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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on November 13, 2012

Registration No. 333-177611

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 5
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Isola Group Ltd.
(Exact name of registrant as specified in its charter)

Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  3672
(Primary Standard Industrial
Classification Code Number)
  38-3853493
(I.R.S. Employer
Identification No.)

3100 West Ray Road, Suite 301
Chandler, Arizona 85226
(480) 893-6527

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

Raymond P. Sharpe
President and Chief Executive Officer
Isola Group Ltd.
3100 West Ray Road, Suite 301
Chandler, Arizona 85226
(480) 893-6527
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Steven D. Pidgeon, Esq.
DLA Piper LLP (US)
2525 East Camelback Road, Suite 1000
Phoenix, Arizona 85016
(480) 606-5100
Fax: (480) 606-5101

 

Julia Cowles, Esq.
Davis Polk & Wardwell LLP
1600 El Camino Real
Menlo Park, California 94025
(650) 752-2000
Fax: (650) 752-2111



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

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

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

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

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

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

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

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


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

PRELIMINARY PROSPECTUS   Subject to completion,   Dated November 13, 2012

 

                      Shares

LOGO

Ordinary shares


This is the initial public offering of our ordinary shares. No public market currently exists for our ordinary shares. It is currently estimated that the initial public offering price will be between $             and $             per share.

We have applied to have our ordinary shares listed on the Nasdaq Global Market under the symbol "ISLA".



We are an "emerging growth company" under applicable federal securities laws and will be subject to reduced public company reporting requirements. Investing in our ordinary shares involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our ordinary shares in "Risk Factors" beginning on page 12 of this prospectus.

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

 
  Per share
  Total
 
   

Initial public offering price

  $                 $                
   

Underwriting discount

  $     $    
   

Proceeds, before expenses, to us

  $     $    
   

The underwriters have the option, exercisable on or before the thirtieth day after the date of this prospectus, to purchase up to an additional                           ordinary shares from us at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.

The underwriters are offering the ordinary shares as set forth under "Underwriting". Delivery of the shares will be made on or about                           , 2012.

UBS Investment Bank   Piper Jaffray



Needham & Company   Oppenheimer & Co.

The date of this prospectus is                           , 2012


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You should rely only on the information contained in this prospectus. We and the underwriters have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, ordinary shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus, or such other dates as are stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our ordinary shares.


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Prospectus

 
  Page  

Prospectus Summary

    1  

Risk Factors

    12  

Forward-looking Statements

    33  

Use of Proceeds

    34  

Dilution

    35  

Dividend Policy

    37  

Capitalization

    38  

Selected Historical Consolidated Financial and Other Data

    39  

Unaudited Pro Forma Financial Information

    42  

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

    46  

Business

    120  

Management

    138  

Executive Compensation

    144  

Principal Shareholders

    153  

Certain Relationships and Related Party Transactions

    156  

Shares Eligible for Future Sale

    160  

Description of Share Capital

    162  

Description of Indebtedness

    176  

Taxation

    180  

Underwriting

    184  

Validity of Ordinary Shares

    190  

Experts

    190  

Additional Information

    190  

Index to Consolidated Financial Statements

    F-1  


Through and including                           , 2012 (25 days after the commencement of the offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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MARKET RANKING AND INDUSTRY DATA

This prospectus includes estimates of market share and industry data and forecasts that we obtained from industry publications and surveys, including market research firms and government sources, and internal company sources. We commissioned and paid for some of this research. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain market and industry data included in this prospectus, and our position and the positions of our competitors within these markets, are based on estimates of our management, which are primarily based on our management's knowledge and experience in the markets in which we operate. These estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading "Risk Factors" in this prospectus.

Throughout this prospectus, when we refer to our "addressable" market for PCB laminate materials, or segments of our "addressable" market for PCB laminate materials, we exclude paper and composite segments, portions of the FR-4 and specialty laminate segments, and the internal Japanese market, none of which are addressed by Isola.


TRADEMARKS AND TRADE NAMES

This prospectus contains registered and unregistered trademarks and service marks of us and our subsidiaries, as well as trademarks and service marks of third parties. All brand names, trademarks and service marks appearing in this prospectus are the property of their respective holders.


CONVENTIONS THAT APPLY IN THIS PROSPECTUS

Fiscal Year

In this prospectus, unless the context requires otherwise, references to fiscal 2011 are for the fiscal year ending December 31, 2011, references to fiscal 2010 are for the fiscal year ended January 1, 2011, references to fiscal 2009 are for the fiscal year ended December 26, 2009, references to fiscal 2008 are for the fiscal year ended December 27, 2008, references to fiscal 2007 are for the fiscal year ended December 29, 2007, references to fiscal 2006 are for the fiscal year ended December 30, 2006, references to fiscal 2005 are for the fiscal year ended December 31, 2005, and references to fiscal 2004 are for the fiscal year ended December 31, 2004.


Technical Terms

–>
"Dielectric" refers to an electrical insulator that can be polarized by an applied electric field. When a dielectric is placed in an electric field, electric charges do not flow through the material, as in a conductor, but only slightly shift from their average equilibrium positions causing dielectric polarization.

–>
"Dielectric Constant" refers to a measure of how close a material comes to free space (air) conditions and how constant these conditions hold through the material.

–>
"Glass Transition Temperature" or "Tg" refers to the temperature in Celsius at which the laminate begins to change between a hard, relatively brittle condition and a viscous, or rubbery, condition.

–>
"Lead-free" refers to laminates or prepreg that are suitable for lead-free soldering in the assembly of finished printed circuit boards. No laminates or prepreg actually contain the element lead. The distinction is important, however, as lead-free solders melt at higher temperatures than solders containing lead, which require laminates and prepreg capable of withstanding the stresses of a higher temperature environment.

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–>
"Loss", in the context of a material's characteristics, refers to the ratio of energy dissipated to energy stored.

–>
"Prepreg" is an industry term derived from the contraction of "previously impregnated". Prepreg is a dielectric material that provides electrical insulation properties. It is manufactured, as the term suggests, by the impregnation of fabric with specially formulated resin systems that confer specific electrical, thermal and physical properties to the prepreg. While modern prepreg is generally made from fiberglass fabric, some simple consumer electronics still use prepreg made from paper or paper composite. Prepreg is both a final product and an intermediate-stage product in the manufacture of copper-clad laminate.

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Prospectus Summary

This summary highlights important information about our business and about this prospectus. This summary does not contain all of the information that may be important to you. You should carefully read this prospectus in its entirety before making an investment decision. In particular, you should read the section titled "Risk Factors" and the consolidated financial statements and notes related to those statements included elsewhere in this prospectus. Unless the context indicates otherwise, we use the terms "Isola", "we", "our", the "Company", and "us" in this prospectus to refer to Isola Group Ltd., and, where appropriate, its consolidated subsidiaries. Unless otherwise indicated, the information contained in this prospectus assumes the completion of the reorganization as described in this prospectus under "Concurrent Transactions" immediately prior to the consummation of this offering.


ISOLA GROUP LTD.

Overview

Isola is a leading global material sciences company that designs, develops and manufactures copper-clad laminate ("CCL") and prepreg (collectively, "laminate materials") used to fabricate advanced multilayer printed circuit boards ("PCBs"). PCBs provide the physical platform for the semiconductors, passive components and connection circuitry that power and control virtually all modern electronics. We focus on the market for high-performance laminate materials, developing proprietary resins that are critical to the performance of PCBs used in advanced electronic applications. We continually invest in research and development ("R&D") and believe that our industry-leading resin formulations, many of which are patented, provide us with a competitive advantage. With 11 manufacturing facilities and three research centers worldwide, as well as a global sales force, we are the largest supplier of laminate materials to PCB fabricators in the United States and Europe, and we are one of the larger suppliers in our addressable Asian market, based on revenue for fiscal year 2011.

Our high-performance PCB laminate materials are used in a variety of advanced electronics, including network and communications equipment and high-end consumer electronics, as well as advanced automotive, aerospace, military and medical applications. Demand in these markets is driven by the rapid growth of bandwidth-intensive high-speed data transmission, the expansion of the internet, the emergence of cloud computing and the evolution of increasingly complex communications technology. This has led to an urgent need for the development of the underlying infrastructure to support this growth, including faster and more efficient semiconductor technology. In addition, increasingly pervasive environmental regulations are driving a need for lead-free compatible, high-performance laminate materials.

We sell our products globally to leading PCB fabricators, including Ruwel, Sanmina, TTM Technologies, Viasystems and WUS Printed Circuit. These fabricators produce PCBs incorporating our laminate materials for electronic equipment designed or produced by a broad group of major original equipment manufacturers, or OEMs, including Alcatel-Lucent, Brocade, Cisco, Dell, Ericsson, Google, Hewlett-Packard, Huawei, IBM and Sun Microsystems (now Oracle). We work closely with these leading PCB fabricators and major OEMs to ensure that our high-performance laminate materials incorporating our proprietary resins meet the thermal, electrical and physical performance criteria of each new generation of electronic equipment.

We were acquired in 2004 by a group of investors led by TPG, a global private equity firm, and Redfern Partners, a strategic partner and investor in the laminate materials industry. Under the direction of TPG and our management, we have undertaken a number of operational changes that have increased manufacturing efficiencies and improved business processes. We believe that these measures, together with our focus on higher margin high-performance products, provide us with the operating leverage to take advantage of improving economic conditions.

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Our history dates back 100 years to the founding of Isola Werke AG in Germany in 1912. Isola Werke AG manufactured insulators utilizing the then-revolutionary Bakelite plastic technology, which provided superior insulating and heat resistance properties. We began production of copper-clad epoxy laminates, the direct predecessors of today's PCB laminate products, in the 1960s. In 2006, we acquired the assets of Polyclad Laminates, Inc., which extended our product portfolio and expanded our business in the growing Asian markets.

For the nine months ended September 29, 2012, our revenue was $437.8 million, our net loss was $64.5 million, and our Adjusted EBITDA was $78.4 million, as compared to revenue of $459.4 million, net income of $7.1 million, and Adjusted EBITDA of $68.6 million for the nine months ended October 1, 2011. For fiscal 2011, our revenue was $597.0 million, our net income was $10.0 million, and our Adjusted EBITDA was $86.2 million. For fiscal 2010, our revenue was $612.0 million, our net income was $1.2 million, and our Adjusted EBITDA was $92.4 million, as compared to revenue of $424.2 million, a net loss of $100.7 million, and Adjusted EBITDA of $31.6 million in fiscal 2009. For an understanding of our primary non-GAAP metric, Adjusted EBITDA, including reconciliation to net income, see our discussion of non-GAAP financial measures in "Selected Historical Consolidated Financial and Other Data", included elsewhere in this prospectus.

We continue to shift our product mix towards high-growth, high-margin, high-performance laminates. In 2011, we generated 83% of our gross sales (revenues less certain adjustments, as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations") from high-performance laminate products, compared to 68% in 2008. For the nine months ended September 29, 2012, high-performance laminate products accounted for 87% of gross sales. We witnessed significant migration towards high-performance laminates in Asia, our largest market, with the high-performance category generating 92% of gross sales in 2011 compared to 76% in 2008. In Europe, sales of high-performance laminate products grew from 28% of gross sales in 2008 to 45% of gross sales in 2011. Europe is a distinct market with standard products accounting for a significant portion of our laminate sales. However, nearly half of the standard products we sell in Europe are sold to less price-sensitive end markets, including applications for industrial and medical equipment. In the Americas, high-performance laminate products accounted for 98% of gross sales in 2011 compared to 97% in 2008.


Industry Overview and Market Opportunity

Current trends and drivers in the PCB laminate materials industry include:

–>
rapidly expanding infrastructure requirements for high-speed data transmission and increasing demand for high-performance PCB laminate materials;

–>
increased performance requirements of advanced electronics requiring high-performance PCB laminate materials;

–>
growing demand for environmentally friendly, lead-free compatible laminate materials; and

–>
greater emphasis on collaboration with OEMs and PCB fabricators.

High-performance PCB laminate materials are defined by their superior performance capabilities achieved primarily through the use of advanced resin formulations. These products compete primarily on their technological capabilities and are used in circuit boards that combine eight or more layers, with some applications requiring circuit boards with more than 20 layers. Our high-performance laminate materials have a variety of applications in the markets for servers and storage devices, network communications, advanced automotive electronics, high-end consumer electronics, military/aerospace equipment, medical equipment and satellite television receivers.

Significant barriers to entry exist within the high-performance PCB laminate materials industry, including capital intensity, long-term customer relationships characterized by pre-production collaboration, and lengthy periods (often up to one year) taken by OEMs to qualify laminates for new products. Once a

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particular PCB laminate material is designed in or qualified for use in a specific product line and one or more particular laminate suppliers are selected, these suppliers tend to remain suppliers of choice, even as the PCBs for these products change to address OEM product line improvements, extensions or next generation developments.

According to Prismark, an independent research firm, our addressable market for PCB laminate materials was $4.8 billion in 2011. Prismark prepared this analysis at our request, and we paid a customary fee for its services. A majority of our high-performance product sales are low-loss laminates used primarily in applications for routers and servers. According to BPA, another independent research firm, the markets for low loss laminate for routers and servers are expected to grow from 2011 to 2015 at compound annual growth rates (CAGRs) of 10% and 6%, respectively.


Our Competitive Strengths

We believe that we possess the following competitive strengths, which will enable us to continue to grow our business globally:

Product technology leadership.    Our significant technology expertise enables us to produce market-leading high-performance PCB laminate materials. We possess an extensive portfolio of patent and other intellectual property rights covering our proprietary resin formulations and we believe we have pioneered the development of several product categories with "best in class" technology. Our proprietary resin formulations are capable of supporting complex circuit boards used in the most demanding electronic equipment and differentiate our products from commonly available, lower-performance materials. We continue to devote considerable efforts to research and develop new resin formulations and other PCB laminate materials to meet evolving market needs.

Recognized market leadership.    We maintain leading market shares, based on revenues, in our addressable markets in the high-Tg and high-speed digital categories within the high-performance segment for PCB laminate materials. According to Prismark, our market share in our high-Tg addressable market increased to 30% in 2011 from 29% in 2010; and our market share in our high-speed digital addressable market increased to 45% in 2011 from 37% in 2010. We have an established reputation as an industry leader and product innovator with strong brand recognition, which we believe will play a significant role in our future growth.

Blue-chip customer base served by global strategic manufacturing locations.    We have developed strong, long-term relationships with leading global PCB fabricators and the major OEMs they serve. We believe that these collaborative relationships provide us with a competitive advantage and assist us in bringing new products to market in a timely manner. As new products gain market acceptance, many OEMs shift high-volume production to lower cost Asian facilities. Because we maintain state-of-the-art equipment in manufacturing facilities that are strategically located throughout Asia, we are able to seamlessly move laminate production to meet our customers' needs. In addition, our global network of plants facilitates quick-turn manufacturing and delivery of product, which reduces our customers' inventory levels and shipping costs.

Streamlined manufacturing with significant operating leverage.    We seek to achieve continual improvement in our manufacturing and business processes in order to improve quality and reduce costs. We use "six sigma" processes and "lean" best practices; we recently completed the implementation of a sophisticated SAP-based enterprise resource planning ("ERP") system across our global operations which has enhanced our production planning and inventory management capabilities on a worldwide basis. In 2009, we closed three of our manufacturing facilities to improve factory utilization in our remaining facilities, which lowered our fixed and semi-fixed manufacturing costs and improved our remaining manufacturing capacity utilization. Together with other measures, we estimate that these closures reduced our annual net costs by approximately $30.0 million (with approximately $15.0 million first realized in fiscal 2009 and approximately $15.0 million first realized in fiscal 2010).

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Experienced management team.    We have a highly experienced management team comprised of well-respected industry veterans who possess an average of over 20 years of experience in the electronics industry. Our management team has a proven track record of implementing sound business practices, including focusing our product development on higher margin products, improving the efficiency of our manufacturing facilities and successfully integrating acquired businesses.


Our Growth Strategies

We intend to extend our market leadership in the higher margin, high-performance laminate materials market through the following growth strategies:

Leverage collaborative relationships and technology leadership to develop innovative solutions.    We have implemented focused product development teams to further expand our relationships with leading PCB fabricators and the OEMs they serve. Our product development teams include members of our research and development, technical support and OEM marketing groups, all working under the direction of our Chief Technology Officer. Our teams actively monitor OEM product developments and engage in regular dialog with OEMs and their PCB fabricators in order to anticipate and plan for future electrical, thermal and physical product specifications. Through this collaborative effort, we seek to develop innovative laminate materials solutions that meet future OEM product requirements.

Further penetrate the Asian market.    Many OEMs and PCB fabricators are migrating manufacturing of increasingly complex electronic equipment to Asia. In addition, several Asian markets are simultaneously undergoing infrastructure build-outs as their economies grow and develop. To supply this market, six of our 11 manufacturing facilities are located in Asia, and we maintain a sales force dedicated to serving this region. We will seek to capitalize on the opportunities presented by the very large and fast growing Asian markets for high-performance laminate materials based on the high quality of our products and technology.

Extend high-performance products into new applications.    We believe that other markets will benefit from our laminate materials and proprietary resin formulations, including the markets for advanced automotive equipment and consumer devices such as next generation smart phones and tablets. In addition, we believe that environmental regulations will become increasingly global and expand the addressable market for our high-performance, lead-free compatible and halogen-free PCB laminate materials. We intend to devote sales and technical resources to address these growing potential markets.

Opportunistically pursue strategic acquisitions and alliances.    We have grown through select acquisitions since we were acquired in 2004. While we believe that our future success will depend primarily on product innovation from collaborative relationships with our major customers and the OEMs they serve, we may pursue strategic acquisitions that provide complementary products or technologies.


Risk Factors

An investment in our ordinary shares involves risks. For a discussion of factors you should consider before deciding to invest in our ordinary shares, we refer you to "Risk Factors" and the following summary:

–>
the markets for our customers' products are volatile, which can cause wide swings in the demand for our products;

–>
we depend upon a relatively small number of customers for a large portion of our sales, and a decline in sales to major customers could harm our results of operations;

–>
we sell on a purchase order basis and are subject to uncertainties and variability in demand by our customers that could decrease revenues and harm our results of operations;

–>
we depend on a small number of suppliers for the raw materials and certain components used to manufacture our products. If these suppliers fail to provide an adequate supply of raw materials or components of sufficient quality, or these suppliers become unavailable to us, we may experience

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    significant delays in the manufacturing and shipping of our products to customers and our business could suffer;

–>
we face intense competition in the PCB materials industry, including from diversified manufacturers and suppliers, which could negatively impact our results of operations and cause our market share to decline;

–>
if demand for high-performance, higher margin products does not increase, our future gross margins and operating results may be worse than expected; and

–>
our failure to respond timely or adequately to market changes may render our existing technology less competitive or obsolete, and our operating results may suffer.


The Principal Sponsors

Our current principal sponsors (the "Principal Sponsors") are:

TPG.    TPG Global, LLC (together with its affiliates, "TPG") is a leading private investment firm founded in 1992 with approximately $49 billion of assets under management as of December 31, 2011 and offices in Fort Worth, Houston, New York, San Francisco, Brazil, Beijing, Chongqing, Hong Kong, Melbourne, Mumbai, Shanghai, Singapore, Tokyo, London, Luxembourg, Moscow, and Paris. TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings. TPG's investments span a variety of industries including financial services, travel and entertainment, technology, industrials, retail, consumer, media and communications, and healthcare.

Oaktree.    Oaktree Capital Management, L.P. (together with its affiliates, "Oaktree") is a premier global alternative and non-traditional investment manager with approximately $74.9 billion of assets under management as of December 31, 2011. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, high-yield bonds, convertible securities, senior loans, corporate control, real estate, emerging market equities and mezzanine finance. Oaktree was founded in 1995 by a number of principals who had previously worked together since the mid-1980s. Headquartered in Los Angeles, the firm has over 600 staff members and offices in 13 cities worldwide.


Concurrent Transactions

Corporate Reorganization

Currently, we operate through Isola Group S.à r.l., a holding company incorporated in Luxembourg (the "Luxembourg Holding Company"), a low-tax jurisdiction. The Luxembourg Holding Company is owned by investors that include TPG, Oaktree, Clearlake Capital and its affiliates, Tennenbaum Capital and its affiliates, GSO Capital Partners LP (an affiliate of The Blackstone Group LP) and its affiliates, Redfern Partners, LLC and its affiliates and certain members of our management (collectively, the "Sponsors"). The Sponsors hold their investment in the Luxembourg Holding Company through two parent entities: TPG Hattrick Partners, L.P. (the "Sponsor Limited Partnership") and TPG Hattrick Holdco, LLC (the "Sponsor Holding Company"). The Sponsor Holding Company is the general partner of the Sponsor Limited Partnership.

The Sponsor Limited Partnership currently owns all of the issued and outstanding securities of the Luxembourg Holding Company, including 500 common shares and three classes of convertible preferred certificates (420,455 Class A convertible preferred certificates, 95,788,400 Class B convertible preferred certificates and 43,500,666 Class C convertible preferred certificates) that are accounted for as debt.

In preparation for our initial public offering, the Sponsor Limited Partnership recently formed a new company, Isola Group Ltd., in the Cayman Islands, a tax-exempt jurisdiction. Isola Group Ltd. will be our

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new holding company and the issuer in this initial public offering. Immediately prior to the completion of our initial public offering, we will undergo a corporate reorganization that includes the following steps:

–>
all of the outstanding securities of the Luxembourg Holding Company, including the common shares and convertible preferred certificates described above, will be contributed by the Sponsor Limited Partnership to Isola Group Ltd. which will result in Isola Group Ltd. becoming our new holding company and the Luxembourg Holding Company becoming a subsidiary of Isola Group Ltd.;

–>
both the Sponsor Limited Partnership and the Sponsor Holding Company will be liquidated and the ordinary shares of Isola Group Ltd. will be distributed to our Sponsors; and

–>
all outstanding management equity awards in the Sponsor Limited Partnership will be terminated and replaced with new equity awards for ordinary shares of Isola Group Ltd. that have the same value and substantially the same terms.

At the completion of our initial public offering:

–>
Isola Group Ltd. will be a public company;

–>
assuming the underwriters do not exercise their over-allotment option, the Principal Sponsors will together own approximately         % of our outstanding ordinary shares, investors in our initial public offering will own approximately         % of our outstanding ordinary shares and there will be options outstanding to purchase approximately         % of our outstanding ordinary shares; and

–>
the Sponsors and Isola Group Ltd. will enter into a shareholders' agreement that provides for certain board representation rights and registration rights with respect to their ordinary shares.

Refinancing

Concurrently with this offering, we expect to enter into a new $        million senior secured revolving credit facility and issue $          million of senior secured notes due 2019 at an assumed interest rate of    %. The proceeds from the issuance of the senior secured notes, together with the net proceeds of this offering, will be used to repay the remaining outstanding balances under the existing senior secured credit agreement and mezzanine credit agreement as described in "Use of Proceeds". See "Description of Indebtedness" for a more detailed description of our new revolving credit facility and senior secured notes. This offering, the senior secured notes offering and the closing of the senior secured revolving credit facility are each conditional upon the closing of the other transactions.

For an illustration of the pro forma financial impacts of the corporate reorganization and refinancing described above, see "Unaudited Pro Forma Financial Information".


Corporate Information about Isola Group Ltd.

Isola Group Ltd. was incorporated under the laws of the Cayman Islands on September 20, 2011. Our principal executive offices are located at 3100 W. Ray Road, Suite 301, Chandler, Arizona 85226. The telephone number of our principal executive offices is (480) 893-6527, and we maintain a website at www.isola-group.com. The information on, or that can be accessed through, our website is not part of this prospectus.

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The Offering

Issuer   Isola Group Ltd.

Ordinary Shares Offered by Issuer

 

                  shares.

Option to Purchase Additional Shares

 

We have granted the underwriters a 30-day option to purchase up to an additional                  ordinary shares at the initial public offering price less the underwriting discount.

Ordinary Shares to Be Outstanding Immediately After this Offering

 

                  shares.

Ordinary Shares to be Beneficially Owned by the Sponsors Immediately After this Offering

 

                  shares. See "Principal Shareholders".

Use of Proceeds

 

We intend to use the net proceeds of this offering, together with the proceeds of the senior secured notes that we have issued, to prepay all of the term loans outstanding under our existing senior secured credit agreement and mezzanine credit agreement plus interest to the prepayment date. The syndicate of lenders under our existing senior secured credit agreement and mezzanine agreement includes certain of our Sponsors. See "Certain Relationships and Related Party Transactions—Agreements With Our Sponsors—Loan Agreement and Private Placement of Securities".

 

 

As of September 29, 2012, we had $210.0 million aggregate principal amount of senior secured term loans outstanding that currently bear interest at a rate of 10% per annum and mature on September 30, 2015, and $201.0 million aggregate principal amount of unsecured term loans outstanding, plus $4.1 million of accrued paid-in-kind ("PIK") interest, outstanding that currently bear interest at a rate of 16% per annum and mature on March 24, 2016. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources".

Conditions to This Offering

 

This offering, the senior secured notes offering and the closing of the senior secured revolving credit facility are each conditional upon the closing of the other transactions. For a discussion of the conditions precedent to the senior secured notes offering and the senior secured revolving credit facility, see "Description of Indebtedness".

Dividend Policy

 

We do not intend to pay cash dividends on our ordinary shares for the foreseeable future. See "Dividend Policy".

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Lock-up   We, our executive officers and directors and certain holders of our outstanding ordinary shares, stock options and other equity awards that together hold at least         % of our outstanding ordinary shares have agreed with the underwriters, subject to certain exceptions, not to offer, sell, contract to sell or otherwise, directly or indirectly, dispose of or hedge any of our ordinary shares or securities convertible into or exchangeable or exercisable for our ordinary shares for a period of 180 days after the date of this prospectus. See "Underwriting" for more information.

Proposed Nasdaq Global Market Symbol

 

ISLA.

The number of ordinary shares to be outstanding immediately after this offering as set forth above is based on the number of ordinary shares outstanding at                            , 2012, and excludes an aggregate of                           additional ordinary shares that will be available for future awards pursuant to our 2012 Equity Incentive Plan.

Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' option to purchase additional ordinary shares from us.

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Summary Historical Consolidated and Pro Forma Financial and Other Data

The following table presents our summary historical consolidated and pro forma financial and other data for the periods and as of the dates presented. The consolidated statements of operations data and other financial data for fiscal 2011, 2010, and 2009, and the consolidated balance sheet data as of the end of fiscal 2011, are derived from our audited consolidated financial statements which are included elsewhere in this prospectus. The consolidated statements of operations and other financial data for the nine months ended September 29, 2012 and October 1, 2011, and the consolidated balance sheet data as of September 29, 2012, are derived from our unaudited interim financial statements for those periods, which are also included elsewhere in this prospectus. These unaudited interim financial statements have been prepared on a basis consistent with the respective audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of that information for such periods. The financial data presented for the interim periods are not necessarily indicative of the results for the full year.

The unaudited pro forma financial information has been derived by the application of pro forma adjustments to our historical consolidated financial statements. The unaudited pro forma consolidated balance sheet as of September 29, 2012 gives effect to the following events as if they had occurred on September 29, 2012. The unaudited pro forma statements of operations for the nine months ended September 29, 2012 and the year ended December 31, 2011 give effect to the following events as if they had occurred on January 2, 2011:

–>
the issuance of                  ordinary shares in this offering to investors;

–>
the issuance of $       principal amount of new senior secured notes (at an assumed interest rate of    %), the entrance into a new senior secured revolving credit facility and the reduction of our annual interest expense as a result of the repayment of our existing loans described below;

–>
the application of the net proceeds of this offering, together with the proceeds of the senior secured notes, to repay all of the term loans outstanding under our existing senior secured and mezzanine credit agreements;

–>
the termination of the TPG Management Agreement; and

–>
the reorganization as Isola Group Ltd. as described under "Prospectus Summary—Concurrent Transactions—Corporate Reorganization".

The summary historical consolidated and pro forma financial and other data below should be read in conjunction with "Use of Proceeds", "Capitalization", "Selected Historical Consolidated Financial and Other Data", "Unaudited Pro Forma Financial Information", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this prospectus. The unaudited pro forma financial information is presented for illustrative purposes only, and is based on preliminary estimates and currently available information and assumptions that our management believes are reasonable. Therefore, the unaudited pro forma balance sheet as of September 29, 2012 and the unaudited pro forma statements of operations for the nine months ended September 29, 2012 and the year ended December 31, 2011 are not necessarily indicative of the financial position or results of operations that would have been achieved had the foregoing events occurred on September 29, 2012 and January 2, 2011, respectively, nor is it indicative of our results to be expected for any future period. A number of factors may affect our results. See "Forward-Looking Statements" and "Risk Factors".

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  Pro forma   For the
nine months ended
  Fiscal year  
 
  For the
nine
months
ended
September 29,
2012

  Fiscal
year
2011

  September 29,
2012

  October 1,
2011

  2011
  2010
  2009
 
   
 
  (dollars in thousands,
except share data)

 

Consolidated Statement of Operations Data:

                                           

Revenues

              $ 437,804   $ 459,448   $ 596,989   $ 611,987   $ 424,199  

Cost of goods sold

                310,585     350,669     455,404     467,751     342,832  
                               

Gross profit

                127,219     108,779     141,585     144,236     81,367  
                               

Operating expenses:

                                           
 

Sales, general and administrative

                59,647     57,057     77,545     65,271     61,816  
 

Research and development

                9,248     7,913     10,653     9,532     9,239  
 

Restructuring

                (76 )   462     1,250     4,782     17,497  
 

Loss on liquidation of subsidiary

                                3,548  
                               
   

Total operating expenses

                68,819     65,432     89,448     79,585     92,100  
                               

Operating income / (loss)

                58,400     43,347     52,137     64,651     (10,733 )

Other income—net

                2,382     1,375     1,629     4,758     1,268  

Embedded derivative gain / (loss)—net

                (45,890 )   27,959     42,256     21,165     (27,513 )

Interest expense(1)

                (62,840 )   (59,544 )   (80,210 )   (72,134 )   (54,893 )

Interest income

                79     138     221     339     567  

Foreign exchange gain / (loss)—net

                1,920     (4,132 )   4,833     9,596     (2,083 )
                               

Income / (loss) before taxes

                (45,949 )   9,143     20,866     28,375     (93,387 )

Provision for income taxes(2)

                (18,593 )   (2,075 )   (10,893 )   (27,158 )   (7,339 )
                               

Net income / (loss)

              $ (64,542 ) $ 7,068   $ 9,973   $ 1,217   $ (100,726 )
                               

Net income / (loss) per common share

                                           
 

Basic

              $ (129.08 ) $ 14.14   $ 19.95   $ 2.43   $ (201.45 )
 

Diluted

              $ (129.08 ) $ 14.14   $ 19.95   $ 2.43   $ (201.45 )

Weighted average number of common and common equivalent shares outstanding

                                           
 

Basic

                500     500     500     500     500  
 

Diluted

                500     500     500     500     500  

 

 
  Pro
Forma
   
   
 
 
  Nine months
ended
   
 
 
  Nine
months
ended
September 29,
2012

   
 
 
  Fiscal year  
 
  September 29,
2012

 
 
  2011
 
   
 
   
  (dollars in thousands)
 

Consolidated Balance Sheet Data:

                   

Cash

        $ 60,171   $ 47,481  

Current assets

          232,729     206,909  

Current liabilities

          145,270     130,478  

Working capital

          87,459     76,431  

Long-term debt and capital lease obligations

          352,454     331,592  

Convertible preferred certificates

          218,560     208,009  

Embedded derivative liability

          74,666     28,924  

Total liabilities

          860,729     772,952  

Common stock and additional paid in capital

          35,186     33,284  

Total stockholders' deficiency

          (468,259 )   (404,778 )

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  Pro Forma   For the
nine months ended
  Fiscal year  
 
  For the nine
months ended
September 29,
2012

  Fiscal
year
2011

  September 29,
2012

  October 1,
2011

  2011
  2010
  2009
 
   
 
  (dollars in thousands)
 

Other Financial Data:

                                           

Adjusted EBITDA(3)

              $ 78,354   $ 68,635   $ 86,183   $ 92,365   $ 31,625  


(1)
Interest expense for the nine months ended September 29, 2012 was $62.8 million (comprised of cash interest expense of $28.1 million and non-cash interest expense of $34.7 million). Non-cash interest expense includes the amortization of deferred loan origination costs, the amortization of original issue discount, interest paid-in-kind ("PIK") on the debt under our mezzanine credit agreement and the accretion of interest on our convertible preferred certificates. We intend to use the proceeds of this offering to reduce our current indebtedness and to refinance the remaining balance of our current indebtedness with the proceeds from the issuance of $        million of senior secured notes bearing interest at       % per annum. If such transactions had occurred as of the end of fiscal 2011, our total interest expense would have been $          million for the nine months ended September 29, 2012, and our cash interest expense would have been $          million for the nine months ended September 29, 2012. See "Unaudited Pro Forma Financial Information".

(2)
Provision for income taxes and net income / (loss) were impacted by unfavorable changes in our uncertain tax positions, after the effect of valuation allowances, in the amount of $2.5 million for fiscal 2011, $9.8 million for fiscal 2010 and $3.5 million for fiscal 2009. The unfavorable impact in fiscal 2010 resulted from changes in estimates of prior years' positions arising out of an ongoing examination by taxing authorities in Germany. During fiscal 2011, a favorable adjustment reduced the provision for income taxes in the amount of $12.1 million as a result of settlements with taxing authorities in Germany and Taiwan.

(3)
Adjusted EBITDA is a supplemental non-GAAP measure used by management and external users of our consolidated financial statements. We define Adjusted EBITDA as net income / (loss) plus (i) interest expense and interest income, net, (ii) provision for income taxes, (iii) depreciation and amortization and (iv) certain additional adjustments. These additional adjustments include stock-based compensation, restructuring charges, foreign exchange gain / (loss)—net, goodwill impairment, management fees paid to TPG, embedded derivatives gain / (loss)—net, expenses related to this offering and a gain related to the settlement of a patent infringement dispute in fiscal 2010. For more information on Adjusted EBITDA and a reconciliation of net income (loss), the most directly comparable financial measure under accounting principles generally accepted in the U.S. ("U.S. GAAP"), to Adjusted EBITDA for the periods presented, see footnote 3 to "Selected Historical Consolidated Financial and Other Data". Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

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Risk Factors

An investment in our ordinary shares involves a high degree of risk. You should carefully consider the following information, together with other information in this prospectus, before buying our ordinary shares. If any of the following risks or uncertainties occur, our business, results of operations and financial condition could be materially adversely affected. In that case, the trading price of our ordinary shares could decline, and you may lose all or a part of the money you paid to buy our ordinary shares.


RISKS RELATED TO OUR INDUSTRY AND BUSINESS

The markets for our customers' products are volatile, which can cause wide swings in the demand for our products.

Our business depends on the electronics industry, which is cyclical and subject to significant downturns characterized by diminished product demand, rapid declines in average selling prices and over-capacity. This industry has experienced periods characterized by relatively low demand and price depression and is likely to experience recessionary periods in the future. Economic conditions affecting the electronics industry in general, or specific market segments, such as computers and communications, have adversely affected our operating results in the past and may do so in the future.

Over the past three years, the global economy has been greatly impacted by the recessionary conditions linked to rising default levels in the U.S. home mortgage sector, volatile fuel prices, and a changing political and economic landscape. These factors have contributed to historically low consumer confidence levels, resulting in a significantly intensified downturn in demand for products incorporating PCBs, which in turn lowered demand for our products and adversely affected our operating results. When we experience excess capacity, variable margins from our revenues may not fully cover our fixed overhead expenses, and our gross margins may fall. A lasting economic recession, excess manufacturing capacity, or a prolonged decline in the electronics industry could negatively affect our business, results of operations, and financial condition.

In order to respond to quick-turn orders and offer short lead times at some of our production facilities, in some cases as little as 12 to 48 hours, these facilities must operate at less than full capacity. However, if we do not receive as many quick-turn orders as we expect at these facilities and have foregone other production, we may underutilize our manufacturing capacity.


We depend upon a relatively small number of customers for a large portion of our sales, and a decline in sales to major customers could harm our results of operations.

A small number of customers, which include PCB manufacturers and distributors, are responsible for a significant portion of our sales. Our ten largest customers accounted for approximately 63% of our revenue for the nine months ended September 29, 2012 and 61% of our revenue in fiscal 2011. Our single largest customer (Viasystems and its subsidiaries) accounted for approximately 15% of our revenue for the nine months ended September 29, 2012 and 16% our revenue in fiscal 2011. Although we cannot assure you that our principal customers will continue to purchase our products at past levels, we expect to continue to depend upon a relatively small number of customers for a significant portion of our revenue. Our customer concentration could fluctuate, depending on future customer requirements, which will depend in large part on conditions in the end-markets in which our customers operate. The loss of one or more significant customers or a decline in sales to our significant customers could harm our business, results of operations, and financial condition and lead to declines in the trading price of our ordinary shares.

In addition, during industry downturns, we may need to reduce prices and we may be unable to collect payments from our customers. There can be no assurance that key customers will not cancel orders, or that

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they will continue to place orders with us in the future at the same levels as experienced by us in prior periods, or that they will be able to meet their payment obligations. This concentration of customers may materially and adversely affect our operating results due to the loss or cancellation of business from any of these key customers, significant changes in scheduled deliveries to any of these customers, or decreases in the prices of the products sold to any of these customers.


We sell on a purchase order basis and are subject to uncertainties and variability in demand by our customers that could decrease revenues and harm our operating results.

We sell to customers on a purchase order basis and not pursuant to long-term contracts. Customers may cancel their orders, reduce production quantities or delay production at any time for a number of reasons. Many of our customers have, over the past several years, experienced significant decreases in demand for their products and services. The uncertain economic conditions in the global economy and in several of the markets in which our customers operate have in the past prompted some of our customers to cancel orders, delay the delivery of some of the products that we manufacture or order fewer products than we previously anticipated. Consequently, our sales are subject to short-term variability in demand by our customers. In the past, we have been required to increase staffing and other expenses in order to meet the anticipated demand of our customers. The level and timing of orders placed by our customers may vary due to:

–>
changes in our customers' inventory levels;

–>
changes in customers' manufacturing strategies;

–>
demand fluctuations for our customers' products; and

–>
changes in new product introductions.

Future terminations, reductions, or delays in our customers' orders could harm our business, results of operations, and financial condition. Variability in demand from our customers may contribute to fluctuations in our quarterly results, which may make our revenues more difficult to accurately forecast.

In addition, we have experienced a gradual shift of revenue to Asia where our customers typically have negotiated longer payment terms than in our other regions. Our days' sales outstanding ("DSOs") in Asia are generally between 85 to 95 days while DSOs in the Americas are between 45 to 50 days and in Europe are between 35 to 45 days.

While this revenue shift has not historically had a materially adverse effect on our financial position, operating results or cash flows, as sales to Asia increase, the increase in our accounts receivable could have an increasingly adverse effect on our working capital position.

Just as we extend relatively long payment terms to our customers in Asia, our vendors in Asia also extend relatively long payment terms to us. As our business in Asia expands, short-term vendor financing also increases. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity".


We depend on a small number of suppliers for the raw materials and certain components used to manufacture our products. If these suppliers fail to provide an adequate supply of raw materials or components of sufficient quality, or these suppliers become unavailable to us, we may experience significant delays in the manufacturing and shipping of our products to customers and our business could suffer.

We depend on a small number of suppliers for the raw materials, including copper, resin and fiberglass, as well as certain components, used in the manufacture of our products. These suppliers must comply with Isola's stringent specifications and technical requirements. Our reliance on these suppliers involves

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significant risks and uncertainties, including whether they will provide an adequate supply of required raw materials or components of sufficient quality, will not increase prices for the raw materials or components and will perform their obligations on a timely basis. If we are unable to obtain raw materials or components from third-party suppliers in the quantities and of the quality that we require on a timely basis and at acceptable prices, we may not be able to deliver our products on a timely or cost-effective basis to our customers, which could cause customers to end their business with us, reduce our gross profit and seriously harm our business, results of operations and financial condition. Moreover, if any of our suppliers becomes financially unstable, we may have to find new suppliers. It may take several months to locate alternative suppliers, if required. We may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources. We cannot predict if we will be able to obtain replacement raw materials and components within the time frames that we require at an affordable cost, or at all.


There may be shortages of, or price fluctuations with respect to, raw materials or components, which would cause us to curtail our manufacturing or incur higher than expected costs.

We purchase the raw materials and certain components we use in producing our products, and we may be required to bear the risk of price fluctuations of raw materials or components. Shortages of raw materials and price fluctuations have occurred in the past and may occur in the future. The cost of copper foil comprises approximately half of the total cost of our raw materials. Copper prices have been particularly volatile in the last four years, declining to less than $3,000 per ton in late 2008 and increasing to more than $10,000 per ton during fiscal 2011. Although historically we have been able to pass through a substantial portion of the raw material cost increases to our customers, we may not continue to be able to do so in the future if we experience significant supply disruptions or excess levels of industry capacity or due to other factors outside of our control, in which case our profitability could suffer. We generally experience a delay of approximately one to two months from the time when costs of raw materials change until we are able to make corresponding price adjustments. Our ability to pass through raw material price increases may also be limited by the level of industry excess capacity, competitive practices and other regional-specific factors which are out of our control. In addition, if we experience a shortage of materials or components, we may not be able to produce products for our customers in a timely fashion.

In addition, the SEC adopted rules required by the Dodd-Frank Act of 2010 that impose new annual disclosure and reporting requirements for public companies to report their use of "conflict minerals" originating from the Democratic Republic of Congo and its nine immediate neighbors. The new requirements are effective for 2013 with a reporting deadline of May 31, 2014 for affected issuers. The current list of "conflict minerals" under the Dodd-Frank Act includes gold, tantalum, tin and tungsten (although additional minerals may be added in the future). To the best of our knowledge, the only metal which is added to our products is copper foil, which is not currently listed as a "conflict mineral." If any of the metals used in our products are classified as "conflict minerals" in the future, there may only be a limited pool of suppliers who provide conflict-free metals, and we cannot assure you that we will be able to obtain products in sufficient quantities or at competitive prices.


We are vulnerable to an increase in the cost of energy.

Our production processes require us to use substantial amounts of power. In the past several years, there has been a significant increase in global energy prices. Changes in the cost or availability of energy resources, including oil, gas and electricity, are beyond our control and could materially increase our cost of operations. We maintain only limited back-up power generation facilities at some of our manufacturing locations. In the event of a power shortage, we could be required to cease operations at an affected facility

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until power is restored. There can be no assurance that our facilities will avoid material utility-based interruptions, which could have a material adverse effect on our results of operations and financial condition.


We may experience significant fluctuations in results of operations from period to period.

Our periodic results may vary significantly depending on various factors, many of which are beyond our control. These factors include:

–>
the volume of customer orders;

–>
changes in demand for customers' and OEMs' products;

–>
pricing and other competitive pressures;

–>
our effectiveness in managing manufacturing processes;

–>
changes in cost and availability of raw materials and labor;

–>
changes in our product mix;

–>
changes in political and economic conditions; and

–>
local factors and events that may affect our production volume, such as local holidays.

Our sales may, from time to time, shift from one period to the next, affecting anticipated results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" for more information about our period to period results and the effect of these factors on them.


If demand for high-performance, higher margin products does not increase, our future gross margins and operating results may be worse than expected.

We typically earn lower gross margins on certain of our base, low-Tg products and higher gross margins on certain of our high-performance laminate materials. We experience continued pressure from customers to reduce prices, and competition remains intense, particularly in Asia. This pricing pressure has affected, and could continue to adversely affect, our gross margins. If demand for our high-performance, higher margin products does not increase in the future, our gross margins and operating results may be worse than expected.


Our failure to respond timely or adequately to market changes may render our existing technology less competitive or obsolete, and our operating results may suffer.

The market for our products is characterized by continuing product development and changing technologies. The success of our business depends in part upon our ability to maintain and enhance our technological capabilities, develop and market products and services that meet changing customer needs and successfully anticipate or respond to technological product platform changes on a cost-effective and timely basis. There can be no assurance that we will effectively respond to the technological product requirements of the changing market, including having sufficient cash flow to make additional capital expenditures that may be required as a result of those changes. To the extent we are unable to respond to such technological product requirements, our operating results may suffer.

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Our customers require our products to undergo a lengthy and expensive qualification process which does not assure follow-on product sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.

In general, OEMs require that our products undergo an extensive qualification process, which may involve testing of our products for performance and reliability. This qualification process may continue for several months or even up to one year in certain cases. Moreover, qualification of a product by a customer does not assure any sales of the product to that customer. After our products are qualified, it can take several months or more before the customer commences volume production of components or systems that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualifying our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of those products to the customer may be precluded or delayed, which may impede our growth and cause our business to suffer.

In addition, we work closely with OEMs to develop products that are well suited to their changing needs. We will not recover the cost of this product development directly even if we are actually engaged as a supplier to an OEM's product line, and there can be no guarantee that such collaborations will result in any sales of our products to such OEM.


Our products may contain design or manufacturing defects, which could result in reduced demand for our services and liability claims against us.

We manufacture products that are highly complex and need to meet increasingly demanding technical and quality requirements. These products may contain design or manufacturing errors or failures, despite our quality control and quality assurance efforts. Defects in the products we manufacture, whether caused by a design, manufacturing, or materials failure or error, may result in delayed shipments, customer dissatisfaction, a reduction or cancellation of purchase orders, or liability claims against us. If these defects occur frequently or in large quantities, our reputation may be impaired. Although our invoices and sales arrangements contain provisions designed to limit our exposure to product liability and related claims, existing or future laws or unfavorable judicial decisions could negate these provisions. Product liability litigation against us, even if it were unsuccessful, would be time-consuming and costly to defend. We may not maintain technology errors and omissions insurance at any given time for all or certain of our operations, and we may not be able to purchase such insurance coverage in the future on terms that are satisfactory to us, if at all. Moreover, such coverage may not be sufficient to cover actual losses.


We face intense competition in the PCB materials industry, including from diversified manufacturers and suppliers, which could negatively impact our results of operations and cause our market share to decline.

The PCB materials industry is intensely competitive, and we compete worldwide in the markets for such materials. Our principal competitors are substantially larger and have greater financial resources than us, and our operating results may be affected by our ability to maintain our competitive positions in these markets. Some of our competitors and potential competitors may have advantages over us, including:

–>
greater financial and manufacturing resources that can be devoted to the development, production, and sale of their products;

–>
more established and broader sales and marketing channels;

–>
manufacturing facilities that are located in countries with lower production costs;

–>
more manufacturing facilities worldwide, some of which are closer in proximity to PCB fabricators;

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–>
lower capacity utilization, which in peak market conditions can result in shorter lead times to customers;

–>
ability to add additional capacity faster or more efficiently;

–>
preferred vendor status with existing and potential customers;

–>
greater name recognition; and

–>
larger customer bases.

In addition, these competitors may respond more quickly to new or emerging technologies, adapt more quickly to changes in customer requirements or devote greater resources to the development, promotion, and sale of their products than we do.


Consolidation trends among our customers could adversely affect our business.

In recent years, a number of our customers have consolidated and further consolidation of customers may continue. If an existing customer is not the controlling entity of the supply chain function following a consolidation, we may not be retained as a preferred or approved supplier. In addition, product duplication could result in the termination of a product line that we currently support. While there is potential for increasing our position with the combined customer, our revenues may decrease if we are not retained as a supplier. We may also be subject to increased pricing pressure from the combined customer because of its increased market share.


Our international sales and operations subject us to additional risks that could adversely affect our operating results.

We derive, and expect to continue to derive, a significant portion of our revenue from international sales in various Asian and European markets. Sales in non-U.S. markets accounted for approximately 84% of our total revenue for the nine months ended September 29, 2012 as well as for fiscal 2011. Moreover, we manufacture a significant portion of our products in manufacturing facilities outside of the United States. Our international revenue and operations are subject to a number of material risks, including, but not limited to:

–>
difficulties in staffing, managing and supporting operations in multiple countries;

–>
rising costs of labor in certain countries;

–>
difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues;

–>
fewer legal protections for intellectual property;

–>
foreign and U.S. taxation issues and international trade barriers;

–>
difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;

–>
potential fluctuations in foreign economies;

–>
government currency control and restrictions on repatriation of earnings;

–>
fluctuations in the value of foreign currencies and interest rates;

–>
general economic and political conditions in the markets in which we operate;

–>
the taking of our property or property we lease by foreign governments;

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–>
domestic and international economic or political changes, social unrest, hostilities and other disruptions in regions where we currently operate or may operate in the future; and

–>
different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future.

Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales, including sales to customers outside the United States, are primarily denominated in U.S. dollars, and downward fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which could harm our business.

As of September 29, 2012, approximately 128 of our employees (or 6.4% overall) were members of one of the following unions: in Singapore, the United Workers of Electronic and Electrical Industries; in Germany, IG Metall; and in Italy, FEMCA CISL and FILTEA CGIL. Although our relationship with these unions generally has been satisfactory and we have not experienced any labor disputes or strikes, any future labor disputes or strikes involving either us or our customers could negatively affect our revenue, profitability and operations. A labor dispute involving another supplier to our customers that results in a slowdown or closure of our customers' facilities could also have an adverse effect on our business.

We operate in countries that have experienced political unrest or instability or government controls over the conduct of business, including China and countries in Southeast Asia. Recently, in China, labor disputes and strikes based partly on wages have slowed or stopped production at certain manufacturers. In some cases, employers have responded by significantly increasing the wages of workers at such plants. In addition, regulatory authorities and others have increased their scrutiny of labor conditions in countries in which we operate. To the extent such developments result in more burdensome labor laws and regulations or require us to increase the wages of employees, our ability to adequately staff our plants and the costs associated with the manufacture and shipping of our products in those jurisdictions could be adversely affected, which would have a material adverse effect on our business and operating results. For more information about how these factors affect our results of operation, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations".


Our leverage and our debt service obligations may adversely affect our cash flow.

As of September 29, 2012, we had total indebtedness of approximately $572.7 million, and a stockholders' deficiency of $468.3 million. After giving effect to the application of the proceeds from this offering (at an assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover of this prospectus) and the proceeds from the concurrent issuance of $        million of senior secured notes, as set forth in "Use of Proceeds", and the effective conversion of our convertible preferred certificates to equity, we expect our total indebtedness to be $              million. Although we expect that our new $     million senior secured revolving credit facility will be undrawn at the closing of this offering, any subsequent borrowings under the senior secured revolving credit facility will further increase our total indebtedness.

Our indebtedness and resulting financial leverage could have significant negative consequences, including:

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increasing our vulnerability to general adverse economic and industry conditions;

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requiring the use of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures;

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–>
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

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placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources.

Our new senior secured revolving credit facility and the indenture governing the senior secured notes will each contain financial and operating covenants that will limit our management's discretion with respect to certain business matters. Among other things, these covenants will restrict our ability and our subsidiaries' ability to incur additional debt, create liens or other encumbrances, make investments, change the nature of our business, sell or otherwise dispose of assets and merge or consolidate with other entities. A failure to comply with these covenants could result in an event of default under the senior secured revolving credit facility or the indenture governing the senior secured notes which, if not cured or waived, could result in the acceleration of the indebtedness. See "Description of Indebtedness" for a more detailed description of our new senior secured notes and revolving credit facility.


If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed. If we seek or obtain injunctions against third parties in the course of defending our intellectual property rights, our relationships with customers or OEMs that use affected products could be adversely impacted.

Our success depends in part on our ability to protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws to protect our intellectual property and other proprietary rights. Significant technology used in our products, however, is not the subject of any patent protection, and we may be unable to obtain patent protection on such technology in the future. In addition, we may fail to protect our title in our registered intellectual property, such as our patents and trademarks, by failing to timely record evidence of our legal ownership in applicable intellectual property offices. Moreover, existing U.S. legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and may be challenged by third parties. In addition, the laws of foreign countries in which we manufacture and market our products may afford little or no effective protection of our intellectual property. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. In addition to the legal methods that we use to protect our intellectual property described above, we may elect to manufacture certain of our products in the United States, where manufacturing costs are higher, in order to better protect our intellectual property. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property. This could result in third parties manufacturing and selling competitive products that employ our technologies. If we fail to protect our intellectual property and other proprietary rights, our business, results of operations or financial condition could be materially harmed.

In addition, defending our intellectual property rights may entail significant expense. We have, from time to time, resorted to legal proceedings to protect our intellectual property and may continue to do so in the future. For example, on June 25, 2012, our wholly-owned U.S. subsidiary, Isola USA Corp. ("Isola USA") filed a patent infringement lawsuit against Taiwan Union Technology Corporation ("TUC"), and another patent infringement lawsuit against Park Electrochemical Corporation, Nelco Products, Inc. and Neltec, Inc. (collectively, "Park"), each in United States District Court. Each of these actions alleges infringement of patents that provide enhanced thermal electrical properties in laminate materials used to fabricate PCBs. On August 14, 2012, Isola USA amended these complaints against TUC and Park to add a third patent to the lawsuits. These ongoing lawsuits seek money damages and injunctions against TUC and

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the Defendants to prevent infringement of the applicable patents. On August 17, 2012, Isola USA filed a complaint against TUC with the United States International Trade Commission ("USITC"), seeking to enforce an earlier consent order enjoining TUC from importing products that infringe other of our patents. On October 3, 2012, we were informed that the USITC instituted an enforcement proceeding to determine whether TUC is in violation of the previously issued consent order and what, if any, enforcement measures are appropriate. For more information, see "Business—Legal Proceedings". Any of our intellectual property rights may be challenged by others, including TUC or Park, or invalidated through administrative processes or litigation. The proceedings against TUC and Park, and any other legal proceedings that we initiate in the future to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we prevail. If unsuccessful, these efforts could also result in the limitation, invalidation or loss of the intellectual property rights we sought to enforce. In addition, the proceedings against TUC and Park, including our requests for injunctions against TUC and Park from infringing on the applicable patents, could adversely impact our relationship with certain customers or OEMs that also utilize affected products sold by TUC or Park. Finally, during the course of any patent litigation, including the proceedings against TUC and Park, there may be public announcements of the results of hearings, motions, and other interim proceedings or developments in the litigation. If securities analysts or investors regard these announcements as negative, the market price of our ordinary shares may decline. General proclamations or statements by key public figures may also have a negative impact on the perceived value of our intellectual property.


We may be subject to attempts by others to gain unauthorized access to our information technology systems, which could result in third-party claims and harm our business and results of operations.

We face attempts by others to gain unauthorized access through the Internet to our information technology systems. If successful, these attempts could harm our business, our products, or our customers and end users. We seek to detect and investigate these security incidents and to prevent their occurrence, but in some cases we might be unaware of an incident or its magnitude and effects. The theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and reduce marketplace acceptance of our products; the value of our investment in R&D, product development, and marketing could be reduced; and third parties might assert against us or our customers claims related to resulting losses of confidential or proprietary information or end-user data, or system reliability. Our business could be subject to significant disruption, and we could suffer monetary and other losses, including the cost of product recalls and returns and reputational harm, in the event of such incidents and claims.


We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly, time-consuming to defend and limit our ability to use certain technologies in the future.

Because our competitors and others actively seek patent protections, we may in the future be subject to claims that our technologies infringe upon third parties' intellectual property or other proprietary rights. In addition, the vendors from which we license technology used in our products or our customers could become subject to similar infringement claims. Any claims, with or without merit, could be time-consuming and expensive to defend, and could divert our management's attention away from the execution of our business plan. Moreover, any settlement or adverse judgment resulting from the claim could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. There can be no assurance that we would be able to obtain a license from the third party asserting the claim on commercially reasonable terms, or at all; that

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we would be able to develop alternative technology on a timely basis, if at all; or that we would be able to obtain a license to use a suitable alternative technology to permit us to continue offering, and our customers to continue using, our affected product. In addition, we may be required to indemnify our vendors or customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling in such a claim. An adverse determination could also prevent us from offering our products to others. Infringement claims asserted against us or our vendors or customers may have a material adverse effect on our business, results of operations or financial condition.


Our confidentiality, assignment of invention and other intellectual property-related agreements with employees and others may not adequately protect our intellectual property rights or prevent the disclosure of our trade secrets and other proprietary information.

We rely substantially upon proprietary information, trade secrets and know-how to conduct our manufacturing operations and research and development activities. We take steps to protect our proprietary rights and information, including the use of confidentiality, non-disclosure, invention-assignment and other agreements with our employees and consultants and in our commercial relationships, including with distributors and customers. However, these steps may be inadequate. Confidentiality agreements used in some of our commercial relationships expire after a stated term. In addition, these agreements may be violated, and there may be no adequate remedy available for any such violation. To the extent that our employees and consultants use intellectual property owned by others in their works for us, disputes may arise as to the rights in related or resulting inventions and know-how. Furthermore, our employees and consultants may not agree to assign us their rights in any inventions that result from their work for us, which could adversely affect our exclusive rights in such inventions and any patents that claim such inventions. Moreover, we cannot assure you that our proprietary information will be kept confidential or that we can meaningfully protect our trade secrets. Our competitors may independently develop substantially equivalent proprietary information or may otherwise gain access to our trade secrets, which could adversely affect our ability to compete in the market.


We depend on the experience and expertise of our senior management team and key technical employees, and the loss of any key employee may impair our ability to operate effectively.

Our success depends upon the continued services of our senior management team and key technical employees, particularly in our research and development department. Each of our executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team might significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships. In addition, because of the highly technical nature of our business, the loss of any significant number of our existing engineering and project management personnel could have a material adverse effect on our business and operating results.

Furthermore, our manufacturing process requires a skilled labor force. Although we are not generally dependent on any one employee or a small number of employees involved in our manufacturing process, we have in the past experienced periods of high employee turnover and may in the future experience significantly high employee turnover at our Asian facilities. If we are not able to replace these people with new employees with comparable capabilities, our operations could suffer as we may be unable to keep up with innovations in the industry or the demands of our customers. As a result, we may not be able to continue to compete effectively.

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Unfavorable tax law changes, unfavorable government reviews of our tax returns, changes in our geographical earnings mix, or imposition of withholding taxes on repatriated earnings could adversely affect our effective tax rate and our operating results.

Our operations are subject to income and transaction taxes in the United States and other jurisdictions. A change in the tax laws in the jurisdictions in which we do business, including an increase in tax rates or an adverse change in the treatment of an item of income or expense, could result in a material increase in the amount of taxes we incur. In particular, proposals have been made to change certain U.S. tax laws relating to foreign entities with U.S. connections. Legislation has been proposed that would require treating certain foreign corporations as U.S. domestic corporations (and therefore taxable on all of their worldwide income) if the management and control of the foreign corporation occurs, directly or indirectly, primarily within the United States. In addition, the U.S. government has proposed various other changes to the U.S. international tax system, certain of which could adversely impact foreign-based multinational corporate groups, and increased enforcement of U.S. international tax laws. Although these U.S. tax law changes may not be enacted in their current forms, it is possible that these or other changes in the U.S. tax laws could significantly increase our U.S. income tax liability in the future.

We are subject to periodic audits or other reviews by tax authorities in the jurisdictions in which we conduct our activities. Audits can result in increased tax payments, penalties and interest, which would affect our results of operation and cash position (particularly if we were required to settle a significant claim with a lump sum payment). Provision for income taxes and net income / (loss) were impacted by unfavorable changes in our uncertain tax positions, after the effect of valuation allowances, in the amount of $2.5 million for fiscal 2011, $9.8 million for fiscal 2010 and $3.5 million for fiscal 2009. The unfavorable impact in fiscal 2010 resulted from changes in estimates of prior years' positions arising out of an ongoing examination by taxing authorities in Germany. During fiscal 2011, a favorable adjustment reduced income tax expense in the amount of $12.1 million as a result of settlements with taxing authorities in Germany and Taiwan.

Because we conduct operations in multiple jurisdictions, our effective tax rate is influenced by the amounts of income and expense attributed to each such jurisdiction. If such amounts were to change so as to increase the amounts of our net income subject to taxation in higher-tax jurisdictions, or if we were to commence operations in jurisdictions assessing relatively higher tax rates, our effective tax rate could be adversely affected.

In addition, we may determine that it is advisable from time to time to repatriate earnings from subsidiaries, under circumstances which could give rise to the imposition of potentially significant withholding taxes by the jurisdictions in which such amounts were earned, without our receiving the benefit of any offsetting tax credits, which also could adversely impact our effective tax rate.


We are subject to risks of currency fluctuations.

A portion of our cash and other current assets is held in currencies other than the U.S. dollar. As of September 29, 2012, we had approximately $39 million of current assets held by subsidiaries with a functional currency other than the U.S. dollar. Changes in exchange rates among other currencies and the U.S. dollar will affect the value of these assets as translated to U.S. dollars in our balance sheet. To the extent that we ultimately decide to repatriate some portion of these funds to the United States, the actual value transferred could be impacted by movements in exchange rates. Any such type of movement could negatively impact the amount of cash available to fund operations or to repay debt. Significant inflation or disproportionate changes in foreign exchange rates could occur as a result of general economic conditions, acts of war or terrorism, changes in governmental monetary or tax policy, or changes in local interest rates.

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The impact of future exchange rate fluctuations between the U.S. dollar and other currencies cannot be predicted. To the extent that we may have outstanding indebtedness denominated in other currencies, the appreciation of other currencies against the U.S. dollar will have an adverse impact on our financial condition and results of operations.


Our failure to comply with the requirements of environmental laws could result in litigation, fines and revocation of permits necessary to our manufacturing processes.

Our operations are regulated under a number of international, federal, state, local, and foreign environmental and safety laws and regulations that govern, among other things, the discharge of hazardous materials into the air and water, as well as the handling, storage, and disposal of such materials. Because we use hazardous materials and generate hazardous wastes in our manufacturing processes, we may be subject to potential financial liability for costs associated with the investigation and remediation of our own sites, or sites at which we have arranged for the disposal of hazardous wastes, if such sites become contaminated. Even if we fully comply with applicable environmental laws and are not directly at fault for the contamination, we may still be liable.

Although in recent periods the Company has not incurred any material environmental costs, any material violations of environmental laws or failure to maintain required environmental permits could subject us to fines, penalties, and other sanctions, including the revocation of our effluent discharge permits, which could require us to cease or limit production at one or more of our facilities, and harm our business, results of operations, and financial condition. Even if we ultimately prevail, environmental lawsuits against us would be time consuming and costly to defend.

Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violation. We operate in environmentally sensitive locations, and we are subject to potentially conflicting and changing regulatory agendas of political, business, and environmental groups. We are increasingly required to certify compliance with various material content restrictions in our products based on laws of various jurisdictions or territories such as the Restriction of Hazardous Substances ("RoHS") and Registration, Evaluation, Authorization and Restriction of Chemicals ("REACH") directives in the European Union and China's RoHS legislation. In addition, our customers or the OEMs they supply may adopt more stringent environmental requirements for their products in response to political or social pressure. Changes or restrictions on discharge limits, emissions levels, material storage, handling or disposal or increasingly stringent certification requirements might require a high level of unplanned capital investment or facility or materials relocation. It is possible that environmental compliance costs and penalties from new or existing regulations may harm our business, results of operations, and financial condition. See "Business—Regulation".


Our business and operations could be adversely impacted by climate change initiatives.

Our manufacturing processes require that we purchase significant quantities of energy from third parties, which results in the generation of greenhouse gasses, either directly on-site or indirectly at electric utilities. Both domestic and international legislation to address climate change by reducing greenhouse gas emissions and establishing a price on carbon could create increases in energy costs and price volatility. Considerable international attention is now focused on development of an international policy framework to guide international action to address climate change. Proposed and existing legislative efforts to control or limit greenhouse gas emissions could affect our energy source and supply choices as well as increase the cost of energy and raw materials derived from sources that generate greenhouse gas emissions.

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Damage to our manufacturing facilities due to fire, natural disaster, or other events could harm our financial results.

We have manufacturing facilities in the United States in Arizona, California and South Carolina. We also have manufacturing facilities in Germany, Italy, China, Singapore, Malaysia and Taiwan. The destruction or closure of any of our facilities for a significant period of time as a result of fire, explosion, blizzard, act of war or terrorism, flood, tornado, earthquake, lightning, or other natural disaster could harm us financially, increasing our costs of doing business and limiting our ability to deliver our products on a timely basis.


We may engage in future acquisitions or dispositions that could disrupt our business, cause dilution to our shareholders or adversely impact our financial condition and operating results.

In the future we may acquire companies or assets of companies or dispose of portions of our business in order to enhance our market position or strategic strengths. We are not currently a party to any agreements or commitments, and we have no understandings with respect to any such acquisitions or dispositions. We may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions or dispositions on favorable terms, if at all, even after devoting substantial resources to them. If we do complete acquisitions or dispositions, we cannot be sure that they will ultimately strengthen our competitive position or that they will not be viewed negatively by customers, financial markets, or investors. In addition, any acquisitions that we make could lead to difficulties in integrating personnel and operations from the acquired businesses and in retaining and motivating key personnel from these businesses. Acquisitions or dispositions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses, and adversely impact our operating results or financial condition. Future acquisitions may reduce our cash available for operations and other uses and could result in an increase in amortization expense related to finite-lived intangible assets acquired, potentially dilutive issuances of equity securities, or the incurrence of debt, any of which could adversely affect our financial condition and operating results.


We are an emerging growth company and cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

We are an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our ordinary shares less attractive because we will rely on these exemptions. If some investors find our ordinary shares less attractive as a result, our stock price may be lower than it otherwise would be, there may be a less active trading market for our ordinary shares and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (ii) the last day of our fiscal year ending after the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934 as amended (the "Exchange Act").

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

We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. There may be further increases if and when we are no longer an "emerging growth company". In preparation for our initial public offering, we have increased our personnel devoted to legal, accounting and human resources matters and have implemented additional procedures to improve compliance and effectiveness in these functional areas. In addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010, and rules subsequently implemented and yet to be implemented by the Securities and Exchange Commission and Nasdaq have imposed and will impose various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly, particularly after we are no longer an "emerging growth company". For example, we expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and, when we are no longer an "emerging growth company" under the JOBS Act, our independent registered public accounting firm, to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Compliance will require us to increase our general and administrative expense in order to pay added compliance personnel, outside legal counsel and consultants to assist us in, among other things, external reporting, instituting and monitoring a more comprehensive compliance function and board governance function, establishing and maintaining internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and preparing and distributing periodic public reports in compliance with our obligations under the U.S. federal securities laws. We currently do not have an internal audit group, and we will evaluate the need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the Securities and Exchange Commission or other regulatory authorities, which would require additional financial and management resources.

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We have in the past and may in the future identify material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our stock.

In 2011, in preparation for this offering, we and our independent registered public accounting firm identified a material weakness in our internal controls over financial reporting, which we substantially remediated as of the end of the second quarter of 2012. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected and corrected in a timely manner. Our internal control deficiencies resulted in material adjustments to our previously issued consolidated financial statements for fiscal years 2004 through 2009 and to our consolidated financial statements for fiscal 2010 and the six months ended July 2, 2011. These material adjustments were not previously identified by us because we had limited resources within the accounting function possessing a requisite level of technical experience in the selection and application of certain accounting principles. Management and our independent registered public accounting firm determined that internal controls over identifying and evaluating complex transactions required strengthening. The accounting principles at issue included distinguishing liabilities from equity, accounting for derivatives and hedging, determination of functional currency and accounting for stock-based compensation for securities issued by the Sponsor Limited Partnership.

In January 2012, we determined that our internal control deficiencies resulted in the need for additional material adjustments to our previously issued consolidated financial statements. The need for these adjustments resulted in the restatement of our previously issued consolidated financial statements and related to the accounting for derivatives and hedging, the presentation of the results of operations and cash flows from the liquidation of MAS Italia s.r.l. the presentation on the balance sheet and in the statement of cash flows related to an entrustment loan in China and the related restricted cash and the presentation in the results of operations of withholding tax expense on dividends paid by certain of our subsidiaries.

Beginning in the third quarter of fiscal 2011, we implemented changes and improvements in our internal control over financial reporting to address the underlying causes of our material weakness (including hiring a Director of External Reporting, who has experience working in the accounting departments of public companies; continuing to recruit additional accounting and finance personnel; engaging outside technical accounting and financial advisors on an ongoing basis; and requiring our accounting and financial staff to attend professional courses or seminars regarding accounting pronouncements and the additional complexities and reporting requirements of a public company), which we have substantially remediated as of the end of the second quarter of 2012. We cannot assure you that the measures we took will be effective in mitigating or preventing significant deficiencies or material weaknesses in our internal control over financial reporting in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses or cause us to fail to meet our periodic reporting obligations.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting with our second Annual Report on Form 10-K after the completion of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the

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later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an emerging growth company.

If we cease to be an emerging growth company, our independent registered accounting firm would be required to perform the work necessary to render an opinion on our internal controls, which could be costly and time consuming. In addition, even if our management concludes that our internal controls are effective, our independent registered public accounting firm, if required to render an opinion on our internal controls, may issue a report that is adverse if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In response, we may need to undertake various actions, such as implementing additional internal controls and procedures or hiring additional accounting and internal control staff. During the course of the evaluation, documentation or attestation, we or our independent registered accounting firm may identify one or more material weaknesses that could result in errors in our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in the trading price of our stock.


We have elected under the JOBS Act to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

Under the JOBS Act, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of this extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to financial statements of companies that comply with public company effective dates.


We are subject to the Foreign Corrupt Practices Act ("FCPA"). A determination that we violated this act may affect our business and operations adversely.

We are subject to the regulations imposed by the FCPA, which generally prohibits companies that are publicly listed in the U.S. and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business. In connection with our initial public offering, we are implementing policies and procedures to train our personnel in FCPA compliance matters. Any determination that we have violated the FCPA could have a material adverse effect on our financial position, operating results and cash flows.


RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR ORDINARY SHARES

We are controlled by the Sponsors, whose interests may not be aligned with yours.

Prior to the completion of this offering, the Sponsors own, directly or indirectly,         % of our outstanding ordinary shares. After giving effect to this offering, assuming an offering of                                        ordinary shares, the Sponsors will control, directly or indirectly, approximately         % of our ordinary shares, assuming no exercise of the underwriters' option to purchase additional shares. In addition, at the completion of this offering, we will enter into a shareholders' agreement with our Sponsors that will give each of TPG and Oaktree the right to nominate representatives to our board of directors and require our Sponsors to vote for the election of these nominees to our board of directors, so long as TPG and Oaktree own specified percentages of our outstanding voting securities. See "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors—Shareholders and Registration Rights Agreement". As a result, the Sponsors will continue to be able to control the election of our directors, determine our

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corporate and management policies and determine, without the consent of our other shareholders, the outcome of any corporate transaction or other matter submitted to our shareholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. The Sponsors will also have sufficient voting power to amend our organizational documents. The interests of the Sponsors may not coincide with the interests of other holders of our ordinary shares.

Furthermore, each of the Sponsors is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. The Sponsors may also pursue, for their own accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. Our memorandum and articles of association do not prohibit the Sponsors, or any of their respective officers, directors, agents, employees, shareholders, members, partners, affiliates and subsidiaries, or any of our directors, from acquiring an interest or expectancy in corporate opportunities, and do not impose upon such persons or entities any duty to disclose such potential corporate opportunities to us or refrain from competing with us, even if such opportunities are ones we or our subsidiaries might reasonably be deemed to have pursued or had the desire to pursue. Furthermore, such persons or entities may take such corporate opportunities for themselves or offer them to other persons or entities. Our Sponsors may also consider combining our operations with those of another company. So long as the Sponsors continue to own a significant amount of our outstanding ordinary shares, they will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions.


We will be a "controlled company" within the meaning of Nasdaq rules and, as a result, will qualify for and will rely on exemptions from certain corporate governance requirements.

After completion of this offering, the Sponsors will continue to control a majority of the voting power of our outstanding ordinary shares. As a result, we will be a "controlled company" within the meaning of the corporate governance standards of Nasdaq. Under Nasdaq rules, a company of which more than 50% of the voting power is held by a person or group of persons acting together is a "controlled company" and may elect not to comply with certain corporate governance requirements of Nasdaq, including the requirements that:

–>
a majority of the board of directors consists of independent directors;

–>
the nominating and corporate governance committee is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;

–>
the compensation committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

–>
there is an annual performance evaluation of the nominating and corporate governance and compensation committees.

We have adopted charters for our audit, nominating and corporate governance and compensation committees, intend to conduct annual performance evaluations for these committees, and initially expect all of our committee members and a majority of our board of directors to be considered independent directors under the independence criteria of Nasdaq. Although we intend to comply with these listing requirements whether or not we are a controlled company, there is no guarantee that we will not take advantage of the exemptions available to "controlled companies" in the future. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

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Shareholder rights under Cayman Islands law may differ materially from shareholder rights in the United States, which could adversely affect the ability of us and our shareholders to protect our and their interests.

We are a company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, by the Companies Law of the Cayman Islands and the common law of the Cayman Islands, as amended and restated from time to time. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. In particular, some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate laws. Moreover, we could be involved in a corporate combination in which dissenting shareholders would have no rights comparable to appraisal rights which would otherwise ordinarily be available to dissenting shareholders of United States corporations. Also, our Cayman Islands counsel is not aware of a significant number of reported class actions or derivative actions having been brought in Cayman Islands courts. Such actions are ordinarily available in respect of United States corporations in U.S. courts. Finally, Cayman Islands companies may not have standing to initiate shareholder derivative actions before the federal courts of the United States. As a result, our public shareholders may face different considerations in protecting their interests in actions against the management, directors or the Sponsors than would shareholders of a corporation incorporated in a jurisdiction in the United States, and our ability to protect our interests may be limited if we are harmed in a manner that would otherwise enable us to sue in a United States federal court. See "Description of Share Capital—Differences in Corporate Law".


Certain provisions of our charter documents could discourage, delay or prevent a merger or acquisition at a premium price.

Our memorandum and articles of association will contain provisions that:

–>
permit us to issue, without any further vote or action by our shareholders, 25,000,000 preferred shares in one or more series and, with respect to each series, to fix the number of shares constituting the series and the designation of the series, the voting powers (if any) of the shares of such series, and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series; and

–>
at such time as we are no longer a "controlled company", will allow our board of directors to establish a classified board, and limit the ability of shareholders to call extraordinary general meetings or act by written consent in lieu of a meeting (we believe that such action by written consent would be impractical after the consummation of this offering, even while we are a "controlled company," because it requires unanimous shareholder approval under the laws of the Cayman Islands).

The foregoing provisions may impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing shareholders.


As a holder of the ordinary shares, you may have difficulty obtaining or enforcing a judgment against us because we are incorporated under the laws of the Cayman Islands.

Because we are a Cayman Islands company, there is uncertainty as to whether the Grand Court of the Cayman Islands would recognize or enforce judgments of United States courts obtained against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof,

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or be competent to hear original actions brought in the Cayman Islands against us predicated upon the securities laws of the United States or any state thereof.


An active trading market for our ordinary shares may not develop, and you may not be able to sell your ordinary shares at or above the initial public offering price.

Prior to this offering, there has been no public market for our ordinary shares. Although we have applied to have our ordinary shares quoted on the Nasdaq Global Market, an active trading market for our ordinary shares may never develop or be sustained following this offering. If no trading market develops, securities analysts may not initiate or maintain research coverage of our Company, which could further depress the market for our ordinary shares. As a result, investors may not be able to sell their ordinary shares at or above the initial public offering price or at the time that they would like to sell.


If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.

The trading market for our ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our stock could decline if one or more equity analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.


The market price of our ordinary shares may be volatile, which could result in substantial losses for investors purchasing shares in this offering.

The initial public offering price for our ordinary shares will be determined through negotiations with the underwriters. This initial public offering price may vary from the market price of our ordinary shares after the offering. Some of the factors that may cause the market price of our ordinary shares to fluctuate include:

–>
the failure of securities analysts to cover our ordinary shares after this offering, or changes in financial estimates or recommendations by analysts;

–>
actual or anticipated variations in our or our competitors' operating results;

–>
failure by us or our competitors to meet analysts' projections or guidance that we or our competitors may give the market;

–>
volatility in our operating performance;

–>
future sales of our ordinary shares;

–>
investor perceptions of us and the industry;

–>
the public's reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission;

–>
general economic conditions; and

–>
the other factors described elsewhere in these "Risk Factors".

In addition, if the market for stocks of companies in our industry or the stock market in general experiences a loss of investor confidence, the trading price of our ordinary shares could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

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We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our shareholders.

We anticipate that the net proceeds of this offering, together with current cash, cash equivalents, cash provided by operating activities, funds from the senior secured notes and funds available from our new senior secured revolving credit facility that we expect to enter into upon the closing of this offering will be sufficient to meet our current and anticipated needs for general corporate purposes. It is possible, however, that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs, refinance our indebtedness or take advantage of acquisition opportunities. If this occurs, we may need additional financing to execute on our current or future business strategies, including to:

–>
hire additional engineers and other personnel;

–>
develop new or enhance existing products;

–>
enhance our operating infrastructure;

–>
acquire complementary businesses or technologies; or

–>
otherwise respond to competitive pressures.

If we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership of our shareholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing shareholders, including those acquiring shares in this offering. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, or otherwise respond to competitive pressures would be significantly limited.


A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our ordinary shares to drop significantly, even if our business is doing well.

Sales of a substantial number of our ordinary shares in the public market could occur at any time after the expiration of the lock-up agreements described in "Underwriters". These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our ordinary shares. After this offering, we will have                                        ordinar y shares outstanding based on the number of shares outstanding as of                                        , 2012. This includes the                                        shares that we are selling in this offering, which may be resold in the public market immediately. The remaining                                        sh ares, or         % of our outstanding shares after this offering, will be able to be sold, subject to any applicable volume limitations under U.S. federal securities laws, in the near future as set forth below.

In addition, the Sponsors have certain registration rights, which they may exercise in order to sell their shares through a registration statement filed by us on their behalf. For more information, see "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors—Shareholders and Registration Rights Agreement".


We plan to offer stock awards, which have the potential to dilute shareholder value and cause the price of our ordinary shares to decline.

We expect to offer stock awards to our directors, officers and employees, some of which may be vested at the time of this offering. If the stock awards are vested and exercised, and those shares are sold into the

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public market, the market price of our ordinary shares may decline. In addition, the availability of ordinary shares for award under any equity incentive plan that we adopt, or the grant of stock awards, may adversely affect the market price of our ordinary shares.


If you purchase ordinary shares sold in this offering, you will experience immediate and substantial dilution because our existing holders of ordinary shares paid substantially less than the initial public offering price for your shares.

You will experience immediate and substantial dilution of $             in pro forma net tangible book value per share because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire, based on the net tangible book value per share as of                                        , 2012. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares.


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

Isola Group Ltd. has never declared or paid any cash dividends on its ordinary shares. We currently intend to invest our future earnings, if any, to fund our growth and do not anticipate paying cash dividends on our ordinary shares in the future. In addition, the instruments currently governing our indebtedness contain covenants that place limitations on the amount of dividends we may pay. Therefore, you are not likely to receive any dividends on your ordinary shares for the foreseeable future.

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Forward-looking Statements

This prospectus contains "forward-looking statements". All statements other than statements of historical fact are "forward-looking" statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward-looking terminology such as "anticipate", "believe", "continue", "could", "estimate", "expect", "intend", "may", "might", "plan", "potential", "predict", "should" or "will" or the negative thereof or other variations thereon or comparable terminology. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this prospectus under the headings "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this prospectus under the headings "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business", may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

–>
adverse developments in the global economy;

–>
our dependence on growth in our customers' businesses;

–>
our ability to remain competitive in the markets we serve;

–>
our inability to continue to develop, manufacture and market innovative, customized products and services that meet customers' requirements for performance and reliability;

–>
any failure of our suppliers to provide us with raw materials;

–>
termination of our key contracts, including technology license agreements, or loss of our key customers;

–>
our inability to protect our intellectual property;

–>
our failure to realize anticipated benefits from completed acquisitions, divestitures or restructurings, or the possibility that such acquisitions, divestitures or restructurings could adversely affect us;

–>
the loss of key employees;

–>
our exposure to foreign currency exchange rate risks;

–>
terrorist acts or acts of war; and

–>
other risks and uncertainties, including those listed under the caption "Risk Factors".

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements, either to reflect new developments, or for any other reason, except as required by law.

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Use of Proceeds

We estimate that our net proceeds from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $          million, assuming the shares are offered at $         per ordinary share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus.

We intend to use the net proceeds as follows:

–>
$          million of the net proceeds will be used to prepay $          million in aggregate principal amount of indebtedness under our existing senior secured credit agreement plus interest to the prepayment date; and

–>
$          million of the net proceeds will be used to prepay $          million in aggregate principal amount of indebtedness under our mezzanine credit agreement plus interest to the prepayment date.

As of September 29, 2012, we had $210.0 million aggregate principal amount of secured term loans outstanding under our senior credit agreement which currently bear interest at a rate of 10% per annum and mature on September 30, 2015, and $201.0 million aggregate principal amount of unsecured loans and $4.1 million accrued PIK interest outstanding under our mezzanine credit agreement which currently bear interest at a rate of 16% per annum and mature on March 24, 2016. The syndicate of lenders under our existing senior secured credit agreement and mezzanine agreement includes certain of our Sponsors. See "Certain Relationships and Related Party Transactions".

After application of the proceeds of this offering, the remaining balances of the loans under the senior and mezzanine credit agreements will be repaid with the proceeds of the issuance of senior secured notes. The senior secured notes offering will be completed concurrently with the closing of this offering. This offering, the senior secured notes offering and the closing of the senior secured revolving credit facility are each conditional upon the closing of the other transactions.

The following table summarizes the estimated sources and uses of proceeds in connection with the sale of ordinary shares by us and the issuance of $          million of senior secured notes, assuming this offering and the refinancing had occurred on September 29, 2012. We also expect to enter into a new $     million senior secured revolving credit facility, which we expect will be undrawn at the closing of this offering. You should read the following together with the information set forth under "Prospectus Summary—Concurrent Transactions".

Sources
  Amount
 
   
 
  (dollars in millions)  

Ordinary shares offered hereby

  $    

New senior secured notes

       
       

Total Sources

  $    

 

Uses
  Amount
 
   
 
  (dollars in millions)
 

Repay existing secured term loans

  $    

Repay existing unsecured term loans

       

Fees and expenses

       

Cash on balance sheet

       
       

Total Uses

  $    

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Dilution

Dilution represents the difference between the amount per share paid by investors in this offering and the as adjusted net tangible book value per share of our ordinary shares immediately after this offering.

Our net tangible book value as of                           , 2012 was a surplus of $              million, or $             per ordinary share. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of ordinary shares outstanding.

After giving effect to our receipt of the estimated net proceeds from our sale of ordinary shares in this offering, and after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us, our net tangible book value, as adjusted, as of                           , 2012 would have been $              million, or $             per ordinary share. This represents an immediate increase in net tangible book value of $             per common share to our existing shareholders and an immediate dilution of $             per share to new investors purchasing our ordinary shares in this offering. The following table illustrates this per share dilution to the later investors:

   

Initial public offering price per share

  $    
 

Pro forma net tangible book value per share as of                           , 2012

       
 

Increase per share attributable to investors purchasing our ordinary shares in this offering

       
       

As adjusted net tangible book value per share after this offering

       
       

Dilution in net tangible book value per share to new investors purchasing our ordinary shares in this offering

  $    
       

The following table summarizes, as of                           , 2012, the number of shares purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us by existing shareholders and new investors purchasing our ordinary shares in this offering at an assumed offering price of $             per share, which is the midpoint of the price range listed on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing shareholders paid.

 
  Shares purchased   Total consideration    
 
 
  Average price
per share

 
 
  Number
  Percent
  Amount
  Percent
 
   

Existing shareholders

            %           % $    

New investors

                               

Total

          100 %         100 %      

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the total consideration paid by new investors by $              million and increase (decrease) the percent of total consideration paid by new investors by         % assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same.

The number of ordinary shares to be outstanding after this offering is based on                           ordinary shares outstanding as of                           , 2012. Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters' option to purchase additional shares, and no exercise of any of our outstanding stock awards. If the underwriters' option to purchase additional shares is exercised in full, the number of ordinary shares held by existing shareholders upon the completion of this offering would

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be                           , or         %, and the number of ordinary shares held by new investors upon the completion of this offering would be                           , or         %, of the total number of shares outstanding upon the completion of this offering. Our net tangible book value, as adjusted, will be $             , or $             per ordinary share, and the dilution per ordinary share to new investors will be $             , if the underwriters' over-allotment option is exercised in full.

In addition, effective immediately upon the signing of the underwriting agreement for this offering, an aggregate of                           of our ordinary shares will be reserved for issuance under our 2012 Equity Incentive Plan. To the extent that any of our outstanding stock awards are exercised, new options are issued under our 2012 Equity Incentive Plan or we issue additional ordinary shares or other equity securities in the future, there will be further dilution to investors participating in this offering. Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

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Dividend Policy

Isola Group Ltd. has never declared or paid any cash dividends on its ordinary shares. We currently intend to retain earnings, if any, to finance the development and growth of our business and do not anticipate paying cash dividends on our ordinary shares in the future. Our payment of any future dividends is restricted by our current credit agreements. The declaration and payment of dividends also is subject to the discretion of our board of directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors.

In addition, under the Companies Law of the Cayman Islands, our board of directors may declare dividends only out of our accumulated net profits, out of share premium, provided that immediately following the date on which the dividend is to be paid we can pay our debts as they come due in the ordinary course of business, or (subject to the same solvency test as applies to payments from premium) out of any distributable capital reserve resulting from contributed surplus paid in to us.

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Capitalization

Prior to this offering, a substantial amount of the investment in Isola is represented by convertible preferred certificates issued by Isola's current Luxembourg Holding Company to the Sponsor Limited Partnership, which is controlled by our Sponsors. Immediately prior to this offering, we will reorganize as Isola Group Ltd., a Cayman Islands company, and all of the outstanding securities of the Luxembourg Holding Company, including the common shares and the convertible preferred certificates, will be effectively converted into ordinary shares of Isola Group Ltd., as described in "Prospectus Summary—Concurrent Transactions—Corporate Reorganization" (the "Corporate Reorganization and Conversion").

The following table sets forth both our cash and cash equivalents and our capitalization as of September 29, 2012:

–>
on an actual basis;

–>
on a pro forma as adjusted basis to give effect to:

–>
the Corporate Reorganization and Conversion;

–>
the sale of ordinary shares by us in this offering at an assumed initial public offering price of $             per share, the midpoint of the range set forth on the front cover page of this prospectus;

–>
the sale of $       principal amount of our new senior secured notes; and

–>
the application of the net proceeds of this offering and our new senior secured notes as described under "Use of Proceeds".

This table should be read in conjunction with our consolidated financial statements and accompanying notes thereto, "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" included elsewhere in this prospectus.

 
  As of September 29, 2012  
 
  Actual
  Pro forma
Adjustments

  Pro forma
as adjusted

 
   
 
  (dollars in thousands,
except for share data)

 

Cash

  $ 60,171              
                   

Debt and borrowings

                   
 

Secured term loans issued under existing senior secured credit agreement, net of unamortized discount of $19.3 million

    190,664              
 

Unsecured term loans issued under mezzanine credit agreement, net of unamortized discount of $56.8 million and includes $4.1 million of accrued PIK interest

    148,329              
 

Senior secured notes

                 
 

Loans issued under new senior secured revolving credit facility

                 
 

Convertible preferred certificates

    218,560              
 

Other short-term indebtedness

    15,100              
               

Total debt and borrowings

  $ 572,653   $     $    
               

Stockholders' deficiency

                   
 

Common shares of Isola Group S.à.r.l., €25 par value ($31), 500 shares authorized, issued and outstanding (actual)

    15              
 

Ordinary shares of Isola Group Ltd., 100,000,000 shares authorized,               shares issued and outstanding (pro forma), and              shares issued and outstanding (pro forma as adjusted)

                 

Additional paid-in capital

    35,171              

Accumulated deficit

    (453,036 )            

Accumulated other comprehensive income / (loss)

    (50,409 )            
               

Total stockholders' deficiency

    (468,259 )            
               

Total capitalization

  $ 104,394   $     $    
               

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Selected Historical Consolidated Financial and Other Data

The following table presents our selected historical consolidated financial and other data. The consolidated statements of operations data, balance sheet data and other financial data as of and for fiscal 2011, 2010, 2009, 2008, and 2007 are derived from our audited consolidated financial statements which, except for fiscal 2007 and 2008 and balance sheet data as of the end of fiscal 2009, are included elsewhere in this prospectus. The consolidated statements of operations data, balance sheet data and other financial data as of September 29, 2012 and for the nine months ended September 29, 2012 and October 1, 2011 are derived from our unaudited interim financial statements for those periods included elsewhere in this prospectus and have been prepared on a basis consistent with the respective audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of that information for such periods. The financial data presented for the interim periods is not necessarily indicative of the results for the full year. The selected historical consolidated financial and other data below should be read in conjunction with "Use of Proceeds", "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this prospectus.

 
  For the nine
months ended
   
   
   
   
   
 
 
  Fiscal year  
 
  September 29,
2012

  October 1,
2011

 
 
  2011
  2010
  2009
  2008
  2007
 
   
 
  (dollars in thousands, except for share data)
 

Consolidated Statement of Operations Data:

                                           

Revenues

  $ 437,804   $ 459,448   $ 596,989   $ 611,987   $ 424,199   $ 603,543   $ 667,595  

Cost of goods sold

    310,585     350,669     455,404     467,751     342,832     522,168     559,886  
                               

Gross profit

    127,219     108,779     141,585     144,236     81,367     81,375     107,709  
                               

Operating expenses:

                                           
 

Sales, general and administrative

    59,647     57,057     77,545     65,271     61,816     69,362     68,321  
 

Research and development

    9,248     7,913     10,653     9,532     9,239     10,677     8,511  
 

Restructuring

    (76 )   462     1,250     4,782     17,497     8,218     3,988  
 

Loss on liquidation of subsidiary

                    3,548          
 

Goodwill impairment

                        8,513      
                               
   

Total operating expenses

    68,819     65,432     89,448     79,585     92,100     96,770     80,820  
                               

Operating income / (loss)

    58,400     43,347     52,137     64,651     (10,733 )   (15,395 )   26,889  

Other income—net

    2,382     1,375     1,629     4,758     1,268     2,467     3,526  

Embedded derivative gain / (loss)—net

    (45,890 )   27,959     42,256     21,165     (27,513 )   115,352     59,707  

Interest expense(2)

    (62,840 )   (59,544 )   (80,210 )   (72,134 )   (54,893 )   (60,652 )   (51,290 )

Interest income

    79     138     221     339     567     1,821     3,010  

Foreign exchange gain / (loss)—net

    1,920     (4,132 )   4,833     9,596     (2,083 )   (979 )   (25,931 )
                               

Income / (loss) before taxes

    (45,949 )   9,143     20,866     28,375     (93,387 )   42,614     15,911  

Provision for income taxes

    (18,593 )   (2,075 )   (10,893 )   (27,158 )   (7,339 )   (6,815 )   (11,456 )
                               

Net income / (loss)

  $ (64,542 ) $ 7,068   $ 9,973   $ 1,217   $ (100,726 ) $ 35,799   $ 4,455  
                               

Net income / (loss) per common share

                                           
 

Basic

  $ (129.08 ) $ 14.14   $ 19.95   $ 2.43   $ (201.45 ) $ 71.60   $ 8.91  
 

Diluted

  $ (129.08 ) $ 14.14   $ 19.95   $ 2.43   $ (201.45 ) $ 71.60   $ 8.91  

Weighted average number of common and common equivalent shares outstanding

                                           
 

Basic

    500     500     500     500     500     500     500  
 

Diluted

    500     500     500     500     500     500     500  

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Selected Historical Consolidated Financial and Other Data


 

 
  As of    
   
   
   
   
 
 
  Fiscal year  
 
  September 29,
2012

  October 1,
2011

 
 
  2011
  2010
  2009
  2008
  2007
 
   
 
  (dollars in thousands)
 

Consolidated Balance Sheet Data:

                                           

Cash and cash equivalents

  $ 60,171   $ 56,874   $ 47,481   $ 36,733   $ 38,932   $ 74,084   $ 88,564  

Current assets

    232,729     230,405     206,909     201,208     178,362     213,435     277,742  

Total assets

    392,470     398,371     368,174     377,194     357,852     424,324     528,482  

Current liabilities

    145,270     151,484     130,478     131,603     480,461     467,488     215,994  

Working capital (deficit)

    87,459     78,921     76,431     69,605     (302,099 )   (254,053 )   61,748  

Long-term debt and capital lease obligations

    352,454     325,167     331,592     306,547     16,408     30,254     313,325  

Convertible preferred certificates

    218,560     213,699     208,009     199,136     176,595     162,567     152,700  

Total liabilities

    860,729     791,575     772,952     778,623     756,210     726,882     852,935  

Common stock and additional paid in capital

    35,186     32,519     33,284     30,667     28,175     26,418     25,196  

Total stockholders' deficiency

    (468,259 )   (393,204 )   (404,778 )   (401,429 )   (398,358 )   (302,558 )   (324,453 )

Other Financial Data:

                                           

Adjusted EBITDA(3)

  $ 78,354   $ 68,635   $ 86,183   $ 92,365   $ 31,625   $ 30,847   $ 63,910  


(1)
For factors that may affect the comparability of financial information included in this table to future results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operation—Factors Affecting Comparability".

(2)
Interest expense for the nine months ended September 29, 2012 was $62.8 million (comprised of cash interest expense of $28.1 million and non-cash interest expense of $34.7 million). Non-cash interest expense includes the amortization of deferred loan origination costs, amortization of original issue discount, interest paid-in-kind on debt under our mezzanine credit agreement and accretion of interest on our convertible preferred certificates. We intend to use the proceeds of this offering, together with the proceeds from the issuance of $          million of senior secured notes bearing interest at    % per annum, to reduce our current indebtedness and to refinance the remaining balance of our current indebtedness. If such transactions had occurred as of the end of fiscal 2011, our interest expense for the nine months ended September 29, 2012 would have been $              million, and our cash interest expense for the nine months ended September 29, 2012 would have been $              million.

(3)
Adjusted EBITDA is defined as net income / (loss) plus (i) interest expense and interest income, net, (ii) provision for income taxes, (iii)  depreciation and amortization and (iv) certain additional adjustments. These additional adjustments include stock-based compensation, restructuring charges, foreign exchange gain / (loss)—net, goodwill impairment, management fees paid to TPG, embedded derivatives gain / (loss)—net, expenses related to this offering and a gain related to the settlement of a patent infringement dispute in fiscal 2010.


Adjusted EBITDA is a measure used by management and external users of our consolidated financial statements to evaluate operating performance, but it is not a recognized term under U.S. GAAP and is not an alternative to net income as a measure of overall financial performance or to Cash Flows from Operating Activities as a measure of cash generated from operating activities. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow available for management's discretionary use, as it does not consider certain cash requirements such as tax payments and debt service requirements, nor does it consider the need for incremental working capital or capital expenditures.


We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance, compare the results of our operations from period-to-period and compare the results of our operations against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company-to-company within our industry depending on accounting methods and book values of assets, capital structure and the method by which assets were acquired. We further believe that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA or Adjusted EBITDA measure when reporting their results. We use non-GAAP financial measures to supplement U.S. GAAP measures to provide a further understanding of the factors and trends affecting the business that U.S. GAAP measures alone cannot provide. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

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Selected Historical Consolidated Financial and Other Data


The following table presents a reconciliation of net income / (loss), the most directly comparable financial measure under U.S. GAAP, to Adjusted EBITDA for the periods presented.

 
  For the nine
months ended
   
   
   
   
   
 
 
  Fiscal year  
 
  September 29,
2012

  October 1,
2011

 
 
  2011
  2010
  2009
  2008
  2007
 
   
 
  (dollars in thousands)
 

Net income / (loss):

  $ (64,542 ) $ 7,068   $ 9,973   $ 1,217   $ (100,726 ) $ 35,799   $ 4,455  

Interest expense

    62,840     59,544     80,210     72,134     54,893     60,652     51,290  

Interest income

    (79 )   (138 )   (221 )   (339 )   (567 )   (1,821 )   (3,010 )

Provision for income taxes

    18,593     2,075     10,893     27,158     7,339     6,815     11,456  

Depreciation and amortization

    12,297     12,889     17,222     16,903     19,786     23,772     24,872  

Stock-based compensation

    1,925     1,876     2,650     2,219     1,757     1,222     2,350  

Restructuring charges

    (76 )   462     1,250     4,782     17,497     8,218     3,988  

Foreign exchange translation (gain) / loss)—net

    (1,920 )   4,132     (4,833 )   (9,596 )   2,083     979     25,931  

Goodwill impairments

                        8,513      

Management fee expense—TPG

    1,536     1,536     2,048     2,052     2,050     2,050     2,285  

Embedded derivative (gain) / loss)—net

    45,890     (27,959 )   (42,256 )   (21,165 )   27,513     (115,352 )   (59,707 )

Gain related to settlement of a patent infringement matter

                (3,000 )            

Pre-IPO expenses

    1,890     7,150     9,247                  
                               

Adjusted EBITDA

  $ 78,354   $ 68,635   $ 86,183   $ 92,365   $ 31,625   $ 30,847   $ 63,910  
                               

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Unaudited Pro Forma Financial Information

The following presents the unaudited pro forma consolidated balance sheet as of September 29, 2012 and unaudited pro forma consolidated statement of operations for the nine months ended September 29, 2012 and the year ended December 31, 2011.

The unaudited pro forma financial information has been derived by the application of pro forma adjustments to our historical consolidated financial statements. The unaudited pro forma consolidated balance sheet as of September 29, 2012 gives effect to the following events as if they had occurred on September 29, 2012. The unaudited pro forma statements of operations for the nine months ended September 29, 2012 and the year ended December 31, 2011 give effect to the following events as if they had occurred on January 2, 2011:

–>
the issuance of           ordinary shares in this offering to investors;

–>
the issuance of $       principal amount new senior secured notes (at an assumed interest rate of    %), the entrance into a new senior secured revolving credit facility and the reduction of our annual interest expense as a result of the repayment of our existing loans described below;

–>
the application of the net proceeds of this offering, together with the proceeds of the senior secured notes, to repay all of the term loans outstanding under our existing senior secured and mezzanine credit agreements;

–>
the termination of the TPG Management Agreement; and

–>
the reorganization as Isola Group Ltd., a Cayman Islands company, which involves the effective conversion of all of the outstanding securities of the Luxembourg Holding Company, including its common shares and convertible preferred certificates, including accreted interest payable, into ordinary shares of Isola Group Ltd.

The unaudited pro forma financial information is presented for illustrative purposes only, and is based on preliminary estimates and currently available information and assumptions that our management believes are reasonable. Therefore, the unaudited pro forma balance sheet as of September 29, 2012 and the unaudited pro forma statements of operations for the nine months ended September 29, 2012 and the year ended December 31, 2011 are not necessarily indicative of the financial position or results of operations that would have been achieved had the foregoing events occurred on September 29, 2012 and January 2, 2011, respectively, nor is it necessarily indicative of our results to be expected for any future period. A number of factors may affect our results. See "Forward-Looking Statements" and "Risk Factors".

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BALANCE SHEET

 
  As of September 29, 2012  
 
  Actual
  Pro forma
adjustments

  Pro forma
 
   
 
  (dollars in thousands,
except for share data)

 

Assets

                   

Current assets:

                   
 

Cash

  $ 60,171              
 

Accounts receivable—net

    112,635              
 

Other receivables

    1,922              
 

Inventories

    45,784              
 

Deferred tax assets

    1,948              
 

Prepaid expenses and other current assets

    10,269       (1)      
               
   

Total current assets

    232,729              

Restricted cash

    1,391              

Property, plant, and equipment—net

    134,117              

Intangible assets—net

    5,235              

Deferred tax assets

    7,547              

Debt issuance costs and other assets

    11,451       (1)      
               

Total assets

  $ 392,470              
               

Liabilities and Stockholder's Deficiency

                   

Current liabilities:

                   
 

Accounts payable

  $ 73,396              
 

Short-term debt and current portion—long-term debt

    15,100              
 

Accrued liabilities

    55,411       (2)      
 

Deferred tax liabilities

    72              
 

Other current liabilities

    1,291              
               
   

Total current liabilities

    145,270              

Long-term debt—net of current portion

    338,993       (3)(4)      

Convertible preferred certificates (including accreted interest)

    218,560       (5)      

Capital lease obligations—net of current portion

    13,461              

Embedded derivatives

    74,666       (5)(6)      

Pension and other retirement benefits

    52,374              

Uncertain tax positions and other liabilities

    14,056              

Deferred tax liabilities

    3,349              
               
   

Total liabilities

    860,729              
               

Commitments and contingencies

                   

Stockholder's deficiency:

                   
 

Common stock

    15       (3)(5)      
 

Additional paid-in capital

    35,171       (3)(5)      
 

Accumulated deficit

    (453,036 )            
 

Accumulated other comprehensive loss

    (50,409 )            
               
   

Total stockholder's deficiency

    (468,259 )            
               

Total liabilities and stockholder's deficiency

  $ 392,470              
               

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Unaudited Pro Forma Financial Information



CONSOLIDATED STATEMENT OF OPERATIONS

 
  For the nine months ended September 29, 2012   For the year ended December 31, 2011  
 
  Actual
  Pro forma
adjustments

  Pro forma
  Actual
  Pro forma
adjustments

  Pro forma
 
   
 
  (dollars in thousands, except for share data)
 

Revenues

  $ 437,804               $ 596,989              

Cost of goods sold

    310,585                 455,404              
                           

Gross profit

    127,219                 141,585              
                           

Operating expenses

                                     
 

Sales, general, and administrative

    59,647                 77,545       (7)      
 

Research and development

    9,248                 10,653              
 

Restructuring

    (76 )               1,250              
                           
   

Total operating expenses

    68,819                 89,448              

Operating income

    58,400                 52,137              

Other income—net

    2,382                 1,629              

Embedded derivative gain/(loss)—net

    (45,890 )               42,256       (8)      

Interest expense

    (62,840 )               (80,210 )     (9)(10)      

Interest income

    79                 221              

Foreign exchange gain/(loss)—net

    1,920                 4,833       (8)      
                           

Income/(loss) before taxes

    (45,949 )               20,866              

Provision for income taxes

    (18,593 )               (10,893 )     (11)      
                           

Net income/(loss)

  $ (64,542 )             $ 9,973              
                           

Net income/(loss) per common share

  $ (129.08 )             $ 19.95              
                           

Weighted average number of common and potential common shares outstanding

                                     
 

Basic

    500                 500       (3)      
                           
 

Diluted

    500                 500       (3)      
                           


(1)
Reflects the write-off of $              million of deferred financing costs associated with our current senior secured and mezzanine credit agreements.

(2)
Reflects the termination of the TPG Management Agreement described under "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors", including the elimination of approximately $              million in accrued management fees and related expenses to TPG.

(3)
Reflects the issuance of                           ordinary shares in this offering at a price of $             per share, which is the midpoint of the range set forth on the cover of this prospectus, and the application of the net proceeds of this offering of $            million, together with the proceeds from the issuance of $          million of senior secured notes, to repay all of the term loans outstanding under our existing senior secured credit agreement and mezzanine credit agreement as described under "Use of Proceeds".

(4)
Reflects the write-off of $              million of original issue discount costs associated with our current senior secured and mezzanine credit agreements.

(5)
Reflects the reclassification of $            million of convertible preferred certificates and $            million of accreted interest payable and the associated embedded derivative liabilities of $            million to additional paid in capital as a result of the corporate reorganization as described in "Prospectus Summary—Concurrent Transactions—Corporate Reorganization".

(6)
Reflects the write-off of the embedded derivative liabilities associated with our current senior secured and mezzanine credit agreements of $           .

(7)
Reflects the payment of $8.0 million in transaction fees and elimination of approximately $            million in accrued management fees and related expenses payable to TPG pursuant to the TPG Management Agreement described under "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors".

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(8)
Reflects the decrease in embedded derivative loss of $              million consisting of: (i) a $              million decrease in connection with the change in fair value previously recorded related to embedded derivative liabilities associated with our convertible preferred certificates; (ii) $            million of foreign exchange gain/(loss) previously recorded related to embedded derivative liabilities associated with our convertible preferred certificates; and (iii) a $            million decrease in connection with the change in fair value previously recorded related to embedded derivative liabilities associated with our existing senior secured and mezzanine credit agreements. As described in "Description of Indebtedness" and "Use of Proceeds", in connection with this offering all of the term loans outstanding under our existing senior secured and mezzanine credit agreements will be prepaid, and the senior secured and mezzanine credit agreements will then be terminated and therefore no longer subject to future fair value measurements.

(9)
Reflects the decrease in interest expense of $            million, consisting of: (i) a $            million decrease related to the repayment of all of the term loans outstanding under our existing senior secured and mezzanine credit agreements; and (ii) a $            million decrease related to the conversion of our convertible preferred certificates to additional paid in capital.

(10)
Reflects the decrease in interest expense of $            million under our new senior secured notes from the interest expense under our existing senior secured and mezzanine credit agreements (based on an annual rate of             %. A 1/8th variance in the assumed interest rate would result in a change in pro forma net income of $             for the year ended December 31, 2011 and $             for the nine months ended September 29, 2012).

(11)
Reflects the increase in income tax expense related to the changes in the following expense items:           .

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

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related footnotes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the sections titled "Risk Factors" and "Forward-Looking Statements" included elsewhere in this prospectus. You should read the following discussion together with the sections titled "Risk Factors", "Selected Historical Consolidated Financial and Other Data" and our consolidated financial statements, including the related footnotes, included elsewhere in this prospectus.


OVERVIEW

Business

Isola is a leading global material sciences company that designs, develops and manufactures copper-clad laminate, or CCL, and prepreg (collectively, "laminate materials") used to fabricate advanced multilayer printed circuit boards, or PCBs. PCBs provide the physical platform for the semiconductors, passive components and connection circuitry that power and control virtually all modern electronics. We focus on the market for high-performance laminate materials, developing proprietary resins that are critical to the performance of PCBs used in advanced electronic applications. We continually invest in research and development and believe that our industry-leading resin formulations, many of which are patented, provide us with a competitive advantage. With 11 manufacturing facilities and three research centers worldwide, as well as a global sales force, we are the largest supplier of laminate materials to PCB fabricators in the United States and Europe, and we are one of the larger suppliers in our addressable Asian market, based on revenue for fiscal year 2011.

Our high-performance PCB laminate materials are used in a variety of advanced electronics, including network and communications equipment and high-end consumer electronics, as well as advanced automotive, aerospace, military and medical applications. Demand in these markets is driven by the rapid growth of bandwidth-intensive, high-speed data transmission, the expansion of the internet, the emergence of cloud computing and the evolution of increasingly complex communications technology. This has led to an urgent need for the development of the underlying infrastructure to support this growth, including faster and more efficient semiconductor technology. In addition, increasingly pervasive environmental regulations are driving a need for lead-free compatible, high-performance laminate materials.

We sell our laminate materials globally to leading PCB fabricators, including Ruwel, Sanmina, TTM Technologies, Viasystems and WUS Printed Circuit. These fabricators produce PCBs incorporating our laminate materials for electronic equipment designed or produced by a broad group of major original equipment manufacturers, or OEMs, including Alcatel-Lucent, Brocade, Cisco, Dell, Ericsson, Google, Hewlett-Packard, Huawei, IBM and Sun Microsystems (now Oracle). We work closely with these leading PCB fabricators and major OEMs to ensure that our high-performance laminate materials incorporating our proprietary resins meet the thermal, electrical and physical performance criteria of each new generation of electronic equipment.

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



Recession and Response

Over the past three years, we have improved our manufacturing capacity utilization and business processes, focused on designing and manufacturing higher margin, high-performance products, and refinanced our indebtedness. Many of these improvements were a result of our response to the global recession.

We entered into two credit facilities in 2006, referred to as our first- and second-lien facilities. The leverage covenants set forth in these facilities became more restrictive over time, requiring periodic increases in our EBITDA (as defined under those facilities) relative to our outstanding indebtedness. At the end of the second quarter of 2008, we were unable to comply with the tightened covenants. In August 2008, we negotiated amendments to these facilities that provided us with more flexible financial covenants, but also resulted in increased interest expense and loan amortization.

In the wake of the global recession that began in 2008, our revenues and EBITDA declined significantly in the last two quarters of 2008, and in January 2009 we notified the lenders under our first- and second-lien facilities that we had defaulted under the revised leverage covenants and were suspending cash interest payments. With the assistance of an outside advisor, we took aggressive measures to reduce fixed expenses and cash outflows. The more significant measures were the closures of our manufacturing facilities in Fremont, California, Dalian, China and Bottegone, Italy, and the transfer of production from these closed facilities to other nearby manufacturing sites. We also suspended matching grants for U.S. employee 401(k) contributions and our annual company-wide bonus plan and initiated mandatory salary reductions. The consolidation of manufacturing and related actions permanently reduced our annual fixed and semi-fixed operating costs by an estimated $30.0 million and significantly improved our manufacturing capacity utilization. These cost reductions contributed to the increase in gross profit from 13.5% in fiscal 2008 to 23.7% in fiscal 2011 and 29.1% for the nine months ended September 29, 2012. We estimate that approximately $15.0 million of the cost reduction was first realized in fiscal 2009 and approximately $15.0 million was first realized in fiscal 2010. Additional incremental benefits are not expected from these earlier facility closures, although we will strive to improve manufacturing capacity utilization in our remaining facilities by increasing revenues and unit volumes.

When global demand for electronic products began to improve in mid-2009, our enhanced operational leverage, in combination with our increased emphasis on higher margin, high-performance products, led to improved profits and cash flow. In September 2010, based on these improvements, we paid in full the principal and accrued interest on our first- and second-lien credit facilities from cash on hand and loans under two new credit agreements: a $210.0 million senior credit and guaranty agreement, referred to as our senior secured credit agreement, and a mezzanine credit and guaranty agreement in an initial principal amount of $175.0 million, referred to as our mezzanine credit agreement.

Immediately prior to this offering, we will undergo a corporate reorganization pursuant to which the Luxembourg Holding Company will become a wholly owned subsidiary of Isola Group Ltd. The reorganization is expected to be a tax-free transaction, and we do not anticipate that there will be any material income tax expense as a result of the restructuring or any material change to our ongoing tax position.


KEY FINANCIAL MEASURES

Revenue

Revenue consists primarily of sales of our laminate materials: copper-clad laminates and dielectric prepreg. We sell these materials to major PCB fabricators primarily through our direct global sales force, and we sell to smaller fabricators primarily through third-party distribution arrangements. Revenue from direct sales comprised 92% of our total revenue for the nine months ended September 29, 2012 and 91% of our total

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revenue for the nine months ended October 1, 2011, as well as in fiscal 2011 and 90% of our total revenue in both fiscal 2010 and 2009. We have no long-term customer agreements and sell to customers on a purchase order basis. Consequently, we maintain very little backlog, and our revenue is subject to short-term variability in demand. Although we do not maintain long-term agreements with our customers, we have developed close relationships with them and the major OEMs that they serve. Through these relationships, we seek to ensure that our PCB laminate materials are qualified for use in an OEM's product line. In some cases, OEMs may specify Isola laminates as the preferred material. Once a particular PCB laminate material is "designed in" or qualified for use in a specific product line and one or more particular laminate suppliers are selected, these suppliers tend to remain suppliers of choice, even as PCBs for these products change to address OEM product line improvements or extensions or next generation developments.

Revenue in the laminate materials industry tends to reflect broad economic trends, as well as trends in the semiconductor industry. Historically, revenue has been disproportionally affected (both positively and negatively) by such trends due to adjustments of inventory levels within the supply chain in response to changing economic conditions. In particular, PCB fabricators tend to discontinue laminate purchases at the perceived onset of economic downturns and tend to wait to restock supplies until they reach critical levels following recessionary conditions. Revenue was $424.2 million for fiscal 2009, $612.0 million for fiscal 2010 and $597.0 million for fiscal 2011 reflecting the decline into, and ongoing recovery from, the global recession. Revenue was $437.8 million for the nine months ended September 29, 2012.

Our sales prices are affected primarily by competitive factors, as well as changing costs of raw materials, especially copper. The cost of copper foil comprises approximately half of the total cost of our raw materials. Copper is a globally traded commodity subject to ongoing market fluctuations. When feasible, we pass on changes in costs of raw materials to our customers. We believe that the high-performance segment of the PCB materials industry is more resilient to economic downturns and that customers are generally more willing to absorb, or share, increases in raw materials costs for such products.

A significant percentage of our revenue has historically been concentrated in a limited number of large customers. Revenue from our ten largest customers represented approximately 63% of our total revenue for the nine months ended September 29, 2012 as compared to 60% for the nine months ended October 1, 2011. Revenue from our ten largest customers was approximately 61% in fiscal 2011 and approximately 60% in both fiscal 2010 and fiscal 2009. In each of these periods, only one of our customers (Viasystems and its subsidiaries) accounted for more than 10% of our revenues (but less than 20%). Though the composition of our top ten customers varies from year to year, we expect that sales to a limited number of customers will continue to account for a significant percentage of our total revenue for the foreseeable future.


Cost of Goods Sold

Our cost of goods sold includes the cost of raw materials, direct and indirect labor and variable and fixed overhead costs. Cost of goods sold was $310.6 million (70.9% of revenue) for the nine months ended September 29, 2012 as compared to $350.7 million (76.3% of revenue) for the nine months ended October 1, 2011. Cost of goods sold was $455.4 million in fiscal 2011 (76.3% of total revenue) as compared $467.8 million in fiscal 2010 (76.4% of total revenue), and $342.8 million in fiscal 2009 (80.8% of total revenue). Depreciation and amortization expense included in cost of goods sold was $9.7 million for the nine months ended September 29, 2012, $10.6 million for the nine months ended October 1, 2011, $14.2 million in fiscal 2011, $14.1 million in fiscal 2010, and $16.4 million in fiscal 2009.

Cost of goods sold, and revenue, are generally a function of the demand for our products. As demand and unit volumes increase, our cost of goods sold, and revenue, each increase. As a percentage of revenue, cost of goods sold is a function of our ability to pass through raw material and other manufacturing cost increases

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to our customers in the form of product pricing. Changes in cost of goods sold as compared to revenue are discussed in the "Gross Margin" section below.

Some of our manufacturing costs are variable and others are fixed. Variable costs include the cost of raw materials, direct labor and indirect labor. Fixed costs include rental expense of leased manufacturing facilities and equipment or the depreciation expense of owned manufacturing facilities and equipment used in the production process. As unit volumes produced in our factories increase, these fixed costs are unchanged and our gross margin, which is gross profit as a percentage of total revenue, improves. The best measure of this operating leverage is captured in our capacity utilization statistics which are more fully discussed below. Our manufacturing capacity utilization was 64.5% for the nine months ended September 29, 2012; this was slightly improved from the 63.6% we achieved for the nine months ended October 1, 2011, and much improved over the 50.3% experienced in the recessionary year of fiscal 2009. Manufacturing capacity utilization was 61.6% in fiscal 2011 and 66.7% in fiscal 2010. We achieved a marked improvement in manufacturing capacity utilization after the restructuring activities and facility closures that took place in fiscal 2008 and fiscal 2009, which reduced our fixed factory overhead and other conversion costs. The improvement in manufacturing capacity utilization is best measured by the average per unit conversion costs. Conversion costs are all factory costs except the cost of raw materials.


Gross Margin

Gross margin has historically been, and is expected in the future to be, affected by a variety of factors, including the mix of products we sell, competitive pricing pressures, changes in the costs of raw materials (and our ability to pass through these changes to our customers), labor costs, overhead costs, production volume and manufacturing capacity utilization.

Our high-performance products, which address technically challenging applications, typically have higher average selling prices and higher gross margins than our standard products. In addition, when we provide products on a "quick-turn" basis we are often able to command a pricing premium, which results in higher gross margin than products provided on a standard lead-time basis.

Our overall gross margin was 29.1% for the nine months ended September 29, 2012 as compared to 23.7% for the nine months ended October 1, 2011. Our overall gross margin was 23.7% in fiscal 2011, relatively unchanged from the 23.6% in fiscal 2010, but substantially improved over the 19.2% in fiscal 2009. Our ongoing product strategy of focusing on higher-priced high-performance products has improved our gross margin. In addition, a number of operational improvements made during fiscal 2008 and 2009, including the closure of three manufacturing facilities, have subsequently improved our gross margin by reducing manufacturing capacity, improving the capacity utilization rates in our remaining factories and decreasing our average per unit conversion costs.

We expect overall gross margin to continue to improve over time as high-performance products become an increasing percentage of our overall revenue. However, our revenue and gross margin will continue to be subject to general economic conditions and cyclical factors affecting our industry.


Operating Expenses

Our operating expenses include the following:

Sales, general and administrative expense.    Our sales, general and administrative, or SG&A, expense includes expenses incurred in the selling and marketing of our products to customers, as well as corporate administrative expenses. Sales expenses consist primarily of compensation, benefits and other expenses for sales and marketing personnel, as well as expenses related to advertising, marketing and trade shows, plus bad debt expense. General and administrative expense consists primarily of compensation and associated expenses for executive management, human resources, finance and administrative personnel. SG&A

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expense was $59.6 million for the nine months ended September 29, 2012 (13.6% of total revenue) as compared to $57.1 million for the nine months ended October 1, 2011 (12.4% of total revenue). SG&A expense was $77.5 million in fiscal 2011 (13.0% of total revenue), as compared to $65.3 million in fiscal 2010 (10.7% of total revenue), and $61.8 million in fiscal 2009 (14.6% of total revenue). The increase in SG&A expense for the nine months ended September 29, 2012 compared to the prior year period was primarily due to higher personnel costs, partially offset by a net decrease in other SG&A expense. In the prior year we incurred higher audit and legal fees associated with this offering. The increase in SG&A expense during fiscal 2011 was due to higher professional fees associated with this offering and an increase in withholding tax payments from our international subsidiaries related to remittances of intercompany management fees and commissions. The increase in SG&A expense as a percentage of revenue in fiscal 2011 compared to fiscal 2010 was primarily a result of the higher professional fees and withholding tax payments, while the reduction in SG&A expense as a percentage of revenue in fiscal 2010 compared to fiscal 2009 was primarily attributable to the increase in revenue. We expect SG&A expense as a percentage of revenue to decrease in the future as the economy continues to strengthen, demand for our products increases and we no longer incur the professional fees associated with this offering.

Research and development expense.    Research and development, or R&D, expense consists of the compensation, benefits and other expenses of R&D personnel, as well as other product development costs, such as direct product design, development and process engineering expenses, legal fees related to the defense of intellectual property and the depreciation of the capital equipment and facilities used by R&D staff. All R&D costs are recorded as expenses when incurred. Our investments in R&D were $9.2 million for the nine months ended September 29, 2012 (2.1% of total revenue) as compared to $7.9 million for the nine months ended October 1, 2011 (1.7% of total revenue). R&D expenses were $10.7 million in fiscal 2011 (1.8% of total revenue), as compared to $9.5 million in fiscal 2010 (1.6% of total revenue) and $9.2 million in fiscal 2009 (2.2% of total revenue). We are committed to adding more technical resources to this important function and expect that R&D expenses will increase over time. However, R&D expenses as a percentage of our revenue is expected to decline in the future as demand for our products increases.

Based on input from OEMs and PCB fabricators, we develop new resin formulations that achieve specific needs for electrical, thermal and physical performance. We undertake very little exploratory research that is not directly linked to particular market or customer needs. Our OEM marketing and R&D efforts are tightly integrated, with both functions reporting to our Chief Technology Officer. The expense of these OEM marketing efforts is included in SG&A expense and totaled approximately $3.9 million for the nine months ended September 29, 2012 as compared to the $3.1 million for the nine months ended October 1, 2011, $4.5 million in both fiscal 2011 and fiscal 2010, and approximately $3.6 million in fiscal 2009.

Restructuring expense.    We identify separately the expenses related to restructuring activities, including the cost of site closures and attendant severance expenses, as well as professional fees incurred in connection with restructuring activities. As described above, in 2008 and 2009 we initiated a number of measures centered on streamlining our organizational structure, reducing labor costs and improving manufacturing capacity utilization. We do not anticipate any further major restructuring efforts. We expect to incur an immaterial amount of restructuring expenses in 2012 for our reorganization as a Cayman Islands company and some limited residual costs associated with various prior site closures. We recorded a net gain in restructuring expense of $0.1 million for the nine months ended September 29, 2012 as compared to expense of $0.5 million for the nine months ended October 1, 2011, $1.3 million in fiscal 2011, $4.8 million in fiscal 2010 and $17.5 million in fiscal 2009. The net gain for the nine months ended September 29, 2012 was due to a $0.2 million gain on the sale of our previously closed Fremont, California manufacturing facility.

Loss on liquidation of subsidiary.    The loss on liquidation of subsidiary of $3.5 million in fiscal 2009 reflects the loss on the disposal of our closed Italian laminate facility, MAS Italia s.r.l. We have completed the liquidation of this subsidiary pursuant to a formal legal process. Upon approval of the liquidation of this

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subsidiary by the Italian authorities in fiscal 2009, we terminated our interest in the subsidiary and all assets of the subsidiary became the property of the courts to liquidate for the benefit of the subsidiary's creditors. We do not expect to incur any further significant losses in connection with the liquidation of this subsidiary.


Non-operating Expenses

Other income—net.    Other income—net consists of royalty income and other various forms of non-operating income and expenses. Other income—net was $2.4 million for the nine months ended September 29, 2012, which included a gain of $1.0 million arising out of the payment by the Singapore government for taking a portion of our leased land, which required us to move our loading docks and purchase select new equipment. Other income—net was $1.4 million for the nine months ended October 1, 2011; $1.6 million in fiscal 2011; $4.8 million in fiscal 2010, which included a $3.0 million gain on the successful settlement of an intellectual property dispute; and $1.3 million in fiscal 2009.

Embedded derivative gain/(loss)—net.    A derivative is any financial instrument whose value depends on another underlying instrument or index. An embedded derivative, however, does not stand alone or trade independently. Instead, it is included in a "host contract". The features of our embedded derivatives require them to be separated from the host contracts and accounted for separately at fair value.

We have two types of embedded derivatives. First, our convertible preferred certificates, which are considered debt, provide both the Company and the holders of the convertible preferred certificates certain rights to convert some, or all, of the convertible preferred certificates into common shares of our Luxembourg Holding Company upon the occurrence of certain events. This conversion feature of the convertible preferred certificates is considered an embedded derivative, which is bifurcated from the convertible preferred certificates and accounted for separately as a derivative liability. This separate accounting is required because the conversion feature affords the holders the right to participate in any appreciation of the value of the Company through conversion of the convertible preferred certificates into common shares of our Luxembourg Holding Company. Conversion of the convertible preferred certificates could provide the holders more value than would otherwise be obtained through the stated par value plus accreted interest.

In addition, our current senior secured and mezzanine credit agreements contain provisions that require prepayment of principal prior to the stated maturity dates upon the occurrence of certain events, including a change in control. These mandatory prepayment features triggered by a change in control are considered embedded derivatives that require bifurcation from the senior secured and mezzanine credit agreements and separate accounting as derivative liabilities. This separate accounting is required because the change of control event requiring prepayment of the principal amounts is not credit-related.

The embedded derivative liabilities of our convertible preferred certificates and current credit agreements were recorded at fair value when initially issued. Management reassesses these fair values quarterly, using input from an independent third-party valuation specialist. Any changes in the fair values of the embedded derivative liabilities are recorded as an embedded derivative gain / (loss)—net in the consolidated statement of operations.

The changes in the fair values of these embedded derivative liabilities have no impact on our cash flows. As a result of our corporate reorganization and the effective conversion of our Sponsors' investment in Isola from convertible preferred certificates to ordinary shares as well as the refinancing of our current credit agreements, we will no longer incur financial effects from the change in the fair value of these embedded derivative liabilities after the completion of this offering.

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Embedded derivatives associated with the convertible preferred certificates

We determine the fair values of the embedded derivative liabilities in accordance with Accounting Standards Codification ("ASC") 815, Derivatives and Hedging. For the embedded derivative liabilities associated with our convertible preferred certificates, we use methodologies and assumptions consistent with the AICPA Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation.

The fair values ascribed to the embedded derivative liabilities of our convertible preferred certificates depend on our total equity value, which is derived after computing our total enterprise value ("TEV"). We usually estimate our TEV by using both income and market approaches. Only market approaches were used in fiscal 2009 due to the difficulties in forecasting our future cash flows, as required under the income approach, in the midst of the recession and while operating in default under our prior first-and second-lien credit agreements.

The income approach estimates our TEV by discounting our expected future cash flows at our weighted average cost of capital ("WACC"), which is the estimated after-tax weighted average cost of the debt and equity that finances our assets, to determine a net present value. The market approaches estimate our TEV by comparing our business to similar businesses, whose securities are actively traded in public markets, or to public transactions, such as mergers or acquisitions, from which valuation metrics can be obtained. Valuation multiples of key metrics, such as revenues and EBITDA, are derived from the trading or transaction multiples of public companies that participate in our industry. These valuation multiples are then applied to the equivalent financial metrics of our business, giving consideration to differences between our company and similar companies for such factors as company size, liquidity, financial leverage, profitability and growth prospects.

We derive the total equity value of our Company by subtracting the fair value of our debt from the TEV. When the estimated total equity value of our Company increases from period to period, the value of the embedded derivative liabilities associated with the convertible preferred certificates increases, and we record an embedded derivative loss. Conversely, when the total equity value of our Company decreases from period to period, we record an embedded derivative gain. Any changes in TEV determined by the income approach will depend on our internally forecasted cash flows and our estimated WACC, which in turn depends on interest rates and equity market risk premiums, among other factors. Any changes in TEV determined by the market approaches to valuation will depend on the outlook for the economy, investor sentiment and the prospects for the electronics sector in which we participate.

In fiscal 2008, our financial performance significantly worsened, reflecting the weakening worldwide economy, which resulted in a much lower total equity value, and an embedded derivative gain associated with the convertible preferred certificates of $115.4 million.

As the worldwide economy began to recover in mid-2009, our improved financial performance and more optimistic outlook for the future increased our total equity value, and we recorded an embedded derivative loss of $27.5 million.

Our total equity value continued to increase during fiscal 2010 as our actual and forecasted revenue, profits and cash flows each increased. However, we recorded an embedded derivative gain associated with the convertible preferred certificates of $21.8 million due to the financing transaction that took place in September 2010. The issuance of and allocation of value to the additional Class C convertible preferred certificates at the transaction date resulted in a reduction of the fair value of the embedded derivative liability associated with the previously outstanding Class A convertible preferred certificates resulting in an embedded derivative gain for the year. The fair value of the embedded derivative liability related to the Class C convertible preferred certificates was recorded as a discount at the date of issuance and therefore did not have

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an impact on the statement of operations. See Note 4 to our consolidated annual financial statements included elsewhere in this prospectus for a further discussion of the September 2010 financing transaction.

Our total equity value decreased in fiscal 2011 reflecting a less optimistic outlook as the year unfolded. Consequently, we recorded an embedded derivative gain associated with the convertible preferred certificates of $43.3 million.

Our total equity value increased for the nine months ended September 29, 2012, which resulted in an increase in the embedded derivative liability associated with the convertible preferred certificates, and we recorded an embedded derivative loss of $55.4 million. The increase in our total equity value reflected a more optimistic outlook for cash profits and cash flows as of September 29, 2012. This improved outlook primarily reflects our current expectation that we will sustain improved gross margins due to an increased percentage of revenue generated from our high-performance products, as well as a reduction in forecasted capital expenditures over the next several years that will result in improved free cash flows. In addition to our improved outlook, the market multiples of comparable publicly traded companies also increased, which when applied to our improved results from the last twelve month period, increased the indicated value using the market approach.

See "Critical Accounting Policies and Estimates—Fair Value Measurements" for additional details on factors affecting total equity value in each period, a further discussion of our WACC and the factors and assumptions used to determine the fair value of the embedded derivatives associated with our convertible preferred certificates.

Embedded derivatives associated with the credit agreements

The embedded derivative gain / (loss) associated with the mandatory prepayment features of our current credit agreements does not depend on the TEV or total equity value of the Company. Instead, it reflects the changes in the assumed probability of a change in control event and the assumed timing of that event. The fair value of the embedded derivative liabilities associated with our current credit agreements is determined by, first, computing the net present value of the projected future cash flows under these credit agreements assuming they continue to maturity, and then by comparing that net present value to the net present value assuming a change-in-control event occurs, using an estimated probability of a change in control and an estimated timing of the change in control.

The change in fair value of the embedded derivative liability associated with our credit agreements and the mandatory prepayment feature resulted in a gain of $9.5 million for the nine months ended September 29, 2012, a loss of $1.0 million for fiscal 2011, and a loss of $0.6 million in fiscal 2010, the first period in which the credit agreements were outstanding.

See "Critical Accounting Policies and Estimates—Fair Value Measurements" for a further discussion of the factors and assumptions used to determine the fair value of the embedded derivatives associated with our current credit agreements.

Interest expense.    Interest expense consists of cash and non-cash interest expense. Non-cash interest expense includes the amortization of deferred loan origination costs, the amortization of original issue discount ("OID"), the accrual of PIK interest on our mezzanine debt and the accretion of interest on our convertible preferred certificates. See "Description of Indebtedness—Our Existing Credit Agreements".

Total interest expense was $62.8 million for the nine months ended September 29, 2012, as compared to $59.5 million for the nine months ended October 1, 2011. This $3.3 million increase was primarily due to higher amortization of both OID and deferred loan origination costs, both of which are amortized using the effective interest method. The amortization expense is a constant percentage of the carrying value of the debt. Therefore, as the carrying value of the debt (principal less unamortized discounts) increases, the

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amortization expense increases. Interest expense also increased due to an increase in the accreted interest on our mezzanine credit agreement. These increases in interest expense were offset by lower accreted interest on our convertible preferred certificates due to the strengthening of the U.S. Dollar against the euro.

Non-cash interest expense was $34.7 million for the nine months ended September 29, 2012, as compared to $32.3 million for the nine months ended October 1, 2011. For the nine months ended September 29, 2012, non-cash interest included $11.8 million of PIK interest on our mezzanine debt and $9.8 million of OID amortization expense (of which $3.7 million was attributable to loans under the senior secured credit agreement and $6.1 million was attributable to loans under the mezzanine agreement), and $2.3 million amortization of deferred loan origination costs. Non-cash interest also includes $10.8 million of accreted interest on the convertible preferred certificates for the nine months ended September 29, 2012.

Total interest expense was $80.2 million in fiscal 2011, as compared to $72.1 million in fiscal 2010. This $8.1 million increase was primarily due to higher interest rates as well as higher OID amortization (fiscal 2010 included only three months of OID amortization compared to a full 12 months of OID amortization in fiscal 2011). Non-cash interest expense was $43.6 million in fiscal 2011, as compared to $21.2 million in fiscal 2010. In fiscal 2011, non-cash interest included $14.7 million of PIK interest on our mezzanine credit agreement and $10.7 million of OID amortization expense (of which $4.5 million was attributable to loans under the senior secured credit agreement and $6.2 million was attributable to loans under the mezzanine credit agreement), and $2.4 million amortization of deferred loan origination costs. Non-cash interest also includes accreted interest on the convertible preferred certificates of $15.8 million in fiscal 2011 and $10.7 million in fiscal 2010.

Total interest expense was $72.1 million in fiscal 2010 and $54.9 million in fiscal 2009. Interest expense increased $17.2 million in fiscal 2010 compared to fiscal 2009. Interest expense in fiscal 2010 included $9.5 million of "interest on unpaid interest" under the previous first- and second-lien credit facilities. Non-cash interest expense was $21.2 million in fiscal 2010 and $11.7 million in fiscal 2009. Of the non-cash interest expense in fiscal 2010, $3.6 million was PIK interest on our mezzanine credit agreement and $2.3 million was OID amortization (of which $1.0 million was attributable to loans under the senior secured credit agreement and $1.3 million was attributable to loans under the mezzanine credit agreement). Non-cash interest of $4.6 million in fiscal 2010 was attributable to deferred loan origination costs of which $2.8 million was due to the write-off of deferred loan origination costs related to our prior first- and second-lien credit facilities which were repaid in the fourth quarter of fiscal 2010. Non-cash interest expense also includes interest on the convertible preferred certificates of $10.7 million in fiscal 2010 and $10.5 million in fiscal 2009.

We intend to prepay in full our outstanding senior secured and mezzanine debt with the proceeds of this offering and with the proceeds of the issuance of new senior secured notes. The remaining outstanding balances of the unamortized OID and deferred loan origination costs associated with our current credit agreements will be written off and charged as an expense in the current period. See "—Factors Affecting Comparability—Reduction of Interest Expense" and "Use of Proceeds".


Foreign Exchange Effects

Our functional currency and reporting currency is the U.S. dollar. Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than our subsidiaries' functional currencies) are included in foreign exchange gains and losses in the consolidated statement of operations in the period they occur.

Foreign currency transaction gains and losses, unrealized translation gains and losses associated with certain of our foreign subsidiaries with a U.S. dollar functional currency that maintain their books of record in a currency other than the U.S. dollar and unrealized translation gains and losses on short-term intercompany and operating receivables and payables denominated in a currency other than the functional currency are included in foreign exchange gains and losses in the consolidated statement of operations.

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For each foreign subsidiary whose functional currency is the local currency, assets and liabilities are translated into U.S. dollars using exchange rates prevailing at the end of each reporting period, while revenues and expenses are translated at average rates in effect for the period. The related translation gains and losses are included in accumulated other comprehensive income / (loss) within equity on the consolidated balance sheet.

Foreign exchange gain / (loss)—net was a gain of $1.9 million for the nine months ended September 29, 2012 as compared to a loss of $4.1 million for the nine months ended October 1, 2011, a gain of $4.8 million in fiscal 2011, a gain of $9.6 million in fiscal 2010 and a loss of $2.1 million in fiscal 2009.


FACTORS AFFECTING COMPARABILITY

We anticipate that the following factors, which are described in greater detail above, will affect the comparability of our historic and future financial performance:

–>
our major restructuring activities have been largely completed, and we expect to incur an immaterial amount of charges related to these activities in the future;

–>
as a result of the effective conversion of our Sponsors' investment in Isola from convertible preferred certificates to ordinary shares in connection with our initial public offering, we will not incur financial effects (principally accreted non-cash interest expense and embedded derivative liability gain / (loss) related to these securities subsequent to the effective date of the offering; and

–>
as a result of the anticipated refinancing of our current credit agreements, we will not incur financial effects from the embedded derivative gain / (loss) associated with these agreements subsequent to the date the debt is repaid or refinanced.

The following sets forth additional factors that may affect the comparability of our historic and future results.


Fiscal Year and 53rd Week Impact

We operate on either a 52- or 53-week fiscal year. References to fiscal 2011 are for the fiscal year ended December 31, 2011, references to fiscal 2010 are for the fiscal year ended January 1, 2011, and references to fiscal 2009 are for the fiscal year ended December 26, 2009.

Each quarterly period of the fiscal year typically has 13 weeks, except for the occasional 53-week year when the fourth quarter has 14 weeks. This 53-week year occurs every five to six years to keep the fiscal and calendar quarters in approximate alignment. Our fiscal years 2009 consisted of 52 weeks. Our 2010 fiscal year consisted of 53 weeks, which had a favorable impact on revenue and operating income. Fiscal year 2011 was a 52-week year.


Reduction of Interest Expense

Immediately prior to the completion of our initial public offering, we will undergo a corporate reorganization that includes the effective conversion of all of our outstanding convertible preferred certificates to ordinary shares. As a result of this conversion, we will no longer record accreted interest expense related to the convertible preferred certificates. Accreted interest expense was $10.8 million for the nine months ended September 29, 2012 and $15.8 million in fiscal 2011. In the fiscal quarter in which the conversion takes place, we will also reclassify the embedded derivative liabilities associated with our convertible preferred certificates to stockholder's equity in the consolidated balance sheet. These embedded derivative liabilities had a balance of $              million at                           , 2012. Additionally, we will

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reclassify approximately $              million of OID incurred in connection with the Class C convertible preferred certificates to stockholder's equity in the consolidated balance sheet.

We intend to use the proceeds of this offering, together with the proceeds from the issuance of $              million of senior secured notes due 2019 bearing interest at             % per annum, to reduce our current indebtedness and to refinance the remaining balance of our current indebtedness. We also expect to enter into a new $              million senior secured revolving credit facility, bearing interest on outstanding amounts at             % per annum.

As a result of these transactions, we expect to reduce our annualized cash interest expense by $              million and our total interest expense by $              million. Annualized interest expense savings are based on our annualized actual cash and non-cash interest expense for the nine months ended September 29, 2012. Also, in the fiscal quarter in which we pay down and refinance our current debt, we will amortize to interest expense approximately $              million of OID, representing all of the remaining outstanding OID incurred in connection with these prior financings and write off approximately $              million of deferred loan origination costs. We expect that our interest expense will be reduced from the termination of the amortization of OID and deferred loan origination costs described above.


Management Fees and Expense

In connection with the acquisition and investment in the Isola Group by TPG, we entered into a management agreement with TPG, which remains one of our Principal Sponsors. Management fees and related expenses were $1.5 million for both the nine months ended September 29, 2012 and October 1, 2011, $2.0 million in fiscal 2011 and $2.1 million in both fiscal 2010 and fiscal 2009. We had $0.6 million of accrued TPG management fees outstanding as of both September 29, 2012 and December 31, 2011. Concurrently with the closing of this offering, the TPG Management Agreement will be terminated, and we will no longer be obligated to pay future management fees to TPG. However, we will remain obligated to pay TPG an $8.0 million transaction fee plus any accrued but unpaid management fees and related expenses through such date. See "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors".


Public Company Expense

Upon consummation of this public offering, we will become a public company and our ordinary shares will be listed for trading on the Nasdaq Global Market. As a result, we will need to comply with numerous additional laws, regulations, and requirements. In 2011, we hired a General Counsel, a Director of External Reporting and a Senior Tax Director, and we plan to hire other tax, finance, accounting and human resources personnel, as needed, to enhance our internal compliance capabilities. We have also added new independent board members, who will be compensated in accordance with market practice, and we will procure more comprehensive director and officer liability insurance to cover our increased exposure as a public company. We estimate that incremental annual public company costs will be approximately $3.0 million.

We expect that we will incur between $13 million and $14 million in expenses in connection with this offering, including our reorganization as a Cayman Islands company. We have incurred $11.1 million in expenses in connection with this offering as of September 29, 2012, which we have elected to expense.


Non-cash Stock-based Compensation Charges

Upon consummation of the offering and capitalization of our new Cayman holding company, outstanding management equity awards will be converted to equivalent awards in the new, publicly traded company. In

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addition, we adopted our 2012 Equity Incentive Plan under which we may make future equity awards to directors, executives, and other employees.

Upon the closing, we anticipate granting restricted stock to our independent directors and various equity awards to officers and key employees. These equity awards will result in a non-cash compensation charge to the consolidated statement of operations in future fiscal periods as the awards vest.


Tax Contingencies and Uncertain Tax Positions

We file income tax returns with U.S. federal, state and local and non-U.S. jurisdictions and are subject to audits of those returns. We have closed or are otherwise no longer subject to Internal Revenue Service examinations for periods prior to 2010, although carry-forward attributes that were generated prior to 2010 may still be adjusted upon examination by the Internal Revenue Service if they are used in a future period. We also recently closed an examination by German taxing authorities of our 2004 to 2007 tax years. With a few exceptions, the Company and its subsidiaries are no longer subject to examination for years prior to 2004 in any jurisdiction.

Our effective tax rate had significant fluctuations over the periods presented (ranging from (7.9)% in fiscal 2009 to 95.7% in fiscal 2010 to 52.2% in fiscal 2011) primarily as a result of the following factors: differences in statutory tax rates in the jurisdictions in which we do business; our recognition of valuation allowances in certain jurisdictions; and our accrual for uncertain tax positions. These factors increased or decreased our effective tax rate by as much as 119.8% during the periods reported. Following this offering, as a result of our Sponsors converting their investments in the convertible preferred certificates to ordinary shares and the refinancing of our existing credit agreements, we anticipate that these factors will have a 12% to 23% impact on our effective tax rate for the foreseeable future.

As of December 31, 2011 and January 1, 2011, we have liabilities of $52.6 million and $53.4 million related to uncertain tax positions, respectively. The increase in our uncertain tax positions during fiscal 2011 was partially reduced by settlements with taxing authorities. In this regard, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for financial reporting purposes. Until these positions are sustained by the taxing authorities, we do not recognize the tax benefits resulting from such positions and report the tax effects as a liability for uncertain tax positions in our consolidated balance sheet. Much of the recorded liability for uncertain tax positions is associated with tax jurisdictions where we have experienced significant net operating losses in the past. Accordingly, a significant portion of the recorded liability, if settled unfavorably, would not be settled in cash.

The planned change in our domicile from Luxembourg to the Cayman Islands will not have an impact on our future income tax because neither Luxembourg nor the Cayman Islands imposes taxes on income generated by lower-tier subsidiaries.

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RESULTS OF OPERATIONS

The following table sets forth selected results of operations data for the periods presented and as a percentage of our revenue for those periods:

 
  Nine months ended   Fiscal year  
 
  September 29,
2012
  October 1,
2011
  2011   2010   2009  
 
  Amount
  % of
revenue

  Amount
  % of
revenue

  Amount
  % of
revenue

  Amount
  % of
revenue

  Amount
  % of
revenue

 
   

Revenue

  $ 437,804     100.0 % $ 459,448     100 % $ 596,989     100.0 % $ 611,987     100.0 % $ 424,199     100.0 %

Cost of goods sold

    310,585     70.9 %   350,669     76.3 %   455,404     76.3 %   467,751     76.4 %   342,832     80.8 %
                                                 

Gross profit

    127,219     29.1 %   108,779     23.7 %   141,585     23.7 %   144,236     23.6 %   81,367     19.2 %

Operating expenses

                                                             
 

Sales, general and administrative

    59,647     13.6 %   57,057     12.4 %   77,545     13.0 %   65,271     10.7 %   61,816     14.6 %
 

Research and development

    9,248     2.1 %   7,913     1.7 %   10,653     1.8 %   9,532     1.6 %   9,239     2.2 %
 

Restructuring

    (76 )   0.0 %   462     0.1 %   1,250     0.2 %   4,782     0.8 %   17,497     4.1 %
 

Loss on liquidation of subsidiary

        0.0 %       0.0 %       0.0 %       0.0 %   3,548     0.8 %
                                                 
   

Total operating expenses

    68,819     15.7 %   65,432     14.2 %   89,448     15.0 %   79,585     13.0 %   92,100     21.7 %

Operating income / (loss)

    58,400     13.3 %   43,347     9.4 %   52,137     8.7 %   64,651     10.6 %   (10,733 )   (2.5 )%

Other income—net

    2,382     0.5 %   1,375     0.3 %   1,629     0.3 %   4,758     0.8 %   1,268     0.3 %

Embedded derivative gain / (loss)—net

    (45,890 )   (10.5 )%   27,959     6.1 %   42,256     7.1 %   21,165     3.5 %   (27,513 )   (6.5 )%

Interest expense

    (62,840 )   (14.4 )%   (59,544 )   (13.0 )%   (80,210 )   (13.4 )%   (72,134 )   (11.8 )%   (54,893 )   (12.9 )%

Interest income

    79     0.0 %   138     0.0 %   221     0.0 %   339     0.1 %   567     0.1 %

Foreign exchange gain / (loss)—net

    1,920     0.4 %   (4,132 )   (0.9 )%   4,833     0.8 %   9,596     1.6 %   (2,083 )   (0.5 )%
                                                 

Income / (loss) before taxes

    (45,949 )   (10.5 )%   9,143     2.0 %   20,866     3.5 %   28,375     4.6 %   (93,387 )   (22.0 )%

Provision for income taxes

    (18,593 )   (4.2 )%   (2,075 )   (0.5 )%   (10,893 )   (1.8 )%   (27,158 )   (4.4 )%   (7,339 )   (1.7 )%
                                                 

Net income / (loss)

  $ (64,542 )   (14.7 )% $ 7,068     1.5 % $ 9,973     1.7 % $ 1,217     0.2 % $ (100,726 )   (23.7 )%
                                                 


Nine Months Ended September 29, 2012 Compared to Nine Months Ended October 1, 2011

Overview—Revenue for the nine months ended September 29, 2012 was $437.8 million, a decrease of $21.6 million, or 4.7%, from $459.4 million for the nine months ended October 1, 2011. Operating income for the nine months ended September 29, 2012 was $58.4 million, an increase of $15.1 million, or 34.7%, from the comparable prior year period. Operating expenses increased $3.4 million, primarily due to higher personnel costs. Higher operating income on lower revenues reflected a higher gross margin in the current period as a result of an improved product mix and lower raw material costs, both of which were partially offset by higher operating expenses for increased personnel-related spending.

Revenue--

 
  Nine months ended    
   
 
 
  Change  
 
  September 29,
2012

  October 1,
2011

 
 
  Amount
  %
 
   
 
  (dollars in thousands)
 

Asia

  $ 283,561   $ 271,959   $ 11,602     4.3 %

Americas

    79,556     83,293     (3,737 )   (4.5 )%

Europe

    74,687     104,196     (29,509 )   (28.3 )%
                     

Total revenue

  $ 437,804   $ 459,448   $ (21,644 )   (4.7 )%
                     

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Total revenue was $437.8 million for the nine months ended September 29, 2012 compared to $459.4 million for the nine months ended October 1, 2011, a decrease of $21.6 million, or 4.7%. There was a reduction in unit volumes and change in product mix in each region as more fully detailed below, which resulted in a net $6.3 million decrease in revenue. Prices were reduced for certain products to partially pass-through lower raw material costs. Lower prices accounted for a $9.6 million decrease in revenue. The weaker euro to U.S. dollar exchange rate reduced revenue by $7.0 million in Europe.

Revenue in Asia for the nine months ended September 29, 2012 was $283.6 million, an increase of $11.6 million, or 4.3%, over the comparable prior year period. Total unit volumes were 4.2% lower in the current period which accounted for a reduction in revenues of $11.3 million. Revenue was further eroded by $4.4 million due to price reductions to partially pass-through lower raw material costs on certain products. The impact of lower total unit volumes and limited price reductions was more than offset by increased revenue from higher-priced, high-performance products which accounted for a $27.2 million increase in Asia's revenue and reflected our success in qualifying our high-performance products for new applications. Our standard product unit volume declined 40.1% in the current year period compared to the prior year period as a result of lower demand for automotive applications and low-technology applications in India.

Revenue in the Americas for the nine months ended September 29, 2012 was $79.6 million, a decrease of $3.7 million, or 4.5%, from the comparable prior year period. Lower revenue reflected lower unit volumes, which decreased 6.9% as a result of generally weaker end-market demand in the current period and resulted in a $5.9 million reduction in revenue. We believe that the lower revenue for the nine months ended September 29, 2012 was a result of generally weaker end-market demand for servers, storage devices and other electronic products relating to uncertain worldwide economic conditions. Price reductions to partially pass through lower raw material costs decreased revenue by $0.9 million. The decrease in revenue due to lower unit volumes and lower pricing was offset by an improved product mix which increased revenue by $2.9 million.

Revenue in Europe for the nine months ended September 29, 2012 was $74.7 million, a decrease of $29.5 million, or 28.3%, compared to the nine months ended October 1, 2011. The current economic and political crises in the eurozone have severely reduced demand for our products. The reduction in revenue was attributable to lower unit volumes, which decreased 20.3% on reduced demand for medical and industrial applications, including applications for the solar power industry that has been further challenged by uncertainties about the continuation of government subsidies for solar power. Lower unit volumes accounted for $19.2 million of the reduction in revenue. Also contributing to the revenue reduction was the weaker euro to U.S. dollar exchange rate, which accounted for a $7.0 million decrease in revenue, and lower average selling prices, which accounted for $4.4 million of the decrease in revenue.

Overall, revenue from our high-performance products increased 1.3% for the nine months ended September 29, 2012 compared to the nine months ended October 1, 2011. Sales of high-performance products accounted for 87% of our gross sales for the nine months ended September 29, 2012 compared to 82% of gross sales for the nine months ended October 1, 2011. The stronger demand for our high-performance products reflected our continued marketing focus on these products.

Revenue from our high-speed digital products, a subset of our high-performance products, increased significantly, offsetting decreases in our other high performance product categories. Our high-speed digital products are used in enterprise class servers and storage applications, as well as in high-speed routers and communication equipment, that support the expanding cloud computing environment and increased Internet traffic. Our increased revenue from high-speed digital products reflects our success in qualifying these products for new applications as well as the relative price inelasticity of these products.

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Gross sales for our high-performance and standard products are shown below:

 
  Nine months ended    
   
 
 
  Change  
 
  September 29,
2012

  October 1,
2011

 
Gross Sales(1)
  Amount
  %
 
   
 
  (dollars in thousands)
 

High-performance

                         
 

High-Tg

  $ 229,581   $ 271,845   $ (42,264 )   (15.5 )%
 

High-speed digital

    138,050     86,282     51,768     60.0 %
 

Military, specialty and other

    21,191     25,845     (4,654 )   (18.0 )%
                     

Total high-performance

    388,822     383,972     4,850     1.3 %

Standard

    58,515     86,564     (28,049 )   (32.4 )%
                     

Total gross sales

  $ 447,337   $ 470,536   $ (23,199 )   (4.9 )%
                     


(1)
Gross sales represent revenue prior to certain adjustments for cash discounts, rebates and other revenue adjustments that cannot be allocated to a specific product segment. These adjustments totaled $9.5 million for the nine months ended September 29, 2012 and $11.1 million for the nine months ended October 1, 2011. Revenue was $437.8 million for the nine months ended September 29, 2012 and $459.4 million for the nine months ended October 1, 2011. Management uses gross sales as a measure of operating performance.

Cost of goods sold and gross profit--

 
  Nine months ended    
   
 
 
  September 29, 2012   October 1, 2011    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Cost of goods sold

  $ 310,585     70.9 % $ 350,669     76.3 % $ (40,084 )   (11.4 )%

Gross profit

  $ 127,219     29.1 % $ 108,779     23.7 % $ 18,440     17.0 %

Cost of goods sold was $310.6 million for the nine months ended September 29, 2012, a decrease of $40.1 million, or 11.4%, from the comparable prior year period. The decrease in cost of goods sold was driven primarily by the following factors:

–>
a $16.5 million decrease in raw material costs due to lower unit volumes, which decreased 7.5%;

–>
a $17.5 million decrease in the cost of raw materials, which decreased 7.4% on an average per unit basis, primarily due to the lower cost of copper and glass; and

–>
a $6.1 million decrease in conversion costs that is, all factory costs except the cost of raw materials.

Gross profit was $127.2 million for the nine months ended September 29, 2012, an increase of $18.4 million, or 17.0%, from the comparable prior year period. The increase in gross profit was driven primarily by a $18.9 million increase due to an improved product mix; that is, an increased percentage of revenue from our higher margin, high-performance products, specifically high-speed digital products. The weaker euro to U.S. dollar exchange rate reduced gross profit by $1.0 million.

Operating expenses.    Total operating expenses increased by $3.4 million, or 5.2%, for the nine months ended September 29, 2012 compared to the nine months ended October 1, 2011. The increase in operating

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expenses was due to higher SG&A expense and research and development expense, as more fully described below.

 
  Nine months ended    
   
 
 
  September 29, 2012   October 1, 2011    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Sales, general and administrative

  $ 59,647     13.6 % $ 57,057     12.4 % $ 2,590     4.5 %

Research and development

    9,248     2.1 %   7,913     1.7 %   1,335     16.9 %

Restructuring

    (76 )   0.0 %   462     0.1 %   (538 )   (116.5 )%
                           

Total operating expenses

  $ 68,819     15.7 % $ 65,432     14.2 % $ 3,387     5.2 %
                           

Sales, general and administrative.    SG&A expense increased to $59.6 million (13.6% of revenue) for the nine months ended September 29, 2012 from $57.1 million (12.4% of revenue) for the nine months ended October 1, 2011. The $2.6 million increase in SG&A expense for the current year period was primarily due to higher salaries and other personnel-related expense, which increased $3.2 million as a result of increased headcount and higher accruals required for our variable incentive compensation plan. The higher personnel-related costs were partially offset by a $0.6 million decrease in other SG&A expense.

Research and development.    R&D expense for the nine months ended September 29, 2012 increased to $9.2 million (2.1% of revenue) from $7.9 million (1.7% of revenue) for the nine months ended October 1, 2011. The $1.3 million increase in R&D expense was primarily due to higher personnel-related costs and higher legal fees in support of intellectual property defense.

Restructuring.    The restructuring expense for both periods was primarily attributable to ongoing maintenance expenses associated with our previously closed facility in Fremont, California. Restructuring expense for the nine months ended September 29, 2012 included a gain of $0.2 million on the sale of our facility in Fremont, California.

Operating income/(loss)

 
  Nine months ended    
   
 
 
  September 29, 2012   October 1, 2011    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Asia

  $ 61,337     14.0 % $ 45,580     9.9 % $ 15,757     34.6 %

Americas

    17,206     3.9 %   11,125     2.4 %   6,081     54.7 %

Europe

    (232 )   (0.1 )%   7,980     1.7 %   (8,212 )   (102.9 )%

Corporate

    (19,911 )   (4.5 )%   (21,338 )   (4.6 )%   1,427     6.7 %
                                 

Total operating income

  $ 58,400     13.3 % $ 43,347     9.4 % $ 15,053     34.7 %
                                 

Operating income for the nine months ended September 29, 2012 was $58.4 million, which was an increase of $15.1 million, or 34.7%, compared to the nine months ended October 1, 2011. The primary driver of our improved operating income in the current year period was an improved gross margin, which increased to 29.1% in the current year period from 23.7% in the prior year period due to an improved product mix as well as lower raw material costs. However, the impact on operating income of the higher gross profit earned in the current year period was moderated by higher operating expenses, as discussed above.

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Operating income in Asia for the nine months ended September 29, 2012 was $61.3 million, an increase of $15.8 million, or 34.6%, from the comparable prior year period. The increase in operating income was due to the following factors:

–>
an $11.6 million increase in revenue (as discussed above) despite lower unit volumes, which decreased 4.2%;

–>
an $10.1 million decrease in raw materials costs, reflecting a $6.5 million decrease due to lower unit volumes and a $3.6 million (2.3% on an average per unit basis) decrease in the purchase price of raw materials;

–>
a $1.2 million increase in conversion costs (6.9% on an average per unit basis), which reflected lower unit volumes;

–>
a $3.2 million increase in SG&A expense primarily related to personnel-related costs ($1.8 million), the absence in the current year of the reversal of an environmental claim in the second quarter of the prior year ($0.7 million), and an increase in other expenses ($0.7 million); and

–>
a $1.5 million net decrease due to higher other operating expenses.

Operating income in the Americas for the nine months ended September 29, 2012 was $17.2 million, an increase of $6.1 million, or 54.7%, from the comparable prior year period. Operating income increased despite a $3.7 million decrease in revenue (as discussed above) due to lower unit volumes which decreased 6.9%. The increase in operating income was primarily due to the following factors:

–>
an $8.9 million increase in intercompany revenues as a result of increased exports of high-performance resin systems to Asia;

–>
a $1.6 million decrease in raw materials costs, reflecting lower unit volumes, which decreased raw material costs by $3.2 million, partially offset by a $1.6 million (3.6% on an average per unit basis) increase in the purchase price of raw materials, principally copper foil and fiberglass fabrics; and

–>
a $0.7 million net decrease due to higher operating expenses offset by lower conversion costs.

Operating income in Europe for the nine months ended September 29, 2012 was a loss of $0.2 million, a decrease of $8.2 million, or 102.9%, compared to the prior year period. The decrease in operating income was driven primarily by:

–>
a $29.5 million decrease in revenue (as discussed above) due to lower unit volumes, which decreased 20.3%;

–>
a $13.3 million decrease in raw materials costs, reflecting lower unit volumes, which decreased raw materials costs by $9.6 million, and a $3.7 million decrease (7.3% on an average per unit basis) in the purchase price of raw materials primarily due to the lower cost of copper and glass;

–>
a $6.1 million decrease in conversion costs due to lower labor costs and variable overhead expenses which decreased $4.0 million and other factory costs which decreased $2.1 million; and

–>
a $1.9 million increase due to higher intercompany revenue and lower operating expenses.

The Corporate operating loss for the nine months ended September 29, 2012 was $19.9 million compared to $21.3 million for the nine months ended October 1, 2011. The lower operating loss in the current period was driven primarily by:

–>
lower SG&A expense of $0.7 million resulting from lower audit and legal fees ($4.2 million) offset by higher accruals under our variable incentive compensation plan and higher personnel-related costs due to increased headcount ($1.5 million). During the second half of fiscal 2011, we hired new employees,

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    primarily in finance and accounting to support our efforts related to this offering and the subsequent reporting requirements as a public company. Other SG&A expense increased $2.0 million; and

–>
higher R&D expense of $1.4 million resulting from higher personnel-related costs ($0.7 million) as well as higher legal fees ($0.6 million) in support of intellectual property defense. Other R&D expense increased $0.1 million.

Other non-operating income / (expense)

 
  Nine months ended    
   
 
 
  September 29, 2012   October 1, 2011    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Other income--net

  $ 2,382     0.5 % $ 1,375     0.3 % $ 1,007     73.2 %

Embedded derivative gain / (loss)--net

    (45,890 )   (10.5 )%   27,959     6.1 %   (73,849 )   (264.1 )%

Interest expense

    (62,840 )   (14.4 )%   (59,544 )   (13.0 )%   (3,296 )   (5.5 )%

Interest income

    79     0.0 %   138     0.0 %   (59 )   (42.8 )%

Foreign exchange gain / (loss)--net

    1,920     0.4 %   (4,132 )   (0.9 )%   6,052     146.5 %
                                 

Total non-operating income / (expense)

  $ (104,349 )   (23.8 )% $ (34,204 )   (7.4 )% $ (70,145 )   (205.1 )%
                                 

Other income--net.    Other income--net was $2.4 million for the nine months ended September 29, 2012 and $1.4 million for the nine months ended October 1, 2011. The current year period includes a gain of $1.0 million arising from compensation from the government of Singapore government in exchange for taking a portion of our leased land, which required us to relocate our loading docks and purchase certain new equipment.

Embedded derivative gain / (loss)--net.    The embedded derivative gain / (loss)--net reflected the change in the values of the embedded derivatives in some of our financial instruments. The change in value is determined quarterly. The conversion feature of our convertible preferred certificates is considered an embedded derivative. In addition, the mandatory prepayment features, triggered by a change in control under our current senior secured and mezzanine credit agreements, are also considered embedded derivatives. We recorded a net embedded derivative loss of $45.9 million for the nine months ended September 29, 2012 compared to a net embedded derivative gain of $28.0 million for the nine months ended October 1, 2011.

When our embedded derivative liabilities increase, we record an embedded derivative loss. Conversely, when our embedded derivative liabilities decrease, we record an embedded derivative gain. We recorded an embedded derivative loss related to the convertible preferred certificates of $55.4 million for the nine months ended September 29, 2012 compared to a gain of $29.5 million for the nine months ended October 1, 2011. The net embedded derivative loss for the current year period primarily reflected an increase in our total equity value due to more optimistic projections for the Company's profits and cash flows as of September 29, 2012. The improved outlook was based on the expectation that we will sustain improved gross margins due to a greater percentage of revenues generated from our high-performance products and our continued success in qualifying them for new applications, as well as the anticipated reduction in our required capital expenditures over the next several years which increased our projected free cash flows. In addition, the revenue and EBITDA multiples of the comparable companies benchmarked in

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the market guideline public company approach improved resulting in a higher TEV which, in turn, resulted in a higher embedded derivative liability.

For the nine months ended October 1, 2011, we recorded a net embedded derivative gain associated with the convertible preferred certificates although our TEV and total equity value increased slightly (1.4% and 1.3%, respectively) compared to the end of fiscal 2010. This was the result of changes made to other underlying assumptions in the determination of our TEV and total equity value. Volatility decreased from 80% as of January 1, 2011 to 70% as of October 1, 2011 reflecting an improved economic outlook and improvements in our actual and projected operating financial performance. We reduced the time-to-liquidity assumption from twelve months as of January 1, 2011 to six months as of October 1, 2011, as a result of two factors. First, we estimated that the extensive work associated with the planned initial public offering ("IPO"), including the preparation of due diligence materials, would shorten the amount of time for a potential acquirer to be able to evaluate and complete a transaction with the Company. Second, we believed that an initial IPO filing, which we considered to be closer to completion as of October 1, 2011 than as of January 1, 2011, could motivate potential acquirers to approach the Company about a possible transaction. The decrease in both the volatility and the time-to-liquidity assumptions resulted in a decrease in the value of the embedded derivative liability and the recognition of a net embedded derivative gain for the nine months ended October 1, 2011.

We recorded an embedded derivative gain of $9.5 million for the nine months ended September 29, 2012 and an embedded derivative loss of $1.5 million for the nine months ended October 1, 2011 related to our current credit agreements. The decrease in the value of the embedded derivative liability was primarily due to the reduction in the assumed probability of the occurrence of a change of control event from 20% as of December 31, 2011 to 5% as of September 29, 2012. The reduction in the assumed probability of a change in control reflected the passing of time without a potential acquirer coming forth to express interest prior to the completion of the planned IPO.

The derivative loss in the prior year period related to our credit agreements reflected a decrease in the expected time to a potential change in control event (such as a sale of the company or potential alternate transaction) as of October 1, 2011.

Our Sponsors will effectively convert their investments in the Company from convertible preferred certificates to ordinary shares in connection with this offering, and thereafter we will not incur further financial effects related to the convertible preferred certificates. However, any change in the value of the convertible preferred certificates' embedded derivative will be included in our financial statements for periods prior to the date this offering is completed.

Interest expense and interest income.    Total interest expense increased $3.3 million, or 5.5%, to $62.8 million for the nine months ended September 29, 2012 from $59.5 million for the comparable prior year period. The increase in interest expense was due to increased amortization of OID and deferred loan origination costs related to our senior secured and mezzanine credit agreements in the current year period as well as the higher outstanding principal balances under the mezzanine credit agreement in the current year period compared to the prior year period due to the accretion of the PIK component of interest expense. The increase in interest expense due to the items enumerated above was partially offset by lower accreted interest expense on our CPCs. The accreted interest expense on our CPCs is a euro-denominated transaction. The US dollar gained strength against the euro in the current year period resulting in lower accreted interest expense on the CPCs.

Interest expense for the nine months ended September 29, 2012 included $9.8 million of OID amortization ($3.7 million related to our senior secured credit agreement and $6.1 million related to our mezzanine credit agreement) as well as $2.3 million amortization of deferred loan origination costs. For the nine months ended October 1, 2011, interest expense included $7.8 million of OID amortization ($3.3 million related to

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our senior secured credit agreement and $4.5 million related to our mezzanine credit agreement) as well as $1.7 million amortization of deferred loan origination costs.

Foreign exchange gain / (loss)--net.    We recorded a net foreign exchange gain of $1.9 million for the nine months ended September 29, 2012 compared to a net foreign exchange loss of $4.1 million for the nine months ended October 1, 2011.

During the first six months of the fiscal 2012 period, the U.S. dollar strengthened against the euro which resulted in a net foreign exchange gain for the nine months ended September 29, 2012. The U.S. dollar lost strength against the euro on the third quarter of fiscal 2012 slightly offsetting the foreign exchange gains recorded during the first half of the year. During the nine months ended October 1, 2011, the U.S. dollar weakened against the euro, which resulted in a foreign exchange loss.

The net foreign exchange gain for the nine months ended September 29, 2012 was primarily related to our subsidiary in the United Kingdom ($0.8 million) and our Luxembourg holding companies ($0.4 million). Our U.K. subsidiary has euro-denominated accounts payable. The functional currency of this subsidiary was the British pound for the first eight months of fiscal 2012. The British pound strengthened against the euro during the nine months ended September 29, 2012 resulting in a foreign exchange gain. During the third quarter of fiscal 2012, the functional currency of this subsidiary was changed to the U.S. dollar. See "Critical Accounting Policies and Estimates--Foreign Currency Transactions and Translations".

The functional currency of our Luxembourg holding companies is the U.S. dollar. The convertible preferred certificates and the associated embedded derivative liabilities are euro-denominated liabilities. As the U.S. dollar strengthens against the euro, it requires fewer U.S. dollars to settle the convertible preferred certificates and the associated embedded derivative liabilities, and we record a foreign exchange gain.

For the nine months ended October 1, 2011, the net foreign exchange loss was primarily related to our Luxembourg holding companies and the convertible preferred certificates and the associated embedded derivative liabilities. We recorded a foreign exchange loss of $4.8 million for the nine months ended October 1, 2011 related to the convertible preferred certificates and associated embedded derivative liabilities.

The foreign exchange loss for the prior year period related to the convertible preferred certificates and associated embedded derivative liabilities was partially offset by a foreign exchange gain of $0.6 million in our German subsidiary related to U.S. dollar-denominated payables.

Provision for income taxes

 
  Nine months ended    
   
 
 
  September 29, 2012   October 1, 2011    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Income / (loss) before taxes

  $ (45,949 )   (10.5 )% $ 9,143     2.0 % $ (55,092 )   (602.6 )%

Provision for income taxes

  $ (18,593 )   (4.2 )% $ (2,075 )   (0.5 )% $ (16,518 )   (796.0 )%

Effective tax rate

    (40.5 )%         22.7 %         (63.2 )%      

Our interim income tax provisions are calculated based on quarterly forecasts of our expected annual effective tax rate which is then applied to interim pre-tax income, after possible adjustments for any discrete items such as statutory tax rate changes that occurred within the period. Our effective tax rate, after consideration of discrete items, was (40.5)% for the nine months ended September 29, 2012, a change of 63.2 percentage points from the comparable prior year period. The decrease in the forecasted effective tax

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rate is due to a 211.4 percentage point decrease related to valuation allowances offset by 145.0 percentage point increase related to settlements reached with tax authorities in Germany and Taiwan.

Our forecasted annual effective tax rate was affected by valuation allowances and accruals for uncertain tax positions. Valuation allowances against deferred tax assets are required when there is uncertainty about our ability to generate future profits in a particular tax jurisdiction. We recognized changes in valuation allowances in two material jurisdictions, which decreased the forecasted effective rate for the nine months ended September 29, 2012, as compared to the nine months ended October 1, 2011 as follows:

Jurisdiction
  Valuation
allowance

 
   

Luxembourg

    (260.9 )%

United States

    49.5 %
       

Total

    (211.4 )%
       

As a result of embedded derivative losses associated with our convertible preferred certificates, the taxable loss of our Luxembourg entities increased in the nine months ended September 29, 2012, compared to the comparable prior year period, which required an increase to the valuation allowance and decreased our effective tax rate by 260.9 percentage points. Our Sponsors will effectively convert their investments in the convertible preferred certificates to ordinary shares in connection with this offering. Accordingly, our effective tax rate will not be impacted by embedded derivative gains or losses after the completion of this offering.

As a result of embedded derivative gains associated with our senior secured and mezzanine credit agreements, our entities in the United States incurred reduced losses for the nine months ended September 29, 2012, compared to the prior year period. These reduced losses resulted in a reduction to the valuation allowance in the United States and an increase in our forecasted effective tax rate of 49.5 percentage points. All of the loans outstanding under our existing senior secured and mezzanine credit agreements will be repaid in connection with this offering and the concurrent refinancing. Therefore, our forecasted effective tax rate will not be impacted by the embedded derivative gains or losses, or related changes in the required valuation allowances, after the completion of this offering.

Settlements were reached with the tax authorities in Taiwan during the nine months ended September 29, 2012 and with tax authorities in Germany and Taiwan during the prior year period. As a result of these settlements, the uncertain tax positions had the following impact on our forecasted effective rate for the nine months ended September 21, 2012, as compared to the nine months ended October 1, 2011:

Jurisdiction
  Uncertain tax positions
 
   

Germany

    122.5 %

Taiwan

    22.5 %
       

Total

    145.0 %
       


Fiscal Year 2011 Compared to Fiscal Year 2010

Overview—Overall revenues decreased a relatively modest 2.5% for fiscal 2011 compared to fiscal 2010, reflecting less robust unit demand as a result of challenging macroeconomic conditions and events affecting the supply chain during the year, offset in part by higher prices. We continued to experience relatively stronger demand for our high-performance products, consistent with our strategic focus on these products.

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Operating income for fiscal 2011 was $12.5 million, or 19.4%, lower than in the prior year, primarily due to $9.2 million of operating expenses related to preparation for our initial public offering. Our gross margin was slightly higher in fiscal 2011 (23.7%) than in fiscal 2010 (23.6%), reflecting higher selling prices and improved product mix.

Revenue—

 
  Fiscal Year   Change  
 
  2011
  2010
  Amount
  %
 
   
 
  (dollars in thousands)
 

Asia

  $ 362,182     349,421     12,761     3.7 %

Americas

    108,832     129,109     (20,277 )   (15.7 )%

Europe

    125,975     133,457     (7,482 )   (5.6 )%
                     

Total revenue

  $ 596,989   $ 611,987   $ (14,998 )   (2.5 )%
                     

Total revenue was $597.0 million for fiscal 2011 compared to $612.0 million for fiscal 2010, a decrease of $15.0 million, or 2.5%. Lower unit volumes resulted in a $75.9 million reduction of revenue while higher prices increased revenue by $54.0 million. The stronger euro to the U.S. dollar exchange rate contributed $6.9 million of additional revenue.

Revenue in Asia for fiscal 2011 increased $12.8 million, or 3.7%, over the comparable prior year period. Improved pricing resulted in an increase in total revenue of $29.5 million, which was partially offset by a decrease in revenue of $16.7 million due to a 7.5% reduction in unit volumes. Unit volumes decreased in Asia in fiscal 2011 due to weaker industry demand in the last three quarters of the year, reflecting economic uncertainties and disruption in the supply chain caused by the tsunami and its aftermath in Japan and the record flooding around Bangkok, Thailand. Unit volumes of our high-performance products decreased 1.8% and unit volumes of our standard products decreased 38.1% in fiscal 2011 as compared to fiscal 2010. The average selling price of our high-performance and standard products increased 10.1% and 15.7%, respectively, in fiscal 2011. The price increases reflected in part the pass-through of the increased cost of raw materials, which increased 11.1% on a per unit basis.

Revenues in the Americas were $20.3 million, or 15.7%, lower in fiscal 2011 compared to the prior year. Lower revenues reflect the lower unit volumes, which were down 20.4% as a result of the weaker economic environment and increased uncertainties for the future of the U.S. economy which cause inventory tightening within the supply chain and dampened capital spending for electronic equipment. In contrast, fundamental demand for electronics in the prior year was bolstered by inventory restocking of materials within the supply chain. Lower unit volumes in fiscal 2011 resulted in a decrease in revenue of $25.7 million; however the impact of lower volumes was partially offset by higher pricing which contributed $5.5 million to revenue in fiscal 2011. Unit volumes of high-performance products decreased 19.6%, and the unit volumes for our standard products decreased 48.2% in fiscal 2011 as compared to fiscal 2010. The average selling prices for high-performance products and standard products increased by 5.1% and 17.9%, respectively, in fiscal 2011 as compared to fiscal 2010. The price increases reflected in part the pass-through of the increased cost of raw materials, which increased 6.4% on a per unit basis.

Revenue in Europe decreased $7.5 million, or 5.6%, for fiscal 2011 versus fiscal 2010. Improved pricing and a stronger euro to U.S. dollar exchange rate offset the impact of lower unit volumes. Unit volumes decreased 20.4% resulting in a $33.5 million reduction in revenue in fiscal 2011. Unit volumes decreased due to weaker demand for solar power and other industrial applications due to uncertainties about the continuation of government subsidies in Germany. Weaker demand was also attributable to the economic uncertainties resulting from the eurozone debt crisis. Higher pricing to pass through higher costs of raw

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materials partially offset the impact of lower unit volumes and contributed $19.1 million to the change in revenue in fiscal 2011. The effect of the stronger euro to U.S. dollar exchange rate in fiscal 2011 compared to fiscal 2010 increased revenue by approximately $6.9 million. Unit volumes of high-performance products decreased 11.1% in fiscal 2011; however, the average selling price increased 18.0%, resulting in an increase in revenue for high-performance products. For our standard products, the unit volumes decreased 25.6% in fiscal 2011. The decrease in revenue in fiscal 2011 due to lower unit volumes of standard products was offset by a 16.9% increase in the average selling price. The price increases reflected in part the pass-through of the increased cost of raw materials, which increased 15.6% on a per unit basis.

Overall, our total company revenue from our high-performance products increased 1.6% in fiscal 2011 versus fiscal 2010, despite a 6.3% decline in unit volumes, reflecting the relatively price-inelastic nature of the products and our ability to pass through increased raw material costs. The relatively stronger demand for our high-performance products also reflects our continued marketing focus on these products and success in qualifying them for new applications.

Gross sales for our high-performance and standard products are shown below:

 
  Fiscal Year   Change  
Gross Sales(1)
  2011
  2010
  Amount
  %
 
   
 
  (dollars in thousands)
 

High-performance

                         
 

High-Tg

  $ 349,895   $ 372,063   $ (22,168 )   (6.0 )%
 

High-speed digital

    123,979     94,662     29,317     31.0 %
 

Military, specialty and other

    33,515     31,111     2,404     7.7 %
                     

Total high-performance

    507,389     497,836     9,553     1.9 %

Standard

    104,826     130,705     (25,879 )   (19.8 )%
                     

Total gross sales

  $ 612,215   $ 628,541   $ (16,326 )   (2.6 )%
                     


(1)
Gross sales represent revenue prior to certain adjustments for cash discounts, rebates and other revenue adjustments that cannot be allocated to a specific product segment. These adjustments totaled $15.2 million in fiscal 2011 and $16.6 million in fiscal 2010. Revenue was $597.0 million in fiscal 2011 and $612.0 million in fiscal 2010. Management uses gross sales as a measure of operating performance.

Cost of goods sold and gross profit—

 
  Fiscal Year    
   
 
 
  2011   2010    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Cost of goods sold

  $ 455,404     76.3 % $ 467,751     76.4 % $ (12,347 )   (2.6 )%

Gross profit

  $ 141,585     23.7 % $ 144,236     23.6 % $ (2,651 )   (1.8 )%

Cost of goods sold was $455.4 million for fiscal 2011, a decrease of $12.3 million, or 2.6%, from fiscal 2010. The decrease in cost of goods sold was driven primarily by:

–>
a $42.9 million decrease in raw material costs from lower unit volumes, which decreased 12.1%;

–>
a $31.4 million increase in the cost of raw materials, which increased 9.7% on an average per unit basis, primarily due to the higher cost of copper during fiscal 2011; and

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–>
a $0.8 million, or a 0.5%, decrease in conversion costs (that is, all factory costs except the cost of raw materials). Despite lower unit volumes, total conversion costs remained relatively flat, reflecting a 13.1% increase in conversion costs on a per unit basis from lower production volumes.

Gross profit was $141.6 million for fiscal 2011, a decrease of $2.7 million, or 1.8%, from fiscal 2010. The decrease in gross profit was driven primarily by:

–>
an $11.9 million decrease from lower unit volumes;

–>
a $7.9 million increase as a result of pricing actions to pass through higher raw material and higher conversion costs to our customers, as well as an increase in the percentage of revenue from sales of our higher margin, high-performance products in fiscal 2011; and

–>
a $1.3 million increase due to the stronger euro to U.S. dollar exchange rate.

Operating expenses.    Total operating expenses increased by $9.9 million, or 12.4%, for fiscal 2011 compared to fiscal 2010. The increase in operating expenses was due to higher SG&A expense and R&D expense, partially offset by lower restructuring expense, as more fully described below.

 
  Fiscal Year    
   
 
 
  2011   2010    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Sales, general and administrative

  $ 77,545     13.0 % $ 65,271     10.7 % $ 12,274     18.8 %

Research and development

    10,653     1.8 %   9,532     1.6 %   1,121     11.8 %

Restructuring

    1,250     0.2 %   4,782     0.8 %   (3,532 )   (73.9 )%
                                 

Total operating expenses

  $ 89,448     15.0 % $ 79,585     13.0 % $ 9,863     12.4 %
                                 

Sales, general and administrative.    SG&A expense increased to $77.5 million (13.0% of revenue) for fiscal 2011 from $65.3 million (10.7% of revenue) in the prior year. The $12.2 million increase in SG&A expense in fiscal 2011 was primarily due to higher audit fees, which increased $6.2 million, and higher legal and consulting fees, which increased $2.7 million over the prior year. The increase in these fees was primarily related to this offering. We also recorded $2.5 million of expense related to withholding taxes on payments from our international subsidiaries related to intercompany management fees and commissions.

Research and development.    R&D expense in fiscal 2011 increased $1.2 million, or 11.8%, to $10.7 million for fiscal 2011 from $9.5 million for fiscal 2010. The increase in R&D expense was primarily due to an increase of $1.9 million for higher personnel costs as well higher purchases of materials, supplies and services in support of product development efforts. These increases were partially offset by lower legal fees in support of intellectual property defense, which decreased $1.1 million in fiscal 2011. In the prior year, we incurred significant legal fees in connection with the successful legal defense of our intellectual property rights for which a favorable settlement was reached during fiscal 2010.

Restructuring.    Restructuring expense was $1.3 million for fiscal 2011, versus $4.8 million in the prior year. This steep reduction of $3.5 million reflects the substantial completion of our restructuring activities in the prior year. The minimal restructuring expense in fiscal 2011 was primarily related to the impairment loss recorded on the land and building at our closed Fremont, California facility as well as ongoing legal and other fees associated with the disposal of our closed Italian laminate facility, MAS Italia s.r.l.

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Operating income / (loss)

 
  Fiscal Year    
   
 
 
  2011   2010    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Asia

  $ 58,506     9.8 % $ 58,777     9.6 % $ (271 )   (0.5 )%

Americas

    13,566     2.3 %   16,900     2.8 %   (3,334 )   (19.7 )%

Europe

    6,050     1.0 %   3,958     0.6 %   2,092     52.9 %

Corporate

    (25,985 )   (4.4 )%   (14,984 )   (2.4 )%   (11,001 )   (73.4 )%
                                 

Total operating income / (loss)

  $ 52,137     8.7 % $ 64,651     10.6 % $ (12,514 )   (19.4 )%
                                 

Operating income was $52.1 million for fiscal 2011, a decrease of $12.5 million, or 19.4%, from fiscal 2010. Despite lower unit volumes, which decreased 12.1% in fiscal 2011, revenue was only slightly lower (2.5%) than the prior year due to pricing actions to recover higher raw material costs, as well as an increase in the percentage of revenue from sales of our higher margin, high-performance products in fiscal 2011. However, operating income in fiscal 2011 was significantly affected by an $8.9 million increase in audit, legal and consulting fees related to this offering, only partially offset by the $0.6 million favorable impact of the stronger euro to U.S. dollar exchange rate.

Operating income in Asia in fiscal 2011 was $58.5 million, a decrease of $0.3 million, or 0.5%, from fiscal 2010. The decrease in operating income was driven primarily by:

–>
a $12.8 million increase in revenue (as discussed above) despite lower unit volumes, which decreased 7.5%;

–>
a $5.9 million increase in raw materials costs, reflecting a $23.6 million increase (11.1% on an average per unit basis) in the purchase price of raw materials primarily due to the higher cost of copper during fiscal 2011, partially offset by lower unit volumes, which decreased raw material costs by $17.7 million;

–>
a $3.8 million, or 6.9%, increase in conversion costs (15.6% on an average per unit basis), due to higher labor and utilities expense. Labor expense increased primarily due to salary and wage increases during the fiscal year, and our utilities expense increased primarily due to the increased cost of fuel;

–>
a $1.8 million increase for withholding tax expense on the remittance of intercompany management fees and commissions to the U.S. from our overseas locations during fiscal 2011, which was included in SG&A expense; and

–>
a $1.6 million net decrease from lower intercompany revenues and other operating expenses.

Operating income in the Americas in fiscal 2011 was $13.6 million, a decrease of $3.3 million, or 19.7%, from fiscal 2010. The decrease in operating income was driven primarily by:

–>
a $20.3 million decrease in revenue (as discussed above) from lower unit volumes, which decreased 20.4%;

–>
a $4.9 million decrease in raw material costs, reflecting lower unit volumes, which decreased raw material costs by $15.2 million, partially offset by a $10.3 million increase (15.9% on an average per unit basis) in the purchase price of raw materials primarily due to the higher cost of copper during fiscal 2011;

–>
a $6.8 million, or 15.3%, decrease in conversion costs primarily due to lower unit volumes, although the impact of lower unit volumes was partially offset by a 6.4% increase in conversion costs on an average per unit basis, primarily due to the increased cost of fuel and labor;

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–>
a $4.8 million increase in intercompany revenues primarily due to increased exports of high-performance resins to Asia; and

–>
a $0.5 million net decrease in other operating expenses.

Operating income in Europe in fiscal 2011 was $6.1 million, an increase of $2.1 million, or 52.9%, from fiscal 2010. The increase in operating income was driven primarily by:

–>
a $7.5 million decrease in revenue (as discussed above) from lower unit volumes, which decreased 20.4%;

–>
a $8.9 million decrease in raw material costs, reflecting lower unit volumes, which decreased raw material costs by $15.8 million, partially offset by a $6.9 million (9.8% on an average per unit basis) increase in the purchase price of raw materials primarily due to the higher cost of copper during fiscal 2011;

–>
a $1.0 million decrease in SG&A expense, primarily due to lower bad debt expense as a financially troubled customer led to an increase in our reserves for bad debt in the prior year; and

–>
a $0.5 million net decrease in intercompany revenue, conversion costs and other operating expenses.

The Corporate operating loss in fiscal 2011 was $26.0 million, an increase of $11.0 million or 73.4% compared to fiscal 2010. The increased Corporate loss was primarily driven by higher SG&A expense of $9.7 million incurred primarily for outside professional services related to our decision to proceed with this offering. The increase in SG&A expense was offset by lower restructuring expense of $3.7 million, as our major restructuring activities were substantially completed by the end of fiscal 2010.

Other non-operating income / (expense)

 
  Fiscal Year    
   
 
 
  2011   2010    
   
 
 
  Change  
 
   
  % of
revenue

   
  % of
revenue

 
 
  Amount
  Amount
  Amount
  %
 
   
 
  (dollars in thousands)
 

Other income—net

  $ 1,629     0.3 % $ 4,758     0.8 % $ (3,129 )   (65.8 )%

Embedded derivative gain / (loss)—net

    42,256     7.1 %   21,165     3.5 %   21,091     99.7 %

Interest expense

    (80,210 )   (13.4 )%   (72,134 )   (11.8 )%   (8,076 )   (11.2 )%

Interest income

    221     0.0 %   339     0.1 %   (118 )   (34.8 )%

Foreign exchange gain / (loss)—net

    4,833     0.8 %   9,596     1.6 %   (4,763 )   (49.6 )%