S-1 1 d945269ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on June 26, 2015

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Multi Packaging Solutions International Limited

(Exact name of registrant as specified in its charter)

 

 

 

Bermuda   2759   98-1249740
(State or other jurisdiction of incorporation or organization)   (Primary Standard Industrial Classification Code Number)  

(I.R.S. Employer

Identification No.)

Clarendon House, 2 Church Street

Hamilton HM 11, Bermuda

(441) 295-5950

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

 

 

William H. Hogan

Executive Vice President and Chief Financial Officer

Multi Packaging Solutions International Limited

150 E 52nd St, 28th Floor

New York, New York 10022

(646) 885-0005

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

 

 

Copies to:

 

Patrick H. Shannon

Jason M. Licht

Latham & Watkins LLP

555 Eleventh Street, NW

Washington, D.C. 20004

(202) 637-2200

 

Marko Zatylny

Ropes & Gray LLP

800 Boylston Street

Boston, MA 02199-3600

(617) 951-7000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Securities to be registered  

Proposed

maximum

aggregate
offering price (a)(b)

 

Amount of

registration fee

Common Shares, par value $1.00 per share

  $100,000,000   $11,620.00

 

 

(a) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) promulgated under the Securities Act of 1933.
(b) Includes offering price of additional common shares that may be purchased by the underwriters.

 

 

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 that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary 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 preliminary 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

Preliminary Prospectus dated June 26, 2015

PROSPECTUS

                Shares

 

LOGO

Multi Packaging Solutions International Limited

Common Shares

 

 

This is Multi Packaging Solutions International Limited’s initial public offering. We are selling                 common shares in this offering.

We expect the public offering price to be between $         and $         per share. Currently, no public market exists for our common shares. We will apply for listing of our common shares on the             under the symbol “MPSX”.

 

 

We are an “emerging growth company” as defined by the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

 

 

Investing in the common shares involves risks that are described in the “Risk Factors” section beginning on page 28 of this prospectus.

 

     Per
Share
     Total  

Public offering price

   $                    $                

Underwriting discount (1)

   $                    $                

Proceeds, before expenses, to us

   $                    $                

 

(1) We have agreed to reimburse the underwriters for certain expenses in connection with this offering.

The underwriters may also purchase up to an additional                 common shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

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

The common shares will be ready for delivery on or about                     , 2015.

 

 

The date of this prospectus is                     , 2015.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     28   

Forward-Looking Statements

     50   

Use of Proceeds

     52   

Dividend Policy

     53   

Capitalization

     54   

Dilution

     56   

Selected Historical Financial Information

     58   

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

     60   

Industry Overview

     81   

Business

     84   

Management

     100   

Executive and Director Compensation

     104   

Certain Relationships and Related Party Transactions

     111   

Principal Shareholders

     113   

Description of Share Capital

     115   

Shares Eligible For Future Sale

     122   

Bermuda Company Considerations

     124   

Material United States Federal Income Tax Consequences

     130   

Underwriting

     134   

Validity of Common Shares

     138   

Experts

     138   

Where You Can Find More Information

     138   

Enforcement of Judgments

     139   

Index to Financial Statements

     F-1   

 

 

We are responsible for the information contained in this prospectus and in any related free-writing prospectus we prepare or authorize. We have not authorized anyone to give you any other information, and we take no responsibility for any other information that others may give you. We are offering to sell, and seeking offers to buy, the common shares only in jurisdictions where offers and sales are permitted.

Common shares may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act of 1998, which regulates the sale of securities in Bermuda. Further, the Bermuda Monetary Authority (the “BMA”) must approve all issues and transfers of shares of a Bermuda exempted company under the Exchange Control Act, 1972 and regulations made thereunder. The BMA has given general permission which will permit the issue of the common shares by Multi Packaging Solutions International Limited and the transfer of such common shares among non-residents for Bermuda exchange control purposes so long as voting securities of Multi Packaging Solutions International Limited are admitted for trading on                  or any other appointed stock exchange. In giving such permission, the BMA accepts no responsibility for the financial soundness of any proposal or for the correctness of any statements made or opinions expressed herein.

 

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BASIS OF PRESENTATION AND OTHER INFORMATION

Multi Packaging Solutions International Limited

Unless the context otherwise requires, all references to “MPS Limited,” the “Company,” “we,” “us” and “our” refer to Multi Packaging Solutions International Limited, a Bermuda exempted company incorporated under the laws of Bermuda on June 19, 2015, together with the entities that will become its consolidated subsidiaries prior to completion of this offering contemplated hereby. The entities that will become the consolidated subsidiaries of MPS Limited consist of Multi Packaging Solutions Global Holdings Limited, which we refer to as “MPS Holdings,” and its subsidiaries. Prior to the completion of this offering, MPS Limited will become the direct parent company of MPS Holdings through a series of internal reorganizational transactions. We collectively refer to these restructuring transactions as the “Reorg Transactions.” In connection with the Reorg Transactions, we (through one of our subsidiaries) plan to acquire the noncontrolling interests in one of our German subsidiaries from related parties and we will be required to pay approximately $1.2 million related to German real estate transfer taxes.

As MPS Limited will have no other interest in any operations other than those of MPS Holdings, the historical financial information presented in this prospectus is that of MPS Holdings. With respect to the historical and pro forma financial information and other data presented in this prospectus, including under the headings “Prospectus Summary—Summary Historical Audited and Unaudited Consolidated and Unaudited Pro Forma Combined Financial Information,” “Capitalization,” “Selected Historical Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes thereto and our unaudited pro forma combined financial statements appearing elsewhere in this prospectus, all references to the “Company,” “we,” “us” and “our” refer to MPS Holdings.

Multi Packaging Solutions Global Holdings Limited

On August 15, 2013, Multi Packaging Solutions, Inc. and its primary shareholder, IPC/Packaging LLC, entered into an Agreement and Plan of Merger to be purchased by Mustang Parent Corp. (“Mustang”), an entity controlled by funds advised by Madison Dearborn Partners, LLC (“Madison Dearborn”). The acquisition of Multi Packaging Solutions, Inc. by Madison Dearborn is referred to as the “Madison Dearborn Transaction.” On February 14, 2014, an investment fund controlled by Madison Dearborn and an investment fund controlled by The Carlyle Group (“Carlyle”) entered into a Combination Agreement, whereby Madison Dearborn contributed 100% of the outstanding equity of Mustang to Chesapeake Finance 2 Limited (“Chesapeake”), in exchange for a 50% equity interest in Chesapeake. The other 50% equity interest in Chesapeake is held by funds advised by Carlyle. The transaction between Chesapeake and Mustang was accounted for as a reverse acquisition with Chesapeake as the legal acquiror and new parent entity, and Mustang as the legal subsidiary but the accounting acquiror. Subsequently, Chesapeake changed its name to Multi Packaging Solutions Global Holdings Limited.

The financial information prior to the February 14, 2014 completion of the combination reflects that of Mustang and its predecessor.

MARKET AND INDUSTRY DATA

The market data and other statistical information used throughout this prospectus are based on independent industry publications, reports by market research firms or other published independent sources. Some market data and statistical information are also based on our good faith estimates, which are derived from management’s knowledge of our industry and such independent sources referred to above. Certain market, ranking and industry data included in this prospectus, including the size of certain markets and our size or position and the positions of our competitors within these markets, including our services relative to our competitors, are based on estimates of our management. These estimates have been derived from our management’s knowledge and experience in the markets in which we operate, as well as information obtained from surveys, reports by market research firms, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we

 

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operate. Unless otherwise noted, all of our market share and market position information presented in this prospectus is an approximation based on management’s knowledge. Our market share and market position in each of our businesses and product groups, unless otherwise noted, is based on our sales relative to the estimated sales in the markets we served. References herein to our being a leader in a market or product category refer to our belief that we have a leading market share position in each specified market, unless the context otherwise requires. In addition, the discussion herein regarding our various markets is based on how we define the markets for our products, which products may be either part of larger overall markets or markets that include other types of products and services.

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

TRADEMARKS

We own or otherwise have rights to the trademarks, service marks, copyrights and trade names, including those mentioned in this prospectus, used in conjunction with the marketing and sale of our products and services. This prospectus includes trademarks, which are protected under applicable intellectual property laws and are our property and the property of our subsidiaries. This prospectus also contains trademarks, service marks, copyrights and trade names of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Solely for convenience, our trademarks, service marks, trade names and copyrights referred to in this prospectus may appear without the ®,™ or © symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, service marks, trade names and copyrights.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus and should consider, among other things, the matters set forth under “Risk Factors,” “Selected Historical Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes thereto appearing elsewhere in this prospectus before making your investment decision. Unless the context otherwise requires or otherwise provided herein, references herein to the “Company,” “we,” “us,” “our” and “our company” refer to MPS Limited, together with the entities that will become its consolidated subsidiaries prior to the completion of this offering. See “Basis of Presentation and Other Information.” References herein to “fiscal year” refer to our fiscal years, which end on June 30. See “—Summary Historical Audited and Unaudited Consolidated and Unaudited Pro Forma Combined Financial Information.” References herein to the financial measures “EBITDA” and “Adjusted EBITDA” refer to financial measures that do not comply with generally accepted accounting principles in the United States (“U.S. GAAP”). For information about how we calculate EBITDA and Adjusted EBITDA, see footnote 2 to the table under the heading “—Summary Historical Audited and Unaudited Consolidated and Unaudited Pro Forma Combined Financial Information.” References to “LTM” refer to the last twelve-month period. References to “pro forma” reflect numbers giving effect to all acquisitions that have been completed through March 31, 2015 as if the relevant acquisitions occurred as of the beginning of the period referenced.

Company Overview

We are a leading, global provider of value-added specialty packaging solutions focused on high complexity products for the consumer, healthcare and multi-media markets. For the twelve-month period ended March 31, 2015, approximately 47%, 47% and 6% of our pro forma net sales came from our North American, European and Asian segments, respectively, and approximately 88% of our pro forma global net sales were derived from our consumer and healthcare end markets. We believe that our core addressable consumer and healthcare end markets encompass attractive, resilient and growing packaging categories, and we believe we are a leader in these end markets across North America and Europe. Additionally, we believe we have a market-leading position in the North American multi-media specialty packaging sector, which accounts for 12% of our pro forma global net sales. We provide our customers with an extensive array of print-based specialty packaging solutions, including premium folding cartons, inserts, labels and rigid packaging across a variety of substrates and finishes, which are complemented by value-added services, including creative design, new product development and customized supply chain solutions. We believe the market opportunity across our primary addressable markets is currently in excess of $17 billion.

We have long-term customer relationships driven by our global presence, breadth of products, value-added service offering, reputation for operational excellence, innovative packaging solutions and highly experienced management team. We serve a blue chip customer base, including some of the world’s largest companies and the leaders in our target end markets. Our global platform allows us to serve our customers, which include AstraZeneca, Coty, Diageo, Estée Lauder, GlaxoSmithKline, L’Oréal, Mondelēz International, Nestlé, Pernod Ricard, Pfizer and Sony, on both a local and global basis. Our relationships with our top 20 customers average 34 years, with many of our customers operating under multi-year contracts. No one customer accounts for more than 5% of our pro forma net sales for the twelve-month period ended March 31, 2015. Servicing our customers requires us to meet stringent quality specifications, significant customer service standards and meaningful investment requirements. Our healthcare customers, for example, require exacting standards of manufacturing in order to meet their regulatory requirements, which include strict controls over site certification, chain of custody product information and strict adherence to print requirements and print quality due to the nature of the use of the product by our customers’ end user. For our consumer customers, we are at the front end of their branding and marketing strategy, enhancing the visual impact at the shelf while also ensuring product integrity and regulatory

 

 

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compliance. We believe our advanced printing and finish effects and designs often help our customers position their products at the premium end of their addressable markets. In addition we provide value-added supply chain services such as vendor managed inventory (“VMI”), specific carton-by-carton scan ability and data which enable the customer to track a product from manufacturer to end user.

We believe we are one of a few companies in the end markets we serve offering a full range of products across multiple geographies, allowing us to provide specialty packaging solutions for customers locally and globally, a capability our customers find valuable in presenting a consistent image of the underlying product. Our global manufacturing footprint consists of 59 manufacturing sites and nine sales offices across North America, Europe and Asia. Our strategically located facilities have enabled us to grow our business by leveraging our customer relationships across multiple geographies and products, and drive incremental growth through our ability to integrate and improve our customers’ supply chains. These solutions highlight our competitive difference and allow us to win new customers and strengthen our existing client relationships through cross-selling opportunities across our unique global platform, with further benefits to be realized from recent acquisitions. Additionally, our global manufacturing footprint is supported by our sales and design teams, which consist of a dedicated research and development group, more than 115 structural and graphic designers and over 230 sales personnel.

Since 2005, we have evolved from our initial U.S. platform of five facilities into a global specialty packaging leader in the consumer, healthcare and multi-media end markets through completing a total of 14 transactions. Our acquisitions have focused on expanding into our core end markets, adding complementary products and locations. In 2014, we entered into a transformational merger with Chesapeake Finance 2 Limited (“Chesapeake”), acquired the North American and Asian print businesses of AGI-Shorewood Group (“ASG”) and completed four additional acquisitions, which further expanded our global footprint and significantly diversified our product and end market profile. We are in the early stages of leveraging the cross-selling opportunities from the MPS and Chesapeake combination in terms of increasing sales to existing customers through new product areas and geographies.

We have a successful track record of acquiring strategically relevant companies, establishing and realizing savings and synergy programs and integrating acquired operations and customers into our global platform. Through successful execution and integration of acquired businesses, we have expanded our geographic reach and product and service offering, which has enabled us to better serve our large multinational customers, as well as penetrate new regional and local customers in our key end markets. We have expanded the operating margins of companies we have acquired, achieving our synergy targets and leveraging our platform as evidenced by our accreting EBITDA margins subsequent to each acquisition. Specifically, we estimate that as of March 31, 2015 we have realized a total of approximately $15 million of synergies from the Chesapeake and ASG transactions, which is expected to result in an annualized run-rate as of the same date of approximately $25 million. We believe that these targeted savings and synergy programs will eventually achieve an annualized run-rate of approximately $40 million, although we cannot make any assurances that such an annualized run-rate will be achieved.

In addition to improving EBITDA margins through value accretive acquisitions, we continue to focus on margin expansion opportunities through continuous operational improvements. We consistently benchmark our sites against each other in terms of profitability metrics and key performance indicators across our equipment to optimize our processes. We develop and implement operating best practices across our sites. Our key cost savings initiatives include improving our productivity and asset utilization, optimizing our industrial footprint, and investing capital efficiently. Through these key savings initiatives as well as our global lean manufacturing efforts, we will continue to drive operational excellence in order to further improve our operating margins.

We have a consistent track record of delivering Adjusted EBITDA growth and Adjusted EBITDA margin expansion through a focus on attractive products and end markets, operational excellence and executing value

 

 

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accretive acquisitions. The chart below illustrates our growth in Adjusted EBITDA and related margin. The pro forma results below reflect the acquisitions we made through March 31, 2015 as if they occurred on July 1, 2013. The pro forma Adjusted EBITDA margin is lower than historical periods primarily due to the lower historical Adjusted EBITDA margin for the acquired ASG businesses and is reflective of the potential accretion opportunity available to us.

Adjusted EBITDA ($ in millions)

 

LOGO

 

Note: Our fiscal year ends June 30th. See footnote 2 set forth in “—Summary Historical Audited and Unaudited Consolidated and Unaudited   Pro Forma Combined Financial Information” for a reconciliation of Adjusted EBITDA to net income.

We have also consistently demonstrated our ability to generate strong cash flows driven by efficient investment of capital, good working capital control and operational discipline throughout the Company. Our capital investment requirements have generally been in the range of 3.5-3.9% of net sales, achieving strong free cash flow conversion relative to our Adjusted EBITDA margin. Our free cash flow conversion (defined as Adjusted EBITDA less capital expenditures) has averaged over 70% over the last seven years.

Free Cash Flow Conversion

 

LOGO

 

Note: Free cash flow is defined as Adjusted EBITDA less capital expenditures. Free cash flow conversion is defined as free cash flow divided by Adjusted EBITDA. See footnote 2 set forth in “—Summary Historical Audited and Unaudited Consolidated and Unaudited Pro Forma Combined Financial Information” for a reconciliation of Adjusted EBITDA to net income.

We believe that we are a leader within our addressable markets on the basis of revenue and believe that we have the ability to continue to grow organically, as well as pursue prudent value accretive acquisitions to augment our product portfolio and geographic presence to better serve new and existing customers. Further, we will continue to drive operational excellence through improving our productivity and asset utilization as well as optimizing our industrial footprint, and investing capital effectively.

 

 

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The charts below illustrate our diversification by end market, geographic region and product offering as a percentage of pro forma net sales for the last twelve months ended March 31, 2015.

 

By Geography

By End Market

By Product Offering

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Our Geographies

We operate our business along the geographic segments of North America, Europe and Asia. Although we only recently entered the Asian market and it accounts for 6% of pro forma net sales for the last twelve months ended March 31, 2015, we have identified it as a segment as we expect to grow our presence in this region. Within each of these geographic segments, we sell products into the healthcare, consumer and multi-media end markets.

Our Products

We provide our customers a comprehensive suite of innovative specialty products and services, including premium folding cartons, inserts, labels and rigid packaging. Our packaging solutions utilize a wide variety of substrates (e.g., paper and paperboard, pressure sensitive labels, plastic, foil) and finishes (e.g., UV coatings, film lamination, stamping, embossing). We also employ an array of value-add decorative technologies to create iridescent, holographic, textured and dimensional effects to provide differentiated specialty packaging products to our customers. Our comprehensive solutions, which often include combination or bundled products, and a technologically advanced asset base allow us to win new customers and strengthen our existing client relationships through cross-selling opportunities across our unique global platform.

 

 

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The table below outlines our key product offerings and their competitive advantages.

 

   

Premium Folding
Cartons

 

Inserts

 

Labels

 

Rigid Packaging

 

Other Consumer
Packaging

LTM March 31,
2015 Pro Forma
Net Sales
 

$1,163 million

63% of total

 

$267 million

15% of total

 

$128 million

7% of total

 

$80 million

4% of total

 

$209 million

11% of total

Products  

• Paperboard cartons

 

• Healthcare inserts, outserts

• Booklets

• Folders

• Slipsheets

 

• Pressure sensitive

• Extended content

• Cut & stack

 

• Rigid boxes

• Tubes

 

• Transaction cards

• Grower tags

• Brochures

• Product literature

Key Competitive
Advantages
 

• Breadth of product offering

• Geographic proximity to key multinational customers

• Advanced and innovative technology

 

• Industry leading design and manufacturing capability

• Widest variety of folding technologies

• Global ability to service all client demands

 

• Wide variety of capabilities to service all needs of the healthcare industry

• Vision systems provide highest level of quality through our system

• New technologies geared to handle the increasing complexity of customer demands

 

• Creative packaging solutions

• Significant manufacturing capabilities in our key geographies

• Dedicated sourcing team focused on supplementing the key offerings to our customers

 

• Unique end-to-end ability to service open and closed loop transaction cards

• Manufacturing strength allows us to provide a number of value-added print solutions to its customer base

Product
Examples
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Premium Folding Cartons

Premium folding cartons are widely used, versatile forms of secondary packaging that our customers utilize to attract consumer attention at the point-of-sale and provide critical product information to end users. Our folding carton offering competes at the premium end of the market, utilizes high quality inputs such as solid bleached sulfate, and is manufactured with various features and finishes, including lamination, embossing, foil stamping and windowing. Rigid packaging serves a functional purpose by providing protection to the product throughout the shipping, distribution and merchandising processes.

Our premium folding cartons offering plays an important role in our customers’ branding and marketing strategies by influencing purchase decisions at the point-of-sale by conveying an exceptional appearance,

 

 

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shelf presence and impact through the use of specialty graphics, a variety of printed finishes and other creative designs. Additionally, our premium folding cartons offering must adhere to stringent regulatory requirements by playing a key role in our customers’ product safety as well as ensuring product authenticity, accurate product information and product compliance to the end customer. Our folding carton customers oftentimes purchase associated labels and inserts. Leveraging cross-selling opportunities is a key strategic initiative of recently completed acquisitions.

Inserts

We provide inserts for all the end markets we serve, with the majority of our sales in this category being to the healthcare end market. Inserts are of particular importance in the healthcare end market given stringent regulations to ensure the accuracy of product information, although they are also used in non-healthcare markets in which product literature is required to be presented to the end user. Inserts are included either inside a secondary package (e.g., folding carton) or affixed to the outside of a primary package (e.g., bottle). Numerous regulatory bodies, such as the U.S. Food and Drug Administration, the U.S. Department of Agriculture and various trade associations, require an increasing level of product information, including nutritional, performance and other related product disclosures. Providing this increasing amount of information requires larger and, in many instances, more complex inserts. Specific technical equipment is necessary to produce the folded leaflet, which requires significant upfront investment. Evolving regulations require that insert manufacturers stay abreast of new developments and maintain manufacturing equipment and process capabilities necessary to meet strict inspection and quality control standards. Product disclosure requirements change, oftentimes on short notice, due to regulatory oversight. This results in the need for quick reaction and turn-around of production. Oftentimes our ability to be an integral part of our customers’ information management systems allow us to monitor customer demand and limit their exposure to inventory obsolescence when product disclosure changes.

Labels

Labels are one of the most visible and recognizable packaging components and are used in a wide variety of applications serving as the primary means of identifying products to consumers, while creating shelf appeal and brand recognition for products. Labels also function as a conduit for fulfilling regulatory requirements, communicating product-related information to consumers and contributing to product integrity and security. We supply a broad range of pressure sensitive labels, including single-panel, multi-panel, multi-ply and extended content labels, as well as cut and stack labels.

The majority of our sales in this category are pressure sensitive labels sold primarily into the healthcare market which, like our inserts, are subject to stringent regulations to ensure the accuracy of product information. Additionally, we supply both pressure sensitive and cut and stack labels to the consumer products markets where decorative labels are utilized to differentiate products at the retail point-of-sale. We employ multiple print technologies with respect to labels, utilizing digital, flexographic and offset printing press technologies to serve our customers globally.

Rigid Packaging

Rigid boxes are commonly used to present ultra-premium products and vary from rigid top load boxes for the high-end spirits market to specialized boxes for perfumes and other luxury products. We historically provided rigid boxes, oftentimes described as top load box or set up boxes, via strategic outsource suppliers. Consistent with our acquisition strategy to acquire appropriate technologies, we completed two recent strategic acquisitions which added our own internal manufacturing capability for a premium rigid packaging product offering with the addition of customized/high-end rigid boxes. We have a growing presence in rigid packaging and believe this is a meaningful area for growth in the future.

 

 

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Other Consumer Products Packaging

We offer a number of additional printed packaging products, including transaction cards, point-of-purchase displays, brochures, product literature, marketing materials and grower tags and plant stakes for the horticultural market. These products are supplied to various niche markets that require print-based specialty packaging. Our transaction cards and card services offerings are of a particular focus. We provide our customers a comprehensive end-to-end solution for credit, debit, general prepaid reloadable, gift, loyalty, hospitality, insurance and other card-based programs. Our integrated supply chain for cards, carriers, multi-packs and point-of-purchase displays greatly simplifies the development and execution of card programs and drives competitive differentiation.

Value-Added Services

We complement our broad product offering with several value-added services, such as creative design and new product development for which we have a team of more than 115 structural designers and graphic designers across a number of key locations. We also provide our customers with customized supply chain solutions, including VMI programs. VMI solutions help customers manage production based on actual demand to reduce lead times, minimize inventory, eliminate waste and enhance supply chain security. Our ability to provide on-demand services for our customers via digital print technology has allowed us to offer significantly shorter lead times than our key competitors. Shorter lead times provide a distinct advantage in consumer and healthcare-facing industries where companies must move quickly to introduce new products and ramp-up supply in response to market trends and consumer demand. Shorter lead times also limit our customers’ exposure to inventory obsolescence. Our value-added services build entrenched partnerships with customers and allow us to become a more critical part of the supply chain by helping to improve workflow efficiencies and reduce our customers’ total cost of ownership for packaging materials.

 

 

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Our End Markets

We are a leading provider of print-based specialty packaging products across the consumer, healthcare and multi-media end markets. The consumer and healthcare end markets are characterized by attractive market fundamentals, including a broad customer universe with diverse packaging needs, value-added product requirements and growing demand characteristics. The following table illustrates our sales, key drivers, end use, customers and competitors for each of our end markets. Additionally, the table reflects our estimates of our addressable market size and growth.

 

   

Consumer

 

Healthcare

 

Multi-Media

LTM March 31,
2015 Pro Forma
Net Sales
 

$945 million

51% of total

 

$677 million

37% of total

 

$225 million

12% of total

Key Drivers  

•  Brand differentiation

•  Enhanced design attributes

•  Product innovation

•  Rapid refresh cycles

 

•  Population demographics

•  Proliferation of pharmaceutical products

•  Regulatory requirements

 

•  Commemorative, special editions

•  Games and gaming platforms

2015 Addressable Market  

•  $8+ billion

 

•  $8+ billion

 

•  $0.3 billion

Market Growth

2015E – 2020E CAGR

 

•  2.0%

 

•  6.0%

 

•  (7.0)%

End Use  

•  Personal care

•  Spirits

•  Cosmetics

•  Confectionary

 

•  Over-the-counter (branded and private label) and ethical pharmaceuticals

•  Medical devices

•  Nutritional and dietary supplements, vitamins and minerals

 

•  Home video

•  Recorded music

•  Video games

•  Software

Representative
Customers
 

•  Coty

•  Diageo

•  Estée Lauder

•  Henkel

•  L’Oréal

•  Mondelēz International

•  Nestlé

•  Pernod Ricard

 

•  AstraZeneca

•  GlaxoSmithKline

•  Merck

•  Pfizer

 

•  Electronic Arts

•  Paramount Pictures

•  Sony

•  Universal Pictures Home Entertainment

•  Universal Music

•  Warner Home Video

Select Competitors  

•  Arkay Packaging

•  Autajon

•  CCL Industries

•  Edelmann Group

•  Multi-Color Corporation

 

•  CCL Industries

•  Essentra

•  Jones Packaging

•  Nosco

•  Rock-Tenn

 

•  ASG Europe

•  Bert-Co Industries

•  Wynalda Packaging

 

 

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Consumer (51% of LTM March 31, 2015 Pro Forma Net Sales)

We produce a full line of specialty print-based packaging products for a wide range of customers in the personal care, spirits, cosmetics and confectionary markets. We focus on the premium end of the market where high-impact graphics and innovative designs and finishes attract attention and help brands drive “top-of-mind” positioning with consumers at the point-of-purchase. Our scale and financial resources have enabled us to build out a leading global design division, which has been at the forefront of our product innovation capabilities. Multinational customers have also increasingly centralized their procurement functions seeking fewer, more strategic partners capable of meeting their consumer packaging needs and consistent marketing image across a range of products, services and geographies. We are well-positioned to benefit from this trend in vendor rationalization by leveraging our ability to deliver a broad range of local solutions while simultaneously providing global coverage to our multinational customers.

Healthcare (37% of LTM March 31, 2015 Pro Forma Net Sales)

Healthcare packaging is used in a wide variety of applications including over-the-counter (“OTC”) and prescription pharmaceuticals, medical devices, nutritional and dietary supplements, vitamins and minerals. We offer a full line of print-based packaging products serving the healthcare market, including folding cartons, inserts, labels, outserts and booklets. The healthcare packaging market is characterized by significant technical requirements, recession-resilient demand characteristics and numerous growth opportunities. Healthcare packaging has stringent quality specifications, prerequisite manufacturing standards, including audits and certifications of facilities, and ever-increasing regulatory requirements. Product innovation also plays a key role in the industry as pharmaceutical manufacturers increasingly incorporate authentication features into packaging to assist in the prevention of counterfeiting. We have developed strong relationships with leading healthcare companies as a result of our high-quality products, expertise in print technologies including digital print technology, excellent customer service and customized supply solutions, and quick response and turnaround times. Through this approach, we have established ourselves as an important supplier to the industry and see significant opportunity for future growth with new and existing customers. The healthcare sector is also characterized by the consolidation of packaging spend to those suppliers who can provide consistent service on a multi-country basis.

Multi-Media (12% of LTM March 31, 2015 Pro Forma Net Sales)

Our multi-media end market sales are focused on high quality specialty packaging, which often requires quick response, including commemorative and special editions for home videos, recorded music, video games and software. We produce a full line of printed packaging products for leading multi-media companies including folding cartons, booklets, folders, inserts, cover sheets and slipcases, as well as highly customized, graphical and value-added packaging components. We are one of the largest producers of these products in the North American multi-media end market. The production of packaging for multi-media customers requires dedicated equipment, order volumes, enterprise resource planning (“ERP”) systems and customer relationships, all of which are significant competitive advantages over any new market entrants.

Our Competitive Strengths

Industry leader focused on attractive end markets

We believe that we are a leading supplier in our core addressable consumer and healthcare end markets, which account for approximately 88% of our pro forma global net sales. The global markets for consumer and healthcare packaging have proven to be recession resistant over time, experiencing steady growth in excess of gross domestic product (“GDP”), which is expected to continue. For example, we estimate that the market for healthcare packaging grew at a compound annual growth rate (“CAGR”) of 6.4% from 2010 to 2015. Over the

 

 

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same period, the remainder of our addressable market grew at a CAGR of approximately 2.1%. According to the International Monetary Fund, GDP growth in the United States and European Union during the same period will average 2.3% and 0.9% per year, respectively.

Scale benefits in a fragmented industry

As one of the leading global providers of value-added specialty packaging solutions in a highly fragmented industry, our scale provides us with competitive advantages including: innovative design and new product development, purchasing leverage, value-added supply chain solutions (e.g., VMI) and redundant manufacturing capacity from our global footprint. Further, our scale has resulted in a global manufacturing platform that enables us to reliably serve our multinational customers intent on consolidating their supplier bases across multiple geographies. Our scale provides us with a significant competitive advantage, as most other market participants lack the financial resources to replicate our enterprise capabilities. Additionally, our scale provides us with the financial flexibility to selectively pursue and integrate bolt-on acquisition opportunities in this highly fragmented industry.

Long-term relationships with a diverse, blue chip customer base

We have long-term customer relationships driven by our local and global presence, breadth of products, value-added service offering and innovative packaging solutions. Our customers include AstraZeneca, Coty, Diageo, Estée Lauder, GlaxoSmithKline, L’Oréal, Mondelēz International, Nestlé, Pernod Ricard, Pfizer and Sony. Our relationships with our top 20 customers average 34 years, with no one customer accounting for more than 5% of our pro forma net sales for the twelve-month period ended March 31, 2015 and our top ten customers accounting for less than 26% of pro forma net sales for the same time period.

Strategically located global manufacturing footprint and high quality asset base

Our global packaging footprint provides us with the ability to serve our customers across North America, Europe and Asia. This is a key competitive differentiator in a fragmented industry that has predominantly regional and locally focused peers, and positions us to continue to grow in our core end markets. Our global sales, design and manufacturing capabilities enable us to simplify and economize our global customers’ supply chains through executing global supply contracts with key multinational customers. Our global production management capabilities and technologically advanced asset base positions us as a “provider-of-choice” for customers looking for product quality in emerging markets. We continually invest in our asset base to ensure we have state-of-the-art technology and high-performing equipment and implement operating best practices across our sites.

Product innovation capabilities and complementary service offering

We believe our new product development capabilities result in products with unique performance characteristics that add value for our customers, drive customer loyalty and support our overall profitability. Furthermore, as design and regulations continue to evolve, we believe it is imperative to constantly innovate in order to comprehensively address customer needs.

Our innovative product offering is complemented with several value-added services and technologies that our larger customers demand, including creative design, new product development and bespoke supply chain solutions such as VMI. Our creative team includes more than 115 structural designers and graphic designers across a number of key locations. Our sales and design capabilities, in tandem with our global footprint, facilitate a superior speed-to-market versus our competitors, which enables us to provide customers with faster product turnaround that leads to reduced inventory and product obsolescence when introducing new and redesigned products. Our value-added services, such as on-demand printing and customer-dedicated presses and facilities,

 

 

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allow us to build entrenched partnerships with customers and facilitate us in becoming a more critical part of the supply chain by helping to improve workflow efficiencies and reduce our customers’ total cost of ownership for packaging materials. In this fragmented industry, our size and financial resources enable us to continuously innovate, which is a significant competitive advantage.

Proven acquisition track record

Since 2005, we have evolved from our initial U.S. platform of five facilities into a global specialty packaging leader in the consumer, healthcare and multi-media end markets through a total of 14 transactions. In 2014, we entered into a transformational merger with Chesapeake and acquired ASG, which bolstered our global footprint and diversified our product and end market profile. From inception, the plan for MPS was to grow both organically and through successful execution and integration of acquisitions with a view to ultimately expand our geographic reach and product and service offering. This growth has helped us to both attract new and retain existing large multinational customers, as well as penetrate new regional and local customers in our key end markets. We have expanded the operating margins of companies we have acquired, achieving our synergy targets and leveraging our platform as evidenced by our accreting EBITDA margins subsequent to each acquisition. Specifically, we estimate that as of March 31, 2015 we have realized a total of approximately $15 million of synergies from the Chesapeake and ASG transactions, which is expected to result in an annualized run-rate as of the same date of approximately $25 million. We believe that these targeted savings and cost synergy programs will eventually achieve an annualized run-rate of approximately $40 million, although we cannot make any assurances that such an annualized run-rate will be achieved. These savings come from procurement, leveraging our existing selling, general and administrative functions, optimizing workflow within and across sites and driving strong operational performance through close monitoring and management.

Strong earnings growth, margin improvement and free cash flow generation

We have a successful track record of creating shareholder value since our inception. We have consistently delivered growth through a focus on attractive products and end markets, operational excellence and executing value accretive acquisitions. Adjusted EBITDA has grown at a CAGR of 36.1% from fiscal year 2006 to fiscal year 2013. Over the same period we have increased Adjusted EBITDA margins from 9.8% to 15.0% and improved free cash flow conversion, defined as Adjusted EBITDA minus capital expenditures, divided by Adjusted EBITDA, from 26.8% to 74.1%. We have also consistently demonstrated our ability to generate strong cash flows driven by efficient investment of capital, working capital control and operational discipline throughout the Company. Our free cash flow conversion has averaged over 70% over the last seven years. Consistently executing on our business strategy has resulted in strong growth and we believe we have the ability to achieve continued earnings and Adjusted EBITDA growth. We will continue to be a disciplined acquirer in our addressable markets, targeting value enhancing acquisitions, as well as key strategic investments to augment our product portfolio and geographic presence to better serve new and existing customers. We expect to continue to drive operational excellence through improving our productivity and asset utilization, optimizing our industrial footprint, and investing capital efficiently.

Experienced management team with strong track record of execution

Our seasoned and capable senior management team consisting of 31 individuals averages more than 20 years of direct industry experience and brings an impressive track record of both operating businesses and integrating acquisitions. We are led by our Chief Executive Officer, Marc Shore, the former Chairman and CEO of Shorewood Packaging Corporation (“Shorewood”), which completed an initial public offering in October 1986 and was eventually sold to International Paper in February 2000, resulting in a total return of 22% over that time on a compounded annual basis. At MPS, Mr. Shore and the management team are responsible for taking us from $209 million in our first full year of operation in 2006 to $1.8 billion in pro forma net sales for the twelve months ended March 31, 2015. Mr. Shore is joined by Dennis Kaltman, our President, and William Hogan, our Executive

 

 

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Vice President and Chief Financial Officer, both of whom helped build Shorewood alongside Mr. Shore and have worked with him for over 17 years. Mr. Kaltman and Mr. Hogan joined MPS in July 2005 and February 2006, respectively, and have more than 50 years of combined experience in the print-based specialty packaging industry. This management team is supported by a large number of seasoned employees, many who have joined from acquired businesses and have extensive operational experience and strong customer relationships.

Our Strategies

We seek to continue to take advantage of our competitive strengths by pursuing the following business strategies:

Position for organic growth in core markets

We seek to further develop our product capabilities and geographic reach in order to: enhance our existing customer relationships; take advantage of positive growth dynamics within our core consumer and healthcare markets; and focus on market segments where we have sustainable, competitive advantages. Additionally, our footprint in Asia and Eastern Europe gives us access to higher growth emerging markets.

 

    Consumer: As traditional forms of advertising media have continued to fragment, it is becoming increasingly important to have high quality packaging in order to capture consumers’ attention at point-of-sale in order to help brands differentiate their products in a cost effective way and gain “top-of-mind” positioning. Security and safety concerns are resulting in the growth of tamper-proof packaging. Additionally, increasing focus on environmental issues and recyclability of materials represents an opportunity for us to further strengthen our market position. Finally, continued compression in the product life cycle of consumer goods and a rapid refresh cycle have led to a growing need for new and differentiated packaging products. Our strength in new product development positions us to benefit from this trend.

 

    Healthcare: An aging population demographic, increasing consumer awareness regarding health and wellness, generic pharmaceutical SKU proliferation and evolving regulatory standards are expected to be key drivers of continued growth. The growing global population has increased the market for pharmaceuticals, an effect that is amplified by demographic shifts as the universe for pharmaceuticals targeting chronic diseases has expanded. We believe that our market leading positions across OTC, prescription and generics, coupled with our multinational presence, give us unparalleled global scale and a significant opportunity to follow customers looking to consolidate their supply chains.

Leverage our scale and differentiated approach to serving our end markets to increase market share

We believe we have a competitive and differentiated approach to serving our end markets through our global presence, breadth of products, value-added service offering and innovative packaging solutions, which we believe will underpin our future growth. We are able to serve our global customers who increasingly require multiple products across various regions. We believe that this approach will allow us to capture market share in our core end markets and work with existing clients as they expand internationally. Further, our ability to be a “one-stop shop” on a global basis for our customers simplifies and optimizes their supply chains and represents a significant opportunity to increase sales that were previously provided to our customer from smaller, local and regionally focused specialty packaging providers that cannot match our scale and service offerings. This extensive range of complementary high value-added products and solutions supports our value proposition to our customers and creates a “stickiness” to our customer relationships.

Continue to leverage cross-sell potential opportunities

We believe we can continue to increase our share of specialty packaging sales to our existing customers through meaningful geographic and product cross-selling opportunities. Our global footprint allows us to serve our

 

 

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current and future customers on a global basis, simplifying and economizing their supply chains. Additionally, we believe we have the capability to provide our customers a comprehensive total packaging solution and have the opportunity to sell our existing customers a broader range of products than many of our competitors that focus on only one product. Further, we believe we can leverage our broad suite of product offerings and sell them to newly acquired customers, particularly in instances where the acquired legacy business had only been capable of offering one specific service in one specific geography. Our ability to provide multiple products across numerous locations enables us to maximize cross-selling opportunities while helping customers reduce risks associated with supply chain concerns and ensuring consistent product quality and specification across products and geographies. This “one-stop shop” nature of our business yields economic benefits to our customers that are difficult for our competitors to achieve. Our merger with Chesapeake and purchase of ASG, which we completed in 2014, were transformative in this respect. We are only beginning to realize new sales opportunities as a consequence of bringing the complementary businesses together. For example, Chesapeake brought European spirits and confectionary capability which we can leverage into the United States, while we brought a broader personal care and healthcare customer base seeking suppliers with capabilities in Europe.

Continue pursuit of operational excellence

Continuous operational improvement is core to our strategy. We consistently benchmark our sites against each other in terms of profitability metrics and key performance indicators across our equipment to optimize our processes. We develop and implement operating best practices across our sites. Our key cost savings initiatives include improving our productivity and asset utilization, optimizing our industrial footprint and investing capital efficiently. Through these key savings initiatives as well as our global lean manufacturing efforts, we will continue to drive operational excellence in order to further improve our operating margins.

Continue disciplined acquisition strategy

We have established a track record of successfully sourcing, executing and integrating strategic, value accretive acquisitions in the fragmented specialty packaging industry, which have expanded our customer base, geographic reach, technological capabilities and product offering, as well as provided revenue and cost synergies. We maintain and monitor a list of potential acquisition targets and, as we have previously demonstrated, we believe we will continue to be able to achieve and execute acquisitions at attractive post-synergy valuations, bringing value to equity shareholders. Since 2005, we have completed 14 complementary transactions that we believe were at attractive pre-synergy and post-synergy multiples. As a result of our management’s tenure in the industry, most of our acquisitions have been identified and initiated by our management team outside of formal sale processes. We believe that we can create value through strategic acquisitions given management’s successful track record of integration, synergy achievement and overhead cost reduction, as well as our ability to further develop our current product offering and leverage new geographies across our customer base and global footprint to drive incremental revenue.

Drive margin expansion and synergy benefits from recent acquisitions

We are focused on continuing to drive synergies from recent acquisitions to reduce costs and increase our Adjusted EBITDA margins. We are in the process of executing synergies related to the Chesapeake merger and ASG acquisition, both of which were completed in calendar year 2014. Specifically, we estimate that as of March 31, 2015 we have realized a total of approximately $15 million of synergies from the Chesapeake and ASG transactions, which is expected to result in an annualized run-rate as of the same date of approximately $25 million. We believe that these targeted savings and synergy programs will eventually achieve an annualized run-rate of approximately $40 million, although we cannot make any assurances that such an annualized run-rate will be achieved.

 

 

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Maximize free cash flow generation

Free cash flow generation continues to be a focus of our business, and our consistent free cash flow generation is a result of: (i) a stable gross margin profile that reflects the value of the products and services we provide; (ii) management’s focus on operational efficiency; (iii) disciplined capital expenditures focused on attractive, high return on investment projects and the ability to repurpose machinery; and (iv) the optimization of operations and realization of synergies from acquisitions, including leveraging our fixed-cost base. We believe our execution of operational improvements and acquisition integration, supplemented with modest capital expenditure requirements, will continue to drive our free cash flow in the future.

Risks Related to Our Business

Investing in our common shares involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common shares. There are several risks related to our business and our ability to leverage our strengths that are described under “Risk Factors” elsewhere in this prospectus. Among these important risks are the following:

 

    our ability to compete against competitors with greater resources or lower operating costs;

 

    adverse developments in economic conditions, including downturns in the geographies and target markets that we serve;

 

    difficulties in restructuring operations, closing facilities or disposing of assets;

 

    our ability to successfully integrate our acquisitions and identify and integrate future acquisitions;

 

    our ability to realize the growth opportunities and cost savings and synergies we anticipate from the initiatives that we undertake;

 

    changes in technology trends and our ability to develop and market new products to respond to changing customer preferences and regulatory environment;

 

    seasonal fluctuations;

 

    the impact of significant regulations and compliance expenditures as a result of environmental, health and safety laws;

 

    risks associated with our non-U.S. operations;

 

    exposure to foreign currency exchange rate volatility;

 

    the loss of, or reduced purchases by, one or more of our large customers;

 

    failure to attract and retain key personnel;

 

    increased information technology security threats and targeted cybercrime;

 

    changes in the cost and availability of raw materials;

 

    operational problems at our facilities;

 

    the impact of any labor disputes or increased labor costs;

 

    the failure of quality control measures and systems resulting in faulty or contaminated products;

 

    the occurrence or threat of extraordinary events, including natural disasters and domestic and international terrorist attacks;

 

    increased energy or transportation costs;

 

 

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    our ability to develop product innovations and improve production technology and expertise;

 

    the impact of litigation, uninsured judgments or increased insurance premiums;

 

    an impairment of our goodwill or intangible assets;

 

    our ability to comply with all applicable export control laws and regulations of the United States and other countries and restrictions imposed by the Foreign Corrupt Practices Act;

 

    the impact of regulations to address climate change;

 

    risks associated with the funding of our pension plans, including actions by governmental authorities;

 

    the impact of regulations related to conflict minerals;

 

    our ability to acquire and protect our intellectual property rights and avoid claims of intellectual property infringement;

 

    risks related to our substantial indebtedness;

 

    failure of internal controls over financial reporting; and

 

    the ability of Carlyle and Madison Dearborn to control us.

Our Anticipated Corporate Structure After the Offering

 

LOGO

 

 

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Our Principal Shareholders

On August 15, 2013, Multi Packaging Solutions, Inc. and its primary shareholder, IPC/Packaging LLC, entered into an Agreement and Plan of Merger to be purchased by Mustang, an entity controlled by funds advised by Madison Dearborn. On November 18, 2013, an investment fund controlled by Madison Dearborn and an investment fund controlled by Carlyle entered into a Combination Agreement. Pursuant to the Combination Agreement, Madison Dearborn contributed 100% of the outstanding equity of Mustang to Chesapeake, in exchange for a 50% equity interest in Chesapeake. The other 50% equity interest in Chesapeake is held by funds advised by Carlyle. The transaction between Chesapeake and Mustang was accounted for as a reverse acquisition with Chesapeake as the legal acquiror and new parent entity, and Mustang as the legal subsidiary but the accounting acquiror. Subsequently, Chesapeake changed its name to Multi Packaging Solutions Global Holdings Limited. On June 19, 2015, Multi Packaging Solutions International Limited, the registrant, was formed in Bermuda. Affiliates of Madison Dearborn and Carlyle collectively currently beneficially own all of our common shares, as well as the ordinary shares of Multi Packaging Solutions Global Holdings Limited. See “Basis of Presentation and Other Information—Multi Packaging Solutions International Limited.”

Carlyle

Founded in 1987, Carlyle is a global alternative asset manager and one of the world’s largest global private equity firms with approximately $193 billion of assets under management across 130 funds and 156 fund of funds vehicles as of March 31, 2015. Carlyle invests across four segments – Corporate Private Equity, Real Assets, Global Market Strategies and Investment Solutions – in Africa, Asia, Australia, Europe, the Middle East, North America and South America. Carlyle has expertise in various industries, including aerospace, defense & government services, consumer & retail, energy, financial services, healthcare, industrial, real estate, technology & business services, telecommunications & media and transportation. Carlyle employs more than 1,650 employees, including more than 700 investment professionals, in 40 offices across six continents.

Madison Dearborn

Madison Dearborn, based in Chicago, is an experienced private equity investment firm that has raised over $18 billion of capital. Since its formation in 1992, Madison Dearborn’s investment funds have invested in approximately 130 companies across a broad spectrum of industries, including basic industries; business and government services; consumer; financial and transaction services; healthcare; and telecom, media and technology services. Madison Dearborn’s objective is to invest in companies with strong competitive characteristics that it believes have the potential for significant long-term equity appreciation. To achieve this objective, Madison Dearborn seeks to partner with outstanding management teams that have a solid understanding of their businesses as well as track records of building shareholder value.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in gross revenue during our last fiscal year before our first public filing, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

    being permitted to present only two years of audited financial statements and only two years of related results of operations in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in this prospectus;

 

    being permitted to adopt any new or revised accounting standards using the same timeframe as private companies (if such standard applies to private companies);

 

 

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    not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);

 

    reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), which such fifth anniversary will occur in 2021. However, if specified events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

We have elected to take advantage of some of the reduced disclosure obligations listed above in this prospectus, and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.

Company Information

Multi Packaging Solutions International Limited was incorporated pursuant to the laws of Bermuda on June 19, 2015. Our principal executive offices are located at 150 E 52nd St., 28th Floor, New York, New York, 10022, and our telephone number is (646) 885-0005. Our website address is www.multipkg.com. Information on, or accessible through, our website is not part of this prospectus, nor is such content incorporated by reference herein. You should rely only on the information contained in this prospectus when making a decision as to whether to invest in our common shares.

We maintain a registered office in Bermuda at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The telephone number of our registered office is (441) 295-5950.

 

 

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The Offering

 

Common shares offered

                shares.

 

Common shares outstanding after this offering

                shares.

 

Option to purchase additional common shares

We have granted the underwriters a 30-day option from the date of this prospectus to purchase up to an additional                 common shares at the initial public offering price, less underwriting discounts and commissions.

 

Use of proceeds

We estimate the net proceeds to us from this offering will be approximately $         million, based on an assumed public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and other estimated offering expenses payable by us. We intend to use the net proceeds from this offering to repay certain indebtedness and to pay related premiums, accrued and unpaid interest and to pay expenses related to this offering. See “Use of Proceeds” for additional information. To the extent that the public offering price is lower than $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and our cash proceeds are lower than we have estimated, or our offering expenses are greater than we have estimated, the amount of the indebtedness that we will repay will be reduced. To the extent that the public offering price is higher than $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and our cash proceeds are higher than we have estimated, or our offering expenses are less than we have estimated, the amount of the indebtedness that we will repay will be increased. See “Use of Proceeds” for additional information.

 

Dividend policy

We do not currently pay and do not currently anticipate paying dividends on our common shares following this offering. Any declaration and payment of future dividends to holders of our common shares may be limited by restrictive covenants in our debt agreements, and will be at the sole discretion of the Board of Directors of MPS Limited (our “Board of Directors”) and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board of Directors deems relevant. In addition, Bermuda law imposes requirements that may restrict our ability to pay dividends to holders of our common shares. Under the Companies Act, 1981, we may declare and pay a dividend only if we have reasonable grounds to believe that we are, or would be after the payment, able to pay our liabilities as they become due and if the realizable value of our assets would thereby not be less than our

 

 

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liabilities. See “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Description of Share Capital.”

 

Proposed stock exchange symbol

“MPSX”.

 

Risk factors

See “Risk Factors” beginning on page 28 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common shares.

The number of common shares to be outstanding after completion of this offering is based on                  common shares outstanding as of                     , 2015 and excludes                 common shares reserved for issuance under our 2015 Incentive Plan (the “2015 Plan”), which we plan to adopt in connection with this offering.

Unless we specifically state otherwise, all information in this prospectus assumes:

 

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

 

    an initial offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus;

 

    the completion of a             -for-             split of our common shares (the “common share split”), which will occur prior to the closing of this offering; and

 

    the adoption of our amended and restated bye-laws immediately prior to the closing of this offering.

 

 

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Summary Historical Audited and Unaudited Consolidated and Unaudited Pro Forma Combined Financial Information

The following table sets forth our summary historical audited and unaudited consolidated and unaudited pro forma combined financial information for the periods and dates indicated.

The balance sheet data as of June 30, 2014 and 2013 and the statements of operations and cash flow data for the fiscal year ended June 30, 2013, the period from July 1, 2013 to August 14, 2013 and the period from August 15, 2013 to June 30, 2014 have been derived from the audited consolidated financial statements of MPS Holdings appearing elsewhere in this prospectus. The balance sheet data as of March 31, 2015 and the statements of operations and cash flow data for the nine-month period ended March 31, 2015, and the period from August 15, 2013 to March 31, 2014 have been derived from the unaudited interim consolidated financial statements of MPS Holdings appearing elsewhere in this prospectus. The balance sheet data as of March 31, 2014 has been derived from the unaudited consolidated financial statements of our business not included in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the information set forth herein. Interim financial results are not necessarily indicative of results that may be expected for the full fiscal year or any future reporting period.

The statements of operations and cash flow data are presented for the Predecessor period, which relates to the period preceding the Madison Dearborn Transaction and the Successor period, which relates the period succeeding the Madison Dearborn Transaction.

We have derived the summary unaudited pro forma combined financial data for the year ended June 30, 2014 and the nine months ended March 31, 2015 from our unaudited pro forma combined financial statements appearing elsewhere in this prospectus.

The unaudited pro forma combined financial data for the year ended June 30, 2014 and the nine months ended March 31, 2015 give effect to the following transactions as if they had occurred on July 1, 2013 and July 1, 2014, respectively:

 

    the merger with Chesapeake on February 14, 2014, accounted for as a reverse acquisition, whereby MPS Holdings was the accounting acquirer;

 

    the acquisition of Integrated Print Solutions, LLC on April 4, 2014;

 

    the acquisition of JLI Acquisition, Inc. on April 4, 2014;

 

    the acquisition of Armstrong Packaging Limited on July 8, 2014;

 

    the acquisitions of the Non-European Folding Carton and Lithographic Printing Business of AGI Global Holdings Coöperatief U.A. and the U.S. Folding Carton and Lithographic Printing Business of Atlas AGI Holdings LLC on November 21, 2014; and

 

    the acquisition of Presentation Products Group on February 28, 2015.

We refer to the foregoing collectively as the “Transactions.” See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Transactions.”

The summary unaudited pro forma combined financial data is for informational purposes only and does not purport to represent what our results of operations would have been if the Transactions had occurred as of those dates or what those results will be for future periods. We cannot assure you that the assumptions used by our management, which they believe are reasonable, for preparation of the summary unaudited pro forma combined financial data will prove to be correct.

 

 

20


Table of Contents

Historical results are not indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of results for the entire year. You should read the following data together with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes thereto and our unaudited pro forma combined financial statements appearing elsewhere in this prospectus.

 

 

21


Table of Contents

Statement of Operations

 

          Fiscal year ended
June 30, 2014
    Nine months ended
March 31, 2014
                   
    Predecessor          Successor     Predecessor          Successor     Pro forma  
(Dollars in
thousands, except per
share data)
  Fiscal year
ended
June 30,
2013
    Period from
July 1,
2013 to
August 14,
2013
         Period from
August 15,
2013 to
June 30,
2014
    Period from
July 1,
2013 to
August 14,
2013
         Period from
August 15,
2013 to
March 31,
2014
    Nine
months
ended
March 31,
2015
    Nine
months
ended
March 31,
2015
    Year ended
June 30,
2014
 

Net sales

  $ 579,401      $ 74,081          $ 814,213      $ 74,081          $ 470,738      $ 1,215,116      $ 1,405,015      $ 1,902,429   

Cost of goods sold

    456,958        58,054            668,441        58,054            387,086        966,069        1,127,442        1,517,731   
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    122,443        16,027            145,772        16,027            83,652        249,047        277,573        384,698   

Selling, general and administrative expenses:

                       

Selling, general and administrative expenses

    76,260        9,729            135,212        9,729            76,925        181,455        206,774        366,055   

Management fees and expenses

    2,315        264            —          264            —          —          196        4,882   

Transaction and other related expenses

    3,080        28,370            38,844        28,370            37,562        6,098        271        85,224   
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 
    81,655        38,363            174,056        38,363            114,487        187,553        207,241        456,161   
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    40,788        (22,336         (28,284     (22,336         (30,835     61,494        70,332     

 

(71,463

Other income (expense):

                       

Other income (expense), net

    1,426        1,063            370        1,063            (84     10,643        12,155        4,643   

Debt extinguishment charges

    (4,140     (14,042         —          (14,042         —          —          —       

 

(14,042

Interest expense

    (24,546     (3,991         (43,215     (3,991         (25,484     (54,042     (56,060     (84,983
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

    (27,260     (16,970         (42,845     (16,970         (25,568     (43,399     (43,905     (94,382
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    13,528        (39,306         (71,129     (39,306         (56,403     18,095        26,427     

 

(165,845

Income taxes (benefit) expense

    4,195        (15,621         (19,481     (15,621         (15,810     6,212        9,065        (45,425
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    9,333        (23,685         (51,648     (23,685         (40,593     11,883        17,362     

 

(120,420

Less net income attributable to noncontrolling interest

    —          —              216        —              26        525        525        (853
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

  $ 9,333      $ (23,685       $ (51,864   $ (23,685       $ (40,619   $ 11,358      $ 16,837      $ (119,567

Preferred stock dividends

    (9,275     (25                (25                                
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Income available (loss attributable) to common shareholders

  $ 58      $ (23,710       $ (51,864   $ (23,710       $ (40,619   $ 11,358      $ 16,837      $ (119,567
 

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

                       

Basic

  $ .50      $ (203.74       $ (.35   $ (203.74       $ (.33   $ .05      $ .08      $ (.58

Diluted

  $ .49      $ (203.74       $ (.35   $ (203.74       $ (.33   $ .05      $ .08      $ (.58

Weighted average shares outstanding:

                       

Basic

    116,110        116,373            148,027,204        116,373            124,472,246        207,302,868        207,302,868        207,302,868   

Diluted

    119,073        116,373            148,027,204        116,373            124,472,246        207,302,868        207,302,868        207,302,868   

 

 

22


Table of Contents

Balance Sheet Data

 

     Predecessor            Successor  
(Dollars in thousands)    As of
June 30,
2013
           As of
June 30,
2014
     As of
March 31,
2015
 

Total debt and capital leases

   $ 389,198            $ 1,133,202       $ 1,175,280   

Cash and cash equivalents

     27,123              27,533         39,155   

Net debt (1)

     362,075              1,105,669         1,136,125   

Other Financial Data

 

          Fiscal year ended
June 30, 2014
    Nine months ended
March 31, 2014
             
    Predecessor          Successor     Predecessor          Successor     Pro forma  
(Dollars in thousands)   Fiscal year
ended
June 30,
2013
    Period from
July 1,
2013 to
August 14,
2013
         Period from
August 15,
2013 to
June 30,
2014
    Period from
July 1,
2013 to
August 14,
2013
         Period from
August 15,
2013 to
March 31,
2014
    Nine
months
ended
March 31,
2015
    Year
ended
June 30,
2014
 

EBITDA (2)

  $ 74,734      $ (31,543       $ 45,292      $ (31,543       $ 10,399      $ 170,122      $ 61,604   

Adjusted EBITDA (2)

    86,675        10,471            118,790        10,471            74,823        176,948        221,226   

Adjusted EBITDA margin (3)

    15.0     14.1         14.6     14.1         15.9     14.6     11.6

Capital expenditures

    22,433        2,741            39,888        2,741            17,207        37,678        72,354   

Free cash flow (4)

    64,242        7,730            78,902        7,730            57,616        139,270        148,872   

Interest expense

    24,546        3,991            43,215        3,991            25,484        54,042        84,983   

 

(1) Net debt represents total debt less cash and cash equivalents.
(2) To supplement our financial information presented in accordance with U.S. GAAP, we use the following additional non-U.S. GAAP financial measures to clarify and enhance an understanding of past performance: EBITDA, Adjusted EBITDA and free cash flow. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance. We further believe that these financial measures are useful financial metrics to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We also believe that these financial measures provide investors with a useful tool for assessing the comparability between periods of our ability to generate cash from operations sufficient to pay taxes, to service debt and to undertake capital expenditures. We use certain of these financial measures for business planning purposes and in measuring our performance relative to that of our competitors.

EBITDA consists of net income (loss) attributable to MPS Holdings before interest, taxes, depreciation and amortization. Adjusted EBITDA consists of EBITDA adjusted for transaction costs, management fees, stock based and deferred compensation, multi-employer plan exits, debt extinguishment costs, amortization of inventory step-up, restructuring charges, (gain)/loss on sale of fixed assets, contract start-up costs and amortization costs, legal settlements, impairment charges, special inventory provisions and items that form part of other income/(expense). In the case of Adjusted EBITDA, we believe that making such adjustments provides investors meaningful information to understand our operating results and ability to analyze financial and business trends on a period to period basis.

We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the terms EBITDA, Adjusted EBITDA and free cash flow may vary from that of others in our industry. These financial measures should not be considered as alternatives to operating income (loss), net income (loss), earnings per share or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or operating cash flows or as measures of liquidity.

 

 

23


Table of Contents

EBITDA, Adjusted EBITDA and free cash flow have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

 

    EBITDA, Adjusted EBITDA and free cash flow:

 

    exclude certain tax payments that may represent a reduction in cash available to us;

 

    exclude certain impairments and adjustments for purchase accounting;

 

    do not reflect changes in, or cash requirements for, our working capital needs;

 

    do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt; and

 

    additionally, EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA, Adjusted EBITDA and free cash flow do not reflect any cash requirements for such replacements; and

 

    other companies in our industry may calculate EBITDA, Adjusted EBITDA and free cash flow differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA, Adjusted EBITDA and free cash flow should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these financial measures only supplementally.

In calculating EBITDA, Adjusted EBITDA and free cash flow, we add back certain non-cash, nonrecurring and other items and make certain adjustments that are based on assumptions and estimates that may prove to have been inaccurate. In addition, in evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of EBITDA, Adjusted EBITDA and free cash flow should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

 

 

24


Table of Contents

The following tables reconcile net income (loss) attributable to MPS Holdings to EBITDA and Adjusted EBITDA for the periods presented:

 

          Twelve months ended
June 30, 2014
    Nine months ended
March 31, 2014
             
    Predecessor     Successor     Predecessor     Successor     Pro forma  
(Dollars in thousands)   Fiscal year
ended
June 30,
2013
    Period
from July 1,
2013 to
August 14,
2013
    Period
from
August 15,
2013 to
June 30,
2014
    Period
from July 1,
2013 to
August 14,
2013
    Period
from
August 15,
2013 to
March 31,
2014
    Nine
months
ended
March 31,
2015
    Year
ended
June 30,
2014
 

Net income (loss)

  $ 9,333      $ (23,685   $ (51,648   $ (23,685   $ (40,593   $ 11,883      $ (120,420

Depreciation and amortization

    36,660        3,772        73,206        3,772        41,318        97,985        142,466   

Interest expense

    24,546        3,991        43,215        3,991        25,484        54,042        84,983   

Income tax expense (benefit)

    4,195        (15,621     (19,481     (15,621     (15,810     6,212        (45,425
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  74,734      (31,543   45,292      (31,543   10,399      170,122      61,604   

Transaction costs (a)

  3,080      28,370      38,844      28,370      37,562      6,098      85,224   

Management fees (b)

  2,315      264      —        264      —        —        4,882   

Stock based and deferred compensation (c)

  2,578      125      1,534      125      916      1,403      1,618   

Multi-employer plan exits (d)

  —        (676   9,250      (676   9,283      —        8,574   

Debt extinguishment costs (e)

  4,140      14,042      —        14,042      —        —        14,042   

Purchase accounting adjustments (f)

  —        —        10,836      —        8,613      2,024      6,415   

Restructuring charges (g)

  736      3      10,037      3      5,111      5,490      30,542   

(Gain) loss on sale of fixed assets (h)

  (853   (96   2,278      (96   1,541      645      3,221   

Impairment charges (i)

  2,112      —        1,006      —        —        —        3,348   

Other adjustments to EBITDA (k)

  (2,167   (18   (287   (18   1,398      (8,834   1,756   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$ 86,675    $ 10,471    $ 118,790    $ 10,471    $ 74,823    $ 176,948    $ 221,226   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

25


Table of Contents
    Year ended June 30,     Pro forma
Year ended
June 30,
 
(Dollars in thousands)   2006     2007     2008     2009     2010     2011     2012     2013     2014  

Net income (loss)

  $ (12,564   $ 2,101      $ 1,285      $ (2,088   $ 4,677      $ 3,195      $ 4,136      $ 9,333      $ (120,420

Depreciation and amortization

    15,302        21,055        22,888        27,868        31,674        32,699        38,841        36,660        142,466   

Interest expense

    10,296        12,710        13,396        17,534        15,902        17,515        19,490        24,546        84,983   

Income tax expense (benefit)

    1,080        (5,778     2,382        299        4,248        6,589        1,260        4,195        (45,425
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  14,114      30,088      39,951      43,613      56,501      59,998      63,727      74,734      61,604   

Transaction costs (a)

  711      —        969      388      —        8,642      —        3,080      85,224   

Management fees (b)

  814      1,049      990      1,373      1,521      1,730      1,984      2,315      4,882   

Stock based and deferred compensation (c)

  1,520      1,520      1,520      1,564      578      197      600      2,578      1,618   

Multi-employer plan exits (d)

  —        —        —        —        —        —        4,591      —        8,574   

Debt extinguishment costs (e)

  —        —        —        —        —        —        —        4,140      14,042   

Purchase accounting adjustments (f)

  3,250      —        —        —        —        251      1,310      —        6,415   

Restructuring charges (g)

  —        —        —        1,562      563      1,444      3,717      736      30,542   

(Gain) loss on sale of fixed assets (h)

  —        —        —        107      (257   260      (359   (853   3,221   

Impairment charges (i)

  —        —        —        —        —        —        7,705      2,112      3,348   

Legal settlement (j)

  —        —        300      99      —        (1,620   120      —        —     

Other adjustments to EBITDA (k)

  —        —        173      527      309      19      3,140      (2,167   1,756   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$ 20,409    $ 32,657    $ 43,903    $ 49,233    $ 59,215    $ 70,921    $ 86,535    $ 86,675    $ 221,226   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Fees related to change in equity ownership, mergers and acquisitions.
  (b) We entered into a management agreement with an affiliate which required quarterly payments equal to the greater of a fixed annual fee or a percentage of our annual EBITDA. The successor sponsors do not have an annual management fee.
  (c) We record expense related to stock options, contingent compensation based on performance targets of CD Cartondruck AG (which we acquired in 2011), as well as deferred compensation agreements from certain acquisitions.
  (d) We participated in three multi employer pension plans and recorded a liability for all three plans. In 2014, we exited one of the plans which resulted in a gain.
  (e) We settled the remaining principal balance of the Predecessor debt which resulted in fees as well as a write-off of old deferred finance fees.
  (f) Relates to amortization of purchase price/inventory adjustments in connection with purchase accounting fair valuation, amortization of deferred revenue related to government grants and fair value lease amortization as of the applicable opening balance sheet date.
  (g) Costs relating to reorganization.
  (h) Gains or losses incurred due to the sale of fixed assets.
  (i) Includes impairment charges associated with the write-off of non-consolidated investments, and a non-cash trade name impairment which was the result of management’s decision to discontinue investment in a legacy trade name.
  (j) Costs associated with a non-operating legal settlement.
  (k) Comprised of: (i) currency gains and losses, (ii) gain on settlement of Series C shares, (iii) gains on derivatives, (iv) other interest costs and (v) contract amortization cost.

 

 

26


Table of Contents
(3) Adjusted EBITDA margin represents Adjusted EBITDA for the relevant period divided by net sales. The table below sets forth the calculation of our Adjusted EBITDA margin.

 

    Year ended June 30,     Pro forma
year ended
June 30,
 
(Dollars in
thousands)
  2006     2007     2008     2009     2010     2011     2012     2013     2014  

Adjusted EBITDA

  $ 20,409      $ 32,657      $ 43,903      $ 49,233      $ 59,215      $ 70,921      $ 86,535      $ 86,675      $ 221,226   

Net sales

    208,663        276,728        344,147        404,374        484,133        514,695        596,414        579,401        1,902,429   

Adjusted EBITDA %

    9.8%        11.8%        12.8%        12.2%        12.2%        13.8%        14.5%        15.0%        11.6% (a) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Reflects the acquisitions we made through March 31, 2015 as if they occurred on July 1, 2013. The pro forma Adjusted EBITDA margin is lower than historical periods primarily due to the lower historical Adjusted EBITDA margin for the acquired ASG businesses and is reflective of the potential accretion opportunity available to us.

 

(4) Free cash flow represents Adjusted EBITDA less capital expenditures. Free cash flow conversion represents free cash flow divided by Adjusted EBITDA. The table below sets forth our free cash flow and free cash flow conversion.

 

    Year ended June 30,     Pro forma
year ended
June 30,
 
(Dollars in
thousands)
  2006     2007     2008     2009     2010     2011     2012     2013     2014  

Adjusted EBITDA

  $ 20,409      $ 32,657      $ 43,903      $ 49,233      $ 59,215      $ 70,921      $ 86,535      $ 86,675      $ 221,226   

Capital Expenditures

    (14,939     (15,280     (12,214     (11,662     (13,732     (12,671     (24,345     (22,433     (72,354
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flow

$ 5,470    $ 17,377    $ 31,689    $ 37,571    $ 45,483    $ 58,250    $ 62,190    $ 64,242    $ 148,872   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flow Conversion

  27%      53%      72%      76%      77%      82%      72%      74%      67%   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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RISK FACTORS

An investment in our common shares involves a high degree of risk. You should consider carefully the following risks, together with the other information contained in this prospectus, before you decide whether to buy our common shares. If any of the events contemplated by the following discussion of risks should occur, our business, results of operations, financial condition and cash flows could suffer significantly. As a result, the market price of our common shares could decline, and you may lose all or part of the money you paid to buy our common shares. The following is a summary of all the material risks known to us.

Risks Related to Our Business

We face competition in our markets, which may harm our financial performance and growth prospects.

We operate in a competitive market in which we face competition in each of our product lines from numerous competitors. We compete on the basis of product quality and reliability, breadth of product offering, manufacturing capability and flexibility, delivery times and range, technical capability, product innovation, customer service, price and completeness of order fulfillment. Certain of our competitors may have lower operating costs, greater operational flexibility, greater productive capacity, more financial flexibility and other resources that are greater than ours. We also face competition to a certain extent from companies that produce alternative products including plastic, board, paper, foil-based and other products that we do not currently offer. In addition, changes within the packaging industries, including the consolidation of our competitors, and consolidation of our customers, have occurred and may continue to occur. As a result of the foregoing factors, we may lose customers or be forced to reduce prices, which could have a material adverse effect on our business, financial condition and operating results. In addition, because of the level of fixed costs in our specialty print-based packaging business, our profitability is sensitive to changes in the balance between supply and demand in the specialty print-based packaging market. Competitors with lower operating costs than ours will have a competitive advantage over us with respect to products that are particularly price-sensitive. Increased production capacity within the industry could cause an oversupply resulting in lower prices, which could have a material adverse effect on our business, financial condition and operating results.

Our business performance may be impacted by general economic conditions, including downturns in the geographies and target markets that we serve.

The growth of our business and demand for our products is affected by changes in the health of the overall global economy and regional economies. Demand for our products is principally driven by consumer consumption of the products sold in the packages or with the inserts and labels we produce, which is affected by general economic conditions and changes in consumer preferences. Our primary end markets are consumer products, such as personal care, spirits, cosmetics and confectionary products, healthcare products, such as pharmaceuticals, medical devices, nutritional supplements and vitamins, and multi-media products, such as home videos, video games and software. Downturns or periods of economic weakness in these markets could result in decreased demand for our products. In general, our business may be adversely affected by decreases in the overall level of global economic activity, such as decreases in business and consumer spending. In particular, our business could be adversely affected by any economic downturn that results in difficulties for any of our major customers.

We may encounter difficulties in restructuring operations, closing facilities and disposing of assets and facilities.

We have closed facilities, sold assets and otherwise restructured operations in an effort to improve our cost competitiveness and profitability. Some of these activities are ongoing, and there is no guarantee that any such activities will not divert the attention of management or disrupt our operations or achieve the intended cost and operations improvements. These activities, and any future activities we may undertake, could have a material adverse effect on our business, financial condition and operating results.

 

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If we are unable to successfully integrate our acquisitions and identify and integrate future acquisitions, our results of operations could be adversely affected.

We have completed a number of acquisitions, including the transformative combination with Chesapeake. We continue to integrate acquisitions into our business, but may not be able to do so successfully. Furthermore, we may seek to identify and complete additional acquisitions that meet our strategic and financial return criteria. However, there can be no assurance that we will be able to locate suitable targets or acquire them on acceptable terms or, because of limitations imposed by the agreements governing our indebtedness, that we will be able to finance future acquisitions. Acquisitions involve a number of risks, including risks related to:

 

    the diversion of management’s attention and resources to the assimilation of the acquired companies and their employees and to the management of expanding operations;

 

    increased costs of integration activities;

 

    disruption of our existing business operations;

 

    the incorporation of acquired products into our current offerings;

 

    problems associated with maintaining relationships with employees and customers of acquired businesses as a result of changes in ownership and management;

 

    the increasing demands on our operational systems resulting from integration of the systems of acquired businesses;

 

    the ability to integrate and implement effective disclosure controls and procedures and internal controls over financial reporting within the allowable timeframe;

 

    possible adverse effects on our reported operating results, particularly during the first several reporting periods after such acquisitions are completed; and

 

    the difficulty of converting acquired companies to our corporate culture and brands.

We may become responsible for unanticipated liabilities and contingencies that we failed or were unable to discover in the course of performing due diligence in connection with historical acquisitions or any future acquisitions. We have typically required sellers to indemnify us against certain undisclosed liabilities. However, we cannot assure you that indemnification rights we have obtained, or will in the future obtain, will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any of these liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

In addition, we may not be able to successfully integrate future acquisitions without substantial costs, delays or other problems. The costs of such integration could have a material adverse effect on our operating results and financial condition. Although we conduct what we believe to be a prudent level of investigation regarding the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual condition of these businesses. Until we actually assume operating control of such businesses and their assets and operations, we may not be able to ascertain the actual value or understand the potential liabilities of the acquired entities and their operations.

We may not realize the growth opportunities and cost savings and synergies that are anticipated from our acquisitions and the other initiatives that we undertake.

The benefits that we expect to achieve as a result of our acquisitions will depend in part on our ability to realize anticipated growth opportunities and cost savings and synergies. Our success in realizing these opportunities and synergies and the timing of this realization depend on the successful integration of the acquired businesses and operations with our business and operations and the adoption of best practices. Even if we are able to integrate these businesses and operations successfully, this integration may not result in the realization of the full benefits

 

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of the growth opportunities and synergies we currently expect from this integration within the anticipated timeframe or at all. Accordingly, the benefits from these acquisitions may be offset by unanticipated costs or delays in integrating the companies.

Furthermore, we may not realize all of the cost savings and synergies we expect to achieve from our current strategic initiatives due to a variety of risks, including, but not limited to, difficulties in integrating shared services within our business, higher than expected employee severance or retention costs, higher than expected overhead expenses, delays in the anticipated timing of activities related to our cost savings plans and other unexpected costs associated with operating our business. If we are unable to achieve the cost savings or synergies that we expect to achieve from our strategic initiatives, or if the implementation of these initiatives adversely affect our operations or cost more or take longer to effectuate than we expect, it could adversely affect our business, financial condition and results of operations.

If we cannot effectively anticipate technology trends and develop and market new products to respond to changing customer preferences and regulatory environment, our revenue, earnings and cash flow could be adversely affected.

We are a specialty packaging company serving the consumer, healthcare and multi-media markets. Our success in these markets depends on our ability to offer differentiated solutions to capture market share and grow scale. To enable this, we must continually develop and introduce new products and services in a timely manner to keep pace with technological and regulatory developments and achieve customer acceptance. In addition, the services and products that we provide to customers may not meet the needs of our customers as the business models of our customers evolve. Our customers may decide to decrease their product packaging or forego the packaging of certain products entirely. Regulatory developments can also significantly alter the market for our solutions. For example, a move to electronic distribution of disclaimers and other paperless regimes could negatively impact our healthcare inserts and labels businesses. In addition, it is difficult to successfully predict the products and services our customers will demand. The success of our business depends in part on our ability to identify and respond promptly to changes in customer preferences, expectations and needs. If we do not timely assess and respond to changing customer expectations, preferences and needs, our financial condition, results of operations or cash flows could be adversely affected.

We are affected by seasonality.

Historically, our business experiences some seasonal fluctuations, with a greater portion of our consumer and multi-media sales occurring in the first and second fiscal quarters, reflecting increased demand for our customers’ products during the holiday selling seasons. In addition, healthcare sales are generally stronger in the second and third fiscal quarters, which correspond with the annual cold and flu season. As a result of this seasonality, any factors negatively affecting us during these periods of any year, including unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year.

Our operations could expose us to significant regulations and compliance expenditures as a result of environmental, health and safety laws.

Our business and facilities are subject to a wide range of federal, state, local and foreign general and industry-specific environmental, health and safety laws and regulations, including those relating to air emissions, wastewater discharges, management and disposal of regulated materials and site remediation. Certain of our operations require environmental permits or other approvals from governmental authorities, and certain of these permits and approvals are subject to expiration, denial, revocation or modification under various circumstances. We are also subject to frequent inspections and monitoring by government enforcement authorities. Compliance with these laws, regulations, permits and approvals is a significant factor in our business. From time to time we incur, and may in the future incur, significant capital and operating expenditures to achieve and maintain

 

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compliance with applicable environmental laws, regulations, permits and approvals. Our failure to comply with applicable environmental laws and regulations or permit or approval requirements could result in substantial civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring remedial or corrective measures, installation of pollution control equipment or other actions or costs, which could have a material adverse effect on our business, financial condition and operating results.

In addition, as an owner and operator of real estate, we may be responsible under environmental laws and regulations for the investigation, remediation and monitoring, as well as associated costs, expenses and third-party damages, including tort liability and natural resource damages, relating to past or present releases or threats of releases of regulated materials at, on, under or from our properties. Liability under these laws may be imposed without regard to whether we knew of or were responsible for the presence of those materials on our property; may be joint and several, meaning that the entire liability may be imposed on each party without regard to contribution; and may be retroactive and may not be limited to the value of the property. In addition, we or others may discover new material environmental liabilities, including liabilities related to third-party owned properties that we or our predecessors formerly owned or operated, or at which we or our predecessors have disposed of, or arranged for the disposal of, certain regulated materials. We may be involved in administrative or judicial proceedings and inquiries in the future relating to such environmental matters, which could have a material adverse effect on our business, financial condition and operating results.

New environmental laws or regulations (or changes in existing laws or regulations or their enforcement) may be enacted that require significant expenditures by us. If the resulting expenses significantly exceed our expectations, our business, financial condition and operating results could be materially and adversely affected.

We are also subject to various federal, state, local and foreign requirements concerning safety and health conditions at our manufacturing facilities. The operation of manufacturing facilities involves many risks, including the failure or substandard performance of equipment, suspension of operations and new governmental statutes, regulations, guidelines and policies. Our and our customers’ operations are also subject to various hazards incidental to the production, use, handling, processing, storage and transportation of certain hazardous materials. These hazards can cause personal injury, severe damage to and destruction of property and equipment and environmental damage. Furthermore, we may become subject to claims with respect to workplace exposure, workers’ compensation and other matters. We may be subject to material financial penalties or liabilities for noncompliance with safety and health requirements, as well as potential business disruption, if any of our facilities or a portion of any facility is required to be temporarily closed as a result of any significant injury or any noncompliance with applicable requirements.

The occurrence of material operational problems, including, but not limited to, the above events, could have a material adverse effect on our business, financial condition and results of operations.

A significant part of our business is conducted outside of the United States, exposing us to additional risks that may not exist in the United States, which in turn could cause our business and operating results to suffer.

We have material operations outside of the United States. For the twelve months ended March 31, 2015, approximately 57% of our total net sales, on a pro forma basis, were generated from sales outside of the United States. Our international operations are subject to risks, including risks related to:

 

    foreign currency exchange rate fluctuations, including devaluations;

 

    local political or economic instability, including local inflationary pressures;

 

    restrictive government regulation, including changes in governmental regulation;

 

    changes in import/export duties;

 

    changes in laws and policies, including the laws and policies of the United States, affecting trade and foreign investment;

 

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    lack of experience in certain foreign markets;

 

    difficulties and costs of staffing and managing operations in certain foreign countries;

 

    work stoppages or other changes in labor conditions in foreign jurisdictions, which tend to have more expansive legal rights for labor unions and works councils;

 

    difficulties in enforcing agreements and collecting accounts receivables on a timely basis or at all; and

 

    adverse tax consequences or overlapping tax structures.

We plan to continue to market and sell our products internationally to respond to customer requirements and market opportunities. Establishing operations in any foreign country or region presents risks such as those described above as well as risks specific to the particular country or region. In addition, until a payment history is established over time with customers in a new geographic area or region, the likelihood of collecting receivables generated by such operations could be less than our expectations. As a result, there is a greater risk that the reserves set with respect to the collection of such receivables may be inadequate. If our operations in any foreign country are unsuccessful, we could incur significant losses and we may not be profitable.

In addition, changes in policies or laws of the United States or foreign governments resulting in, among other things, changes in regulations and the approval process, higher taxation, currency conversion limitations, restrictions on fund transfers or the expropriation of private enterprises, could reduce the anticipated benefits of our international expansion. If we fail to realize the anticipated revenue growth of our future international operations, our business and operating results could suffer.

Currency risk may adversely affect our financial condition and cash flows.

A substantial portion of our revenues are derived from outside the United States. We anticipate that revenues from international customers will continue to represent a substantial portion of our revenues for the foreseeable future. Because we generate revenues in foreign currencies, we are subject to the effects of exchange rate fluctuations. For the preparation of our consolidated financial statements, the financial results of our foreign subsidiaries are translated into U.S. dollars using average exchange rates during the applicable period. If the U.S. dollar appreciates against the foreign currencies, as has occurred in recent months, the revenues we recognize from sales by certain of our subsidiaries and the value of balance sheet items denominated in foreign currencies will be adversely impacted.

Furthermore, many of our foreign operations import or buy raw materials in a currency other than their functional currency, which can impact the operating results for these operations if we are unable to mitigate the impact of the currency exchange fluctuations. We may not be successful in achieving natural balances in currencies throughout our international operations. In addition, if the effective price of our products were to increase as a result of fluctuations in foreign currency exchange rates, demand for our products could decline and adversely affect our results of operations and financial condition. We cannot accurately predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates. Accordingly, fluctuations in foreign exchange rates may have an adverse effect on our financial condition and cash flows.

Our largest customers together have historically accounted for a significant portion of our net sales volume. Accordingly, our business may be adversely affected by the loss of, or reduced purchases by, one or more of our large customers.

For the twelve months ended March 31, 2015, our largest single customer accounted for 5% of our pro forma net sales and our top ten customers accounted for approximately 26% of our pro forma net sales. On occasion, a customer may relocate where certain of its products are manufactured to a location which we are not able to serve, resulting in the loss of business. If, for this or any other reason, one of our key customers were to purchase

 

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significantly less of our products in the future or were to terminate its purchases from us, and we are not able to sell our products to new customers at comparable or greater levels, it could have a material adverse effect on our business, prospects, financial condition and results of operations.

Our business may suffer if we are unable to attract and retain key personnel.

We depend on the members of our management team and other key personnel. These employees have industry experience and relationships that we rely on to successfully implement our business plan. The loss of the services of our management team and/or other key personnel or the lack of success in attracting or retaining new and/or replacement personnel could have a material adverse effect on our business, financial position and results of operations.

Increased information technology security threats and more sophisticated and targeted cybercrime could pose a risk to our systems, networks, products, solutions and services.

Increased global security threats and more sophisticated and targeted cybercrime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. While we attempt to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of our networks and systems and maintenance of backup and protective systems, our systems, networks, products, solutions and services remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.

Our business and financial performance may be harmed by future increases in raw material costs.

Our business requires various raw materials which are purchased from third-party suppliers. These materials include paperboard, foils, inks, adhesives, coatings, resins, films, waxes, other chemicals and packaging supplies. The costs of these materials are subject to market fluctuations that are beyond our control. Future market conditions and/or the terms of our contracts with customers may prevent us from passing on raw material cost increases to our customers through selling price increases. In addition, we may not be able to achieve manufacturing productivity gains or other cost reductions to offset the impact of rising raw material cost. As a result, higher raw material costs may have a material adverse effect on our business, financial condition and operating results.

Unforeseen or recurring operational problems at any of our facilities may cause significant lost production.

Our manufacturing process could be affected by operational problems that could impair our production capability. Each of our facilities contains complex and sophisticated machines that are used in our manufacturing process. Disruptions or shutdowns at any of our facilities could be caused by:

 

    outages to conduct maintenance activities that cannot be performed safely during operations;

 

    prolonged power failures or reductions, including the effect of lightning strikes on our electrical supply;

 

    breakdown, failure or substandard performance of any of our presses, diecutters and print and packaging-related machinery or other equipment;

 

    noncompliance with material environmental requirements or permits;

 

    disruptions in the transportation infrastructure, including railroad tracks, bridges, tunnels or roads;

 

    fires, floods, earthquakes, tornadoes, hurricanes, significant winter storms or other catastrophic disasters; or

 

    other operational problems.

 

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If our facilities are shut down, they may experience delays due to startup periods, regardless of the reason for the shutdown. Those startup periods could range from several days to several weeks or longer, depending on the reason for the shutdown and other factors. Any prolonged disruption in operations at any of our facilities could cause significant lost production, which would have a material adverse effect on our business, financial condition and operating results. To avoid such disruptions, we may also be required to incur substantial costs in keeping our facilities in good operating condition.

Labor disputes or increased labor costs could materially adversely affect our operating results.

As of March 31, 2015, we employed approximately 8,900 people, of which 3,400 are located in North America, 4,500 are located in Europe and the remainder are located in Asia. The majority of our workforce is non-union; however, we do participate in some collective bargaining agreements with various unions, which provide specified benefits to certain union employees, and certain of our employees in foreign jurisdictions are represented by works councils. Approximately 7% of our employees in North America are unionized and approximately 72% of our employees in Europe are members of a union or works council or otherwise covered by labor agreements. The labor agreements with our North American unions are set to expire at various dates between 2016 and 2017, at which time we expect to negotiate a renewal of such agreements. To date, we have not experienced a stoppage in work or poor labor relations at any of our facilities. Management believes that our relations with our employees are good; however, as these labor contracts expire, there can be no assurances that there will be no strikes, work stoppages or other labor disputes as we negotiate new or renewed contracts. Any significant work stoppages or any significant increase in labor costs could have a material adverse effect on our business, financial condition and operating results.

Failure of quality control measures and systems resulting in faulty or contaminated product could have a material adverse effect on our business.

We have quality control measures and systems in place to ensure the maximum safety and quality of our products. The consequences of a product not meeting these standards due to, among other things, accidental or malicious raw materials contamination or supply chain contamination caused by human error or equipment fault, could be severe. Such consequences might include adverse effects on consumer health, litigation exposure, loss of market share, financial costs and loss of revenues.

In addition, if our products fail to meet our usual standards, we may be required to incur substantial costs in taking appropriate corrective action (up to and including recalling products from end consumers) and to reimburse customers and/or end consumers for losses that they suffer as a result of this failure. Customers and end consumers may seek to recover these losses through litigation and, under applicable legal rules, may succeed in any such claim despite there being no negligence or other fault on our part. Placing an unsafe product on the market, failing to notify the regulatory authorities of a safety issue, failing to take appropriate corrective action and failing to meet other regulatory requirements relating to product safety could lead to regulatory investigation, enforcement action and/or prosecution. Any product quality or safety issue may also result in adverse publicity, which may damage our reputation. This could in turn have a material adverse effect on our business, financial condition and results of operations. Although we have not had material claims for damages for defective products in the past and have not conducted any substantial product recalls or other material corrective action in recent years, these events may occur in the future.

In certain contracts, we provide guarantees that our products are produced in accordance with customer specifications regarding the proper functioning of our products and the conformity of a product to the specific use defined by the customer. In addition, if the product contained in packaging manufactured by us is faulty or contaminated, it is possible that the manufacturer of the product in question may allege that the packaging we provided is the cause of the fault or contamination, even if the packaging complies with contractual specifications. If packaging produced by us fails to open properly or to preserve the integrity of its contents, we could face liability to our customers and to third parties for bodily injury or other tangible or intangible damages

 

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suffered as a result. Such liability, if it were to be established in relation to a sufficient volume of claims or to claims for sufficiently large amounts, could have a material adverse effect on our business, financial condition and results of operations.

The occurrence or threat of extraordinary events, including natural disasters and domestic and international terrorist attacks, may disrupt our operations and decrease demand for our products.

Natural disasters and other weather-related disruptions and domestic and international terrorist attacks could affect our ability to sell to our customers by impacting many of our customers and our suppliers of certain raw materials, which would have an adverse impact on volume and cost for some of our products. If natural disasters or terrorist attacks occur in the future, they could negatively affect the results of operations in the affected regions, as well as have adverse impacts on the global economy.

Our energy or transportation costs may be higher than we anticipated, which could have a material adverse effect on our business, financial condition and operating results.

Energy, including energy sourced from coal, diesel fuel, electricity and natural gas, represents a significant portion of our manufacturing costs. At times, energy costs have fluctuated significantly and such fluctuations have primarily impacted us in the logistics processes, with a more minor impact on manufacturing costs. In addition, we distribute our products primarily by truck and rail. Reduced availability of trucks or rail cars could negatively impact our ability to ship our products in a timely manner. There can be no assurance that we will be able to recoup any increases in transportation rates or fuel surcharges through price increases for our products. If energy or transportation costs are greater than anticipated, our business, financial condition and operating results may be materially adversely affected.

If we are unable to develop product innovations and improve our production technology and expertise, we could lose customers or market share.

Our success may depend on our ability to adapt to technological changes in the specialty print-based packaging industry. If we are unable to develop and introduce new products on a timely basis, or enhance existing products, in response to changing market conditions or customer requirements or demands, our business, financial condition and operating results could be materially adversely affected.

We are subject to litigation in the ordinary course of business, and uninsured judgments or a rise in insurance premiums may adversely impact our results of operations.

In the ordinary course of business, we are subject to various claims and litigation, including actions brought against us by our employees. Any such claims, regardless of merit, could be time-consuming and expensive to defend and could divert management’s attention and resources. For instance, in our healthcare end market, we print information on our labels, inserts and packages that, if incorrect, could give rise to product liability claims.

In accordance with customary practice, we maintain insurance against some, but not all, of these potential claims. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. The levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. Further, we may not be able to maintain insurance at commercially acceptable premium levels or at all.

If any significant accident, judgment, claim (or a series of claims) or other event is not fully insured or indemnified against, it could have a material adverse impact on our business, financial condition and results of operations. There can be no assurance as to the actual amount of these liabilities or the timing thereof. We cannot be certain that the outcome of current or future litigation will not have a material adverse impact on our business and results of operations.

 

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Our total assets include substantial amounts of goodwill and intangible assets and an impairment of our goodwill or intangible assets could adversely affect our results of operations.

Goodwill and intangible assets represented approximately 48% of our total assets as of March 31, 2015. We evaluate our goodwill for impairment on an annual basis and at other times during the year if events or circumstances indicate that it is more likely than not that the fair value is below the carrying value. We evaluate intangible assets for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable. Our evaluation of impairment requires us to make certain estimates and assumptions, including projections of future results. Such estimates and assumptions may not prove to be accurate in the future. After performing our evaluation for impairment, including an analysis to determine the recoverability of intangible assets, we will record a noncash impairment loss when the carrying value of the underlying asset, asset group or reporting unit exceeds its fair value. If these impairment losses are significant, our results of operations could be adversely affected.

Our business operations are subject to a number of U.S. federal laws and regulations, including trade sanctions administered by the Office of Foreign Assets Control of the U.S. Department of Treasury and the U.S. Department of Commerce, as well as restrictions imposed by the Foreign Corrupt Practices Act, which could adversely affect our operations if violated.

We must comply with all applicable export control laws and regulations of the United States and other countries. We cannot provide products or services to certain countries or individuals subject to U.S. trade sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of Commerce. In addition, we are subject to the Foreign Corrupt Practices Act and the anti-corruption laws of other countries, which generally prohibit bribes of anything of value, including unreasonable gifts, to government officials. While we have implemented safeguards and policies designed to promote compliance with applicable laws, these safeguards and policies may prove to be less than effective, and our employees or agents may engage in conduct for which we might be held responsible. Violations of these laws or regulations could result in significant sanctions including fines, onerous compliance requirements, the denial of export privileges, reputational damage and loss of authorizations needed to conduct aspects of our international business, which could adversely affect our business, financial condition and results of operations.

Existing and proposed regulations to address climate change by limiting greenhouse gas emissions may cause us to incur significant additional operating and capital expenses.

Certain of our operations result in emissions of greenhouse gases (“GHG”), such as carbon dioxide and methane. Growing concern about the sources and impacts of global climate change has led to a number of national and supranational legislative and administrative measures, both proposed and enacted, to monitor, regulate and limit carbon dioxide and other GHG emissions, including in the United States, the European Union and China. Such measures, for example, could adversely affect our energy supply, or the costs (and types) of raw materials we use for fuel, or impose costs on us associated with GHG emissions resulting from our operations. Although we believe it is likely that GHG emissions will continue to be regulated in the United States, the European Union, China and elsewhere in the future, we cannot yet predict the form such regulation will take (such as a cap-and-trade program, technology mandate, emissions tax or other regulatory mechanism) or, consequently, estimate the direct or indirect financial impact to our business.

We are exposed to risks in connection with the funding of our pension commitments.

We operate three defined benefit pension plans in the United Kingdom: the Field Group Pension Plan (“FGPP”), the Chesapeake Pension Plan (“CPP”) and the GCM Retirement Benefits Scheme (“GCM”) (collectively, the “DB Plans”). As of June 30, 2014, the total underfunded status of our pension plans on a U.S. GAAP basis was $22.4 million. The most recent actuarially calculated scheme-specific funding deficit in respect of the DB Plans (as combined between all three plans) was £63.6 million.

 

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Contributions to the DB Plans are payable in accordance with the schedule of contributions and the recovery plans which are separately in place in respect of all three arrangements. All of the DB Plans are currently open to future benefit accrual and the contribution rates payable by the company to the DB Plans reflect this in order to help fund those future accrual benefits. The contribution rates also take account of the deficits in each of the DB Plans to seek to make good those funding shortfalls within the timeframes specified in the recovery plans.

Should a wind-up trigger or insolvency event occur in relation to the DB Plans, the buy-out deficit will become due and payable by the employers. The deficit of the FGPP on a buy-out basis was £166.1 million ($259.8 million) as of August 20, 2013. The buy-out deficit was £21.5 million ($32.5 million) as of April 5, 2013 for the CPP and was £3.6 million ($5.7 million) as of February 1, 2013 for the GCM. Unless any future security is granted to the trustees of any of the three plans, those debts would rank as unsecured if the participating employers in any of the three plans became insolvent in the future.

We are currently in negotiations with the trustees of the DB Plans which might soon result in a parental company guarantee being given to the trustees of each of the DB Plans to cover contributions due under the current recovery plans to fund the DB Plans up to the scheme-specific funding level basis.

Our defined benefit pension plan obligations are financed predominantly through externally invested pension plan assets via externally managed funds and insurance companies. The values attributable to the externally invested pension plan assets are subject to fluctuations in the capital markets that are beyond our influence. Unfavorable developments in the capital markets could result in a substantial coverage shortfall for these pension obligations, resulting in a significant increase in our net pension obligations. In addition, deterioration in our financial condition could lead to an increased funding commitment to the trustees, which could further exacerbate any financial difficulties we could face at such time. Any such increases in our net pension obligations could adversely affect our financial condition due to increased additional outflow of funds to finance the pension obligations. Also, we are exposed to risks associated with longevity and interest rate and inflation rate changes in connection with our pension commitments, as an interest rate increase or decrease in longevity could have an adverse effect on our liabilities under these pension plans. Furthermore, a strengthening of the regulatory funding regime could increase requirements for cash funding, demanding more financial resources to meet governmentally mandated pension requirements. The realization of any of these risks could require us to make significant additional payments to meet our pension commitments, which could have a material adverse effect on our business, financial condition and results of operations.

The Pensions Regulator in the United Kingdom has the statutory power in certain circumstances to issue contribution notices or financial support directions which, if issued, could result in significant liabilities arising for us.

Under the Pensions Act 2004, the Pensions Regulator in the United Kingdom may issue a contribution notice to any employer in the DB Plans or any person who is connected with or is an associate of any employer in any of those plans where the Pensions Regulator is of the opinion that the relevant person has been a party to an act, or a deliberate failure to act, which had as its main purpose (or one of its main purposes) the avoidance of pension liabilities. Under the Pensions Act 2008, the Pensions Regulator has been granted the power to issue a contribution notice if it is of the opinion that the relevant person has been a party to an act, or a deliberate failure to act, which has a materially detrimental effect on a pension plan without sufficient mitigation having been provided. The Pensions Regulator can only issue a contribution notice where it believes it is reasonable to do so and can generally only do so in respect of any act or failure to act which has taken place in the previous six years.

The terms “associate” and “connected person,” which are taken from the Insolvency Act 1986, are widely defined and could cover our significant shareholders and others deemed to be shadow directors.

If the Pensions Regulator considers that any of the employers participating in the DB Plans are “insufficiently resourced” or a “service company,” it may impose a financial support direction requiring us or any member of

 

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the Group, or any person associated or connected with that employer, to put in place financial support in relation to the relevant plan. The Pensions Regulator can only issue a financial support direction where it believes it is reasonable to do so and can generally only do so in respect of circumstances which have occurred in the previous two years.

Liabilities imposed under a contribution notice or financial support direction may be up to the amount of the buy-out deficit in the relevant DB Plan.

Regulations related to conflict minerals could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo (the “DRC”) and adjoining countries. As a result, in August 2012 the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals mined from the DRC and adjoining countries in their products. Because certain of our products include tin, these new requirements will require due diligence efforts this year, with initial disclosure requirements beginning in 2016 at the earliest. There will be costs associated with complying with these disclosure requirements, including for diligence of our suppliers to determine the sources of conflict minerals used in our products and, if applicable, a third-party audit of our diligence process, and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Conversely, we will be required to make similar certifications to our suppliers. If we are unable or fail to make the requisite certifications, our suppliers may terminate their relationship with us. Also, we may face adverse effects to our reputation if we determine that certain of our products contain minerals not determined to be “conflict free” or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.

We may not be successful in acquiring and protecting our intellectual property rights or in avoiding claims that we infringed on the intellectual property rights of others.

Our ability to develop, acquire, and retain necessary intellectual property rights is important to our continued success and competitive position. If we were unable to protect our existing intellectual property rights, develop new rights, or if others developed similar or improved technologies there can be no assurance that such events would not be material to our results of operations, financial condition or cash flows. Some of our business depends in part on our ability to obtain, or license from third parties, patents, trademarks, trade secrets and similar proprietary rights without infringing on the proprietary rights of third parties. Although we believe our intellectual property rights are sufficient to allow us to conduct our business without incurring liability to third parties, our products may infringe on the intellectual property rights of such persons. Furthermore, no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products. Any such litigation, regardless of merit, could be protracted and costly and could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to increased income taxes, and other restrictions and limitations, if we were to decide to repatriate any of our income, capital or cash to the United States or other jurisdictions.

Government regulations and restrictions in some countries may limit the amount of income, capital or cash that may be distributed or otherwise transferred to other jurisdictions. For example, the transfer of income, capital or cash from one country to another is often subject to restrictions such as the need for certain governmental consents. Even where there is no outright restriction, the mechanics of repatriation or, in certain countries, the

 

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lack of the availability of foreign currency (such as U.S. dollars) to non-governmental entities, may affect certain aspects of our operations. In the event we need to repatriate our non-U.S. income, capital or cash from a particular country to fund operations in another part of the world, we may need to repatriate some of our non-U.S. cash balances out of the country where they are located to another jurisdiction and we may be subject to additional income taxes in the jurisdiction receiving the cash. Any of these scenarios may subject us to costs, restrictions and/or limitations that result in us being unable to use our cash in the manner we desire, which may have a material adverse effect on our results of operations and financial condition.

Our status as a foreign corporation for U.S. federal tax purposes could be affected by IRS action or a change in U.S. tax law.

On February 14, 2014, Chesapeake, a corporation organized under the laws of England and Wales, completed the acquisition of Mustang, a Delaware corporation, in exchange for a 50% equity interest in Chesapeake. Chesapeake subsequently changed its name to Multi Packaging Solutions Global Holdings Limited and, prior to the completion of this offering, will become a wholly owned subsidiary of MPS Limited. A corporation is generally considered a tax resident in the jurisdiction of its organization or incorporation for U.S. federal income tax purposes. Because MPS Limited is a Bermuda incorporated entity, it would generally be classified as a foreign corporation under these rules. Section 7874 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), provides an exception to this general rule, however, under which a foreign incorporated entity may, in certain circumstances, be treated as a U.S. corporation for U.S. federal tax purposes. The Company believes that it (and, prior to the Reorg Transactions, MPS Holdings) has satisfied the requirements under Section 7874 of the Code to be treated as a foreign corporation, taking into account any impact of both the Mustang acquisition and the Reorg Transactions in the analysis. There is limited guidance, however, regarding the application of Section 7874 of the Code. As a consequence, there can be no assurance that the IRS will agree with the position that the Company has satisfied the requirements under Section 7874 of the Code to be treated as a foreign corporation or that the IRS will not otherwise challenge the Company’s status as a foreign corporation. If such a challenge by the IRS were successful, significant adverse tax consequences would result for the Company. Further, recent legislative and administrative proposals have addressed Section 7874 of the Code, some of which, if enacted, could have prospective or retroactive application to the Company, its shareholders and affiliates. Consequently, there can be no assurance that there will not exist in the future a change in law that might cause the Company to be treated as a domestic corporation for U.S. federal income tax purposes, including with retroactive effect. If such a change in law were implemented, significant adverse tax consequences would result for the Company.

Risks Related to Our Indebtedness

We have substantial debt, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business and meet our obligations with respect to our indebtedness.

As of March 31, 2015, after giving effect to this offering and the use of proceeds therefrom as set forth under the heading “Use of Proceeds,” we would have had approximately $         million of indebtedness on a consolidated basis, including $         million of the 8.500% senior unsecured notes due 2021 (the “Notes”) and $         million of the Term Loans (as defined below). In addition, we had $50.0 million in borrowing capacity under our U.S. dollar revolving credit facility and £50.0 million ($74.2 million) in borrowing capacity available under our Pounds Sterling revolving credit facility. As of March 31, 2015, we had $0.3 million of outstanding letters of credit under our U.S. dollar revolving credit facility.

Our substantial debt could have important consequences to you. Because of our substantial debt:

 

    it may be more difficult for us to satisfy our obligations to our lenders and creditors, resulting in possible defaults on and acceleration of such debt;

 

    our ability to make loans and investments or engage in acquisitions without issuing additional equity or obtaining additional debt financing may be impaired in the future;

 

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    our ability to obtain additional financing with reasonable terms and conditions for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes may be impaired in the future;

 

    a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our debt, thereby reducing the funds available to us for other purposes;

 

    we are exposed to the risk of increased interest rates as, over the term of our debt, the interest cost on a significant portion of our indebtedness is subject to changes in interest rates;

 

    we may be more vulnerable to general adverse economic and industry conditions;

 

    we may be at a competitive disadvantage compared to our competitors who have less debt or comparable debt at more favorable interest rates and who, as a result, may be better positioned to withstand economic downturns or to finance capital expenditures or acquisitions;

 

    our costs of borrowing may increase;

 

    we may be unable to refinance our debt on terms as favorable as our existing debt or at all; and

 

    our flexibility to adjust to changing market conditions and our ability to withstand competitive pressures could be limited, or we may be prevented from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve the operating margins of our businesses.

Despite our current indebtedness level, we and our subsidiaries may be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Subject to certain limitations, the credit agreement governing our senior secured credit facilities and the indenture governing our Notes do not prohibit us or our subsidiaries from incurring additional indebtedness. In addition, the credit agreement governing our senior secured credit facilities and the indenture governing our Notes also permit us, our subsidiaries or our parents to accrue interest, accrue accreted value, accrue amortization of original issue discount and pay interest or dividends in the form of additional indebtedness. The restrictions on the incurrence of additional indebtedness are subject to a number of thresholds, qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. Additionally, these restrictions also will not prevent us from incurring obligations that, although preferential to our common shares in terms of payment, do not constitute indebtedness. In addition, as of March 31, 2015 we had $50.0 million of borrowing capacity available under our U.S. dollar revolving credit facility and £50.0 million ($74.2 million) of borrowing capacity available under our Pounds Sterling revolving credit facility. As of March 31, 2015 we had $0.3 million of outstanding letters of credit under our U.S. dollar revolving credit facility.

If new debt is added to our or our subsidiaries’ current debt levels, the related risks that we now face would increase, and we may not be able to meet all our debt obligations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

The agreements and instruments governing our debt contain restrictions and limitations that could significantly impact our management’s flexibility or our financial and operational flexibility to operate our business and could adversely affect you.

The credit agreement governing our senior secured credit facilities and/or the indenture governing our Notes contain, and certain of our current or future rollover foreign debt facilities may contain, covenants that, among other things, restrict our ability to:

 

    dispose of assets, including capital stock of our subsidiaries;

 

    incur additional indebtedness (including guarantees of additional indebtedness);

 

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    prepay other indebtedness or amend other debt instruments;

 

    pay dividends or redeem, repurchase or retire our capital stock or our other indebtedness and make certain payments;

 

    create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries that are not guarantors;

 

    create liens on assets;

 

    enter into sale and leaseback transactions;

 

    engage in certain asset sales, mergers, acquisitions, consolidations or sales of all or substantially all of our assets;

 

    engage in certain transactions with affiliates;

 

    permit restrictions on our subsidiaries’ ability to pay dividends;

 

    change our business;

 

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

 

    enter into transactions with our affiliates;

 

    designate our subsidiaries as unrestricted subsidiaries; and

 

    make loans and investments (including joint ventures).

The restrictions in the credit agreement governing our senior secured credit facilities, the indenture governing the Notes and rollover foreign debt facilities may prevent us from taking actions that we believe would be in the best interests of our business and may make it difficult for us to execute our business strategy successfully 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.

Our ability to comply with the covenants and restrictions contained in the credit agreement governing our senior secured credit facilities, the indenture governing the Notes and our rollover foreign debt facilities may be affected by economic, financial and industry conditions beyond our control. The breach of any of these covenants or restrictions could result in a default under the credit agreement governing our senior secured credit facilities, the indenture governing the Notes and our rollover foreign debt facilities that would permit the applicable lenders or noteholders, as the case may be, to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. In addition, such a default or acceleration may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. If we are unable to repay debt, lenders having secured obligations, such as the lenders under our senior secured credit facilities and our rollover foreign debt facilities, could proceed against the collateral securing the debt. In any such case, we may be unable to borrow under our senior secured credit facilities and our rollover foreign debt facilities and may not be able to repay the amounts due under our senior secured credit facilities, our rollover foreign debt facilities or the Notes. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent.

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

During periods of volatile credit markets, there is risk that any lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to extending credit up to the maximum permitted by a credit facility. If our lenders are unable or unwilling to fund borrowings under their revolving credit commitments or we are unable to borrow, it could be difficult in such environments to obtain sufficient liquidity to meet our operational needs.

 

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Our ability to obtain additional capital on commercially reasonable terms may be limited.

Although we believe our cash and cash equivalents, together with cash we expect to generate from operations and availability under our revolving credit facility, provide adequate resources to fund ongoing operating requirements, we may need to seek additional financing to compete effectively.

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

 

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

 

    restrict our ability to introduce new products or exploit business opportunities; and

 

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

any and all of which could place us at a competitive disadvantage.

Certain of our indebtedness bears interest at variable rates and/or is denominated in a foreign currency, which subjects us to interest rate risk and foreign exchange risk, each of which could cause our debt service obligations to increase significantly.

Borrowings under our senior secured credit facilities, which totaled $995.3 million as of March 31, 2015, are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even if the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. The term loan under our senior secured credit facilities includes a floor on the applicable benchmark London Interbank Offered Rate (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”) or prime rate, which is in excess of the specified LIBOR, EURIBOR or prime rate that would otherwise apply. Assuming our senior secured credit facilities are fully drawn, each 0.125% change in assumed blended interest rates would result in an approximate $1.2 million change in annual interest expense on indebtedness under our senior secured credit facilities. We have entered, and in the future may enter, into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we have entered into or may enter into in the future may not fully mitigate our interest rate risk, which may prove disadvantageous or may create additional risks.

In addition, certain of our borrowings under our senior secured credit facilities are denominated in Euros and British pounds sterling, which do not necessarily correspond to the cash flow we generate in these currencies. Sharp changes in the exchange rates between the currencies in which we borrow and the currencies in which we generate cash flow could adversely affect us. In particular, for example, the exchange rate between the U.S. Dollar and the Euro has experienced significant volatility and may continue to fluctuate materially in the future. Certain of the Term Loans were borrowed in Euros and Pounds Sterling, while our functional currency is the U.S. Dollar and we maintain our accounting records in U.S. Dollars. As a result, unrealized foreign exchange gains and losses will occur upon the translation of the Euro-denominated and Pounds Sterling-denominated debt into U.S. Dollars. These unrealized foreign exchange gains or losses are recognized in profit or loss. In the future we may enter into contractual arrangements designed to hedge a portion of the foreign currency exchange risk associated with our Euro-denominated and Pounds Sterling-denominated debt. If these hedging arrangements are unsuccessful, we may experience a material adverse effect on our business and results of operations.

 

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Risks Related to this Offering and Ownership of our Common Shares

We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common shares may be less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We cannot predict if investors will find our common shares less attractive because we will rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We could be an “emerging growth company” for up to five years. For additional information about the implications of qualifying as an emerging growth company, see “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Because our operations are conducted through our subsidiaries, we are largely dependent on our receipt of distributions and dividends or other payments from our subsidiaries for cash to fund all of our operations and expenses, including making future dividend payments, if any.

Our principal assets are the equity interests we own in our operating subsidiaries, either directly or indirectly. As a result, we are dependent upon cash dividends, distributions or other transfers we receive from our subsidiaries in order to repay any debt we may incur, to make interest payments with respect to such debt and to meet our other obligations. As a result, our ability to service our debt or to make future dividend payments, if any, is largely dependent on the earnings of our subsidiaries and the payment of those earnings to us in the form of dividends, loans or advances and through repayment of loans or advances from us.

The ability of our subsidiaries to pay dividends and make payments to us will depend on their operating results and may be restricted by, among other things, applicable corporate, tax and other laws and regulations and agreements of those subsidiaries, as well as by the terms of the credit agreement governing our senior secured credit facilities and the indenture governing the Notes. Any right that we have to receive any assets of or distributions from any subsidiary upon its bankruptcy, dissolution, liquidation or reorganization, or to realize proceeds from the sale of the assets of any subsidiary, may be junior to the claims of that subsidiary’s creditors, including trade creditors. In addition, there may be significant tax and other legal restrictions on the ability of foreign subsidiaries to remit money to us.

There is no existing market for our common shares, and we do not know if one will develop to provide you with adequate liquidity to sell our common shares at prices equal to or greater than the price you paid in this offering.

Prior to this offering, there has not been a public market for our common shares. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the stock exchange on which we list our common shares or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common shares that you buy. The initial public offering price for the common shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common shares at prices equal to or greater than the price you paid in this offering, or at all.

 

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The price of our common shares may fluctuate significantly, and you could lose all or part of your investment.

Volatility in the market price of our common shares may prevent you from being able to sell your common shares at or above the price you paid for your common shares. The market price of our common shares could fluctuate significantly for various reasons, including:

 

    our operating and financial performance and prospects;

 

    our quarterly or annual earnings or those of other companies in our industry;

 

    the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

 

    changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common shares or the stock of other companies in our industry;

 

    the failure of research analysts to cover our common shares;

 

    credit ratings downgrades or other negative actions by ratings agencies for us or our subsidiaries;

 

    strategic actions by us, our customers or our competitors, such as acquisitions or restructurings;

 

    new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

    changes in accounting standards, policies, guidance, interpretations or principles;

 

    the impact on our profitability temporarily caused by the time lag between when we experience cost increases until these increases flow through cost of sales because of our method of accounting for inventory, or the impact from our inability to pass on such price increases to our customers;

 

    material litigations or government investigations;

 

    changes in general conditions in the United States and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events;

 

    changes in key personnel;

 

    sales of common shares by us, affiliates of Carlyle or Madison Dearborn or members of our management team;

 

    termination or expiration of lock-up agreements with our management team and principal shareholders;

 

    the granting of restricted common shares and share options;

 

    volume of trading in our common shares; and

 

    the realization of any risks described under this “Risk Factors” section.

In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies. As a result, the price of our common shares could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce our share price and cause you to lose all or part of your investment. Further, in the past, market fluctuations and price declines in a company’s stock have led to securities class action litigations. If such a suit were to arise, it could have a substantial cost and divert our resources regardless of the outcome.

If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control

 

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over financial reporting for the purpose. Upon becoming a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with our second annual report on Form 10-K, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. However, as an emerging growth company, our independent registered public accounting firm will not be required to express an opinion as to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report on Form 10-K or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. The process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation is time-consuming, costly and complicated. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of common shares could decline and we could be subject to sanctions or investigations by the stock exchange on which we list our common shares, the SEC 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, when required, 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 U.S. 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 common shares, and could adversely affect our ability to access the capital markets.

We will incur increased costs as a result of operating as a publicly traded company, and our management will be required to devote substantial time to new compliance initiatives.

As a publicly traded company, we will incur additional legal, accounting and other expenses that we did not previously incur, which we expect will be between $2.0 million and $3.0 million per year. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules of the Securities and Exchange Commission (the “SEC”) and the stock exchange on which our common shares are listed, have imposed various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives as well as investor relations. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur additional costs to maintain the same or similar coverage.

Furthermore, if we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, the market price of our common shares could decline and we could be subject to potential delisting by the stock exchange on which our common shares are listed and review by such exchange, the SEC or other regulatory authorities, which would require the expenditure by us of additional financial and management resources. As a result, our shareholders could lose confidence in our financial reporting, which would harm our business and the market price of our common shares.

 

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We are controlled by Carlyle and Madison Dearborn, whose interests in our business may be different than yours.

As of March 31, 2015, entities controlled by affiliates of Carlyle and Madison Dearborn each owned 50% of our common shares on a fully diluted basis and are able to control our affairs in all cases. Following this offering, these entities will continue to own approximately     % and     % of our common shares, respectively (or     % and     %, respectively, if the underwriters exercise their option to purchase additional shares in full). Certain members of management hold interests in these entities. Pursuant to the shareholders’ agreement, a majority of our Board of Directors will be designated by affiliates of Carlyle and Madison Dearborn. See “Certain Relationships and Related Party Transactions.” As a result, affiliates of Carlyle and Madison Dearborn or their respective designees to our Board of Directors will have the ability to control the appointment of our management, the entering into of mergers, sales of substantially all or all of our assets and other extraordinary transactions and influence amendments to our memorandum of association and bye-laws. So long as affiliates of Carlyle and Madison Dearborn collectively continue to own and/or control a majority of our common shares, they will have the ability to control the vote in any election of directors and will have the ability to prevent any transaction that requires shareholder approval regardless of whether other shareholders believe the transaction is in our best interests. In any of these matters, the interests of Carlyle and Madison Dearborn may differ from or conflict with your interests. Moreover, this concentration of ownership may also adversely affect the trading price for our common shares to the extent investors perceive disadvantages in owning stock of a company with controlling shareholders. In addition, Carlyle and Madison Dearborn are in the business of making investments in companies and may, from time to time, acquire interests in businesses that directly or indirectly compete with our business, as well as businesses that are significant existing or potential suppliers or customers. Carlyle or Madison Dearborn may acquire or seek to acquire assets that we seek to acquire and, as a result, those acquisition opportunities may not be available to us or may be more expensive for us to pursue.

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

We do not intend to declare and pay dividends on our common shares 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 shares for the foreseeable future and the success of an investment in our common shares will depend upon any future appreciation in their value. There is no guarantee that our common shares will appreciate in value or even maintain the price at which our shareholders have purchased their shares. The payment of future dividends will be at the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board of Directors deems relevant. Specifically, we are subject to Bermuda legal constraints that may affect our ability to pay dividends on our common shares and make other payments. Under Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due or (ii) the realizable value of its assets would thereby be less than its liabilities. The credit agreement governing our senior secured credit facilities and the indenture governing our Notes also effectively limit our ability to pay dividends. As a consequence of these limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our common shares.

You may suffer immediate and substantial dilution.

The initial public offering price per share of our common shares is substantially higher than our net tangible book deficit per share immediately after the offering. As a result, you may pay a price per share that substantially exceeds the tangible book value of our assets after subtracting our liabilities. At an offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, you may incur immediate and substantial dilution in the amount of $         per share. You will experience

 

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additional dilution upon the exercise of options and warrants to purchase our common shares if any are granted in the future, and the issuance and vesting of restricted shares or other equity awards under our existing or future equity incentive plans.

Future sales of our common shares in the public market could lower our share price, and any additional capital raised by us through the sale of equity or convertible debt securities may dilute your ownership in us and may adversely affect the market price of our common shares.

We and our shareholders may sell additional common shares in subsequent public offerings. We may also issue additional common shares or convertible debt securities to finance future acquisitions. After the consummation of this offering, we will have              common shares authorized and              common shares outstanding. This number includes              common shares that we are selling in this offering, which may be resold immediately in the public market. Of the remaining common shares,             , or     % of our total outstanding common shares, are restricted from immediate resale under the lock-up agreements between our current shareholders and the underwriters described in “Underwriting,” but may be sold into the market in the near future. These common shares will become available for sale following the expiration of the lock-up agreements, which, without the prior consent of                     , is 180 days after the date of this prospectus, subject to compliance with the applicable requirements under Rule 144 of the Securities Act.

We cannot predict the size of future issuances of our common shares or the effect, if any, that future issuances and sales of our common shares will have on the market price of our common shares. Sales of substantial amounts of our common shares (including sales pursuant to Carlyle’s and Madison Dearborn’s registration rights, sales by members of management and shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common shares. See “Certain Relationships and Related Party Transactions” and “Shares Eligible for Future Sale.”

We are a “controlled company” within the meaning of the rules of the stock exchange on which we list our common shares and, as a result, expect to qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements.

Following the consummation of this offering, we expect affiliates of Carlyle and Madison Dearborn will collectively continue to own a majority in voting power of the outstanding common shares. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of the stock exchange on which we list our common shares. 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 such company’s Board of Directors consist of independent directors;

 

    the requirement that such company 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;

 

    the requirement that such company 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 such company’s nominating and corporate governance committee and compensation committee.

Following this offering, we intend to utilize these exemptions if we continue to qualify as a “controlled company.” If we do utilize the exemption, we will not have a majority of independent directors and our nominating and corporate governance and compensation committees will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the stock exchange on which we list our common shares.

 

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If Carlyle and Madison Dearborn sell a controlling interest in us to a third party in a private transaction, you may not realize any change-of-control premium on our common shares and we may become subject to the control of a presently unknown third party.

Following the completion of this offering, Carlyle and Madison Dearborn will beneficially own a substantial majority of our common shares. Carlyle and Madison Dearborn will have the ability, should they choose to do so, to sell some or all of our common shares in a privately negotiated transaction, which, if sufficient in size, could result in our change of control. The ability of Carlyle and Madison Dearborn to privately sell such shares may not be subject to any requirement for a concurrent offer to be made to acquire all of our common shares that will be publicly traded hereafter, which could prevent you from realizing any change-of-control premium on your common shares that may otherwise accrue to Carlyle and Madison Dearborn upon their private sale of our common shares. Additionally, if Carlyle and Madison Dearborn privately sell a significant equity interest in us, we may become subject to the control of a presently unknown third party. Such third party may have interests that conflict with the interests of our other shareholders.

We are a Bermuda company and it may be difficult for you to enforce judgments against us or our directors and executive officers.

We are a Bermuda exempted company. As a result, the rights of our shareholders are governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in another jurisdiction, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

Bermuda law differs from the laws in effect in the United States and may afford less protection to our shareholders.

We are organized under the laws of Bermuda. As a result, our corporate affairs are governed by the Companies Act 1981 (the “Companies Act”), which differs in some material respects from laws typically applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, amalgamations, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against directors or officers of the company and may only do so in limited circumstances. Shareholder class actions are not available under Bermuda law. The circumstances in which shareholder derivative actions may be available under Bermuda law are substantially more proscribed and less clear than they would be to shareholders of U.S. corporations. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than those who actually approved it.

When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company, in circumstances where the facts would otherwise justify the winding up of the company on just and equitable grounds but to do so would unfairly prejudice the shareholders applying for the assistance of the court.

 

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Additionally, under our bye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors or officers for any action taken by directors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights of our shareholders and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United States, particularly the State of Delaware. Therefore, our shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction within the United States.

We may be treated as a “foreign financial institution” under the U.S. Foreign Account Tax Compliance Act, which could impose withholding requirements on certain payments made with respect to the common shares after December 31, 2016.

Certain provisions of the Code and applicable U.S. Treasury regulations (commonly collectively referred to as “FATCA”) generally impose a 30% withholding tax regime with respect to certain “foreign passthru payments” made by a “foreign financial institution” (an “FFI”). Under current guidance, it is not clear whether we would be treated as an FFI for purposes of FATCA. If we were to be treated as an FFI, such withholding may be imposed on such payments to any other FFI (including an intermediary through which an investor may hold the common shares) that is not a “participating FFI” (as defined under FATCA) or any other investor who does not provide information sufficient to establish that the investor is not subject to withholding under FATCA, unless such other FFI or investor is otherwise exempt from FATCA. Under current guidance, the term “foreign passthru payment” is not defined, and it is therefore not clear whether or to what extent payments on the common shares would be considered foreign passthru payments. Withholding on foreign passthru payments would not be required with respect to payments made before the later of January 1, 2017 and the date of publication in the Federal Register of final regulations defining the term “foreign passthru payment.” The United States has entered into various intergovernmental agreements, including intergovernmental agreements between the United States and Bermuda and between the United States and the United Kingdom, which potentially modify the rules described above. Prospective investors in the common shares should consult their tax advisors regarding the potential impact of FATCA, the intergovernmental agreements and any non-U.S. legislation implementing FATCA on their potential investment in the common shares.

 

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FORWARD-LOOKING STATEMENTS

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

 

    our ability to compete against competitors with greater resources or lower operating costs;

 

    adverse developments in economic conditions, including downturns in the geographies and target markets that we serve;

 

    difficulties in restructuring operations, closing facilities or disposing of assets;

 

    our ability to successfully integrate our acquisitions and identify and integrate future acquisitions;

 

    our ability to realize the growth opportunities and cost savings and synergies we anticipate from the initiatives that we undertake;

 

    changes in technology trends and our ability to develop and market new products to respond to changing customer preferences and regulatory environment;

 

    seasonal fluctuations;

 

    the impact of significant regulations and compliance expenditures as a result of environmental, health and safety laws;

 

    risks associated with our non-U.S. operations;

 

    exposure to foreign currency exchange rate volatility;

 

    the loss of, or reduced purchases by, one or more of our large customers;

 

    failure to attract and retain key personnel;

 

    increased information technology security threats and targeted cybercrime;

 

    changes in the cost and availability of raw materials;

 

    operational problems at our facilities;

 

    the impact of any labor disputes or increased labor costs;

 

    the failure of quality control measures and systems resulting in faulty or contaminated products;

 

    the occurrence or threat of extraordinary events, including natural disasters and domestic and international terrorist attacks;

 

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    increased energy or transportation costs;

 

    our ability to develop product innovations and improve production technology and expertise;

 

    the impact of litigation, uninsured judgments or increased insurance premiums;

 

    an impairment of our goodwill or intangible assets;

 

    our ability to comply with all applicable export control laws and regulations of the United States and other countries and restrictions imposed by the Foreign Corrupt Practices Act;

 

    the impact of regulations to address climate change;

 

    risks associated with the funding of our pension plans, including actions by governmental authorities;

 

    the impact of regulations related to conflict minerals;

 

    our ability to acquire and protect our intellectual property rights and avoid claims of intellectual property infringement;

 

    risks related to our substantial indebtedness;

 

    failure of internal controls over financial reporting;

 

    the ability of Carlyle and Madison Dearborn to control us;

 

    other factors disclosed in this prospectus; and

 

    other factors beyond our control.

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this prospectus. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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USE OF PROCEEDS

We estimate the proceeds to us from this offering will be approximately $        million, based on an assumed public offering price of $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and other estimated offering expenses payable by us. If the underwriters’ option to purchase additional common shares is exercised in full, we estimate we will receive additional net proceeds of approximately $        million.

We intend to use $        million of the net proceeds from this offering to repay certain indebtedness and to pay related premiums, accrued and unpaid interest and to pay expenses related to this offering. To the extent that the public offering price is lower than $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and our cash proceeds are lower than we have estimated, or our offering expenses are greater than we have estimated, the amount of the indebtedness that we will repay will be reduced. To the extent that the public offering price is higher than $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and our cash proceeds are higher than we have estimated, or our offering expenses are less than we have estimated, the amount of the indebtedness that we will repay will be increased.

Each $1.00 increase (decrease) in the assumed public offering price would increase (decrease) the net proceeds to us by approximately $        million, after deducting assumed underwriting discounts and commissions and other estimated offering expenses payable by us, assuming the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same. Each increase (decrease) of 1.0 million in the number of common shares offered by us would increase (decrease) the net proceeds to us by approximately $        million, after deducting assumed underwriting discounts and commissions and other estimated offering expenses payable by us, assuming the assumed public offering price of $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. Any increase or decrease in the net proceeds would not change our intended use of proceeds.

 

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DIVIDEND POLICY

On December 2, 2012, we paid a dividend on the common stock of our previous owners in the amount of $14.2 million. Since that time, we have not paid any cash dividends and we do not intend to pay any cash dividends for the foreseeable future. We intend to retain earnings, if any, for the future operation and expansion of our business and the repayment of debt. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by applicable laws and other factors that our Board of Directors may deem relevant. Specifically, we are subject to Bermuda legal constraints that may affect our ability to pay dividends on our common shares and make other payments. Under Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due or (ii) the realizable value of its assets would thereby be less than its liabilities. Our ability to pay dividends to holders of our common shares is also dependent upon our subsidiaries’ ability to make distributions to us, which is limited by the terms of the agreements governing the terms of their indebtedness. Additionally, the negative covenants in the agreements governing our indebtedness limit our ability to pay dividends and make distributions to our shareholders. For additional information on these limitations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

 

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CAPITALIZATION

The following table sets forth our consolidated cash and cash equivalents and capitalization as of March 31, 2015 (i) of Multi Packaging Solutions Global Holdings Limited and its subsidiaries on an actual basis and (ii) of Multi Packaging Solutions International Limited and its subsidiaries on an as adjusted basis giving effect to (a) the completion of the common share split prior to the pricing of this offering as if it had occurred on March 31, 2015 and (b) this offering and the use of proceeds therefrom as set forth under the heading “Use of Proceeds.”

The information in this table should be read in conjunction with “Use of Proceeds,” “Selected Historical Financial Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto appearing elsewhere in this prospectus.

 

     As of March 31, 2015  
     Actual     As
adjusted
 
(Dollars in thousands, except per share data)    (Unaudited)  

Cash and cash equivalents

   $ 39,155      $                
  

 

 

   

 

 

 

Debt (net of discount):

Senior secured credit facilities, consisting of the following:(1)

Term Loans

$ 963,641    $                

Revolving Credit Facilities

  —     

Notes(2)

  196,177   

Other foreign debt

  12,751   

Capital leases

  2,711   
  

 

 

   

 

 

 

Total debt

  1,175,280   

Total Multi Packaging Solutions Global Holdings Limited shareholders’ equity:

Contributed capital, par value £1.00 per share: 207,651,434 common shares authorized and outstanding, actual;                 common shares authorized,                 common shares issued and                 common shares outstanding, as adjusted

  333,001   

Paid-in capital

  3,455   

Accumulated deficit

  (40,506

Accumulated other comprehensive loss

  (40,645
  

 

 

   

 

 

 

Total shareholders’ equity

  255,305   

Noncontrolling interests

  6,584   
  

 

 

   

 

 

 

Total shareholders’ equity

  261,889   
  

 

 

   

 

 

 

Total capitalization

$ 1,437,169    $     
  

 

 

   

 

 

 

 

(1)

Total debt is presented net of debt discount of $21.7 million. The senior secured credit facilities consist of (a) a $122.0 million Dollar Tranche A term loan maturing in August 2020 (the “Dollar Tranche A Term Loan”), (b) a $330.0.0 million Dollar Tranche B term loan maturing in August 2020 (the “Dollar Tranche B Term Loan”), (c) a $135.0 million Dollar Tranche C term loan maturing in September 2020 (the “Dollar Tranche C Term Loan”), (d) a £145.0 million Sterling term loan maturing in September 2020 (the “Sterling Term Loan”), (e) a €173.0 million Euro term loan maturing in September 2020 (the “Euro Term Loan” and, together with the Dollar Tranche A Term Loan, the Dollar Tranche B Term Loan , the Dollar Tranche C Term Loan, and the Sterling Term Loan, the “Term Loans”), (f) a $50.0 million U.S. dollar revolving credit facility maturing in August 2018 (the “Dollar Revolving Credit Facility”) and (g) a £50.0 million multi-currency revolving credit facility maturing in September 2019 (the “Multi-Currency Revolving Credit Facility” and, together with the Dollar Revolving Credit Facility, the “Revolving Credit Facilities”). As of March 31, 2015, we had $119.3 million (net of debt discount) of outstanding borrowings under the Dollar Tranche A Term Loan, $319.3 million (net of debt discount) of outstanding borrowings under the Dollar Tranche B Term Loan, $130.1 million (net of debt discount) of outstanding borrowings under the Dollar Tranche C Term Loan, $210.2

 

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  million (net of debt discount) of outstanding borrowings under the Sterling Term Loan, $184.7 million (net of debt discount) of outstanding borrowings under the Euro Term Loan and no outstanding borrowings under the Revolving Credit Facilities. As of March 31, 2015, we had approximately $49.7 million in additional borrowing capacity available under our Dollar Revolving Credit Facility, after giving effect to $0.3 million of outstanding letters of credit, and approximately $74.4 million in additional borrowing capacity available under our Multi-Currency Revolving Credit Facility, after giving effect to $0 of outstanding letters of credit.
(2) Consists of $196.2 million (net of debt discount) in aggregate principal amount of 8.500% senior unsecured notes due 2021.

The table set forth above is based on the number of common shares outstanding as of March 31, 2015. The table does not reflect                 common shares reserved for issuance under the 2015 Plan, which we plan to adopt in connection with this offering.

Additionally, the information presented above assumes:

 

    no exercise of the option to purchase additional common shares by the underwriters; and

 

    the adoption of our amended and restated bye-laws immediately prior to the closing of this offering.

Each $1.00 increase (decrease) in the assumed public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, assuming the completion of the common share split, would increase (decrease) each of as adjusted paid-in capital, total shareholders’ equity and total capitalization by approximately $         million, $         million and $         million, respectively, assuming that the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting assumed underwriting discounts and commissions and other estimated offering expenses payable by us. We may also increase or decrease the number of common shares we are offering. Each increase of 1.0 million shares in the number of common shares offered by us at an assumed offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, assuming the completion of the common share split, would increase each of our as adjusted paid-in capital, total shareholders’ equity and total capitalization by approximately $         million, $         million and $         million, respectively. Similarly, each decrease of 1.0 million shares in the number of common shares offered by us, at an assumed offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would decrease each of our as adjusted paid-in capital, total shareholders’ equity and total capitalization by approximately $         million, $         million and $         million, respectively. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

 

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DILUTION

If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book deficit per share after this offering and the use of proceeds therefrom.

As of March 31, 2015, we had net tangible book deficit of approximately $628.4 million, or $         per share. Net tangible book deficit per share represents total tangible assets less total liabilities divided by the number of common shares outstanding. After giving effect to (i) the sale of                 common shares in this offering, based upon an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated offering expenses payable by us and (ii) the use of proceeds therefrom as set forth under the heading “Use of Proceeds,” as if each had occurred on March 31, 2015, our as adjusted net tangible book deficit as of March 31, 2015 would have been approximately $         million, or $         per share. This represents an immediate decrease in net tangible book deficit of $         per share to existing shareholders and an immediate dilution of $         per share to new investors purchasing common shares in this offering. The following table illustrates this dilution on a per share basis:

 

     Per Share  

Assumed initial public offering price per share

      $                

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

   $                   

Increase in net tangible book deficit per share attributable to this offering and use of proceeds therefrom

     
  

 

 

    

As adjusted net tangible book deficit per share after this offering

     

 

 

 

Dilution per share to new investors

$     
     

 

 

 

If the underwriters exercise in full their option to purchase additional common shares from us, the as adjusted net tangible book deficit per share would be $         per share and the dilution to new investors in this offering would be $         per share.

Each $1.00 increase (decrease) in the assumed initial offering price would increase (decrease) our as adjusted net tangible book deficit after this offering by approximately $         million, or $         per share, and the dilution per share to new investors by $         per share, assuming the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting assumed underwriting discounts and commissions and other estimated offering expenses payable by us.

An increase (decrease) of 1.0 million in the number of common shares offered by us would increase (decrease) our as adjusted net tangible book deficit after this offering by approximately $         million, or $         per share, and the dilution per share to new investors by $        , assuming the public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting assumed underwriting discounts and commissions and other estimated offering expenses payable by us. To the extent that the public offering price is lower than $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and our cash proceeds are lower than we have estimated, or our offering expenses are greater than we have estimated, the amount of our indebtedness that we pay down will be reduced. To the extent that the public offering price is higher than $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and our cash proceeds are higher than we have estimated, or our offering expenses are less than we have estimated, the amount of our indebtedness that we pay down will be increased.

 

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The following table sets forth, as of March 31, 2015, the total number of common shares owned by existing shareholders and to be owned by new investors, the total consideration paid, and the average price per share paid by our existing shareholders and to be paid by new investors purchasing common shares in this offering. The calculation below is based on an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting the assumed underwriting discounts and commissions and other estimated offering expenses payable by us.

 

    Common Shares Purchased     Total Consideration     Average
Price Per
Common
Share
 
   

Number

   Percent     Amount      Percent    
    (in thousands, other than shares and percentages)  

Existing shareholders

                  $                                 $                

New investors

           
 

 

  

 

 

   

 

 

    

 

 

   

Total

  100 $                   100 $                
 

 

  

 

 

   

 

 

    

 

 

   

A $1.00 increase (decrease) in the assumed initial offering price would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and average price per share paid by all shareholders by $         million, $         million and $         per share, respectively. An increase (decrease) of 1.0 million in the number of common shares offered by us would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and average price per share paid by all shareholders by $         million, $         million and $         per share, respectively.

If the underwriters exercise in full their option to purchase additional shares, the as adjusted net tangible book deficit per share would be $         per share and the dilution to new investors in this offering would be $         per share.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

The following table sets forth our historical audited and unaudited consolidated financial information for the periods and dates indicated.

The balance sheet data as of June 30, 2014 and 2013 and the statements of operations and cash flow data for the year ended June 30, 2013, the period from July 1, 2013 to August 14, 2013 and the period from August 15, 2013 to June 30, 2014 have been derived from the audited consolidated financial statements of MPS Holdings appearing elsewhere in this prospectus. The balance sheet data as of June 30, 2010, 2011 and 2012 and the statement of operations and cash flow data for the years ended June 30, 2010, 2011 and 2012 have been derived from the audited consolidated financial statements of MPS Holdings not included in this prospectus. The balance sheet data as of March 31, 2015 and the statements of operations and cash flow data for the nine-month period ended March 31, 2015 and the period from August 15, 2013 to March 31, 2014 have been derived from the unaudited interim consolidated financial statements of MPS Holdings appearing elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the information set forth herein. Interim financial results are not necessarily indicative of results that may be expected for the full fiscal year or any future reporting period.

The statements of operations and cash flow data are presented for the Predecessor period and, which relates to the period preceding the Madison Dearborn Transaction and the Successor period, which relates the period succeeding the Madison Dearborn Transaction.

Historical results are not indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of results for the entire year. You should read the following data together with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes appearing elsewhere in this prospectus.

 

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          Twelve months ended
June 30, 2014
    Nine months ended
March 31, 2014
       
    Predecessor          Successor     Predecessor          Successor  
    For the fiscal years ended June 30,     Period from
July 1, 2013
to
August 14,
2013
         Period from
August 15,
2013 to
June 30,
2014
    Period from
July 1, 2013
to
August 14,
2013
         Period from
August 15,
2013 to
March 31,
2014
    Nine months
ended
March 31,
2015
 

(Dollars in thousands)

  2010     2011     2012     2013                

Net sales

  $ 484,133      $ 514,695      $ 596,414      $ 579,401      $ 74,081          $ 814,213      $ 74,081          $ 470,738      $ 1,215,116   

Cost of goods sold

    380,067        400,861        478,951        456,958        58,054            668,441        58,054            387,086        966,069   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Gross margin

    104,066        113,834        117,463        122,443        16,027            145,772        16,027            83,652        249,047   

Selling, general and administrative expenses

                         

Selling, general and administrative

    77,975        77,938        82,513        76,260        9,729            135,212        9,729            76,925        181,455   

Management fees and expenses

    1,521        1,730        1,984        2,315        264            —          264            —          —     

Trade name impairment

    —          —          7,705        —          —              —          —              —          —     

Transaction and other related expenses

    —          8,642        —          3,080        28,370            38,844        28,370            37,562        6,098   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 
    79,496        88,310        92,202        81,655        38,363            174,056        38,363            114,487        187,553   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Operating income (loss)

    24,570        25,524        25,261        40,788        (22,336         (28,284     (22,336         (30,835     61,494   

Other income (expense)

                         

Other income (expense), net

    257        1,775        (375     1,426        1,063            370        1,063            (84     10,643   

Debt extinguishment charges

    —          —          —          (4,140     (14,042         —          (14,042         —          —     

Interest (expense)

    (15,902     (17,515     (19,490     (24,546     (3,991         (43,215     (3,991         (25,484     (54,042
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Total other expense, net

    (15,645     (15,740     (19,865     (27,260     (16,970         (42,845     (16,970         (25,568     (43,399
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Income (loss) before income taxes

    8,925        9,784        5,396        13,528        (39,306         (71,129     (39,306         (56,403     18,095   

Income tax benefit (expense)

    (4,248     (6,589     (1,260     (4,195     15,621            19,481        15,621            15,810        (6,212
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Net income

    4,677        3,195        4,136        9,333        (23,685         (51,648     (23,685         (40,593     11,883   

Less: income attributable to noncontrolling interest

    —          —          —          —          —              216        —              26        525   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Net income (loss) attributable to Company

  $ 4,677      $ 3,195      $ 4,136      $ 9,333      $ (23,685       $ (51,864   $ (23,685       $ (40,619   $ 11,358   

Preferred stock dividends

    (21,781     (15,691     (18,696     (9,275     (25                (25                  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Income available (loss attributable) to common shareholders

  $ (17,104   $ (12,496   $ (14,560   $ 58      $ (23,710       $ (51,864   $ (23,710       $ (40,619   $ 11,358   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Earnings (loss) per share:

                         

Basic

  $ (148.87   $ (108.73   $ (125.81   $ .50      $ (203.74       $ (.35   $ (203.74       $ (.33   $ .05   

Diluted

  $ (148.87   $ (108.73   $ (125.81   $ .49      $ (203.74       $ (.35   $ (203.74       $ (.33   $ .05   

Weighted average shares outstanding:

                         

Basic

    114,892        114,925        115,728        116,110        116,373            148,027,204        116,373            124,472,246        207,302,868   

Diluted

    114,892        114,925        115,728        119,073        116,373            148,027,204        116,373            124,472,246        207,302,868   

 

     Predecessor            Successor  
     As of June 30,            As of
June 30,
2014
     As of
March 31,
2015
 

(Dollars in thousands)

   2011      2012      2013              

Total assets

   $ 385,061       $ 349,201       $ 347,505            $ 1,844,155       $ 1,845,657   

Debt and capital leases

     229,473         207,523         389,198              1,133,202         1,175,280   

Redeemable preferred stock

     8,468         8,667         —                —           —     

Cash dividends on common shares

     —           —           14,162              —           —     

Cash dividends per common share

     —           —           54.65              —           —     

 

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

The following discussion should be read in conjunction with our consolidated June 30 annual and March 31 quarterly financial statements. The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and other forward-looking statements are subject to numerous known and unknown risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the sections entitled “Risk Factors,” “Prospectus Summary—Summary Historical Audited and Unaudited Consolidated and Unaudited Pro Forma Combined Financial Information,” “Selected Historical Financial Information,” the unaudited pro forma combined financial statements appearing elsewhere in this prospectus and historical audited and unaudited consolidated financial statements, including the related notes, appearing elsewhere in this prospectus. All references to years, unless otherwise noted, refer to our fiscal years, which end on June 30. All dollar values in this section, unless otherwise noted, are denoted in millions. For purposes of this section, all references to “we,” “us,” “our,” “MPS” or the “Company” refer to Multi Packaging Solutions Global Holdings Limited and subsidiaries.

Overview

We print and manufacture high quality paperboard, paper and plastic packaging in the North American, European and Asian segments. Within each of these geographic segments, we sell products into the healthcare, consumer and multi-media end markets.

The healthcare market includes pharmaceutical, nutraceutical and healthcare related products. The consumer market includes cosmetics, personal care and toiletries, food, spirits, sporting goods, transaction and gift cards, confectionary, liquor and general consumer products. The multi-media market includes home video, software, music, video games and media-related special packaging product.

Products are manufactured in 59 facilities located in the United States, Europe, Canada, Mexico and China. We also have strategic alliances with companies in Europe and China who outsource certain products and production activities. In some cases, we procure non-paperboard, paper or plastic products to include in special packaging project deliverables for our customers. Products are generally cartons, labels, inserts or other paper or paperboard packaging products.

Cartons are generally paperboard based folding cartons. Labels are generally paper and pressure sensitive label stock printed products that are delivered in reel form or in a cut and stack form and can include basic labels for bottles and boxes, and extended content labels designed to deliver more information to the ultimate purchaser of our customer’s products. Inserts include fine paper folded inserts used in the delivery of detailed warnings, instructions and other information to the ultimate purchaser of our customer’s products. Other products include all remaining products. Often the project deliverables to a customer include all or a combination of these products.

Our strategic objectives are (i) continuing to enhance our position as a leading provider of packaging products to the segments we serve and can serve in North America, Europe and Asia; (ii) the expansion further into international markets to meet the global sourcing needs of its customers; and (iii) the identification of other areas in the packaging industry that can most benefit from our ability to deliver quality packaging products according to our customers’ needs, including the leveraging of its recent transactions via cross-selling both products and geographies. To achieve these objectives, we intend to continue expanding our printing, packaging and graphic arts capabilities, including the development and application of advanced manufacturing technologies and the establishment of manufacturing facilities in strategic international markets.

 

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Key Transactions

Certain key transactions have had a significant impact on the comparability of the information presented in this section. The timeline below shows our most recent transactions that impact comparability.

 

LOGO

Acquisition of the Company by Madison Dearborn Partners, LLC

On August 15, 2013, IPC/Packaging LLC completed the sale of Multi Packaging Solutions, Inc. for $661 million to Madison Dearborn. In connection with the transaction, all previously outstanding securities and debt were redeemed or repaid, and new credit facilities were established and the Notes were issued. The operations prior to August 15, 2013 are referred to as the “Predecessor” operations, and operations subsequent to August 15, 2013 are referred to as the “Successor” operations.

Combination with Chesapeake

On February 14, 2014, we completed the closing of the combination with Chesapeake. Chesapeake emerged as the new parent entity, and subsequently changed its name to Multi Packaging Solutions Global Holdings Limited. We are 50% owned by the former shareholders of MPS (Madison Dearborn) and 50% by the former shareholders of Chesapeake (Carlyle). The combination was accounted for as a reverse acquisition with Chesapeake as the legal acquiror and Mustang as the legal subsidiary but the accounting acquiror. Chesapeake had annual sales of approximately $852 million for the year ended December 31, 2013. Results for the Chesapeake business are included in our results for the fiscal year ended June 30, 2014 since February 14, 2014, the date of the acquisition.

Acquisition of Integrated Print Solutions and Jet Lithocolor

On April 4, 2014, we completed the acquisitions of 80% of Integrated Printing Solutions (“IPS”) and all of Jet Lithocolor (“Jet”) to create a comprehensive end-to-end solution for the credit, debit, gift, loyalty and insurance card markets. The acquisitions solidify our market position by adding a full complement of card production capabilities to our existing creative services, decorative technologies and sustainable solutions. These capabilities include laminated card production, imaging, affixing, direct mail and fulfillment. Furthermore, the acquisitions provide us with a fully integrated supply chain for cards, carriers, multi-packs and point-of-purchase displays in a range of materials, with turnkey resources for design, production and distribution for open and closed-loop card programs. IPS and Jet had annual sales of approximately $34 million and $61 million, respectively, for the twelve months ending immediately prior to the date of the acquisition.

 

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Acquisition of Armstrong

On July 8, 2014 we completed the acquisition of Armstrong Packaging (“Armstrong”), a United Kingdom-based producer of specialty rigid boxes. The acquisition of Armstrong expands our global platform for luxury packaging, gift sets, travel retail and commemorative editions. Armstrong’s product development and rigid box manufacturing complement our existing manufacturing, creative design, project management and global sourcing capabilities. Armstrong has annual sales of approximately $15 million for the twelve months ending immediately prior to the date of the acquisition.

Acquisition of ASG North American, Mexican and China Print and Packaging Operations

On November 21, 2014 we completed the acquisition of the North American and Asian print businesses of AGI Global Holdings Coöperatief U.A. and AGI Shorewood Group, US Holdings, LLC (collectively, “ASG”). The acquisition of ASG, a manufacturer of print and packaging in the United States, Canada, Mexico and China, expands our global network and customer base. ASG has annual sales of approximately $350 million for the twelve months ending immediately prior to the date of the acquisition.

Acquisition of Presentation Products

On February 28, 2015 we completed the acquisition of Presentation Products (“Presentation”). The acquisition of Presentation complements the acquisition of Armstrong (discussed above). Presentation is a rigid specialty box manufacturer located in the United Kingdom and has import and China sourcing offices located in Hong Kong, China. Presentation specializes in high end consumer packaging with an emphasis in the spirits market. Presentation has annual sales of approximately $42 million for the twelve months ending immediately prior to the date of the acquisition.

Acquisition Accounting

All of the transactions described above were accounted for as a purchase business combination. Accordingly, in all cases the assets and liabilities of the acquired or merged entities were recorded at fair value as of the respective closing dates and the results of operations of the entities are included in our results of operations from the date of closing.

Trends

General Information

Our largest customers are generally large multinational entities, many of which are consolidating global packaging requirements under a smaller number of suppliers. We believe we are favorably situated for this transition due to our many facilities, global footprint, standardized equipment from plant to plant and our relative size to other packaging suppliers. The packaging marketplace is very fragmented, with no one vendor providing a significant portion of the packaging needs.

Net Sales Trends

Net sales are impacted by the macroeconomic performance of our geographic segments and the markets within these geographic segments. Packaging net sales tend to be strongest just before the underlying customer’s busy season, which for high-end branded products is generally strongest in our first and second fiscal quarters.

Healthcare net sales in each of our geographic segments are influenced by the severity of a particular region’s cold and flu seasons, as well as the development and acceptance of certain new products, and the stage of product, from the prescription-only stage to the private label or generic stage.

 

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European consumer net sales of confectionary products are generally stronger in our second quarter due to the holiday season. North American and European consumer net sales of spirits are also generally stronger in our second quarter due to the holiday season. Asia consumer net sales of spirits are generally stronger in their holiday season, generally in our third fiscal quarter.

The net sales to the North American multi-media end market are influenced by the success of a particular year’s movie releases, which can generate special packaging needs for these customers. For example, movie releases were not as successful for the fiscal period ended June 30, 2014 as compared to the year ended June 30, 2013. Net sales of packaging in the North American video game market are generally influenced by the age of existing, and introduction of new, gaming platforms. Product launches, which cannot be predicted far in advance, have an impact on net sales, particularly with respect to special packaging needed for the holiday season. Overall, we expect our multi-media net sales to continue to decline as a percentage of our total net sales.

Impact of Inflation and Pricing

We have not historically been and do not expect to be significantly impacted by inflation. Increases in payroll costs and any increases in raw material costs that we have encountered are generally able to be offset through lean manufacturing activities. We have consistently made annual investments in capital that deliver efficiencies and cost savings. The benefits of these efforts generally offset the margin impact of competitive pricing conditions in all of the markets we serve.

We remain sensitive to price competitiveness in the markets that we serve and in the areas that are targeted for growth, and believe that the installation of state-of-the-art printing and manufacturing equipment as well as utilization of lean manufacturing (and related labor and production efficiencies) will enable us to compete effectively.

Operational Restructurings

We regularly evaluate our operating facilities in our geographic segments in order to determine how to allocate our resources, share best practices, ensure logistics that serve customers are appropriate and maximize our operating efficiencies. In connection with these evaluations, we have closed certain facilities in recent periods. For example, in April 2014, we announced the planned closure of our plants in Evansville, Indiana and in Fairfield, New Jersey. The Evansville plant closure was completed in September 2014, and the Fairfield plant closure was completed in December 2014. In connection with the closures, we recorded approximately $3.0 million in restructuring charges in the period ended June 30, 2014. We sold both of the related plant facilities in the period ended March 31, 2015 for proceeds of approximately $5.0 million with no significant gain or loss recorded in our income statement.

On November 1, 2013, we announced the closure of our plant in Terre Haute, Indiana. For the year ended June 30, 2014 we recorded approximately $4.7 million in restructuring charges, which includes approximately $2.8 million for severance and benefits and approximately $1.9 million for facility exit costs.

 

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Results of Operations

Fiscal Year Ended June 30, 2013 Compared to Fiscal Periods Ended August 14, 2013 and June 30, 2014

The table below presents our results of operations for the respective periods.

 

          Fiscal year ended June 30, 2014  
    Predecessor          Successor  
(Dollars in thousands)   Fiscal year
ended June 30,
2013
    Period from
July 1, 2013
to August 14,
2013
         Period from
August 15,
2013 to June 30,
2014
 

Net sales

  $ 579,401      $ 74,081          $ 814,213   

Cost of goods sold

    456,958        58,054            668,441   
 

 

 

   

 

 

       

 

 

 

Gross margin

  122,443      16,027        145,772   

Selling, general and administrative expenses

 

Selling, general and administrative expenses

  76,260      9,729        135,212   

Management fees and expenses

  2,315      264        —     

Transaction and other related expenses

  3,080      28,370        38,844   
 

 

 

   

 

 

       

 

 

 
  81,655      38,363        174,056   

Operating income (loss)

  40,788      (22,336     (28,284

Other income (expense)

 

Other income (expense), net

  1,426      1,063        370   

Debt extinguishment charges

  (4,140   (14,042     —     

Interest expense

  (24,546   (3,991     (43,215
 

 

 

   

 

 

       

 

 

 

Total other expense, net

  (27,260   (16,970     (42,845

Income (loss) before income taxes

  13,528      (39,306     (71,129

Income tax (benefit) expense

  4,195      (15,621     (19,481
 

 

 

   

 

 

       

 

 

 

Net income (loss)

  9,333      (23,685     (51,648

Less: income attributable to noncontrolling interest

  —        —          216   
 

 

 

   

 

 

       

 

 

 

Net income (loss) attributable to Company

$ 9,333    $ (23,685   $ (51,864
 

 

 

   

 

 

       

 

 

 

Net Sales

Our consolidated financial statements will not be directly comparable to the consolidated financial statements of the Predecessor due to the effects of the Madison Dearborn Transaction in August 2013. However, for purposes of discussion of the results of operations for net sales, we compared the net sales of the Predecessor for the fiscal year ended June 30, 2013 to the combined results, including the net sales for the Predecessor period from July 1, 2013 to August 14, 2013 and the Successor period from August 15, 2013 to June 30, 2014. We believe the comparison to combined net sales assists readers in understanding and assessing the trends and significant changes in our net sales, provides a more meaningful method of comparison and does not impact the drivers of the financial changes between the relevant periods.

The increase in net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $308.9 million, or 53.3%, when compared to the fiscal year ended June 30, 2013. The increase is due to the previously described acquisitions, which increased net sales by $326.9 million.

 

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We operate our business along the following operating segments, which are grouped based on the basis of geographic region: North America, Europe and Asia. Although North America and Europe comprise substantially all of our current net sales, we have identified Asia as an operating segment given the expected growth in that region coupled with our recent acquisitions. Net sales by geographic segment, as further broken down by end market, is summarized as follows:

 

            Fiscal year ended June 30, 2014  
     Predecessor            Successor  

Net Sales by Geographic Segment

(Dollars in thousands)

   Fiscal year
ended June 30,
2013
     Period from
July 1, 2013
to August 14,
2013
           Period from
August 15,
2013 to June 30,
2014
 

North America

             

Healthcare

   $ 190,669       $ 20,837            $ 181,255   

Consumer

     133,926         14,071              158,627   

Multi-media

     155,455         23,820              112,149   
  

 

 

    

 

 

         

 

 

 
  480,050      58,728        452,031   
 

Europe

 

Healthcare

  731      92        140,977   

Consumer

  86,975      12,023        209,268   

Multi-media

  11,645      3,238        4,151   
  

 

 

    

 

 

         

 

 

 
  99,351      15,353        354,396   
 

Asia

 

Healthcare

  —        —          7,786   
  

 

 

    

 

 

         

 

 

 

Total

$ 579,401    $ 74,081      $ 814,213   
  

 

 

    

 

 

         

 

 

 

North America

The increase in North American net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $30.7 million, or 6.4%, when compared to the fiscal year ended June 30, 2013. The increase is due to the acquisitions described above.

The increase in North American healthcare net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $11.4 million, or 6.0%, when compared to the fiscal year ended June 30, 2013. The increase in North American consumer net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $38.8 million, or 29.0%, when compared to the fiscal year ended June 30, 2013. North American healthcare and consumer net sales primarily increased due to our acquisition of Chesapeake, which included customers that sell (i) healthcare-related products and prescription drugs and (ii) consumer products such as confectionary, spirits and cosmetics. North American consumer net sales are also higher due to the acquisition of Jet and IPS, both of which serve the transaction card consumer market.

The decrease in North American multi-media net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $19.5 million, or 12.5%, when compared to the fiscal year ended June 30, 2013. Our net sales in the multi-media end market are declining due to the change in delivery systems towards digital delivery via downloads or online and pay-per-view systems, and is reflective of the overall trend in multi-media end market.

Europe

The increase in European net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $270.4 million, or 272%, when compared to the fiscal year ended June 30, 2013. This is principally due to the acquisition of Chesapeake.

 

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The increase in European healthcare net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $140.3 million, a significant increase when compared to the fiscal year ended June 30, 2013. The increase in European consumer net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $134.3 million, or 154.4%, when compared to the fiscal year ended June 30, 2013. European healthcare and consumer net sales primarily increased due to our acquisition of Chesapeake, which included customers that sell (i) healthcare-related products and prescription drugs and (ii) consumer products such as confectionary, spirits and cosmetics. The decrease in European multi-media net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $4.3 million, or 36.5%, when compared to the fiscal year ended June 30, 2013. As discussed above, our sales in the multi-media end market are declining due to the change in delivery systems towards digital delivery via downloads or online and pay-per-view systems.

Asia

The increase in Asian net sales for the combined fiscal year ended June 30, 2014 (inclusive of both the Predecessor and Successor periods) was $7.8 million when compared to the fiscal year ended June 30, 2013. The increase was exclusively due to the healthcare end market in connection with recent acquisitions.

Cost of Sales/Gross Margin

 

           Fiscal year ended June 30, 2014  
     Predecessor           Successor  
(Dollars in thousands)    Fiscal year
ended June 30,
2013
    Period from
July 1, 2013
to August 14,
2013
          Period from
August 15,
2013 to June 30,
2014
 

Net Sales

   $ 579,401      $ 74,081           $ 814,213   

Cost of Sales

     456,958        58,054             668,441   
  

 

 

   

 

 

        

 

 

 

Gross Margin

$ 122,443    $ 16,027      $ 145,772   
  

 

 

   

 

 

        

 

 

 

Gross Margin %

  21.1   21.6     17.9
  

 

 

   

 

 

        

 

 

 

The gross margin percentage for the Predecessor period from July 1, 2013 to August 14, 2013 increased 50 basis points when compared to the gross margin percentage for the fiscal year end June 30, 2013. This is principally due to the favorable impact of capital investments and lean manufacturing programs. The gross margin percentage for the Successor period from August 15, 2013 to June 30, 2014 is lower than the gross margin percentage for the previous periods presented primarily due to the increased depreciation and amortization of the inventory step-up resulting from fair value adjustments in connection with the acquisitions discussed above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of net sales for the Predecessor year ended June 30, 2013 of 13.2% is consistent with 13.1% for the Predecessor period from July 1, 2013 to August 14, 2013. Selling, general and administrative expenses as a percentage of net sales for the Successor period from August 15, 2013 to June 30, 2014 is 16.6%. The increase in the Successor period from August 15, 2013 to June 30, 2014 as compared to previous periods is primarily due to the amortization of intangible assets recorded in connection with the acquisitions.

Management fees in the Predecessor periods presented are associated with fees paid for management services provided by the prior sponsor and related board expenses. There are no management fees in the Successor period, as the current sponsors do not charge a management fee.

Transaction expenses for the periods presented are directly related to the acquisition and merger activity discussed above, and comprise primarily of legal fees, diligence expenses and finder’s fees.

 

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Other Income (Expense)

Other income (expense) is principally related to foreign currency transaction gains and losses.

The loss on debt extinguishment in the period from July 1, 2013 to August 14, 2013 is due to the write-off of financing costs due to the establishment of new debt facilities in connection with the Madison Dearborn Transaction.

The increase in interest expense in the Successor period from August 15, 2013 to June 30, 2014 is related to the increased debt associated with the acquisitions.

Income Taxes

Our effective income tax rate for the fiscal year ended June 30, 2013, the Predecessor period from July 1, 2013 to August 14, 2013 and the Successor period from August 15, 2013 to June 30, 2014 was 31.0%, 39.7% and 27.4%, respectively. The effective tax rate is principally impacted by permanent differences arising from transaction costs that are not deductible for tax purposes, as well as foreign tax rate differentials and losses in jurisdictions where no benefit is realized.

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

The table below presents our results of operations for the respective periods:

 

     Nine months ended March 31, 2014        
     Predecessor           Successor  

Statements of Operations

(Dollars in thousands)

   Period from July 1,
2013 to August 14,
2013
          Period from
August 15, 2013
to March 31,
2014
    Nine months
ended March 31,
2015
 

Net sales

   $ 74,081           $ 470,738      $ 1,215,116   

Cost of goods sold

     58,054             387,086        966,069   
  

 

 

        

 

 

   

 

 

 

Gross margin

  16,027        83,652      249,047   
  

 

 

        

 

 

   

 

 

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses

  9,729        76,925      181,455   

Management fees and expenses

  264        —        —     

Transaction and other related expenses

  28,370        37,562      6,098   
  

 

 

        

 

 

   

 

 

 
  38,363        114,487      187,553   
  

 

 

        

 

 

   

 

 

 

Operating income (loss)

  (22,336     (30,835   61,494   
  

 

 

        

 

 

   

 

 

 

Other income (expense):

 

Other income (expense), net

  1,063        (84   10,643   

Debt extinguishment charges

  (14,042     —        —     

Interest expense

  (3,991     (25,484   (54,042
  

 

 

        

 

 

   

 

 

 

Total other expense, net

  (16,970     (25,568   (43,399
  

 

 

        

 

 

   

 

 

 

Income (loss) before income taxes

  (39,306     (56,403   18,095   

Income tax (benefit) expense

  (15,621     (15,810   6,212   
  

 

 

        

 

 

   

 

 

 

Net income (loss)

  (23,685     (40,593   11,883   

Less: income attributable to noncontrolling interest

  —          26      525   
  

 

 

        

 

 

   

 

 

 

Net income (loss) attributable to Company

$ (23,685   $ (40,619 $ 11,358   
  

 

 

        

 

 

   

 

 

 

 

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Net Sales

We have prepared our discussion of combined net sales for the nine months ended March 31, 2014 by adding net sales for the Predecessor period from July 1, 2013 to August 14, 2013 and the Successor period from August 15, 2013 to March 31, 2014. See “Fiscal Year Ended June 30, 2013 Compared to Fiscal Year Ended June 30, 2014—Net Sales” for additional detail regarding this presentation.

The increase in net sales for the nine-month period ended March 31, 2015 was $670.3 million, or 123.0%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). The increase is due to the previously described acquisitions, which increased net sales by $706.5 million. The increase due to acquisitions was offset by unfavorable foreign currency effects of approximately $41.2 million in the nine-month period ended March 31, 2015 when compared with the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods).

Net sales by geographic segment, as further broken down by end market, is summarized as follows:

 

     Nine months ended March 31, 2014         
     Predecessor            Successor  

Net Sales by Geographic Segment

(Dollars in thousands)

   Period from July 1,
2013 to August 14,
2013
           Period from
August 15, 2013
to March 31,
2014
     Nine months
ended March 31,
2015
 

North America

             

Healthcare

   $ 20,837            $ 117,990       $ 204,608   

Consumer

     14,071              100,834         218,583   

Multi-media

     23,820              92,094         118,956   
  

 

 

         

 

 

    

 

 

 
  58,728        310,918      542,147   
 

Europe

 

Healthcare

  92        48,062      266,671   

Consumer

  12,023        105,035      366,504   

Multi-media

  3,238        4,062      3,795   
  

 

 

         

 

 

    

 

 

 
  15,353        157,159      636,970   
 

Asia

 

Healthcare

  —          2,661      14,685   

Consumer

  —          —        20,491   

Multi-media

  —          —        823   
  

 

 

         

 

 

    

 

 

 
  —          2,661      35,999   
  

 

 

         

 

 

    

 

 

 

Total

$ 74,081      $ 470,738    $ 1,215,116   
  

 

 

         

 

 

    

 

 

 

North America

The increase in North American net sales for the nine-month period ended March 31, 2015 was $172.5 million, or 46.7%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). This increase is principally due to the acquisitions discussed above.

The increase in North American healthcare net sales for the nine-month period ended March 31, 2015 was $65.8 million, or 47.4%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). The increase in North American consumer net sales for the nine-month period ended March 31, 2015 was $103.7 million, or 90.2%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods), and which was principally due to the acquisitions of IPS, Jet and ASG. The increase in North American healthcare net sales was due primarily to

 

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the acquisition of Chesapeake. The increase in North American multi-media net sales for the nine-month period ended March 31, 2015 was $3.0 million, or 2.6%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). This increase was due to the acquisition of ASG, which contributed approximately $20.0 million in multi-media net sales, and was offset by the overall decline in multi-media net sales.

Europe

The increase in European net sales for the nine-month period ended March 31, 2015 was $464.5 million, or 269.2%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). This increase is principally due to the acquisitions discussed above, offset by the negative effects of foreign exchange, primarily the Euro and Pounds Sterling, of approximately $41.2 million.

The increase in European healthcare net sales for the nine-month period ended March 31, 2015 was $218.5 million, or 453.8%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). The increase in European consumer care net sales for the nine-month period ended March 31, 2015 was $249.4 million, or 213.1%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). The increase in European healthcare and consumer net sales was due primarily to the acquisition of Chesapeake and was offset by unfavorable foreign currency effects in the nine-month period ended March 31, 2015 when compared with the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). The decrease in European multi-media media net sales for the nine-month period ended March 31, 2015 was $3.5 million, or 48%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). European multi-media net sales is principally net sales from products where the manufacturing is outsourced to other suppliers in Europe, and the decline is due to other suppliers doing the work where they have a manufacturing footprint in Europe.

Asia

The increase in Asian net sales for the nine-month period ended March 31, 2015 was $33.3 million, or 1,252.8%, when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). The increase is principally due to the ASG acquisition discussed above.

The increase in Asian healthcare net sales for the nine-month period ended March 31, 2015 was $12.0 million when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). The increase in Asian consumer net sales for the nine-month period ended March 31, 2015 was $20.5 million when compared to the combined nine-month period ended March 31, 2014 (inclusive of both the Predecessor and Successor periods). The increase in Asian healthcare and consumer net sales was due primarily to the acquisition of Chesapeake.

Cost of Sales/Gross Margin

 

     Nine months ended March 31, 2014        
     Predecessor           Successor  
(Dollars in thousands)    Period from July 1,
2013 to August 14,
2013
          Period from
August 15, 2013
to March 31,
2014
    Nine months
ended March 31,
2015
 

Net Sales

   $ 74,081           $ 470,738      $ 1,215,116   

Cost of Sales

     58,054             387,086        966,069   
  

 

 

        

 

 

   

 

 

 

Gross Margin

$ 16,027      $ 83,652    $ 249,047   
  

 

 

        

 

 

   

 

 

 

Gross Margin %

  21.6     17.8   20.5
  

 

 

        

 

 

   

 

 

 

 

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The gross margin percentage for the Successor period from August 15, 2013 to March 31, 2014 and the nine months ended March 31, 2015 is lower than the gross margin percentage for the Predecessor period from July 1, 2013 to August 14, 2013 primarily due to the increased depreciation in both periods and amortization of the inventory step-up in the Successor period from August 15, 2013 to March 31, 2014 resulting from fair value adjustments in connection with the acquisitions described above. The gross margin percentage in the nine months ended March 31, 2015 is slightly higher than the margin percentage for the Successor period from August 15, 2013 to March 31, 2014 principally due to the non-recurrence of the amortization of the inventory step-up and the favorable impact of acquisition-related savings programs and purchasing synergies.

Selling, General and Administrative Expense

Selling, general and administrative expenses (excluding management fees and transaction expenses) as a percentage of net sales for the Predecessor period ended August 14, 2013 is 13.1% compared to 16.3% for the Successor period ended March 31, 2014. The increase is principally due to the increase in amortization expense as a result of the acquisitions described above as well as these acquisitions having a higher selling, general and administrative corporate cost as a percentage of net sales. Selling, general and administrative expenses as a percentage of net sales for the Successor period ended March 31, 2015 is 14.9%. The decrease in the period ended March 31, 2015 is primarily due to acquisition synergies, including corporate cost rationalization and payroll reductions of the acquired companies.

Management fees in the Predecessor periods presented are associated with fees paid for management services provided by the prior sponsor and related board expenses. There are no management fees in the Successor period, as the current sponsors do not charge a management fee.

Transaction expenses for the periods presented are directly related to the acquisition and merger activity discussed above, and are primarily comprised of legal fees, professional fees associated with diligence activities and finder’s fees.

Other Income (Expense)

Other income (expense) is principally related to foreign currency transaction gains and losses.

The loss on debt extinguishment in the Predecessor period ended August 14, 2013 is due to the write-off of financing costs due to the establishment of new debt facilities in connection with the Madison Dearborn Transaction.

The increase in interest expense in the Successor period ended March 31, 2015 is related to the increased debt associated with the acquisitions.

Income Taxes

Our effective income tax rate for the Predecessor period from July 1, 2013 to August 14, 2013, the Successor period from August 15, 2013 to March 31, 2014 and the Successor period ended March 31, 2015 was 39.7%, 28.0% and 34.3%, respectively. The effective tax rate is principally impacted by permanent differences arising from transaction costs that are not deductible for tax purposes, as well as foreign tax rate differentials and losses in jurisdictions where no benefit is realized.

 

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Liquidity and Capital Resources

Cash flow provided by (used in) operating activities, investing activities and financing activities is summarized in the following table:

 

          Fiscal year ended
June 30, 2014
    Nine months ended
March 31, 2014
       
    Predecessor          Successor     Predecessor          Successor  
(Dollars in thousands)   Fiscal year
ended
June 30,
2013
    Period from
July 1, 2013
to August 14,
2013
         Period from
August 15,
2013 to
June 30,
2014
    Period from
July 1, 2013
to August 14,
2013
         Period from
August 15,
2013 to
March 31,
2014
    Nine
months
ended
March 31,
2015
 

Cash flow provided by (used in) operating activities

  $ 55,573      $ (964       $ 20,311      $ (964       $ (9,839   $ 68,086   

Cash flow provided by (used in) investing activities

    (21,414     (2,762         (154,208     (2,762         (82,481     (169,675

Cash flow provided by (used in) financing activities

    (22,347     (794         145,068        (794         124,526        116,749   

Cash Flow Provided by (Used in) Operating Activities

Cash flow provided by operating activities for the year ended June 30, 2013 was $55.6 million. This is principally due to net income from the period of $9.3 million and depreciation and amortization expenses of approximately $39.6 million, deferred income taxes of approximately $4.0 million and stock compensation of approximately $2.3 million. These amounts were offset by the non-cash gain on the exchange of Series C preferred shares of $3.2 million and by net investments made in working capital.

Cash flow used in operating activities for the period from July 1, 2013 to August 14, 2013 was $1.0 million. This is principally due to a net loss from the period of $23.7 million and a deferred tax benefit of $15.4 million, offset by depreciation and amortization expenses of approximately $4.1 million, a shareholder note forgiveness of $2.8 million, the loss on extinguishment of debt of $11.6 million and by net reductions in working capital.

Cash flow provided by operating activities for the period from August 15, 2013 to June 30, 2014 was $20.3 million. This is principally due to a net loss for the period of $51.6 million and a deferred tax benefit of $24.6 million, offset by depreciation and amortization of $75.9 million and net reductions of working capital.

Cash flow used in operating activities for the period from August 15, 2013 to March 31, 2014 was $9.8 million. This is principally due to a net loss of $40.6 million, a deferred tax benefit of $10.8 million and a small net investment in working capital, offset by depreciation and amortization of approximately $43.0 million.

Cash flow provided by operating activities for the nine months ended March 31, 2015 was $68.1 million. This is principally due to net income of $11.9 million and depreciation and amortization expenses of $101.3 million, offset by net investments in working capital.

Cash Flow Provided by (Used in) Investing Activities

Cash flow used in investing activities for the year ended June 30, 2013 was $21.4 million. This is principally due to investments to property, plant and equipment of $22.4 million.

Cash flow used in investing activities for the period from July 1, 2013 to August 14, 2013 was $2.8 million. This is principally due to investments in property, plant and equipment of $2.7 million.

Cash flow used in investing activities for the period from August 15, 2013 to June 30, 2014 was $154.2 million. This is principally due to the acquisition of businesses described above of $116.3 million and investments in property, plant and equipment of $39.9 million.

 

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Cash flow used in investing activities for the period from August 15, 2013 to March 31, 2014 was $82.5 million. This is principally due to the acquisition of businesses described above of $66.6 million, and investments in property, plant and equipment of $17.2 million.

Cash flow used in investing activities of the period for the nine months ended March 31, 2015 was $169.7 million. This is principally due to the acquisition of businesses described above of $137.8 million and investments in property, plant and equipment of $37.7 million.

Cash Flow Provided by (Used in) Financing Activities

Cash flow used in financing activities for the year ended June 30, 2013 was $22.3 million. This is principally due to the net effect of financings in the period of $181.4 million, debt issuance costs of $13.3 million and common and preferred stock dividends and preferred stock redemptions totaling $190.6 million.

Cash flow used in financing activities for the period from July 1, 2013 to August 14, 2014 was $0.8 million. This is principally due to the payments under our debt agreements.

Cash flow provided by financing activities for the period from August 15, 2013 to June 30, 2014 was $145.1 million. This is principally due to the issuance of common stock and proceeds from borrowings to fund acquisitions, offset by payments of short- and long-term debt and debt issuance costs.

Cash flow provided by financing activities for the period from August 15, 2013 to March 31, 2014 was $124.5 million This is principally due to the issuance of common stock and proceeds from borrowings to fund acquisitions, offset by payments of short- and long-term debt and debt issuance costs.

Cash flow provided by financing activities for the nine months ended March 31, 2015 was $116.7 million. This is principally due to the proceeds from borrowings to fund acquisitions, offset by payments of short- and long-term debt and debt issuance costs.

Cash and Working Capital

Cash and cash equivalents were $39.2 million at March 31, 2015 as compared to $27.5 million at June 30, 2014. Working capital was $222.5 million as compared to $129.6 million as of the same dates, respectively. The current ratio was 1.8 to one as compared to 1.5 to one as of the same dates respectively. The increase in working capital and current ratio is principally due to a decrease in accounts payable and an increase in inventories, partially offset by a decrease in accounts receivable.

Debt Agreements

Our liquidity requirements are significant due to the highly leveraged nature of our company as well as our working capital requirements. At March 31, 2015, there were no borrowings under the Multi-Currency Revolving Facility or the Dollar Revolving Facility with total availability under the Multi-Currency Revolving Facility of £50.0 million, and availability of $49.7 million under the Dollar Revolving Facility, after giving effect to $0.3 million of outstanding letters of credit, all of which may be borrowed by us without violating any covenants under the Restated Credit Agreement or the indenture governing the Notes. As of March 31, 2015, we had $1,175.3 million in outstanding indebtedness.

Senior Secured Credit Facilities

Prior to the merger with MPS, and Chesapeake’s acquisition by Carlyle, Chesapeake entered into a senior secured credit facility agreement (the “Original Credit Agreement”) with the lenders from time to time party thereto and Barclays Bank PLC as administrative agent and collateral agent. The Original Credit Agreement provided for (i) a tranche of term loans in Pounds Sterling to in an aggregate principal amount of £145.0 million (the “Initial

 

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Sterling Term Facility”), (ii) a tranche of term loans in Euros in an aggregate principal amount of €173.0 million (the “Initial Euro Term Facility”) and (iii) a multicurrency revolving line of credit in an aggregate principal amount of £50.0 million for the making of revolving loans and the issuance of letters of credit (the “Multicurrency Revolving Facility”).

In connection with the acquisition of Chesapeake by Carlyle, the Original Credit Agreement was amended by that certain First Amendment to Credit Agreement dated as of September 27, 2013 (the “First Amendment”; the Original Credit Agreement as so amended, the “First Amended Credit Agreement”), by and among the Original Borrowers, Holdings and Barclays Bank PLC in its capacity as administrative agent. The First Amendment fixed the exchange rate for Pounds Sterling to Euros under the Initial Euro Term Facility and made certain conforming changes.

In connection with the Merger transaction, the First Amended Credit Agreement was further amended and restated by that certain Second Amendment and Waiver to Credit Agreement and First Amendment to Security Agreement dated as of December 24, 2013 (the “Second Amendment”; the First Amended Credit Agreement as so amended and restated, the “Second Amended Credit Agreement”) by and among the original borrowers, the Company, Holdings, Multi Packaging Solutions, Inc., a corporation organized under the laws of Delaware (the “MPS U.S. Borrower”) and Mustang Parent Corp., a corporation organized under the laws of Delaware (the “MPS U.S. Parent Borrower” and together with the Original Borrowers and the MPS U.S. Borrower, each a “Borrower” and collectively, the “Borrowers”), the lenders party thereto, and Barclays Bank PLC in its capacities as administrative agent and collateral agent. The Second Amendment (i) joined the MPS U.S. Borrower and the MPS U.S. Parent Borrower as borrowers under the Second Amended Credit Agreement; (ii) provided for, in addition to the credit facilities provided under the First Amended Credit Agreement, (A) a tranche of term loans in dollars available to the MPS U.S. Parent Borrower, as borrower (and, at the option of the Borrowers, an additional co-borrower), in an aggregate principal amount of $122 million (the “Dollar Tranche A Term Facility”), (B) a tranche of term loans in dollars available to the MPS U.S. Borrower and the U.K. Borrower, as co-borrowers, in an aggregate principal amount of $280 million (the “Dollar Tranche B Term Facility”), and (C) a revolving credit facility in dollars available to the MPS U.S. Borrower and the U.K. Borrower, as co-borrowers, in a principal amount of $50 million (the “Dollar Revolving Credit Facility”); (iii) converted and increased the cash-capped component of the incremental facility from £35 million to $150 million and added additional incremental capacity in an amount equal to all voluntary prepayments of Term Loans (as defined in the Second Amended Credit Agreement) (other than in the case of a refinancing through the incurrence of new debt), repurchases thereof made through Dutch Auctions (as defined in the Second Amended Credit Agreement) or voluntary prepayments of Revolving Credit Loans and Revolving Commitment Increases (as each such term is defined in the Second Amended Credit Agreement), to the extent the applicable revolving commitments are permanently reduced by the amount of such payments and other than in the case of a refinancing through the incurrence of new debt; (iv) adjusted financial definitions, covenant baskets and thresholds to compensate for the joint business needs of the MPS U.S. Borrower and the MPS U.S. Parent Borrower; and (v) made certain conforming changes.

The Second Amended Credit Agreement was further supplemented and amended by (i) that certain Incremental Joinder Agreement and Amendment dated as of April 4, 2014 (the “Incremental Amendment”) by and among the U.K. Borrower and the MPS U.S. Borrower, each as a Borrower under the Dollar Tranche B Term Facility, the other loan parties party thereto, the lenders party thereto, and Barclays Bank PLC in its capacities as administrative agent and collateral agent and (ii) that certain Third Amendment to Credit Agreement dated as of May 9, 2014 (the “Third Amendment”; the Second Amended Credit Agreement as so supplemented and amended by the Incremental Amendment and the Third Amendment, the “Third Amended Credit Agreement”) by and among the Borrowers, Holdings, the lenders party thereto, and Barclays Bank PLC in its capacities as administrative agent and collateral agent. The Incremental Amendment effected a Term Commitment Increase (as defined in the Third Amended Credit Agreement) of $50 million to the Dollar Tranche B Term Facility. The Third Amendment changed the fiscal year of the U.K. Borrower and its subsidiaries from a December 31st fiscal year-end to a June 30th fiscal year-end and made certain conforming changes related thereto.

 

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The Third Amended Credit Agreement was further supplemented and amended by (i) that certain Second Incremental Joinder Agreement and Amendment dated as of November 21, 2014 (the “Second Incremental Amendment”) by and among the U.K. Borrower and the MPS U.S. Borrower, each as a borrower under the Dollar Tranche C Term Facility (as defined below), the loan parties party thereto, and Barclays Bank PLC in its capacities as sole arranger and sole bookrunner for the Dollar Tranche C Term Facility, initial lender under the Dollar Tranche C Term Facility, administrative agent, and collateral agent and (ii) that certain Fourth Amendment to Credit Agreement dated as of December 16, 2014 (the “Fourth Amendment” and the Third Amended Credit Agreement as so supplemented and amended by the Second Incremental Amendment and the Fourth Amendment, the “Fourth Amended Credit Agreement”) by and among the Original Borrowers, each as a Borrower under each of the Sterling Tranche B Term Facility and the Euro Tranche B Term Facility (each as defined below), the other loan parties party thereto, Credit Suisse AG, London Branch, as sole lead arranger and sole bookrunner for the Euro Tranche B Term Facility and the Sterling Tranche B Term Facility, and in its capacity as the Initial Additional Term Lender (as defined in the Fourth Amendment), and Barclays Bank PLC, as administrative agent and collateral agent. The Second Incremental Amendment (i) added a new term facility in the aggregate principal amount of $135 million (the “Dollar Tranche C Term Facility”) to the facilities governed by the Fourth Amended Credit Agreement on substantially the same terms as the Dollar Tranche A Term Facility and the Dollar Tranche B Term Facility; (ii) applied a 1.00% prepayment premium to any voluntary prepayment of Dollar Term Loans, refinancing of Dollar Term Loans or amendment of Dollar Term Loans on or prior to the six-month anniversary of the effective date of the Second Incremental Amendment, in each case in connection with or resulting in a Dollar Term Loan Repricing Event (as defined in the Fourth Amended Credit Agreement); and (iii) made certain conforming changes. The Fourth Amendment (i) refinanced the existing Initial Sterling Term Facility with a new tranche of term loans in Pounds Sterling (the “Sterling Tranche B Term Facility”); (ii) refinanced the existing Initial Euro Term Facility with a new tranche of term loans in Euros (the “Euro Tranche B Term Facility”); and (iii) made certain conforming changes.

Each of the Dollar A Term Facility, the Dollar B Term Facility and the Dollar C Term Facility bear interest equal to, at the applicable Borrower’s option, (i) (A) the greater of (x) LIBOR (as defined in the Fourth Amended Credit Agreement) and (y) 1.00% per annum plus (B) a margin of 3.25% per annum or (ii) (A) the Base Rate (as defined in the Fourth Amended Credit Agreement) plus (B) a margin of 2.25%. The Sterling Tranche B Term Facility bears interest at (i) (A) the greater of (x) LIBOR and (y) 1.00% per annum plus (B) a margin of 4.50% per annum. The Euro Tranche B Term Facility bears interest at (i) (A) the greater of (x) EURIBOR and (y) 1.00% per annum plus (B) a margin of 3.75% per annum.

The Multicurrency Revolving Facility bears interest equal to (i) (A) in the case of a Multicurrency Revolving Credit Loan (as defined in the Fourth Amended Credit Agreement) denominated in an Agreed Currency (as defined in the Fourth Amended Credit Agreement) other than Dollars, Pounds Sterling or Euros, LIBOR, or (B) in the case of a Multicurrency Revolving Credit Loan denominated in Dollars, Pounds Sterling or Euros, the greater of (x) LIBOR and (y) 1.00% per annum, plus (C) in either case, a margin equal to (x) if the First Lien Net Leverage Ratio as calculated on the most recent Compliance Certificate (as defined in the Fourth Amended Credit Agreement) is less than 3.50:1.00, 3.75% or (y) if the First Lien Net Leverage Ratio as calculated on the most recent Compliance Certificate is equal to or greater than 3.50:1.00, 4.00%. In the case of Multicurrency Revolving Credit Loans denominated in Dollars, the applicable Borrower may elect an interest rate equal to (i) the Base Rate plus (ii) a margin of 2.25%. We are also required to pay an unused commitment fee in Pounds Sterling at the rate of 40% of the applicable margin (as in effect from time to time) with respect to the Multicurrency Revolving Facility.

The Dollar Revolving Credit Facility bears interest equal to, at the applicable Borrower’s option, (i) (A) the greater of (x) LIBOR and (y) 1.00% per annum, plus (B) (i) if the First Lien Net Leverage Ratio as calculated on the most recent Compliance Certificate is equal to or less than 3.00:1.00, a margin of 3.00% or (ii) if the First Lien Net Leverage Ratio as calculated on the most recent Compliance Certificate is greater than 3.00:1.00, a margin of 3.25% or (ii) (A) the Base Rate plus (B) (i) if the First Lien Net Leverage Ratio as calculated on the most recent Compliance Certificate is equal to or less than 3.00:1.00, a margin of 2.00% or (ii) if the First Lien

 

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Net Leverage Ratio as calculated on the most recent Compliance Certificate is greater than 3.00:1.00, a margin of 2.25%. We are also required to pay an unused commitment fee in Dollars with respect to the Dollar Revolving Credit Facility of (i) if the First Lien Net Leverage Ratio as calculated on the most recent Compliance Certificate is less than 3.00:1.00, a rate of 0.375% or (ii) if the First Lien Net Leverage Ratio as calculated on the most recent Compliance Certificate is greater than or equal to 3.00:1.00, a rate of 0.500%.

The Fourth Amended Credit Agreement requires us to comply with certain affirmative and negative covenants, including a financial covenant which requires that, at the end of each fiscal quarter, for so long as the aggregate Revolving Credit Exposure (as defined in the Fourth Amended Credit Agreement) exceeds 25% of the Revolving Credit Commitments (as defined in the Fourth Amended Credit Agreement) (excluding any L/C Obligations to the extent Cash Collateralized (as each such term is defined in the Fourth Amended Credit Agreement)), the First Lien Net Leverage Ratio cannot exceed (A) 6.00:1.00 for the first three fiscal quarters of 2014; (B) 5.75:1.00 for the last fiscal quarter of 2014 and the first three fiscal quarters of 2015 and (C) 5.50:1.00 for the last fiscal quarter of 2015 and thereafter. As of June 30, 2014 and March 31, 2015, we were in compliance with all such covenants. All obligations under the Term Loans and Revolving Facility are guaranteed and collateralized by substantially all our tangible and intangible assets.

Costs of $5.1 million related to the issuance of the senior secured credit facilities are recorded within “Deferred financing costs, net” and are being amortized as interest expense over the life of the senior secured credit facilities. At March 31, 2015, the remaining unamortized balance of such costs was $4.0 million. Original issue discount of $22.4 million related to the senior secured credit facilities is recorded as a reduction of the principal amount of the borrowings and is amortized as interest expense over the life of the senior secured credit facilities. At March 31, 2015, the remaining unamortized original issue discount was $17.9 million.

Senior Notes

On August 15, 2013, the MPS U.S. Borrower (the “Issuer”) issued $200.0 million in aggregate principal amount of 8.500% senior unsecured notes due 2021 and related guarantees thereof. The Notes bear interest at 8.500% payable semi-annually on February 15 and August 15. Costs of $0.3 million related to the issuance of the Notes are recorded as “Deferred financing costs, net” and are amortized as interest expense over the life of the Notes. At March 31, 2015, the remaining unamortized balance of such costs was $0.2 million. Original issue discount of $4.8 million related to the Notes is recorded as a reduction of the principal amount of the borrowings and is amortized as interest expense over the life of the Notes. At March 31, 2015, the remaining unamortized original issue discount was $3.8 million.

The Notes are guaranteed on a senior basis by certain of the Issuer’s affiliates. The indenture governing the Notes contains covenants that restrict the ability of the Issuer and certain affiliates of the Issuer to, among other things, incur additional debt, make certain payments including payment of dividends or repurchases of equity interest of the Issuer, make loans or acquisitions or capital contributions and certain investments, incur certain liens, sell assets, merge or consolidate or liquidate other entities and enter into transactions with affiliates.

On or after August 15, 2016, we have the option to redeem all or part of the Notes at the redemption prices set forth below (expressed as percentages of principal amount) during the twelve-month period beginning on August 15 of each of the years indicated below:

 

Year

   Percentage  

2016

     106.375

2017

     104.250

2018

     102.125

2019 and thereafter

     100.000

 

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Notwithstanding the foregoing, at any time and from time to time prior to August 15, 2016, we may at our option redeem in the aggregate up to 40% of the original aggregate principal amount of the Notes with the net cash proceeds of one or more Equity Offerings (as defined in the indenture governing the Notes), at a redemption price of 108.500% plus accrued and unpaid interest, if any, to the redemption date. Upon the occurrence of certain events constituting a change of control, holders of the Notes have the right to require us to repurchase all or any part of the Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date.

The indebtedness evidenced by the Notes is senior unsecured indebtedness of the Issuer, is senior in right of payment to all future subordinated indebtedness of the Issuer and is equal in right of payment to all existing and future senior indebtedness of the Issuer. The Notes are effectively subordinated to any secured indebtedness of the Issuer (including indebtedness of the Issuer outstanding under the senior secured credit facilities) to the extent of the value of the assets securing such indebtedness.

Short-Term Foreign Borrowings

We finance the working capital needs of certain foreign operations using short-term borrowing arrangements in various currencies. At March 31, 2015, there were borrowings outstanding under these arrangements and additional borrowing capacity of $4.1 million and $5.8 million, respectively. The weighted average interest rate on these arrangements was 6.3% and 5.7%, at March 31, 2015 and June 30, 2014, respectively. The short-term foreign borrowing arrangements are secured by land and buildings with a carrying value totaling $14.7 million at March 31, 2015.

Foreign Debt

Our foreign debt bears interest at rates ranging from 1.6% to 5.4%, with varying maturities through 2021. At March 31, 2015 and June 30, 2014, the weighted-average interest rates on these foreign debt instruments were approximately 3.4% and 3.8%, respectively. The foreign debt instruments are generally issued in support of specific capital expenditures and are secured by the underlying value of these assets. The carrying value of these secured assets approximates $25.1 million at March 31, 2015.

The weighted average interest rate across all debt obligations at March 31, 2015 was 5.3%.

Contractual Obligations

The following table summarizes our contractual obligations at March 31, 2015:

 

(Dollars in thousands)    Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 

Debt obligations—Term Loans(1)

   $ 1,222,497       $ 55,437       $ 108,723       $ 106,865       $ 951,473   

Debt obligations—Notes(1)

     308,375         17,000         34,000         34,000         223,375   

Debt obligations—Other (2)

     13,510         7,700         4,084         1,558         168   

Debt obligations—Capital leases(1)

     2,712         1,235         1,454         24           

Pension obligations

     23,134         10,621         11,123         1,390           

Multi-employer pension obligations

     12,717         918         1,836         1,836         8,127   

Operating lease obligations

     54,518         13,198         17,882         9,582         13,856   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 1,637,463    $ 106,109    $ 179,102    $ 155,254    $ 1,196,999   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes principal and interest payments on our debt. Estimated future payments on outstanding debt obligations are based on interest rates as of March 31, 2015. Actual cash flows may differ significantly due to changes in underlying estimates.

(2) Consists of short-term foreign borrowings and foreign debt discussed above.

The table above does not give effect to the approximately $1.2 million payment related to German real estate transfer taxes that will be incurred in connection with the Reorg Transactions. See “Basis of Presentation and Other Information—Multi Packaging Solutions International Limited.”

 

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Off-Balance Sheet Arrangements

In connection with the June 2011 purchase of CD Cartondruck AG (“Cartondruck”), we have a potential earnout obligation based on the future performance of Cartondruck. The earnout ranges from $0 to $3.5 million based on cumulative earnings before interest, taxes, depreciation and amortization (“EBITDA” as defined in the Cartondruck share purchase agreement) achieved over a five-year period. As of March 31, 2015 and June 30, 2014 and 2013, we concluded the earnout was not probable of achievement and, therefore, no amount has been recognized to date.

Significant Accounting Policies and Critical Accounting Estimates

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are presented net of an allowance for doubtful accounts of $3.9 million and $2.7 million as of March 31, 2015 and June 30, 2014, respectively. The allowance for doubtful accounts reduces receivables to amounts that are expected to be collected. In estimating the allowance, management considers factors such as current overall and industry-specific economic conditions, statutory requirements, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts. Changes in these conditions may result in additional allowances. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Inventories

Inventories are stated at the lower of cost or market value. Inventory costs include materials, labor and manufacturing overhead. Cost is determined by the first-in, first-out method. Obsolete inventory is identified based on an analysis of inventory for known obsolescence issues and a write-down or write-off is provided based on this analysis.

Property, Plant and Equipment

Property, plant and equipment was adjusted to fair value on August 15, 2013, which represents a new cost basis. Expenditures for maintenance and repairs are charged to current operations; while major improvements that materially extend useful lives are capitalized. Depreciation is computed over the estimated useful lives of the assets using the straight-line method as follows:

 

Buildings and improvements

3-40 years

Machinery and equipment

3-13 years

Furniture and fixtures

3-7 years

Depreciation expense was $58.1 million, $41.8 million and $2.8 million for the nine months ended March 31, 2015, the Successor period ended June 30, 2014 and the Predecessor period ended August 14, 2013, respectively.

Goodwill and Intangible Assets

Goodwill represents the cost of acquired businesses in excess of the fair value of the assets acquired and liabilities assumed of such businesses at the acquisition date. Goodwill is not amortized, but is subject to impairment tests. We review the carrying amounts of goodwill by reporting unit at least annually on April 1 (the annual assessment date), or more frequently when indicators of impairment are present, to determine if goodwill may be impaired. We may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. We would not be required to quantitatively determine the fair value of goodwill unless the we determine, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value.

 

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If we determine that the fair value is less than the carrying value based on the qualitative assessment, a quantitative assessment based upon discounted cash flow and market approach analyses is performed to determine the estimated fair value of the reporting units. We include assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying values of goodwill is not recoverable, based on the discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the carrying value of the tangible and intangible net assets of the reporting units. Goodwill is considered impaired if the recorded fair value of the tangible and intangible net assets exceeds the fair value of the reporting unit.

We did not recognize any impairment charges for goodwill during any of the periods presented, as our annual impairment testing indicated that all reporting unit goodwill fair values exceeded their respective carrying values.

Intangible assets have been acquired through various business acquisitions and include customer relationships, developed technology, licensing agreements, and a photo library. The intangible assets are initially valued at their acquisition date using either a discounted cash flow model or relief from royalty method. The relief of royalty method is used for developed technology and licensing agreement and assumes that if the acquired company did not own the intangible asset or intellectual property, it would be willing to pay a royalty for its use. The benefit of ownership of the intellectual property is valued as the relief from the royalty expense that would otherwise be incurred. Intangible assets are amortized on a straight-line basis, except for customer relationship intangibles that are amortized on an accelerated basis. Useful lives vary by asset type and are determined based on the period over which the intangible asset is expected to contribute directly or indirectly to the company’s future cash flows.

Impairment of Long-Lived Assets

We review our definite-lived long-lived assets for impairment whenever events or changes in circumstances indicate that carrying amount of the asset may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. We measure the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the carrying value of the asset being evaluated exceed the estimated undiscounted future cash flows , an impairment loss would be indicated, at which point recognition of the impairment would occur based on a determination of the asset’s fair value. There was no impairment with respect to our definite-lived long-lived assets for any periods presented.

Derivative Instruments

We use derivative instruments to manage our exposure to certain risks relating to its ongoing business operations. We have not elected hedge accounting for these derivative instruments, and accordingly are valued at fair value with unrealized gains or losses reported in earnings during the period of the change. No derivative instruments are entered into for speculative purposes.

One risk we manage using derivative instruments is interest rate risk. To manage interest rate exposure, we enter into hedge transactions (interest rate swaps) using derivative financial instruments. The objective of entering into interest rate swaps is to eliminate the variability of cash flows in the LIBOR interest payments associated with variable-rate loans over the life of the loans. As changes in interest rates affect the future cash flow of interest payments, the hedges provide a synthetic offset to interest rate movements.

We are also exposed to foreign-currency exchange-rate fluctuations in the normal course of business, primarily related to Pounds Sterling, Euros, Mexican Peso, Canadian Dollar and the Polish Zloty denominated assets and liabilities within its international subsidiaries whose functional currency is other than the U.S. dollar. We manage these fluctuations, in part, using non-deliverable forward foreign exchange contracts and foreign currency forward contracts, that are intended to offset changes in cash flow attributable to currency exchange movements.

 

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These contracts are intended primarily to economically address exposure merchandise inventory expenditures made by our international subsidiaries whose functional currency is other than the U.S. dollar.

Revenue Recognition

We record revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability of the sale is reasonably assured, which generally occurs at the time products are shipped to the customer. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded when they are determined to be probable and estimable.

Stock-Based Compensation

We have a stock option plan and other stock based compensation more fully described in Note 19 to the audited consolidated financial statements of MPS Holdings appearing elsewhere in this prospectus. The Predecessor measured the cost of employee services received in exchange for stock-based compensation based upon the grant date fair value of the equity issued. The Successor measured the cost of employee services received in exchange for stock-based compensation based on the fair value of the equity award at the balance sheet date. The cost is recognized as compensation expense over the requisite service period, which is generally as the equity instruments vest.

Excess tax benefits realized from the exercise of stock-based awards are classified in cash flows from financing activities. The Predecessor has elected the “with and without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit actually reduces taxes payable in the current year. Under this approach, recognition of the deferred tax assets and related tax benefits associated with the excess tax benefits on stock-based compensation occurs when the related tax deduction reduces taxes payable.

Income Taxes

We recognize income taxes in accordance with guidance established by U.S. GAAP, which requires an asset and liability approach for financial accounting and reporting for income taxes and establishes a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those items that are not considered in the determination of taxable income.

Deferred income taxes represent the tax effects of differences between the financial reporting and tax bases of our assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. We evaluate the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through fixed and variable rate debt instruments and denominate our transactions in a variety of foreign currencies. We are also exposed to changes in the prices of certain commodities that we use in production. Changes in these rates and commodity prices may have an impact on future cash flow and earnings.

We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not enter into financial instruments for trading or speculative purposes.

By using derivative instruments, we are subject to credit and market risk. The fair market value of the derivative instruments is determined by using valuation models whose inputs are derived using market observable inputs,

 

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including interest rate yield curves, and reflects the asset or liability position as of the end of each reporting period. When the fair value of a derivative contract is positive, the counterparty owes us, thus creating a receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterparties to our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with major financial institutions of investment grade credit rating.

Our exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market conditions on earnings or cash flow.

Interest Rate Risk

We are subject to interest rate market risk in connection with our borrowings. A one-eighth percent change in the applicable interest rate for borrowings under the senior secured credit facilities (assuming the Revolving Credit Facilities are undrawn and the LIBOR floor has been exceeded) would have an annual impact of approximately $1.2 million on cash interest expense considering the impact of our hedging positions currently in place.

We selectively use derivative instruments to reduce market risk associated with changes in interest rates. The use of derivatives is intended for hedging purposes only and we do not enter into derivative instruments for speculative purposes. Our interest rate swap asset is an amortizing swap with a notional amount at June 30, 2014 of $196.9 million, whereby we pay a fixed rate of interest of 1.1649% and receive a variable rate based on LIBOR on the amortizing notional amount. The swap is being used to hedge the exposure to changes in market LIBOR rates. Our interest rate swap liability is an amortizing swap, with a notional amount at June 30, 2014 of $181.7 million, whereby we pay a fixed rate of interest of 1.0139% and receive a variable rate based on EURIBOR on the amortizing notional amount. The swap is being used to hedge the exposure to changes in market EURIBOR rates.

Foreign Exchange Rates Risk

We are exposed to foreign currency risk by virtue of our international operations. Our exposure to foreign exchange relates to our European, Mexican, Canadian and Chinese facilities which have Pounds Sterling, Euro, Polish Zloty, Mexican Peso, Canadian Dollar and Chinese Yuan denominated assets and liabilities, and functional currencies. In the majority of our jurisdictions, we earn net sales and incur costs in the local currency of such jurisdiction; however they are not perfectly matched. Movements in exchange rates could cause our expenses to fluctuate, impacting our future profitability and cash flows. Our future business operations and opportunities, including the continued expansion of our business outside North America, may further increase the risk that cash flows resulting from these activities may be adversely affected by changes in currency exchange rates.

Our Sterling Term Loan and Euro Term Loan are denominated in Pounds Sterling and Euros, respectively. As a result, movements in the Pounds Sterling and Euro exchange rate in relation to the U.S. dollar could cause the amount of Sterling Term Loan and Euro Term Loan borrowings to fluctuate, impacting our future profitability and cash flows.

We translate our statements of operations into U.S. dollars at exchange rates for the periods presented. During the periods ended March 31, 2014 and June 30, 2014, exchange rate changes did not have a material impact when translating the financial statements. In the period ended March 31, 2015, net sales were negatively impacted by exchange rate changes by approximately $36.0 million.

A hypothetical change of 10% in average exchange rates used to translate Pounds Sterling, Euro, Polish Zloty, Mexican Peso, Canadian Dollar and Chinese Yuan to U.S. dollars would have impacted operating income by approximately $5.2 million for the twelve months ended March 31, 2015.

 

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INDUSTRY OVERVIEW

Major End Markets

Consumer Products Packaging End Market

The consumer products end market includes personal care, spirits, cosmetics and confectionary products. Personal care makes up one of the largest product categories in the consumer packaging end market and has some of the most demanding requirements of any consumer packaging product category for unique, value-add packaging solutions. We estimate the addressable market for our customers’ consumer products currently to be in excess of $8 billion and expect this end market will grow at an average of 2% annually through 2020, with forecasts varying by product category.

Consumer packaging, particularly for the personal care product category, is characterized by an image-driven market promoted by strong brand emphasis which drives a need for a wide range of packaging. Consumer packaging, such as folding cartons and labels, are a means of promoting brand identity to customers at the point-of-purchase. Large surface areas, high-impact graphics and innovative designs and finishes generate consumer interest, attract attention and create an affinity for companies’ brands and products in the eyes of the consumer. Representative premium products in the personal care product category include cosmetics, hair care products, skin creams, lotions and fragrances.

Trends driving growth of the consumer products packaging end market include:

 

    Shortened product life cycle—Focus on new product introductions with unique packaging designs that promote brand identity and on-shelf differentiation is driving growth. In order to achieve the first-mover advantage, personal care companies rely on suppliers able to rapidly design and commercialize these new, high quality packages.

 

    Enhanced product design and brand promotion—Personal care companies have increasing demand for packaging suppliers who are able to offer new technologies and services to promote brand identity, premium positioning and shelf appeal. This is increasingly favoring suppliers with differentiated capabilities, such as finishing technologies for iridescent, holographic, textured and dimensional effects.

 

    Positive demographic trends and increasing health and wellness awareness—The growing and aging population sensitive about preserving a youthful image is driving a positive shift in the consumption patterns of personal care products, including products used to reverse signs of aging, such as anti-wrinkle skin creams, lotions, serums and hair colorants. People are generally tending to take better care of themselves and are willing to pay more for products with perceived benefits.

 

    Increasing premiumization—Individuals have greater capability to purchase higher end consumer products, particularly in developing regions such as Asia and Latin America. Sophisticated packaging solutions allow for better shelf visibility and brand positioning. The propensity to use secondary packaging, such as premium rigid boxes and labeling, is higher in premium type spirits and confections, as it represents one of the principal ways to command higher price points and differentiate products.

 

    Demand for sustainable and intelligent packaging—Increasing consumer focus on environmental issues and recyclability of materials represents an opportunity for advanced high value-add producers to further strengthen market positions. Consumers are increasingly purchasing products that are sustainable and offer recyclable packaging and many companies have embraced this trend, moving towards eco-friendly packaging materials.

 

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Healthcare Packaging End Market

Healthcare packaging is used in a wide variety of applications including over-the-counter and prescription pharmaceuticals, medical devices, nutritional and dietary supplements, vitamins and minerals. We estimate the healthcare packaging end market currently to be in excess of $8 billion, characterized by significant technical requirements, recession-resilient demand characteristics and strong growth opportunities. Print-based packaging products, such as cartons, labels and inserts for the healthcare market, are used to provide information to consumers as well as comply with regulations. Healthcare packaging has stringent quality specifications, prerequisite manufacturing standards and evolving regulatory requirements. Packaging supplier sites are regularly audited and certified. Switching costs are high given the high value of the end product and significant cost of disruption. In addition, manufacturers are increasingly demanding more comprehensive design services, reduced delivery times, more flexibility in order size and broader geographic coverage from their packaging suppliers. Further, product innovation plays a key role in the industry as pharmaceutical manufacturers increasingly incorporate authentication features into packaging to assist in the prevention of counterfeiting.

We estimate that the secondary packaging market for pharmaceuticals will grow by approximately 6% annually from 2014 to 2019 in North America and Western Europe, reaching approximately $5 billion and $6 billion, respectively, in 2019. This in large part will be driven by an increase in the use of security labels (e.g., anti-counterfeiting). The growth in the secondary packaging market for pharmaceuticals in the United States and Europe is depicted below:

 

LOGO LOGO

 

Source: Industry research and management estimates.

(1) Includes standard labels, specialty labels (leaflet labels) and security labels (track & trace).
(2) Covers the following secondary carton packaging categories: folding cartons, secondary blister packaging and outer paperboard boxes.
(3) Includes 31 countries and territories that include the members of the European Union and Switzerland.

Trends driving growth of the healthcare packaging market include:

 

    Population demographics—Population growth, an increased focus on chronic diseases and the aging population have increased the market for pharmaceuticals as consumers require a growing number and diversity of prescription and over-the-counter medicines and nutritional supplements, including those that target age-related conditions and illnesses.

 

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    Globalization and vendor rationalization—Regulatory pressures and increased product quality requirements have encouraged large multinational pharmaceutical and supplement manufacturers to focus their packaging spend on fewer suppliers that can provide consistent service and product quality on a global basis. We believe this trend favors scale players with the capability to support product launches across multiple products and geographies. We expect vendor rationalization to continue as customers seek to contain costs without sacrificing logistical flexibility and product quality.

 

    Increasing consumer awareness regarding health and wellness—Manufacturers and marketers of nutritional and dietary supplements are continuously introducing and marketing new product offerings in order to appeal to growing consumer awareness regarding health and wellness and preventative medicine.

 

    Growth in drug treatments and availability—The volume of pharmaceutical products available in the market has been expanding for both branded and generic drugs. The demand for generic drugs may accelerate as some branded pharmaceutical products become available in generic formulations after the expiration of patents. While our branded business is set to grow with the overall market, we also expect to benefit from the growth of generic pharmaceuticals.

 

    Evolving regulatory standards and regulations—Regulatory standards to improve security and prevent drug counterfeiting as well as provide greater, more accessible disclosure to patients and healthcare providers create a dynamic regulatory environment that requires creative, value-added packaging solutions. For example, the blister packaging market is expected to benefit from the implementation of U.S. Food and Drug Administration regulations requiring all prescribed pharmaceuticals dispensed in hospitals and nursing homes to be packaged in unit dose formats with barcodes in order to reduce dispensing errors. Overall drug spend is also forecast to grow, given recent government legislation and regulation around the Patient Protection and Affordable Care Act.

Multi-Media Packaging Market

Our multi-media end market net sales are focused on high quality specialty packaging, which often requires quick response, including; commemorative and special editions for home videos, recorded music, video games and software. We produce a full line of printed packaging products for leading multi-media companies including folding cartons, booklets, folders, inserts, cover sheets and slipcases, as well as highly customized, graphical and value-added packaging components. We are one of the largest producers of these products in the North American multi-media end market. We estimate the addressable market for our multi-media products to be approximately $0.3 billion and expect this market will contract approximately 7% annually through 2020.

This market is characterized by:

 

    Digital substitution—The combination of our talented sales executives with longstanding customer relationships and our product and operational excellence has allowed us to gain market share and mitigate the decline in multi-media packaging demand. The increasing popularity of digital distribution will continue to erode the shipments of physical music, video game and home video units. We believe that through our market-leading positions in the multi-media specialty packaging sector we will be able to continue to execute on profitable and opportunistic multi-media packaging business. As a market leader, we have generally outperformed the broader decline in the multi-media packaging industry. Moreover, highly anticipated video game launches, such as Grand Theft Auto, and blockbuster movie releases, such as Furious 7, drive increased demand for gaming and home video, respectively, including higher value-add commemorative editions and box sets, and can generate above-average growth and profitability.

 

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BUSINESS

We are a leading, global provider of value-added specialty packaging solutions focused on high complexity products for the consumer, healthcare and multi-media markets. For the twelve-month period ended March 31, 2015, approximately 47%, 47% and 6% of our pro forma net sales came from our North American, European and Asian operations, respectively, and approximately 88% of our pro forma global net sales were derived from our consumer and healthcare end markets. We believe that our core addressable consumer and healthcare end markets encompass attractive, resilient and growing packaging categories, and we believe we are a leader in these end markets across North America and Europe. Additionally, we believe we have a market-leading position in the North American multi-media specialty packaging sector, which accounts for 12% of our pro forma global net sales. We provide our customers with an extensive array of print-based specialty packaging solutions, including premium folding cartons, inserts, labels and rigid packaging across a variety of substrates and finishes, which are complemented by value-added services, including creative design, new product development and customized supply chain solutions. We believe the market opportunity across our primary addressable markets is currently in excess of $17 billion.

We have long-term customer relationships driven by our global presence, breadth of products, value-added service offering, reputation for operational excellence, innovative packaging solutions and highly experienced management team. We serve a blue chip customer base, including some of the world’s largest companies and the leaders in our target end markets. Our global platform allows us to serve our customers, which include AstraZeneca, Coty, Diageo, Estée Lauder, GlaxoSmithKline, L’Oréal, Mondelēz International, Nestlé, Pernod Ricard, Pfizer and Sony, on both a local and global basis. Our relationships with our top 20 customers average 34 years with many of our customers operating under multi-year contracts. No one customer accounts for more than 5% of our pro forma net sales for the twelve-month period ended March 31, 2015. Servicing our customers requires us to meet stringent quality specifications, significant customer service standards and meaningful investment requirements. Our healthcare customers, for example, require exacting standards of manufacturing in order to meet their regulatory requirements, which include strict process controls, site certification, chain of custody product information and strict adherence to print requirements and print quality due to the nature of the use of the product by our customers’ end users. For our consumer customers, we are at the front end of their branding and marketing strategy, enhancing the visual impact at the shelf while also ensuring product integrity and regulatory compliance. We believe our advanced printing and finish effects and designs often help our customers position their products at the premium end of their addressable markets. In addition we provide value-added supply chain services such as VMI, specific carton-by-carton scan ability and data which enable the customer to track a product from manufacturer to end user.

We believe we are one of a few companies in the end markets we serve offering a full range of products across multiple geographies, allowing us to provide specialty packaging solutions for customers locally and globally, a capability our customers find valuable in presenting a consistent image of the underlying product. Our global manufacturing footprint consists of 59 manufacturing sites and nine sales offices across North America, Europe and Asia. Our strategically located facilities have enabled us to grow our business by leveraging our customer relationships across multiple geographies and products, and drive incremental growth through our ability to integrate and improve our customers’ supply chains. These solutions highlight our competitive difference and allow us to win new customers and strengthen our existing client relationships through cross-selling opportunities across our unique global platform, with further benefits to be realized from recent acquisitions. Additionally, our global manufacturing footprint is supported by our sales and design teams, which consist of a dedicated research and development group, more than 115 structural and graphic designers and over 230 sales personnel.

 

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Our History

 

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Since 2005, we have evolved from our initial U.S. platform of five facilities into a global specialty packaging leader in the consumer, healthcare and multi-media end markets. We have completed a total of 14 transactions within our addressable products and markets, with early acquisitions targeted at obtaining and building the necessary technology footprint to serve consumer and pharmaceutical companies. Later acquisitions focused on expanding that platform into complementary products and creating a global footprint capable of meeting all of our customers’ value-added packaging requirements. In 2014, we entered into a transformational merger with Chesapeake (February 2014), acquired ASG (November 2014) and completed four additional acquisitions, which expanded our global reach and diversified our product and end market profile. We have a successful track record of acquiring strategically relevant companies, establishing and realizing savings and synergy programs and integrating acquired operations and customers into our global platform. Through successful execution and integration of acquired businesses, we have expanded our geographic reach and product and service offering, which has enabled us to better serve our large multinational customers, as well as penetrate new regional and local customers in our key end markets. We have expanded the operating margins of companies we have acquired, achieving our synergy targets and leveraging our platform as evidenced by our accreting EBITDA margins subsequent to each acquisition. Specifically, we estimate that as of March 31, 2015 we have realized a total of approximately $15 million of synergies from the Chesapeake and ASG transactions, which is expected to result in an annualized run-rate as of the same date of approximately $25 million. We believe that these targeted savings and synergy programs will eventually achieve an annualized run-rate of approximately $40 million, although we cannot make any assurances that such an annualized run-rate will be achieved.

 

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The MPS and Chesapeake platforms are highly complementary. At the time of the merger between the two companies, MPS was predominantly focused on the personal care and generic pharmaceutical end markets within North America. Conversely, Chesapeake was focused on the branded pharmaceutical, confectionary and Scotch whisky end markets in Europe. The combination provides for significant cross-selling opportunities across our global platform.

 

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We have a consistent track record of delivering Adjusted EBITDA growth and Adjusted EBITDA margin expansion through a focus on attractive products and end markets, operational excellence and executing value accretive acquisitions. The chart below illustrates our growth in Adjusted EBITDA and related margin. The pro forma results below reflect the acquisitions we made through March 31, 2015 as if they occurred on July 1, 2013. The pro forma Adjusted EBITDA margin is lower than historical periods primarily due to the lower historical Adjusted EBITDA margin for the acquired ASG businesses and is reflective of the potential accretion opportunity available to us.

Adjusted EBITDA ($ in millions)

 

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Note: Our fiscal year ends June 30th. See footnote 2 set forth in “Prospectus Summary—Summary Historical Audited and Unaudited   Consolidated and Unaudited Pro Forma Combined Financial Information” for a reconciliation of Adjusted EBITDA to net income.

 

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We have also consistently demonstrated our ability to generate strong cash flows driven by efficient investment of capital, working capital control and operational discipline throughout the Company. Our capital investment requirements have generally been in the range of 3.5-3.9% of net sales, achieving strong free cash flow conversion relative to our Adjusted EBITDA margin. Our free cash flow conversion (defined as Adjusted EBITDA less capital expenditures) has averaged over 70% over the last seven years.

Free Cash Flow Conversion

 

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Note: Free cash flow is defined as Adjusted EBITDA less capital expenditures. Free cash flow conversion is defined as free cash flow divided by Adjusted EBITDA. See footnote 2 set forth in “Prospectus Summary—Summary Historical Audited and Unaudited Consolidated and Unaudited Pro Forma Combined Financial Information” for a reconciliation of Adjusted EBITDA to net income.

We have integrated the sales forces around key global account managers and are launching global sales initiatives around major end markets such as confectionary, spirits, cosmetics and fragrances to take advantage of our global presence. The ASG acquisition allowed us to expand our footprint into Mexico, Canada and China and broadened our personal care capability. With respect to costs and operations, we have largely centralized procurement and are in the process of realizing savings from optimizing purchase prices between the organizations as well as consolidating our purchase volumes. We continuously benchmark our sites and work to bring lower performing sites up to the level of higher performing ones. We are also realizing efficiencies from our ongoing investments in our equipment to improve run speeds, reduce changeover times and reduce manning.

We believe that we are a leader within our addressable market on the basis of revenue and believe that we have the ability to continue to grow organically, as well as pursue prudent value accretive acquisitions to augment our product portfolio and geographic presence to better serve new and existing customers. Further, we will continue to drive operational excellence through improving our productivity and asset utilization, optimizing our industrial footprint, and investing capital efficiently. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Transactions.”

Our Products

We provide our customers a comprehensive suite of innovative specialty products and services, including premium folding cartons, inserts, labels and rigid packaging. Our packaging solutions utilize a wide variety of substrates (e.g., paper and paperboard, pressure sensitive labels, plastic, foil) and finishes (e.g., UV coatings, film lamination, stamping, embossing). We also employ an array of value-add decorative technologies to create iridescent, holographic, textured and dimensional effects to provide differentiated specialty packaging products to our customers. Our comprehensive solutions, which often include combination or bundled products, and a technologically advanced asset base allow us to win new customers and strengthen our existing client relationships through cross-selling opportunities across our unique global platform.

Premium Folding Cartons (LTM March 31, 2015 Pro Forma Net Sales of $1,163 million, or 63% of Total)

Premium folding cartons are widely used, versatile forms of secondary packaging that our customers utilize to attract consumer attention at the point-of-sale and provide critical product information to end users. Our folding carton offering is targeted at the premium end of the market, utilizes high quality inputs such as solid bleached

 

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sulfate, and is manufactured with various features and finishes, including lamination, embossing, foil stamping and windowing. Rigid packaging serves a functional purpose by providing protection to the product throughout the shipping, distribution and merchandising processes.

Our premium folding cartons offering plays an important role in our customers’ branding and marketing strategies through influencing purchase decisions at the point-of-sale by conveying an exceptional appearance, shelf presence and impact through the use of specialty graphics, a variety of printed finishes and other creative designs. Additionally, our premium folding cartons offering must adhere to stringent regulatory requirements by playing a key role in our customers’ product safety as well as ensuring product authenticity, accurate product information and product compliance to the end customer. Our premium folding carton customers oftentimes purchase associated labels and inserts. Leveraging cross-selling opportunities is a key strategic initiative of recent acquisitions that we have completed.

Inserts (LTM March 31, 2015 Pro Forma Net Sales of $267 million, or 15% of Total)

We provide inserts for all the end markets we serve, with the majority of our net sales in this category being to the healthcare end market. Inserts are of particular importance in the healthcare end market given stringent regulations to ensure the accuracy of product information, although they are also used in non-healthcare markets in which product literature is required to be presented to the end user. Inserts are included either inside a secondary package (e.g., folding carton) or affixed to the outside of a primary package (e.g., bottle). Numerous regulatory bodies, such as the U.S. Food and Drug Administration, the U.S. Department of Agriculture and various trade associations, require an increasing level of product information, including nutritional, performance and other related product disclosures. Providing this increasing amount of information requires larger and, in many instances, more complex inserts. Specific technical equipment is necessary to produce the folded leaflet, which requires significant upfront investment. Evolving regulations require that insert manufacturers stay abreast of new developments and maintain manufacturing equipment and process capabilities necessary to meet strict inspection and quality control standards. Product disclosure requirements change, oftentimes on short notice, due to regulatory oversight. This results in the need for quick reaction and turnaround of production. Oftentimes our ability to be an integral part of our customers’ information management systems allows us to monitor customer demand and limit their exposure to inventory obsolescence when product disclosure changes.

Labels (LTM March 31, 2015 Pro Forma Net Sales of $128 million, or 7% of Total)

Labels are one of the most visible and recognizable packaging components and are used in a wide variety of applications serving as the primary means of identifying products to consumers, while creating shelf appeal and brand recognition for products. Labels also function as a conduit for fulfilling regulatory requirements, communicating product-related information to consumers and contributing to product integrity and security. We supply a broad range of pressure sensitive labels, including single-panel, multi-panel, multi-ply and extended content labels, as well as cut and stack labels.

The majority of our net sales in this category are pressure sensitive labels sold primarily into the healthcare market which, like our inserts, are subject to stringent regulations to ensure the accuracy of product information. Additionally, we supply both pressure sensitive and cut and stack labels to the consumer products markets where decorative labels are utilized to differentiate products at the retail point-of-sale. We employ multiple print technologies with respect to labels, utilizing digital, flexographic and offset printing press technologies to serve our customers globally.

Rigid Packaging (LTM March 31, 2015 Pro Forma Net Sales of $80 million, or 4% of Total)

Rigid boxes are commonly used to present ultra-premium products and vary from rigid top load boxes for the high-end spirits market to specialized boxes for perfumes and other luxury products. We historically provided

 

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rigid box offerings, oftentimes described as top load box or set up boxes, via strategic outsource suppliers. Consistent with our acquisition strategy to acquire appropriate technologies, we completed two recent strategic acquisitions which added our own internal manufacturing capability for a premium rigid packaging product offering with the addition of customized/high-end rigid boxes. We have a growing presence in rigid packaging and believe this is a meaningful area for growth in the future.

Other Consumer Products Packaging (LTM March 31, 2015 Pro Forma Net Sales of $209 million, or 11% of Total)

We offer a number of additional printed packaging products, including transaction cards, point-of-purchase displays, brochures, product literature, marketing materials and grower tags and plant stakes for the horticultural market. These products are supplied to various niche markets that require print-based specialty packaging. Our transaction cards and card services offerings are of a particular focus. We provide our customers a comprehensive end-to-end solution for credit, debit, general prepaid reloadable, gift, loyalty, hospitality, insurance and other card-based programs. Our integrated supply chain for cards, carriers, multi-packs and point-of-purchase displays greatly simplifies the development and execution of card programs and drives competitive differentiation.

Value-Added Services

We provide a range of value-added services to our customers ranging from collaboration on the initial packaging concept to total management of the supply chain. We work closely with our customers to understand their specific requirements and thereby implement streamlined workflows starting from pre-press through to fulfillment. These valuable service capabilities complement our broad product offering and, when matched with our manufacturing operations, enable us to consistently deliver high quality products and superior service to our customers. Examples of such value-added services include creative design and new product development, for which we have a team of more than 115 structural designers and graphic designers across a number of key locations. We also provide our customers with customized supply chain solutions, including VMI programs. VMI solutions help customers manage production based on actual demand to reduce lead times, minimize inventory, eliminate waste and enhance supply chain security. Our ability to provide on-demand services for our customers via digital print technology has allowed us to offer significantly shorter lead times than our key competitors. Shorter lead times provide a distinct advantage in consumer and healthcare-facing industries where companies must move quickly to introduce new products and ramp-up supply in response to market trends and consumer demand. Shorter lead times also limit our customers’ exposure to inventory obsolescence. Our value-added services build entrenched partnerships with customers and allow us to become a more critical part of the supply chain by helping to improve workflow efficiencies and reduce our customers’ total cost of ownership for packaging materials.

 

    Digital Workflow: Ability to manage all of a customer’s digital assets for simplified management on a regional or global scale. These digital assets range from artwork and front-end solutions to tracking codes that account for individual items throughout the supply chain and activation codes that scan at retail.

 

    Creative Services: Award-winning creative team with a reputation for innovation and quality, comprised of 25 structural designers and nine graphic designers who provide packaging engineering, 3-D renderings, product animation, prototyping and testing.

 

    Pre-Press Services: Fully staffed, around-the-clock team to provide same day or next day service including full proofing capabilities, artwork enhancement and file correction.

 

    Vendor Managed Inventory: Ability to manage production based on a customer’s actual demand provides numerous benefits, including shorter lead times, reduced physical inventory, waste reduction and increased supply chain security.

 

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    Late Stage Customization: Ability to leverage our flexible manufacturing capabilities by printing common graphics on long-run equipment and customizing products on-demand with printed labels or inserts using short-run digital equipment. A proprietary finishing system prints and applies labels and delivers finished cartons on an as needed basis.

 

    Co-Located Facilities: Onsite facilities management provides equipment and staffing for printing and packaging production physically located within a customer’s facility. On-demand packaging capabilities provide numerous customer benefits, including lower inventory levels, reduced obsolescence and cycle time reductions.

 

    Brand Protection / E-Pedigree: We provide brand security through the application of various technologies, including magnetic inks, invisible bar codes and holographic cold foil, to help ensure the traceability and authenticity of our customers’ products.

 

    Environmental Solutions: We have made substantial investments in sustainability and environmentally-friendly products, technologies and manufacturing processes to meet the environmental objectives of our customers.

Our End Markets

Consumer (51% of LTM March 31, 2015 Pro Forma Net Sales)

We produce a full line of specialty print-based packaging products for a wide range of customers in the personal care, spirits, cosmetics and confectionary markets. We focus on the premium end of the market where high-impact graphics, and innovative designs and finishes attract attention and help brands drive “top-of-mind” positioning with consumers at the point-of-purchase. Our scale and financial resources have enabled us to build out a leading global design division which has been at the forefront of our product innovation capabilities. Multinational customers have also increasingly centralized their procurement functions seeking fewer, more strategic partners capable of meeting their consumer packaging needs and consistent marketing image across a range of products, services and geographies. We are well-positioned to benefit from this trend in vendor rationalization by leveraging our ability to deliver a broad range of local solutions while simultaneously providing global coverage to our multinational customers.

 

Net Sales Within Consumer End Market Net Sales to Consumer End Market
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Note: 2014 presented on a combined basis. Fiscal years end on June 30.

Growth in this market is driven by:

 

    Shortened product life cycle—Focus on new product introductions with unique packaging designs that promote brand identity and on-shelf differentiation in order to drive growth. In order to achieve the first-mover advantage, personal care companies rely on suppliers able to rapidly design and commercialize these new, high quality packages.

 

   

Enhanced product design and brand promotion—Personal care companies have increasing demand for packaging suppliers who are able to offer new technologies and services to promote brand identity,

 

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premium positioning and shelf appeal. This trend increasingly favors suppliers with differentiated capabilities, such as finishing technologies for iridescent, holographic, textured and dimensional effects.

 

    Positive demographic trends and increasing health and wellness awareness—The growing and aging population sensitive about preserving a youthful image is driving a positive shift in the consumption patterns of personal care products, including products used to reverse signs of aging, such as anti-wrinkle skin creams, lotions, serums and hair colorants. People are generally tending to take better care of themselves and are willing to pay more for products with perceived benefits.

 

    Increasing disposable premiumization—Individuals have greater capability to purchase higher end consumer products, particularly in developing regions such as Asia and Latin America. Sophisticated packaging solutions allow for better shelf visibility and brand positioning. The propensity to use secondary packaging, such as premium rigid boxes and labeling, is higher in premium type spirits and confections, as it represents one of the principal ways to command higher price points and differentiate products.

 

    Demand for sustainable and intelligent packaging—Increasing consumer focus on environmental issues and recyclability of materials represents an opportunity for advanced high value-add producers to further strengthen market positions. Consumers are increasingly purchasing products that are sustainable and offer recyclable packaging and many companies have embraced this trend, moving towards eco-friendly products.

Healthcare (37% of LTM March 31, 2015 Pro Forma Net Sales)

Healthcare packaging is used in a wide variety of applications including OTC and prescription pharmaceuticals, medical devices, nutritional and dietary supplements, vitamins and minerals. We offer a full line of print-based packaging products serving the healthcare market, including folding cartons, inserts, labels, outserts and booklets. The healthcare packaging market is characterized by significant technical requirements, recession-resilient demand characteristics and numerous growth opportunities. Healthcare packaging has stringent quality specifications, prerequisite manufacturing standards and evolving regulatory requirements. Product innovation plays a key role in the industry as pharmaceutical manufacturers increasingly incorporate authentication features into packaging to assist in the prevention of counterfeiting. We have developed strong relationships with leading healthcare companies as a result of our high-quality products, expertise in print technologies including digital print technology, excellent customer service and customized supply solutions, and quick response and turnaround times. Through this approach, we have established ourselves as an important supplier to the industry and see significant opportunity for future growth with new and existing customers.

 

Net Sales Within Healthcare End Market Net Sales to Healthcare End Market
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Note: 2014 presented on a combined basis. Fiscal years end on June 30.

 

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Growth in this market is driven by:

 

    Population demographics—Population growth, an increased focus on chronic diseases and the aging population have increased the market for pharmaceuticals as consumers require a growing number and diversity of prescription and over-the-counter medicines and nutritional supplements, including those that target age-related conditions and illnesses.

 

    Globalization and vendor rationalization—Regulatory pressures and increased product quality requirements have encouraged large multinational pharmaceutical and supplement manufacturers to focus their packaging spend on fewer suppliers that can provide consistent service and product quality on a global basis. We believe this trend favors scale players with the capability to support product launches across multiple products and geographies. We expect vendor rationalization to continue as customers seek to contain costs without sacrificing logistical flexibility and product quality.

 

    Increasing consumer awareness regarding health and wellness—Manufacturers and marketers of nutritional and dietary supplements are continuously introducing and marketing new product offerings in order to appeal to growing consumer awareness regarding health and wellness and preventative medicine.

 

    Growth in drug treatments and availability—The volume of pharmaceutical products available in the market has been expanding for both branded and generic drugs. The demand for generic drugs may accelerate as some branded pharmaceutical products become available in generic formulations after the expiration of patents. While our branded business is set to grow with the overall market, we also expect to benefit from the growth of generic pharmaceuticals.

 

    Evolving regulatory standards and regulations—Regulatory standards to improve security and prevent drug counterfeiting as well as provide greater, more accessible disclosure to patients and healthcare providers create a dynamic regulatory environment that requires creative, value-added packaging solutions. For example, the blister packaging market is expected to benefit from the implementation of U.S. Food and Drug Administration regulations requiring all prescribed pharmaceuticals dispensed in hospitals and nursing homes to be packaged in unit dose formats with barcodes in order to reduce dispensing errors. Overall drug spend is also forecast to grow, given recent government legislation and regulation around the Patient Protection and Affordable Care Act.

Multi-Media (12% of LTM March 31, 2015 Pro Forma Sales)

Our multi-media end market net sales is focused on high quality specialty packaging, which often requires quick response, including commemorative and special editions for home videos, recorded music, video games and software. We produce a full line of printed packaging products for leading multi-media companies including folding cartons, booklets, folders, inserts, cover sheets and slipcases, as well as highly customized, graphical and value-added packaging components. We are one of the largest producers of these products in the North American multi-media end market.

 

Net Sales Within Multi-Media End Market Net Sales to Multi-Media End Market
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Note: 2014 presented on a combined basis. Fiscal years end on June 30.

 

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This market is characterized by:

 

    Digital substitution—The combination of our talented sales executives with longstanding customer relationships and our product and operational excellence has allowed us to gain market share and mitigate the decline in multi-media packaging demand. The increasing popularity of digital distribution will continue to erode the shipments of physical music and video game and home video units. We believe that through our market-leading positions in the multi-media specialty packaging sector we will be able to continue to execute on profitable and opportunistic multi-media packaging business. As a market leader, we have generally outperformed the broader decline in the multi-media packaging industry. Moreover, highly anticipated video game launches, such as Grand Theft Auto, and blockbuster movie releases, such as Furious 7, drive increased demand for gaming and home video, respectively, including higher value-add commemorative editions and box sets, and can generate above average growth and profitability.

Our Sales and Marketing

We maintain a world class sales and marketing organization with a proven ability to grow sales with new and existing customers, as well as cross-sell our comprehensive product offerings. The ability to identify and successfully recruit talented sales and marketing executives has contributed to our ability to achieve accelerated growth rates. Each vertical is led by dedicated sales executives who, in collaboration with our executive team, are responsible for maintaining existing relationships and identifying and pursuing a target account list of potential new customers.

We have a proven ability to provide customized solutions that reduce our customers’ total cost for packaging materials. By seeking out customers who would benefit from value-added solutions, we have been able to consistently expand our customer base and maintain longstanding relationships without competing solely on the basis of price.

Our Customers

We have a broad and diversified customer base. We benefit from longstanding relationships with well-recognized customers in each of our core markets. Our relationships with our top 20 customers average 34 years with no single customer representing more than 5% pro forma net of sales for the twelve-month period ended March 31, 2015 and our top ten customers accounting for less than 26% of pro forma net sales for the same time period.

Our management is highly focused on creating and maintaining strategic partnerships beyond standard transactional customer relationships. Our customer relationships are reinforced by our innovation, consistent high quality products, integrated service offerings, reliable on-time delivery and outstanding customer service.

Our customer relationships are further entrenched by customer audit specifications and regulatory approvals required for packaging suppliers as well as the inherent risk of switching suppliers. Products are typically complex and involve short-run production lengths, while contracts include multiple SKUs with color and design variability. While secondary packaging is a low proportion of end-product cost or price (in healthcare, for example, it is often less than 1% of end-product cost/price), the potential cost of disruption to a packaging line as a result of poor quality products or unstable supply can be significant. Consequentially, end customers are focused on quality and stability of supply.

 

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We maintain multi-year contracts with the majority of our customers with terms of three to four years on average. Consistent with industry practice, we do not typically receive volume commitments from customers, but often have a contractual right to a minimum percentage of a customer’s spend on identified products. We manage the majority of our raw material costs through a combination of market-based pricing and contracted escalators and de-escalators.

FY 2014 Top Customer Breakdown

 

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Our Facilities

We own or lease 59 manufacturing facilities and several dedicated sales and design offices in the United States and Europe. Our facility network is strategically located in close proximity to key customers.

 

Location

  

Activities

   Approximate
Square Feet
     Owned or Leased  

North America

        

Toronto, Canada

   Manufacturing plant      145,000         Owned   

Aguascalientes, Mexico

   Manufacturing plant      167,000         Owned   

Albuquerque, New Mexico, United States

  

Manufacturing plant

     2,500         In Customer Facility   

Allegan, MI, United States

   Manufacturing plant      38,000         Leased   

Carlstadt, NJ, United States

   Design center/Sales office      44,000         Leased   

Chicago, IL, United States (2 facilities)

   Manufacturing plant      149,000         Leased   

Dallas, TX, United States

   Manufacturing plant      96,660         Leased   

Denver, CO, United States (2 facilities)

   Manufacturing plant      56,000         Leased   

Glendale, CA, United States

   Design center/Sales office      18,800         Leased   

Greensboro, NC, United States

   Manufacturing plant      57,000         Owned   

Hendersonville, NC, United States

   Manufacturing plant      180,000         Owned   

Hicksville, NY, United States

  

Manufacturing plant

     76,800         Leased   

Holland, MI, United States

  

Manufacturing plant

     9,000         Leased   

Holland, MI, United States

   Manufacturing plant      66,000         Owned   

Idaho Falls, ID, United States

   Manufacturing plant      11,200         In Customer Facility   

Indianapolis, IN, United States

   Manufacturing plant      140,500         Owned   

Lansing, MI, United States

   Manufacturing plant      350,500         Owned   

Lexington, NC, United States

   Manufacturing plant      100,000         Owned   

Los Angeles, CA, United States

   Design center/Sales office      15,000         Leased   

 

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Location

  

Activities

   Approximate
Square Feet
     Owned or Leased

Louisville, KY, United States

   Manufacturing plant      60,000       Owned

Louisville, KY, United States

   Manufacturing plant      111,000       Leased

Melrose Park, IL, United States

   Manufacturing plant      250,000       Leased

New York, NY, United States

   Executive office      9,772       Leased

Raleigh, NC, United States

   Manufacturing plant      75,000       Leased

San Angelo, TX, United States

   Manufacturing plant      4,850       In Customer Facility

South Plainfield, NJ, United States

   Manufacturing plant      100,000       Leased

Europe

        

Courcelles, Belgium

   Manufacturing plant      2,700       In Customer Facility

Bornem, Belgium

   Manufacturing plant      99,000       Owned

Ghent, Belgium

   Manufacturing plant      86,000       Owned

Angouleme, France

   Manufacturing plant      88,000       Owned

Montargis, France

   Manufacturing plant      48,000       Leased

St. Pierre, France

   Manufacturing plant      92,000       Owned

Ussel, France

   Manufacturing plant      43,000       Owned

Duren, Germany

   Manufacturing plant      115,000       Owned

Obersulm, Germany

   Manufacturing plant      214,000       Owned

Melle, Germany

   Manufacturing plant      129,000       Owned

Stuttgart, Germany

   Manufacturing plant      112,000       Owned

Dublin, Ireland

   Manufacturing plant      27,000       Leased

Limerick, Ireland

   Manufacturing plant      31,000       Owned

Westport, Ireland

   Manufacturing plant/Sales office      80,000       Owned

Bialystok, Poland

   Manufacturing plant/Design center      127,000       Owned

Tczew, Poland

   Manufacturing plant      79,000       Owned

Oss, The Netherlands

   Manufacturing plant      35,000       Leased

Arbroath, United Kingdom

   Manufacturing plant      105,000       Leased

Arbroath, United Kingdom

   Manufacturing plant      23,000       Owned

Belfast, United Kingdom

   Manufacturing plant      125,000       Owned

Bourne, United Kingdom

   Manufacturing plant      23,700       Owned

Bradford, United Kingdom

   Manufacturing plant      83,000       Owned

Bristol, United Kingdom

   Manufacturing plant      17,750       Leased

East Kilbride, United Kingdom

   Manufacturing plant/Design center      223,000       Owned

Greenford, United Kingdom

   Manufacturing plant      27,000       Leased

Hamilton, United Kingdom

   Manufacturing plant      60,000       Leased

Hillington, United Kingdom

   Manufacturing plant      22,000       Leased

Leicester, United Kingdom

   Manufacturing plant      156,798       Owned

Newcastle, United Kingdom

   Manufacturing plant/Design center      183,000       Owned

Nottingham, United Kingdom

   Manufacturing plant      107,639       Owned

Portsmouth, United Kingdom

   Manufacturing plant      155,000       Owned

Swadlincote, United Kingdom

   Logistics center      93,730       Owned

Tewkesbury, United Kingdom

   Manufacturing plant      66,000       Leased

Wrexham, United Kingdom

   Manufacturing plant/Sales office      45,907       Leased

Asia

        

Guangzhou, China

   Manufacturing plant/Design center      174,000       Owned

Hong Kong, China

   Design center/Sales office      2,586       Leased

Kunshan, China (2 facilities)

   Manufacturing plant/Sales office      270,000       Leased

We employ a largely integrated, enterprise-wide approach to management of our facilities and fundamental equipment, which enables us to redeploy plant assets and production processes to match customer and profitability objectives. At the same time, facility level specialization of our manufacturing footprint based on customer needs, substrate capabilities and technological offerings allows us to take advantage of enhanced

 

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profitability from efficiencies associated with running larger volumes of consistent products at specific locations. Acquired operations also benefit from this approach as business is optimized across the broader facility network incorporating a process of asset redeployment, facility rationalization and targeted capital investment.

Further, we have invested to ensure our facilities provide the scale, geographic coverage, operational flexibility and security of redundant capabilities that sophisticated customers require. Since our inception in 2005, we have pursued a capital investment program which has provided us with leading technological and operational capabilities and capacity for continued growth. We completed a capital investment program from fiscal year 2012 through fiscal year 2013 that expanded existing co-located facilities, expanded our Poland facility and consolidated two redundant facilities. As a result, our manufacturing platform is well positioned to support the ramp-up of production related to our new business pipeline and continued organic growth. We are able to deliver high quality products and services to our customers by way of the following:

 

    Security of Supply—The scale of our multi-site network allows customers to confidently source a large portion of their packaging requirements from us.

 

    Fully-Accredited Sites—All our facilities are registered to ISO9000 standards or are cGMP compliant. Many sites conform to relevant market sector standards such as the Pharmaceutical Code of Practice (PS9000), BRC / IoP, HAACP, ISO14001 and 18001.

 

    Sites Meet Stringent Customer Requirements—Customer audits are undertaken for supplier approval and quality certifications. These demanding audits are accompanied by continually evolving and increasingly stringent regulatory standards and requirements.

Our Manufacturing

Our manufacturing footprint and dedicated sales force are strategically located in close proximity to our clients, which further enables our ability to manage customers in the region. Through continued capital investment and strategic acquisitions, we have become a leading print-based specialty packaging supplier offering a comprehensive range of technological capabilities to our customers. We have invested in state-of-the-art equipment and are a leader in the three principal specialty printing technologies:

 

    Offset Lithographic Printing—In “offset” printing, rollers apply ink and water to plates which are then transferred to a rubber cylinder that transfers the image onto the paper. The lithographic printing process delivers superior quality graphics and can accommodate a variety of specialty finishes, including foil stamping and embossing. Benefits to offset printing include consistent high image quality and usability on a wide range of printing surfaces. In this process, paper is cut down to sheets (either internally or by outside vendors) and then fed through the printing press.

 

    Flexographic Printing—In “flexo” printing, inked rubber or plastic plates with a slightly raised image are rotated on a cylinder which transfers the image directly to the substrate. A versatile printing technology, flexography offers a unique blend of high quality graphics on a wide variety of substrates and supports flexible production requirements. In this process, the presses are web-fed or roll-fed, whereby a large roll of paper or paperboard is fed through the press.

 

    Digital Printing—Digital printing is ideal for short production runs and on-demand printing. Product concepts and design alternatives can be produced quickly on virtually any substrate. This value-added solution helps customers reduce inventory levels and practically eliminate inventory obsolescence.

We have also invested in finishing capabilities that utilize a variety of new technologies and equipment, including cutters, folders, gluers and other specialized equipment that we use to create the final product. Our footprint provides redundant and flexible capabilities that enable us to optimize facility loading to most effectively and efficiently service our customers’ needs.

 

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We believe we also have significant available capacity for continued growth by means of our considerable investments in plant infrastructure and information technology systems. Moreover, our core information technology systems are being progressively updated to provide increased functionality and control.

Further contributing to our success is our creative design and product development expertise. Our products are manufactured with various features and finishes, including lamination, stamping, embossing and foil stamping. In addition, we are able to use our extensive decorative technology capabilities to create iridescent, holographic, textured and dimensional effects to provide differentiated packaging to our customers.

While we have undergone a lot of changes, particularly around the perimeter of our business, we are only part of the way through our operational efficiency journey. Going forward, our key areas of operational focus include:

 

    Operational performance improvement—Significant savings could be realized if all sites can be brought up to the average group standard efficiency for key processes. Example areas of focus include machine performance improvements, material yield improvements and improved capacity utilization. For instance, we have yet to realize the full benefits of recent capital expenditures in new presses, which have reduced the number of presses required for the same output and led to lower raw material wastage and direct costs.

 

    Additional plant optimization—Addressing underperforming plants with scope for further rationalization. Additionally, benefits from recently completed plant consolidations are still being realized.

 

    Attractive capital projects—Achieving efficiencies from a number of recent capital expenditure projects. Additionally, there are numerous identified capital projects not yet implemented with attractive payback periods.

 

    Procurement—The procurement function has evolved to a more centralized model globally but has largely focused on key, direct spend items and has yet to tackle its broader indirect purchase envelope which has historically been decentralized with a high number of suppliers to drive further savings.

 

    Selling, general and administrative expenses improvement—There has been ongoing focus on reducing selling, general and administrative expenses, for example through further clustering of manufacturing sites, whereby facilities are integrated with common facility management teams as well as shared back office services, to drive cost efficiencies.

Lean manufacturing

We established lean manufacturing principles and have subsequently implemented lean manufacturing across the entire Company, with seven full-time employees dedicated to the implementation of best practices across the Company through the use of lean manufacturing tools. This discipline includes utilizing value stream mapping to identify opportunities for process improvement. We have realized significant benefits from lean manufacturing initiatives including shorter make-ready times, improved production workflow, faster cycle times, expanded capacity and reduced waste. Lean manufacturing benefits are essential components of our ability to compete and deal with the impacts of employee salary increases and raw material price increases. We maintain one of the key principles of lean manufacturing, continuous operational improvement, at the center of our corporate philosophy. As a reflection of this, we have implemented lean manufacturing at all acquired companies and conduct weekly and monthly calls to share best practices across facilities. We rigorously evaluate our manufacturing footprint on an ongoing basis by measuring several key performance indicators, including downtime, make-ready time and run speed, to identify underperforming facilities and ensure that measures are taken to bring them up to our company-wide manufacturing efficiency standards.

Our Suppliers and Raw Materials

Our largest raw material expenses are related to our major product substrates, including paperboard, paper, sheeted plastic and label stock. We also purchase inks, varnishes, coatings, adhesives and corrugated boxes that

 

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are used in the manufacturing process. We have a centralized purchasing function that allows us to leverage our growing scale to achieve competitive material pricing. Further, we have consistently used our scale to lower input costs at acquired businesses.

We utilize a diversified and global sourcing model with the ability to procure each key substrate from a variety of sources. We price non-contractual business based on prevailing raw material costs, which we believe mitigates the impact of rising input prices. All primary materials are available from multiple suppliers and we have not experienced any material disruptions in our ability to procure key inputs. We have been able to effectively manage raw material costs since our founding, including during periods of rapidly escalating commodity prices, either through contractual pass-through mechanisms or transactional business.

Seasonality

Net sales in our geographical segment markets are somewhat seasonal, with consumer and multi-media market net sales higher in the first and second quarter of the fiscal year due to the need to satisfy holiday-related packaging needs of our customers. Healthcare net sales are generally higher as the cold and flu season approaches. Cash flow in our business is also seasonal, with sources of working capital generally provided in the second and fourth fiscal quarters, and investments in working capital in the first and third fiscal quarters.

Research and Development

We employ ten professionals in Europe and the United States to work on new technological developments and customer-focused solutions. The trademarked technologies employed by MPS were developed internally by MPS, and continue to be refined to provide more value-add to our customers. We also focus on the creation of compliance packaging for the healthcare industry, and we have successfully launched a number of products that are extensively used by our healthcare customers.

Intellectual Property and Licenses

Although our business is not dependent to any significant extent upon any single or related group of intellectual property, we have registered in the United States and in a number of foreign jurisdictions, as of March 31, 2015, approximately 100 trademarks, 115 patents and 36 registered designs. In addition, we have a book of approximately 400 copyrights. We do not believe our licenses to third-party intellectual property are significant to our business other than licenses to commercially available third-party software.

Our Employees

As of March 31, 2015, we employed approximately 8,900 people, of which approximately 3,400 are located in North America, 4,500 are located in Europe and the remainder are located in Asia. The majority of our workforce is non-union; however, we participate in multiple collective bargaining agreements with various unions, which provide specified benefits to certain union employees. Approximately 7% of our employees in North America and approximately 72% of our employees in Europe are members of a union or works council or otherwise covered by labor agreements. The collective bargaining contract agreements with our North American unions are set to expire at various dates between 2016 and 2017, at which time we expect to negotiate a renewal of the agreements.

Health, Safety and Environmental Matters and Governmental Regulation

Our business and facilities are subject to a wide range of federal, state, local and foreign general and industry-specific environmental, health and safety laws and regulations, including those relating to air emissions, wastewater discharges, management and disposal of regulated materials and site remediation. Certain of our operations require environmental permits or other approvals from governmental authorities, and certain of these

 

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permits and approvals are subject to expiration, denial, revocation or modification under various circumstances. We are also subject to frequent inspections and monitoring by government enforcement authorities. Compliance with these laws, regulations, permits and approvals is a significant factor in our business. We incur, from time to time, and may incur in the future, significant capital and operating expenditures to achieve and maintain compliance with applicable environmental laws, regulations, permits and approvals. Our failure to comply with applicable environmental laws and regulations or permit or approval requirements could result in substantial civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring remedial or corrective measures, installation of pollution control equipment or other actions or costs, which could have a material adverse effect on our business, financial condition and operating results.

In addition, as an owner and operator of real estate, we may be responsible under environmental laws and regulations for the investigation, remediation and monitoring, as well as associated costs, expenses and third-party damages, including tort liability and natural resource damages, relating to past or present releases or threats of releases of regulated materials at, on, under or from our properties. Liability under these laws may be imposed without regard to whether we knew of or were responsible for, the presence of those materials on our property, may be joint and several, meaning that the entire liability may be imposed on each party without regard to contribution, and retroactive and may not be limited to the value of the property. In addition, we or others may discover new material environmental liabilities, including liabilities related to third-party owned properties that we or our predecessors formerly owned or operated, or at which we or our predecessors have disposed of, or arranged for the disposal of, certain materials.

We may be involved in administrative or judicial proceedings and inquiries in the future relating to such environmental matters, which could have a material adverse effect on our business, financial condition and operating results.

New environmental laws or regulations (or changes in existing laws or regulations or their enforcement) may be enacted that require significant expenditures by us. If the resulting expenses significantly exceed our expectations, our business, financial condition and operating results could be materially and adversely affected.

We are also subject to various federal, state, local, and foreign requirements concerning safety and health conditions at our manufacturing facilities. We may also be subject to material financial penalties or liabilities for non-compliance with those safety and health requirements, as well as potential business disruption, if any of our facilities or a portion of any facility is required to be temporarily closed as a result of any significant injury or any non-compliance with applicable requirements. Such financial penalties or liabilities or business disruptions could have a material adverse effect on our business, financial condition and operating results.

Our manufacturing facilities are run in compliance with the rules and requirements set forth by the U.S. Food and Drug Administration and the U.S. Occupational Safety and Health Administration. We believe that our manufacturing facilities are in compliance, in all material respects, with these laws and regulations.

We are committed to ensuring that safe operating practices are established, implemented and maintained throughout our organization. In addition, we have instituted active health and safety programs throughout our company.

Legal Proceedings

We are from time to time party to legal proceedings that arise in the ordinary course of business. We are not involved in any litigation other than that which has arisen in the ordinary course of business. We do not expect that any currently pending lawsuits will have a material effect on us. See “Risk Factors—Risks Related to Our Business—We are subject to litigation in the ordinary course of business, and uninsured judgments or a rise in insurance premiums may adversely impact our results of operations.”

 

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MANAGEMENT