Form 8-K SCHULMAN A INC For: Apr 27

Form 8-K SCHULMAN A INC For: Apr 27

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April 27, 2015 4:28 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): April 27, 2015

A. SCHULMAN, INC.

(Exact name of registrant as specified in its charter)


Delaware	0-7459	34-0514850
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

3637 Ridgewood Road Fairlawn, Ohio		44333
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (330) 666-3751

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01.

Other Events.

As previously disclosed, A. Schulman, Inc. (the “Company”) has entered into a Stock Purchase Agreement, dated March 15, 2015, among the Company, HGGC Citadel Plastics Holdings, Inc. (“Citadel”), Citadel Plastics Holdings, LLC and certain other individuals party thereto pursuant to which the Company agreed to purchase all of the issued and outstanding shares of capital stock of Citadel (the “Acquisition”).

The Company is providing: a description of Citadel’s business, selected financial data and management’s discussion and analysis of financial condition and results of operations with respect to certain historical financial statements of Citadel; certain historical financial statements of Citadel; and pro forma financial statements of the Company giving effect to the Acquisition, which are filed as Exhibits 99.1, 99.2 and 99.3, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.

Cautionary Statements

A number of the matters discussed in this Current Report on Form 8-K, including the documents incorporated by reference, that are not historical or current facts deal with potential future circumstances and developments and may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts and relate to future events and expectations. Forward-looking statements contain such words as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which management is unable to predict or control, that may cause actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation, and specifically decline any obligation, other than that imposed by law, to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Risk factors and uncertainties that may cause actual results to differ materially from expected results include, among others: the Company’s ability to successfully integrate Citadel, into the Company’s operations; the Company’s ability to achieve fully the strategic and financial objectives related to the Acquisition; and unexpected costs or liabilities that may arise from the Acquisition or the Company’s ownership or operation of Citadel.

Additional risk factors and uncertainties that may cause actual results to differ materially from expected results include, among others: worldwide and regional economic, business and political conditions, including continuing economic uncertainties in some or all of the Company’s major product markets or countries where the Company has operations; the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques; competitive factors, including intense price competition; fluctuations in the value of currencies in areas where the Company operates; volatility of prices and availability of the supply of energy and raw materials that are critical to the manufacture of the Company’s products, particularly plastic resins derived from oil and natural gas; changes in customer demand and requirements; effectiveness of the Company to achieve the level of cost savings, productivity improvements, growth and other benefits anticipated from acquisitions and the integration thereof, joint ventures and restructuring initiatives; escalation in the cost of providing employee health care; uncertainties regarding the resolution of pending and future litigation and other claims; the performance of the global automotive market as well as other markets served; further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products; operating problems with the Company’s information systems as a result of system security failures such as viruses, cyber-attacks or other causes; the Company’s ability to consummate the Acquisition and the timing of the closing of the Acquisition for any reason, whether or not the fault of the Company; the failure to obtain the necessary financing, including the debt the Company expects to incur, in connection with the Acquisition for any reason, whether or not the fault of the Company; the impact of any indebtedness incurred to finance the Acquisition; integration of the business of Citadel with the Company’s existing business, including the risk that the integration will be more costly or more time consuming and complex or simply less effective than anticipated; the Company’s ability to achieve the anticipated synergies, cost savings and other benefits from the Acquisition; transaction and acquisition-related costs incurred in connection with the Acquisition and related transactions; and substantial time devoted by management to the integration of Citadel after the closing of the Acquisition.

The risks and uncertainties identified above are not the only risks the Company faces. Additional risk factors that could affect the Company’s performance are set forth in ITEM 1A, RISK FACTORS, of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015, or in other documents filed by the Company with the Securities and Exchange Commission. In addition, risks and uncertainties not presently known to the Company or that it believes to be immaterial also may adversely affect the Company. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Company’s business, financial condition and results of operations.

Item 9.01.

Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

The audited consolidated financial statements of HGGC Citadel Plastics Holdings, Inc. for the years ended December 31, 2014 and 2013 and the period from February 29, 2012 through December 31, 2012, together with the report of BDO USA, LLP with respect thereto, are included as Exhibit 99.2 to this Current Report on Form 8-K and are incorporated herein by reference.

(b) Pro forma financial information.

The unaudited pro forma financial statements of the Company are included as Exhibit 99.3 to this Current Report on Form 8-K and are incorporated herein by reference.

(d) Exhibits.


Exhibit Number		Description

23.1		Consent of BDO USA, LLP

99.1		Business Description of HGGC Citadel Plastics Holdings, Inc., Selected Financial Data of HGGC Citadel Plastics Holdings, Inc. and Management’s Discussion and Analysis of Financial Condition and Results of Operations of HGGC Citadel Plastics Holdings, Inc.

99.2		HGGC Citadel Plastics Holdings, Inc. Audited Financial Statements for the Years Ended December 31, 2014 and 2013 and the period from February 29, 2012 through December 31, 2012

99.3		Unaudited Pro Forma Financial Statements of A. Schulman, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EXHIBIT INDEX


Exhibit Number		Description

23.1		Consent of BDO USA, LLP

99.1		Business Description of HGGC Citadel Plastics Holdings, Inc., Selected Financial Data of HGGC Citadel Plastics Holdings, Inc. and Management’s Discussion and Analysis of Financial Condition and Results of Operations of HGGC Citadel Plastics Holdings, Inc.

99.2		HGGC Citadel Plastics Holdings, Inc. Audited Financial Statements for the Years Ended December 31, 2014 and 2013 and the period from February 29, 2012 through December 31, 2012

99.3		Unaudited Pro Forma Financial Statements of A. Schulman, Inc.

Exhibit 23.1

Consent of Independent Auditor

A. Schulman, Inc.

Fairlawn, Ohio

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-164366, 333-93093, 333-102718, 333-139236, 333-171649, 333-178159 and 333-201419) of A. Schulman, Inc. of our report dated April 27, 2015 relating to the consolidated financial statements of HGGC Citadel Plastics Holdings, Inc, which appears in this Form 8-K.

/s/ BDO USA, LLP

Chicago, Illinois

April 27, 2015

Exhibit 99.1

DESCRIPTION OF CITADEL’S BUSINESS

Introduction

HGGC Citadel Plastics Holdings, Inc., or Citadel, is a leading provider of custom material solutions, including both thermoplastic and engineered composite compounds, as well as a leading provider of custom material solutions, with material science expertise in providing custom engineered solutions for specialized applications. Citadel is privately held and was established in 2007 as a Delaware corporation in connection with the acquisition of The Matrixx Group, Inc., or Matrixx. On February 29, 2012, HGGC Citadel LLC, an entity owned by HGGC, the current majority stockholder of Citadel, and Charlesbank Capital Partners, along with certain institutional investors, members of management and employees of Citadel, acquired all of the outstanding common stock of Citadel from Wind Point Partners, the then majority stockholder of Citadel, and the other stockholders and option holders of Citadel. Upon consummation of the merger, Citadel continued as the surviving corporation and operating subsidiary of HGGC Citadel LLC.

Citadel is headquartered in West Chicago, Illinois. Citadel supplies materials for numerous applications in a variety of markets globally, including transportation, industrial and construction, consumer, electrical, energy, healthcare and safety, and aerospace and defense. Citadel has an established North American presence, but also has operations in Mexico, Brazil, Germany and China. Citadel focuses on providing high quality services and materials as well as technical expertise in an effort to successfully develop and commercialize new products for over 1,300 global customers.

Business Segments

Engineered Plastics

Citadel’s compounded thermoplastic resin product lines are manufactured across eight facilities throughout the United States and Canada, along with two warehouses in Evansville, Indiana. In 2014, Citadel’s Engineered Plastics revenue by end market was 30% consumer, 24% industrial and construction, 19% transportation, 9% electrical, 2% healthcare and safety and 16% other. Revenue generated from the thermoplastic segment was 94% from the United States, 5.6% from Canada and 0.4% from other. Citadel maintains a broad range of base resin expertise, which encompasses polypropylene, polyamide, polycarbonate and polyester alloys. Citadel maintains specialized flame retardant technologies, with a broad portfolio of UL listings, including special strength UL94 5V-A rated materials and best-in-class relative thermal indices on glass and talc filled flame retardant polypropylenes. Citadel also maintains sustainable recycled thermoplastics capabilities which deliver economic and environmental advantages.

Matrixx primarily comprises Citadel’s Engineered Plastics business and is a compounder of thermoplastic resins serving the power tool, lawn and garden, appliance, automotive, HVAC, electronics and construction markets. Matrixx operates in the U.S. and Canada with manufacturing facilities in Indiana, Texas, Virginia and Ontario, Canada. As discussed below, Matrixx acquired Lucent Polymers, Inc., or Lucent, a Delaware corporation, on December 6, 2013.

Lucent was founded in 1997 and is headquartered in Evansville, Indiana. On December 6, 2013, Citadel acquired Lucent, resulting in its acquisition of Lucent’s portfolio of over 1,400 formulations, increasing Citadel’s presence in engineered resins. Since its acquisition, Lucent has begun producing Citadel’s Matrixx, Aclo, QTR and Fiberfill brands in addition to Citadel’s portfolio of products. Lucent has two separate facilities with 12 production compounding lines. As part of the acquisition, Citadel acquired the “Lucent” trade name and the “Ecollent” trade name. At the time of the acquisition, approximately 90% of Lucent’s products sold used the “Lucent” trade name and about 10% used the “Ecollent” trade name.

Engineered Composites

Bulk Molding Compounds, Inc., or BMCI, comprises Citadel’s Engineered Composites business and is principally engaged in the manufacture and supply of thermoset bulk and sheet molding compounds serving the electrical, automotive, consumer appliance, power tool and conductive plastic industries. In 2014, Citadel’s Engineered Composites revenue by end market was 37% transportation, 36% electrical, 8% industrial and construction, 4% energy, 10% consumer and 5% other. Revenue

generated from the Engineered Composites segment was 54% from the United States, 14% from Europe/Middle East, 26% from Central/South America, 4% from Asia and 2% from other. BMCI operates in the United States with manufacturing facilities in Illinois, Ohio and Michigan. BMCI’s foreign sales of bulk molding compounds, or BMC, are supplied to Europe, Asia and Latin America through wholly-owned subsidiaries and a joint venture. BMCI acquired The Composites Group, or TCG, on November 5, 2014, to expand Citadel’s high performance composites and sheet molding compound, or SMC, capabilities. SMC is a glass-fiber reinforced polyester compound used in compression molding where higher mechanical strength is needed. SMC product lines are custom-tailored to specific customer needs. TCG’s principal products include material compounding, Quantum–high performance glass and carbon fiber specialty compounds, molding, and value-added post-molding services which are sold across diverse end use markets.

End Markets

Globally, Citadel operates primarily in seven end markets: (1) transportation, (2) industrial and construction, (3) consumer, (4) electrical, (5) energy, (6) healthcare and safety and (7) aerospace and defense. Healthcare and safety and aerospace and defense are end markets that comprised only 1% of consolidated sales prior to the acquisition of TCG, and the remaining portion of sales fall into categories outside of these defined end markets.

Transportation

Transportation products contributed 36%, 38% and 39% of Citadel’s revenue for fiscal years 2014, 2013 and 2012, respectively. Transportation’s principal products include Engineered Plastics, BMC, SMC, and Quantum high performance composites, as well as molded parts and value added processes.

For transportation products, principal BMC applications include forward lighting and under hood applications such as valve covers and high performance structural parts. Multiple thermoplastic products are supplied into this market for automotive interior systems including pillar covers, glove boxes, door panels, floor boards, wheel covers, bezels, trim parts and sound dampening.

The automotive market for Quantum high performance composites represents a strong emerging market with high growth potential, strong margins, and a small numbers of direct competitors. Our broad material solutions and product technology enable us to deliver customized solutions for light weighting structural, semi-structural, and complex geometries. Applications utilizing this high performance offering include roof bows, underbody shields, engine bay covers, deck lids, inner fender supports, window seals and floor pans.

Industrial and Construction

Industrial and construction products contributed 13%, 10% and 7% of Citadel’s revenue for fiscal years 2014, 2013 and 2012, respectively. Principal products of industrial and construction include Thermoplastic, BMC and SMC compounds. Principal applications include pump housings, drain pans, concrete reinforcements, and rail insulators. The broad array of applications utilizes company strengths in flame retardant and recycle technologies.

Consumer

Consumer products contributed 25%, 27% and 30% of Citadel’s revenue for fiscal years 2014, 2013 and 2012, respectively. Consumer’s principal products include BMC, SMC and Thermoplastics. Applications include dishware, industrial food service and specialty cookware.

Plastic tableware is a market space that has demonstrated strong global growth based on a trend toward less formal and more time constrained dining. In tandem with a growing demand for functional, quick use polymer dishes and bowls, food contact regulations have consistently tightened, narrowing allowable raw material inputs and, in some cases, eliminating popular materials from recognized food contact listings. Citadel’s BMC products have proven to be a safe, new alternative in this space due to the ability to decorate and microwave the finished product. Citadel has drawn interest from some of the biggest names in retail as it is launching programs to replace melamine and introduce a new solution into this growing segment.

Electrical

Electrical products contributed 14%, 15% and 14% of Citadel’s revenue for fiscal years 2014, 2013 and 2012, respectively. Electrical’s principal products utilize much of the Citadel portfolio including BMC, SMC, Thermoplastics and molded parts. With over 400 listings with UL, the product offering is utilized by many of the top global suppliers in this segment. Applications include circuit breakers, electrical boxes, UPS battery cases, wire termination ties and buss bars.

Energy

Energy products contributed 2%, 0% and 0% of Citadel’s revenue for fiscal years 2014, 2013 and 2012, respectively. Energy represents one of Citadel’s fastest growing segments. Energy’s principal products include BMC and Quantum High Performance Composites, some of which are molded and assembled in Citadel’s facilities. Illustrative applications include drill centralizers, frack plug components, frack balls, valves brackets and fittings for offshore platforms.

Oil and gas is a high growth, highly profitable aspect of the energy market that values Citadel’s technology solutions. Prominent oil services customers appreciate Citadel’s ability to manufacture parts that can withstand high temperatures and pressures and maintain strength in wet corrosive conditions. The thermoset offerings of the portfolio at Citadel allow its customers to capture significant efficiencies in the end use environment.

Healthcare and Safety

Healthcare and safety’s principal products include Quantum High Performance Composites, Thermoplastics, BMC and SMC. Applications include fire helmets, hospital bed components and patient transport systems.

Aerospace and Defense

Aerospace and defense’s principal products include BMC and Quantum High Performance Composites. Applications include aircraft interior parts and external structural parts.

Aerospace and defense represents a high growth and profitable market segment for the Quantum High Performance composite products. Citadel’s unique OEM-specified glass and carbon epoxy, phenolic and BMI materials coupled with functional requirements such as low density, fire retardant, low flame and toxicity enables the OEM to replace metals with composites to reduce weight and enable better fuel efficiency. Citadel’s customers continue to look for reliable, light-weight solutions in this space. Key applications in aerospace and defense include stow bins, enclosures, brackets, fittings, fairings, bulk heads, access doors, hub caps, helicopter blade counter weights, missile cones and satellite dishes.

Employee Information

As of December 31, 2014, Citadel had approximately 1,230 employees. The vast majority of Citadel’s international workforce is non-union. All of Citadel’s U.S. and Canadian workforce (954 employees) were non-union.

Research and Development

Citadel spends approximately $3 million annually on internal research and development. Citadel, through its TCG-Quantum business unit, performs customer-sponsored research and development. However, due to the late 2014 acquisition of TCG, the amount is immaterial for 2014. Citadel maintains laboratory facilities and capabilities that provide a broad range of material analysis and support product consistency and quality. Citadel’s product development initiatives are supported by Citadel’s laboratory and technical service capabilities. Citadel’s thermoplastic lab is capable of extensive testing including thermal indexing, tensile testing and impact testing, which allows Citadel to test and approve certain products and formulations for its customers. Citadel also maintains full prototyping and tooling capabilities, which allow Citadel to produce net-shape prototype parts.

Compliance with Environmental Regulations

Citadel is subject to various environmental laws and regulations that apply to the production, use and sale of chemicals, emissions into the air, discharges into waterways and other releases of materials into the environment and the generation, handling, storage, transportation, treatment and disposal of waste material. Citadel incurred environmental expenses, before insurance recoveries, of $0.7 million in 2014, $0.7 million in 2013 and $0.5 million in the ten month period ended December 31, 2012.

Government Approvals

Citadel does not have any material portion of its business subject to renegotiation of profits or termination of contracts at the election of the U.S. Government.

Dependence on Customers

Citadel has a diverse customer base, with over 1,500 active customer relationships as of December 31, 2014. During the year ended December 31, 2014, Citadel’s ten largest customers accounted in the aggregate for approximately 22% of revenue and no single customer accounted for more than 3% of revenue. Approximately half of Citadel’s business is on one to two year contracts with quarterly adjustments based on the cost of key raw materials. In management’s opinion, Citadel is not dependent upon any single customer and the loss of any one customer would not have a material adverse effect on Citadel’s business.

Availability of Raw Materials

Citadel maintains a diverse supplier base. Citadel has access to alternative suppliers and proactively examines product formulas to identify material substitution opportunities to reduce overall cost without impacting compound quality. As a result, Citadel does not rely on any one supplier.

Working Capital Practices

Citadel’s working capital level at the end of 2014 represented an average of 17.2% of net sales. Given the made-to-order nature of its business, Citadel does not manufacture any “made-to-stock” items, as all orders are custom, proprietary formulations. With a current operation utilization of installed equipment capacity at 48%, Citadel can leverage its existing platform to execute its organic growth initiatives with minimal incremental growth capital, with expected capital expenditures representing between 1.5 and 2% of sales.

Competition

Citadel’s products are specified in over 95% of applications of several of its customers and more than 50% of its customers sole source from Citadel for at least one application. Once Citadel’s products are specified by a customer, there are generally high switching costs associated with changing suppliers given the time involved for product development and approval processes. As a result, customers rarely switch to a competitor’s product once a Citadel product is selected.

Intellectual Property

Citadel uses various trademarks and trade names in its business. These trademarks and trade names, such as “Lucent” and “Ecollent,” protect certain names of Citadel’s products and are significant to the extent they provide a certain amount of goodwill and name recognition in the industry. Citadel also holds patents in various parts of the world for certain of its products. Additionally, Citadel utilizes proprietary formulas in its product manufacturing and benefits from intangible assets acquired through acquisitions.

International Operations

Citadel has facilities and offices positioned throughout the United States as well as in Germany, Mexico, Brazil, and a joint venture in China.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CITADEL

The following table sets forth selected historical financial data from the consolidated balance sheets of Citadel as of December 31, 2014 and 2013, and the related consolidated statements of operations, and cash flows for the years ended December 31, 2014 and 2013 and for the period from February 29, 2012 through December 31, 2012. This selected financial data should be read in conjunction with Citadel’s consolidated financial statements and related notes included elsewhere in this Current Report on Form 8-K.


($ in thousands)	Year Ended December 31,
	2012			2013			2014
Statement of Operations Data:
Net sales	$	247,129		$	324,858		$	428,549
Cost of sales		194,540			260,012			348,879

Gross profit		52,589			64,846			79,670
Selling, general and administrative expenses		53,099			56,891			58,759
Asset impairment		10,283			26,038			—

Operating income (loss)		(10,793	)		(18,083	)		20,911
Interest expense, net of interest income		14,756			16,591			18,287
Other (income) expense, net		(154	)		(1,012	)		2,202

Income (loss) before income taxes		(25,395	)		(33,662	)		422
Provision (benefit) for income taxes		(2,757	)		(4,707	)		5,230

Net income (loss)	$	(22,638	)	$	(28,955	)	$	(4,808	)

Other Data (at period end):
Depreciation	$	3,443		$	4,995		$	7,524
Amortization		19,723			22,419			20,918
Capital expenditures		4,005			4,853			6,125
Certain Balance Sheet Data:
Cash and cash equivalents					6,671			10,909
Working capital					68,336			86,817
Total assets					423,667			626,992
Long-term debt excluding current portion					258,490			397,600
Citadel stockholders’ equity					68,621			89,705

CITADEL MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with Citadel’s consolidated financial statements and the notes to those statements and other financial information included elsewhere in this Current Report on Form 8-K.

Recent Trends

Although Citadel’s financial statements are not available for the quarter ended March 31, 2015 as of the date of this Current Report on Form 8-K, Citadel’s 2015 revenues may be adversely impacted compared to the prior year quarter by macro economic trends, including, without limitation, recent compression in the U.S. oil and gas industry as well as negative impacts of foreign exchange rates due to the recent strengthening of the U.S. dollar; however, as of the date of this Current Report on Form 8-K, Citadel’s operating income for such quarter is not expected to be adversely impacted.

SEGMENT INFORMATION

Citadel makes decisions, assesses performance and allocates resources by the following operating segments which are also Citadel’s reportable segments: Engineered Plastics (EP) and Engineered Composites (EC).

Citadel uses net sales to unaffiliated customers, gross profit and operating income before certain items in order to make decisions, assess performance and allocate resources to each segment. The following discussion regarding Citadel’s segment gross profit and operating income does not include items such as interest income or expense, other income or expense, accelerated depreciation, asset impairments, or amortization of inventory step-up charges related to business acquisitions. Corporate expenses include Board of Directors related costs, private equity ownership management fees, LLC equity units compensation expense and other miscellaneous legal and professional fees primarily related to acquisitions and debt financings.

Fiscal year 2013 is a twelve month period compared to fiscal year 2012 which is a ten month period as Citadel’s 2012 fiscal period commenced following the acquisition of Citadel by HGGC on February 29, 2012.

The following tables summarize net sales to unaffiliated customers, gross profit and SG&A expenses by segment (in thousands):

Net Sales


	Year Ended December 31,				10 Months Ended December 31,
	2014		2013		2012
Engineered Plastics	$	287,575	$	196,806	$	141,900
Engineered Composites		140,974		128,052		105,229

Total net sales to unaffiliated customers	$	428,549	$	324,858	$	247,129

Gross Profit


	Year Ended December 31,						10 Months Ended December 31,
	2014			2013			2012
Engineered Plastics	$	41,318		$	27,889		$	20,252
Engineered Composites		40,440			38,050			32,337

Total segment gross profits		81,758			65,939			52,589
Inventory step-up		(2,088	)		(1,093	)		—

Total gross profit	$	79,670		$	64,846		$	52,589

SG&A Expenses


	Year Ended December 31,				10 Months Ended December 31,
	2014		2013		2012
Engineered Plastics	$	22,438	$	17,907	$	15,176
Engineered Composites		29,144		31,444		25,499

Total segment SG&A expenses		51,582		49,351		40,675
Corporate G&A expenses		7,177		7,540		12,424

Total SG&A expenses before certain items		58,759		56,891		53,099

Goodwill and intangibles impairment		—		26,038		10,283

Total operating expenses	$	58,759	$	82,929	$	63,382

Below is a reconciliation of segment operating income (loss) to operating income (loss) and income (loss) before income taxes:


	Year Ended December 31,						10 Months Ended December 31,
	2014			2013			2012
Engineered Plastics	$	18,880		$	9,982		$	5,076
Engineered Composites		11,296			6,606			6,838

Total segment operating income (loss)		30,176			16,588			11,914
Corporate		(7,177	)		(7,540	)		(12,424	)

Operating income (loss) before certain items		22,999			9,048			(510	)
Goodwill and intangibles impairment		—			(26,038	)		(10,283	)
Inventory step-up		(2,088	)		(1,093	)		—

Operating income (loss)		20,911			(18,083	)		(10,793	)
Interest expense, net		(18,287	)		(16,591	)		(14,756	)
Equity in income of joint venture		47			320			461
Miscellaneous		(2,249	)		692			(307	)

Income (loss) before income taxes	$	422		$	(33,662	)	$	(25,395	)

Results of Operations — Fiscal Year 2014 Compared with Fiscal Year 2013

Citadel uses net sales to unaffiliated customers, segment gross profit and segment operating income before certain items in order to make decisions, assess performance and allocate resources to each segment. Citadel has the following reportable segments: Engineered Plastics (“EP”) and Engineered Composites (“EC”). The following discussion regarding Citadel’s segment gross profit, segment SG&A expenses and segment operating income does not include items such as interest income or expense, other income or expense, accelerated depreciation, asset impairments, or amortization of inventory step-up charges related to business acquisitions. Corporate expenses include Board of Directors related costs, private equity ownership management fees, LLC equity units compensation expense and other miscellaneous legal and professional fees primarily related to acquisitions and debt financings.

Segment Information

Engineered Plastics


	Year Ended December 31,
	2014			2013			Increase (decrease)
	(in thousands, except for %’s and per pound data)
Pounds sold		317,055			230,256			86,799		37.7	%
Net sales	$	287,575		$	196,806		$	90,769		46.1	%
Segment gross profit	$	41,318		$	27,889		$	13,429		48.2	%
Segment gross profit percentage		14.4	%		14.2	%		0.2	%
Segment SG&A expenses	$	22,438		$	17,907		$	4,531		25.3	%
Segment operating income	$	18,880		$	9,982		$	8,898		89.1	%
Price per pound	$	0.907		$	0.855		$	0.052		6.1	%
Segment gross profit per pound	$	0.130		$	0.121		$	0.009		7.6	%

EP net sales for the year ended December 31, 2014 were $287.6 million, an increase of $90.8 million or 46.1%, compared with the prior year. During fiscal year 2014, the incremental sales and volumes provided by the December 2013 Lucent Polymers acquisition were $80.5 million and 80.1 million pounds, respectively. Excluding the Lucent Polymers acquisition organic sales increased $10.3 million driven by volume increases across all EP business units from further penetration of existing customers, new product offerings and volume lift from year over year improvement in the housing and auto markets.

EP gross profit increased $13.4 million to $41.3 million for the year ended December 31, 2014. The increase over 2013 was due to the positive contribution from the Lucent Polymers acquisition offset by decreased gross profit at the EP legacy business resulting from margin compression due to polypropylene market pricing dynamics, incrementally higher manufacturing costs at EP’s Virginia tolling operations to accommodate growing production volumes, and product mix.

EP SG&A expenses increased $4.5 million during the year ended December 31, 2014. Increases to SG&A of $7.3 million from the Lucent Polymers acquisition were partially offset by $2.7 million of lower salary and other operating costs from cost out program initiatives.

EP operating income for the year ended December 31, 2014 was $18.9 million, an increase of $8.9 million from the prior year. The increase in EP operating income in 2014 was primarily due to the contribution of the Lucent acquisition and the lower salary and other operating costs mentioned above.

Engineered Composites


	Year Ended December 31,
	2014			2013			Increase (decrease)
	(in thousands, except for %’s and per pound data)
Pounds sold		139,138			135,850			3,288		2.4	%
Net sales	$	140,974		$	128,052		$	12,922		10.1	%
Segment gross profit	$	40,440		$	38,050		$	2,390		6.3	%
Segment gross profit percentage		28.7	%		29.7	%		(1.0	)%
Segment SG&A expenses	$	29,144		$	31,444		$	(2,300	)	(7.3	)%
Segment operating income	$	11,296		$	6,606		$	4,690		71.0	%
Price per pound	$	1.013		$	0.943		$	0.070		7.4	%
Segment gross profit per pound	$	0.291		$	0.280		$	0.011		3.8	%

EC net sales for the year ended December 31, 2014 were $141.0 million, an increase of $12.9 million or 10.1%, compared with the prior year. During fiscal year 2014, the incremental sales and volumes provided by the November 2014 acquisition of The Composites Group, or TCG, were $14.8 million and 5.6 million pounds, respectively. Excluding the TCG acquisition organic sales decreased $1.9 million driven by a depressed economy in Brazil, unfavorable foreign currency translation caused by a strengthening U.S. dollar, and weak market conditions in Mexico offset by modest organic growth in US and European markets.

EC gross profit was $40.4 million for the year ended December 31, 2014, an increase of $2.4 million over prior year. The improvement over the prior year was due to the TCG acquisition offset by the impact of lower sales volumes in Brazil and Mexico. Gross profit per pound increased $0.01 or 3.8% from the higher margin contribution of the TCG product portfolio.

EC SG&A expenses decreased $2.3 million during the year ended December 31, 2014. Increases to SG&A of $1.7 million from the TCG acquisition were offset by $3.0 million of lower amortization of intangibles and $1.0 million of lower salary and other operating costs from cost out program initiatives.

EC operating income for the year ended December 31, 2014 was $11.3 million, an increase of $4.7 million from the prior year. The increase in EC operating income in 2014 was primarily driven by the aforementioned $2.4 million increase in gross profit, $3.0 million lower amortization of intangibles and $1.0 million lower operating expenses offset by the $1.7 million of incremental operating expenses of the TCG acquisition.

Consolidated


	Year Ended December 31,
	2014		2013			Increase (decrease)
	(in thousands, except for %’s and per pound data)
Pounds sold		456,193		366,106			90,087	24.6	%
Net sales	$	428,549	$	324,858		$	103,691	31.9	%
Total SG&A expenses before certain items	$	58,759	$	56,891		$	1,868	3.3	%
Total operating income before certain items	$	22,999	$	9,048		$	13,951	154.2	%
Operating income (loss)	$	20,911	$	(18,083	)	$	38,994	(215.6	)%
Price per pound	$	0.939	$	0.887		$	0.052	5.9	%

Total SG&A expenses before certain items represents segment SG&A expenses combined with Corporate general and administrative expenses. Total operating income before certain items represents segment operating income combined with Corporate general and administrative expenses. For a reconciliation of total operating income before certain items to operating income and income (loss) before income taxes refer to Segment Information.

Consolidated net sales for the year ended December 31, 2014 were $428.5 million, an increase of $103.7 million, or 31.9%, compared with the prior year period. Incremental net sales and volume from Citadel’s December 2013 Lucent Polymers and November 2014 TCG acquisitions contributed $95.3 million and 85.7 million pounds, respectively, for the year ended December 31, 2014. Excluding acquisitions organic sales increased $8.4 million driven primarily by volume increases in the EP business unit.

Total SG&A expenses before certain items increased $1.9 million for the year ended December 31, 2014 compared to the prior year. A $2.2 million increase in SG&A expenses from the combined EP and EC reporting segments was offset by a $0.4 million decrease in corporate SG&A expenses. The $2.2 million increase in the combined EP and EC reportable segments SG&A expense consists of a $10.5 million contribution from acquisitions offset by a $8.3 million decrease in the legacy operating business. The $0.4 million decrease in corporate SG&A expenses consists primarily of a $1.7 million decrease in LLC equity unit compensation expense offset by a $1.4 million increase in acquisition-related expenses.

Total operating income before certain items for the year ended December 31, 2014 was $23.0 million, an increase of $14.0 million over the prior year. The increase in total operating income before certain items was comprised of contributions from acquisitions and the legacy business (including corporate) of $8.4 million and $5.6 million, respectively. Operating income improved $39.0 million to $20.9 million due primarily to no charges in 2014 for impairment of goodwill and intangibles compared to $26.0 million in 2013 plus the increase in operating income before certain items mentioned above.

Interest expense, net of interest income, increased $1.7 million for the year ended December 31, 2014, as compared to the prior year primarily related to increased borrowings for acquisitions.

Equity in income of joint venture decreased $0.3 million to near zero for the year ended December 31, 2014.

Miscellaneous income (expense) for the year ended December 31, 2014 was ($2.2) million, compared with $0.7 million for the year ended December 31, 2013 and primarily represents gains (losses) from remeasuring non-local currency denominated intercompany loans between EC subsidiaries in the U.S. and Europe.

Income (loss) before income taxes was $0.4 million and ($33.7) million for the years ended December 31, 2014 and 2013, respectively.

Results of Operations — Fiscal Year 2013 Compared with Fiscal Year 2012

Segment Information

Engineered Plastics


	Year Ended December 31, 2013			10 Months Ended December 31, 2012			Increase (decrease)
	(in thousands, except for %’s and per pound data)
Pounds sold		230,256			171,338			58,918		34.4	%
Net sales	$	196,806		$	141,900		$	54,906		38.7	%
Segment gross profit	$	27,889		$	20,252		$	7,637		37.7	%
Segment gross profit percentage		14.2	%		14.3	%		(0.1	)%
Segment SG&A expenses	$	17,907		$	15,176		$	2,731		18.0	%
Segment operating income	$	9,982		$	5,076		$	4,906		96.7	%
Price per pound	$	0.855		$	0.828		$	0.027		3.3	%
Segment gross profit per pound	$	0.121		$	0.118		$	0.003		2.5	%

EP net sales were $196.8 million for the year ended December 31, 2013, an increase of $54.9 million over the prior year ten month period. Net sales from the incremental January 2013 and February 2013 periods were $33.6 million. EP net sales for the ten months ended December 31, 2013 were $163.2 million, an increase of $21.2 million or 15.0%, compared with the prior year. During fiscal year 2013, the incremental sales and volumes provided by the December 2013 Lucent Polymers acquisition were $3.9 million and 3.8 million pounds, respectively. Excluding the Lucent Polymers acquisition organic sales increased $17.3 million driven by volume increases across all EP business units and enhanced by improved mix in EP’s higher selling price/gross profit engineered plastics business unit.

EP gross profit was $27.9 million for the year ended December 31, 2013, an increase of $7.6 million over the prior year ten month period. Gross profit from the incremental January 2013 and February 2013 periods was $5.0 million. EP gross profit increased $2.7 million to $22.9 million for the ten months ended December 31, 2013 versus the comparable prior year period. The increase in gross profit over 2012 was comprised of incremental contributions from the Lucent Polymers acquisition and increased volume/sales of higher margin engineered products of $1.9 million offset by unfavorable mix in EP’s performance products business unit of $0.3 million.

EP SG&A expenses were $17.9 million for the year ended December 31, 2013, an increase of $2.7 million over the prior year ten month period. SG&A from the incremental January 2013 and February 2013 periods was $2.6 million. EP SG&A expenses for the ten months ended December 31, 2013 increased $0.1 million versus the comparable prior year period. A decrease in amortization of intangibles expense of $2.1 million was offset by incremental SG&A expenses from the Lucent acquisition of $0.5 million and higher operating expenses in the legacy EP business of $1.6 million. The higher legacy EP SG&A expenses consisted primarily of incremental employee severance and executive recruitment costs of $0.7 million and incremental manufacturing expenses at EP’s Virginia tolling plant operations caused by an unexpected equipment breakdown of $0.5 million.

EP operating income was $10.0 million for the year ended December 31, 2013, an increase of $4.9 million over the prior year ten month period. Operating income from the incremental January 2013 and February 2013 periods was $2.3 million. EP operating income for the ten months ended December 31, 2013 was $7.6 million, an increase of $2.6 million over the prior year period. The increase in EP operating income in 2013 was primarily due to the aforementioned increase in gross profit as increases in SG&A operating expenses were nearly offset by a similar decrease in amortization of intangibles.

Engineered Composites


	Year Ended December 31, 2013			10 Months Ended December 31, 2012			Increase (decrease)
	(in thousands, except for %’s and per pound data)
Pounds sold		135,850			110,755			25,095		22.7	%
Net sales	$	128,052		$	105,229		$	22,823		21.7	%
Segment gross profit	$	38,050		$	32,337		$	5,713		17.7	%
Segment gross profit percentage		29.7	%		30.7	%		(1.0	)%
Segment SG&A expenses	$	31,444		$	25,499		$	5,945		23.3	%
Segment operating income	$	6,606		$	6,838		$	(232	)	(3.4	)%
Price per pound	$	0.943		$	0.950		$	(0.007	)	(0.7	)%
Segment gross profit per pound	$	0.280		$	0.292		$	(0.012	)	(4.1	)%

EC net sales were $128.1 million for the year ended December 31, 2013, an increase of $22.8 million over the prior year ten month period. Net sales from the incremental January 2013 and February 2013 periods were $22.3 million. For the ten months ended December 31, 2013 EC net sales of $105.8 million were up $0.5 million to the comparable prior year period as a $1.0 million increase in the EC domestic operations were offset by $0.5 million decrease at EC’s foreign operations. The increase in EC domestic sales was primarily due to further penetration of existing customers and volume lift in the auto markets. The decrease in the level of foreign sales was primarily due to unfavorable foreign currency translation in Brazil.

EC gross profit was $38.1 million for the year ended December 31, 2013, an increase of $5.7 million over the prior year ten month period. Gross profit from the incremental January 2013 and February 2013 periods was $6.8 million. EC gross profit decreased $1.1 million to $31.2 million for the ten months ended December 31, 2013 versus the comparable prior year period. The decrease in gross profit was primarily due to unfavorable foreign currency translation in Brazil along with unfavorable sales mix in the foreign operations.

EC SG&A expenses were $31.4 million for the year ended December 31, 2013, an increase of $5.9 million over the prior year ten month period. SG&A from the incremental January 2013 and February 2013 periods was $5.4 million. EC SG&A expenses for the ten months ended December 31, 2013 increased $0.5 million versus the comparable prior year period. The increase was primarily due to a $1.5 million investment in US marketing and technology growth resources plus an increase in amortization of intangibles expense of $0.8 million offset by lower SG&A spending in the foreign operations.

EC operating income was $6.6 million for the year ended December 31, 2013, a decrease of $0.2 million over the prior year ten month period. Operating income from the incremental January 2013 and February 2013 periods was $1.4 million. EC operating income for the ten months ended December 31, 2013 was $5.2 million, a decrease of $1.6 million over the prior year period. The decrease in EC operating income in 2013 was primarily due to the aforementioned decrease in gross profit plus the net increase in SG&A expenses.

Consolidated


	Year Ended December 31, 2013			10 Months Ended December 31, 2012			Increase (decrease)
	(in thousands, except for %’s and per pound data)
Pounds sold		366,106			282,093			84,013		29.8	%
Net sales	$	324,858		$	247,129		$	77,729		31.5	%
Total SG&A expenses before certain items	$	56,891		$	53,099		$	3,792		7.1	%
Total operating income before certain items	$	9,048		$	(510	)	$	9,558		(1,874.1	)%
Operating income (loss)	$	(18,083	)	$	(10,793	)	$	(7,290	)	67.5	%
Price per pound	$	0.887		$	0.876		$	0.011		1.3	%

Consolidated net sales were $324.9 million for the year ended December 31, 2013, an increase of $77.7 million over the prior year ten month period. Net sales from the incremental January 2013 and February 2013 periods were $55.9 million. Consolidated net sales for the ten months ended December 31, 2013 were $268.9 million, an increase of $21.8 million or 8.8%, compared with the prior year period. The incremental net sales and volume from the December 2013 acquisition of Lucent Polymers was $3.9 million and 3.8 million pounds, respectively. Excluding the Lucent Polymers acquisition organic sales increased $17.9 million driven primarily by net sales and volume increases in the EP business unit of $17.3 million and 14.3 million pounds, respectively.

Total SG&A expenses before certain items were $56.9 million for the year ended December 31, 2013, an increase of $3.8 million over the prior year ten month period. SG&A from the incremental January 2013 and February 2013 periods was $8.5 million. Consolidated SG&A expenses for the ten months ended December 31, 2013 were $48.4 million, a decrease of $4.7 million or 8.9%, compared with the prior year period. The $4.7 million decrease in SG&A expenses were largely corporate expenses consisting primarily of a $7.6 million decrease in acquisition expenses related to the sale of Citadel to HGGC on February 29, 2012 and $0.7 million lower professional fees to implement Citadel’s 2012 tax restructuring offset by a $2.4 million increase in LLC equity unit compensation expense.

Total operating income before certain items was $9.0 million for the year ended December 31, 2013, an increase of $9.6 million over the prior year ten month period. Operating income before certain items from the incremental January 2013 and February 2013 periods was $3.3 million. Consolidated operating income before certain items for the ten months ended December 31, 2013 was $5.7 million, an increase of $6.3 million compared with the prior year period. The $6.3 million increase in operating income before certain items was primarily due to the aforementioned decrease in corporate SG&A expenses and incremental gross profit from the volume and sales growth of the EP reporting unit. Operating (loss) of ($18.1) million increased ($7.3) million during the year ended December 31, 2013 due primarily to $15.8 million incremental charges for impairment of goodwill and intangibles plus the increase in operating income before certain items mentioned above.

Interest expense, net of interest income, increased $1.8 million for the year ended December 31, 2013, as compared to the prior year ten month period. Net interest expense from the incremental January 2013 and February 2013 periods was $2.7 million. Net interest expense for the ten months ended December 31, 2013 was $0.9 million lower than the prior year comparable period due primarily to lower average interest rate resulting from restructuring Citadel’s debt in 2013.

Equity in income of joint venture decreased $0.1 million to $0.3 million for the year ended December 31, 2013.

Miscellaneous income (expense) for the year ended December 31, 2013 was $0.7 million, compared with ($0.3) million for the period ended December 31, 2012 and primarily represents gains (losses) from remeasuring non-local currency denominated intercompany loans between EC subsidiaries in the U.S. and Europe.

Income (loss) before income taxes was ($33.7) million and ($25.4) million for the periods ended December 31, 2013 and 2012, respectively.

Critical Accounting Policies

Citadel has identified critical accounting policies that, as a result of the judgments, uncertainties, and the operations involved, could result in material changes to its financial condition or results of operations under different conditions or using different assumptions. The critical accounting policies of Citadel are as follows:

Revenue Recognition

Revenue is recognized when persuasive evidence of an agreement exists, shipment of goods has occurred, risk of ownership has passed to the buyer, the price is fixed and determinable and collectability is reasonably assured. Provisions for discounts, rebates to customers and returns are provided for in the same period that the related sales are recorded.

Allowance for Doubtful Accounts

Citadel determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, Citadel’s previous loss history, the customer’s current ability to pay its obligation to Citadel and the condition of the general economy as a whole. Changes in these factors or changes in the general economic conditions could result in changes to the allowance for doubtful accounts.

Inventory Reserves

Citadel records a reserve for slow-moving and obsolete inventory based on historical experience and monitoring of current inventory activity. Citadel’s estimate of this reserve is based on a periodic detailed analysis, using both qualitative and quantitative factors. The proceeds from the sale or disposition of these inventories may differ from recorded amounts.

Property and Equipment

Property and equipment is stated at cost and depreciated over the estimated useful life of each asset. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the improvements. Annual depreciation is primarily computed using the straight-line method. The cost of maintenance and repairs is charged to expense as incurred while significant renewals and betterments are capitalized. The estimated useful lives are as follows:


Asset Classification		Years
Buildings		20
Machinery and equipment		5-7
Leasehold improvements		Lease Term

Income Taxes

Citadel’s provision for income taxes involves a significant amount of judgment by management. This provision is impacted by the income and tax rates of the countries where Citadel operates.

Various taxing authorities periodically audit Citadel’s tax returns. These audits may include questions regarding Citadel’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures associated with these various tax filing positions, Citadel records tax liabilities for uncertain tax positions where the likelihood of sustaining the position is not more-likely-than-not based on its technical merits. A significant period of time may elapse before a particular matter, for which Citadel has recorded a tax liability, is audited and fully resolved.

The establishment of Citadel’s tax liabilities relies on the judgment of management to estimate the exposures associated with its various filing positions. Although management believes those estimates and judgments are reasonable, actual results could differ, resulting in gains or losses that may be material to Citadel’s consolidated statements of operations.

To the extent that Citadel prevails in matters for which tax liabilities have been recorded, or are required to pay amounts in excess of these tax liabilities, Citadel’s effective tax rate in any given financial statement period could be materially affected. An unfavorable tax settlement could result in an increase in Citadel’s effective tax rate in the financial statement period of resolution. A favorable tax settlement could be recognized as a reduction in Citadel’s effective tax rate in the financial statement period of resolution.

Citadel records a valuation allowance to reduce its deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether a valuation allowance is needed. Evidence, such as the results of operations for the current and preceding years, is given more weight than projections of future income, which is inherently uncertain.

Citadel’s losses in the U.S. in recent periods provide sufficient negative evidence to require a full valuation allowance against its net deferred tax assets in the U.S. Citadel intends to maintain a valuation allowance against its net deferred tax assets in the U.S. until sufficient positive evidence exists to support realization of such assets.

Fair Value Measurements

The authoritative guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:


Level 1 –		Quoted prices in active markets for identical assets or liabilities.

Level 2 –		Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities: quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 –		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Citadel applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to goodwill, when determining the fair value of its business combinations and to value certain unit based compensation. To determine the fair value in these situations, Citadel determines what a market participant would pay on the measurement date. To evaluate impairments of goodwill, Citadel used Level 3 inputs such as discounted cash flows. To determine the fair value of the assets acquired in business combinations, Citadel uses Level 3 inputs such as discounted cash flows, excess earnings of customer relationships and relief from royalties. Citadel also uses Level 3 inputs to value certain unit-based compensation.

Goodwill

Citadel completes an annual (or more often if circumstances are required) impairment assessment of its goodwill on a reporting unit level as of the end of each fiscal year. For management purposes, Citadel is organized into five reporting units: 1) Bulk Molding Compounds, Inc. (including TCG) (“BMCI”), 2) Bulk Molding Compounds Mexico (“BMC Mexico”), 3) Bulk Molding Compounds Brazil (“BMC Brazil”), 4) Bulk Molding Compounds Europe (“BMC Europe”), and 5) Matrixx (including Lucent).

The fair value measurement method used in Citadel’s quantitative impairment analysis utilizes a number of significant unobservable inputs or Level 3 assumptions. These assumptions include, among others, projections of our future operating results, the implied fair value of these assets using an income approach by preparing a discounted cash flow analysis and other subjective assumptions. In performing the goodwill impairment assessment, the carrying values of Citadel’s reporting units were compared to their estimated fair values, as calculated by the discounted cash flow method. Management uses judgment to determine whether to use quantitative fair value measurement analysis as described above or a qualitative analysis.

In performing its goodwill assessment for the year ended December 31, 2014, Citadel elected to skip the qualitative analysis. Accordingly, the first step of the two-step goodwill impairment test includes estimating the fair values of each reporting unit and comparing those values to the reporting units’ carrying value. Citadel determined that no material impairments existed as of and for the year ended December 31, 2014.

In performing its goodwill assessment for the year ended December 31, 2013, Citadel evaluated the following factors that affect future business performance: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific events, and reporting unit factors. As a result of the assessment of these qualitative factors, Citadel concluded that it was not more likely than not that the fair values of all five of the reporting units exceeded their carrying value. Accordingly, the first step of the two-step goodwill impairment test was performed. The resultant estimated fair value of BMCI reporting unit exceeded its carrying value and no goodwill impairment charges were recorded. The resultant estimated fair values of Citadel’s remaining four reporting units were less than their respective carrying values. As a result, when the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recorded for amount by which the carrying value of the goodwill exceeds its calculated implied fair value. Accordingly, during the year ended December 31, 2013, it was determined that the goodwill of Matrixx, BMC Mexico, and BMC Brazil were partially impaired, and the goodwill and intangible assets of BMC Europe were completely impaired. Citadel recorded non-cash impairment charges to recognize the impairment.

In performing its goodwill assessment for the period ended December 31, 2012, Citadel evaluated the same factors that affect future business performance. As a result of the assessment, Citadel concluded that it was more likely than not that the fair values of two (BMCI and BMC Mexico) of the five reporting units exceeded their carrying value. Accordingly, the first step of the two-step goodwill impairment test was not considered necessary for these two reporting units and no goodwill impairment charges were recorded. However, the first step of the two-step goodwill impairment test was considered necessary for the remaining three. The resultant estimated fair value of BMC Brazil reporting unit exceeded its carrying value and no goodwill impairment charges were recorded. It was determined that the goodwill of Citadel’s remaining Matrixx and BMC Europe reporting units were partially impaired, and the goodwill and intangible assets of BMC Europe were completely impaired. Citadel recorded non-cash impairment charges to recognize the impairment.

Intangibles

Citadel’s finite intangible assets consisting of customer relationships, formulas, internally developed software and non-compete agreements were valued at the date of acquisition and are amortized on a straight-line basis (or an accelerated basis in the case of customer relationships) over the lesser of their remaining useful or contractual lives (generally 5 to 25 years).

Long-Lived Assets

Property and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

Additionally, Citadel also evaluates the remaining useful life each reporting period to determine whether events and circumstances warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long lived asset’s remaining useful life is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining useful life.

Unit-based Compensation

Citadel grants Citadel LLC’s (Citadel’s Parent Company) Class A units (“LLC equity units”) in the form of Management Incentive Units (“MIU”) as part of its long-term incentive compensation strategy for employees and management of the Company. All such MIU awards are expensed based on the fair value of the respective award. Fair value for awards that involve service or performance conditions for vesting is determined based on the market price on the grant date. Citadel determined the fair value of the MIUs using an earnings multiple for the 2014 MIU issuances and the discounted cash value method for the 2013 issuances under the income approach.

Liquidity and Capital Resources

Working capital, excluding cash and debt, was $78.3 million as of December 31, 2014, an increase of $14.3 million from December 31, 2013. The fiscal 2014 acquisition of TCG contributed $15.0 million to working capital. The translation effect of foreign currencies, primarily the Euro and Brazilian real, decreased working capital by $1.2 million. Excluding the impact of the 2014 TCG working capital, working capital decreased by $0.7 million largely due to decreases in inventory of $7.1 million offset by increases in accounts receivable and other current assets of $4.4 million and $1.0 million, respectively.

Capital expenditures for the year ended December 31, 2014 were $6.1 million compared with $4.9 million last year. Capital expenditures for fiscal year 2014 primarily related to the regular and ongoing investment in Citadel’s manufacturing facilities and incremental expenditures around the integration of Citadel’s December 2013 acquisition of Lucent Polymers.

Long-term debt, including current maturities, consists of the following at December 31, 2014 and 2013 (in thousands):


	2014		2013
EC Europe revolving loan	$	—	$	814
Term loan – 1st Lien		320,000		234,825
Term loan – 2nd Lien		80,000		—
Senior subordinated notes payable		—		25,199

	$	400,000	$	260,838

During the year ended December 31, 2014 long-term debt increased $139.2 million resulting from incremental 1st lien and 2nd lien term loan borrowings totaling $167.5 million to fund the TCG acquisition offset by conversion of the senior subordinated notes payable to $26.3 million equity units of the parent, 1st lien term loan payments of $2.3 million and pay off of EC Europe revolving loan borrowings of $0.8 million.

Contractual Obligations - as of 12/31/2014

($ in thousands)


Category	Less than 1 yr		1-3 yrs		3-5 yrs		More than 5 yrs		Total
Long-Term Debt	$	2,400	$	6,400	$	6,400	$	384,800	$	400,000
Capital Lease Obligations		19		4		—		—		23
Operating Lease Obligations		2,540		3,563		1,224		—		7,327
Purchase Obligations (l)		6,400		—		—		—		6,400
Pension Obligations (2)		207		—		—		—		207
Life Insurance Obligations (3)		207		415		415		—		1,037
Postretirement Benefit Obligations (4)		180		332		300		524		1,336
Interest Payments		23,937		47,412		46,740		26,458		144,547

	$	35,890	$	58,126	$	55,079	$	411,782	$	560,877

(1)	Take or pay vendor contracts.

(2)	Relate to foreign operations and plans mandated by respective governments. Projected payments beyond one year are not currently determinable.

(3)	Whole Life policy paid annually until death. Term policy paid annually for 10 years or death. Policies related to TCG operations.

(4)	Amount paid to five former executives or surviving spouses under “SERP” at TCG.

Off-Balance Sheet Arrangements

Citadel does not have any off-balance sheet arrangements.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. Long-term debt also approximates fair value as a result of its variable interest rate.

Foreign Currency Exchange Risk

The functional currency of BMC Mexico is the U.S. dollar. Transactions in currencies other than U.S. dollar of BMC Mexico are recorded at the rates of exchange prevailing at the date of the transaction. BMC Mexico’s monetary assets and liabilities in currencies other than the U.S. dollar are translated at rates of exchange prevailing at the balance sheet date to U.S. dollar. Foreign currency exchange gains and losses reflecting transaction gains and losses, which arise from BMC Mexico’s monetary assets and liabilities denominated in currencies other than U.S. dollar, are recorded in operating expenses. The functional currency of BMC Germany, BMC Turkey and BMC Brazil is the Euro, Lira and Real, respectively. Foreign currency adjustments, arising from the translation of the foreign subsidiaries’ financial statements, are recorded in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity until a foreign business is sold or substantially liquidated. Assets and liabilities are translated to U.S. dollars using exchange rates in effect at the balance sheet date. The results of operations are translated using the monthly average exchange rates for the year. Foreign currency transaction remeasurement gains and losses are included in current earnings.

Citadel also conducts business on a multinational basis in a variety of foreign currencies. Citadel’s primary exposure to market risk for changes in foreign currency exchange rates arises from anticipated transactions from international trade and/or repatriation of funds in Mexico, Brazil, Germany, Turkey and China. Citadel’s principal foreign currency exposures relate to the Euro, Brazilian real and Mexican peso, among others. Citadel does not believe these exposures are significant and consequently, settles these exposures through entering into spot trades when due.

Commodity Price Risk

Citadel uses certain commodities, primarily plastic resins, in its manufacturing processes. The cost of operations can be affected as the market for these commodities changes. As the price of resin increases or decreases, market prices for Citadel’s products will also generally increase or decrease. This will typically lead to higher or lower average selling prices and will impact Citadel’s gross profit and operating income. The impact on operating income is due to a lag in matching the change in raw material cost of sales and the change in product sales prices. Citadel attempts to minimize its exposure to resin price changes by monitoring and carefully managing the quantity of its inventory on hand and product sales prices.

Exhibit 99.2

HGGC Citadel Plastics Holdings, Inc.

Consolidated Financial Statements

For the Years Ended December 31, 2014 and 2013 and the Period from February 29, 2012 Through December 31, 2012

HGGC Citadel Plastics Holdings, Inc.

Consolidated Financial Statements

For the Years Ended December 31, 2014 and 2013 and the Period from February 29,

2012 Through December 31, 2012

HGGC Citadel Plastics Holdings, Inc.

Contents


Independent Auditor’s Report			3-4

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2014 and 2013			5-6

Consolidated Statements of Operations and Comprehensive Loss For the Years Ended December 31, 2014 and 2013 and the Period from February 29, 2012 Through December 31, 2012			7

Consolidated Statements of Stockholders’ Equity For the Years Ended December 31, 2014 and 2013 and the Period from February 29, 2012 Through December 31, 2012			8

Consolidated Statements of Cash Flows For the Years Ended December 31, 2014 and 2013 and the Period from February 29, 2012 Through December 31, 2012			9-10

Notes to Consolidated Financial Statements			11-33

Independent Auditor’s Report

Management

HGGC Citadel Plastics Holdings, Inc.

West Chicago, IL

We have audited the accompanying consolidated balance sheets of HGGC Citadel Plastics Holdings, Inc. and Subsidiaries (the “Company”), as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years ended December 31, 2014 and 2013 and for the period from February 29, 2012 through December 31, 2012, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HGGC Citadel Plastics Holdings, Inc. and Subsidiaries as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years ended December 31, 2014 and 2013 and for the period from February 29, 2012 through December 31, 2012 in accordance with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Chicago, Illinois

April 27, 2015

HGGC Citadel Plastics Holdings, Inc.

Consolidated Balance Sheets

(in thousands)


December 31,	2014		2013
Assets
Current Assets
Cash and cash equivalents	$	10,909	$	6,671
Accounts receivable, less allowance for doubtful accounts of $895 and $661, respectively		69,709		51,352
Inventories, net		43,582		41,738
Prepaid expenses and other		6,604		4,776
Deferred income taxes		3,491		1,952

Total Current Assets		134,295		106,489

Property and Equipment
Land		3,559		2,036
Buildings and improvements		22,235		15,025
Machinery and equipment		62,208		38,729
Construction in progress		3,201		2,023

		91,203		57,813
Less accumulated depreciation and amortization		16,682		8,113

Net Property and Equipment		74,521		49,700

Other Assets
Goodwill		159,647		82,558
Intangible assets, net		240,093		174,059
Deferred loan costs, net of accumulated amortzation of $4,869 and $2,874, respectively		11,278		6,718
Deferred income taxes		1,037		1,067
Other long-term assets		2,999		—
Investment in joint venture		3,122		3,076

Total Other Assets		418,176		267,478

Total Assets	$	626,992	$	423,667

HGGC Citadel Plastics Holdings, Inc.

Consolidated Balance Sheets

(in thousands)


December 31,	2014			2013
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	30,422		$	26,079
Accrued expenses
Interest		1,800			1,269
Other		12,837			8,442
Current maturities of long-term debt		2,400			2,348
Current maturities of capital lease obligations		19			15

Total Current Liabilities		47,478			38,153
Long-Term Debt, less current maturities		397,600			258,490
Capital Lease Obligations, less current maturities		4			59
Other Long-Term Liabilities		1,322			—
Deferred Income Taxes		90,883			58,344

Total Liabilities		537,287			355,046

Commitments and Contingencies
Stockholders’ Equity
Common Stock		154			130
Additional paid-in capital		161,373			133,365
Accumulated other comprehensive loss		(15,421	)		(13,281	)
Accumulated deficit		(56,401	)		(51,593	)

Total Stockholders’ Equity		89,705			68,621

Total Liabilities and Stockholders’ Equity	$	626,992		$	423,667

See accompanying notes to consolidated financial statements.

HGGC Citadel Plastics Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands)


	Year Ended December 31, 2014			Year Ended December 31, 2013			Period from February 29, 2012 through December 31, 2012
Net Sales	$	428,549		$	324,858		$	247,129
Cost of Goods Sold		348,879			260,012			194,540

Gross profit		79,670			64,846			52,589

Operating Expenses
Selling and distribution		15,320			13,454			8,572
General and administrative		43,439			43,437			44,527
Asset impairment charges		—			26,038			10,283

Total operating expenses		58,759			82,929			63,382

Operating income (loss)		20,911			(18,083	)		(10,793	)

Other (Expense) Income
Interest expense, net of interest income of $194, $94 and $82, respectively		(18,287	)		(16,591	)		(14,756	)
Equity in income of joint venture		47			320			461
Miscellaneous		(2,249	)		692			(307	)

Total other expense		(20,489	)		(15,579	)		(14,602	)

Income (Loss) before income taxes		422			(33,662	)		(25,395	)
Income tax expense (benefit)		5,230			(4,707	)		(2,757	)

Net Loss		(4,808	)		(28,955	)		(22,638	)
Foreign currency translation and other adjustments, net of taxes		(2,140	)		(4,521	)		(8,760	)

Total Comprehensive Loss	$	(6,948	)	$	(33,476	)	$	(31,398	)

See accompanying notes to consolidated financial statements.

HGGC Citadel Plastics Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands except share data)


										Accumulated
							Additional			Other						Total
	Common Stock						Paid in			Comprehensive			Accumulated			Stockholders’
	Shares			Amount			Capital			Loss			Deficit			Equity
Issuance of common stock, initial capitalization		127,935		$	128		$	129,394		$	—		$	—		$	129,522
Issuance of common stock		775			1			774			—			—			775
Redemption of common stock		(1,040	)		(1	)		(1,039	)		—			—			(1,040	)
Net loss		—			—			—			—			(22,638	)		(22,638	)
Foreign currency translation adjustment		—			—			—			(8,760	)		—			(8,760	)

Balance, December 31, 2012		127,670			128			129,129			(8,760	)		(22,638	)		97,859
Issuance of common stock		2,969			3			2,966			—			—			2,969
Redemption of common stock		(1,081	)		(1	)		(1,080	)		—			—			(1,081	)
Stock compensation expense		—			—			2,350			—			—			2,350
Net loss		—			—			—			—			(28,955	)		(28,955	)
Foreign currency translation adjustment		—			—			—			(4,521	)		—			(4,521	)

Balance, December 31, 2013		129,558			130			133,365			(13,281	)		(51,593	)		68,621
Issuance of stock		1,067			1			1,167			—			—			1,168
Redemption of stock		(135	)		—			(156	)		—			—			(156	)
Related-party debt extinguished with issuance of commons stock		21,911			22			26,272			—			—			26,294
Exercise of options on common stock		878			1			127			—			—			128
Stock compensation expense		—			—			598			—			—			598
Net loss		—			—			—			—			(4,808	)		(4,808	)
Foreign currency translation adjustment		—			—			—			(2,133	)		—			(2,133	)
Change in postretirement obligation benefits		—			—			—			(7	)		—			(7	)

Balance, December 31, 2014		153,279		$	154		$	161,373		$	(15,421	)	$	(56,401	)	$	89,705

See accompanying notes to consolidated financial statements.

HGGC Citadel Plastics Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)


							Period from
							February 29,
	Year Ended			Year Ended			2012 through
	December 31,			December 31,			December 31,
	2014			2013			2012
Cash Flows From Operating Activities
Net loss	$	(4,808	)	$	(28,955	)	$	(22,638	)
Adjustments to reconcile net loss to net cash provided by operating activities, net of effect of acquisitions
Depreciation and amortization		28,442			27,414			23,166
Asset impairment losses		—			26,038			10,283
(Gains) losses on sale of property and equipment		(21	)		95			—
Deferred income taxes		(3,273	)		(10,466	)		(5,875	)
Payment-in-kind interest on subordinated notes payable		1,095			1,180			763
Equity in (income)/loss of joint venture		(47	)		(320	)		(461	)
Stock based compensation expense		598			2,350			—
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(3,157	)		(2,855	)		7,387
Inventories		8,124			(6,078	)		1,733
Prepaid expenses and other assets		(4,627	)		498			2,522
Accounts payable and accrued expenses		(4,124	)		(1,096	)		(8,855	)

Net cash provided by operating activities		18,202			7,805			8,025

Cash Flows From Investing Activities
Purchase of property and equipment		(6,125	)		(4,853	)		(4,005	)
Proceeds from sale of property and equipment		9			220			—
Acquisition of businesses, net of cash acquired of $217, $371 and $6,260, respectively		(168,783	)		(65,287	)		(306,984	)

Net cash used in investing activities		(174,899	)		(69,920	)		(310,989	)

Cash Flows From Financing Activities
Payments on revolving line of credit, net		(781	)		(211	)		(2,418	)
Proceeds from issuance of long-term debt, net of deferred financing costs		160,967			108,313			195,238
Principal payments on long-term debt		(2,348	)		(47,207	)		(5,775	)
Principal payments on capital lease obligations		(51	)		(18	)		(22	)
Capital contributions (redemptions)		1,141			1,888			(265	)
Proceeds from issuance of common stock		—			—			122,220

Net cash provided by financing activities		158,928			62,765			308,978

Effects of exchange rate changes on cash		2,007			(782	)		789

Net Increase (Decrease) in Cash and Cash Equivalents		4,238			(132	)		6,803
Cash and Cash Equivalents, beginning of year		6,671			6,803			—

Cash and Cash Equivalents, end of year	$	10,909		$	6,671		$	6,803

HGGC Citadel Plastics Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)


					Period from
					February 29,
	Year Ended		Year Ended		2012 through
	December 31,		December 31,		December 31,
	2014		2013		2012
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest	$	17,858	$	17,181	$	12,888
Cash paid during the year for income taxes		8,882		5,495		3,782
Related-party debt extinguished with equity		26,294		—		—
Issuance of common stock in connection with the acquisition of Citadel		—		—		7,301

See accompanying notes to consolidated financial statements.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

1. Nature of Operations

HGGC Citadel Plastics Holdings, Inc. (“HGGC Citadel” or the “Company”) is the 100% owner of Citadel Plastics Holdings, Inc. (“Citadel”), a manufacturer of compounded thermoset and thermoplastic materials. International in scope, the Company develops, produces, and markets a broad line of high quality compounded products to industrial customers.

The consolidated financial statements include the accounts of HGGC Citadel, and through various holding companies, HGGC Citadel’s wholly-owned operating subsidiaries: The Matrixx Group, Inc. (“Matrixx”) and Bulk Molding Compounds, Inc. (“BMCI”).

BMCI comprises the Company’s thermoset business and is principally engaged in the manufacture and supply of thermoset bulk and sheet molding compounds serving the electrical, automotive, consumer appliance, power tool and conductive plastic industries. BMCI operates in the U.S. with manufacturing facilities in Illinois, Ohio and Michigan. BMCI’s foreign sales of bulk molding compounds are supplied to Europe, Asia and Latin America through wholly-owned subsidiaries and a joint venture company as follows:

Europe: 100% owned holding company, BMC Deutschland GmbH, and its operating companies, Tetra – DUR Kunststoff-Produktion GmbH (combined “BMC Germany”) based in Seevetal, Germany and its 100% owned subsidiary in Turkey, BMC TetraDURTurkey Plastik Hammadde Kompozit üretim Sanayi vw Ticaret Limited Sirketi (“BMC Turkey”) (Note 14) (together “BMC Europe”).

Mexico: 100% owned operating companies, Bulk Molding Compounds Mexico S. de R.L. de C.V. and Satchmo S. de R.L. de C.V (combined “BMC Mexico”), located in Mexico City and Juarez, Mexico, respectively.

Brazil: 100% owned operating company, Bulk Molding Compounds do Brasil Industria de Plasticos Reforcados Ltda. (“BMC Brazil”), located in Cotia, Brazil.

Asia: 50% owned joint venture, BMC Far East Ltd., located in Hong Kong and its operating companies, BMC Dongguan Limited, located in Dongguan, China, and BMC Composite Materials Co. Ltd., located in Changshu, China.

As discussed in Note 2, BMCI acquired The Composites Group (“TCG”) on November 5, 2014.

Matrixx comprises the Company’s thermoplastic business and is a compounder of thermoplastic resins serving the power tool, lawn and garden, appliance, automotive, HVAC, electronics and construction markets. Matrixx operates in the U.S. and Canada with manufacturing facilities in Indiana, Texas, Virginia and Ontario, Canada. As discussed in Note 2, Matrixx acquired Lucent Polymers, Inc. (“Lucent”) on December 6, 2013.

2. Acquisition

Citadel Plastics Holdings, Inc.

On February 29, 2012 (the “closing date”), HGGC Citadel LLC, a wholly-owned subsidiary of Huntsman Gay Global Capital (a private equity firm and the majority stockholder) (“HGGC”), certain institutional investors and members of management and employees of Citadel acquired all

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

of the outstanding common stock of Citadel from Wind Point Partners. Upon consummation of the merger, Citadel continued as the surviving corporation and wholly owned operating subsidiary of HGGC Citadel. The total selling price was $320,545 plus a $64 adjustment for the post-closing true-up of the selling price based on the level of working capital (as defined). A total of $19,200 of the selling price was placed into an escrow and was held until April 30, 2013 to cover claims by HGGC Citadel relating to possible representations from Citadel, warranties, taxes, and environmental matters. During 2013, the entire escrow was liquidated with $18,504 disbursed to the Sellers, $552 disbursed back to the Company and $144 disbursed to cover fees. The acquisition has been accounted for under the purchase method.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date, February 29, 2012:


Current assets	$	83,606
Property and equipment		37,958
Goodwill		88,578
Intangible assets		212,011
Other		5,513

Total assets acquired		427,666

Current liabilities		38,519
Long-term obligations		1,406
Deferred income taxes		67,196

Total liabilities assumed		107,121

Net assets acquired	$	320,545

Approximately $10,800 of the goodwill recorded as a result of the acquisition is deductible for income tax purposes. Intangible assets acquired consisted of formulas/trade names of $57,120, customer relationships of $139,436, non-compete agreements of $11,096, computer software of $601 and backlog of $3,758. The weighted-average amortization period on the acquired intangible assets was 19 years.

To fund the acquisition, including acquisition costs of $8,215 (included in operating expenses) and loan financing costs of $6,442, the Company utilized $4,000 of its available cash and issued $122,220 of common stock for cash, $7,301 of common stock to former stockholders of the sellers, and long-term debt, including borrowings on the Company’s revolving credit line, of $201,680. On December 21, 2012, HGGC formed Citadel Plastics Holdings, LLC (“Citadel LLC” or the “Parent”). On December 31, 2012, all of the shareholders of the common stock of HGGC Citadel contributed their common stock holdings to Citadel LLC in exchange for Class L units of Citadel LLC.

Lucent Polymers, Inc.

On December 6, 2013, Matrixx acquired all of the outstanding stock of LPI Holding Company and its wholly owned operating company, Lucent Polymers, Inc. (“Lucent”), from River Associates Investments, LLC (“Sellers”). The total purchase price paid at closing, net of cash acquired of

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

$371, was $65,287. Two escrow accounts were established at close. The first escrow account of $1,000 is to cover amounts that may become due from the Sellers back to the Company for the true-up of the purchase price based on the level of working capital (as defined) on the acquisition date. During 2014 this escrow account was settled and resulted in an additional $283 payment to the Sellers. A second escrow account of $644 is to cover claims by the Company relating to possible representations from the Sellers, warranties, taxes and environmental matters. No claims were made related to this escrow account during 2014. The Lucent acquisition has been accounted for under the purchase method. Beginning December 6, 2013, the Lucent operations were reflected in the Company’s consolidated financial statements.

Lucent is a manufacturer of highly engineered, custom formulated thermoplastics compounds utilizing recycled and prime feed stocks which are sold across diverse end use markets.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date, December 6, 2013:


Current assets	$	26,158
Property and equipment		11,988
Goodwill		19,093
Intangible assets		22,187

Total assets acquired		79,426

Current liabilities		7,312
Deferred income taxes		6,827

Total liabilities assumed		14,139

Net assets acquired	$	65,287

Approximately $6,457 of the goodwill recorded as a result of the acquisition is deductible for income tax purposes. Intangible assets acquired consist of formulas/trade names of $10,251, customer relationships of $9,873 and non-compete agreements of $2,063. The weighted-average amortization period on the acquired intangible assets was 15 years.

To fund the acquisition, including acquisition costs of $1,224 (included in operating expenses) and loan financing costs of $1,891, the Company utilized $1,037 of its available cash and issued $2,059 of Class L units to former shareholders of the Sellers and long-term debt of $66,100.

The Composites Group

On November 5, 2014, BMCI acquired all of the outstanding stock of HPC Holdings, LLC and its wholly owned operating companies, Premix, Inc., Quantum Composites, Inc. and Hadlock Plastics, LLC (collectively, “TCG”), from Highlander Partners, L.P. (“Sellers”). The total purchase price paid at closing, net of cash acquired of $217, was $168,783. Two escrow accounts were established at closing. The first escrow account of $500 is to cover amounts that may become due from the Sellers back to the Company for the true-up of the purchase price based on the level of working capital (as defined) on the acquisition date. A second escrow account of $3,400 is to cover claims

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

by the Company relating to possible representations from the Sellers, warranties, taxes and exposures to environmental matters. The TCG acquisition has been accounted for under the purchase method. Beginning November 5, 2014, TCG’s operations were reflected in the Company’s consolidated financial statements.

TCG is a provider of specialty composites including material compounding, molding, and value-added post-molding services which are sold across diverse end use markets.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date, November 5, 2014:


Current assets	$	27,152
Property and equipment		26,843
Goodwill		76,500
Intangible assets		87,800

Total assets acquired		218,295

Current liabilities		13,546
Other liabilities, net		635
Deferred income taxes		35,331

Total liabilities assumed		49,512

Net assets acquired	$	168,783

Approximately $612 of the goodwill recorded as a result of the acquisition is deductible for income tax purposes. Intangible assets acquired consist of formulas/trade names of $26,900, customer relationships of $58,900 and non-compete agreements of $2,000. The weighted-average amortization period on the acquired intangible assets was 18 years.

To fund the acquisition, including acquisition costs of $2,387 (included in operating expenses) and loan financing costs of $6,555, the Company utilized $10,202 of its available cash and issued long-term debt of $167,523.

3. Summary of Significant Accounting Policies

A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements for the Company are as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of HGGC Citadel, and through various holding companies HGGC Citadel’s wholly owned operating subsidiaries. All material intercompany accounts and transactions between consolidated entities have been eliminated. Joint venture investments for which the Company exercises significant influence are accounted for by the equity method.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, all highly-liquid investments with a maturity date of three months or less when purchased are considered cash equivalents. From time to time, amounts deposited exceed federally insured limits. The Company believes the associated credit risk to be minimal.

Accounts Receivable and Allowance for Doubtful Accounts

Credit is extended based on an evaluation of a customer’s financial condition and collateral is generally not required. Accounts receivable are generally due between 30 to 60 days and stated at amounts due from customers, net of an allowance for doubtful accounts.

The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the general economy as a whole. The Company writes off account balances when they become uncollectible and payments subsequently received on such receivables are recorded as a reduction in bad debt expense. At December 31, 2014 and 2013, the Company believes the allowance for doubtful accounts is adequate.

Inventories, net

Inventories consist of raw materials and finished goods. Inventories are stated at the lower of cost or market. Cost of inventories is determined using a first-in, first-out (FIFO) method, except for certain inventories of TCG which are determined using a last-in, first-out (LIFO) method.

The Company records a reserve for slow-moving and obsolete inventory based on historical experience and monitoring of current inventory activity. The Company’s estimate of this reserve is based on a periodic detailed analysis, using both qualitative and quantitative factors.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

Property and Equipment


Asset Classification		Years
Buildings		20
Machinery and equipment		5-7
Leasehold improvements		Lease Term

Intangible Assets

The Company’s finite intangible assets consisting of customer relationships, formulas, internally developed software and non-compete agreements were valued at the date of acquisition and are amortized on a straight-line basis (or an accelerated basis in the case of customer relationships) over the lesser of their remaining useful or contractual lives (generally 5 to 25 years).

Long-Lived Assets

Additionally, the Company also evaluates the remaining useful life each reporting period to determine whether events and circumstances warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long lived asset’s remaining useful life is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining useful life.

Goodwill

The Company completes an annual (or more often if circumstances required) impairment assessment of its goodwill on a reporting unit level. For management purposes, the Company is organized into five reporting units; BMCI (including TCG), BMC Mexico, BMC Brazil, BMC Europe, and Matrixx (including Lucent).

In performing the goodwill impairment assessments, the carrying values of the Company’s reporting units were compared to their estimated fair values, as calculated by the discounted cash flow method. As of February 29, 2012, the Company elected to adopt the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Update No. 2011-08, “Intangibles – Goodwill and Other,” (Topic 350) (“ASU 2011-08”). ASU 2011-08 provides an option to first qualitatively assess whether current events or changes in circumstances lead to a determination that it is more likely than not (defined as a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. This qualitative assessment included the Company evaluating the following factors that affected future business performance: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific events, and reporting unit factors. Absent a qualitative determination

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

that the fair value of a particular reporting unit was more likely than not to be less than its carrying value, the Company did not need to proceed to the traditional two-step goodwill test for that reporting unit. If this qualitative assessment indicated a more likely than not potential that the asset may be impaired, the estimated fair value of the reporting unit was calculated by the discounted cash flow method. If the estimated fair value of a reporting unit was less than its carrying value, an impairment charge was recorded for the amount by which the carrying value of the goodwill exceeds its calculated implied fair value.

Deferred Loan Costs

Deferred loan costs are amortized over the lives of the respective debt agreements using the straight-line method, which approximates the effective interest method.

Income Taxes

Deferred income taxes are provided using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases and are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Further, the Company analyzes whether it is more likely than not that deferred tax assets will be realizable. Based upon this analysis, the Company establishes a valuation allowance for amounts that are not expected to be realized.

The Company follows the guidance in FASB Accounting Standards Codification (“ASC”) 740-10-25, “Accounting for Uncertainty in Income Taxes.” ASC 740 prescribes a recognition threshold of more-likely-than-not and a measurement attribute for all tax positions taken or expected to be taken on a tax return in order for those tax positions to be recognized in the financial statements. This statement clarifies the criteria that each tax position must satisfy for some or all of the benefits of that position to be recognized in the Company’s financial statements. The Company’s policy is to account for interest and penalties related to uncertain tax positions as income tax expense in the accompanying consolidated statement of operations. There was no income tax interest or penalties in 2014, 2013 and 2012. The Company has evaluated its uncertain tax positions and has determined that, as of December 31, 2014, there are no positions that meet the criteria for recognition as an uncertain tax position. The periods ended December 31, 2014, 2013 and 2012 remain open for examination.

Comprehensive Income (Loss)

Comprehensive income (loss) represents net earnings and any revenues, expenses, gains, and losses that, under generally accepted accounting principles in the United States of America, are excluded from net income and recognized directly as a component of stockholders’ equity.

Foreign Currency Translation

The functional currency of BMC Mexico is the U.S. dollar. Transactions in currencies other than the U.S. dollar of BMC Mexico are recorded at the rates of exchange prevailing at the date of the transaction. BMC Mexico’s monetary assets and liabilities in currencies other than the U.S. dollar are translated at rates of exchange prevailing at the balance sheet date to U.S. dollar. Foreign currency exchange gains and losses reflecting transaction gains and losses, which arise from BMC Mexico’s monetary assets and liabilities denominated in currencies other than U.S. dollar, are recorded in operating expenses. The functional currency of BMC Germany, BMC Turkey and BMC Brazil is the Euro, Lira and Real, respectively. Foreign currency adjustments, arising from the

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

translation of the foreign subsidiaries’ financial statements, are recorded in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity until a foreign business is sold or substantially liquidated. Assets and liabilities are translated to U.S. dollars using exchange rates in effect at the balance sheet date. The results of operations are translated using the monthly average exchange rates for the year. Foreign currency transaction and remeasurement gains and losses are included in current earnings. Total net currency transaction gains for the periods ended December 31, 2014, 2013 and 2012 were $126, $181 and $(5), respectively, which are included in operating expenses. Included in miscellaneous other income (expense) for the periods ended December 31, 2014, 2013 and 2012 are gains/(losses) of $(2,251), $785 and $(307), respectively, from remeasuring non-local currency denominated intercompany loans between BMCI subsidiaries in the U.S and Europe.

Revenue Recognition

Self-Insurance

The Company has elected to self-insure certain costs related to employee health and accident benefit programs. Costs resulting from non-insured losses are charged to expense when incurred. The Company has purchased insurance that limits its annual exposure for individual claims to $80. The Company has also purchased insurance that provides 100% coverage (up to $1,000) for the amount of total claims which exceeds 125% of the total expected claims (as defined by the insurance company) in a plan year.

Shipping and Handling Costs

Shipping and handling costs are included in cost of goods sold and related shipping and handling amounts billed to customers are included in net sales.

Fair Value Measurements

Level 1 –

Quoted prices in active markets for identical assets or liabilities.

Level 2 –

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities: quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 –

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

The Company applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to goodwill and also when determining the fair value of its business combinations. To determine the fair value in these situations, the Company determines what a market participant would pay on the measurement date. To evaluate impairments of goodwill, the Company used Level 3 inputs such as discounted cash flows. To determine the fair value of the assets acquired in business combinations, the Company uses Level 3 inputs such as discounted cash flows, excess earnings of customer relationships and relief from royalties. The Company also uses Level 3 inputs to value certain unit-based compensation.

Recent Accounting Pronouncements

In May 2014, Financial Accounting Standards Board issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 and is to be applied using one of two retrospective application methods, with early application not permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on the financial statements and has not yet determined the method by which the standard will be adopted in 2017.

Subsequent Events

The Company evaluated subsequent events through April 27, 2015, which was the date the financial statements were available to be issued.

4. Inventories, net

Inventories consist of the following at December 31, 2014 and 2013:


	2014			2013
Raw materials	$	30,404		$	35,835
Finished goods		14,623			7,133
Inventory reserves for obsolescence		(1,315	)		(1,230	)
Less allowances to reduce carrying value to LIFO basis		(130	)		—

	$	43,582		$	41,738

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

Approximately 11% of inventories at December 31, 2014 were valued on the LIFO basis.

5. Goodwill and Intangible Assets

The following is a summary of goodwill activity for the periods ended December 31, 2014, 2013 and 2012:


Balance at February 29, 2012	$	—
Citadel acquisition		89,591
Purchase price adjustments		406
Effect of changes in exchange rates		(2,325	)
Impairment charges		(10,283	)

Balance, at December 31, 2012		77,389
Lucent acquisition		19,093
Purchase price adjustments		21
Effect of changes in exchange rates		(401	)
Impairment charges		(13,544	)

Balance, at December 31, 2013		82,558
TCG acquisition		76,500
Purchase price adjustments		1,259
Effect of changes in exchange rates		(670	)

Balance, at December 31, 2014	$	159,647

Goodwill consists of the following at December 31, 2014 and 2013:


	2014			2013
Gross carrying amount of goodwill	$	183,474		$	106,385
Less: Accumulated impairment losses		(23,827	)		(23,827

Net goodwill	$	159,647		$	82,558

In performing its goodwill assessment for the year ended December 31, 2014, the Company elected to skip the qualitative analysis. Accordingly, the first step of the two-step goodwill impairment test as described in FASB ASC 350-20-35, which includes estimating the fair values of each reporting unit and comparing those values to the reporting unit’s carrying value. Management has determined that no material impairments exist as of and for the year ended December 31, 2014.

In performing its goodwill assessment for the year ended December 31, 2013, the Company evaluated the following factors that affect future business performance: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific events, and reporting unit factors. As a result of the assessment of these

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

qualitative factors, the Company concluded that it was not more likely than not that the fair values of all five of the Company’s reporting units exceeded their carrying value. Accordingly, the first step of the two-step goodwill impairment test as described in FASB ASC 350-20-35 was performed. The resultant estimated fair value of BMCI reporting unit exceeded its carrying value by approximately $1,751 as of December 31, 2013 and no goodwill impairment charges were recorded. The resultant estimated fair values of the Company’s remaining four reporting units were less than their respective carrying values. As a result, when the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recorded for the amount by which the carrying value of the goodwill exceeds its calculated implied fair value. Accordingly, during the year ended December 31, 2013, the Company recorded non-cash charges totaling $13,544 to recognize the impairment of goodwill in the following reporting units as follows:


	Period ended December 31, 2013
Matrixx	$	2,835
BMC Mexico		2,299
BMC Brazil		2,210
BMC Europe		6,200

	$	13,544

These goodwill impairment charges in each of the above four reporting units during the year ended December 31, 2013 resulted from reductions in the estimated fair values based on sluggish economic activity and lower expectations for future revenue, profitability and cash flows due largely to lower estimates of organic growth.

In performing its goodwill assessment for the period ended December 31, 2012, the Company evaluated the following factors that affect future business performance: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific events, and reporting unit factors. As a result of the assessment of these qualitative factors, the Company concluded that it was more likely than not that the fair values of two of the five reporting units with goodwill as of December 31, 2012, exceeded their carrying value. Accordingly, the first step of the two-step goodwill impairment test as described in FASB ASC 350-20-35, which includes estimating the fair values of each reporting unit, was not considered necessary for these two reporting units and no goodwill impairment charges were recorded in 2012.

The analysis of these qualitative factors for the other three reporting units led to the conclusion that it was not more likely than not that the fair value for these reporting units exceeded their carrying value. Accordingly, the first step of the two-step goodwill impairment test as described in FASB ASC 350-20-35 was performed. The resultant estimated fair value of BMC Brazil reporting unit exceeded its carrying value by approximately $1.4 million as of December 31, 2012 and no goodwill impairment charges were recorded. The resultant estimated fair values of the Company’s remaining two reporting units were less than their respective carrying values. As a result, when the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recorded for the amount by which the carrying value of the goodwill exceeds its calculated implied fair value. Accordingly, during the period ended December 31, 2012, the Company recorded non-cash charges totaling $10,283 to recognize the impairment of goodwill in the following reporting units as follows:


	Period ended December 31, 2012
Matrixx	$	7,698
BMC Europe		2,585

	$	10,283

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

The decline in fair value of Matrixx resulted from unfavorable operating results primarily relating to the sluggish residential housing market and lower estimates of future earnings growth. The decline in fair value of BMC Europe was almost entirely due to the depressed earnings of its BMC Turkey operations. As discussed in Note 14, the Company shut down of its BMC Turkey operations during the first quarter of 2013.

The fair value measurement method used in the Company’s impairment analysis utilizes a number of significant unobservable inputs or Level 3 assumptions. These assumptions include, among others, projections of our future operating results, the implied fair value of these assets using an income approach by preparing a discounted cash flow analysis and other subjective assumptions.

The following tables provide information about the Company’s intangible assets at December 31, 2014 and 2013:


	*December 31, 2014*
	Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment			Net
Intangible assets with definite lives
Customer relationships	$	198,459	$	(35,114	)	$	(5,723	)	$	157,622
Formulas/trade names		92,590		(9,692	)		(6,715	)		76,183
Noncompete agreements		15,159		(9,076	)		(56	)		6,027
Computer software		601		(340	)		—			261

	$	306,809	$	(54,222	)	$	(12,494	)	$	240,093


	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment			Net
Intangible assets with definite lives
Customer relationships	$	142,097	$	(22,544	)	$	(5,723	)	$	113,830
Formulas/trade names		66,235		(6,056	)		(6,715	)		53,464
Noncompete agreements		13,160		(6,675	)		(56	)		6,429
Computer software		601		(265	)		—			336

	$	222,093	$	(35,540	)	$	(12,494	)	$	174,059

The Company did not record any impairment charges to its intangible assets during the periods ended December 31, 2014 and 2012. During the year ended December 31, 2013 the Company recorded impairment charges of $12,494 related to certain finite-lived intangible assets associated with its BMC Europe reporting unit and was based on the results of its impairment testing for finite-lived assets. Amortization expense was approximately $18,934, $20,447 and $15,093 during the periods ended December 31, 2014, 2013 and 2012 , respectively.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

Estimated amortization expense for each of the next five years and thereafter is as follows:


Year ending December 31,	Amount
2015	$	24,953
2016		24,013
2017		21,191
2018		19,428
2019		18,402
Thereafter		132,106

Total	$	240,093

6. Long-Term Debt

The Company’s long-term debt consists of the following at December 31, 2014 and 2013:


	2014			2013
BMC Europe revolving loan	$	—		$	814
Term loan – 1^st lien		320,000			234,825
Term loan – 2^nd lien		80,000			—
Senior subordinated notes payable		—			25,199

		400,000			260,838
Less current maturities		(2,400	)		(2,348	)

	$	397,600		$	258,490

Term Loans and Revolver Debt

On February 29, 2012, the Company entered into a $185,000 senior secured credit agreement (the “Credit Agreement”) with a syndication of lenders. The Credit Agreement consisted of a term loan in the amount of $155,000 (“Term Loan”), and a revolving line of credit in the aggregate amount of $30,000 (the “Revolver”). The Term Loan had quarterly principal payments of $388 through January 1, 2018 and a balloon payment of $141,088 (after a $5,000 optional prepayment made by the Company on December 31, 2012) due February 28, 2018. There can also be an annual mandatory prepayment based on preceding year cash flows (as defined). No mandatory prepayment was due in 2013 for 2012 cash flows (as defined). The Revolver was reduced by any outstanding letters of credit and was due February 2017. The Credit Agreement gave the Company the option to pay interest based on the Company’s total leverage ratio (as defined) at LIBOR (subject to a 1.50% floor) plus 5.0% to 5.25% or the bank’s prime rate plus 4.0% to 4.25% per annum. In addition, there is an unused commitment fee of 0.50% of any unused portion of the revolving credit facility as well as a 5.0% to 5.25% per annum monthly fee on the average amount of the outstanding letters of credit in any given month. The Credit Agreement is secured by a first lien on substantially all of the Company’s personal and real property.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

On March 13, 2013, the Credit Agreement was amended with largely the same syndication of lenders to support the debt recapitalization of the Company. To fund this recapitalization the Company increased its borrowings under the Term Loan by $21,163 to $170,000, borrowed $4,000 under its Revolver, issued new Senior Subordinated Notes of $24,200 as discussed below, and utilized $651 of its available cash. The incremental proceeds from these fundings totaling $50,014 were used to fund the concurrent payoff of all of the outstanding principal and interest of the Senior Subordinated Notes of $46,633, financing fees of $1,259 and other interest and fees of $2,122. The interest rate on the amended Term Loan and Revolver is at LIBOR (subject to a 1.25% floor) plus 4.0% to 4.25% or the bank’s prime rate plus 3.0% to 3.25% per annum. All other terms of the amended Credit Agreement remained basically the same as the previous agreement.

The Company considered whether the March 13, 2013 recapitalization of the Company resulted in a debt modification or extinguishment. Based on the appropriate accounting guidance the Company determined that the portion of the refinanced debt which continued to be held by the original senior secured credit agreement lenders was a debt modification. Accordingly, new loan costs paid in 2013 to the senior secured credit agreement lenders of $775 were capitalized as additional deferred loan costs. In addition, the net deferred loan costs of $765 associated with the extinguished Senior Subordinated Agreement were fully amortized in 2013.

On December 6, 2013, in conjunction with the Company’s acquisition of Lucent Polymers, Inc., the Credit Agreement was amended again to, among other things, provide $66,100 of new borrowings under the Term Loan to fund the Lucent Acquisition, reduce the lending interest rates and ease financial covenants. The new borrowings under the Term Loan raised the outstanding principal to $234,825, with quarterly principal payments of $587 through January 1, 2018 and a balloon payment of $224,825 due February 28, 2018. The interest rate on the amended Credit Agreement is at LIBOR (subject to a 1.00% floor) plus 3.75% to 4.00% or the bank’s prime rate plus 2.75% to 3.00% per annum. All other terms of the amended again Credit Agreement remained basically the same as the March 13, 2013 amended credit agreement. The Company determined that this amendment to the Credit Agreement was a debt modification and that fees paid of $1,891 for the amendment have been recorded as deferred financing fees at December 31, 2013 and are being amortized over the remaining term of the debt.

On November 5, 2014, in conjunction with the Company’s acquisition of TCG, the Credit Agreement was amended again to, among other things, provide $87,523 of new borrowings under the Term Loan to fund in part the TCG Acquisition, increase the lending interest rates and ease financial covenants. The new borrowings under the Term Loan raised the outstanding principal to $320,000 with quarterly principal payments of $800 from April 1, 2015 through October 1, 2020 and a balloon payment of $301,600 due November 5, 2020. The interest rate on the amended Credit Agreement is at LIBOR (subject to a 1.00% floor) plus 4.25% or the bank’s prime rate plus 3.25% per annum (effectively 5.25% at December 31, 2014). All other terms of the amended again Credit Agreement remained basically the same as the December 6, 2013 amended credit agreement. The Company determined that this amendment to the Credit Agreement was a debt modification and that fees paid of $5,755 for the amendment have been recorded as deferred financing fees at December 31, 2014 and are being amortized over the remaining term of the debt.

On November 5, 2014, to complete the debt funding of the Company’s acquisition of TCG, the Company entered into an $80,000 Second Lien Senior Secured Term Loan (the “2nd Lien Term Debt”) with certain lenders from the syndication of lenders funding the Credit Agreement. The 2nd Lien Term Debt, due November 5, 2021, is subordinated to the amended Credit Agreement and has a second priority perfected security interest in substantially all of the assets of the Company. The interest rate on the 2nd Lien Term Debt is at LIBOR (subject to a 1.00% floor) plus 8.00% or the bank’s prime rate plus 7.00% per annum (effectively 9.0% at December 31, 2014). The Company paid fees of $800 for the 2nd Lien Term Debt which have been recorded as deferred financing fees at December 31, 2014, and are being amortized over the remaining term of the debt.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

Under the Credit Agreement, the Company is required to maintain hedging agreements that effectively fix interest rates on at least 50% of the outstanding aggregate principal of the Term Loan for a minimum of two years starting before May 29, 2012. Effective May 8, 2012, the Company purchased for $112 an interest rate cap with an initial notional amount of $77,500, which caps LIBOR at 2.50%. The notional amount of the interest rate cap was $75,369 and $76,919 as of December 31, 2014 and 2013, respectively. The Company has treated this interest rate cap as an ineffective hedge, and the loss associated with this cap agreement totaled approximately $2, $9 and $101 for the periods ended December 31, 2014, 2013 and 2012, respectively.

The Company had no borrowings outstanding under the Revolver at December 31, 2014 and 2013. There were outstanding letters of credit of $565 and $250 at December 31, 2014 and 2013. The effective interest rate on the Term Loan was 6% and 5% at December 31, 2014 and 2013, respectively.

Senior Subordinated Notes

On February 29, 2012, the Company entered into a $44,600 senior subordinated financing agreement (the “Senior Subordinated Agreement”) with a lender which was subordinated to the Credit Agreement. The Senior Subordinated Agreement consisted of a $44,600 term loan and accrued interest at 12% per annum, payable quarterly, plus PIK interest of 2%. The senior subordinated borrowings are unsecured. The Subordinated Agreement was due February 28, 2019.

As mentioned above, in conjunction with the March 13, 2013 debt recapitalization of the Company, the Senior Subordinated Agreement was paid off with the combination of the increased borrowings of the Credit Agreement as detailed above and proceeds from a new senior subordinated agreement (the “New Senior Subordinated Agreement”), loaned by a newly formed company, HGGC Citadel Lender, LLC (a related party as discussed in Note 12), totaling $24,200. The interest rate on the New Senior Subordinated Agreement was at 14% per annum, payable quarterly, plus PIK interest of 5%. The New Senior Subordinated Agreement, due August 28, 2018, was subordinated to the amended Credit Agreement. All other terms of the New Senior Subordinated Agreement remained basically the same as the previous senior subordinated agreement. The Company paid fees of $484 for the New Senior Subordinated Agreement which have been recorded as deferred financing fees at December 31, 2013, and were being amortized over the remaining term of the debt.

In conjunction with the Company’s November 5, 2014 debt refinancing to fund the TCG acquisition discussed above, the outstanding principal (including accumulated PIK interest) of $26,294 was converted to 21,911 Class L equity units of the Parent. The transaction was recorded as a capital contribution and was deemed to be at market value and no gain or loss was recorded on the conversion.

The Company is required by all of its debt agreements to maintain a total leverage ratio below certain levels and a minimum fixed charge coverage ratio (until the Company’s November 5, 2014 acquisition of TCG only) and is limited on its ability to make investments, obtain additional indebtedness, make capital expenditures and pay dividends. The Company was in compliance with the terms of its debt agreements at December 31, 2014 and 2013.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

Other Debt

BMC Europe has a revolving loan note up to €2.5 million (USD $3,050) with no stated expiration date. Interest is calculated on the basis of the Euro Overnight Index Average (“EONIA”) interest rate plus 3.50% (effectively 3.49% and 3.66% at December 31, 2014 and 2013, respectively) and is payable quarterly. The amount outstanding under this line of credit was $0 and $814 at December 31, 2014 and 2013, respectively.

The long-term debt obligations mature as follows:


Year ending December 31,	Amount
2015	$	2,400
2016		3,200
2017		3,200
2018		3,200
2019		3,200
Thereafter		384,800

Total	$	400,000

7. Other Accrued Expenses

Other accrued expenses consist of the following at December 31, 2014 and 2013:


	2014		2013
Accrued compensation	$	3,793	$	3,962
Accrued taxes		892		603
Accrued employee benefits		1,050		450
Accrued other		7,102		3,427

	$	12,837	$	8,442

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

8. Stockholders’ Equity Structure

The Company has authorized 200,000 shares, par value $0.001 per share, of common stock of which 153,279 and 129,558 shares are issued and outstanding as of December 31, 2014 and 2013, respectively. In addition, there were 980 and 1,858 options to purchase the common stock outstanding as of December 31, 2014 and 2013, respectively. The Company’s parent company, Citadel LLC, owns 152,401 and 129,558 of the total outstanding common stock as of December 31, 2014 and 2013, respectively. Each share of common stock has the right to one vote for each share held.

Citadel LLC also had net (forfeitures)/issuances of (1,295) and 14,392 Class A Units issued in the form of Management Incentive Units (“MIU’s”). The issuance of Class A Units are issued to employees and management of the Company as compensation. The MIUs vest 20% per year. Citadel LLC determined the fair value of the MIUs using an earnings multiple for the 2014 MIU issuances and the discounted cash value method for the 2013 issuances under the income approach. Based on this income approach, the Company recognized unit compensation expense of $598 and $2,350 in 2014 and 2013, respectively, that was pushed down from Citadel LLC. There were 6,137 and 4,893 Class A Units vested at Citadel LLC as of December 31, 2014 and 2013, respectively.

9. Income Taxes

The income tax for the periods ended December 31, 2014, 2013 and 2012 is composed of the following:


Period ending December 31,	2014			2013			2012
Current
Federal	$	5,367		$	2,180		$	—
Foreign		2,296			2,758			3,118
State		893			300			—
Deferred
Federal		(2,319	)		(2,156	)		(1,609	)
Foreign		(643	)		(7,377	)		(1,459	)
State		(364	)		(412	)		(308	)

		5,230			(4,707	)		(258	)
Change in valuation allowance		—			—			(2,499	)

Income tax expense (benefit)	$	5,230		$	(4,707	)	$	(2,757	)

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

The components of the Company’s net deferred tax assets and liabilities at December 31, 2014 and 2013:


	2014			2013
Deferred assets
Federal and state net operating losses	$	—		$	—
Reserves		972			763
Accrued expenses		1,677			924
Foreign		879			1,534
Other		1,000			—

Net deferred tax assets		4,528			3,221

Deferred liabilities
Property and equipment		7,728			4,658
Goodwill and intangible assets		71,969			41,181
LIFO reserve		733			—
Foreign – intangible assets		10,250			12,317
Other		203			390

Deferred tax liabilities		90,883			58,546

Net deferred tax liability	$	(86,355	)	$	(55,325	)

As of December 31, 2014 and 2013 the Company had net operating loss carryforwards in Brazil of $2,137 and $3,622, respectively.

The Company had total income tax receivables of $949 and $1,511 which were included in prepaid expenses at December 31, 2014 and 2013, respectively.

The Company’s income tax expense at the statutory rate differs from the Company’s effective tax rate. For the year ended December 31, 2014, the primary reasons for the deviation between the effective tax rate and the statutory federal tax rate of 35% are due to permanent non-deductible amortization and depreciation expenses relating to purchase accounting for goodwill, intangibles and fixed assets and non-deductible transactions costs offset by other net permanent deductible items. For the year ended December 31, 2013, the primary reasons for the deviation between the effective tax rate and the statutory federal tax rate of 35% are due to permanent non-deductible amortization, impairment and depreciation expenses relating to purchase accounting for goodwill, intangibles and fixed assets and non-deductible stock compensation expense. For the period ended December 31, 2012, the primary reason for the deviation between the effective tax rate and the statutory tax rate of 34% are due to state income taxes and the change in the valuation allowance relative to pre-tax net income offset primarily by permanent non-deductible amortization, impairment and depreciation expenses related to US GAAP purchase accounting for goodwill, intangibles, fixed assets, and transaction costs.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

10. Employee Benefit Plans

Matrixx, Lucent, BMCI and TCG have 401(k) profit-sharing plans covering certain employees who meet certain age and service requirements. Employer contributions to the plans are discretionary and are made through a match of employee deferrals up to a certain level. Employer contributions by the Company to the plans were $591, $311 and $0 for the periods ended December 31, 2014, 2013 and 2012, respectively.

BMC Europe has an employee pension plan. Expenses related to this plan were approximately $112, $128 and $121 for the periods ended December 31, 2014, 2013 and 2012, respectively.

Employees of Bulk Molding Compounds Mexico S.A. de C.V., by law, are entitled to 10% profit sharing on the net profits of the subsidiary. Expenses related to this plan were approximately $247, $283 and $337 for the periods ended December 31, 2014, 2013 and 2012, respectively.

BMC Brazil, as required by the government, maintains an employee pension plan. Expenses related to this plan were approximately $48, 45 and $40 for the periods ended December 31, 2014, 2013 and 2012, respectively.

Employees of Matrixx’s Ontario Canada plant have an employee pension plan. Expenses related to this plan were approximately $47, $60 and $84 for the periods ended December 31, 2014, 2013 and 2012, respectively.

TCG sponsors an unfunded supplemental executive retirement plan (“SERP”), which is a non-qualified plan that provides five former officers of TCG defined benefits in excess of qualified plan limits imposed by federal tax law.

The following table sets forth the funded status of the SERP and amounts recognized in the consolidated balance sheet as of December 31, 2014 as well as certain key assumptions used in the computations during the period November 5, 2014 through December 31, 2014:


Obligations and funded status:
Projected benefit obligation	$	1,502
Plan assets, at fair value		—

Net liability	$	1,502

Amounts recognized in the consolidated balance sheets:
Liability	$	1,491
Net loss in OCI		11

Net consolidated balance sheet liability	$	1,502

The net consolidated balance sheet liability is recorded in other accrued expenses and other long-term liabilities.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

The following table sets forth the activity for the period November 5, 2014 through December 31, 2014:


Benefit costs	$	18
Employer contribution		16
Benefits paid		(16	)
Participant contribution		—

The weighted-average discount rate was 3.5%, determined using the Tower Watson Pension Discount Index Rate. The total net periodic pension cost plus the amount recognized in other comprehensive income was $19 for the period November 5, 2014 through December 31, 2014. The expected contribution for 2015 is estimated to be $182.

A reconciliation of this actuarial (gain)/loss as of December 31, 2014 and a breakout of pension expense for the period November 5, 2014 through December 31, 2014 are as follows:


Reconciliation of actuarial (gain) loss:
Balance at beginning of period, (pre-tax)	$	—
Actuarial loss		11
Amortization loss		—
Curtailment		—

Balance at end of period, (pre-tax)		11
Tax benefit		4

Balance at end of year, (after tax)	$	7


Postretirement benefit expense (gain):
Service cost	$	—
Interest cost		8
Amortization of prior service cost		—
Recognized net actuarial loss		—
Curtailment gain		—

Total postretirement benefit expense	$	8

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in fiscal years ending:


Year ending December 31,	Amount
2015	$	180
2016		171
2017		161
2018		150
2019		150
Thereafter		524

Total	$	1,336

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

11. Commitments and Contingencies

The Company conducts a portion of its operations in leased facilities under non-cancellable operating leases with expiration dates through 2019. Some of these leases are with related parties (Note 12). Rental expense for operating leases for the periods ended December 31, 2014, 2013 and 2012 was approximately $2,898, $2,525, and 2,227, respectively.

The minimum rental commitments by year under these operating leases are as follows:


Year ending December 31,	Amount
2015	$	2,540
2016		1,929
2017		1,634
2018		1,164
2019		60

Total	$	7,327

The Company is involved in various litigation and other claims arising in the ordinary course of business. While the results of litigation against the Company cannot be predicted with certainty, management believes that uninsured losses, if any, arising from these proceedings will not have a material adverse effect on the Company’s consolidated financial position.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

12. Related-Party Transactions

On the February 29, 2012 closing date, the Company paid HGGC a $4,800 (included in operating expenses) transaction fee.

The Company is committed to pay annual management fees of $1,500 (in four equal quarterly installments) to HGGC. The Company paid total management fees of $1,125, $1,500 and $1,125 (included in operating expenses) for the periods ended December 31, 2014, 2013 and 2012, respectively. There were $375 and $0 of unpaid management fees at December 31, 2014 and 2013.

The Company’s Senior Subordinated Agreement lender, HGGC Citadel Lender, LLC was owned by HGGC and certain other investors in the Company. During the years ended December 31, 2014 and 2013, the Company accrued total cash and PIK interest owing to HGGC Citadel Lender, LLC of $4,160 and $3,796, respectively. As of November 5, 2014, this debt was converted to equity as discussed in Note 6.

The Company rents its BMCI headquarters building in West Chicago, Illinois from Maxwell Properties, which is partially owned by an employee of the Company. For the periods ended December 31, 2014, 2013 and 2012 the Company paid rents to Maxwell Properties of $282, 285 and $261, respectively. The lease expires in January 2018.

13. Joint Venture

BMCI entered into a joint venture agreement with EMEI Industrial Limited during 2005. Each company owns a 50% interest in the joint venture, BMC Far East LTD (located in China). All profits and losses are shared equally.

The following is a summary of financial position and results of operations of BMC Far East LTD as of December 31, 2014 and 2013 and for the periods ended December 31, 2014, 2013 and 2012:


	2014		2013
Current assets	$	5,071	$	5,248
Property, plant and equipment		1,901		888

Total assets	$	6,972	$	6,136

Current liabilities	$	1,660	$	1,414
Long-term liabilities		1,735		1,237
Equity		3,577		3,485

Total liabilities and equity	$	6,972	$	6,136


Period ended December 31,	2014		2013		2012
Net sales	$	9,545	$	10,202	$	7,708

Net income	$	92	$	640	$	922

Included in the Company’s accounts receivable at December 31, 2014 and 2013 are receivables from BMC Far East LTD of $873 and $617, respectively. During the periods ended December 31, 2014, 2013 and 2012, the Company had sales to BMC Far East LTD of $67, $89 and $47, respectively, and charged BMC Far East LTD management and technical fees of $363, $408 and $298, respectively.

HGGC Citadel Plastics Holdings, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands)

14. Restructuring Charges

During the fourth quarter of 2012, a decision was made to close the BMC Turkey operations by the end of the first quarter of 2013. The Company continued to retain direct cash flows (significant to the BMC Turkey operations) associated with the revenues (and related cost of goods sold) of the closed operation as the primary customers of BMC Turkey will be served out of BMC Germany. Accordingly, the closure has not been presented as discontinued operations. During the period ended December 31, 2012, the Company recorded in the consolidated statement of operations $280 of charges associated with costs to terminate employees and the exit facilities as well as $358 of charges relating to write-downs of receivables, inventory and fixed assets. There were no further charges recorded in the consolidated statement of operations during the years ended December 31, 2014 and 2013 associated with the closure of the BMC Turkey operations.

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements, or pro forma statements, give effect to the Acquisition by A. Schulman, Inc. (“A. Schulman”) of HGCC Citadel Plastics Holdings, Inc. (“Citadel”) and the related financings on the historical financial position and results of operations of A. Schulman. The historical financial information set forth below has been derived from, and should be read in connection with, the financial statements of A. Schulman, which are included in A. Schulman’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part in A. Schulman’s Current Report on Form 8-K filed on April 27, 2015, and the financial statements of Citadel, which are included in A. Schulman’s Current Report on Form 8-K filed on April 27, 2015.

A. Schulman, with a fiscal year that ends on August 31, has agreed to acquire Citadel (the “Acquisition”), with a fiscal year that ends on December 31. The pro forma income statement for the year-ended August 31, 2014 will include (1) A. Schulman’s year ended August 31, 2014 and (2) Citadel’s twelve months ended June 30, 2014. The pro forma income statement for the interim period will include (1) A. Schulman’s six months ended February 28, 2015 and (2) Citadel’s six months ended December 31, 2014. For purposes of preparing this data, the $1,232.0 million of financing to be obtained by A. Schulman in connection with the Acquisition is assumed to be financed by long-term bank debt of approximately $700.0 million, other new indebtedness of approximately $375.0 million, an equity issuance of approximately $110.0 million, and revolving credit facility borrowings of approximately $47.0 million.

At the effective time of the Acquisition, the cash paid, debt financing required and shares of A. Schulman capital stock issued may differ from the information in the unaudited pro forma condensed combined financial information. In addition, the actual allocation of the type and amount and the terms of the financing may differ from that set forth herein.

The allocation of the purchase price used in the unaudited pro forma condensed combined financial information is based on preliminary estimates. The estimates and assumptions are subject to change at the effective time of the Acquisition. The final determination of the allocation of the purchase price will be based on the actual tangible assets and liabilities, and intangible assets of Citadel as of the effective time of the Acquisition. Accordingly, the final purchase accounting adjustments may be materially different from the preliminary unaudited adjustments presented herein. Transaction-related costs may also differ at the effective time of the Acquisition.

The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by A. Schulman. These accounting policies are similar in all material respects to those of Citadel. Upon completion of the Acquisition, or as more information becomes available, A. Schulman will perform a more detailed review of Citadel’s accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the consolidated financial statements.

The pro forma statements give effect to the Acquisition and the related financings as if they had been consummated for the pro forma condensed combined statements of operations on September 1, 2013 for A. Schulman and July 1, 2013 for Citadel, and for the pro forma condensed combined balance sheet on February 28, 2015.

The pro forma statements are provided for informational purposes only and do not purport to represent what the condensed combined financial position or results of operations actually would have been had the Acquisition and related financings and other pro forma adjustments occurred on the dates indicated. Additionally, the pro forma statements are not necessarily indicative of the future financial condition or results of operations of A. Schulman.

The Acquisition

On March 15, 2015, the Company entered into a definitive stock purchase agreement to acquire all of the issued and outstanding capital stock of privately held Citadel, a portfolio company of certain private equity firms, for $800 million. The purchase price will be reduced by the amount of Citadel’s indebtedness and unpaid transaction expenses on the closing date, increased by the amount of Citadel’s cash and cash equivalents on the closing date, and may be increased or decreased, as applicable, based on the Citadel’s

working capital on the closing date relative to target working capital, among other adjustments. Citadel is a major provider of custom material solutions and custom engineered solutions for specialized applications across a diverse set of end markets, geographics and blue chip customers.

A. SCHULMAN, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Year Ended August 31, 2014

(Dollars and shares in thousands, except per share data)


	Historical A. Schulman, Inc.			Pro Forma Citadel (r)			Pro Forma Adjustments			Pro Forma Combined
Net sales	$	2,446,998		$	434,633		$	(3,740	)(a)	$	2,877,891
Cost of sales		2,116,990			347,072			(4,752	)(b)		2,459,310
Selling, general and administrative expenses		242,486			70,018			(1,378	)(c)		311,126
Restructuring expense		4,883			—			—			4,883
Asset impairment		104			26,038			—			26,142
Curtailment and settlement (gains) losses		214			—			—			214

Operating income (loss)		82,321			(8,495	)		2,390	(c)		76,216
Interest expense		8,503			24,294			33,846	(d)		66,643
Interest income		(286	)		(151	)		—			(437	)
Foreign currency transaction (gains) losses		2,206			(939	)		—			1,267
Other income, net		(434	)		(2,186	)		—			(2,620	)

Income (loss) from continuing operations before taxes		72,332			(29,513	)		(31,456	)		11,363
Provision (benefit) for U.S. and foreign income taxes		18,542			(4,147	)		(11,010	)(f)		3,385

Income from continuing operations		53,790			(25,366	)		(20,446	)		7,978
Noncontrolling interests		(799	)		—			—			(799	)

Net income (loss) from continuing operations attributable to A. Schulman, Inc.		52,991			(25,366	)		(20,446	)		7,179
New equity dividends		—			—			7,425	(g)		7,425

Net income (loss) from continuing operations available to A. Schulman, Inc. common stockholders	$	52,991		$	(25,366	)	$	(27,871	)	$	(246	)

Weighted-average number of shares outstanding:
Basic		29,061									29,061
Diluted		29,362						2,100	(g)		31,462
Earnings (loss) per share from continuing operations available to A. Schulman Inc. common stockholders
Basic	$	1.82								$	(0.01	)
Diluted	$	1.80								$	(0.01	)

A. SCHULMAN, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Six Months Ended February 28, 2015

(Dollars and shares in thousands, except per share data)


	Historical A. Schulman, Inc.			Pro Forma Citadel (s)			Pro Forma Adjustments			Pro Forma Combined
Net sales	$	1,157,348		$	251,445		$	(2,075	)(a)	$	1,406,718
Cost of sales		992,430			202,185			(2,544	)(b)		1,192,071
Selling, general and administrative expenses		130,640			36,628			(2,303	)(c)		164,965
Restructuring expense		7,881			—			—			7,881

Operating income		26,397			12,632			2,772	(c)		41,801
Interest expense		4,670			11,698			16,866	(d)		33,234
Interest income		(161	)		(110	)		—			(271	)
Foreign currency transaction (gains) losses		2,240			2,096			—			4,336
Other income, net		(404	)		(896	)		—			(1,300	)
Gain on early extinguishment of debt		(1,290	)		—			1,290	(e)		—

Income (loss) from continuing operations before taxes		21,342			(156	)		(15,384	)		5,802
Provision (benefit) for U.S. and foreign income taxes		8,457			2,312			(5,384	)(f)		5,385

Income (loss) from continuing operations		12,885			(2,468	)		(10,000	)		417
Noncontrolling interests		(547	)		—			—			(547	)

Net income (loss) from continuing operations attributable to A. Schulman, Inc.		12,338			(2,468	)		(10,000	)		(130	)
New equity dividends		—			—			3,713	(g)		3,713

Net income (loss) from continuing operations available to A. Schulman, Inc. common stockholders	$	12,338		$	(2,468	)	$	(13,713	)	$	(3,843	)

Weighted-average number of shares outstanding:
Basic		29,078									29,078
Diluted		29,538						2,100	(g)		31,638
Earnings (loss) per share from continuing operations available to A. Schulman Inc. common stockholders
Basic	$	0.42								$	(0.13	)
Diluted	$	0.42								$	(0.13	)

A. SCHULMAN, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of February 28, 2015

(Dollars in thousands)


	Historical A. Schulman, Inc.			Historical Citadel (as of December 31, 2014)			Pro Forma Adjustments			Pro Forma Combined
ASSETS
Current Assets:
Cash and cash equivalents	$	91,872		$	10,909		$	(8,148	)(h)	$	94,633
Accounts receivable, net		354,257			69,709			—			423,966
Inventories, net		257,464			43,582			3,416	(i)		304,462
Prepaid expenses and other current assets		40,399			10,095			(2,241	)(j)		48,253

Total current assets		743,992			134,295			(6,973	)		871,310
Net property, plant and equipment		239,969			74,521			7,567	(i)		322,057
Deferred charges and other noncurrent assets		73,211			18,436			650	(k)		92,297
Goodwill		192,940			159,647			247,449	(i)		600,036
Intangible assets, net		123,932			240,093			112,407	(i)		476,432

Total assets	$	1,374,044		$	626,992		$	361,100		$	2,362,136

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	251,091		$	30,422		$	—		$	281,513
U.S. and foreign income taxes payable		4,426			892			—			5,318
Accrued payroll, taxes and related benefits		42,232			4,843			—			47,075
Other accrued liabilities		46,067			8,902			(1,075	)(m)		53,894
Short-term debt		24,197			2,419			3,784	(l)		30,400

Total current liabilities		368,013			47,478			2,709			418,200
Long-term debt		365,406			397,604			332,635	(l)		1,095,645
Pension plans		112,501			—			—			112,501
Deferred income taxes		22,003			90,883			30,963	(i)		143,849
Other long-term liabilities		26,485			1,322			—			27,807

Total liabilities		894,408			537,287			366,307			1,798,002

Stockholders’ equity:
Common stock, par value $0.001		48,367			154			(154	)(o)		48,367
New equity		—			—			110,000	(n)		110,000
Additional paid-in capital		272,934			161,373			(165,123	)(p)		269,184
Accumulated other comprehensive income (loss)		(73,801	)		(15,421	)		15,421	(o)		(73,801	)
Retained earnings (deficit)		607,162			(56,401	)		34,649	(q)		585,410
Treasury stock, at cost		(383,170	)		—			—			(383,170	)

Total A. Schulman, Inc.’s stockholders’ equity		471,492			89,705			(5,207	)		555,990
Noncontrolling interests		8,144			—			—			8,144

Total equity		479,636			89,705			(5,207	)		564,134

Total liabilities and equity	$	1,374,044		$	626,992		$	361,100		$	2,362,136

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1. Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting and was based on the historical consolidated financial statements of A. Schulman and Citadel after giving effect to A. Schulman’s contemplated Acquisition of Citadel and related financing arrangements. All pro forma statements use A. Schulman’s period end date.

A. Schulman’s fiscal year ends on August 31 with interim periods ending on November 30, February 28 or 29 and May 31. Citadel’s fiscal year ends on December 31 with interim periods ending on March 31, June 30 and September 30.

The unaudited pro forma condensed combined balance sheet as of February 28, 2015 is presented as if the Acquisition occurred on February 28, 2015. The unaudited pro forma condensed combined statements of operations for all periods are presented as if the Acquisition had taken place on September 1, 2013. The unaudited pro forma condensed combined statement of operations for the year ended August 31, 2014 includes results of operations of (1) A. Schulman for the year ended August 31, 2014 and (2) Citadel for the twelve months ended June 30, 2014. The unaudited pro forma condensed combined statement of operations for the six months ended February 28, 2015 includes results of operations of (1) A. Schulman for the six months ended February 28, 2015 and (2) Citadel for the six months ended December 31, 2014.

In addition to those pro forma adjustments directly linked to the Acquisition, the unaudited pro forma condensed combined statements of operations for the year ended August 31, 2014 and the six months ended February 28, 2015 include pro forma adjustments related to Citadel’s acquisition of The Composites Group as if they had been consummated for the pro forma condensed combined statements of operations on September 1, 2013 for A. Schulman and July 1, 2013 for Citadel, the beginning of the earliest periods presented.

The allocation of the purchase price used in the unaudited pro forma condensed combined financial statements is based on preliminary estimates of the fair value of assets acquired and liabilities assumed, and the related income tax impact of the Acquisition accounting adjustments. A. Schulman expects the purchase price allocation to be completed upon the finalization of the related valuations. The final valuations may be materially different from the preliminary valuations. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analyses are performed. The final allocation of the purchase price will be determined after the Acquisition is completed and after completion of a final analysis to determine the fair values of the tangible assets, identifiable intangible assets, and liabilities as of the date the Acquisition is complete. Accordingly, the final purchase accounting adjustments may be materially different from the pro forma adjustments presented in the unaudited pro forma condensed combined financial statements. Increases or decreases in the fair value of the net assets may change the amount of the purchase price allocated to goodwill and other assets and liabilities. This may impact the unaudited pro forma condensed combined statements of operations due to an increase or decrease in the amount of amortization or depreciation of the adjusted assets.

The purchase method of accounting is based on Accounting Standards Codification, ASC, Topic 805, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurement.” ASC Topic 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the Acquisition date.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

ASC Subtopic 820-10 defines the term “fair value” and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined in ASC Subtopic 820-10 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result of these standards, A. Schulman may be required to record assets that are not intended to be used or sold and/or to value assets at fair value measures that do not reflect A. Schulman’s intended use of those assets. Many of these fair value measurements can be highly subjective and it is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

Under the purchase method of accounting, the assets acquired and liabilities assumed will be recorded as of the completion of the Acquisition, at their respective fair values and consolidated with those of A. Schulman. Financial statements and reported results of operations of A. Schulman issued after completion of the Acquisition will reflect these values. Periods prior to completion of the Acquisition will not be retroactively restated to reflect the historical financial position or results of operations of Citadel.

Under ASC Subtopic 805-10, transaction costs (e.g., advisory, legal, valuation, other professional fees) and certain restructuring charges impacting the target company are not included as a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. Total transaction costs expected to be incurred by A. Schulman are estimated to be $46.5 million, of which $2.9 million has been incurred and recognized through February 28, 2015.

The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position of A. Schulman that would have been reported had the Acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of A. Schulman. The unaudited pro forma condensed combined financial statements should be read in conjunction with A. Schulman’s financial statements for the three and six months ended February 28, 2015 and for the year ended August 31, 2014, which are included in its Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part in its Current Report on Form 8-K filed on April 27, 2015, and in Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2015. Citadel’s financial statements for the years ended December 31, 2014 and 2013 and the period from February 29, 2012 through December 31, 2012 are included in A. Schulman’s Current Report on Form 8-K filed on April 27, 2015.

2. Citadel Acquisition

On March 15, 2015, the Company entered into a definitive stock purchase agreement to acquire all of the issued and outstanding capital stock of privately held HGGC Citadel Plastics Holdings, Inc., or Citadel, a portfolio company of certain private equity firms, for $800 million. The purchase price will be reduced by the amount of Citadel’s indebtedness and unpaid transaction expenses on the closing date, increased by the amount of Citadel’s cash and cash equivalents on the closing date, and may be increased or decreased, as applicable, based on the company’s working capital on the closing date relative to target working capital, among other adjustments. Citadel is a major provider or custom material solutions and custom engineered solutions for specialized applications across a diverse set of end markets, geographies and blue chip customers. We refer to the acquisition of Citadel as the “Acquisition.”

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

3. Financing

In connection with the Acquisition, the Company and certain of its wholly-owned subsidiaries expect to obtain approximately $1,232.0 million of financing, including, without limitation: long-term bank debt of approximately $700.0 million, consisting of a $200.0 million senior secured term loan A facility and approximately $500.0 million of senior secured term loan B facilities; other new indebtedness of approximately $375.0 million; an equity issuance of approximately $110.0 million; and revolving credit facility borrowings of approximately $47.0 million (with availability of up to $300.0 million).

4. Estimate of Assets Acquired and Liabilities Assumed

The preliminary estimate of the fair values of assets acquired and liabilities assumed as of the closing of the Acquisition were allocated to each of Citadel’s assets, liabilities and intangible assets. The excess of purchase price over the estimated fair values of assets acquired and liabilities assumed is allocated to goodwill.

The preliminary estimate of the fair values of assets acquired and liabilities assumed (in thousands) is as follows:


	February 28, 2015
Assets acquired, at fair market value:
Accounts receivable	$	69,709
Inventories		46,998
Prepaid expenses and other		10,091

Total current assets		126,798
Property, plant, and equipment (1)		82,088
Intangible assets (1)		352,500
Other assets (2)		7,126

Total assets		568,512
Liabilities assumed, at fair market value:
Accounts payable		30,422
Accrued liabilities		12,837
Deferred income taxes (3)		131,004
Other liabilities		1,322
Capital lease obligations		23

Total liabilities assumed		175,608

Identifiable net assets acquired		392,904
Goodwill (4)		407,096

Net assets acquired	$	800,000

(1)

The fair values of property, plant, and equipment were determined based on management’s estimate of the replacement cost of similar fixed assets using information obtained during A. Schulman’s due diligence process. The fair values of the identifiable intangible assets were determined based on management’s estimate of preliminary estimated cash flows associated with these identifiable intangible assets based on information obtained during A. Schulman’s due diligence process. At this time, A. Schulman does not have sufficient information as to the amount, timing and risk of cash flows of all of these intangible assets. Some of the more significant assumptions inherent in the development of intangible asset values, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including revenue, cost of sales, research and development costs, sales and marketing expenses, and working capital); the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, as well as other factors.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(2)	Other assets are comprised of Citadel’s investment in joint venture, at fair market value of $3.1 million plus noncurrent deferred income tax assets of $1.0 million and other long-term assets of $3.0 million at December 31, 2014 book value, which approximate fair market values.

(3)

As of the completion of the Acquisition, A. Schulman will provide deferred taxes and other tax adjustments as part of the allocation of the purchase price due to differences between book valuations and tax valuations, primarily related to the estimated fair value adjustments for acquired long-lived assets.

(4)	Goodwill is calculated as the difference between the Acquisition date fair value of the consideration expected to be transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized.

A. Schulman expects the purchase price allocation to be finalized upon the completion of the related valuations pursuant to ASC 805. The adjustments to deferred tax accounts reflected in the unaudited pro forma condensed combined financial statements are based on prevailing statutory tax rates within applicable jurisdictions. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analyses are performed. The final allocation of the purchase price will be determined after the Acquisition is completed and after completion of a final analysis to determine the fair values of the tangible assets, identifiable intangible assets, and liabilities as of the date the Acquisition is complete. Accordingly, the final purchase accounting adjustments may be materially different from the pro forma adjustments presented in the unaudited pro forma condensed combined financial statements. Increases or decreases in the fair value of the net assets may change the amount of the purchase price allocated to goodwill and other assets and liabilities. This may impact the unaudited pro forma condensed combined statements of operations due to an increase or decrease in the amount of amortization or depreciation of the adjusted assets.

The preliminary estimated fair value of the identifiable intangible assets and their weighted-average useful lives have been estimated as follows (dollars in thousands):


	Estimated Fair Value		Estimated Useful Life
Trademarks and trade names	$	20,400		3 - 10 years
Developed technology/know-how		77,200		10 - 13 years
Customer relationships		254,900		14 - 16 years

	$	352,500

Finite lived intangible assets will be amortized over their estimated useful lives. Goodwill will not be amortized but will be tested for impairment at least annually. All intangible assets and goodwill are also tested for impairment when certain indicators are present. In the future, if it is determined that intangible assets or goodwill are impaired, an impairment charge would be recorded at that time.

5. Pro Forma Adjustments

Pro forma adjustments include the following (all tables in thousands):

(a)	To eliminate sales from Citadel to A. Schulman of $3.7 million and $2.1 million, for the year ended August 31, 2014 and six months ended February 28, 2015.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(b)	To adjust cost of sales for each period as follows:


	Year Ended August 31, 2014			Six months Ended February 28, 2015
Elimination of cost of sales to A. Schulman from Citadel	$	(3,740	)	$	(2,075	)
Adjustment of depreciation and amortization (see (c))		(1,012	)		(469	)

Pro forma adjustment	$	(4,752	)	$	(2,544	)

(c)	To record change in depreciation, amortization, and transaction costs:


	Year Ended August 31, 2014			Six months Ended February 28, 2015
Reversal of Citadel’s depreciation recognized	$	(9,519	)	$	(4,718	)
Reversal of Citadel’s amortization recognized		(26,311	)		(11,901	)
Estimated depreciation of assets required		8,395			4,197
Estimated amortization of identifiable intangible assets		25,045			12,523
Reverse transactions costs to acquire Citadel		—			(2,873	)

Pro forma adjustment		(2,390	)		(2,772	)

Allocation to cost of sales		(1,012	)		(469	)
Allocation to selling, general, & administrative		(1,378	)		(2,303	)

	$	(2,390	)	$	(2,772	)

(d)	To record adjustments to interest expense and amortization of new debt issue costs:


	Year Ended August 31, 2014			Six months Ended February 28, 2015
Reversal of A. Schulman’s existing interest expense	$	(7,134	)	$	(4,094	)
Reversal of Citadel’s existing interest expense		(22,500	)		(10,801	)
Record estimated interest expense		63,929			31,964

Interest adjustment		34,295			17,069

Reversal of A. Schulman’s amortization of existing debt issue cost		(507	)		(232	)
Reversal of Citadel’s amortization of existing debt issue costs		(1,794	)		(897	)
Record estimated amortization of new debt issue costs		1,852			926

Deferred financing fees amortization adjustment		(449	)		(203	)

Total interest expense pro forma adjustment	$	33,846		$	16,866

A. Schulman estimates a combined weighted average interest rate of 5.75% based on $700 million of aggregate principal amount of new term loans under the new term loan A facility and new term loan B facility, and $47 million aggregate principal amount of revolving loans under the new revolving credit facility and $375 million of other new indebtedness expenses to be incurred in connection with the Acquisition. An increase or decrease of 12.5 basis points in the actual combined weighted average interest rate would impact our interest expense by $0.9 million annually. Additionally, it is expected that the new term loan facilities will have required quarterly amortization payments of $30.4 million.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

A. Schulman estimates it will incur $33.0 million of financing fees in connection with the new term loan facilities, new revolving credit facility and other new indebtedness. $19.8 million related to the bridge financing will be expensed over a shortened bridge period, and $13.2 million will be deferred and amortized straight line over their respective lives. An additional $0.4 million existing deferred financing fees related to the old credit agreement will be carried forward and amortized straight line over its new life. The fees that A. Schulman will ultimately pay under this new debt could vary significantly from what is assumed in these unaudited pro forma condensed combined financial statements, and will depend on the actual timing and amount of borrowings and repayments under the new debt, and A. Schulman’s credit rating, leverage, and other factors.

(e)	In February 2015, A. Schulman recorded a gain on the extinguishment of its euro notes debt, which was extinguished as part of the refinancing for the Acquisition. This adjustment has been recorded to remove the $1.3 million gain associated with the debt repayment.

(f)

We have reflected the applicable tax provision on the pro-forma adjustments presented in the unaudited pro-forma condensed combined statements of operations. The pro-forma adjustments pertain primarily to the U.S. tax jurisdiction, and are subject to a 35% federal tax rate. These adjustments do not include the one-time release of a portion of A. Schulman’s U.S. valuation allowance that may result when considering Citadel’s U.S. deferred income tax liabilities. The effective tax rate of the combined company could be significantly different depending on post-transaction activities.

(g)

As a result of the expected new equity issuance, A. Schulman expects to have an additional 2.1 million shares of common stock outstanding, assuming dilution. A. Schulman also expects to pay a quarterly dividend on the newly issued equity, which equals $7.4 million and $3.7 million for the year ended August 31, 2014 and six months ended February 28, 2015.

(h)	To record anticipated changes in cash from the Acquisition and refinancing, as follows:


	February 28, 2015
New equity offering (see (n) below)	$	110,000
Change in A. Schulman debt (see (l) below)		736,419
Removal of Citadel cash not transferring		(10,909	)
Cash paid to Citadel (see note 4)		(800,000	)
Transaction costs		(43,658	)

Pro forma adjustment	$	(8,148	)

(i)	To record fair value adjustments based on the Citadel purchase price allocation as seen below:


	Book Value		Fair Market Value (Note 4)		Adjustment Recorded
Inventories	$	43,582	$	46,998	$	3,416
Property, plant, & equipment		74,521		82,088		7,567
Intangible assets		240,093		352,500		112,407
Goodwill		159,647		407,096		247,449
Deferred tax liability		90,883		131,004		40,121
Joint venture		3,122		3,090		(32	)

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The $40.1 million increase in the deferred income tax liability resulting from the Citadel fair value adjustments has been allocated $4.0 million to current and $36.1 million to non-current. The $36.1 million non-current piece is partially offset by a decrease of $5.1 million to reflect the anticipated one-time release of a portion of A. Schulman’s U.S. valuation allowance as a result of Citadel’s U.S. deferred income tax liabilities. The $4.0 million current piece is recorded in footnote (j) below as a decrease to current deferred tax assets. The amount of the actual U.S. valuation allowance release could vary significantly from what is assumed in these unaudited pro forma condensed combined financial statements, and will depend on the specific deferred income tax assets and liabilities at the time of the Acquisition.

(j)

The pro forma adjustment of $2.2 million for prepaid expenses and other current assets represents a decrease in current deferred tax assets of $4.0 million as well as an increase to current deferred income tax assets of $1.8 million to reflect the anticipated one-time release of a portion of A. Schulman’s U.S. valuation allowance as a result of Citadel’s U.S. deferred income tax liabilities.

(k)	To record the change in deferred charges and other noncurrent assets as a result of the Acquisition and refinancing:


	February 28, 2015
Write-off of existing A. Schulman deferred financing fees	$	(1,275	)
Write-off of existing Citadel deferred financing fees		(11,278	)
New deferred financing fees		13,235
Write-down of joint venture (see (i) above)		(32	)

Increase in deferred charges and other noncurrent assets	$	650

(l)	To record the change in debt as a result of the Acquisition and refinancing:


	February 28, 2015
New term loan	$	700,000
New revolver		47,000
Other new indebtedness		375,000
Extinguishment of old debt		(385,581	)

Net change in A. Schulman debt		736,419
Citadel debt not transferring		(400,000	)

Net change in pro forma total debt		336,419
Change in Current Portion (see below)		3,784

Change in Long Term Portion	$	332,635

Current debt, per A. Schulman historical	$	24,197
Current debt, per Citadel historical		2,419
Pro forma adjustment		3,784

Pro forma current debt, based on term loan payments due within twelve months	$	30,400

(m)	The pro forma adjustment of $1.1 million for other accrued liabilities represents accrued severance of $0.7 million, less $1.8 million of Citadel accrued interest which is not transferring as part of the Acquisition.

(n)	This adjustment of $110.0 million has been made to account for the issuance of new equity.

(o)	The adjustments of $0.2 million and $15.4 million are to eliminate Citadel’s common stock and accumulated other comprehensive loss.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(p)	The adjustment of $165.1 million to additional paid in capital consists of $161.4 million to eliminate Citadel’s existing balance, and $3.7 million in fees related to the new equity issuance.

(q)	To record the change in retained earnings as a result of the Acquisition and refinancing:


	February 28, 2015
Elimination of Citadel accumulated deficit	$	56,401
Elimination of a deferred tax asset valuation allowance		6,921
Unpaid transaction fees		(26,673	)
Write off of existing deferred financing fees		(1,275	)
Accrued severance		(725	)

Increase in retained earnings	$	34,649

(r)

HGGC CITADEL PLASTICS HOLDINGS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Twelve Months Ended June 30, 2014

(Dollars in thousands)


	Historical Citadel			Historical The Composites Group			Pro Forma Adjustments			Pro Forma Citadel
Net sales	$	332,570		$	102,063		$	—		$	434,633
Cost of sales		269,148			77,700			224	(I)		347,072
Selling, general and administrative expenses		53,077			11,455			5,486	(II)		70,018
Asset impairment		26,038			—			—			26,038

Operating income (loss)		(15,693	)		12,908			(5,710	)		(8,495	)
Interest expense		16,685			1,802			5,807	(III)		24,294
Interest income		(151	)		—			—			(151	)
Foreign currency transaction (gains) losses		(939	)		—			—			(939	)
Other (income) expense, net		(1,507	)		(679	)		—			(2,186	)

Income (loss) before taxes		(29,781	)		11,785			(11,517	)		(29,513	)
Provision (benefit) for U.S. and foreign income taxes		(3,076	)		3,375			(4,446	)(IV)		(4,147	)

Net income (loss)	$	(26,705	)	$	8,410		$	(7,071	)	$	(25,366	)

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(s)

HGGC CITADEL PLASTICS HOLDINGS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Six Months Ended December 31, 2014

(Dollars in thousands)


	Historical Citadel (A)			Historical The Composites Group (B)			Pro Forma Adjustments			Pro Forma Citadel
Net sales	$	212,544		$	38,901		$	—		$	251,445
Cost of sales		173,719			28,390			76	(I)		202,185
Selling, general and administrative expenses		31,184			5,044			400	(II)		36,628

Operating income		7,641			5,467			(476	)		12,632
Interest expense		9,908			500			1,290	(III)		11,698
Interest income		(110	)		—			—			(110	)
Foreign currency transaction (gains) losses		2,096			—			—			2,096
Other (income) expense, net		(83	)		6,336			(7,149	)(V)		(896	)

Income loss before taxes		(4,170	)		(1,369	)		5,383			(156	)
Provision (benefit) for U.S. and foreign income taxes		846			(612	)		2,078	(IV)		2,312

Net (loss) income	$	(5,016	)	$	(757	)	$	3,305		$	(2,468	)

(A)	The Historical Citadel information includes the results of operations for The Composites Group for the period November 5, 2014 through December 31, 2014.

(B)	The Historical The Composites Group information includes the results of operations for The Composites Group for the period July 1, 2014 through November 4, 2014.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(I) To record adjustments to depreciation.


	Twelve months ended June 30, 2014			Six months ended December 31, 2014
Reversal of The Composites Group depreciation recognized	$	(2,558	)	$	(1,068	)
Record estimated depreciation of assets acquired		2,782			1,144

Pro forma adjustment	$	224		$	76

(II)

To record adjustments to depreciation, amortization, and transaction costs.


	Twelve months ended June 30, 2014			Six months ended December 31, 2014
Reversal of The Composites Group depreciation recognized	$	(277	)	$	(93	)
Reversal of The Composites Group amortization recognized		(299	)		(100	)
Record estimated depreciation of assets acquired		301			100
Record estimated amortization of identifiable intangible assets		5,761			2,880
Reversal of transaction costs to acquire The Composites Group		—			(2,387	)

Pro forma adjustment	$	5,486		$	400

(III)

To record adjustments to interest expense and amortization of debt issue costs incurred by Citadel in connection with the acquisition of TCG.


	Twelve months ended June 30, 2014			Six months ended December 31, 2014
Reversal of Citadel existing interest expense	$	(16,685	)	$	(9,908	)
Reversal of The Composites Group’s existing interest expense		(1,802	)		(500	)
Record estimated interest expense		23,937			11,990

Pro forma adjustment		5,450			1,582

Reversal of Citadel amortization of existing debt issue costs		(1,437	)		(1,189	)
Record estimated amortization of new debt issue costs		1,794			897

Pro forma adjustment		357			(292	)

Total interest expense pro forma adjustment	$	5,807		$	1,290

Citadel used the actual interest rate of 5.25% for its $320 million term loan and 9.00% for its $80 million second lien senior secured term loan for an aggregate principal amount of $400 million. This resulted in a weighted average interest rate of 6%. An increase or decrease of 12.5 basis points in the actual combined weighted average interest rate would impact Citadel’s interest expense by $0.5 million annually. Additionally, it is expected that the new term loan will have required quarterly payments of $0.8 million.

Citadel incurred $6.6 million of deferred financing fees in connection with the issuance of the term loan and second lien senior secured term loan.

(IV)

(V)

To reverse $7.1 million of the seller’s transaction costs related to The Composites Group acquisition for the six months ended December 31, 2014.

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A. Schulman, Inc.

April 27, 2015

/s/ David C. Minc

David C. Minc

Vice President, Chief Legal Officer and Secretary