Dynacast International Inc. - FORM 10-Q

Dynacast International Inc. - FORM 10-Q - August 6, 2014

Attached files

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Dynacast International Inc.	Financial_Report.xls
EX-32.1 - EX-32.1 - Dynacast International Inc.	d755104dex321.htm
EX-31.1 - EX-31.1 - Dynacast International Inc.	d755104dex311.htm
EX-31.2 - EX-31.2 - Dynacast International Inc.	d755104dex312.htm
EX-32.2 - EX-32.2 - Dynacast International Inc.	d755104dex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 333-179497

DYNACAST INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

Delaware

90-0728033

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

14045 Ballantyne Corporate Place, Suite 300

Charlotte, North Carolina

28277

(Address of principal executive offices)

(Zip Code)

708-927-2790

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Although the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act, the registrant has filed all such Exchange Act reports for the preceding 12 months.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of August 5, 2014, there was no public trading market for the registrant’s common stock. There were 171,500 shares of the registrant’s common stock, $0.001 par value per share, outstanding as of August 5, 2014.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures about Market Risk			45
Item 4. Controls and Procedures			45
PART II. OTHER INFORMATION			46
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3. Defaults Upon Senior Securities			46
Item 4. Mine Safety Disclosures			46
Item 5. Other Information			46
Item 6. Exhibits			47

SIGNATURES			48

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DYNACAST INTERNATIONAL INC.

Condensed Consolidated Statements of Operations (Unaudited)


	Three Months Ended						Six Months Ended
(in millions of dollars)	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
				(As Recast)						(As Recast)

Net sales	$	157.2		$	143.1			308.5		$	282.8
Costs of goods sold		(119.6	)		(109.2	)		(236.5	)		(213.1	)

Gross margin		37.6			33.9			72.0			69.7
Operating expenses:
Selling, general and administrative expense		(17.1	)		(17.3	)		(34.9	)		(33.8	)

Total operating expenses		(17.1	)		(17.3	)		(34.9	)		(33.8	)

Operating income		20.5			16.6			37.1			35.9

Other income (expense):
Interest expense		(11.5	)		(11.5	)		(22.9	)		(24.5	)
Other expense, net		(0.6	)		(1.7	)		(2.6	)		(4.2	)

Income before income taxes		8.4			3.4			11.6			7.2

Income tax expense		(4.4	)		(3.0	)		(7.3	)		(7.2	)


Net income		4.0			0.4			4.3			—

Less: net income attributable to non-controlling interests		(0.1	)		—			(0.2	)		(0.1	)


Net income (loss) attributable to controlling stockholders	$	3.9		$	0.4		$	4.1		$	(0.1	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DYNACAST INTERNATIONAL INC.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


	Three Months Ended
(in millions of dollars)	June 30, 2014			June 30, 2013
				(As Recast)

Net income	$	4.0		$	0.4
Other comprehensive income:
Foreign currency translation adjustment, net of tax expense of $-0- and $0.2, respectively		1.7			—
Pension, net of tax benefit of $-0- and $0.2, respectively		—			0.2
Unrealized gain (loss) on cash flow hedges, net of tax of $-0- and $-0-, respectively		0.5			(0.1	)

Total		2.2			0.1

Comprehensive income		6.2			0.5

Less: comprehensive income attributable to non-controlling interests		(0.1	)		(0.3	)

Comprehensive income attributable to controlling stockholders	$	6.1		$	0.2

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DYNACAST INTERNATIONAL INC.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Six Months Ended
(in millions of dollars)	June 30, 2014			June 30, 2013
				(As Recast)

Net income	$	4.3		$	—
Other comprehensive income:
Foreign currency translation adjustment, net of tax expense of $-0- and $(0.6), respectively		0.1			(8.4	)
Pension, net of tax provision of $-0- and $0.2, respectively		0.1			0.2
Unrealized (loss) gain on cash flow hedges, net of tax of $-0- and $-0-, respectively		0.2			(0.2	)

Total		0.4			(8.4	)

Comprehensive income (loss)		4.7			(8.4	)

Less: comprehensive (income) loss attributable to non-controlling interests		(0.3	)		(0.1	)

Comprehensive income (loss) attributable to controlling stockholders	$	4.4		$	(8.5	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DYNACAST INTERNATIONAL INC.

Condensed Consolidated Balance Sheets (Unaudited)


(in millions of dollars)	June 30, 2014			December 31, 2013

Assets
Current assets
Cash and cash equivalents	$	43.3		$	36.8
Accounts receivable, net		102.4			97.0
Inventory, net		45.9			45.0
Prepaids and other assets		14.9			15.2
Deferred income taxes		6.0			4.9

Total current assets		212.5			198.9

Property and equipment, net		152.2			148.7
Intangible assets, net		241.0			249.0
Goodwill		246.0			246.7
Deferred financing costs, net		13.7			15.7
Deferred income taxes		4.9			5.1
Other assets		4.7			4.6

Total assets	$	875.0		$	868.7


Liabilities and Equity
Current liabilities
Accounts payable	$	65.2		$	67.7
Income taxes payable		5.4			5.8
Accrued expenses and other liabilities		52.6			53.4
Accrued interest		15.0			15.0
Deferred revenue		12.8			12.2
Current portion of accrued pension and retirement benefit obligations		0.8			0.8
Current portion of long-term debt		8.2			5.6
Deferred income taxes		1.5			0.4

Total current liabilities		161.5			160.9

Accrued interest and dividends		17.9			17.9
Accrued pension and retirement benefit obligations		22.5			22.5
Long-term debt, net		380.2			384.7
Mandatorily redeemable preferred stock		53.0			53.0
Warrants		20.0			15.6
Deferred income taxes		67.4			68.9
Other liabilities		12.3			9.7

Total liabilities		734.8			733.2

Puttable common stock		1.5			1.5

Commitments and contingencies

Equity
Common stock		0.2			0.2
Additional paid-in capital		167.5			167.5
Accumulated foreign currency translation adjustment, net		(10.4	)		(10.5	)
Unrealized loss on cash flow hedges, net		—			(0.2	)
Cumulative unrealized pension loss, net		(2.2	)		(2.3	)
Accumulated deficit		(20.7	)		(24.8	)

Total equity attributable to controlling stockholders		134.4			129.9
Non-controlling interests		4.3			4.1

Total equity		138.7			134.0

Total liabilities and equity	$	875.0		$	868.7

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DYNACAST INTERNATIONAL INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended
(in millions of dollars)	June 30, 2014			June 30, 2013
				(As Recast)

Cash flows from operating activities
Net income	$	4.3		$	—
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		19.6			16.9
Amortization of deferred financing costs		1.9			2.6
Deferred income taxes		(1.1	)		(2.0	)
Change in fair value of warrants		4.4			4.2
Accrued dividends on mandatorily redeemable preferred stock		3.5			4.2
Gain on insurance receivable		(2.3	)		—
Other		0.6			0.3
Changes in operating assets and liabilities:
Accounts receivable		(5.4	)		(3.7	)
Inventory		(0.9	)		0.2
Prepaids and other assets		3.1			0.5
Accounts payable		(2.6	)		(6.9	)
Income taxes payable		1.9			2.4
Accrued expenses		3.9			4.6
Other		(3.8	)		5.4

Net cash flows provided by operating activities		27.1			28.7

Cash flows from investing activities
Capital expenditures		(15.2	)		(16.8	)
Settlement of derivative contracts		(0.2	)		—

Cash flows used in investing activities		(15.4	)		(16.8	)

Cash flows from financing activities
Draws on revolver		—			9.0
Repayments on revolver		—			(9.0	)
Draw on credit facility		3.0			1.4
Repayment on credit facility		(3.0	)		(1.4	)
Proceeds from ERP loan		—			5.6
Debt issuance costs		—			(0.5	)
Dividends paid to non-controlling interests		(0.1	)		(0.1	)
Dividends paid to holders of mandatorily redeemable preferred stock		(3.5	)		—
Repayments on long-term debt		(1.9	)		(8.1	)

Net cash flows used in financing activities		(5.5	)		(3.1	)

Effect of exchange rate changes on cash and cash equivalents		0.3			(0.6	)

Net change in cash and cash equivalents		6.5			8.2
Cash and cash equivalents
Beginning of period		36.8			28.0

End of period	$	43.3		$	36.2

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DYNACAST INTERNATIONAL INC.

Consolidated Statement of Stockholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2014


	Common Stock									Accumulated
(in millions of dollars, except share data)	Number of Shares		Value		Additional Paid-in Capital		Accumulated Deficit			Other Comprehensive Loss			Non-controlling Interests			Total

Beginning Balance at January 1, 2014		170,000	$	0.2	$	167.5	$	(24.8	)	$	(13.0	)	$	4.1		$	134.0

Net income		—		—		—		4.1			—			0.2			4.3
Dividends paid to non-controlling interests		—		—		—		—			—			(0.1	)		(0.1	)
Other comprehensive loss, net of tax		—		—		—		—			0.4			0.1			0.5

Balance at June 30, 2014		170,000	$	0.2	$	167.5	$	(20.7	)	$	(12.6	)	$	4.3		$	138.7

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1. Organization

Organization and Description of the Business

Dynacast International Inc. (“Dynacast” or the “Company”) was incorporated in the State of Delaware on May 11, 2011. Dynacast is a global provider of small-sized precision die-cast parts in zinc, aluminum, and magnesium alloys. Dynacast is headquartered in Charlotte, North Carolina and currently operates 22 facilities in 16 countries globally and is organized into the following reportable segments (Note 14):

•

Asia Pacific;

•

Europe; and

•

North America.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring items) considered necessary for a fair presentation of the financial position and results of operations. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements for the year ended December 31, 2013 and the footnotes thereto included in the Company’s Form 10-K filed with the SEC on March 14, 2014.

Reclassification

Certain prior period amounts have been reclassified to conform to current classifications. Accrued dividends on mandatorily redeemable preferred stock has been reclassified to adjustments to reconcile net loss to net cash flows used in operating activities for the six months ended June 30, 2013 from changes in operating assets and liabilities with no impact on net cash flows used in operating activities.

Accounting and Disclosure Changes

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs.

In March 2013, the FASB issued an ASU that indicates when the cumulative translation adjustment (“CTA”) related to an entity’s investment in a foreign entity should be released to earnings. The CTA should be released when an entity sells a foreign subsidiary or a group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in a foreign entity. The CTA should also be released when an entity no longer has a controlling financial interest in an investment in a foreign entity. This guidance, which is effective for the Company in fiscal 2014 on a prospective basis, does not have a significant impact on our consolidated financial statements.

In July 2013, the FASB issued an ASU which states that entities should present the unrecognized tax benefit as a reduction of the deferred tax asset for a net operating loss (“NOL”) or similar tax loss or tax credit carry-forward rather than as a liability when the uncertain tax position would reduce the NOL or other carry-forward under the tax law. This guidance, which is effective for the Company in fiscal 2014 on a prospective basis, does not have a significant impact on our consolidated financial statements.

In September 2013, the Internal Revenue Service released final tangible property regulations under the Internal Revenue Code regarding the deduction and capitalization of expenditures related to tangible property as well as dispositions of tangible property. These regulations will be effective for the Company’s fiscal year ending December 31, 2015. Taxpayers may elect to apply them to tax years beginning on or after January 1, 2012. The Company is currently evaluating the impact that these regulations will have on the Company’s consolidated financial statements.

In May 2014, the FASB issued an ASU related to revenue recognition which amends the former revenue recognition guidance. This new guidance provides a single, comprehensive revenue recognition model for all contracts with customers. This guidance contains principles that an entity will apply to determine the measurement of revenue and timing of when revenue is recognized. The entity will recognize revenue to reflect the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. The Company is currently evaluating the impact on our consolidated financial statements.

3. Inventory

Inventory, which is stated at the lower of cost or market using principally the weighted average cost method, was comprised of the following components as of:


(in millions of dollars)	June 30, 2014		December 31, 2013

Raw materials	$	9.0	$	8.7
Work-in-progress		16.7		15.5
Finished goods		20.2		20.8

Total	$	45.9	$	45.0

Effective in the third quarter of 2013, the Company changed its method of accounting for domestic inventories from the last-in, first-out (“LIFO”) method to the weighted average cost method. Management believes the weighted average cost method is preferable in that it:

•

conforms all of the Company’s inventories to principally a single costing method across the Company’s operating and reporting segments for both financial reporting and income tax purposes;

•

provides a more meaningful presentation of financial position and better reflects the current value of inventories on the Company’s consolidated balance sheet;

•

simplifies the valuation of inventories and cost of goods sold and reduces the risk of inaccuracy associated with the manual LIFO calculations at year-end; and

•

conforms to the methodology widely utilized and recognized in the industry, thus allowing for better comparisons among the Company’s competitors.

In accordance with the prescribed guidance for accounting changes, all prior periods presented have been retrospectively adjusted to apply the new method of accounting.

Our condensed consolidated statement of operations for the periods shown was adjusted as follows:


	For the Three Months Ended June 30, 2013						For the Six Months Ended June 30, 2013
(in millions of dollars)	As Originally Reported			As Recast			As Originally Reported			As Recast

Costs of goods sold	$	(109.2	)	$	(109.2	)	$	(213.9	)	$	(213.1	)
Operating income	$	16.6		$	16.6		$	35.1		$	35.9
Net income (loss)	$	0.4		$	0.4		$	(0.8	)	$	—

Our condensed consolidated statement of cash flows for the periods shown was adjusted as follows:


	For the Six Months Ended June 30, 2013
(in millions of dollars)	As Originally Reported			As Recast

Net loss	$	(0.8	)	$	—
Inventory	$	1.0		$	0.2

The change in inventory accounting from LIFO to the weighted average cost method had no effect on income tax expense for the three or six months ended June 30, 2013 due to the Company’s net operating loss carry-forward and related valuation allowances for the periods.

4. Intangible Assets

The Company’s intangible assets primarily relate to customer relationships, technology and indefinite-lived trade names within each of the Company’s segments.

Intangible assets and related accumulated amortization included the following activity during the six months ended June 30, 2014:


(in millions of dollars)	Customer Relationships			Technology			Trade Names		Computer Software			Total

Gross carrying amount at January 1, 2014	$	178.1		$	54.6		$	54.6	$	1.5		$	288.8
Additions during the period		—			—			—		0.1			0.1

Balance at June 30, 2014		178.1			54.6			54.6		1.6			288.9


Gross accumulated amortization at January 1, 2014		(30.4	)		(8.9	)		—		(0.5	)		(39.8	)
Amortization expense		(6.0	)		(1.8	)		—		(0.2	)		(8.0	)
Foreign currency translation		(0.1	)		—			—		—			(0.1	)

Balance at June 30, 2014		(36.5	)		(10.7	)		—		(0.7	)		(47.9	)


Net book value at June 30, 2014	$	141.6		$	43.9		$	54.6	$	0.9		$	241.0

Intangible assets and related accumulated amortization included the following activity during the year ended December 31, 2013:


(in millions of dollars)	Customer Relationships			Technology			Trade Names		Computer Software			Total

Gross carrying amount at January 1, 2013	$	176.7		$	53.9		$	53.9	$	0.8		$	285.3
Additions during the period		0.2			—			—		0.7			0.9
Foreign currency translation		1.2			0.7			0.7		—			2.6

Balance at December 31, 2013		178.1			54.6			54.6		1.5			288.8


Gross carrying amount at January 1, 2013		(17.9	)		(5.2	)		—		(0.3	)		(23.4	)
Amortization expense		(12.2	)		(3.6	)		—		(0.2	)		(16.0	)
Foreign currency translation		(0.3	)		(0.1	)		—		—			(0.4	)

Balance at December 31, 2013		(30.4	)		(8.9	)		—		(0.5	)		(39.8	)


Net book value at December 31, 2013	$	147.7		$	45.7		$	54.6	$	1.0		$	249.0

Amortization expense for intangible assets for the six months ended June 30, 2013 was $8.0 million.

The estimated aggregate amortization expense for each of the next five fiscal years and thereafter is as follows:


(in millions of dollars)

Remainder of 2014	$	8.0
2015		15.7
2016		15.4
2017		14.8
2018		14.6
Thereafter		117.9

	$	186.4

5. Goodwill

Goodwill included the following activity for the periods shown below:


(in millions of dollars)	Asia Pacific		Europe			North America		Total

Balance at January 1, 2014	$	74.2	$	126.4		$	46.1	$	246.7
Foreign currency translation		0.3		(1.0	)		—		(0.7	)


Balance at June 30, 2014	$	74.5	$	125.4		$	46.1	$	246.0


(in millions of dollars)	Asia Pacific			Europe		North America			Total

Balance at January 1, 2013	$	74.8		$	121.1	$	46.9		$	242.8
Foreign currency translation		(0.6	)		5.3		(0.8	)		3.9


Balance at December 31, 2013	$	74.2		$	126.4	$	46.1		$	246.7

6. Derivatives

The use of derivative financial instruments exposes the Company to market risk related to foreign currency exchange rates. The Company uses derivative instruments to hedge various foreign exchange exposures, including the following: (i) variability in foreign currency-denominated cash flows, such as receivables denominated in a currency other than the entity’s functional currency and (ii) currency risk associated with foreign currency-denominated operating assets and liabilities. The term of foreign exchange contracts as of June 30, 2014 ranged from one to 31 months.

The Company reports its derivative positions on the condensed consolidated balance sheets on a gross basis and does not net asset and liability derivative positions with the same counterparty. The Company monitors its positions with, and the credit quality of, the financial institutions that are parties to its financial transactions. See Note 10 for further information.

The following table sets forth the fair value of the Company’s derivative contracts recorded on the condensed consolidated balance sheets as of:


(in millions of dollars)	Condensed Balance Sheet Location	June 30, 2014			December 31, 2013

Foreign exchange forward contracts	Other assets	$	0.1		$	—
Foreign exchange forward contracts	Accrued expenses and other liabilities		(0.8	)		(3.7	)
Foreign exchange forward contracts	Other noncurrent liabilities		(2.0	)		—

Total		$	(2.7	)	$	(3.7	)


(in millions of dollars)	Condensed Balance Sheet Location	June 30, 2014			December 31, 2013

Foreign exchange forward contracts (losses)	Accumulated foreign currency translation adjustment, net	$	(1.0	)	$	(1.5	)
Foreign exchange forward contracts (losses)	Unrealized (loss) on cash flow hedges, net		—			(0.2	)

Total		$	(1.0	)	$	(1.7	)

The following tables set forth the impact that changes in fair values of derivative contracts, designated as net investment and cash flow hedges, had on operations and other comprehensive income for the periods presented below:


	Condensed Statements of Comprehensive Income	Three Months Ended
(in millions of dollars)	Location	June 30, 2014		June 30, 2013

Foreign exchange forward contracts gains (losses)	Foreign currency translation	$	0.2	$	(0.7	)
Foreign exchange forward contracts gains (losses)	Unrealized gain on cash flow hedges, net of tax		0.5		(0.1	)

Total		$	0.7	$	(0.8	)


(in millions of dollars)	Condensed Statements of Operations	Six Months Ended
	Location	June 30, 2014		June 30, 2013

Foreign exchange forward contracts gains	Selling, general and administrative expense	$	—	$	0.1

Total		$	—	$	0.1


	Condensed Statements of Comprehensive Income	Six Months Ended
(in millions of dollars)	Location	June 30, 2014		June 30, 2013

Foreign exchange forward contracts gains	Foreign currency translation	$	0.4	$	0.5
Foreign exchange forward contracts gains (losses)	Unrealized gain on cash flow hedges, net of tax		0.2		(0.2	)

Total		$	0.6	$	0.3

As of June 30, 2014 and December 31, 2013 the Company had an aggregate outstanding notional amount of approximately $57.8 and $65.6 million, respectively, in foreign exchange contracts.

7. Debt

Long-term debt was comprised of the following components as of:


(in millions of dollars)	June 30, 2014							December 31, 2013
	Commitment Amount		Due Date		Balance Outstanding			Balance Outstanding

2019 Notes ^{(1) (2)}	$	350.0		July 15, 2019	$	350.0		$	350.0
ERP Loan ⁽¹²⁾		5.9		December 31, 2018		5.9			5.9
Credit Facility ^{(3) (10)}
Term Loan ^{(3) (4) (5) (6) (10) (11)}		50.0		July 19, 2016		32.5			34.4
Revolver^{(3) (4) (5) (6) (7) (8) (9) (10) (11)}		50.0		July 19, 2016		—			—
Letter of Credit Facility ^{(8) (9) (11)}
Chartis Casualty Company		2.8		July 19, 2015		—			—
Zurich American Insurance Company		0.1		July 19, 2015		—			—
Line of Credit		1.6		January 3, 2015		—			—

						388.4			390.3
Less: current portion						(8.2	)		(5.6	)

Total					$	380.2		$	384.7

(1)

The 9.25% Senior Secured Second Lien Notes due 2019 (the “2019 Notes”) were co-issued by Dynacast International LLC (“Dynacast International”) and Dynacast Finance Inc. (“Dynacast Finance” and collectively the “Issuers”), each a wholly-owned subsidiary of the Company. The 2019 Notes are guaranteed on a senior secured basis by the Company and all of the Company’s direct and indirect domestic subsidiaries that guarantee the obligations of Dynacast International under the Credit Facility, as defined below (Note 15). The 2019 Notes and the guarantees are secured by second priority liens on substantially all of the Issuers’ assets and the assets of the guarantors (whether now owned or hereafter arising or acquired), subject to certain exceptions, permitted liens and encumbrances.

(2)	Interest on the 2019 Notes is fixed at 9.25% with interest payments due semi-annually on January 15^th and July 15^th. Interest accrued from July 19, 2011. Principal payment is due on July 15, 2019.

(3)

The Company has a Credit Facility which is comprised of a senior secured first-lien revolving credit facility (the “Revolver”) for $50.0 million which is available for working capital purposes, including the provision of letters of credit and a $50.0 million senior secured first-lien term loan (the “Term Loan”). Outstanding balances under the Term Loan and the Revolver bear interest at a rate equal to, at the Company’s option, either (i) the alternative base rate (“ABR”) plus the applicable margin⁽⁴⁾ for ABR loans; or (ii) Adjusted London Interbank Offered Rate (“Adjusted LIBOR”) plus applicable margin⁽⁵⁾ for Eurodollar loans. Principal payments on the Term Loan are due quarterly. Principal payment on the Revolver is due July 19, 2016.

(4)

The ABR is equal to the greatest of (a) the base rate in effect for such day, (b) federal funds effective rate in effect on such day plus 0.50% or (c) the Adjusted LIBOR for an interest period of one-month beginning on such day plus 100 basis points; provided that the ABR shall be deemed to be not less that 2.50% per annum. The ABR for each of the three and six months ended June 30, 2014 and 2013 was 3.25%.

(5)

Adjusted LIBOR with respect to any borrowing comprised of Eurodollar loans (“Eurodollar Borrowing”) for any interest period is (a) an interest rate per annum (rounded upward, if necessary, to the nearest 1/100^th of 1%) determined by JPMorgan Chase Bank as “Administrative Agent” under the Credit Facility to be equal to the LIBOR for such Eurodollar Borrowing in effect for such interest period divided by (b) 1 minus the Statutory Reserves (if any) for such Eurodollar Borrowing for such interest period; provided that the Adjusted LIBOR shall be deemed to be not less than 1.50% per annum. The Adjusted LIBOR for each of the three and six months ended June 30, 2014 and 2013 was 1.50%.

(6)

The applicable margin, effective May 21, 2014, with respect to any outstanding balances under the Term Loan or Revolver is 3.50% and 4.50% for ABR and Eurodollar Borrowings, respectively, subject to changes in the total leverage ratio as calculated on and after the fifth business day after delivery to the Administrative Agent of the quarterly or annual financial statements. The applicable margin for the period August 23, 2013 through May 20, 2014 with respect to any outstanding balances under the Term Loan or Revolver was 3.25% and 4.25% for ABR and Eurodollar Borrowings, respectively. The applicable margin at June 30, 2013 with respect to any outstanding balances under the Term Loan or Revolver was 3.50% and 4.50% for ABR and Eurodollar Borrowings, respectively.

(7)

The commitment fee for the Revolver is 0.75%, effective May 21, 2014, on the average daily unused amount of the Revolver commitment subject to changes in the total leverage ratio as calculated on and after the fifth business day after delivery to the Administrative Agent of the quarterly or annual financial statements. The commitment fee for the period August 23, 2013 through May 20, 2014 for the Revolver was 0.50% on the average daily unused amount of revolving commitment. The commitment fee at June 30, 2013 for the Revolver was 0.75% on the average daily unused amount of revolving commitment.

(8)

The letter of credit participation fee to any Revolver lender with respect to its participation in the Credit Facility is a rate equal to the applicable margin used to determine the interest rate on Eurodollar Borrowings on the average daily amount of such lender’s letter of credit exposure, which is defined as the aggregate undrawn amount of all outstanding letters of credit plus aggregate principal amount of all reimbursement obligations outstanding.

(9)	The fronting fee to any issuing bank in its capacity as an issuer of letters of credit is 0.25% on the average daily amount of letter of credit exposure.

(10)

With respect to any ABR Term or Revolver loan, interest is payable on the last business day of March, June, September and December of each year. With respect to any Eurodollar Borrowing Term or Revolver loan, interest is payable on the last day of the interest period as defined in the Credit Facility. For Eurodollar Borrowings with interest periods greater than three months, interest is payable in intervals of every three months.

(11)	Accrued fees are payable in arrears on the last business day of March, June, September and December of each year.

(12)

The ERP Fonds Austria Wirtschaftsservice loan (the “ERP Loan”) was received in connection with the investment in a new aluminum die-casting facility in Austria. Interest is fixed at 0.50% from January 1, 2012 to June 30, 2015 and at 1.5% from July 1, 2015 to December 31, 2018 with interest payments due quarterly. Interest accrued from June 18, 2013 when the ERP Loan was drawn. Principal payments are due semi-annually beginning June 30, 2015. A guarantee fee of 0.30% is charged quarterly in advance on the outstanding ERP Loan balance.

The letter of credit commitment under the Revolver is $10.0 million; however, at no time can the Company’s Revolver exposure, which is defined as the aggregate principal amount of all outstanding Revolver loans plus the aggregate amount of the Company’s letter of credit exposure, which is defined as the sum of (a) the aggregate undrawn amount of all outstanding letters of credit plus (b) the aggregate principal amount of all letter of credit reimbursement obligations, exceed the total Revolver commitment of $50.0 million. As of June 30, 2014, the Company had approximately $7.1 million available under the letter of credit commitments (Note 13). In addition to the letter of credit commitment under the Credit Facility, the Company has a line of credit in China for approximately $1.6 million under which no amounts were outstanding at June 30, 2014 and December 31, 2013.

Future minimum principal payments as of June 30, 2014 are as follows:


(in millions of dollars)

Remainder of 2014	$	3.8
2015		17.7
2016		14.0
2017		1.5
2018		1.4
Thereafter		350.0

	$	388.4

The weighted average interest rate for the Term Loan and Revolver was 5.86% and 5.81% for the three and six months ended June 30, 2014, respectively. The interest rate for the Term Loan and Revolver was 6.0% for the three and six months ended June 30, 2013.

The Credit Facility contains covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, grant liens, make investments, loans or advances, pay dividends, engage in mergers, enter into sale and leaseback transactions or engage in certain transactions with affiliates and otherwise restrict certain corporate activities. The Company does not expect these covenants to unreasonably restrict its liquidity, financial condition or access to capital resources in the foreseeable future.

The Company amended its Credit Facility in March 2014 to allow cash dividends on the Series A Convertible Mandatorily Redeemable Preferred Stock, $0.001 par value per share, (“Series A Preferred Stock”) and the Series B Redeemable Preferred Stock, $0.001 par value per share, (“Series B Preferred Stock”), subject to maintaining a specified leverage ratio after reflecting the cash dividends paid and generating an amount determined by reference to certain cash flows of the Company as provided in the Credit Facility.

The Company is also subject to a maximum total leverage ratio and minimum interest coverage ratio under the Credit Facility. As of June 30, 2014, the Company is in compliance with these covenants. There are no financial covenants associated with the 2019 Notes or the ERP Loan.

2019 Notes Optional Redemption

On and after July 15, 2015, the Issuers may redeem the 2019 Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the 2019 Notes to be redeemed) set forth below, plus accrued and unpaid interest thereon to the applicable redemption date, subject to the right of holders of the 2019 Notes of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve month period beginning on July 15 of each of the years indicated below:


2015	104.625	%
2016	102.313	%
2017 and thereafter	100.000	%

8. Employee Benefit and Retirement Plans

The following table presents components of the Company’s pension cost for the periods shown below:


	Three Months Ended						Six Months Ended
(in millions of dollars)	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013

Service cost-benefits earned during the period	$	0.3		$	0.3		$	0.6		$	0.5
Interest cost on projected benefit obligation		0.3			0.3			0.7			0.6
Expected return on plan assets		(0.2	)		(0.2	)		(0.4	)		(0.3	)


Net periodic pension cost	$	0.4		$	0.4		$	0.9		$	0.8

9. Income Taxes

The Company’s income tax expense and resulting effective tax rate are based upon the respective estimated annual effective tax rates applicable for the respective periods adjusted for the effects of items required to be treated as discrete to the period, including adjustments to write down deferred tax assets determined not to be realizable due to changes in tax laws, changes in estimated exposures for uncertain tax positions, and other items. The Company’s tax expense for the three and six months ended June 30, 2014 was favorably impacted by a decrease in the valuation allowance for a tax jurisdiction with tax losses where the tax benefit could not be recognized and negatively impacted by the non-deductible interest expense associated with the mandatorily redeemable preferred stock (Note 11) and the change in the fair value of the Company’s warrants (Note 10).

10. Fair Value of Financial Instruments

Recurring Fair Value Measurements

The following table presents the Company’s non-pension financial assets and liabilities which are measured at fair value on a recurring basis as of:


	June 30, 2014
(in millions of dollars)	Fair Value		Level 1		Level 2		Level 3
Assets
Foreign exchange forward contracts ⁽²⁾	$	0.1	$	—	$	0.1	$	—
Mutual funds ⁽¹⁾		2.3		2.3		—		—
Equity ⁽¹⁾		0.1		0.1		—		—

Total	$	2.5	$	2.4	$	0.1	$	—


Liabilities
Warrants		20.0		—		—		20.0
Foreign exchange forward contracts⁽²⁾		2.8		—		2.8		—

Total	$	22.8	$	—	$	2.8	$	20.0

⁽¹⁾	Included in other current and noncurrent assets on the accompanying condensed consolidated balance sheets.

⁽²⁾	See Note 6 for further information.

The following table sets forth a reconciliation of changes in the fair value of warrants that is based on significant unobservable inputs for the six months ended June 30, 2014:


(in millions of dollars)

Fair value of warrants at January 1, 2014	$	15.6
Unrealized change during the period		4.4

Fair value of warrants at June 30, 2014	$	20.0

The unrealized change in the fair value of warrants is included in other expense, net in the accompanying condensed consolidated statements of operations. For the six-months ended June 30, 2013 the unrealized change in the fair value of warrants was $4.2 million.

The following table summarizes the significant unobservable inputs in the warrant valuation:


(in millions of dollars)	Fair Value as of June 30, 2014		Valuation Technique	Unobservable Input	Range (Weighted Average)

Warrants	$	20.0	Option Pricing	Discount Rate	11.75% - 12.75% (12.25%)
				Volatility ⁽¹⁾	55.0% - 65.0%
				EBITDA Multiples ⁽²⁾	7.0x - 8.0x (7.5)
				Enterprise Value	$891.9 - $1,016.4 ($954.1)
				Liquidity Event ⁽³⁾	7 to 10 years (7 years)

⁽¹⁾	Volatility was 55.0% for the Kenner Equity Management, LLC (“Kenner”) warrants and 65.0% for MIHI LLC (“Macquarie”) warrants.

⁽²⁾	Before control premium.

⁽³⁾	Not based on weighted average.

The following table presents the Company’s non-pension financial assets and liabilities which are measured at fair value on a recurring basis as of:


	December 31, 2013
(in millions of dollars)	Fair Value		Level 1		Level 2		Level 3
Assets
Mutual funds ⁽¹⁾	$	2.3	$	2.3	$	—	$	—
Equity ⁽¹⁾		0.1		0.1		—		—

Total	$	2.4	$	2.4	$	—	$	—

Liabilities
Warrants		15.6		—		—		15.6
Foreign exchange forward contracts⁽²⁾		3.7		—		3.7		—

Total	$	19.3	$	—	$	3.7	$	15.6

⁽¹⁾	Included in other current and noncurrent assets on the accompanying condensed consolidated balance sheets.

⁽²⁾	See Note 6 for further information.

The following table sets forth a reconciliation of changes in the fair value of warrants that is based on significant unobservable inputs for the year ended December 31, 2013:


(in millions of dollars)

Fair value of warrants at January 1, 2013	$	9.5
Unrealized change during period		6.1

Fair value of warrants at December 31, 2013	$	15.6

The following table summarizes the significant unobservable inputs in the warrant valuation:


(in millions of dollars)	Fair Value as of December 31, 2013		Valuation Technique	Unobservable Input	Range (Weighted Average)

Warrants	$	15.6	Option Pricing	Discount Rate	12.25% - 13.25% (12.75%)
				Volatility ⁽¹⁾	60.0% - 65.0%
				EBITDA Multiples ⁽²⁾	6.25 x to 7.25 x (6.75)
				Enterprise Value	$799.4 - $915.4 ($857.4)
				Liquidity Event ⁽³⁾	7 to 10 years (7 years)

⁽¹⁾	Volatility was 60.0% for the Kenner warrants and 65.0% for Macquarie warrants.

⁽²⁾	Before control premium.

⁽³⁾	Not based on weighted average.

Other Financial Instruments

The Company’s other financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The carrying values for current financial assets and liabilities including cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of such instruments.

The fair value of the 2019 Notes as of June 30, 2014 and December 31, 2013 was $385.0 and $385.9 million, respectively, based on available market information. The fair value of the ERP Loan as of June 30, 2014 and December 31, 2013 was $5.6 and $5.4 million, respectively, based on available market information. The carrying amounts of all other significant debt, including the Term Loan and the Revolver approximate fair value based on the variable nature of the interest thereupon and the consistency of the Company’s market spreads since the debt’s issuance.

11. Redeemable Common and Preferred Stock and Warrants

Series A Preferred Stock

On July 19, 2011 (the “Acquisition Date”), the Company issued 26,500 shares of Series A Preferred Stock to Macquarie. The Series A Preferred Stock participates pari passu Series B Preferred Stock as to dividends and liquidation preference, and was generally entitled to receive dividends of up to 14.0% (12.0% if the dividends were paid when declared) of the Series A Preferred Stock’s liquidation preference per year through April 10, 2013. On April 11, 2013, the Company amended its certificate of incorporation to, among other things, reduce the dividend rate payable on the Company’s Series A Preferred Stock to 11.375% (10.0% if the dividends are paid when declared) of the Series A Preferred Stock’s liquidation preference. Dividends are payable quarterly at the option of the Company or upon redemption. See Note 12 for further information.

During each of three and six months ended June 30, 2014, the Company recognized approximately $0.9 and $1.8 million in interest expense related to the Series A Preferred Stock, respectively. During each of three and six months ended June 30, 2013, the Company recognized approximately $1.1 and $2.1 million in interest expense related to the Series A Preferred Stock, respectively. As of June 30, 2014 and December 31, 2013 approximately $9.0 million in Series A Preferred Stock dividends payable are accrued and classified as long-term and included in accrued interest and dividends on the condensed consolidated balance sheets.

The Series A Preferred Stock was classified as temporary stockholders’ equity at the Acquisition Date (rather than as a liability) as the shares were convertible to common stock for a period of time. Macquarie did not convert the Series A Preferred Stock into common stock within the required time period. Accordingly, as the Series A Preferred Stock is subject to mandatory redemption on July 19, 2021, the Series A Preferred Stock was reclassified from temporary stockholders’ equity to a long-term liability as of January 16, 2012.

Series B Preferred Stock

On the Acquisition Date, the Company issued 26,500 shares of Series B Preferred Stock to Macquarie. The Series B Preferred Stock participates pari passu with the Series A Preferred Stock as to dividends and liquidation preference, and was generally entitled to receive dividends of up to 14.0% (12.0% if the dividends were paid when declared) of the Series B Preferred Stock’s liquidation preference per year through April 10, 2013. On April 11, 2013 the Company amended its certificate of incorporation to, among other

things, reduce the dividend rate payable on the Company’s Series B Preferred Stock to 11.375% (10.0% if the dividends are paid when declared) of the Series B Preferred Stock’s liquidation preference. Dividends are payable quarterly at the option of the Company or upon redemption. See Note 12 for further information.

During each of three and six months ended June 30, 2014, the Company recognized approximately $0.9 and $1.8 million in interest expense related to the Series B Preferred Stock, respectively. During each of three and six months ended June 30, 2013, the Company recognized approximately $1.0 and $2.1 million in interest expense related to the Series B Preferred Stock, respectively. As of June 30, 2014 and December 31, 2013 approximately $9.0 million in Series B Preferred Stock dividends payable are accrued and classified as long-term and included in accrued interest and dividends on the condensed consolidated balance sheets.

The Series B Preferred Stock is required to be redeemed by the Company on July 19, 2021; accordingly, the Company classified the Series B Preferred Stock as a liability. In addition, the Company also retains a call option to redeem the Series B Preferred Stock at any time after issuance. This call option is exercisable through the mandatory redemption date of the Series B Preferred Stock, without penalty and at a redemption price per share equal to the Series B liquidation preference plus any accrued and unpaid dividends thereon.

Common Stock

On the Acquisition Date, Macquarie purchased 1,500 shares of common stock at $1,000 per share. The common stock issued to Macquarie can be put to the Company if the Series A Preferred Stock or Series B Preferred Stock is redeemed by the Company, either on an early redemption date or upon the mandatory redemption date. These 1,500 shares of common stock have been recorded as temporary equity given that redemption of the shares is not within the control of the Company.

Macquarie Warrants

In conjunction with the acquisition, the Company granted 3,960 warrants to Macquarie for the purchase of the Company’s common stock at an exercise price of $0.001. The Macquarie warrants expire on the tenth anniversary of the initial anniversary of the initial exercise date as defined in the Security Holders Agreement dated July 19, 2011 (the “Security Holders Agreement”). The Macquarie warrants contain a contingent put right which enables the holders of the warrants to require the Company to redeem the warrants at $1,000 per warrant share in the event that either the Series A Preferred Stock or Series B Preferred Stock are redeemed. In addition, the Macquarie warrants also contain non-standard ownership dilution protection in events in which additional shares of common stock are issued to shareholders other than Macquarie. These warrants are classified as long-term and measured at fair value in the statement of financial position at June 30, 2014 and December 31, 2013, and will continue to be carried at fair value in subsequent accounting periods with changes in fair value being recorded in other income (expense) in the results of operations.

Kenner Warrants

In conjunction with the acquisition, the Company granted 5,940 warrants to Kenner for the purchase of the Company’s common stock at an exercise price of $0.001. The Kenner warrants expire on the seventh anniversary of the initial anniversary of the initial exercise date as defined in the Security Holders Agreement. The Kenner warrants are exercisable in whole or in part i) after the date in which a substantial liquidity event occurs, such as an initial public offering, sale of a majority stake of the Company’s common stock or merger or sale of assets; and ii) as part of the liquidity event, all of the Company’s initial investors receive an internal annual rate of return of at least 20.0% and at least two times the initial cash outflows of the investors.

Similar to the Macquarie warrants, the Kenner warrants also contain non-standard ownership dilution protection in events where additional shares of common stock are issued to shareholders other than Kenner. These warrants are classified as long-term and measured at fair value in the statement of financial position at June 30, 2014 and December 31, 2013, and will continue to be carried at fair value in subsequent accounting periods with changes in fair value being recorded in other income (expense) in the results of operations.

12. Related Parties

Management Consulting Agreement

The Company has a management consulting agreement (the “Consulting Agreement”) with Kenner and other co-investors in the Company (collectively the “Consultants”). Under the terms of the Consulting Agreement, the Company will pay $1.0 million to Kenner and $1.5 million in aggregate to the Consultants annually. The Consulting Agreement is for successive one-year terms which automatically renew unless terminated in advance. The Company recognized approximately $0.6 and $1.2 million of management fee expense during each of the three and six month periods ended June 30, 2014 and 2013, respectively, which is recorded in selling, general and administrative expense in the condensed consolidated statements of operations. As of June 30, 2014 and December 31, 2013 approximately $0.6 million in Consulting Agreement fees is classified as current included in accrued expenses and other liabilities on the condensed consolidated balance sheets.

As consideration to amend certain of the terms of the certificate of incorporation relating to the Series A Preferred Stock and the Series B Preferred Stock (Note 11) the Company paid an affiliate of Macquarie a $0.5 million debt advisory fee and granted the same affiliate of Macquarie or its designee the right to act as lead underwriter, lead initial purchaser, lead arranger, lead placement agent, financial advisor or dealer manager, as the case may be, with respect to certain transactions during the one-year period beginning on April 11, 2013. The Company capitalized the $0.5 million debt advisory fee which will be amortized through July 19, 2021, the mandatory redemption date of the Series A Preferred Stock and the Series B Preferred Stock.

13. Commitments and Contingencies

Guarantees

As of June 30, 2014 and December 31, 2013 the Company had two stand-by letters of credit under the Revolver with various banks for approximately $2.9 million securing the Company’s performance of obligations primarily related to workers’ compensation (Note 7).

Billings in Excess of Costs

As of June 30, 2014 and December 31, 2013 the Company had approximately $2.9 and $5.3 million, respectively in billing in excess of costs which represents cash collected from customers and billings to customers in advance of work performed which is classified as current and included in accrued expenses and other liabilities on the condensed consolidated balance sheets.

Litigation

The Company experiences routine litigation in the normal course of business. The Company’s management is of the opinion that none of this routine litigation will have a material effect on the Company’s financial position, results of operations or cash flows.

Risk Management Matters

The Company is self-insured for certain of its workers’ compensation, product liability and disability claims and believes that it maintains adequate accruals to cover its retained liability. The Company accrues for risk management matters as determined by management based on claims filed and estimates of claims incurred but not yet reported that are not generally discounted. Management considers a number of factors when making these determinations. The Company maintains third-party stop-loss insurance policies to cover certain liability costs in excess of predetermined retained amounts. This insurance may be insufficient or unavailable (e.g., because of insurer insolvency) to protect the Company against loss exposure.

The Company maintains property damage and business interruption insurance related to its operations. In June 2014 our France facility’s roof was damaged in a storm which will require the complete replacement of the roof. The insurer agreed to pay an estimated $2.3 million for the settlement of the pending insurance claim for business interruption and property damage. As a result, the Company recorded a gain of $1.9 million, net of $0.4 million in property, plant and equipment write-off which is included in other expense, net on the condensed consolidated statement of operations for the three and six months ended June 30, 2014.

14. Segment Information

The Company is comprised of three reportable geographic segments: Asia Pacific, Europe and North America, each of which includes the aggregation of multiple operating segments.

Inter-segment sales are not material, thus are not presented separately in the analysis below.

Net Sales


	Three Months Ended				Six Months Ended
(in millions of dollars)	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013

Asia Pacific	$	61.4	$	58.2	$	118.3	$	108.9
Europe		52.0		45.5		103.4		91.5
North America		43.8		39.4		86.8		82.4

Total	$	157.2	$	143.1	$	308.5	$	282.8

Segment Operating Income

The Company’s management evaluates the performance of its geographical segments on an operating income basis before income taxes, interest and certain corporate transactions which are not allocated to the geographical segments.

The tables below reconcile segment operating income to operating income for the periods presented, which in the opinion of the Company’s management is the most comparable U.S. GAAP measurement.


	Three Months Ended						Six Months Ended
(in millions of dollars)	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
				(As Recast)						(As Recast)

Asia Pacific	$	10.0		$	9.1		$	17.4		$	16.5
Europe		7.1			5.6			13.7			11.5
North America		7.0			6.0			13.6			15.6

Segment operating income		24.1			20.7			44.7			43.6
Corporate		(3.6	)		(4.1	)		(7.6	)		(7.6	)

		20.5			16.6			37.1			36.0

Fixed asset disposals		—			—			—			(0.1	)

Operating income	$	20.5		$	16.6		$	37.1		$	35.9

Total Assets


(in millions of dollars)	June 30, 2014			December 31, 2013

Asia Pacific	$	307.4		$	306.2
Europe		436.2			422.8
North America		216.8			206.8
Corporate/Eliminations		(85.4	)		(67.1	)

Total Assets	$	875.0		$	868.7

Depreciation and Amortization


	Three Months Ended				Six Months Ended
(in millions of dollars)	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013

Asia Pacific	$	3.6	$	3.2	$	7.1	$	6.3
Europe		3.8		3.3		7.7		6.6
North America		2.4		2.0		4.7		3.9

Total segment		9.8		8.5		19.5		16.8
Corporate		0.1		—		0.1		0.1

Total	$	9.9	$	8.5	$	19.6	$	16.9

Capital Expenditures


	Three Months Ended				Six Months Ended
(in millions of dollars)	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013

Asia Pacific	$	4.1	$	3.9	$	7.3	$	5.9
Europe		1.3		2.2		3.9		3.0
North America		2.0		2.9		3.6		5.1

Total segment		7.4		9.0		14.8		14.0
Corporate		0.3		—		0.4		0.1

Total	$	7.7	$	9.0	$	15.2	$	14.1

15. Supplemental Guarantor Information

The payment obligations under the 2019 Notes (see Note 7) are guaranteed, jointly and severally, by Dynacast International Inc. (the “Parent”) and all of the Parent’s 100.0% owned domestic subsidiaries (other than the Issuers) that guarantee the obligations of Dynacast International under the Credit Facility. These guarantees are full and unconditional, subject, in the case of the subsidiary guarantors, to customary release provisions. The Issuers are also 100.0% owned subsidiaries of the Parent. The 2019 Notes and the guarantees are secured by second priority liens on substantially all of the Issuers’ assets and the assets of the guarantors (whether owned or hereafter arising or acquired), subject to certain exceptions, permitted liens and encumbrances. The 2019 Notes are instruments of the Issuers and are reflected in their balance sheets.

Each of the Parent and the Issuers has no material operations of its own and only limited assets. The Company conducts the vast majority of its business operations through its subsidiaries. In servicing payments to be made on the 2019 Notes and other indebtedness, and to satisfy other liquidity requirements, the Company will rely, in large part, on cash flows from these subsidiaries, mainly in the form of dividends, royalties and advances or payments on account of inter-company loan arrangements. The ability of these subsidiaries to make dividend payments to the Company or Issuers will be affected by, among other factors, the obligations of these entities to their creditors, requirements of corporate and other law and restrictions contained in agreements entered into by or relating to these entities.

The following supplemental condensed combining financial information sets forth, on a combining basis, balance sheets, statements of operations and statements of cash flows for the Parent, the Issuers, the guarantor subsidiaries, the non-guarantor subsidiaries and elimination entries necessary to consolidate the Parent and its subsidiaries. The condensed combining financial information has been prepared on the same basis as the condensed consolidated financial statements of the Company as of and for the three and six months ended June 30, 2014 and 2013 and as of December 31, 2013. The Parent, the Issuers and the guarantors account for their investments in subsidiaries using the equity method of accounting; therefore, the Parent column, the Issuers column and the Guarantor column reflect the equity in net earnings/losses of its subsidiary guarantors and subsidiary non-guarantors, as appropriate.

During the six months ended June 30, 2014, mandatorily redeemable equity certificates between the guarantors and non-guarantors in the amount of $132.4 million were converted to intercompany loans in a non-cash transaction between the guarantors and the non-guarantors. Additionally, $23.5 million of intercompany loans among the issuers, the guarantors, and non-guarantors were settled in a non-cash settlement of the loans through the conversion of the loans to equity. There were no similar non-cash transactions during the corresponding period in the prior year. As these are non-cash transactions, these transactions are not included in the condensed combining statement of cash flows for the six months ended June 30, 2014.

Condensed Combining Statement of Operations


	Three Months Ended June 30, 2014
(in millions of dollars)	Parent			Issuers			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales	$	—		$	—		$	28.2		$	130.5		$	(1.5	)	$	157.2
Costs of goods sold		—			—			(22.0	)		(99.1	)		1.5			(119.6	)

Gross margin		—			—			6.2			31.4			—			37.6
Operating expenses:
Selling, general and administrative expense		(0.9	)		(0.1	)		(4.7	)		(11.4	)		—			(17.1	)

Total operating expenses		(0.9	)		(0.1	)		(4.7	)		(11.4	)		—			(17.1	)
Operating (loss) income		(0.9	)		(0.1	)		1.5			20.0			—			20.5
Other income (expense)
Interest and other (expense) income, net		(4.2	)		(10.1	)		6.7			(4.5	)		—			(12.1	)

(Loss) income before income tax and equity in net earnings of unconsolidated subsidiaries		(5.1	)		(10.2	)		8.2			15.5			—			8.4
Income tax benefit (expense)		0.4			3.7			(4.1	)		(4.4	)		—			(4.4	)

Net (loss) income before equity in net earnings of unconsolidated subsidiaries		(4.7	)		(6.5	)		4.1			11.1			—			4.0
Equity in net earnings of unconsolidated subsidiaries		8.6			15.1			11.0			—			(34.7	)		—

Net income		3.9			8.6			15.1			11.1			(34.7	)		4.0
Less: net income attributable to non-controlling interests		—			—			—			(0.1	)		—			(0.1	)

Net income attributable to controlling stockholders	$	3.9		$	8.6		$	15.1		$	11.0		$	(34.7	)	$	3.9


Total comprehensive income	$	6.2		$	10.8		$	16.8		$	13.8		$	(41.4	)	$	6.2

Condensed Combining Statement of Operations


	Three Months Ended June 30, 2013
	(As Recast)
(in millions of dollars)	Parent			Issuers			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales	$	—		$	—		$	24.9		$	119.6		$	(1.4	)	$	143.1
Costs of goods sold		—			—			(19.4	)		(91.2	)		1.4			(109.2	)

Gross margin		—			—			5.5			28.4			—			33.9
Operating expenses:
Selling, general and administrative expense		(1.3	)		(0.1	)		(4.8	)		(11.1	)		—			(17.3	)

Total operating expenses		(1.3	)		(0.1	)		(4.8	)		(11.1	)		—			(17.3	)
Operating (loss) income		(1.3	)		(0.1	)		0.7			17.3			—			16.6
Other income (expense)
Interest and other (expense) and income, net		(3.6	)		(10.7	)		10.9			(9.8	)		—			(13.2	)

(Loss) income before income tax and equity in net earnings of unconsolidated subsidiaries		(4.9	)		(10.8	)		11.6			7.5			—			3.3
Income tax benefit (expense)		0.4			2.7			(4.3	)		(1.8	)		—			(3.0	)

Net (loss) income before equity in net earnings of unconsolidated subsidiaries		(4.5	)		(8.1	)		7.3			5.7			—			0.4
Equity in net earnings of unconsolidated subsidiaries		4.8			12.9			5.7			—			(23.6	)		—

Net income		0.4			4.9			13.0			5.7			(23.6	)		0.4

Net income attributable to controlling stockholders	$	0.4		$	4.9		$	13.0		$	5.7		$	(23.6	)	$	0.4


Total comprehensive income	$	0.4		$	5.0		$	13.2		$	6.7		$	(24.8	)	$	0.5

Condensed Combining Statement of Operations


	Six Months Ended June 30, 2014
(in millions of dollars)	Parent			Issuers			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales	$	—		$	—		$	54.7		$	256.8		$	(3.0	)	$	308.5
Costs of goods sold		—			—			(43.0	)		(196.5	)		3.0			(236.5	)

Gross margin		—			—			11.7			60.3			—			72.0
Operating expenses:
Selling, general and administrative expense		(2.2	)		(0.1	)		(9.5	)		(23.1	)		—			(34.9	)

Total operating expenses		(2.2	)		(0.1	)		(9.5	)		(23.1	)		—			(34.9	)
Operating (loss) income		(2.2	)		(0.1	)		2.2			37.2			—			37.1
Other income (expense)
Interest and other (expense) income, net		(8.0	)		(20.5	)		14.3			(11.3	)		—			(25.5	)

(Loss) before income tax and equity in net earnings of unconsolidated subsidiaries		(10.2	)		(20.6	)		16.5			25.9			—			11.6
Income tax benefit (expense)		1.1			9.4			(10.5	)		(7.3	)		—			(7.3	)

Net (loss) income before equity in net earnings of unconsolidated subsidiaries		(9.1	)		(11.2	)		6.0			18.6			—			4.3
Equity in net earnings of unconsolidated subsidiaries		13.2			24.4			18.4			—			(56.0	)		—

Net income		4.1			13.2			24.4			18.6			(56.0	)		4.3
Less: net income attributable to non-controlling interests		—			—			—			(0.2	)		—			(0.2	)

Net income attributable to controlling stockholders	$	4.1		$	13.2		$	24.4		$	18.4		$	(56.0	)	$	4.1


Total comprehensive income	$	4.7		$	13.5		$	24.2		$	19.1		$	(56.8	)	$	4.7

Condensed Combining Statement of Operations


	Six Months Ended June 30, 2013
	(As Recast)
(in millions of dollars)	Parent			Issuers			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales	$	—			—		$	51.9		$	233.7		$	(2.8	)	$	282.8
Costs of goods sold		—			—			(38.8	)		(177.1	)		2.8			(213.1	)

Gross margin		—			—			13.1			56.6			—			69.7
Operating expenses:
Selling, general and administrative expense		(2.6	)		(0.2	)		(9.1	)		(21.9	)		—			(33.8	)

Total operating expenses		(2.6	)		(0.2	)		(9.1	)		(21.9	)		—			(33.8	)
Operating (loss) income		(2.6	)		(0.2	)		4.0			34.7			—			35.9
Other income (expense)
Interest and other (expense) income, net		(8.4	)		(22.1	)		14.7			(12.9	)		—			(28.7	)

(Loss) income before income tax and equity in net earnings of unconsolidated subsidiaries		(11.0	)		(22.3	)		18.7			21.8			—			7.2
Income tax benefit (expense)		1.1			9.2			(10.7	)		(6.8	)		—			(7.2	)

Net (loss) income before equity in net earnings of unconsolidated subsidiaries		(9.9	)		(13.1	)		8.0			15.0			—			—
Equity in net earnings of unconsolidated subsidiaries		9.8			22.9			14.9			—			(47.6	)		—

Net (loss) income		(0.1	)		9.8			22.9			15.0			(47.6	)		—
Less: net income attributable to non-controlling interests		—			—			—			(0.1	)		—			(0.1	)

Net (loss) income attributable to controlling stockholders	$	(0.1	)	$	9.8		$	22.9		$	14.9		$	(47.6	)	$	(0.1	)


Total comprehensive (loss) income	$	(8.6	)	$	1.4		$	12.9		$	5.7		$	(19.8	)	$	(8.4	)

Condensed Combining Balance Sheet


	As of June 30, 2014
(in millions of dollars)	Parent		Issuers		Guarantors		Non-Guarantors		Eliminations			Consolidated

Assets
Current assets
Cash and cash equivalents	$	—	$	12.3	$	3.6	$	27.4	$	—		$	43.3
Accounts receivable, net		—		—		16.5		85.9		—			102.4
Inventory		—		—		6.9		39.0		—			45.9
Prepaids and other assets		0.1		0.7		5.4		15.1		(6.4	)		14.9
Deferred income taxes		—		—		3.8		2.2		—			6.0

Total current assets		0.1		13.0		36.2		169.6		(6.4	)		212.5

Property and equipment, net		0.3		—		26.6		125.3		—			152.2
Intangible assets, net		—		—		25.1		215.9		—			241.0
Goodwill		—		—		30.8		215.2		—			246.0
Other assets		257.5		665.4		541.3		35.5		(1,476.4	)		23.3

Total assets		257.9		678.4		660.0		761.5		(1,482.8	)		875.0
Liabilities and Equity
Current liabilities
Accounts payable		0.2		—		9.5		55.5		—			65.2
Income taxes payable		—		—		—		5.4		—			5.4
Accrued expenses and other liabilities		1.0		1.2		11.3		45.5		(6.4	)		52.6
Accrued interest		—		15.0		—		—		—			15.0
Deferred revenue		—		—		3.8		9.0		—			12.8
Current portion of accrued pension and retirement benefit obligations		—		—		—		0.8		—			0.8
Current portion of long-term debt		—		7.5		—		0.7		—			8.2
Deferred income taxes		—		1.1		—		0.4		—			1.5

Total current liabilities		1.2		24.8		24.6		117.3		(6.4	)		161.5
Accrued interest and dividends		17.9		—		—		—		—			17.9
Accrued pension and retirement benefit obligations		—		—		1.6		20.9		—			22.5
Notes payable to affiliate, net		29.9		25.9		10.1		131.0		(196.9	)		—
Long-term debt, net		—		375.0		—		5.2		—			380.2
Mandatorily redeemable preferred stock		53.0		—		—		151.1		(151.1	)		53.0
Warrants		20.0		—		—		—		—			20.0
Deferred income taxes		—		—		54.5		63.6		(50.7	)		67.4
Other liabilites		—		2.0		3.2		7.1		—			12.3

Total liabilities		122.0		427.7		94.0		496.2		(405.1	)		734.8


Convertible redeemable preferred stock		—		—		—		51.6		(51.6	)		—

Puttable common stock		1.5		—		—		—		—			1.5

Equity
Total equity attributable to controlling stockholders		134.4		250.7		566.0		209.4		(1,026.1	)		134.4
Non-controlling interests		—		—		—		4.3		—			4.3

Total equity		134.4		250.7		566.0		213.7		(1,026.1	)		138.7

Total liabilities and equity	$	257.9	$	678.4	$	660.0	$	761.5	$	(1,482.8	)	$	875.0

Condensed Combining Balance Sheet


	As of December 31, 2013
(in millions of dollars)	Parent		Issuers		Guarantors		Non-Guarantors		Eliminations			Consolidated

Assets
Current assets
Cash and cash equivalents	$	—	$	6.5	$	—	$	30.3	$	—		$	36.8
Accounts receivable, net		—		—		13.7		83.3		—			97.0
Inventory		—		—		7.0		38.0		—			45.0
Prepaids and other assets		0.2		0.8		4.4		13.2		(3.4	)		15.2
Deferred income taxes		—		—		3.8		2.3		(1.2	)		4.9

Total current assets		0.2		7.3		28.9		167.1		(4.6	)		198.9

Property and equipment, net		—		—		26.6		122.1		—			148.7
Intangible assets, net		—		—		25.8		223.2		—			249.0
Goodwill		—		—		30.8		215.9		—			246.7
Other assets		246.4		683.4		567.0		55.5		(1,526.9	)		25.4

Total assets	$	246.6	$	690.7	$	679.1	$	783.8	$	(1,531.5	)	$	868.7
Liabilities and Equity
Current liabilities
Accounts payable		0.5		—		7.9		59.3		—			67.7
Income taxes payable		—		—		—		5.8		—			5.8
Accrued expenses and other liabilities		1.5		3.8		13.4		38.1		(3.4	)		53.4
Accrued interest		—		15.0		—		—		—			15.0
Deferred revenue		—		—		3.6		8.6		—			12.2
Current portion of accrued pension and retirement benefit obligations		—		—		—		0.8		—			0.8
Current portion of long-term debt		—		5.6		—		—		—			5.6
Deferred income taxes		—		1.1		—		0.4		(1.1	)		0.4

Total current liabilities		2.0		25.5		24.9		113.0		(4.5	)		160.9
Accrued interest and dividends		17.9		—		—		—		—			17.9
Accrued pension and retirement benefit obligations, net		—		—		1.9		20.6		—			22.5
Notes payable to affiliate, net		26.7		45.7		7.1		43.2		(122.7	)		—
Long-term debt, net		—		378.8		—		5.9		—			384.7
Mandatorily redeemable preferred stock		53.0		—		—		283.6		(283.6	)		53.0
Warrants		15.6		—		—		—		—			15.6
Deferred income taxes		—		—		44.0		65.2		(40.3	)		68.9
Other liabilities		—		—		3.7		6.0		—			9.7

Total liabilities		115.2		450.0		81.6		537.5		(451.1	)		733.2

Convertible redeemable preferred stock		—		—		—		51.6		(51.6	)		—

Puttable common stock		1.5		—		—		—		—			1.5

Equity
Total equity attributable to controlling stockholders		129.9		240.7		597.5		190.6		(1,028.8	)		129.9
Non-controlling interests		—		—		—		4.1		—			4.1

Total equity		129.9		240.7		597.5		194.7		(1,028.8	)		134.0

Total liabilities and equity	$	246.6	$	690.7	$	679.1	$	783.8	$	(1,531.5	)	$	868.7

Condensed Combining Statement of Cash Flows


	Six Months Ended June 30, 2014
(in millions of dollars)	Parent			Issuers			Guarantors			Non-Guarantor			Eliminations			Consolidated

Cash flows from operating activities

Net cash flows provided by operating activities	$	3.8		$	14.9		$	21.1		$	25.9		$	(38.6	)	$	27.1

Cash flows from investing activities
Capital expenditures		(0.3	)		—			(2.7	)		(12.2	)		—			(15.2	)
Settlement of derivative contracts		—			(0.2	)		—			—			—			(0.2	)
Notes receivable issued to affiliates, net		—			(6.0	)		14.3			(2.5	)		(5.8	)		—

Net cash flows (used in) provided by investing activities		(0.3	)		(6.2	)		11.6			(14.7	)		(5.8	)		(15.4	)

Cash flows from financing activities
Draws on revolver		—			—			—			—			—			—
Repayments on revolver		—			—			—			—			—			—
Draw on credit facility		—			—			—			3.0			—			3.0
Repayment on credit facility		—			—			—			(3.0	)		—			(3.0	)
Notes payable from affiliates, net		—			2.5			3.1			(14.3	)		8.7			—
Dividends to affiliates		—			(3.5	)		(32.2	)		—			35.7			—
Dividends paid to non-controlling interests		—			—			—			(0.1	)		—			(0.1	)
Dividends paid to holders of mandatorily redeemable preferred stock		(3.5	)		—			—			—			—			(3.5	)
Repayments on long-term debt		—			(1.9	)		—			—			—			(1.9	)

Net cash flows (used in) provided by financing activities		(3.5	)		(2.9	)		(29.1	)		(14.4	)		44.4			(5.5	)

Effect of exchange rate changes on cash and cash equivalents		—			—			—			0.3			—			0.3
Net change in cash and cash equivalents		—			5.8			3.6			(2.9	)		—			6.5
Cash and cash equivalents
Beginning of period		—			6.5			—			30.3			—			36.8

End of period	$	—		$	12.3		$	3.6		$	27.4		$	—		$	43.3

Condensed Combining Statement of Cash Flows


	Six Months Ended June 30, 2013
	(As Recast)
(in millions of dollars)	Parent			Issuers			Guarantors			Non-Guarantor			Eliminations			Consolidated

Cash flows from operating activities

Net cash flows provided by operating activities	$	0.5		$	12.9		$	32.3		$	25.2		$	(42.2	)	$	28.7

Cash flows from investing activities
Capital expenditures		—			—			(3.9	)		(12.9	)		—			(16.8	)
Notes receivable issued to affiliates, net		—			(3.4	)		13.6			(10.2	)		—			—

Net cash flows (used in) provided by investing activities		—			(3.4	)		9.7			(23.1	)		—			(16.8	)

Cash flows from financing activities
Draws on revolver		—			9.0			—			—			—			9.0
Repayments on revolver		—			(9.0	)		—			—			—			(9.0	)
Draw on credit facility		—			—			—			1.4			—			1.4
Repayment on credit facility		—			—			—			(1.4	)		—			(1.4	)
Proceeds from ERP loan		—			—			—			5.6			—			5.6
Debt issuance costs		(0.5	)		—			—			—			—			(0.5	)
Notes payable from affiliates, net		—			10.1			—			(13.5	)		3.4			—
Dividends to affiliates		—			—			(38.8	)		—			38.8			—
Dividends paid to non-controlling interests		—			—			—			(0.1	)		—			(0.1	)
Repayments on long-term debt		—			(8.1	)		—			—			—			(8.1	)

Net cash flows (used in) provided by financing activities		(0.5	)		2.0			(38.8	)		(8.0	)		42.2			(3.1	)

Effect of exchange rate changes on cash and cash equivalents		—			—			—			(0.6	)		—			(0.6	)
Net change in cash and cash equivalents		—			11.5			3.2			(6.5	)		—			8.2
Cash and cash equivalents
Beginning of period		—			2.3			2.5			23.2			—			28.0

End of period	$	—		$	13.8		$	5.7		$	16.7		$	—		$	36.2

*****

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains, and from time to time Dynacast International Inc. and its management may make, certain statements that constitute “forward looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, such as “contemplate,” “believe,” “estimate,” “anticipate,” “continue,” “expect,” “intend,” “predict,” “project,” “potential,” “possible,” “may,” “plan,” “should,” “would,” “goal,” “target” or other similar expressions or, in each case, their negative or other variations or comparable terminology. Forward-looking statements express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results, and include all matters that are not historical facts. Such statements include, in particular, statements about our plans, intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, earnings outlook, prospects, growth, strategies, the sectors in which we operate, economic conditions and trends in the regions in which we operate, our potential for growth in specified markets or geographies, facility improvements and capital expenditures. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements involve certain risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Actual outcomes or results may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if actual outcomes or results are consistent with the forward-looking statements contained in this report, those outcomes or results may not be indicative of outcomes or results in subsequent periods.

You should not place undue reliance on any forward-looking statement and you should consider the following factors that may cause actual outcomes or results to differ materially from forward-looking statements, as well as those discussed in Part II, Item 1A. Risk Factors in our Form 10-K filed on March 14, 2014 and any of our subsequent filings with the Securities and Exchange Commission (the “SEC”):

•

competitive risks from other die cast producers or self-manufacture by customers;

•

relationships with, and financial or operating conditions of, our key customers, suppliers and other stakeholders;

•

loss of, or an inability to attract, key management;

•

fluctuations in the supply of, and prices for, raw materials in the areas in which we maintain production facilities;

•

union disputes, labor unrest or other employee relations issues;

•

availability of production capacity;

•

environmental, health and safety costs;

•

impact of future mergers, acquisitions, or joint ventures;

•

our level of indebtedness and ability to generate cash;

•

changes in the availability and cost of capital;

•

restrictions in our debt agreements;

•

fluctuations in the relative value of the U.S. dollar and the currencies of the countries and regions in which we operate and the effectiveness of our currency hedging activities;

•

ability and expense of repatriating cash held by our foreign subsidiaries;

•

changes in political, economic, regulatory and business conditions, including changes in taxes, tax rates, duties or tariffs;

•

acts of war or terrorist activities;

•

existence or exacerbation of general political instability and uncertainty in the U.S. or in other countries or regions in which we operate; and

•

cyclical demand and pricing within the principal markets for our products.

These factors should not be construed as exhaustive and should be read with other cautionary statements in this report and those described in our other filings with the SEC.

Any forward-looking statements that we make in this report speak only as of the date of those statements. All subsequent written and oral forward-looking statements concerning the matters addressed in this report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this report. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Unless expressly indicated or the context requires otherwise, the terms “Dynacast”, the “Company”, “we”, “us” and “our” in this report refer to Dynacast International Inc. and when appropriate, its wholly-owned subsidiaries.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the accompanying notes contained in this Form 10-Q. The following discussion may contain forward-looking statements about our market, analysis, future trends, the demand for our services and other future results, among other topics. Actual results may differ materially from those suggested by our forward-looking statements for various reasons including those discussed in “Cautionary Statements Regarding Forward-Looking Statements.”

Certain amounts, as noted below “as recast”, have been adjusted to reflect the retroactive application of the change in the method of accounting for domestic inventory, effective in the third quarter of 2013. See Note 3 to the condensed consolidated financial statements contained under Item 1 of Part I of this Form 10-Q for additional information regarding this accounting change.

Introduction

Dynacast International Inc. was incorporated as a Delaware corporation in May 2011 by a consortium of private investors led by Kenner and Company, Inc. (“Kenner”) and subsequently acquired the Dynacast companies that conducted the business of Dynacast from affiliates of Melrose, Plc (“Melrose”) on July 19, 2011 for approximately $590.0 million, less outstanding notes payable to affiliates of Melrose, net, plus remittance of cash held by the Dynacast companies as of July 19, 2011 (the “Acquisition”). Dynacast had no activity or operations prior to the Acquisition. In conjunction with the Acquisition, Dynacast International LLC and Dynacast Finance Inc., each a wholly-owned subsidiary of Dynacast, issued $350.0 million in aggregate principal amount of the 9.25% Senior Secured Second Lien Notes due 2019 (the “2019 Notes”). Concurrently with the issuance of the 2019 Notes, Dynacast International LLC, as borrower, entered into a senior secured credit facility, consisting of a $50.0 million term loan and a $50.0 million revolving credit facility, (collectively, the “Credit Facility”) with certain lenders to finance the Acquisition and provide for working capital.

Dynacast is a global manufacturer of small engineered precision die cast components serving customers in the automotive safety and electronics, consumer electronics, telecommunications, healthcare, hardware, computer and peripherals end markets, among others. Our customers range from large multi-national companies to small businesses. In recent years, the largest end-markets in which our customers operate are automotive safety and electronics, consumer electronics, telecommunications and healthcare. We also have a number of customers in the hardware, computer and peripherals and tooling end markets. We manage our business primarily on a geographical basis through three reportable segments—Asia Pacific, Europe and North America.

The Asia Pacific segment is comprised of eight manufacturing facilities located in India, Indonesia, Korea, Malaysia, Singapore and China, where there are three separate facilities.

The Europe segment is comprised of eight manufacturing facilities located in France, Germany, Italy, Slovenia, Spain, United Kingdom and Austria, where there are two separate facilities.

The North America segment is comprised of six manufacturing facilities, three of which are located in the United States, two in Canada and one in Mexico.

Net Sales

Our core operation from which the substantial majority of our net sales is generated is die-casting of components. We also generate net sales from designing and building tools and machines used in the die-casting process and from value added services such as surface coatings, machining and sub-assembly.

Cost of Goods Sold

The principal components of cost of goods sold in our manufacturing operations are raw materials, factory overhead and labor. The principal components of overhead cost include freight charges, purchasing, receiving and inspection costs, internal transfer costs and warehousing costs through the manufacturing process. Each manufacturing facility typically sources its own raw materials and distributes its own finished goods.

Generally, we are substantially protected against underlying movements in metal prices through contractual pass-through provisions with our customers. In the vast majority of cases, metal prices are set each month prospectively based on the previous month’s metal index, rather than on a retroactive basis. Although this can create a lag-effect in a rising or falling market, changes in the price of zinc, aluminum or magnesium have not significantly impacted our operations to date. Due to our rapid manufacturing process, we generally hold a low level of raw material inventory and our exposure to changes in metal prices (both negative and positive) is therefore limited. We do not enter into metal price hedging contracts.

Market and Performance Overview

For the three months ended June 30, 2014, net sales totaled $157.2 million, an increase of 9.9%, compared to $143.1 million for the corresponding period in the prior year. Operating income was $20.5 million for the three months ended June 30, 2014, an increase of 23.5%, compared to $16.6 million for the corresponding period in the prior year. In addition, the Company reported net income attributable to controlling stockholders of $3.9 million for the three months ended June 30, 2014, compared to $0.4 million for the corresponding period in the prior year. The increase in net income attributable to controlling stockholders of $3.5 million is primarily driven by our Europe, North America and Asia Pacific reportable segments which reported increases in operating income of $1.5, $1.0 and $0.9 million, respectively, as well as a $1.9 million gain related to pending insurance recovery discussed in more detail below.

The increase in net sales is attributable to increased net sales across all of our reportable segments led by the Europe and North America reportable segments which reported increases in net sales of $6.5 and $4.4 million, respectively, and to a lesser extent our Asia Pacific reportable segment which reported an increase in net sales of $3.2 million. The increase in operating income was led by our Europe reportable segment which reported an increase in operating income of $1.5 million, or 26.8%, while our North America and Asia Pacific segments reported increases in operating income of $1.0 and $0.9 million or 16.7% and 9.9%, respectively.

Our effective tax rate for the three months ended June 30, 2014 was 52.4% compared to 88.2% for the corresponding period in the prior year. Our estimated annual effective tax rate for the year ended December 31, 2014 applied to the earnings for the three months ended June 30, 2014 continues to be negatively impacted by the non-deductibility of interest expense in the U.S. related to our Series A Preferred Stock and Series B Preferred Stock and the change in the fair value warrants of approximately $11.5 million, as well as U.S. taxable income on foreign earnings of $13.6 million.

For the six months ended June 30, 2014, net sales totaled $308.5 million, an increase of 9.1%, compared to $282.8 million for the corresponding period in the prior year. Operating income was $37.1 million for the six months ended June 30, 2014, an increase of 3.3%, compared to $35.9 million (as recast) for the corresponding period in the prior year. In addition, the Company reported net income attributable to controlling stockholders of $4.1 million for the six months ended June 30, 2014, compared to $0.1 million loss (as recast) for the corresponding period in the prior year. The increase in net income attributable to controlling stockholders of $4.2 million is primarily driven by our Europe and Asia Pacific reportable segments which reported increases in operating income of $2.2 and $0.9 million respectively, as well as a $1.9 million gain related to pending insurance recovery discussed in more detail below, partially offset by a decrease in our North America reportable segment of $2.0 million (as recast).

The increase in net sales is attributable to increased net sales across all of our reportable segments led by the Europe and Asia Pacific reportable segments which reported increases in net sales of $11.9 and $9.4 million, respectively, and to a lesser extent our North America reportable segment which reported an increase in net sales of $4.4 million. The increase in operating income was attributable to our Europe and Asia Pacific reportable segments which reported an increase in operating income of $2.2 million, or 19.1%, and $0.9, or 5.5%, respectively, which was partially offset by a decrease in our North America reportable segment of $2.0 million (as recast), or 12.8%.

Our effective tax rate for the six months ended June 30, 2014 was 62.9% compared to 100.0% (as recast) for the corresponding period in the prior year. Our estimated annual effective tax rate for the year ended December 31, 2014 applied to the earnings for the six months ended June 30, 2014 continues to be negatively impacted by the non-deductibility of interest expense in the U.S. related to our Series A Preferred Stock and Series B Preferred Stock and the change in the fair value warrants of approximately $11.5 million, as well as, U.S. taxable income on foreign earnings of $13.6 million.

Our net sales are significantly impacted by the timing and life cycle of our customers’ programs and platforms. The duration of customer programs is dependent on the particular product and end market. Automotive safety and electronics programs can run up to ten years, while consumer electronics programs can be as short as six months. As such, the composition of net sales by customer and end market varies from year to year, with some programs experiencing a decrease in demand or termination due to the overall life cycle of the programs, while new programs and customers are brought on board.

The performance of our manufacturing facilities closely follows changes in the customers and end markets that they serve. In addition, certain businesses have seasonal fluctuations. Net sales in our Europe reportable segment are generally weaker in the third quarter as many of our European customers and our facilities themselves are closed for several weeks for summer vacation. Our Asia Pacific reportable segment net sales are generally stronger in the consumer electronics end market during the third and fourth quarters as our customers prepare for the holiday season.

For the three and six months ended June 30, 2014, approximately 40.7% and 40.4% of our sales were to customers in the global automotive safety and electronics end market, approximately 19.8% and 19.7% of our sales were to customers in the consumer electronics end market, approximately 7.3% and 7.5% of our sales were to customers in the healthcare end market and 5.5% and 5.8% of our sales were to customers in the telecommunications end market, respectively. We have seen continued overall growth in these end markets, particularly in the Asia Pacific and North America regions.

The effects of foreign currency translation rates had only a small net impact on results for the three months ended June 30, 2014 when compared to the corresponding period in the prior year. The overall impact of foreign currency translation rates was to increase net sales by $2.1 million with minimal impact on operating income. For the three months ended June 30, 2014 the average exchange rate of the U.S. dollar to the British Pound Sterling was 0.5944; the Chinese Renminbi 6.1660; the Euro 0.7286; the Singapore Dollar 1.2527; the Malaysian Ringgit 3.2362; and the Canadian Dollar 1.0913. When compared to the corresponding period in the prior year, the British Pound Sterling, Euro and Renminbi strengthened by 8.8%, 4.9% and less than one percent, respectively, while the Malaysian Ringgit, the Canadian Dollar and Singapore Dollar weakened by 5.6%, 6.7% and less than one percent, respectively.

The effects of foreign currency translation rates had only a small net impact on results for the six months ended June 30, 2014 when compared to the corresponding period in the prior year. The overall impact of foreign currency translation rates was to increase net sales by $2.7 million with minimal impact on operating income. For the six months ended June 30, 2014 the average exchange rate of the U.S. dollar to the British Pound Sterling was 0.5995; the Chinese Renminbi 6.1409; the Euro 0.7295; the Singapore Dollar 1.2609; the Malaysian Ringgit 3.2679; and the Canadian Dollar 1.0964. When compared to the corresponding period in the prior year, the British Pound Sterling, Renminbi and Euro strengthened by 7.4%, 1.7% and 4.2%, respectively, while the Singapore Dollar, Malaysian Ringgit and the Canadian Dollar weakened by 1.5%, 6.4% and 8.0%, respectively.

The impact of foreign currency translation rate movements was as follows:


	For the Three Months Ended June 30, 2014						For the Six Months Ended June 30, 2014
(in millions of dollars)	Net Sales			Operating Income			Net Sales			Operating Income

British Pound Sterling	$	0.4		$	—		$	0.8		$	0.1
Canadian Dollar		(0.6	)		(0.1	)		(1.6	)		(0.4	)
Chinese Renminbi		0.3			—			1.0			0.1
Euro		2.3			0.3			4.0			0.6
Malaysian Ringgit		(0.4	)		(0.1	)		(0.9	)		(0.2	)
Singapore Dollar		—			—			(0.5	)		(0.1	)
Other, net		0.1			—			(0.1	)		(0.1	)

Total	$	2.1		$	0.1		$	2.7		$	—

During 2013 we introduced metal injection molding (“MIM”) as a new product line. We invested $6.4 million in production machinery and expanded our existing facilities in Elgin, Illinois and in Indonesia which provides ancillary services to our Singapore MIM operation. We expect to invest an additional $2.4 million in MIM in 2014.

We did not realize any significant MIM sales in Elgin or Singapore in 2013, and we do not expect MIM to become fully operational until the end of 2014. MIM sales will build slowly over the course of the year and margins will improve as and when sales reach critical mass.

Consolidated Results of Operations

We believe the selected data and the percentage relationship between net sales and major categories in the Condensed Consolidated Statements of Operations are important in evaluating our operations. The following tables set forth items from the Condensed Consolidated Statements of Operations as reported and as a percentage of net sales for the periods presented:

Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013


	For the Three Months Ended
(in millions of dollars)	June 30, 2014					June 30, 2013

Net sales	$	157.2		100.0	%	$	143.1		100.0	%
Costs of goods sold		(119.6	)	(76.1	)%		(109.2	)	(76.3	)%

Gross margin		37.6		23.9	%		33.9		23.7	%
Operating expenses:
Selling, general and administrative expense		(17.1	)	(10.9	)%		(17.3	)	(12.1	)%

Total operating expenses		(17.1	)	(10.9	)%		(17.3	)	(12.1	)%

Operating income		20.5		13.0	%		16.6		11.6	%
Other income (expense)
Interest expense		(11.5	)	(7.3	)%		(11.5	)	(8.0	)%
Other (expense) income		(0.6	)	(0.4	)%		(1.7	)	(1.2	)%

Income (loss) before income taxes		8.4		5.3	%		3.4		2.4	%
Income tax (expense)		(4.4	)	(2.8	)%		(3.0	)	(2.1	)%

Net income	$	4.0		2.5	%	$	0.4		0.3	%

Net Sales. Net sales were $157.2 million for the three months ended June 30, 2014 compared to $143.1 million for the corresponding period in the prior year. Net sales for the three months ended June 30, 2014 and 2013 included $7.5 million, or 4.8%, and $7.3 million, or 5.1%, in revenue, respectively, related to the sale of new tools or replacement tools that were separately priced. The increase in net sales is attributable to increased net sales across all of our reportable segments led by the Europe and North America reportable segments which reported increases in net sales of $6.5 and $4.4 million, respectively, and to a lesser extent our Asia Pacific reportable segment which reported an increase in net sales of $3.2 million.

Gross Margin. Gross margin as a percentage of net sales for the three months ended June 30, 2014 was 23.9% which was consistent with the corresponding period in the prior year of 23.7%.

Selling General & Administrative. Selling, general and administrative (“SG&A”) expenses as a percentage of net sales were 10.9% for the three months ended June 30, 2014 compared to 12.1% for the corresponding period in the prior year. The decrease in SG&A as a percentage of net sales during the three months ended June 30, 2014 was primarily attributable to the overall increase in net sales.

Interest Expense. We incurred interest expense of $11.5 million during the three months ended June 30, 2014, of which approximately $8.6 million was attributable to the 2019 Notes and the Credit Facility, $1.0 million was attributable to the amortization of deferred financing costs, $1.8 million was attributable to the Series A Preferred Stock and the Series B Preferred Stock and $0.1 million was attributable to other interest costs. Whereas during the three months ended June 30, 2013 we incurred $11.5 million in interest expense, net, of which approximately $8.7 million was attributable to the 2019 Notes and the Credit Facility, $1.0 million was related to the amortization of deferred financing costs, $2.0 million was attributable to the Series A Preferred Stock and Series B Preferred Stock and approximately $0.2 million was attributable to other interest income.

Other Expense, Net. Other expense, net for the three months ended June 30, 2014 relates to the change in the fair value of the Company’s warrants of $2.4 million partially offset by a $1.9 million gain, net related to pending insurance recovery. In June 2014, our France facility was severely damaged in a hail storm necessitating a complete replacement of the roof. Part of the roof contained asbestos, which prior to the hail storm, was compliant with French law surrounding the maintenance of and safeguarding against asbestos. As a result of the roof replacement, the asbestos was no longer compliant with French law and needed to be removed. See Notes 10 and 13 to the condensed consolidated financial statements contained under Item 1 of Part I of this Form 10-Q for additional information.

Income Taxes. The effective tax rate for the three months ended June 30, 2014 was 52.4% as compared to 88.2% (as recast) for the corresponding period in the prior year. The Company’s income tax expense and effective tax rate are based upon the estimated annual effective tax rate applied to the year-to-date pre-tax income adjusted for the effects of items required to be treated as discrete to the period. There were no items that were discrete to the three months ended June 30, 2014. The Company’s tax expense was also impacted by the mix of earnings in the U.S. and outside the U.S.

The Company’s estimated annual effective tax rate used for the three months ended June 30, 2014 on taxable U.S. earnings was 0.0% not including discrete items. The U.S. estimated annual effective tax rate was favorably impacted by a decrease in valuation allowance and negatively impacted by the non-deductibility of interest expense associated with the Series A Preferred Stock and Series B Preferred Stock, as well as the change in the fair value of the Company’s warrants and U.S taxable income on foreign earnings.

Our estimated annual effective tax rate for the year ended December 31, 2014 applied to the earnings for the three months ended June 30, 2014 continues to be negatively impacted by the non-deductibility of interest expense in the U.S. related to our Series A Preferred Stock and Series B Preferred Stock of $7.1 million and the change in the fair value warrants of approximately $4.4 million, as well as U.S. taxable income on foreign earnings of $13.6 million. We expect the non-deductibility of interest expense related to the Series A Preferred Stock and Series B Preferred Stock to continue to negatively affect our effective tax rate until the Series A Preferred Stock and the Series B Preferred Stock are redeemed. For the three months ended June 30, 2014, the Company recognized tax expense at a blended estimated annual effective tax rate of approximately 28.1% on non-U.S. earnings compared to 30.0% for the corresponding period in the prior year.

For the three months ended June 30, 2014, tax expense was approximately $4.4 million all of which was attributable to non-U.S. earnings. Tax expense for the three months ended June 30, 2013 was approximately $3.0 million, of which approximately $2.7 million was attributable to non-U.S. earnings and $0.3 million was attributable to U.S. tax expense related to the Company’s net investment hedges.

Segment Operating Results:

Net sales by segment were as follows for the periods presented:


	For the Three Months Ended				Dollar		Percentage
(in millions of dollars)	June 30, 2014		June 30, 2013		Change		Change

Asia Pacific	$	61.4	$	58.2	$	3.2		5.5	%
Europe		52.0		45.5		6.5		14.3	%
North America		43.8		39.4		4.4		11.2	%

Total	$	157.2	$	143.1	$	14.1		9.9	%

Operating income by segment was as follows for the periods presented:


	For the Three Months Ended				Dollar		Percentage
(in millions of dollars)	June 30, 2014		June 30, 2013		Change		Change
			(As Recast)

Asia Pacific	$	10.0	$	9.1	$	0.9		9.9	%
Europe		7.1		5.6		1.5		26.8	%
North America		7.0		6.0		1.0		16.7	%

Total	$	24.1	$	20.7	$	3.4		16.4	%

Asia Pacific

The increase in net sales of $3.2 million was primarily driven by increased sales volumes in the consumer electronics, automotive safety and electronics and healthcare end markets at our DDG, Malaysia, and Korea facilities of $4.7, $1.1 and $0.7 million, respectively, which offset a decrease in net sales at our Singapore facility of $3.5 million in the consumer electronics end market. The overall impact of foreign currency translation rate movements was minimal during the three months ended June 30, 2014.

Gross margin as a percentage of net sales for the three months ended June 30, 2014 was 24.0% which was consistent with the corresponding period in the prior year of 24.6%.

SG&A as a percentage of net sales for the three months ended June 30, 2014 was 7.8% which was consistent with the corresponding period in the prior year of 8.4%.

Segment operating income for the three months ended June 30, 2014 was $10.0 million, an increase of $0.9 million, or 9.9%, from $9.1 million for the corresponding period in the prior year. The increase in segment operating income was primarily attributable to increased sales and margins at our DDG, Korea and Malaysia facilities discussed above. Foreign currency translation rate movements had minimal impact on operating income as summarized above.

Europe

Approximately $2.7 million, or 41.5%, of the increase in net sales of $6.5 million was attributable to the strengthening of the Euro, $2.3 million and the British Pound Sterling, $0.4 million. Overall, underlying sales increased by 8.4% driven primarily by the increased sales volume in the automotive safety and electronics end market at our Germany, United Kingdom and Italy facilities of $1.2, $1.1 and $0.6 million, respectively, and increased sales volumes of $0.2 million each at our Austria and France facilities across multiple end markets

Gross margin as a percentage of net sales for the three months ended June 30, 2014 was 22.3% which was consistent with the corresponding period in the prior year of 22.1%.

SG&A as a percentage of net sales for the three months ended June 30, 2014 was 8.9% compared to 10.1% for the corresponding period in the prior year. The decrease in SG&A as a percentage of net sales during the three months ended June 30, 2014 was primarily attributable to the overall increase in net sales.

Segment operating income for the three months ended June 30, 2014 was $7.1 million, an increase of $1.5 million, or 26.8%, from $5.6 million for the corresponding period in the prior year. The increase in segment operating income was primarily attributable to increased sales and margins at our Germany and United Kingdom facilities. Foreign currency translation rate movements had a $0.3 million, or 5.4%, positive impact on operating income as summarized above.

North America

The increase in net sales of $4.4 million, or 11.2%, was primarily driven by increased sales volumes at our Elgin and Mexico facilities of $5.2 and $1.3 million, respectively. The increase in net sales at our Elgin facility was driven primarily by increased die cast sales volumes of $4.9 million in the hardware and healthcare end markets and to a lesser extent MIM tool sales of $0.3 million. The increase in net sales at our Mexico facility was primarily driven by increased sales volumes in the automotive safety and electronics end market. Offsetting the increases at our Elgin and Mexico facilities was a $2.1 million decrease at our Lake Forest facility which was primarily attributable to program attrition across multiple end markets beginning in the second half of 2013 and continuing into 2014.

Gross margin as a percentage of net sales for the three months ended June 30, 2014 was 24.7% which was consistent with the corresponding period in the prior year of 24.1%.

SG&A as a percentage of net sales for the three months ended June 30, 2014 was 8.9% which was consistent with the corresponding period in the prior year of 9.2%.

The increase in segment operating income of $1.0 million, or 16.7%, was primarily attributable to increased sales volumes and margins at our Elgin facility and to a lesser extent increased volumes at our Mexico facility.

Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013


	For the Six Months Ended
(in millions of dollars)	June 30, 2014					June 30, 2013
						(As Recast)

Net sales	$	308.5		100.0	%	$	282.8		100.0	%
Costs of goods sold		(236.5	)	(76.7	)%		(213.1	)	(75.4	)%

Gross margin		72.0		23.3	%		69.7		24.6	%
Operating expenses:
Selling, general and administrative expense		(34.9	)	(11.3	)%		(33.8	)	(12.0	)%

Total operating expenses		(34.9	)	(11.3	)%		(33.8	)	(12.0	)%

Operating income		37.1		12.0	%		35.9		12.7	%
Other income (expense)
Interest expense		(22.9	)	(7.4	)%		(24.5	)	(8.7	)%
Other (expense) income		(2.6	)	(0.8	)%		(4.2	)	(1.5	)%

Income before income taxes		11.6		3.8	%		7.2		2.5	%
Income tax (expense)		(7.3	)	(2.4	)%		(7.2	)	(2.5	)%

Net income	$	4.3		1.4	%	$	—		0.0	%

Net Sales. Net sales were $308.5 million for the six months ended June 30, 2014 compared to $282.8 million for the corresponding period in the prior year. Net sales for the six months ended June 30, 2014 and 2013 included $14.7 million, or 4.8%, and $13.4 million, or 4.7%, in revenue, respectively, related to the sale of new tools or replacement tools that were separately priced. The increase in net sales of $25.7 million was primarily attributable to increased sales in the Europe and Asia Pacific reportable segments of $11.9 and $9.4 million, respectively, and to a lesser extent the North America reportable segment which reported an increase in net sales of $4.4 million.

Gross Margin. Gross margin as a percentage of net sales for the six months ended June 30, 2014 was 23.3% compared to 24.6% (as recast) for the corresponding period in the prior year. The decrease in gross margin as a percentage of net sales during the six months ended June 30, 2014 is primarily attributable to our North America reportable segment which saw a 2.4% decrease in gross margin discussed in more detail below.

Selling General and Administrative. SG&A expenses as a percentage of net sales were 11.3% for the six months ended June 30, 2014 compared to 12.0% for the corresponding period in the prior year. The decrease in SG&A as a percentage of net sales during the six months ended June 30, 2014 was primarily attributable to $0.5 million in severance costs incurred during the six months ended June 30, 2013 that were absent during the six month period ended June 30, 2014.

Interest Expense. We incurred interest expense, net, of $22.9 million during the six months ended June 30, 2014 of which approximately $17.2 million was attributable to the 2019 Notes and the Senior Secured Credit Facility, $1.9 million was attributable to the amortization of deferred financing costs, $3.5 million was attributable to the Series A Preferred Stock and the Series B Preferred Stock and $0.3 million was attributable to other interest costs. Whereas during the six months ended June 30, 2013 we incurred $24.5 million in interest expense, net, of which approximately $17.5 million was attributable to the 2019 Notes and the Senior Secured Credit Facility, $2.6 million was attributable to the amortization of deferred financing costs, $4.2 million was attributable to the Series A Preferred Stock and Series B Preferred Stock and $0.2 million was attributable to other interest costs. The decrease in interest expense is primarily attributable to the decrease in the dividend rate on the Series A Preferred Stock and the Series B Preferred Stock.

Other (Expense) Income. Other expense, net for the six months ended June 30, 2014 relates to the change in the fair value of the Company’s warrants of $4.4 million partially offset by a $1.9 million, net gain related to a pending insurance recovery. In June 2014, our France facility was severely damaged by a hail storm necessitating a complete replacement of the roof. Part of the roof contained asbestos, which prior to the hail storm, was compliant with French law surrounding the maintenance of and safeguarding against asbestos. As a result of the roof replacement, the asbestos was no longer compliant with French law and needed to be removed. See Notes 10 and 13 to the condensed consolidated financial statements contained under Item 1 of Part I of this Form 10-Q for additional information.

Income Taxes. The effective tax rate for the six months ended June 30, 2014 was 62.9% as compared to 100.0% (as recast) for the corresponding period in the prior year. Dynacast’s income tax expense and effective tax rate are based upon the estimated annual effective tax rate applied to the year to date pre-tax income adjusted for the effects of items required to be treated discrete to the period. Dynacast’s tax expense was also impacted by the mix of earnings in the U.S. and outside the U.S.

The Company’s estimated annual effective tax rate used for the six months ended June 30, 2014 on taxable U.S. earnings was 0.0% not including discrete items. The U.S. estimated annual effective tax rate was favorably impacted by a decrease in valuation allowance and negatively impacted by the non-deductibility of interest expense associated with the Series A Preferred Stock and Series B Preferred Stock, the change in the fair value of the Company’s warrants, as well as and U.S taxable income on foreign earnings.

Our estimated annual effective tax rate for the year ended December 31, 2014 applied to the earnings for the six months ended June 30, 2014 continues to be negatively impacted by the non-deductibility of interest expense in the U.S. related to our Series A Preferred Stock and Series B Preferred Stock of $7.1 million and the change in the fair value of warrants of approximately $4.4 million, as well as U.S. taxable income on foreign earnings of $13.6 million. We expect the non-deductibility of interest expense related to the Series A Preferred Stock and Series B Preferred Stock to continue to negatively affect our effective tax rate until the Series A Preferred Stock and the Series B Preferred Stock are redeemed. For the six months ended June 30, 2014, the Company recognized tax expense at a blended estimated annual effective tax rate of approximately 28.1% on non-U.S. earnings compared to 30.0% for the corresponding period in the prior year.

For the six months ended June 30, 2014, tax expense was approximately $7.3 million all of which was attributable to non-U.S. earnings. Tax expense for the six months ended June 30, 2013 was approximately $7.2 million, of which approximately $6.8 million was attributable to non-U.S. earnings and $0.4 million was attributable to U.S. tax expense related to the Company’s net investment hedges.

Segment Operating Results:

Net sales by segment were as follows for the periods presented:


	For the Six Months Ended				Dollar		Percentage
(in millions of dollars)	June 30, 2014		June 30, 2013		Change		Change

Asia Pacific	$	118.3	$	108.9	$	9.4		8.6	%
Europe		103.4		91.5		11.9		13.0	%
North America		86.8		82.4		4.4		5.3	%

Total	$	308.5	$	282.8	$	25.7		9.1	%

Operating income by segment was as follows for the periods presented:


	For the Six Months Ended				Dollar			Percentage
(in millions of dollars)	June 30, 2014		June 30, 2013		Change			Change
			(As Recast)

Asia Pacific	$	17.4	$	16.5	$	0.9			5.5	%
Europe		13.7		11.5		2.2			19.1	%
North America		13.6		15.6		(2.0	)		-12.8	%

Total	$	44.7	$	43.6	$	1.1			2.5	%

Asia Pacific

Net sales for the six months ended June 30, 2014 were $118.3 million, an increase of $9.4 million, or 8.6%, from $108.9 million for the corresponding period in the prior year. The overall impact of foreign currency translation rate movements was $(0.4) million. Underlying sales increased by 9.0% driven primarily by increased sales volume in the consumer electronics, automotive safety and electronics and healthcare end markets at our DDG, Shanghai, Malaysia and Korea facilities of $7.6, $2.1, $2.8 and $1.6 million, respectively, which offset a decrease in net sales at our Singapore facility of $5.3 million driven by a decrease in consumer electronics end market sales.

Gross margin as a percentage of net sales for the six months ended June 30, 2014 was 23.0% which was consistent with the corresponding period in the prior year of 23.6%.

SG&A as a percentage of net sales for the six months ended June 30, 2014 was 8.3% which was consistent with the corresponding period in the prior year of 8.6%.

Segment operating income for the six months ended June 30, 2014 was $17.4 million, an increase of $0.9 million, or 5.5%, from $16.5 million for the corresponding period in the prior year. The increase in segment operating income was primarily attributable to increased sales and margins at our DDG, Shanghai, Malaysia and Korea facilities discussed above. Foreign currency translation rate movements had minimal impact on operating income as summarized above.

Europe

Net sales for the six months ended June 30, 2014 were $103.4 million, an increase of $11.9 million, or 13.0%, from $91.5 million for the corresponding period in the prior year. Approximately $4.0 million, or 33.6%, of the increase in net sales was attributable to the strengthening of the Euro with $0.8 million, or 6.7%, of the increase attributable to the strengthening of the British Pound Sterling. Underlying sales increased by 7.8% driven primarily by increased sales volume in the automotive safety and electronics, consumer electronics and telecommunications end markets at our Germany, United Kingdom, Italy, Austria and France facilities of $2.3, $2.1, $1.1, $0.7 and $0.6 million, respectively.

Gross margin as a percentage of net sales for the six months ended June 30, 2014 was 22.1% which was consistent with gross margin as a percentage of net sales of 22.3% for the corresponding period in the prior year.

SG&A as a percentage of net sales for the six months ended June 30, 2014 was 9.1% compared to 10.0% for the corresponding period in the prior year. The decrease in SG&A as a percentage of net sales during the six months ended June 30, 2014 was primarily attributable to $0.5 million in severance costs incurred during the six months ended June 30, 2013 that were absent during the six month period ended June 30, 2014.

Segment operating income for the six months ended June 30, 2014 was $13.7 million, an increase of $2.2 million, or 19.1%, from $11.5 million for the corresponding period in the prior year. Approximately $0.6 million, or 27.3%, of the increase in segment operating income was attributable to changes in foreign currency exchange rates. The remainder of the increase in segment operating income was primarily attributable to increased sales and margins at our Germany, United Kingdom, Italy, Austria and France facilities discussed above.

North America

The increase in net sales of $4.4 million, or 5.3%, was primarily driven by increased sales volumes at our Elgin and Mexico facilities of $8.3 and $2.3 million, respectively. The increase in net sales at our Elgin facility was driven primarily by increased die cast sales volumes in the hardware and healthcare end markets and to a lesser extent MIM tool sales of $0.6 million. The increase in net sales at our Mexico facility was primarily driven by increased sales volumes in the automotive safety and electronics end market. Offsetting the increases at our Elgin and Mexico facilities was a $5.6 million decrease at our Lake Forest facility primarily attributable to program attrition across multiple end markets beginning in the second half of 2013 and continuing into 2014 and a $1.0 million decrease at our Peterborough facility attributable to the telecommunications end market.

Gross margin as a percentage of net sales for the six months ended June 30, 2014 was 24.5% compared to 26.9% (as recast) for the corresponding period in the prior year. The decrease in gross margin as a percentage of net sales during the six months ended June 30, 2014 was primarily attributable to increased costs and headcount attributable to the new facility in Mexico and lower margins at our Lake Forest and Elgin facilities during the six months ended June 30, 2014.

SG&A as a percentage of net sales for the six months ended June 30, 2014 was 8.9% which was consistent with SG&A as a percentage of net sales of 9.0% for the corresponding period in the prior year.

Segment operating income for the six months ended June 30, 2014 was $13.6 million, a decrease of $2.0 million (as recast), or 12.8% (as recast), from $15.6 million (as recast) for the corresponding period in the prior year. The decrease in segment operating income of $2.0 million was primarily attributable to decreased sales and margins in the telecommunications end market at our Peterborough and Lake Forest facilities and increased costs and headcount attributable to the new facility in Mexico.

Liquidity and Capital Resources

Cash and cash equivalents changed as follows for the periods presented:


	For the Six Months Ended
(in millions of dollars)	June 30, 2014			June 30, 2013
				(As Recast)

Net cash flows provided by operating activities	$	27.1		$	28.7
Net cash flows used in investing activities		(15.4	)		(16.8	)
Net cash flows used in financing activities		(5.5	)		(3.1	)
Currency effect on cash and cash equivalents		0.3			(0.6	)

Increase in cash and cash equivalents	$	6.5		$	8.2

Cash Flows from Operating Activities

Net cash provided by operating activities was $27.1 million for the six months ended June 30, 2014 compared to $28.7 million for the corresponding period in the prior year.

In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle, defined as days of sales outstanding in accounts receivable, plus days of supply in inventory, less days of purchases outstanding in accounts payable. The following table depicts our cash conversion cycle for the periods presented:


(in number of days)	June 30, 2014			December 31, 2013			June 30, 2013

Accounts receivable ⁽¹⁾		61			62			58
Inventory ⁽²⁾		38			38			32
Accounts payable ⁽³⁾		(70	)		(70	)		(63	)

Cash conversion cycle		29			30			27

(1)

Days of sales outstanding in accounts receivable (“DSO”) measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue. Our accounts receivable balance was $102.4, $97.0 and $90.3 million as of June 30, 2014, December 31, 2013 and June 30, 2013, respectively. The increase in accounts receivable between June 30, 2014 and 2013 is primarily attributable to our overall increased sales volumes of $25.7 million for the six months ended June 30, 2014 compared to the corresponding period in the prior year.

(2)

Days of supply in inventory (“DOS”) measures the average number of days from procurement to sale of our product. DOS is calculated by dividing ending inventory by a 90-day average cost of goods sold. Our inventory balance, net was $45.9, $45.0 and $36.0 million as of June 30, 2014, December 31, 2013 and June 30, 2013, respectively. The increase in inventory between June 30, 2014 and 2013 is primarily attributable to our overall increased sales volumes of $25.7 million for the six months ended June 30, 2014 compared to the corresponding period in the prior year.

(3)

Days of purchases outstanding in accounts payable (“DPO”) measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average cost of goods sold. Our accounts payable balance was $65.2, $67.7 and $54.6 million as of June 30, 2014, December 31, 2013 and June 30, 2013, respectively. The decrease in DPO between June 30, 2014 and 2013 is primarily attributable to the timing of supplier purchases and payments.

Cash Flows from Investing Activities

Net cash flows used in investing activities were $15.4 million for the six months ended June 30, 2014 compared to $16.8 million for the corresponding period in the prior year. The change in investing activities of $1.4 million was primarily attributable to decrease in capital expenditures of $1.6 million and an increase in settlements from derivative contracts of $0.2 million during the six months ended June 30, 2014.

Capital expenditures have historically been incurred to expand and update the production capacity of our manufacturing facilities. Our capital expenditures were $15.2 and $16.8 million for the six months ended June 30, 2014 and 2013, respectively. For the 2014 fiscal year, we have budgeted approximately $29.2 million in capital expenditures, of which approximately $2.4 million is attributable to MIM. We expect our cash flows from operations and borrowings under our Revolver to be sufficient to meet our capital expenditure requirements.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $5.5 million for the six months ended June 30, 2014 compared to $3.1 million of net cash flows for the corresponding period in the prior year. The change in net cash flows used in financing activities is primarily attributable to the absence of $5.6 million in proceeds from the ERP loan in 2013 and a reduction in Term Loan long-term debt payments of $6.2 million partially offset by an increase in dividend payments of $3.5 million on the Company’s Series A Preferred Stock and Series B Preferred Stock during the six months ended June 30, 2014.

Financial Position

We are committed to maintaining a strong financial position through maintaining sufficient levels of available liquidity, managing working capital, and monitoring our overall capitalization. Cash and cash equivalents at June 30, 2014 were $43.3 million compared to $36.8 million at December 31, 2013. We had approximately $47.1 million of borrowing capacity under our Revolver as of June 30, 2014. Working capital at June 30, 2014 was $51.0 million compared to $38.0 million at December 31, 2013. The increase in working capital of $13.0 million was primarily attributable to an increase in cash and cash equivalents and accounts receivable of $6.5 and $5.4 million and a $1.7 million increase in other current assets partially offset by a increase in current liabilities of $0.6 million.

Each of the Dynacast International Inc. (the “Parent”) and the Issuers has no material operations of its own and only limited assets. We conduct the vast majority of our business operations through our subsidiaries. In servicing payments to be made on the 2019 Notes and our other indebtedness, and to satisfy our other liquidity requirements, we rely, in large part, on cash flows from these subsidiaries, mainly in the form of dividends, royalties and advances or payments on account of intercompany loan arrangements. The ability of these subsidiaries to make dividend payments to us will be affected by, among other factors, the obligations of these entities to their creditors, requirements of corporate and other law, and restrictions contained in agreements entered into by or relating to these entities.

A substantial portion of our cash flows are generated by our non-U.S. subsidiaries, which are not guarantors of the 2019 Notes or our other indebtedness and therefore have no obligation to pay amounts due on the 2019 Notes or our other indebtedness, or to make funds available for that purpose or our other liquidity needs. Our non-U.S. subsidiaries may be subject to currency controls, repatriation restrictions, foreign withholding tax obligations and other limits on transfers of cash to us. We utilize a variety of tax planning and financing strategies in an effort to manage our worldwide cash and deploy funds to locations where they are needed. In general, when an entity in a foreign jurisdiction repatriates cash to the U.S., the amount of such cash is treated as a dividend taxable at current U.S. tax rates. Accordingly, upon the distribution of cash to us from our non-U.S. subsidiaries, we will be subject to U.S. income taxes. Although foreign tax credits may be available to reduce the amount of the additional tax liability, these credits may be limited based on our tax attributes.

Borrowing Arrangements

We have a Senior Secured Credit Facility which provides for a $50.0 million term loan and a $50.0 million revolving credit facility, including the issuance of up to $10.0 million of standby letters of credit. The Senior Secured Credit Facility expires on July 19, 2016. At no time can our exposure under our revolving credit facility, which is defined as the aggregate principal amount of all outstanding loans under our revolving credit facility plus the aggregate amount of our letter of credit exposure (the aggregate undrawn amount of all outstanding letters of credit plus all letter of credit reimbursement obligations), exceed the total commitment of $50.0 million. As of June 30, 2014 there were $32.5 and $5.9 million in Term Loan and ERP Loans outstanding, respectively. There were no amounts outstanding under the revolving credit facility or under a separate line of credit in China. In addition, at June 30, 2014 there were $2.9 million in issued letters of credit and we had $7.1 million available under the letter of credit commitment and $1.6 million available under the line of credit in China.

Under the Senior Secured Credit Facility, we must satisfy maximum total leverage and minimum interest coverage ratios, each of which uses a measure titled as “Consolidated EBITDA.” Failure to comply with these covenants could result in an event of default under the Senior Secured Credit Facilities, which, if not cured or waived, could result in the acceleration of our outstanding indebtedness there under. A default under the Senior Secured Credit Facility could also result in a cross-default under the indenture for the 2019 Notes. Accordingly, failure to comply with these covenants could have a material adverse effect on our financial condition and liquidity.

Under the Senior Secured Credit Facility, from October 1, 2013 to September 30, 2014, the maximum total leverage ratio is 5.25 to 1.0. We must also satisfy a minimum interest coverage ratio. Specifically, at any time from October 1, 2013 and thereafter, the ratio of Consolidated EBITDA to cash interest expense, in each case, for the four most recently completed fiscal quarters, may not be less than 2.00 to 1.0. As of June 30, 2014, we were in compliance with these financial covenants. Specifically, as of June 30, 2014 our total leverage ratio was 3.22 and our minimum interest coverage ratio was 3.18. As a result of our total leverage ratio falling below 3.50, our borrowing costs under the Senior Secured Credit Facility, specifically the applicable margin with respect to any to any outstanding balance on the Term Loan or Revolver, will decrease to 3.25% and 4.25% for ABR and Eurodollar borrowings from 3.50% and 4.50%, respectively, in August 2014. In addition, as a result of our total leverage ratio falling below 3.50, the commitment fee on the Revolver will decrease from 0.75% to 0.50% on the average daily unused amount of revolving commitment. See Note 7 to the condensed consolidated financial statements contained under Item 1 of Part I of this Form 10-Q for additional information. The permitted leverage ratio and the permitted minimum interest coverage ratio were 5.25 to 1.0 and 2.00 to 1.0, respectively, as of June 30, 2014. There are no financial covenants associated with the 2019 Notes or the ERP Loan.

Under the Senior Secured Credit Facility, with certain exceptions, the Company is required to make mandatory prepayments in certain circumstances, including (i) a specified percentage of excess cash flow depending on its excess cash flow calculation, (ii) from the net cash proceeds from certain asset sales (subject to reinvestment rights), (iii) from casualty insurance proceeds, and (iv) upon the issuance of debt. The Company does not expect to make any mandatory prepayments in 2014.

We have varying needs for short-term working capital financing as a result of timing of interest payments on the 2019 Notes. Accordingly, since the Acquisition, working capital fluctuations have been financed under the revolving credit facility. Total debt was $388.4 million (the current portion of which was $8.2 million) as of June 30, 2014 and $390.3 million (the current portion of which was $5.6 million) as of December 31, 2013. See Note 7 to the condensed consolidated financial statements contained under Item 1 of Part I of this Form 10-Q for additional information.

The Company amended its Senior Secured Credit Facility in March 2014 to allow cash dividends on the Series A Convertible Mandatorily Redeemable Preferred Stock, $0.001 par value per share, (“Series A Preferred Stock”) and the Series B Redeemable Preferred Stock, $0.001 par value per share, (“Series B Preferred Stock”), subject to maintaining a specified leverage ratio after reflecting the cash dividends paid and generating an amount determined by reference to certain cash flows of the Company as provided in the Credit Facility.

Preferred Stock

We have 26,500 shares of Series A Preferred Stock and 26,500 shares of Series B Preferred Stock outstanding. The shares of preferred stock accrued cumulative dividends of 14.0% (12.0% if the dividends were paid when declared) of their liquidation preference per year through April 10, 2013. On April 11, 2013 we amended our certificate of incorporation to, among other things, reduce the dividend rate payable on the Series A Preferred Stock and the Series B Preferred Stock to 11.375% (10.0% if the dividends are paid when declared) of their liquidation preference per year. Unless earlier redeemed, the shares of preferred stock must be redeemed by us on July 19, 2021 for a redemption price of $1,000 per share, plus accrued and unpaid dividends. At December 31, 2011, the Series A Preferred Stock was classified as temporary stockholders’ equity until the holder’s conversion right expired unexercised on January 15, 2012. The Series A Preferred Stock was reclassified as a liability on January 16, 2012, and continues to be classified as a liability at June 30, 2014 and December 31, 2013. The Series B Preferred Stock is classified as a liability at June 30, 2014 and December 31, 2013. See Note 11 to the condensed consolidated financial statements contained under Item 1 of Part I of this Form 10-Q for additional information.

We have paid quarterly cash dividends on our Series A Preferred Stock and our Series B Preferred Stock on December 31, 2013, March 31, 2014 and June 30, 2014, for the quarterly periods then ended, at a rate of 10.0% per annum of the liquidation preference of the preferred stock.

Going forward, we intend to pay such quarterly cash dividends, when, as and if declared by our board of directors from funds legally available for this purpose and subject to restrictions under the Credit Facility and the indenture.

Pension and Other Obligations

We have adopted and sponsor pension plans in the U.S. and in various other countries. Our ongoing funding requirements for such pension plans are largely dependent on the value of each of the plan’s assets and the investment returns realized on plan assets as well as prevailing market rates of interest. We determine our plan asset investment mix, in part, on the duration of each plan’s liabilities. To the extent each plan’s assets decline in value or do not generate the returns expected or interest rates decline further, we may be required to make contributions to the pension plans to ensure the pension obligations are adequately funded as required by law or mandate. See Note 8 to the condensed consolidated financial statements contained under Item 1 of Part I of this Form 10-Q for additional information.

Outlook

Overall, we believe that available cash and cash equivalents, cash flows generated from future operations and availability under the revolving credit facility will be adequate to support the cash needs of our existing businesses, including debt service requirements and capital expenditures, for at least the next twelve months. We plan to use available cash, borrowings under the revolving credit facility and cash flows from future operations to repay debt maturities as they come due.

The indenture governing the 2019 Notes and the Senior Secured Credit Facility contain significant covenants, including prohibitions on our ability to incur certain additional indebtedness and to make certain investments and to pay dividends. Restrictive covenants in the indenture governing the 2019 Notes and our Senior Secured Credit Facility may limit our current and future operations, particularly our ability to respond to changes in our business or to pursue our business strategies. See Note 7 to the condensed consolidated financial statements contained under Item 1 of Part I of this Form 10-Q for additional information.

Commitments and Contingencies

There have been no significant changes to the Company’s commitments and contingencies during the six months ended June 30, 2014.

Off-Balance Sheet Activity

We have no significant off-balance sheet arrangements.

Environmental Matters

Our operations are subject to environmental laws and regulations which govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. We believe that our operations are currently in substantial compliance with applicable laws and regulations and that the costs of continuing compliance will not have a material effect on our financial condition. We currently do not have any environmental liabilities or accruals recorded.

Critical Accounting Policies

•

conforms all of the Company’s inventories to principally a single costing method across the Company’s operating and reporting segments for both financial reporting and income tax purposes;

•

provides a more meaningful presentation of financial position and better reflects the current value of inventories on the Company’s consolidated balance sheet;

•

simplifies the valuation of inventories and cost of goods sold and reduces the risk of inaccuracy associated with the manual LIFO calculations at year-end; and

•

conforms to the methodology widely utilized and recognized in the industry, thus allowing for better comparisons among the Company’s competitors.

Other than the change summarized above, there have been no other significant changes to the Company’s critical accounting policies during the six months ended June 30, 2014 as compared to those disclosed in our Form 10-K filed with the SEC on March 14, 2014.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

Excluding our domestic U.S. operations, approximately 37.6% of our international sales are transacted in USD, while the majority of expense and capital purchasing activities are transacted in local currencies. We attempt to minimize short-term business exposure to foreign currency exchange rate risks. In the normal course of business, our financial position is routinely subjected to market risk associated with foreign currency exchange rate fluctuations. To protect against the reduction in value, we have instituted foreign currency net investment and cash flow hedge programs. We enter into foreign currency forward exchange rate contracts that generally expire with varying frequencies. These contracts are designated as net investment hedges or cash flow hedges and are carried on our balance sheet at fair value with the effective portion of these contracts’ gains or losses included in other comprehensive income (loss) and subsequently recognized in income in the same period the hedged transactions are recognized. As of June 30, 2014 and December 31, 2013, we had an aggregate outstanding notional amount of approximately $57.8 and $65.6 million in foreign exchange contracts, respectively. The total foreign currency exchange transactions included in net income during the three months ended June 30, 2014 amounted to a $0.8 million loss compared to a $0.1 million gain during the corresponding period in the prior year. The total foreign currency exchange transactions included in net income during the six months ended June 30, 2014 amounted to a $1.2 million loss compared to a $0.4 million gain during the corresponding period in the prior year.

Interest Rate Risk

We are subject to interest rate market risk in connection with our Senior Secured Credit Facility. Our Senior Secured Credit Facility provides for variable rate borrowings of up to $100.0 million, including availability of $50.0 million under the revolving credit facility. A change in the variable interest rate of 1.0% would cause our annual interest expense to fluctuate by approximately $0.3 million based on outstanding borrowings at June 30, 2014 and December 31, 2013.

Commodity Price Risk

We purchase certain raw materials that are subject to price volatility caused by fluctuations in supply and demand as well as other factors. To help mitigate the impact of higher commodity prices, we have multiple-source and geographically diverse procurement policies and have negotiated fixed price supply contracts with many of our commodity suppliers. In addition, we have agreements in place with the vast majority of our customers that provide for the pass-through of changes in the price of zinc, aluminum and magnesium, our primary raw materials. In the vast majority of cases, metal prices are set each month proactively based upon the previous month’s metal index. Although this can create a lag-effect in a rising or falling market, changes in the price of zinc, aluminum or magnesium have not to date significantly impacted our operations. Due to the rapid manufacturing process, we generally hold a low level of raw material inventory.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.

Disclosure controls and procedures are defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and includes, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information required under this Item is contained above in Note 13 to Part I. Financial Information, Item 1 and is incorporated herein by reference.

Item 1A. Risk Factors

The risk factors that affect the Company’s business and financial results are discussed in “ITEM 1A. RISK FACTORS” in the Company’s Form 10-K filed with the SEC on March 14, 2014. There have been no material changes to the risk factors disclosed in the Company’s Form 10-K filed with the SEC on March 14, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits


Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation, as amended to date (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on May 12, 2014, File No. 333-179497)

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-4 filed on February 13, 2012, File No. 333-179497)

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013; (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2014; (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013; and (vi) Notes to Condensed Consolidated Financial Statements.

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 thereunto duly authorized.


				Dynacast International Inc.

Date: August 6, 2014				/s/ Simon J. Newman
				Simon J. Newman
				President and Chief Executive Officer

Date: August 6, 2014				/s/ Adrian D. Murphy
				Adrian D. Murphy
				Secretary, Treasurer and Chief Financial Officer

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