there was an increase of $10.5 million attributable to higher personnel expenses of $9.6 million primarily, due to annual compensation increases and higher variable compensation, higher consulting fees of $2.6 million and increases in information technology expenses of $1.4 million related to internal projects focused on improving operations. These increases were partially offset by lower operating lease expense of $2.1 million primarily due to certain operating leases being replaced by purchased assets as well as capital leases. The remaining $1.0 million decrease related to several insignificant components. Refer to the “Segment results” for the three months ended March 31, 2015 discussion for additional information.

Other operating expenses, net

Other operating expenses, net decreased $13.6 million, or 62.7%, to $8.1 million for the three months ended March 31, 2015. The decrease was primarily due to a reduction of $8.3 million in redundancy and restructuring charges in the three months ended March 31, 2015 compared to the three months ended March 31, 2014, which primarily related to higher facility exit costs in the three months ended March 31, 2014 largely due to changes in estimated sublease income. Refer to “Note 6: Redundancy and restructuring” in our unaudited consolidated financial statements for the three months ended March 31, 2015 for additional information. The decrease is also

 

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attributable to $3.7 million of lower consulting fees in the three months ended March 31, 2015, which fees were associated with the implementation of several regional initiatives aimed at streamlining our cost structure and improving our operations . Foreign currency translation decreased other operating expenses, net by 2.3% or $0.5 million. The remaining $1.1 million decrease related to several insignificant components. Refer to “Note 5: Other operating expenses, net” in our unaudited consolidated financial statements for the three months ended March 31, 2015 for additional information.

Depreciation and amortization

Depreciation expense increased $1.4 million, or 4.6%, to $32.0 million for the three months ended March 31, 2015. Foreign currency translation decreased depreciation expense by 7.5% or $2.3 million. On a constant currency basis, the increase was primarily related to increased purchases of property, plant and equipment, capital lease asset additions and accelerated depreciation on various sites, which were undergoing restructuring initiatives during the three months ended March 31, 2015.

Amortization expense decreased $1.8 million, or 7.6%, to $21.9 million for the three months ended March 31, 2015. Amortization expense decreased 3.8% or $0.9 million due to foreign currency translation and the additional decrease relates to the lower amortization levels of existing customer relationship intangibles. Customer relationship intangible assets are amortized on an accelerated basis to mirror the economic pattern of benefit from such relationships.

Interest expense

Interest expense decreased $1.9 million, or 2.9%, to $64.4 million for the three months ended March 31, 2015 primarily due to lower average borrowings under short-term financing agreements, partially offset by increased interest expense from capital lease obligations. Foreign currency translation decreased interest expense by 1.2% or $0.8 million.

Other income (expense), net

Other income (expense), net increased $8.7 million from an expense of $1.9 million for the three months ended March 31, 2014 to income of $6.8 million for the three months ended March 31, 2015 mostly driven by foreign currency transaction gains of $11.2 million primarily resulting from the revaluation of the Euro Tranche Term Loan in the three months ended March 31, 2015 compared to foreign currency transaction losses of $1.4 million in the three months ended March 31, 2014. Refer to “Note 7: Other income (expense), net” in our unaudited consolidated financial statements for the three months ended March 31, 2015 for additional information.

Income tax expense

Income tax expense increased $2.2 million, or 40.7%, to $7.6 million for the three months ended March 31, 2015 primarily due to changes in the mix of earnings in multiple tax jurisdictions, the rate of realization of actual to forecasted earnings and losses, and the interim accounting treatment of year to date losses incurred in foreign jurisdictions for which a tax benefit may not be recognized.

 

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Segment results

Our Adjusted EBITDA by operating segment and in aggregate is summarized in the following tables:

 

(in millions)

   USA      Canada      EMEA      Rest of
World
     Other/
Elimin-
ations(1)
    Consolidated  
     Three Months Ended March 31, 2015  

Net sales:

           

External customers

   $ 1,394.8       $ 293.2       $ 476.4       $ 134.7       $ —        $ 2,299.1   

Inter-segment

     27.5         1.9         0.7         —           (30.1     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total net sales

  1,422.3      295.1      477.1      134.7      (30.1   2,299.1   

Cost of goods sold (exclusive of depreciation)

  1,140.5      241.8      375.3      110.0      (30.1   1,837.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

  281.8      53.3      101.8      24.7      —        461.6   

Outbound freight and handling

  56.0      9.9      16.2      2.4      —        84.5   

Warehousing, selling and administrative (operating expenses)

  133.2      22.9      58.4      14.2      2.7      231.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

$ 92.6    $ 20.5    $ 27.2    $ 8.1    $ (2.7 $ 145.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Other operating expenses, net

  8.1   

Depreciation

  32.0   

Amortization

  21.9   

Interest expense, net

  63.2   

Other income, net

  (6.8

Income tax expense

  7.6   
                

 

 

 

Net income

$ 19.7   
                

 

 

 

(in millions)

   USA      Canada      EMEA      Rest of
World
     Other/
Elimin-
ations(1)
    Consolidated  
     Three Months Ended March 31, 2014  

Net sales:

        

External customers

   $ 1,466.5       $ 319.5       $ 597.8       $ 132.6       $ —        $ 2,516.4   

Inter-segment

     27.4         3.0         1.0         —           (31.4     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total net sales

  1,493.9      322.5      598.8      132.6      (31.4   2,516.4   

Cost of goods sold (exclusive of depreciation)

  1,214.0      263.5      484.1      113.8      (31.4   2,044.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

  279.9      59.0      114.7      18.8      —        472.4   

Outbound freight and handling

  54.9      12.1      19.2      1.6      —        87.8   

Warehousing, selling and administrative (operating expenses)

  128.1      24.6      72.1      13.5      0.7      239.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

$ 96.9    $ 22.3    $ 23.4    $ 3.7    $ (0.7 $ 145.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Other operating expenses, net

  21.7   

Depreciation

  30.6   

Amortization

  23.7   

Loss on extinguishment of debt

  1.2   

Interest expense, net

  63.9   

Other expense, net

  1.9   

Income tax expense

  5.4   
                

 

 

 

Net loss

$ (2.8
                

 

 

 

 

(1) Other/Eliminations represents the elimination of intersegment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively.

 

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USA. External sales in the USA segment were $1,394.8 million, a decrease of $71.7 million, or 4.9%, in the three months ended March 31, 2015. External sales dollars decreased 5.5% as a result of a decrease in reported sales volumes primarily due to a reduction in sales of oil and gas products mostly driven by lower oil prices as well as lower sales in the coatings & adhesives and cleaning & sanitization end markets driven by our margin management efforts. Sales pricing and product mix increased external sales dollars by 0.6% primarily resulting from a shift in product mix towards products with higher average selling prices. Gross profit increased $1.9 million, or 0.7%, to $281.8 million in the three months ended March 31, 2015. Gross profit decreased by 5.5% due to decreases in reported sales volumes. This was offset by a 6.2% increase in gross profit due to sales pricing, product costs and other adjustments primarily due to a shift in product mix towards higher margin products in the three months ended March 31, 2015. Gross margin increased from 19.1% in the three months ended March 31, 2014 to 20.2% during the three months ended March 31, 2015. Outbound freight and handling expenses increased $1.1 million, or 2.0%, to $56.0 million in the three months ended March 31, 2015 primarily due to a tighter supply environment in the third-party carrier market and increased headcount related to increasing our internal fleet, which was partially offset by lower fuel costs and reported sales volumes. Operating expenses increased $5.1 million, or 4.0%, to $133.2 million in the three months ended March 31, 2015 due to higher personnel expenses of $7.5 million primarily due to increased headcount, annual compensation increases and higher variable compensation, and higher consulting fees of $1.7 million related to internal projects focused on improving operations. These increases were partially offset by lower lease expense of $2.0 million primarily due to certain operating leases being replaced by purchased assets as well as capital leases. The remaining $2.1 million decrease related to several insignificant components. Operating expenses as a percentage of external sales increased from 8.7% in the three months ended March 31, 2014 to 9.5% in the three months ended March 31, 2015.

Adjusted EBITDA decreased by $4.3 million, or 4.4%, to $92.6 million in the three months ended March 31, 2015. Adjusted EBITDA margin was flat at 6.6% in the three months ended March 31, 2015 primarily as a result of improved gross margin offset by higher operating expenses as a percentage of external net sales.

Canada. External sales in the Canada segment were $293.2 million, a decrease of $26.3 million, or 8.2%, in the three months ended March 31, 2015. Foreign currency translation decreased external sales dollars by 11.4% as the US dollar strengthened against the Canadian dollar when comparing the three months ended March 31, 2015 to the three months ended March 31, 2014. On a constant currency basis, external sales dollars increased $10.3 million or 3.2%. External sales dollars decreased 3.2% as a result of a decrease in reported sales volumes primarily due to decreases in sales of oil and gas products mostly driven by lower oil prices partially offset by increases in agricultural sales, which were mostly driven by warmer weather conditions as well as increases in food, mining and chemical manufacturing products. Sales pricing and product mix increased external sales dollars by 6.4% due to increased average selling prices. Gross profit decreased $5.7 million, or 9.7%, to $53.3 million in the three months ended March 31, 2015. Foreign currency translation decreased gross profit by 11.2%. Gross profit decreased 3.2% due to decreases in reported sales volumes. Gross profit increased due to an increase of 4.7% from changes in sales pricing, product costs and other adjustments primarily due to the positive impacts from increased average selling prices across several industry sectors, partially offset by lower average selling prices for oil and gas products during the three months ended March 31, 2015. Gross margin decreased from 18.5% in the three months ended March 31, 2014 to 18.2% in the three months ended March 31, 2015 primarily due to a shift in product mix towards lower margin products in the three months ended March 31, 2015. Outbound freight and handling expenses decreased $2.2 million, or 18.2%, to $9.9 million primarily due to foreign currency translation and lower reported sales volumes. Operating expenses decreased by $1.7 million, or 6.9%, to $22.9 million in the three months ended March 31, 2015 and increased as a percentage of external sales from 7.7% in the three months ended March 31, 2014 to 7.8% in the three months ended March 31, 2015. Foreign currency translation decreased operating expenses by 11.8% or $2.9 million. On a constant currency basis, operating expenses increased $1.2 million, or 4.9%, and the increase primarily relates to increased personnel expenses of $1.0 million primarily driven by annual compensation increases and higher variable compensation. The remaining $0.2 million increase related to several insignificant components.

 

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Adjusted EBITDA decreased by $1.8 million, or 8.1%, to $20.5 million in the three months ended March 31, 2015. Foreign currency translation decreased Adjusted EBITDA by 11.7% or $2.6 million. On a constant currency basis, Adjusted EBITDA increased $0.8 million, or 3.6%, primarily due to increased external sales generating increased gross profit. Adjusted EBITDA margin was flat at 7.0% in the three months ended March 31, 2015 primarily due to lower transportation costs as a percentage of external net sales offset by lower gross margin.

EMEA. External sales in the EMEA segment were $476.4 million, a decrease of $121.4 million, or 20.3%, in the three months ended March 31, 2015. Foreign currency translation decreased external sales dollars by 15.9% primarily resulting from the US dollar strengthening against the euro and British pound when comparing the three months ended March 31, 2015 to the three months ended March 31, 2014. External sales dollars decreased 0.5% as a result of a decrease in reported sales volumes primarily driven by the expiration of a high-volume customer contract which was not renewed by us due to the low margins on that contract and as well as less demand for oil and gas products. Changes in sales pricing and product mix decreased external sales dollars by 3.9% resulting from lower average selling prices primarily related to oil and gas products. Gross profit decreased $12.9 million, or 11.2%, to $101.8 million in the three months ended March 31, 2015. Foreign currency translation decreased gross profit by 17.8% primarily as a result of the US dollar strengthening against the euro and British pound when comparing the three months ended March 31, 2015 to the three months ended March 31, 2014. Gross profit decreased 0.5% due to decreases in reported sales volumes. Gross profit increased 7.1% due to sales pricing, product costs, and other adjustments primarily resulting from the expiration of the lower margin customer contract as well as implementing company initiatives to increase volumes of higher margin products resulting in lower average purchasing costs. Gross margin increased from 19.2% in the three months ended March 31, 2014 to 21.4% in the three months ended March 31, 2015 primarily due to the factors impacting gross profit discussed above. Outbound freight and handling expenses decreased $3.0 million, or 15.6%, to $16.2 million primarily due to foreign currency translation. On a constant currency basis, outbound freight and handling expenses increased $0.4 million, or 2.1%, due to increased volumes from warehouse sales. Operating expenses decreased $13.7 million, or 19.0%, to $58.4 million in the three months ended March 31, 2015 but increased slightly as a percentage of external sales from 12.1% in the three months ended March 31, 2014 to 12.3% in the three months ended March 31, 2015. Foreign currency translation decreased operating expenses by 18.3% or $13.2 million. On a constant currency basis, operating expenses decreased $0.5 million, or 0.7%.

Adjusted EBITDA increased by $3.8 million, or 16.2%, to $27.2 million in the three months ended March 31, 2015. Foreign currency translation decreased Adjusted EBITDA by 16.7% or $3.9 million. On a constant currency basis, Adjusted EBITDA increased $7.7 million, or 32.9%, primarily due to increased gross profit. Adjusted EBITDA margin increased from 3.9% in the three months ended March 31, 2014 to 5.7% in the three months ended March 31, 2015 primarily as a result of the increase in gross margin.

Rest of World. External sales in the Rest of World segment were $134.7 million, an increase of $2.1 million, or 1.6%, in the three months ended March 31, 2015. In November 2014, the Company acquired D’Altomare, a Brazilian chemical distributor, which contributed external sales dollars of $13.0 million in the three months ended March 31, 2015. Excluding the impact of D’Altomare, external sales dollars increased 4.9% due to an increase in reported sales volumes, which was primarily attributable to increases in Mexico due to higher sales of caustic soda and personal care products, partially offset by decreases in the Asia Pacific region related to competitive pressures and weaker demand. Excluding the impact of D’Altomare, external sales dollars increased by 1.1% as a result of changes in sales pricing and product mix due to increased average selling prices. Foreign currency translation decreased external sales dollars by 14.2% when comparing the three months ended March 31, 2015 to the three months ended March 31, 2014 primarily due to the US dollar strengthening against the Mexican peso and Brazilian real. Gross profit increased $5.9 million, or 31.4%, to $24.7 million in the three months ended March 31, 2015. D’Altomare contributed gross profit of $5.0 million in the three months ended March 31, 2015. Excluding the impact of D’Altomare, gross profit increased by 4.9% due to an increase in reported sales volumes. Gross profit increased 20.1% due to changes in sales pricing, product costs and other adjustments primarily due to average selling prices increasing at a faster rate than average purchasing costs.

 

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Foreign currency translation decreased gross profit by 20.2%. Gross margin increased from 14.2% in the three months ended March 31, 2014 to 18.3% in the three months ended March 31, 2015 (16.2% excluding D’Altomare in the three months ended March 31, 2015). D’Altomare provides value added services such as blending and sells specialty chemicals and ingredients, which contributed to the higher gross margin in the three months ended March 31, 2015. Outbound freight and handling expenses increased $0.8 million, or 50.0%, to $2.4 million in the three months ended March 31, 2015 primarily related to the increase in reported sales volumes as well as a $0.2 million increase from D’Altomare. Operating expenses increased $0.7 million, or 5.2%, to $14.2 million in the three months ended March 31, 2015 and increased as a percentage of external sales from 10.2% in the three months ended March 31, 2014 to 10.5% in the three months ended March 31, 2015. D’Altomare contributed operating expenses of $2.5 million in the three months ended March 31, 2015. Foreign currency translation decreased operating expenses by 15.6% or $2.1 million. The remaining $0.3 million increase related to several insignificant components.

Adjusted EBITDA increased by $4.4 million, or 118.9%, to $8.1 million in the three months ended March 31, 2015. D’Altomare contributed Adjusted EBITDA of $2.3 million in the three months ended March 31, 2015. Foreign currency translation decreased Adjusted EBITDA by 35.1% or $1.3 million. On a constant currency basis and excluding D’Altomare, Adjusted EBITDA increased $3.4 million, or 91.9%, primarily due to increased gross profit. Adjusted EBITDA margin increased from 2.8% in the three months ended March 31, 2014, to 6.0% in the three months ended March 31, 2015 (4.8% excluding D’Altomare in the three months ended March 31, 2015). The increase is primarily a result of the increase in gross margin.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

 

     Year ended     Favorable
(unfavorable)
    %
Change
    Impact of
currency*
 

(in millions)

   December 31, 2014     December 31, 2013        

Net sales

   $ 10,373.9        100.0   $ 10,324.6        100.0   $ 49.3        0.5     (1.4 )% 

Cost of goods sold (exclusive of depreciation)

     8,443.2        81.4     8,448.7        81.8     5.5        0.1     1.4
  

 

 

     

 

 

         

Gross profit

  1,930.7      18.6   1,875.9      18.2   54.8      2.9   (1.1 )% 

Operating expenses:

Outbound freight and handling

  365.5      3.5   326.0      3.2   (39.5   (12.1 )%    1.2

Warehousing, selling and administrative

  923.5      8.9   951.7      9.2   28.2      3.0   1.1

Other operating expenses, net

  197.1      1.9   12.0      0.1   (185.1   N/M      N/M   

Depreciation

  133.5      1.3   128.1      1.2   (5.4   (4.2 )%    0.6

Amortization

  96.0      0.9   100.0      1.0   4.0      4.0   0.7

Impairment charges

  0.3      —     135.6      1.3   135.3      99.8   —  
  

 

 

     

 

 

         

Total operating expenses

  1,715.9      16.5   1,653.4      16.0   (62.5   (3.8 )%    1.0
  

 

 

     

 

 

         

Operating income

  214.8      2.1   222.5      2.2   (7.7   (3.5 )%    (1.7 )% 
  

 

 

     

 

 

         

Other (expense) income:

Interest income

  8.2      0.1   11.0      0.1   (2.8   (25.5 )%    (1.8 )% 

Interest expense

  (258.8   (2.5 )%    (305.5   (3.0 )%    46.7      15.3   0.1

Loss on extinguishment of debt

  (1.2   —     (2.5   —     1.3      52.0   —  

Other income (expense), net

  1.1      —     (17.6   (0.2 )%    18.7      106.3   2.8
  

 

 

     

 

 

         

Total other expense

  (250.7   (2.4 )%    (314.6   (3.0 )%    63.9      20.3   0.2
  

 

 

     

 

 

         

Loss before income taxes

  (35.9   (0.3 )%    (92.1   (0.9 )%    56.2      61.0   (3.4 )% 

Income tax benefit

  (15.8   (0.2 )%    (9.8   (0.1 )%    6.0      61.2   2.0
  

 

 

     

 

 

         

Net loss

$ (20.1   (0.2 )%  $ (82.3   (0.8 )%    62.2      75.6   (3.5 )% 
  

 

 

     

 

 

         

 

* Foreign currency translation is included in the percentage change. Unfavorable impacts from foreign currency translation are designated with parentheses.

 

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Net sales

Net sales were $10,373.9 million in the year ended December 31, 2014, an increase of $49.3 million, or 0.5%, from the year ended December 31, 2013. The May 2013 acquisition of Quimicompuestos in Mexico contributed additional net sales of $79.4 million in the year ended December 31, 2014. Excluding the impact of Quimicompuestos, net sales increased 1.4% due to an increase in reported sales volumes as the result of an increase in reported sales volumes in the USA and Canada segments partially offset by decreases in the EMEA and Rest of World segments. Excluding the impact of Quimicompuestos, net sales decreased 0.3% as a result of changes in sales pricing and product mix resulting from a decrease in the USA segment partially offset by increases in the Canada, EMEA and Rest of World segments. Foreign currency translation decreased net sales by 1.4% when compared to the year ended December 31, 2013, primarily due to the US dollar strengthening against the Canadian dollar. Refer to the “Segment results” for the year ended December 31, 2014 discussion for additional information.

Gross profit

Gross profit increased $54.8 million, or 2.9%, to $1,930.7 million for the year ended December 31, 2014. Quimicompuestos contributed additional gross profit of $9.9 million in the year ended December 31, 2014. Excluding the impact of Quimicompuestos, gross profit increased by 1.4% due to increases in reported sales volumes. Excluding the impact of Quimicompuestos, gross profit increased by 2.1% primarily due to changes in sales pricing, product costs and other adjustments resulting from increases in the Canada, EMEA and Rest of World segments partially offset by a decrease in the USA segment. Foreign currency translation decreased gross profit by 1.1% when compared to the year ended December 31, 2013 mainly due to the US dollar strengthening against the Canadian dollar. Gross margin, which we define as gross profit divided by net sales, increased to 18.6% in the year ended December 31, 2014 from 18.2% in the year ended December 31, 2013 due to improved gross margins in the USA, Canada and EMEA segments. Refer to the “Segment results” for the year ended December 31, 2014 discussion for additional information.

Outbound freight and handling

Outbound freight and handling expenses increased $39.5 million, or 12.1%, to $365.5 million for the year ended December 31, 2014, which was primarily attributable to the increase in reported sales volumes, increased expense due to a tighter third-party carrier market and incremental costs from the Quimicompuestos acquisition. Foreign currency translation decreased outbound freight and handling expense by 1.2% or $3.8 million. Refer to the “Segment results” for the year ended December 31, 2014 discussion for additional information.

Warehousing, selling and administrative

Warehousing, selling and administrative expenses decreased $28.2 million, or 3.0%, to $923.5 million for the year ended December 31, 2014. The decrease was primarily attributable to management’s focus on cost control and the realization of the benefits of previously implemented productivity initiatives. This decrease was partially offset by an additional $5.4 million in warehousing, selling and administrative expenses in the year ended December 31, 2014 due to Quimicompuestos. Foreign currency translation decreased warehousing, selling and administrative expenses by 1.1% or $10.3 million. On a constant currency basis and excluding Quimicompuestos, the decrease relates to reductions in professional fees from outside services of $10.0 million and reduced temporary and contract labor expense of $3.2 million due to lower spending on productivity initiatives, uninsured losses and settlements of $7.8 million due to the impact of settlements during the year ended December 31, 2013. The decrease in warehousing, selling and administrative expenses also reflects the impact of reducing legal accruals for contingencies from prior acquisitions where our liability has been extinguished, lower repairs and maintenance of $3.7 million primarily related to reductions in corporate maintenance, lower information technology spending of $2.9 million due to higher spending during the year ended December 31, 2013 related to the implementation of an enterprise resource planning (“ERP”) system and less bad debt expense of $1.8 million primarily related to less bad debt expenses in EMEA during the year ended

 

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December 31, 2014. These decreases were partially offset by increases in personnel related expenses of $3.7 million, which were primarily related to increased headcount and variable compensation expense increasing due to improved 2014 financial performance compared to 2013. The remaining $2.4 million increase related to several insignificant components. Refer to the “Segment results” for the year ended December 31, 2014 discussion for additional information.

Other operating expenses, net

Other operating expenses, net increased $185.1 million to $197.1 million for the year ended December 31, 2014. The increase was due to a pension mark to market loss of $117.8 million in the year ended December 31, 2014 compared to a mark to market gain of $73.5 million in the year ended December 31, 2013 relating to the annual remeasurement of our defined benefit plans and other postretirement benefit plans. The 2014 mark to market loss primarily relates to the decrease in the defined benefit pension plans discount rates from December 31, 2013 to December 31, 2014 and the adoption of the new US mortality table as of December 31, 2014. This loss was partially offset by higher than expected plan asset returns during the year ended December 31, 2014. Refer to “Note 8: Employee benefit plans” in our audited consolidated financial statements for the year ended December 31, 2014 for additional information. The increase in other operating expenses, net was also attributable to a $24.5 million gain due to fair value adjustments in the year ended December 31, 2013 compared to a $1.0 million gain due to fair value adjustments in the year ended December 31, 2014 resulting from the remeasurement of the fair value of the contingent consideration liability associated with our 2012 acquisition of Magnablend (resulting from a reduced probability of Magnablend achieving its performance targets that would trigger contingent consideration payments). These increases were partially offset by lower redundancy and restructuring charges of $19.6 million mainly in the USA and EMEA segments. Refer to “Note 5: Redundancy and Restructuring” in our audited consolidated financial statements for the year ended December 31, 2014 for additional information. The increases were also partially offset by lower consulting fees of $7.8 million during the year ended December 31, 2014 primarily due to increased expenditures during the year ended December 31, 2013 associated with the implementation of several regional initiatives aimed at streamlining our cost structure and improving our operations. Foreign currency translation decreased other operating expenses, net by $0.8 million. The remaining $1.5 million decrease related to several insignificant components. Refer to “Note 4: Other operating expenses, net” in our audited consolidated financial statements for the year ended December 31, 2014 for additional information.

Depreciation and amortization

Depreciation expense increased $5.4 million, or 4.2%, to $133.5 million for the year ended December 31, 2014. Quimicompuestos contributed additional depreciation expense of $1.5 million for the year ended December 31, 2014. The remaining increase in depreciation expense primarily related to accelerated depreciation on various sites which are undergoing restructuring initiatives. Foreign currency translation decreased depreciation expense by 0.6% or $0.8 million.

Amortization expense decreased $4.0 million, or 4.0%, to $96.0 million for the year ended December 31, 2014. Amortization expense decreased 0.7% or $0.7 million due to foreign currency translation and the lower amortization levels of existing customer relationship intangibles partially offset by an increase in amortization expense due to the amortization of additional intangible assets associated with Quimicompuestos. Customer relationships are amortized on an accelerated basis to mirror the economic pattern of benefit from such relationship.

Impairment charges

Impairment charges of $0.3 million were recorded in the year ended December 31, 2014 relating to ongoing restructuring initiatives, a decrease of $135.3 million.

 

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Impairment charges of $135.6 million were recorded in the year ended December 31, 2013. The impairment charges primarily represented the write-off of goodwill related to the Rest of World reporting unit as well as the write off of capitalized software development costs related to a global ERP system. The impairment of goodwill was triggered by a deterioration in general economic conditions within some of the reporting unit’s significant locations and revised financial projections for the Company. The impairment of the global ERP system was triggered by our decision to abandon its implementation.

Interest expense

Interest expense decreased $46.7 million, or 15.3%, to $258.8 million for the year ended December 31, 2014 primarily as a result of a decrease in fixed interest rates due to the March 2013 refinancing of the Senior Subordinated Notes and the recognition of $27.1 million in fees associated with the March 2013 early payment on the 2018 Senior Subordinated Notes of $350.0 million. In addition, $9.3 million of the decrease was due to lower average borrowings under short-term financing agreements. Interest expense related to tax contingencies was a gain of $4.7 million and a charge of $0.1 million for a net gain of $4.6 million in the year ended December 31, 2014 compared to a charge of $1.0 million in the year ended December 31, 2013. The net gain in the year ended December 31, 2014 related to accrued interest expense being released as the statute of limitations related to certain tax contingencies expired during the year ended December 31, 2014. Foreign currency translation decreased interest expense by 0.1% or $0.4 million. These decreases were partially offset by increased interest expense generated from interest rate swap contracts of $5.6 million.

Other income (expense), net

Other income (expense), net increased $18.7 million, or 106.3%, from an expense of $17.6 million for the year ended December 31, 2013 to income of $1.1 million for the year ended December 31, 2014 primarily as a result of foreign currency transaction gains of $7.7 million in the year ended December 31, 2014 compared to foreign currency transaction losses of $11.0 million in the year ended December 31, 2013, which are primarily related to the strengthening of the US dollar compared to the euro and Canadian dollar during the year ending December 31, 2014. In addition, there were lower debt refinancing fees of $6.2 million in the year ended December 31, 2014. The aforementioned increases to other income (expense), net were partially offset by an increase of $3.7 million of losses related to undesignated foreign currency derivative instruments. Refer to “Note 6: Other income (expense), net” in our audited consolidated financial statements for the year ended December 31, 2014 for additional information.

Income tax benefit

Income tax benefit increased $6.0 million, or 61.2%, to $15.8 million for the year ended December 31, 2014. The increase primarily is due to our release of a net $18.4 million in unrealized tax benefits due to the statute of limitations expiration related to certain tax contingencies as well as a decrease of $11.6 million in foreign losses not benefitted for which a tax benefit may not be recognized.

 

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Segment results

Our Adjusted EBITDA by operating segment and in aggregate is summarized in the following tables:

 

(in millions)

   USA      Canada      EMEA      Rest of
World
     Other/
Elimin-
ations(1)
    Consolidated  
     Year ended December 31, 2014  

Net sales:

                

External customers

   $ 6,081.4       $ 1,512.1       $ 2,230.1       $ 550.3       $ —        $ 10,373.9   

Inter-segment

     121.8         10.0         4.5         —           (136.3     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total net sales

  6,203.2      1,522.1      2,234.6      550.3      (136.3   10,373.9   

Cost of goods sold (exclusive of depreciation)

  5,041.0      1,271.5      1,797.9      469.1      (136.3   8,443.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

  1,162.2      250.6      436.7      81.2      —        1,930.7   

Outbound freight and handling

  233.3      46.4      75.5      10.3      —        365.5   

Warehousing, selling and administrative (operating expenses)

  490.9      97.4      276.2      53.3      5.7      923.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

$ 438.0    $ 106.8    $ 85.0    $ 17.6    $ (5.7 $ 641.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Other operating expenses, net

  197.1   

Depreciation

  133.5   

Amortization

  96.0   

Impairment charges

  0.3   

Loss on extinguishment of debt

  1.2   

Interest expense, net

  250.6   

Other income, net

  (1.1

Income tax benefit

  (15.8
                

 

 

 

Net loss

$ (20.1
                

 

 

 

 

(in millions)

   USA      Canada      EMEA      Rest of
World
     Other/
Elimin-
ations(1)
    Consolidated  
     Year ended December 31, 2013  

Net sales:

                

External customers

   $ 5,964.5       $ 1,558.7       $ 2,326.8       $ 474.6       $ —        $ 10,324.6   

Inter-segment

     116.5         8.0         4.0         —           (128.5     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total net sales

  6,081.0      1,566.7      2,330.8      474.6      (128.5   10,324.6   

Cost of goods sold (exclusive of depreciation)

  4,953.4      1,316.6      1,902.9      404.3      (128.5   8,448.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

  1,127.6      250.1      427.9      70.3      —        1,875.9   

Outbound freight and handling

  201.3      41.6      76.1      7.0      —        326.0   

Warehousing, selling and administrative (operating expenses)

  492.6      102.4      299.3      48.3      9.1      951.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

$ 433.7    $ 106.1    $ 52.5    $ 15.0    $ (9.1 $ 598.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Other operating expenses, net

  12.0   

Depreciation

  128.1   

Amortization

  100.0   

Impairment charges

  135.6   

Loss on extinguishment of debt

  2.5   

Interest expense, net

  294.5   

Other expense, net

  17.6   

Income tax benefit

  (9.8
                

 

 

 

Net loss

$ (82.3
                

 

 

 

 

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(1) Other/Eliminations represents the elimination of intersegment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively.

USA. External sales in the USA segment were $6,081.4 million, an increase of $116.9 million, or 2.0%, in the year ended December 31, 2014. External sales dollars increased 4.1% as a result of an increase in reported sales volumes primarily due to increased sales of hydrochloric acid and caustic soda. Sales pricing and product mix decreased external sales dollars by 2.1% primarily resulting from a shift towards products with lower average selling prices. Gross profit increased $34.6 million, or 3.1%, to $1,162.2 million in the year ended December 31, 2014. Gross profit increased by 4.1% due to increases in reported sales volumes. This was offset by a 1.0% decrease in gross profit due to sales pricing, product costs and other adjustments primarily due to an increase in product mix towards lower margin products partially offset by higher inventory write-downs of guar during the year ended December 31, 2013 driven by a reduction in guar’s market prices. Gross margin increased from 18.9% in the year ended December 31, 2013 to 19.1% during the year ended December 31, 2014 due to average purchasing costs decreasing at a faster rate than average selling prices and the prior year impact of the guar write-downs. Outbound freight and handling expenses increased $32.0 million, or 15.9%, to $233.3 million in the year ended December 31, 2014 primarily due to the increase in reported sales volumes as well as increased deliveries to remote locations and the tighter third-party carrier market. Operating expenses decreased $1.7 million, or 0.3%, to $490.9 million in the year ended December 31, 2014 due to lower corporate cost allocations of $6.8 million in the year ended December 31, 2014 resulting from a reduction in overall corporate costs as well as a transfer of certain corporate personnel to the USA segment. The decrease in operating expenses was also due to lower outside professional fees of $4.1 million in the year ended December 31, 2014 resulting from costs incurred in the year ended December 31, 2013 for a sales and operations planning project, lower uninsured losses and settlements of $2.9 million due to higher settlement expenses incurred during the year ended December 31, 2013, increased container recovery of $1.9 million related to implementation of improved tracking of containers and lower external legal fees of $1.5 million due to higher recovery of legal fees from insurance. These reductions were partially offset by higher personnel expenses of $9.1 million resulting from higher headcount, higher temporary labor and contract labor of $2.6 million due to hiring of additional temporary salespeople, higher travel and entertainment expenses of $2.4 million resulting from lower travel levels in the year ended December 31, 2013, increased taxes other than income taxes of $1.8 million related to higher property taxes and increased pallets and supplies expense of $1.7 million related to increased sales volumes. The remaining $2.1 million decrease related to several insignificant components. Operating expenses as a percentage of external sales decreased from 8.3% in the year ended December 31, 2013 to 8.1% in the year ended December 31, 2014.

Adjusted EBITDA increased by $4.3 million, or 1.0%, to $438.0 million in the year ended December 31, 2014. Adjusted EBITDA margin decreased from 7.3% in the year ended December 31, 2013 to 7.2% in the year ended December 31, 2014 primarily as a result of increased freight and handling expenses.

Canada. External sales in the Canada segment were $1,512.1 million, a decrease of $46.6 million, or 3.0%, in the year ended December 31, 2014. External sales dollars increased 0.7% as a result of an increase in reported sales volumes due to increases in sales of oil and gas, coatings and adhesives, and food ingredient products, partially offset by decreases in agricultural and forestry products. Sales pricing and product mix increased external sales dollars by 3.3% due to increased average selling prices. Foreign currency translation decreased external sales dollars by 7.0% as the US dollar strengthened against the Canadian dollar when comparing the year ended December 31, 2014 to the year ended December 31, 2013. On a constant currency basis, external sales dollars increased $62.8 million or 4.0%. Gross profit increased $0.5 million, or 0.2%, to $250.6 million in the year ended December 31, 2014. Gross profit increased 0.7% due to increases in reported sales volumes. Gross profit increased due to an increase of 6.7% from changes in sales pricing, product costs and other adjustments primarily due to the positive impacts from increased average selling prices during the year ended December 31, 2014, as well as higher product settlement costs and guar inventory write-downs incurred during the year ended December 31, 2013. Foreign currency translation decreased gross profit by 7.2%. Gross margin increased from

 

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16.0% in the year ended December 31, 2013 to 16.6% in the year ended December 31, 2014 primarily due to the factors impacting gross profit discussed above. Outbound freight and handling expenses increased $4.8 million, or 11.5%, to $46.4 million primarily due to the increase in reported sales volumes as well as increased deliveries to customers in remote locations. Operating expenses decreased by $5.0 million, or 4.9%, to $97.4 million in the year ended December 31, 2014 and decreased as a percentage of external sales from 6.6% in the year ended December 31, 2013 to 6.4% in the year ended December 31, 2014. Foreign currency translation decreased operating expenses by 6.9% or $7.1 million. On a constant currency basis, operating expenses increased $2.1 million, or 2.1%, primarily related to higher personnel expenses of $1.0 million resulting from annual compensation increases and increases in headcount and higher outside storage fees of $0.9 million related to increased sales volumes. This increase was partially offset by lower corporate cost allocations of $0.7 million due to lower overall corporate costs. The remaining $0.9 million increase related to several insignificant components.

Adjusted EBITDA increased by $0.7 million, or 0.7%, to $106.8 million in the year ended December 31, 2014. Foreign currency translation decreased Adjusted EBITDA by 7.3% or $7.7 million. On a constant currency basis, Adjusted EBITDA increased $8.4 million due to increased external sales generating increased gross profit. Adjusted EBITDA margin increased from 6.8% in the year ended December 31, 2013 to 7.1% in the year ended December 31, 2014 primarily due to increases in gross margin.

EMEA. External sales in the EMEA segment were $2,230.1 million, a decrease of $96.7 million, or 4.2%, in the year ended December 31, 2014. External sales dollars decreased 4.0% as a result of a decrease in reported sales volumes primarily driven by the expiration of two high-volume customer contracts which were not renewed by us due to the low margins on those contracts. Changes in sales pricing and product mix increased external sales dollars by 0.4% primarily resulting from a shift in product mix towards products with higher average selling prices. Foreign currency translation decreased external sales dollars by 0.6% primarily resulting from the US dollar strengthening against the euro when comparing the year ended December 31, 2014 to the year ended December 31, 2013. Gross profit increased $8.8 million, or 2.1%, to $436.7 million in the year ended December 31, 2014. Gross profit decreased 4.0% due to decreases in reported sales volumes. Gross profit increased 6.4% due to sales pricing, product costs, and other adjustments primarily resulting from the expiration of two lower margin customer contracts as well as average purchasing costs decreasing at a faster rate than average selling prices on the remaining products. Foreign currency translation decreased gross profit by 0.3% primarily as a result of the US dollar strengthening against the euro when comparing the year ended December 31, 2014 to the year ended December 31, 2013. Gross margin increased from 18.4% in the year ended December 31, 2013 to 19.6% in the year ended December 31, 2014 primarily due to the factors impacting gross profit discussed above. Outbound freight and handling expenses decreased $0.6 million, or 0.8%, to $75.5 million primarily due to the decrease in reported sales volumes. Operating expenses decreased $23.1 million, or 7.7%, to $276.2 million in the year ended December 31, 2014 and decreased as a percentage of external sales from 12.9% in the year ended December 31, 2013 to 12.4% in the year ended December 31, 2014. The decrease primarily related to realizing the benefits of previously implemented productivity initiatives. Foreign currency translation decreased operating expenses by 0.8% or $2.5 million. On a constant currency basis, the decrease resulted from lower outside professional fees of $5.0 million due to higher fees related to margin improvement initiative spending during the year ended December 31, 2013, lower corporate costs of $4.3 million due to lower overall corporate costs, a $3.4 million reduction in uninsured losses and settlements due to higher settlement costs incurred during the year ended December 31, 2013 related to a customer dispute, lower temporary and contract labor of $3.2 million resulting from lower recruiting and training costs, lower bad debts of $2.8 million in 2014 resulting from implementing working capital initiatives and lower spending on information technology of $2.1 million resulting from higher than average spending during the year ended December 31, 2013 related to the implementation of an ERP system. The remaining $0.2 million increase related to several insignificant components.

Adjusted EBITDA increased by $32.5 million, or 61.9%, to $85.0 million in the year ended December 31, 2014 due to increased gross profit and decreased operating expenses. Foreign currency translation increased Adjusted EBITDA by 2.7% or $1.4 million. Adjusted EBITDA margin increased from 2.3% in the year ended

 

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December 31, 2013 to 3.8% in the year ended December 31, 2014 as a result of the increase in gross margin and a decrease in operating expenses as a percentage of external sales.

Rest of World. External sales in the Rest of World segment were $550.3 million, an increase of $75.7 million, or 16.0%, in the year ended December 31, 2014. Quimicompuestos contributed additional external sales dollars of $79.4 million in the year ended December 31, 2014. Excluding the impact of Quimicompuestos, external sales dollars decreased 10.8% due to a decrease in reported sales volumes, which was primarily attributable to decreases in the Asia Pacific region related to competitive pressures and weaker demand. Excluding the impact of Quimicompuestos, external sales dollars increased by 13.7% as a result of changes in sales pricing and product mix due to a market shift in product mix toward products with higher average selling prices in the Asia Pacific region and Brazil. Foreign currency translation decreased external sales dollars by 3.6% when comparing the year ended December 31, 2014 to the year ended December 31, 2013 primarily due to the US dollar strengthening against the Mexican peso and Brazilian real. Gross profit increased $10.9 million, or 15.5%, to $81.2 million in the year ended December 31, 2014. Quimicompuestos contributed additional gross profit of $9.9 million in the year ended December 31, 2014. Excluding the impact of Quimicompuestos, gross profit decreased by 10.8% due to a decrease in reported sales volumes. Gross profit increased 13.2% due to changes in sales pricing, product costs and other adjustments primarily related to improved margins in the Asia Pacific region resulting from an increased mix of specialty products partially offset by lower margins in Brazil resulting from competitive pressures. Foreign currency translation decreased gross profit by 1.0%. Gross margin remained at 14.8% in the year ended December 31, 2014 (15.1% excluding Quimicompuestos due to lower margins resulting from the oil and gas market). Outbound freight and handling expenses increased $3.3 million, or 47.1%, to $10.3 million in the year ended December 31, 2014 primarily related to an increase from Quimicompuestos partially offset by the decrease in reported sales volumes. Operating expenses increased $5.0 million, or 10.4%, to $53.3 million in the year ended December 31, 2014 and decreased as a percentage of external sales from 10.2% in the year ended December 31, 2013 to 9.7% in the year ended December 31, 2014. Quimicompuestos contributed additional operating expenses of $5.4 million in the year ended December 31, 2014. Foreign currency translation decreased operating expenses by 1.9% or $0.9 million. On a constant currency basis and excluding the impact of Quimicompuestos, the increase of $0.5 million in operating expenses was primarily related to higher personnel expenses of $1.7 million due to increased headcount, which was partially offset by reduced corporate cost allocations of $1.2 million.

Adjusted EBITDA was $17.6 million in the year ended December 31, 2014, an increase of $2.6 million, or 17.3% (an increase of $2.1 million excluding Quimicompuestos) primarily resulting from increased gross profit. Adjusted EBITDA margin remained at 3.2% for the year ended December 31, 2014 (3.6% excluding Quimicompuestos).

 

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Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

 

     Year Ended     Favorable
(unfavorable)
    %
Change
    Impact of
Currency*
 

(in millions)

   December 31,
2013
    December 31,
2012
       

Net sales

   $ 10,324.6        100.0   $ 9,747.1        100.0   $ 577.5        5.9     0.1

Cost of goods sold (exclusive of depreciation)

     8,448.7        81.8     7,924.6        81.3     (524.1     (6.6 )%      (0.1 )% 
  

 

 

     

 

 

         

Gross profit

  1,875.9      18.2   1,822.5      18.7   53.4      2.9   0.1

Operating expenses:

Outbound freight and handling

  326.0      3.2   308.2      3.2   (17.8   (5.8 )%    (0.3 )% 

Warehousing, selling and administrative

  951.7      9.2   907.1      9.3   (44.6   (4.9 )%    (0.5 )% 

Other operating expenses, net

  12.0      0.1   177.7      1.8   165.7      93.2   (0.7 )% 

Depreciation

  128.1      1.2   111.7      1.1   (16.4   (14.7 )%    (0.3 )% 

Amortization

  100.0      1.0   93.3      1.0   (6.7   (7.2 )%    0.4

Impairment charges

  135.6      1.3   75.8      0.8   (59.8   (78.9 )%    2.8
  

 

 

     

 

 

         

Total operating expenses

  1,653.4      16.0   1,673.8      17.2   20.4      1.2   (0.3 )% 
  

 

 

     

 

 

         

Operating income

  222.5      2.2   148.7      1.5   73.8      49.6   (1.3 )% 
  

 

 

     

 

 

         

Other income (expense):

Interest income

  11.0      0.1   9.0      0.1   2.0      22.2   —  

Interest expense

  (305.5   (3.0 )%    (277.1   (2.8 )%    (28.4   (10.2 )%    —  

Loss on extinguishment of debt

  (2.5   —     (0.5   —     (2.0   (400.0 )%    —  

Other expense, net

  (17.6   (0.2 )%    (1.9   —     (15.7   (826.3 )%    15.8
  

 

 

     

 

 

         

Total other expense

  (314.6   (3.0 )%    (270.5   (2.7 )%    (44.1   (16.3 )%    0.1
  

 

 

     

 

 

         

Loss before income taxes

  (92.1   (0.9 )%    (121.8   (1.2 )%    29.7      24.4   (1.2 )% 

Income tax (benefit) expense

  (9.8   (0.1 )%    75.6      0.8   85.4      113.0   0.7
  

 

 

     

 

 

         

Net loss

$ (82.3   (0.8 )%  $ (197.4   (2.0 )%    115.1      58.3   (1.0 )% 
  

 

 

     

 

 

         

 

* Foreign currency translation is included in the % change. Unfavorable impacts from foreign currency translation are designated with parentheses.

Net Sales

Net sales were $10,324.6 million in the year ended December 31, 2013, an increase of $577.5 million, or 5.9%, from the year ended December 31, 2012. The comparability of these periods is impacted by the December 2012 acquisition of Magnablend in the United States and the May 2013 acquisition of Quimicompuestos in Mexico, which together contributed incremental revenues of $530.0 million in the year ended December 31, 2013. Excluding the impact of acquisitions, reported sales volumes increased net sales by 0.2% for the comparative periods as the result of increases in the USA, Canada and EMEA segments, partially offset by a decrease in the Rest of World segment. Excluding the effect of acquisitions, sales pricing and product mix increased net sales by 0.2% as a result of increases in the Canada and Rest of World segments partially offset by decreases in the USA and EMEA segments. Foreign currency translation increased net sales by 0.1% when compared to the year ended December 31, 2012 mainly due to the US dollar weakening against the euro partially offset by the impact of the US dollar strengthening against the Canadian dollar. Refer to the “Segment results” for the year ended December 31, 2013 discussion for additional information.

 

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Gross Profit

Gross profit increased $53.4 million, or 2.9%, to $1,875.9 million in the year ended December 31, 2013. Acquisitions contributed additional gross profit of $89.6 million in the year ended December 31, 2013. Excluding the effect of acquisitions, reported sales volumes increased gross profit by 0.2% in the year ended December 31, 2013. Sales pricing, product cost and other adjustments decreased gross profit by 2.4% as a result of decreases in the USA, Canada and EMEA segments partially offset by an increase in the Rest of World segment. Foreign currency translation increased gross profit by 0.1% in the year ended December 31, 2013, primarily due to the US dollar weakening against the euro partially offset by the impact of the US dollar strengthening against the Canadian dollar. Gross margin decreased to 18.2% in the year ended December 31, 2013 from 18.7% in the year ended December 31, 2012. Refer to the “Segment results” for the year ended December 31, 2013 discussion for additional information.

Outbound Freight and Handling Expenses

Outbound freight and handling expenses increased $17.8 million, or 5.8%, to $326.0 million in the year ended December 31, 2013, and was consistent as a percentage of net sales in the year ended December 31, 2013 and the year ended December 31, 2012 at 3.2%, which was primarily attributable to acquisitions, which contributed $8.6 million and the increase in reported sales volumes. Foreign currency translation increased outbound freight and handling expenses by 0.3%. Refer to the “Segment results” for the year ended December 31, 2013 discussion for additional information.

Warehousing, Selling and Administrative Expenses

Warehousing, selling and administrative expenses increased $44.6 million, or 4.9%, to $951.7 million in the year ended December 31, 2013, but decreased as a percentage of net sales from 9.3% in the year ended December 31, 2012 to 9.2% in the year ended December 31, 2013. Acquisitions contributed an additional $33.7 million in warehousing, selling and administrative expenses in the year ended December 31, 2013. On a constant currency basis and excluding acquisitions, the increase was also attributable to increases in environmental remediation costs of $9.2 million and uninsured losses and settlements of $6.9 million in the year ended December 31, 2013. These increases were partially offset by reductions in legal fees of $4.9 million and professional fees from outside services of $3.4 million. Foreign currency translation increased warehousing, selling and administrative expenses by 0.5% or $4.6 million. The remaining $1.5 million decrease related to several insignificant components. Refer to the “Segment results” for the year ended December 31, 2013 discussion for additional information.

Other Operating Expenses, net

Other operating expenses, net decreased $165.7 million, or 93.2%, to $12.0 million in the year ended December 31, 2013 and decreased as a percentage of net sales from 1.8% in the year ended December 31, 2012 to 0.1% in the year ended December 31, 2013. The decrease was primarily due to a pension mark to market gain relating to the annual remeasurement of our defined benefit and other postretirement plans in the amount of $73.5 million compared to a mark to market loss of $83.6 million in 2012, a $24.5 million gain resulting from the remeasurement of the fair value of the contingent consideration liability associated with our acquisition of Magnablend (resulting from Magnablend not achieving its 2013 performance target and a reduced probability of Magnablend achieving its 2014 performance target), lower acquisition costs of $12.7 million in the year ended December 31, 2013, and a partial reversal of $4.8 million of an accrual recorded in the year ended December 31, 2012 for estimated fines imposed by Autorité de la concurrence, France’s competition authority, for alleged price fixing prior to 2006 which were assessed in 2013 and paid in full as of December 31, 2013. These decreases were offset by higher redundancy and restructuring costs of $41.6 million as well as higher consulting costs of $14.2 million associated with the implementation of several regional initiatives aimed at streamlining our cost structure and improving our operations in the year ended December 31, 2013. These expenses primarily included costs

 

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from initiatives in the USA and EMEA segments, including relocations. Currency translation increased operating expenses, net by 0.7% or $1.2 million in the year ended December 31, 2013. Refer to “Note 4: Other operating expenses, net” for additional information.

Depreciation and Amortization

Depreciation expense increased $16.4 million, or 14.7%, to $128.1 million in the year ended December 31, 2013. Acquisitions contributed additional depreciation expense of $4.5 million in the year ended December 31, 2013. The remaining increase was largely due to accelerating depreciation on leasehold improvements of $4.6 million related to vacating leased property as well as the completion of internally developed software projects which were placed into service towards the end of the year ended December 31, 2012 and during the year ended December 31, 2013. Foreign currency translation increased depreciation expense by 0.3% or $0.3 million. Amortization expense increased $6.7 million, or 7.2%, to $100.0 million in the year ended December 31, 2013 due to the amortization of intangible assets associated with acquisitions partially offset by a decrease in amortization expense of 0.4% or $0.4 million due to foreign currency translation and the lower amortization levels of existing customer relationship intangibles. Customer relationships are amortized on an accelerated basis to mirror the economic pattern of benefit.

Impairment Charges

Impairment charges of $135.6 million were recorded in the year ended December 31, 2013 compared to $75.8 million in the year ended December 31, 2012. The 2013 impairment charges primarily related to the writeoff of goodwill of $73.3 million related to the Rest of World segment as well as the write-off of capitalized software costs of $58.0 million related to a new global ERP system. The impairment of goodwill for the Rest of World segment was triggered by the deterioration in general economic conditions within some of the segment’s significant locations as well as revised financial projections. The impairment of the global ERP system was triggered by our decision to discontinue its implementation. The 2012 impairment charges primarily relate to the impairment of goodwill in the EMEA segment.

Interest Expense

Interest expense increased by $28.4 million, or 10.2%, to $305.5 million in the year ended December 31, 2013, primarily as a result of the recognition of $27.1 million in fees associated with the $350.0 million early payment of the 2018 Subordinated Notes in March 2013. Foreign currency translation did not have a significant impact on interest expense in the year ended December 31, 2013.

Other Expense, net

Other expense, net increased from $1.9 million in the year ended December 31, 2012 to $17.6 million in the year ended December 31, 2013. The increase was primarily related to higher foreign currency transaction losses in the year ended December 31, 2013 as well as gains from the fair value remeasurement of the interest rate swap in the year ended December 31, 2012. Refer to “Note 6: Other expense, net” for additional information.

Income Tax (Benefit) Expense

Income tax expense decreased $85.4 million, or 113.0%, from an income tax expense of $75.6 million in the year ended December 31, 2012 to an income tax benefit of $9.8 million in the year ended December 31, 2013, primarily due to a prior year unfavorable impact of the recognition of a valuation allowance in the United States on certain deferred tax assets of $89.2 million, a net benefit for the effect of flow-through entities of $15.1 million, a current year contingent consideration of $8.6 million, a prior year net French penalty of $7.9 million, a net adjustment to a prior year tax due to a change in estimate of $7.6 million and current year tax deductible goodwill of $6.7 million, offset by a net increase in foreign losses not benefited of $21.5 million and a net increase in goodwill impairment of $13.4 million. The remaining $14.8 million increase related primarily to an increase in earnings.

 

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Segment Results

Our Adjusted EBITDA by operating segment and in the aggregate for the years ended December 31, 2013 and December 31, 2012 is summarized in the following tables:

 

(in millions)

  USA     Canada     EMEA     Rest of
World
    Other/
Eliminations(1)
    Consolidated  
    Year Ended December 31, 2013  

Net sales:

           

External customers

  $ 5,964.5      $ 1,558.7      $ 2,326.8      $ 474.6      $ —       $ 10,324.6   

Inter-segment

    116.5        8.0        4.0        —         (128.5     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

  6,081.0      1,566.7      2,330.8      474.6      (128.5   10,324.6   

Cost of goods sold (exclusive of depreciation)

  4,953.4      1,316.6      1,902.9      404.3      (128.5   8,448.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  1,127.6      250.1      427.9      70.3      —       1,875.9   

Outbound freight and handling

  201.3      41.6      76.1      7.0      —       326.0   

Warehousing, selling and administrative (operating expenses)

  492.6      102.4      299.3      48.3      9.1      951.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$ 433.7    $ 106.1    $ 52.5    $ 15.0    $ (9.1 $ 598.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operating expenses, net

  12.0   

Depreciation

  128.1   

Amortization

  100.0   

Impairment charges

  135.6   

Loss on extinguishment of debt

  2.5   

Interest expense, net

  294.5   

Other expense, net

  17.6   

Income tax benefit

  (9.8
           

 

 

 

Net loss

$ (82.3
           

 

 

 

 

(in millions)

  USA     Canada     EMEA     Rest of
World
    Other/
Eliminations(1)
    Consolidated  
    Year Ended December 31, 2012  

Net sales:

           

External customers

  $ 5,659.2      $ 1,494.4      $ 2,283.0      $ 310.5      $ —       $ 9,747.1   

Inter-segment

    138.2        16.0        4.3        —         (158.5     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

  5,797.4      1,510.4      2,287.3      310.5      (158.5   9,747.1   

Cost of goods sold (exclusive of depreciation)

  4,728.7      1,242.0      1,851.1      261.3      (158.5   7,924.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  1,068.7      268.4      436.2      49.2      —       1.822.5   

Outbound freight and handling

  186.1      38.1      77.7      6.3      —       308.2   

Warehousing, selling and administrative (operating expenses)

  456.6      103.8      298.8      39.2      8.7      907.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$ 426.0    $ 126.5    $ 59.7    $ 3.7    $ (8.7   607.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operating expenses, net

  177.7   

Depreciation

  111.7   

Amortization

  93.3   

Impairment charges

  75.8   

Loss on extinguishment of debt

  0.5   

Interest expense, net

  268.1   

Other expense, net

  1.9   

Income tax expense

  75.6   
           

 

 

 

Net loss

$ (197.4
           

 

 

 

 

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(1) Other/Eliminations represents the elimination of intersegment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively.

USA. External sales in the USA segment of $5,964.5 million were $305.3 million, or 5.4%, higher in the year ended December 31, 2013. Magnablend contributed external sales of $385.4 million in the year ended December 31, 2013. Excluding Magnablend, reported sales volumes were flat and sales pricing and product mix decreased external sales dollars by 1.4% due to a shift towards lower priced commodity products as well as lower average selling prices. Gross profit increased $58.9 million, or 5.5%, to $1,127.6 million in the year ended December 31, 2013. Magnablend contributed gross profit of $70.2 million in the year ended December 31, 2013. Excluding Magnablend, gross profit decreased 1.1% due to sales pricing, product costs and other adjustments which were attributable to a greater shift towards commodity products, which have lower gross margins. Gross margin of 18.9% remained consistent in the year ended December 31, 2013 and the year ended December 31, 2012 (19.0% without Magnablend). Outbound freight and handling expenses increased $15.2 million, or 8.2%, to $201.3 million in the year ended December 31, 2013, primarily due to the acquisition of Magnablend. Operating expenses increased $36.0 million, or 7.9%, to $492.6 million in the year ended December 31, 2013 and increased as a percentage of net sales from 8.1% in the year ended December 31, 2012 to 8.3% in the year ended December 31, 2013. The increase was due to $22.4 million in expenses incurred by Magnablend, higher personnel expenses of $25.7 million resulting from higher headcount and increased environmental remediation costs of $5.4 million partially offset by lower corporate cost allocations of $11.0 million, legal fees of $2.6 million and lower maintenance and repair expenses of $1.1 million. The remaining $2.8 million decrease related to several insignificant components.

Adjusted EBITDA increased by $7.7 million, or 1.8%, in the year ended December 31, 2013 (a decrease of $30.8 million, or 7.2%, excluding the results of Magnablend). Adjusted EBITDA margin decreased from 7.5% in the year ended December 31, 2012 to 7.3% in the year ended December 31, 2013 (7.1% excluding Magnablend) as a result of the higher operating expenses relative to external sales.

Canada. External sales of $1,558.7 million in the Canadian segment were $64.3 million, or 4.3%, higher in the year ended December 31, 2013. Reported sales volumes increased external sales dollars by 1.8% in the year ended December 31, 2013 due to growth in key product families including methanol, caustic soda, and sodium carbonate as well as market growth in mining, rubber and plastics and increased agricultural sales. These increases were partially offset by a decline in the higher than average reported sales volumes of oil and gas products hydrochloric acid and guar in the year ended December 31, 2012. Sales pricing and product mix increased external sales dollars by 5.7% in the year ended December 31, 2013 due to an increased mix of products with higher average selling prices including sulfates and fuel additives. Foreign currency translation decreased external sales dollars by 3.2% in the year ended December 31, 2013 as the US dollar strengthened against the Canadian dollar. Canadian gross profit decreased by $18.3 million, or 6.8%, to $250.1 million in the year ended December 31, 2013. Gross profit decreased by 5.7% due to changes in sales pricing, product costs and other adjustments largely due to an increased shift towards higher cost products as well as reduced gross margins in the year ended December 31, 2013 on hydrochloric acid and guar sales and a decrease of 2.9% from foreign currency translation partially offset by an increase of 1.8% due to reported sales volumes. Gross margin decreased from 18.0% in the year ended December 31, 2012 to 16.0% in the year ended December 31, 2013. Outbound freight and handling expenses increased $3.5 million, or 9.2%, to $41.6 million in the year ended December 31, 2013 primarily due to the increase in reported sales volumes. Operating expenses decreased by $1.4 million, or 1.3%, to $102.4 million in the year ended December 31, 2013 and decreased as a percentage of net sales from 6.9% in the year ended December 31, 2012 to 6.6% in the year ended December 31, 2013. On a constant currency basis, the decrease in operating expenses primarily relates to lower corporate cost allocations of $3.2 million. Foreign currency translation decreased operating expenses by 3.1% or $3.2 million. These decreases were partially offset by higher bad debt expenses of $1.4 million and payroll related expenses of $1.9 million. The remaining $1.7 million increase related to several insignificant components.

 

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Adjusted EBITDA decreased by $20.4 million, or 16.1%, to $106.1 million in the year ended December 31, 2013. Foreign currency translation decreased Adjusted EBITDA by 2.5%. Adjusted EBITDA margin decreased from 8.5% in the year ended December 31, 2012 to 6.8% in the year ended December 31, 2013 primarily due to the reduction in gross margins.

EMEA. External sales in the EMEA segment increased $43.8 million, or 1.9%, to $2,326.8 million in the year ended December 31, 2013. Reported sales volumes increased by 0.2%. Changes in sales pricing and product mix decreased external sales dollars by 0.9% in the year ended December 31, 2013, primarily due to a shift towards lower priced products. Foreign currency translation increased external sales dollars by 2.6% primarily due to the US dollar weakening against the euro. Gross profit decreased $8.3 million, or 1.9%, to $427.9 million in the year ended December 31, 2013 due to a decrease of 4.7% from sales pricing, product costs and other adjustments primarily resulting from a shift towards lower margin products as well as general macroeconomic pressures on gross margins, which were partially offset by a 2.6% increase in gross profit due to foreign currency translation and a 0.2% increase from reported sales volumes. Gross margin decreased from 19.1% in the year ended December 31, 2012 to 18.4% in the year ended December 31, 2013, mostly due to competitive pressures in the challenging economic environment. Outbound freight and handling expenses decreased $1.6 million, or 2.1%, to $76.1 million in the year ended December 31, 2013 primarily due to changes in product mix with lower transportation cost per ton and flow optimization. Operating expenses increased $0.5 million, or 0.2%, to $299.3 million in the year ended December 31, 2013 but decreased as a percentage of external sales from 13.1% in the year ended December 31, 2012 to 12.9% in the year ended December 31, 2013. On a constant currency basis, the increase resulted from an increase in uninsured losses and settlements of $3.9 million, environmental remediation costs of $3.7 million and information technology spend of $2.6 million. Foreign currency translation increased operating expenses by 2.9% or $8.6 million. These increases were partially offset by realizing the benefits of productivity initiatives such as lower personnel expenses and temporary and contract labor of $11.5 million, lower travel costs of $3.4 million, and lower corporate cost allocations of $4.4 million. The remaining $1.0 million increase related to several insignificant components.

Adjusted EBITDA decreased by $7.2 million, or 12.1%, to $52.5 million in the year ended December 31, 2013. Foreign currency translation increased Adjusted EBITDA by 0.2%. Adjusted EBITDA margin decreased from 2.6% in the year ended December 31, 2012 to 2.3% in the year ended December 31, 2013 as a result of the decrease in gross margin partially offset by a decrease in operating expenses as a percentage of external sales.

Rest of World. External sales in the Rest of World segment increased $164.1 million, or 52.9%, to $474.6 million in the year ended December 31, 2013. Quimicompuestos contributed external sales of $144.6 million in the year ended December 31, 2013. Excluding Quimicompuestos, reported sales volumes decreased external sales dollars by 0.3% in the year ended December 31, 2013. Changes in sales pricing and product mix increased external sales dollars by 8.0% due to higher average selling prices in the Asia-Pacific region partially offset by lower sales pricing in Brazil and Mexico resulting from competitive pressures. Foreign currency translation decreased external sales dollars by 1.4% in the year ended December 31, 2013. Gross profit increased $21.1 million, or 42.9%, to $70.3 million in the year ended December 31, 2013. Quimicompuestos contributed gross profit of $19.4 million in the year ended December 31, 2013. Excluding Quimicompuestos, there was an increase of 6.0% from sales pricing, product costs and other adjustments primarily related to improved margins in the Asia-Pacific region offset by a shift towards lower margin products in Brazil and Mexico. These increases were partially offset by a 0.3% decrease in gross profit due to reported sales volumes and a 2.2% decrease in gross profit from foreign currency translation. Gross margin decreased from 15.8% in the year ended December 31, 2012 to 14.8% in the year ended December 31, 2013 (15.4% excluding Quimicompuestos). Operating expenses increased $9.1 million, or 23.2%, to $48.3 million in the year ended December 31, 2013. Quimicompuestos contributed $11.3 million of operating expenses in the year ended December 31, 2013. On a constant currency basis and excluding Quimicompuestos, the increase was partially offset by lower bad debts of $1.1 million. Foreign currency translation decreased operating expenses by 2.6% or $1.0 million. The remaining $0.1 million decrease related to several insignificant components.

 

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Adjusted EBITDA increased by $11.3 million, or 305.4%, to $15.0 million in the year ended December 31, 2013 (an increase of $2.5 million excluding Quimicompuestos). Adjusted EBITDA margin increased from 1.2% in the year ended December 31, 2012 to 3.2% in the year ended December 31, 2013 (1.9% excluding Quimicompuestos) primarily due to lower operating expenses as a percentage of external sales partially offset by lower gross margins.

Quarterly Results of Operations Data

The following tables set forth our net sales, cost of goods sold (exclusive of depreciation), gross profit, outbound freight and handling expenses, warehousing selling and administrative expenses and Adjusted EBITDA data (including a reconciliation of Adjusted EBITDA to net income (loss)) for each of the most recent thirteen fiscal quarters. We have prepared the quarterly data on a basis that is consistent with the audited consolidated financial statements included in this prospectus. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of these data. This information is not a complete set of financial statements and should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

 

(in millions)

  Mar 31,
2012
    Jun 30,
2012
    Sep 30,
2012
    Dec 31,
2012
    Mar 31,
2013
    Jun 30,
2013
    Sep 30,
2013
    Dec 31,
2013
    Mar 31,
2014
    Jun 30,
2014
    Sep 30,
2014
    Dec. 31,
2014
    Mar 31,
2015
 

Net sales

  $ 2,406.1      $ 2,682.3      $ 2,424.4      $ 2,234.3      $ 2,490.5      $ 2,795.2      $ 2,619.6      $ 2,419.3      $ 2,516.4      $  2,861.4      $ 2,608.9      $ 2,387.2      $ 2,299.1   

Cost of sales (exclusive of depreciation)

    1,944.8        2,195.8        1,962.4        1,821.6        2,026.2        2,311.6        2,148.4        1,962.5        2,044.0        2,360.9        2,115.8        1,922.5        1,837.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    461.3        486.5        462.0        412.7        464.3        483.6        471.2        456.8        472.4        500.5        493.1        464.7        461.6   

Outbound freight and handling expenses

    76.7        77.0        76.5        78.0        82.7        80.0        81.4        81.9        87.8        93.6        92.8        91.3        84.5   

Warehouse, selling and administrative expenses

    238.2        230.7        221.3        216.9        254.2        245.6        221.8        230.1        239.0        230.5        229.7        224.3        231.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

    146.4        178.8        164.2        117.8        127.4        158.0        168.0        144.8        145.6        176.4        170.6        149.1        145.7   

Other operating expense, net

    9.1        31.1        11.8        125.7        20.9        (0.5     17.0        (25.4     21.7        25.6        7.3        142.5        8.1   

Depreciation

    28.0        28.9        26.3        28.5        28.9        32.0        34.9        32.3        30.6        30.6        33.9        38.4        32.0   

Amortization

    22.7        22.6        23.8        24.2        24.7        24.5        24.8        26.0        23.7        24.1        23.9        24.3        21.9   

Impairment charges

    0.8        —          —          75.0        —          62.1        73.3        0.2        —          —          —          0.3        —     

Interest expense, net

    65.6        64.5        65.0        73.0        98.9        64.1        65.7        65.8        63.9        64.8        63.8        58.1        63.2   

Loss on extinguishment of debt

    —          —          —          0.5        2.5        —          —          —          1.2        —          —          —          —     

Other (income) expense, net

    (4.9     8.0        (4.3     3.1        10.0        2.8        2.6        2.2        1.9        2.0        (6.3     1.3        (6.8

Income tax expense (benefit)

    10.6        18.9        9.7        36.4        (5.3     (10.0     (0.2     5.7        5.4        9.8        2.2        (33.2     7.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 14.5      $ 4.8      $ 31.9      $ (248.6   $ (53.2   $ (17.0   $ (50.1   $ 38.0      $ (2.8   $ 19.5      $ 45.8      $ (82.6   $ 19.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity and Capital Resources

Our primary liquidity and capital resource needs are to service our debt and to finance working capital, capital expenditures, other liabilities and cost of acquisitions. We believe that funds provided by these sources

 

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will be adequate to meet our liquidity and capital resource needs for at least the next 12 months under current operating conditions. We have significant working capital needs, although we have implemented several initiatives to improve our working capital and reduce the related financing requirements. The nature of our business, however, requires that we maintain inventories that enable us to deliver products to fill customer orders. As of March 31, 2015, we maintained inventories of $945.4 million, equivalent to approximately 46.2 days of sales (which we calculate on the basis of cost of goods sold for the trailing 90-day period).

Historically, our maintenance capital expenditures have largely tracked our depreciation expense. In executing our growth strategies, our capital expenditures increased moderately and we had annual capital expenditures in the range of 1.1% to 1.7% of net sales over the 2012 to 2014 period. We had a number of significant projects in 2012 and 2013, including beginning the global implementation of our ERP system. In general, our sustaining capital expenditures represent less than 2% of net sales.

The funded status of our defined benefit pension plans is the difference between our plan assets and projected benefit obligations. Our pension plans in the U.S. and certain other countries had an underfunded status of $280.0 million, $304.2 million, $239.1 million and $374.7 million at March 31, 2015, December 31, 2014, 2013 and 2012, respectively. During 2014, we made contributions of $46.8 million. Based on current projections of minimum funding requirements, we expect to make cash contributions of $52.0 million to our defined benefit pension plans in 2015. The timing for any such requirement in future years is uncertain given the implicit uncertainty regarding the future developments of factors described in “Risk Factors” and Note 8 to our consolidated financial statements included elsewhere in this prospectus.

Our primary source of liquidity is cash generated from our operations as well as borrowings under our credit facilities. As of March 31, 2015, we had approximately $725.0 million available under our credit facilities.

Senior Secured Credit Facilities

Anticipated Refinancings

We have had preliminary discussions with potential financial intermediaries and advisors and prior to the completion of this offering we intend to opportunistically seek to refinance the $37.5 million of indebtedness under our ABL Term Facility and the $2,812.7 million of indebtedness under our Senior Term Facility that are expected to remain outstanding following the completion of this offering and the concurrent private placement; we refer to these refinancings as the “Anticipated Refinancings.” The Anticipated Refinancings are in addition to the repayment of our 2017 Subordinated Notes and our 2018 Subordinated Notes described in “Use of Proceeds.” Although we do not expect the Anticipated Refinancings to meaningfully impact the weighted average interest rate applicable to our indebtedness, we do expect the maturity profile of our indebtedness will be extended. We also expect that our indebtedness following the completion of the Anticipated Refinancings will continue to require secured interests in certain of our assets and will contain covenants that impact our operations, including covenants relating to, among other things, limitations on indebtedness (including guarantees of additional indebtedness) and liens, mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, dividends and other restricted payments, repurchase of shares of capital stock, options to purchase shares of capital stock and certain transactions with affiliates and certain financial covenants. These covenants may be different from the covenants in the facilities which are being refinanced. See “Description of Certain Indebtedness” elsewhere in this prospectus. We would incur fees associated with the Anticipated Refinancings. The Anticipated Refinancings may be impacted by economic, market, industry, geopolitical and other conditions, most of which are beyond our control. There can be no assurance that we will be able to complete the Anticipated Refinancings on terms and conditions favorable to us or at all, and we may decide to terminate the Anticipated Refinancings before their completion. See “Anticipated Refinancings” elsewhere in this prospectus.

Senior Term Facility

On October 11, 2007, the issuer, as U.S. borrower, Univar UK Ltd., as U.K. borrower, Ulixes Acquisition, B.V., as parent borrower, Bank of America, N.A., as administrative agent, Deutsche Bank AG New York Branch,

 

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as syndication agent, Banc of America Securities LLC and Deutsche Bank Securities Inc., as joint lead arrangers and joint bookrunners, and the lenders party thereto from time to time, entered into a Credit Agreement, or the Original Senior Term Facility, pursuant to which a term loan, or the Original Term Loan, was issued in the original principal amount of $1,980.0 million. On October 3, 2012, the issuer, as borrower, Bank of America, N.A., as administrative agent, joint lead arranger and joint bookrunner, and Deutsche Bank Securities Inc., Goldman Sachs Lending Partners LLC, HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc. and Wells Fargo Securities, LLC, as joint lead arrangers, joint bookrunners and co-syndication agents, entered into a Third Amendment and Restatement of the Original Senior Term Facility, or, as so amended and restated, the Senior Term Facility, to, among other things, incur a new term loan in the principal amount of $550.0 million, or the New Term Loan, and together with the Original Term Loan, the Term Loans.

For a description of the terms of the Senior Term Facility, see “Description of Certain Indebtedness” and “Anticipated Refinancings” elsewhere in this prospectus.

Senior ABL Facility

On March 25, 2013, the issuer, as U.S. parent borrower, the borrowers party thereto, or collectively with the issuer, the U.S. ABL Borrowers, Univar Canada, Ltd., as Canadian borrower, or the Canadian Borrower and, together with the U.S. ABL Borrowers, the ABL Borrowers, the facility guarantors party thereto, the Facility Guarantors, and, together with the ABL Borrowers, the ABL Loan Parties, Bank of America, N.A. as U.S. administrative agent, U.S. swingline lender and collateral agent, Bank of America, N.A. (acting through its Canada branch) as Canadian administrative agent, Canadian swingline lender and Canadian letter of credit issuer, the lenders from time to time party thereto, Wells Fargo Capital Finance, LLC, J.P, Morgan Securities LLC and Deutsche Bank Securities Inc. as co-syndication agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Capital Finance LLC as joint lead arrangers, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Capital Finance LLC, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC as joint bookrunners, and HSBC Bank USA, N.A., Union Bank, N.A., Morgan Stanley Senior Funding, Inc. and SunTrust Bank, as co-documentation agents, entered into a Second Amended and Restated Senior ABL Credit Agreement, or the Senior ABL Facility.

For a description of the terms of the Senior ABL Facility, see “Description of Certain Indebtedness” and “Anticipated Refinancings” elsewhere in this prospectus.

European ABL Facility

On March 24, 2014, Univar B.V., the other borrowers from time to time party thereto, or collectively, the European ABL Facility Borrowers, the issuer, as guarantor, or the European ABL Facility Guarantor, and, together with the European ABL Facility Borrowers, the European ABL Loan Parties, J.P. Morgan Securities LLC, as sole lead arranger and joint bookrunner, Bank of America, N.A., as joint bookrunner and syndication agent, and J.P. Morgan Europe Limited, as administrative agent and collateral agent, entered into an ABL Credit Agreement, or the European ABL Facility.

For a description of the terms of the European ABL Facility, see “Description of Certain Indebtedness” elsewhere in this prospectus.

Senior Subordinated Notes

Senior Subordinated Notes due 2017

On October 11, 2007, we issued $600 million aggregate principal amount of 12.0% Senior Subordinated Notes due 2015, or the 2017 Subordinated Notes, pursuant to the indenture, dated as of October 11, 2007, as amended or supplemented through the date hereof, or the 2017 Subordinated Notes Indenture, between Univar Inc.

 

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and Wells Fargo Bank, National Association, as trustee. The second supplemental indenture moved the maturity date of the 2017 Subordinated Notes from September 30, 2015 to September 30, 2017. On March 27, 2013, the interest rate on the 2017 Subordinated Notes was reduced from a 12.0% to a 10.5% per annum fixed rate.

For a description of the terms of the 2017 Subordinated Notes, see “Description of Certain Indebtedness” elsewhere in this prospectus.

Senior Subordinated Notes due 2018

On December 20, 2010, we issued $400 million aggregate principal amount of 12.0% Senior Subordinated Notes due 2018, or the 2018 Subordinated Notes, pursuant to the indenture, dated as of December 20, 2010, as amended or supplemented through the date hereof, or the 2018 Subordinated Notes Indenture, between Univar Inc. and Wells Fargo Bank, National Association, as trustee. On March 27, 2013, the Company made a $350.0 million prepayment on the $400.0 million principal balance of the 2018 Subordinated Notes. The interest rate on the remaining 2018 Subordinated Notes was reduced from a 12.0% to a 10.5% per annum fixed rate.

For a description of the terms of the 2018 Subordinated Notes, see “Description of Certain Indebtedness” elsewhere in this prospectus.

Cash Flows

The following table presents a summary of our cash flow activity for the periods set forth below:

 

     Fiscal Year Ended     Three Months Ended  
(in millions)    December 31,
2014
    December 31,
2013
    December 31,
2012
    March 31,
2015
    March 31,
2014
 

Net cash provided (used) by operating activities

     126.3      $ 289.3      $ 15.5      $ 88.1      $ (48.3

Net cash (used by) investing activities

     (148.2     (215.7     (657.1     (30.2     (23.7

Net cash provided (used) by financing activities

     84.1        (110.5     753.8        (48.4     63.4   

Cash Provided (Used) by Operating Activities

Cash provided by operating activities increased $136.4 million from cash used by operating activities of $48.3 million for the three months ended March 31, 2014 to $88.1 million of cash provided by operating activities for the three months ended March 31, 2015. The increase in cash provided by operations was primarily due to an increase of $144.6 million due to working capital changes. Typically, in the first three months of the fiscal year, working capital is a net cash outflow due to increased sales activity in the first quarter compared to the prior year fourth quarter and increased inventory levels in anticipation of the higher levels of activity in the second quarter. In the three months ended March 31, 2015, working capital provided cash because working capital levels were higher than normal as of December 31, 2014 due to a buildup of inventory during 2014 to support our customer driven initiative related to improving on-time delivery. Another factor contributing to higher cash provided by operating activities was the increase of $21.4 million in net income exclusive of non-cash items in the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Refer to “Results of Operations” above for additional information. These increases in cash provided by operations were partially offset by cash outflows relating to higher bonus payouts of $7.9 million and higher employer pension contributions of $7.6 million in the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The remaining decrease of $14.4 million related to several insignificant components.

Cash provided by operating activities decreased $163.0 million from $289.3 million for the year ended December 31, 2013 to $126.3 million for the year ended December 31, 2014. The decrease in cash provided by

 

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operations was primarily due to a decrease of $304.0 million due to working capital changes related to the relatively lower working capital requirements in the year ended December 31, 2013 resulting from higher than normal working capital levels in 2012 caused by a temporary slowdown in the working capital cycle due to the implementation of an ERP system in EMEA. In addition, as of December 31, 2014, we have increased inventory levels to support our customer driven initiative related to improving on-time delivery. Another factor contributing to lower cash provided by operating activities was the decrease of $23.3 million related to prepaid expenses and other current assets primarily consisting of receiving less cash from taxing authorities related to timing of income tax payments in the year ended December 31, 2014 compared to the year ended December 31, 2013. These decreases were partially offset by an increase of $131.7 million in net income exclusive of non-cash items primarily consisting of a decrease of $43.9 million in interest expense, net, an increase of $43.5 million in Adjusted EBITDA and an increase of $18.7 million in other nonoperating income for the year ended December 31, 2014 compared to the year ended December 31, 2013. Another factor offsetting the lower cash provided by operating activities in the year ended December 31, 2014 relates to the cash payments of $19.9 million related to the French penalty during the year ended December 31, 2013. Refer to “Results of Operations” above for additional information. The remaining increase of $12.7 million related to several insignificant components.

Cash provided by operating activities increased $273.8 million from $15.5 million for the year ended December 31, 2012 to $289.3 million for the year ended December 31, 2013. The increase was primarily due to a decrease in net loss of $115.1 million; an increase of $321.4 million due to working capital improvements realized from improved inventory management, extending vendor payment terms and improving collections; an increase of $21.0 million related to prepaid expenses and other current assets primarily consisting of less pre-payments for the upcoming Canadian agricultural season; and an increase of cash receipts of $44.4 million from taxing authorities related to our income tax receivables. This was partially offset by a $94.8 million decrease in cash related to changes in deferred income taxes and a $73.5 million non-cash pension mark to market gain in 2013 and an $83.6 million non-cash pension mark to market loss in 2012.

Cash (Used by) Investing Activities

Cash used by investing activities increased $6.5 million from $23.7 million for the three months ended March 31, 2014 to $30.2 million for the three months ended March 31, 2015. The increase primarily consisted of higher spending on capital expenditures related to purchasing assets that replaced operating leases in the three month ended March 31, 2015 compared to the three months ended March 31, 2014.

Cash used by investing activities decreased $67.5 million from $215.7 million for the year ended December 31, 2013 to $148.2 million for the year ended December 31, 2014. The decrease primarily consisted of lower spending on acquisitions in the year ended December 31, 2014 compared to the year ended December 31, 2013. In the year ended December 31, 2014, we paid, net of cash acquired, $42.2 million to acquire D’Altomare in Brazil and in the year ended December 31, 2013, we paid, net of cash acquired, $88.7 million to acquire Quimicompuestos in Mexico. In addition, there was a reduction in capital expenditures of $27.4 million resulting from our decision to discontinue an ERP implementation during the second quarter of 2013. Capital expenditures during the year ended December 31, 2014 are approximately 1% of net sales, which historically has been our maintenance capital expenditure level.

Cash used by investing activities decreased $441.4 million from $657.1 million for the year ended December 31, 2012 to $215.7 million for the year ended December 31, 2013. The decrease was primarily due to the 2012 acquisition cost of Magnablend exceeding the acquisition cost of the 2013 acquisition of Quimicompuestos. See Note 16 of our consolidated financial statements included elsewhere in this prospectus for a further discussion of these acquisitions. Also contributing to the decrease was a reduction in capital expenditures of $28.8 million resulting from our decision to discontinue an ERP implementation during the second quarter of 2013.

 

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Cash Provided (Used) by Financing Activities

Cash used by financing activities increased $111.8 million from cash provided of $63.4 million for the three months ended March 31, 2014 to cash used of $48.4 million for the three months ended March 31, 2015. The increase in cash used by financing activities was primarily due to the decrease in our outstanding balances within our ABL facilities of $47.8 million in the three months ended March 31, 2015 compared to an increase of $90.4 million in the three months ended March 31, 2014, which resulted in a net increase of $138.2 million. The increase in ABL payments during the three months ended March 31, 2015 primarily related to improved cash flows from operations. During the three months ended March 31, 2014, there was a shift in borrowing more under ABL facilities, which have lower interest rates, versus bank overdrafts or short-term financing. This increase was partially offset by short-term financing providing cash of $3.4 million in the three months ended March 31, 2015 compared to cash used of $14.2 million in the three months ended March 31, 2014, which resulted in a net decrease of $17.6 million. The decrease in short-term financing in the three months ended March 31, 2014 relates to the shift in utilizing the ABL facilities more than bank overdrafts as mentioned above. In addition, financing fees paid decreased by $4.0 million due to no debt refinancing activity in the three months ended March 31, 2015. The remaining decrease of $4.8 million related to several insignificant components.

Cash provided by financing activities increased $194.6 million from cash used of $110.5 million for the year ended December 31, 2013 to cash provided of $84.1 million for the year ended December 31, 2014. The increase in cash provided by financing activities was primarily due to the increase in our outstanding balances within our ABL facilities of $122.2 million in the year ended December 31, 2014 compared to a decrease of $91.3 million in the year ended December 31, 2013, which resulted in a net increase of $213.5 million. The increase was due to higher working capital needs during the year ended December 31, 2014 compared to the year ended December 31, 2013 due to increased inventories related to our customer driven initiative related to improving on-time delivery. Cash provided by financing activities increased $31.8 million related to changes in short-term financing due to a shift in borrowing more under ABL facilities, which have lower interest rates, versus bank overdrafts in the year ended December 31, 2014 compared to the year ended December 31, 2013. In addition, financing fees paid decreased by $7.1 million due to lower debt refinancing activity in the year ended December 31, 2014 compared to the year ended December 31, 2013. These increases were partially offset by a net cash inflow of $73.6 million in the year ended December 31, 2013 related to the additional borrowings of $423.6 million from the refinancing of the Senior Term Loan Facilities partially offset by the prepayment of $350.0 million related to the 2018 Subordinated Notes. The remaining increase of $15.8 million related to several insignificant components.

Cash provided by financing activities decreased $864.3 million from cash provided by financing activities of $753.8 million for the year ended December 31, 2012 to cash used by financing activities of $110.5 million for the year ended December 31, 2013. The decrease in cash provided by financing activities was primarily due to a decrease of $126.4 million from amounts raised in the 2013 refinancing of our Senior Term Facility compared to the 2012 refinancing of the Senior Term Facility and a $350.0 million prepayment in 2013 related to the 2018 Subordinated Notes. In addition, in 2013, we reduced the outstanding balances within our ABL Facility and the then-existing European ABL facility and short-term financing by $115.5 million compared to an increase in the ABL Facility and the then-existing European ABL facility and short-term financing outstanding balance by $237.5 million in 2012. These increases were partially offset by capital contributions decreasing by $22.8 million from $26.1 million for the year ended December 31, 2012 to $3.3 million for the year ended December 31, 2013.

 

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Table of Contents

Contractual Obligations and Commitments

The following table summarizes our contractual obligations that require us to make future cash payments as of December 31, 2014. The future contractual requirements include payments required for our operating leases, forward currency contracts, indebtedness and any other long-term liabilities reflected on our balance sheet.

 

     Payment Due by Period
(in millions)
 
     Total      Less
than 1
year
     1-3 years      3-5 years      More
than 5
years
 

Short-term financing(1)

   $ 61.1       $ 61.1       $ —         $ —         $ —     

Long-term debt, including current maturities(1)(2)

     3,842.7         80.7         3,409.7         352.3         —     

Interest expense (3)