UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014March 31, 2015
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36473
Trinseo S.A.
(Exact name of registrant as specified in its charter)
Luxembourg | N/A | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
1000 Chesterbrook Boulevard
Suite 300
Berwyn, PA 19312
(Address of Principal Executive Offices)
(610) 240-3200
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of November 13, 2014,May 7, 2015, there were 48,769,567 shares of the registrant’s ordinary shares outstanding.
EXPLANATORY NOTE
Trinseo Materials Operating S.C.A., a Luxembourg partnership limited by shares (“Trinseo Materials”), and Trinseo Materials Finance, Inc., a Delaware corporation (together with Trinseo Materials, the “Subsidiary Registrants”) are two wholly-owned subsidiaries of Trinseo S.A., a public limited liability company (société anonyme) existing under the laws of Luxembourg (“Trinseo,” and together with its consolidated subsidiaries, the “Company”). The Subsidiary Registrants are the co-issuers of the Company’s 8.750% Senior Secured Notes due 2019 (the “Senior Notes”) and Trinseo is the parent guarantor of the Senior Notes. Trinseo’s registration statement on Form S-1 relating to the initial public offering of its ordinary shares was declared effective by the Securities and Exchange Commission on June 11, 2014. In reliance on Rule 12h-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 3-10 of Regulation S-X, the Subsidiary Registrants are exempt from, and have ceased to file reports under the Exchange Act.
Trinseo S.A.
Quarterly Report on Form 10-Q
For the quarterly period ended September 30, 2014March 31, 2015
Unless otherwise indicated or required by context, as used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the term “Trinseo” refers to Trinseo S.A. (NYSE: TSE), a public limited liability company (société anonyme) existing under the laws of Luxembourg, and not its subsidiaries. The terms “Company,” “we,” “us” and “our” refer to Trinseo and its consolidated subsidiaries, taken as a combinedconsolidated entity and as required by context, may also include our business as owned by our predecessor, The Dow Chemical Company, for any dates prior to June 17, 2010. The terms “Trinseo Materials Operating S.C.A.” and “Trinseo Materials Finance, Inc.” refer to Trinseo’s indirect subsidiaries, Trinseo Materials Operating S.C.A., a Luxembourg partnership limited by shares incorporated under the laws of Luxembourg, and Trinseo Materials Finance, Inc., a Delaware corporation, and not their subsidiaries. All financial data provided in this Quarterly Report is the financial data of the Company, unless otherwise indicated.
Prior to our formation, our business was wholly owned by The Dow Chemical Company. We refer to our predecessor business as “the Styron business.” On June 17, 2010, investment funds advised or managed by affiliates of Bain Capital Partners, LLC (“Bain Capital”) acquired the Styron business and Dow Europe Holding B.V., which we refer to as “Dow Europe,” or, together with other affiliates of The Dow Chemical Company, “Dow,” which also retained an ownership interest in the Styron business through an indirect ownership interest in us. We refer to our acquisition by Bain Capital as the “Acquisition.”
In the first quarter of 2015, we completed a rebranding process to change our operating name and legal entities from “Styron” to “Trinseo.” We believe that this new name reflects our breadth as a company with broad global reach and a diverse portfolio of materials and technologies. We believe Trinseo captures our commitment to deliver innovative and sustainable materials that provide value to our customers’ products.
Cautionary Note on Forward-Looking Statements
This Quarterly Report contains forward-looking statements including, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. Forward lookingForward-looking statements may be identified by the use of words like “expect,” “anticipate,” “intend,” “forecast,” “outlook,” “will,” “may,” “might,” “potential,” “likely,” “target,” “plan,” “contemplate,” “seek,” “attempt,” “should,” “could,” “would” or expressions of similar meaning. Forward-looking statements reflect management’s evaluation of information currently available and are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in our Registration StatementAnnual Report on Form S-1 declared effective by10-K for the year ended December 31, 2014 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on June 11, 2014March 10, 2015 under “Risk Factors- Risks relating to our Business and Industry” and in Part II,I, Item 1A — “Risk Factors” of our Quarterly Report on Form 10-Q for the period ended June 30, 2014 filed with the SEC on August 11, 2014,, and elsewhere within this Quarterly Report.
As a result of these or other factors, our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. WeTherefore, we caution you therefore against relying on any of these forward-looking statements. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Where You Can Find Additional Information
Our website is www.trinseo.com. Information contained on our website is not part of this Quarterly Report. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
PART I —FINANCIAL INFORMATION
TRINSEO S.A.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
September 30, | December 31, | March 31, | December 31, | |||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 152,127 | $ | 196,503 | $ | 218,697 | $ | 220,786 | ||||||||
Accounts receivable, net of allowance for doubtful accounts (September 30, 2014—$6,853; December 31, 2013—$5,866) | 726,293 | 717,482 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts (March 31, 2015—$4,988; December 31, 2014—$6,268) | 590,065 | 601,066 | ||||||||||||||
Inventories | 508,467 | 530,191 | 390,972 | 473,861 | ||||||||||||
Deferred income tax assets | 12,723 | 9,820 | 8,423 | 11,786 | ||||||||||||
Other current assets | 21,990 | 22,750 | 11,378 | 15,164 | ||||||||||||
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Total current assets | 1,421,600 | 1,476,746 | 1,219,535 | 1,322,663 | ||||||||||||
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Investments in unconsolidated affiliates | 164,504 | 155,887 | 189,364 | 167,658 | ||||||||||||
Property, plant and equipment, net of accumulated depreciation (September 30, 2014—$315,629; December 31, 2013—$283,795) | 552,038 | 606,427 | ||||||||||||||
Property, plant and equipment, net of accumulated depreciation (March 31, 2015—$315,614; December 31, 2014—$324,383) | 505,105 | 556,697 | ||||||||||||||
Other assets | ||||||||||||||||
Goodwill | 34,316 | 37,273 | 30,540 | 34,574 | ||||||||||||
Other intangible assets, net | 172,923 | 171,514 | 145,326 | 165,358 | ||||||||||||
Deferred income tax assets—noncurrent | 38,098 | 42,938 | 48,220 | 46,812 | ||||||||||||
Deferred charges and other assets | 64,602 | 83,996 | 57,006 | 62,354 | ||||||||||||
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Total other assets | 309,939 | 335,721 | 281,092 | 309,098 | ||||||||||||
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Total assets | $ | 2,448,081 | $ | 2,574,781 | $ | 2,195,096 | $ | 2,356,116 | ||||||||
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Liabilities and shareholders’ equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Short-term borrowings | $ | 8,813 | $ | 8,754 | $ | 4,139 | $ | 7,559 | ||||||||
Accounts payable | 486,930 | 509,093 | 395,031 | 434,692 | ||||||||||||
Income taxes payable | 10,127 | 9,683 | 15,968 | 9,413 | ||||||||||||
Deferred income tax liabilities | 1,959 | 2,903 | 1,930 | 1,413 | ||||||||||||
Accrued expenses and other current liabilities | 96,479 | 136,129 | 84,746 | 120,928 | ||||||||||||
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Total current liabilities | 604,308 | 666,562 | 501,814 | 574,005 | ||||||||||||
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Noncurrent liabilities | ||||||||||||||||
Long-term debt | 1,194,801 | 1,327,667 | 1,194,621 | 1,194,648 | ||||||||||||
Deferred income tax liabilities—noncurrent | 31,265 | 26,932 | 29,146 | 27,311 | ||||||||||||
Other noncurrent obligations | 200,636 | 210,418 | 220,607 | 239,287 | ||||||||||||
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Total noncurrent liabilities | 1,426,702 | 1,565,017 | 1,444,374 | 1,461,246 | ||||||||||||
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Commitments and contingencies (Note J) | ||||||||||||||||
Commitments and contingencies (Note 10) | ||||||||||||||||
Shareholders’ equity | ||||||||||||||||
Common stock, $0.01 nominal value, 50,000,000 shares authorized at September 30, 2014 and December 31, 2013, and 48,770 and 37,270 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively | 488 | 373 | ||||||||||||||
Common stock, $0.01 nominal value, 50,000,000 shares authorized at March 31, 2015 and December 31, 2014, and 48,770 shares issued and outstanding at March 31, 2015 and December 31, 2014 | 488 | 488 | ||||||||||||||
Additional paid-in-capital | 544,808 | 339,055 | 550,152 | 547,530 | ||||||||||||
Accumulated deficit | (122,249 | ) | (84,604 | ) | (114,232 | ) | (151,936 | ) | ||||||||
Accumulated other comprehensive income (loss) | (5,976 | ) | 88,378 | |||||||||||||
Accumulated other comprehensive loss | (187,500 | ) | (75,217 | ) | ||||||||||||
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Total shareholders’ equity | 417,071 | 343,202 | 248,908 | 320,865 | ||||||||||||
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Total liabilities and shareholders’ equity | $ | 2,448,081 | $ | 2,574,781 | $ | 2,195,096 | $ | 2,356,116 | ||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
TRINSEO S.A.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
Net sales | $ | 1,305,493 | $ | 1,308,959 | $ | 4,005,560 | $ | 4,062,303 | $ | 1,018,265 | $ | 1,359,132 | ||||||||||||
Cost of sales | 1,237,257 | 1,212,442 | 3,746,285 | 3,819,474 | 915,186 | 1,260,503 | ||||||||||||||||||
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Gross profit | 68,236 | 96,517 | 259,275 | 242,829 | 103,079 | 98,629 | ||||||||||||||||||
Selling, general and administrative expenses | 48,113 | 53,772 | 172,351 | 155,006 | 51,775 | 50,030 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates | 9,267 | 15,215 | 29,595 | 26,943 | 36,707 | 14,950 | ||||||||||||||||||
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Operating income | 29,390 | 57,960 | 116,519 | 114,766 | 88,011 | 63,549 | ||||||||||||||||||
Interest expense, net | 30,098 | 32,881 | 95,518 | 98,927 | 28,856 | 32,818 | ||||||||||||||||||
Loss on extinguishment of long-term debt | 7,390 | — | 7,390 | 20,744 | ||||||||||||||||||||
Other expense (income), net | (1,638 | ) | 14,142 | 29,406 | 19,850 | |||||||||||||||||||
Other expense, net | 3,551 | 895 | ||||||||||||||||||||||
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Income (loss) before income taxes | (6,460 | ) | 10,937 | (15,795 | ) | (24,755 | ) | |||||||||||||||||
Income before income taxes | 55,604 | 29,836 | ||||||||||||||||||||||
Provision for income taxes | 3,650 | 6,001 | 21,850 | 8,051 | 17,900 | 12,750 | ||||||||||||||||||
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Net income (loss) | $ | (10,110 | ) | $ | 4,936 | $ | (37,645 | ) | $ | (32,806 | ) | |||||||||||||
Net income | $ | 37,704 | $ | 17,086 | ||||||||||||||||||||
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Weighted average shares- basic and diluted | 48,770 | 37,270 | 41,693 | 37,270 | ||||||||||||||||||||
Net income (loss) per share- basic and diluted | $ | (0.21 | ) | $ | 0.13 | $ | (0.90 | ) | $ | (0.88 | ) | |||||||||||||
Weighted average shares- basic | 48,770 | 37,270 | ||||||||||||||||||||||
Net income per share- basic | $ | 0.77 | $ | 0.46 | ||||||||||||||||||||
Weighted average shares- diluted | 48,851 | 37,270 | ||||||||||||||||||||||
Net income per share- diluted | $ | 0.77 | $ | 0.46 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
TRINSEO S.A.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, unless otherwise stated)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income (loss) | $ | (10,110 | ) | $ | 4,936 | $ | (37,645 | ) | $ | (32,806 | ) | |||||
Other comprehensive income (loss), net of tax (tax amounts shown in millions below for the three and nine months ended September 30, 2014 and 2013, respectively): | ||||||||||||||||
Cumulative translation adjustments (net of tax of: 2014—$0 and $0; | (84,868 | ) | 40,965 | (95,220 | ) | 30,126 | ||||||||||
Pension and other postretirement benefit plans before reclassifications (net of tax of: 2014—$0 and $0; 2013—$(0.2) and $2.4) | — | (1,916 | ) | — | 17,985 | |||||||||||
Amounts reclassified from accumulated other comprehensive income: | ||||||||||||||||
Amortization of prior service credit (net of tax of: 2014—$0 and $0; 2013—$0 and $(0.1))(1) | (212 | ) | (501 | ) | (642 | ) | (1,513 | ) | ||||||||
Amortization of net loss (net of tax of: 2014—$0.2 and $0.5; | 498 | 595 | 1,508 | 1,838 | ||||||||||||
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Total other comprehensive income (loss), net of tax | (84,582 | ) | 39,143 | (94,354 | ) | 48,436 | ||||||||||
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Comprehensive income (loss) | $ | (94,692 | ) | $ | 44,079 | $ | (131,999 | ) | $ | 15,630 | ||||||
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Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Net income | $ | 37,704 | $ | 17,086 | ||||
Other comprehensive income (loss), net of tax (tax amounts shown in millions below for the three months ended March 31, 2015 and 2014, respectively): | ||||||||
Cumulative translation adjustments | (114,155 | ) | (1,425 | ) | ||||
Unrealized gain on foreign exchange cash flow hedges (net of tax of: 2015—$0.1; 2014—$0.0) | 1,035 | — | ||||||
Pension and other postretirement benefit plans before reclassifications: | ||||||||
Amounts reclassified from accumulated other comprehensive income: | ||||||||
Amortization of prior service credit (net of tax of: 2015—$(0.1); 2014—$0.0)(1) | (340 | ) | (214 | ) | ||||
Amortization of net loss (net of tax of: 2015—$0.4; 2014—$0.1) (1) | 1,177 | 458 | ||||||
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Total other comprehensive loss, net of tax | (112,283 | ) | (1,181 | ) | ||||
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Comprehensive income (loss) | $ | (74,579 | ) | $ | 15,905 | |||
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(1) | These other comprehensive income (loss) components are included in the computation of net periodic benefit costs (see Note |
The accompanying notes are an integral part of these condensed consolidated financial statements.
TRINSEO S.A.
Condensed Consolidated Statements of Shareholders’ Equity
(In thousands)
(Unaudited)
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
December 31, 2013 | 37,270 | $ | 373 | $ | 339,055 | $ | 88,378 | $ | (84,604 | ) | $ | 343,202 | ||||||||||||
Issuance of common stock (Note L) | 11,500 | 115 | 197,974 | — | — | 198,089 | ||||||||||||||||||
Net loss | — | — | — | — | (37,645 | ) | (37,645 | ) | ||||||||||||||||
Other comprehensive loss | — | — | — | (94,354 | ) | — | (94,354 | ) | ||||||||||||||||
Stock-based compensation | — | — | 7,779 | — | — | 7,779 | ||||||||||||||||||
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September 30, 2014 | 48,770 | $ | 488 | $ | 544,808 | $ | (5,976 | ) | $ | (122,249 | ) | $ | 417,071 | |||||||||||
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December 31, 2012 | 37,270 | $ | 373 | $ | 329,105 | $ | 24,573 | $ | (62,386 | ) | $ | 291,665 | ||||||||||||
Net loss | — | — | — | — | (32,806 | ) | (32,806 | ) | ||||||||||||||||
Other comprehensive income | — | — | — | 48,436 | — | 48,436 | ||||||||||||||||||
Stock-based compensation | — | — | 7,816 | — | — | 7,816 | ||||||||||||||||||
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September 30, 2013 | 37,270 | $ | 373 | $ | 336,921 | $ | 73,009 | $ | (95,192 | ) | $ | 315,111 | ||||||||||||
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Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
December 31, 2014 | 48,770 | $ | 488 | $ | 547,530 | $ | (75,217 | ) | $ | (151,936 | ) | $ | 320,865 | |||||||||||
Net income | — | — | — | — | 37,704 | 37,704 | ||||||||||||||||||
Other comprehensive loss | — | — | — | (112,283 | ) | — | (112,283 | ) | ||||||||||||||||
Stock-based compensation | — | — | 2,622 | — | — | 2,622 | ||||||||||||||||||
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March 31, 2015 | 48,770 | $ | 488 | $ | 550,152 | $ | (187,500 | ) | $ | (114,232 | ) | $ | 248,908 | |||||||||||
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December 31, 2013 | 37,270 | $ | 373 | $ | 339,055 | $ | 88,378 | $ | (84,604 | ) | $ | 343,202 | ||||||||||||
Net income | — | — | — | — | 17,086 | 17,086 | ||||||||||||||||||
Other comprehensive loss | — | — | — | (1,181 | ) | — | (1,181 | ) | ||||||||||||||||
Stock-based compensation | — | — | 2,689 | — | — | 2,689 | ||||||||||||||||||
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March 31, 2014 | 37,270 | $ | 373 | $ | 341,744 | $ | 87,197 | $ | (67,518 | ) | $ | 361,796 | ||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
TRINSEO S.A.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net loss | $ | (37,645 | ) | $ | (32,806 | ) | ||||||||||
Adjustments to reconcile net loss to net cash provided by operating activities | ||||||||||||||||
Net income | $ | 37,704 | $ | 17,086 | ||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||||||||||
Depreciation and amortization | 78,798 | 71,037 | 22,554 | 23,728 | ||||||||||||
Amortization of deferred financing costs and issuance discount | 7,495 | 7,149 | ||||||||||||||
Amortization of deferred financing costs | 2,446 | 2,516 | ||||||||||||||
Deferred income tax | 4,716 | 3,851 | 3,775 | 5,458 | ||||||||||||
Stock-based compensation | 7,779 | 7,816 | 2,622 | 2,689 | ||||||||||||
Earnings of unconsolidated affiliates, net of dividends | (9,596 | ) | (19,443 | ) | (21,707 | ) | (9,950 | ) | ||||||||
Unrealized losses on foreign exchange forward contracts | 13,324 | — | ||||||||||||||
Loss on extinguishment of long-term debt | 7,390 | 20,744 | ||||||||||||||
Prepayment penalty on long-term debt | (3,975 | ) | — | |||||||||||||
Impairment charges | — | 4,571 | ||||||||||||||
Loss (gain) on sale of businesses and other assets | (116 | ) | 4,186 | |||||||||||||
Unrealized net losses on foreign exchange forward contracts | 2,815 | — | ||||||||||||||
Changes in assets and liabilities | ||||||||||||||||
Accounts receivable | (42,015 | ) | (41,480 | ) | (42,091 | ) | (79,204 | ) | ||||||||
Inventories | (1,360 | ) | 93,949 | 53,722 | 20,148 | |||||||||||
Accounts payable and other current liabilities | 1,535 | (31,659 | ) | (11,944 | ) | 18,522 | ||||||||||
Income taxes payable | 764 | (8,792 | ) | 7,074 | (720 | ) | ||||||||||
Other assets, net | (6,254 | ) | (6,969 | ) | 3,892 | (2,649 | ) | |||||||||
Other liabilities, net | (19,179 | ) | 21,434 | (17,948 | ) | 1,193 | ||||||||||
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Cash provided by operating activities | 1,661 | 93,588 | ||||||||||||||
Cash provided by (used in) operating activities | 42,914 | (1,183 | ) | |||||||||||||
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Cash flows from investing activities | ||||||||||||||||
Capital expenditures | (69,269 | ) | (52,318 | ) | (27,670 | ) | (41,141 | ) | ||||||||
Proceeds from the sale of businesses and other assets | 6,257 | 15,221 | 560 | — | ||||||||||||
Proceeds from capital expenditures subsidy | — | 6,575 | ||||||||||||||
Payment for working capital adjustment from sale of business | (700 | ) | — | — | (700 | ) | ||||||||||
Advance payment refunded | — | (2,711 | ) | |||||||||||||
Distributions from unconsolidated affiliates | 978 | 1,055 | — | 978 | ||||||||||||
Decrease in restricted cash | — | 7,852 | ||||||||||||||
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Cash used in investing activities | (62,734 | ) | (24,326 | ) | (27,110 | ) | (40,863 | ) | ||||||||
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Cash flows from financing activities | ||||||||||||||||
Proceeds from initial public offering, net of offering costs | 198,087 | — | ||||||||||||||
Deferred financing fees | — | (46,834 | ) | |||||||||||||
Short-term borrowings, net | (43,430 | ) | (32,676 | ) | (9,487 | ) | (14,837 | ) | ||||||||
Repayments of Term Loans | — | (1,239,000 | ) | |||||||||||||
Proceeds from the issuance of Senior Notes | — | 1,325,000 | ||||||||||||||
Repayments of Senior Notes | (132,500 | ) | — | |||||||||||||
Proceeds from Accounts Receivable Securitization Facility | 283,292 | 351,630 | — | 60,971 | ||||||||||||
Repayments of Accounts Receivable Securitization Facility | (283,859 | ) | (391,181 | ) | — | (61,538 | ) | |||||||||
Proceeds from Revolving Facility | — | 405,000 | ||||||||||||||
Repayments of Revolving Facility | — | (525,000 | ) | |||||||||||||
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Cash provided by (used in) financing activities | 21,590 | (153,061 | ) | |||||||||||||
Cash used in financing activities | (9,487 | ) | (15,404 | ) | ||||||||||||
Effect of exchange rates on cash | (4,893 | ) | 1,168 | (8,406 | ) | 36 | ||||||||||
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Net change in cash and cash equivalents | (44,376 | ) | (82,631 | ) | (2,089 | ) | (57,414 | ) | ||||||||
Cash and cash equivalents—beginning of period | 196,503 | 236,357 | 220,786 | 196,503 | ||||||||||||
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Cash and cash equivalents—end of period | $ | 152,127 | $ | 153,726 | $ | 218,697 | $ | 139,089 | ||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
TRINSEO S.A.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, unless otherwise stated)
(Unaudited)
NOTE A—1—BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) as of and for the periods ended September 30,March 31, 2015 and 2014 and 2013 were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are considered necessary for the fair statement of the results for the periods presented. Because they cover interim periods, the statements and related notes to the financial statements do not include all disclosures normally provided in annual financial statements and, therefore, these statements should be read in conjunction with the 20132014 audited consolidated financial statements included within the Company’s Registration StatementAnnual Report on Form S-1 (Registration No. 333-194561), which was declared effective by10-K (“Annual Report”) filed with the SECSecurities and Exchange Commission (“SEC”) on June 11, 2014 (as amended, the “Registration Statement”).March 10, 2015.
The December 31, 20132014 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 20132014 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.
Reverse Stock Split and Initial Public Offering
On May 30, 2014, the Company amended its Articles of Association to effect a 1-for-436.69219 reverse stock split of its issued and outstanding common stock (“reverse split”) and to increase its authorized shares to 50.0 billion. All share and per share data have been retroactively adjusted in the accompanying financial statements to give effect to the reverse split.
On June 17, 2014, the Company completed an initial public offering (the “IPO”) of 11,500,000 ordinary shares at a price of $19.00 per share, which included 1,500,000 of shares sold pursuant to the underwriters’ exercise of their over-allotment option. The Company received cash proceeds of $203.2 million from this transaction, net of underwriting discounts.
Company Realignment
Until January 1, 2015, the chief executive officer, who is the Company’s chief operating decision maker, managed the Company’s operations under two divisions, Emulsion Polymers and Plastics, which included the following four reporting segments: Latex, Synthetic Rubber, Styrenics, and Engineered Polymers.
Effective January 1, 2015, the Company was reorganized under two new divisions called Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division now includes the following reporting segments: Synthetic Rubber, Latex, and Performance Plastics. The Basic Plastics & Feedstocks division represents a separate segment for financial reporting purposes. These condensed consolidated financial statements and related notes thereto have been retroactively adjusted to reflect this change in reporting segments. See Note L14 for more information.
NOTE B—2—RECENT ACCOUNTING GUIDANCE
In February 2013,April 2014, the Financial Accounting Standards Board (“FASB”) issued amendments for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, except for obligations addressed within existing guidance. This guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. This guidance also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The Company adopted this guidance on a retrospective basis effective January 1, 2014, and the adoption did not have a significant impact on the Company’s financial position or results of operations.
In July 2013, the FASB issued guidance to clarify the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance requires that unrecognized tax benefits be netted against all available same-jurisdiction losses or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the unrecognized tax benefits. The Company adopted this guidance prospectively effective January 1, 2014, and the adoption did not have a significant impact on the Company’s financial position or results of operations.
In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments areCompany adopted this guidance effective prospectively for fiscal years,January 1, 2015, and interim reporting periods within those years, beginning after December 15, 2014 (earlythe adoption is permitted only for disposals that havedid not been previously reported). The implementation of the amended guidance is not expected to have a materialsignificant impact on the Company’s consolidated financial position, or results of operations.operations, or disclosures.
In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued new guidance which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. This guidance is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted under GAAP and retrospective application is permitted, but not required. In April 2015, the FASB proposed to defer the effective date of this new guidance by one year. If the proposal is approved, subject to the FASB’s due process requirement, early adoption would be permitted as of the original effective date, and the standard would be effective for the Company beginning January 1, 2018. The Company is currently assessing the impact of adopting this guidance on its financial statements and results of operations.
In June 2014,January 2015, the FASB issued updated guidance to simplify income statement classification by removing the concept of extraordinary items from GAAP. The Company adopted this guidance effective January 1, 2015, and the adoption did not have a significant impact on the Company’s financial position or results of operations.
In April 2015, the FASB issued guidance that requires debt issuance costs related to stock compensation. The updated guidance requires that a performance target that affects vesting, and that couldrecognized debt liability be achieved afterpresented in the requisite service period, be treatedbalance sheet as a performance condition. As such,direct deduction from the performance target should not be reflected in estimating the grant date faircarrying value of the award.that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. This update further clarifies that compensation cost shouldnew guidance, which is to be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periodsapplied on a retrospective basis, is effective for which the requisite service has already been rendered. The updated guidance is effectivepublic companies for annual and interim periods beginning after December 15,31, 2015, and can be applied either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented and to all newly granted or modified awards thereafter. Earlyearly adoption is permitted. This guidance is not relevant to the Company’s currently outstanding awards; however, theThe Company will continue to evaluate the applicability ofadopt this guidance to future awards as necessary.effective January 1, 2016.
NOTE C—3—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company is supplemented by two strategic joint ventures:ventures, the results of which are included within the Basic Plastics & Feedstocks reporting segment: Americas Styrenics LLC (“AmSty”Americas Styrenics”, a polystyrene joint venture with Chevron Phillips Chemical Company LP) and Sumika Styron Polycarbonate Limited (“Sumika Styron”Styron Polycarbonate”, a polycarbonate joint venture with Sumitomo Chemical Company, Limited). Investments held in the unconsolidated affiliates are accounted for by the equity method.
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, respectively, the Company’s investment in AmStyAmericas Styrenics was $131.5$153.7 million and $118.3 million. As of September 30, 2014 and December 31, 2013, respectively, the Company’s investment in AmSty$133.5 million, which was $113.0$104.5 million and $130.8$108.4 million less than the Company’s 50% share of AmSty’sthe underlying net assets.assets of Americas Styrenics. This amount represents the difference between the book value of assets contributed to the joint venture at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the joint venture’s assets and certain adjustments to conform with the Company’s accounting policies. This difference is being amortized over a weighted average remaining useful life of the contributed assets of approximately 5.95.5 years as of September 30, 2014.March 31, 2015. The Company received dividends from AmStyAmericas Styrenics of $7.5$15.0 million and $20.0$5.0 million during the three and nine months ended September 30,March 31, 2015 and 2014, respectively, compared to dividends of $7.5 million during the three and nine months ended September 30, 2013.respectively.
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, respectively, the Company’s investment in Sumika Styron Polycarbonate was $33.0$35.6 million and $37.6 million. As of September 30, 2014 and December 31, 2013, respectively, the Company’s investment in Sumika Styron$34.1 million, which was $20.3$21.0 million and $20.8$21.3 million greater than the Company’s 50% share of Sumika Styron’sthe underlying net assets.assets of Sumika Styron Polycarbonate. This amount represents the fair value of certain identifiable assets which have not been recorded on the historical financial statements of Sumika Styron.Styron Polycarbonate. This difference is being amortized over the remaining useful life of the contributed assets of 11.010.5 years as of September 30, 2014.March 31, 2015. The Company received dividends from Sumika Styron Polycarbonate of zero and $1.0 million during the three and nine months ended September 30,March 31, 2014, respectively, compared towith no dividends of zero and $1.1 millionreceived during the three and nine months ended September 30, 2013, respectively.March 31, 2015.
Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their stock are not available. The summarized financial information of the Company’s unconsolidated affiliates is shown below:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
Sales | $ | 577,519 | $ | 601,585 | $ | 1,682,571 | $ | 1,769,054 | $ | 439,570 | $ | 564,132 | ||||||||||||
Gross profit | $ | 29,743 | $ | 40,066 | $ | 65,222 | $ | 63,468 | $ | 77,670 | $ | 38,008 | ||||||||||||
Net income | $ | 13,667 | $ | 24,039 | $ | 24,161 | $ | 22,148 | $ | 66,019 | $ | 21,520 |
NOTE D—4—INVENTORIES
Inventories consisted of the following:
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
Finished goods | $ | 303,788 | $ | 302,379 | ||||
Raw materials and semi-finished goods | 170,563 | 191,081 | ||||||
Supplies | 34,116 | 36,731 | ||||||
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Total | $ | 508,467 | $ | 530,191 | ||||
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Finished goods Raw materials and semi-finished goods Supplies Total March 31, December 31, 2015 2014 $ 197,762 $ 235,949 162,647 205,061 30,563 32,851 $ 390,972 $ 473,861
NOTE E—5—GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill by segment from December 31, 20132014 to September 30, 2014:March 31, 2015:
Emulsion Polymers | Plastics | |||||||||||||||||||
Latex | Synthetic Rubber | Styrenics | Engineered Polymers | Total | ||||||||||||||||
December 31, 2013 | $ | 14,901 | $ | 10,205 | $ | 8,669 | $ | 3,498 | $ | 37,273 | ||||||||||
Foreign currency impact | (1,182 | ) | (810 | ) | (688 | ) | (277 | ) | (2,957 | ) | ||||||||||
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September 30, 2014 | $ | 13,719 | $ | 9,395 | $ | 7,981 | $ | 3,221 | $ | 34,316 | ||||||||||
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Performance Materials | ||||||||||||||||||||
Latex | Synthetic Rubber | Performance Plastics | Basic Plastics & Feedstocks | Total | ||||||||||||||||
Balance at December 31, 2014 | $ | 13,815 | $ | 9,461 | $ | 3,243 | $ | 8,055 | $ | 34,574 | ||||||||||
Foreign currency impact | (1,612 | ) | (1,104 | ) | (378 | ) | (940 | ) | (4,034 | ) | ||||||||||
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Balance at March 31, 2015 | $ | 12,203 | $ | 8,357 | $ | 2,865 | $ | 7,115 | $ | 30,540 | ||||||||||
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Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets as of September 30, 2014March 31, 2015 and December 31, 2013,2014, respectively:
September 30, 2014 | December 31, 2013 | |||||||||||||||||||||||||||
Estimated Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||
Developed technology | 15 | $ | 196,903 | $ | (55,844 | ) | $ | 141,059 | $ | 210,546 | $ | (49,713 | ) | $ | 160,833 | |||||||||||||
Manufacturing Capacity Rights | 6 | 24,079 | (1,952 | ) | 22,127 | — | — | — | ||||||||||||||||||||
Software | 5 | 11,837 | (5,790 | ) | 6,047 | 11,034 | (4,099 | ) | 6,935 | |||||||||||||||||||
Software in development | N/A | 3,690 | — | 3,690 | 3,746 | — | 3,746 | |||||||||||||||||||||
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Total | $ | 236,509 | $ | (63,586 | ) | $ | 172,923 | $ | 225,326 | $ | (53,812 | ) | $ | 171,514 | ||||||||||||||
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In March 2014, the Company entered into an agreement with material supplier JSR Corporation, Tokyo (“JSR”) to acquire its current production capacity rights at the Company’s rubber production facility in Schkopau, Germany for a purchase price of €19.0 million (approximately $26.1 million). Prior to this agreement, JSR held 50% of the capacity rights of one of the Company’s three solution styrene-butadiene rubber (“SSBR”) production trains in Schkopau. As a result, effective March 31, 2014, the Company had full capacity rights to this production train. The €19.0 million purchase price was recorded in “Other intangible assets, net” in the condensed consolidated balance sheet as of March 31, 2014 to be amortized over its estimated useful life of approximately 6 years. Further, the purchase price was recorded within capital expenditures in investing activities in the condensed consolidated statement of cash flows for the nine months ended September 30, 2014.
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||||
Estimated Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||
Developed technology | 15 | $ | 166,823 | $ | (53,003 | ) | $ | 113,820 | $ | 188,854 | $ | (56,782 | ) | $ | 132,072 | |||||||||||||
Manufacturing Capacity Rights | 6 | 20,400 | (3,308 | ) | 17,092 | 23,095 | (2,809 | ) | 20,286 | |||||||||||||||||||
Software | 5 | 13,581 | (7,078 | ) | 6,503 | 13,177 | (6,441 | ) | 6,736 | |||||||||||||||||||
Software in development | N/A | 7,678 | — | 7,678 | 6,000 | — | 6,000 | |||||||||||||||||||||
Other | N/A | 233 | — | 233 | 264 | — | 264 | |||||||||||||||||||||
Total | $ | 208,715 | $ | (63,389 | ) | $ | 145,326 | $ | 231,390 | $ | (66,032 | ) | $ | 165,358 | ||||||||||||||
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Amortization expense on other intangible assets totaled $5.4$4.5 million and $14.6$4.0 million for the three and nine months ended September 30,March 31, 2015 and 2014, respectively, and $3.8 million and $11.6 million for the three and nine months ended September 30, 2013, respectively.
The following table details the Company’s estimated amortization expense for the next five years, excluding any amortization expense related to software currently in development:
Estimated Amortization Expense for the Next Five Years | Estimated Amortization Expense for the Next Five Years | Estimated Amortization Expense for the Next Five Years | ||||||
Remainder of 2014 | $ | 4,951 | ||||||
2015 | 19,797 | |||||||
Remainder of 2015 | $ | 13,108 | ||||||
2016 | 19,233 | 16,918 | ||||||
2017 | 18,396 | 16,083 | ||||||
2018 | 17,690 | 15,396 | ||||||
2019 | 17,513 | 15,151 | ||||||
2020 | 11,903 |
NOTE F—6—DEBT
Debt consisted of the following:
September 30, 2014 | December 31, 2013 | March 31, 2015 | December 31, 2014 | |||||||||||||
Senior Secured Credit Facility | ||||||||||||||||
Revolving Facility | $ | — | $ | — | $ | — | $ | — | ||||||||
Senior Notes | 1,192,500 | 1,325,000 | 1,192,500 | 1,192,500 | ||||||||||||
Accounts Receivable Securitization Facility | — | — | — | — | ||||||||||||
Other indebtedness | 11,114 | 11,421 | 6,260 | 9,707 | ||||||||||||
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Total debt | 1,203,614 | 1,336,421 | 1,198,760 | 1,202,207 | ||||||||||||
Less: short-term borrowings | (8,813 | ) | (8,754 | ) | (4,139 | ) | (7,559 | ) | ||||||||
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Total long-term debt | $ | 1,194,801 | $ | 1,327,667 | $ | 1,194,621 | $ | 1,194,648 | ||||||||
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Senior Secured Credit Facility
In January 2013, the Company amended its credit agreement (“Senior Secured Credit Facility”) to, among other things, increase the Company’s revolving credit facility (“Revolving Facility”) borrowing capacity from $240.0 million to $300.0 million, decrease the borrowing rate of the Revolving Facility through a decrease in the applicable margin rate from 4.75% to 3.00% as applied to base rate loans (which shall bear interest at a rate per annum equal to the base rate plus the applicable margin (as defined therein)), or 5.75% to 4.00% as applied to LIBO rate loans (which shall bear interest at a rate per annum equal to the LIBO rate plus the applicable margin and the mandatory cost (as defined therein), if applicable), and extend the maturity date to January 2018. Concurrently, the Company repaid its then outstanding term loans under the Senior Secured Credit Facility (the “Term Loans”) of $1,239.0 million using the proceeds from its sale of $1,325.0 million aggregate principal amount of the 8.750% senior secured notes (“Senior Notes”) issued in January 2013 (refer below for further discussion).
Prior to the amendment, the Senior Secured Credit Facility required that the Company comply with certain affirmative and negative covenants, including restrictions with respect to payment of dividends and other distributions to shareholders, and financial covenants that include the maintenance of certain financial ratios. These ratios include both a maximum leverage ratio no greater than 5.25 to 1.00 and an interest coverage ratio no less than 2.00 to 1.00 for the most recent twelve-month period.
TheThis amendment replaced the Company’s total leverage ratio requirement with a first lien net leverage ratio (as defined under the amended agreement) and removed the interest coverage ratio requirement. If the outstanding balance on the Revolving Facility exceeds 25% of the $300.0 million borrowing capacity (excluding undrawn letters of credit up to $10.0 million) at a quarter end, then the Company’s first lien net leverage ratio may not exceed 5.25 to 1.00 for the quarter ending March 31, 2013, 5.00 to 1.00 for the subsequent quarters through December 31, 2013, 4.50 to 1.00 for each of the quarters ending in 2014 and 4.25 to 1.00 for each of the quarters ending in 2015 and thereafter. As of September 30, 2014,March 31, 2015, the Company was in compliance with all debt covenant requirements under the Senior Secured Credit Facility.
As a result of this amendment and repayment of the Term Loans in January 2013, the Company recognized a $20.7 million loss on extinguishment of long-term debt during the first quarter of 2013, which consisted of the write-off of existing unamortized debt issuance cost and debt discount attributable to the Term Loans. Fees and expenses incurred in connection with this amendment were $5.5 million, which were capitalized within “Deferred charges and other assets” in the condensed consolidated balance sheet and are being amortized into “Interest expense, net” in the condensed consolidated statement of operations over the remaining term of the Revolving Facility using the straight-line method.
As of September 30, 2014,March 31, 2015, the Company had no outstanding borrowings, and had $293.1$291.2 million (net of $6.9$8.8 million outstanding letters of credit) of funds available for borrowings under the Revolving Facility.
Senior Notes
In January 2013, the Company issued $1,325.0 million 8.750% Senior Notes under the indenture. Interest on the Senior Notes is payable semi-annually on February 1st and August 1st of each year, which commenced on August 1, 2013. The notes will mature on February 1, 2019, at which time the principal amounts then outstanding will be due and payable. The proceeds from the issuance of the Senior Notes were used to repay all of the Company’s outstanding Term Loans and related refinancing fees and expenses.
The Company may redeem all or part of the Senior Notes at any time prior to August 1, 2015 by paying a call premium, plus accrued and unpaid interest to the redemption date. The Company may redeem all or part of the Senior Notes at any time after August 1, 2015 at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the notes redeemed, to the applicable date of redemption, if redeemed during the twelve-month period beginning on of the year indicated below:
12-month period commencing August 1 in Year | Percentage | |||
2015 | 104.375 | % | ||
2016 | 102.188 | % | ||
2017 and thereafter | 100.000 | % |
In addition, at any time prior to August 1, 2015, the Company may redeem up to 35% of the original principal amount of the notes at a redemption price equal to 108.750% of the face amount thereof plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds that the Company raises in certain equity offerings. The Company may also redeem, during any 12-month period commencing from the issue date until August 1, 2015, up to 10% of the original principal amount of the Senior Notes at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.
In July 2014, using proceeds from the Company’s IPO (see Note L)1), the Company redeemed $132.5 million in aggregate principal amount of the Senior Notes, including a 103% call premium totaling $4.0 million, together with accrued and unpaid interest thereon of $5.2 million. As a result of this redemption, during the third quarter of 2014 the Company incurred a loss on the extinguishment of debt of approximately $7.4 million, which included the above $4.0 million call premium and a $3.4 million write-off of related unamortized debt issuance costs. Pursuant to the Indenture,indenture, the Company may redeem another 10% of the original principal amount of the Senior Notes prior to August 1, 2015.
The Senior Notes rank equally in right of payment with all of the Company’s existing and future senior secured debt and pari passu with the Company and the Guarantors’ (as defined below) indebtedness that is secured by first-priority liens, including the Company’s Senior Secured Credit Facility (as defined above), to the extent of the value of the collateral securing such indebtedness and ranking senior in right of payment to all of the Company’s existing and future subordinated debt. However, claims under the Senior Notes effectively rank behind the claims of holders of debt, including interest, under the Senior Secured Credit Facility in respect of proceeds from any enforcement action with respect to the collateral or in any bankruptcy, insolvency or liquidation proceeding. The Senior Notes are unconditionally guaranteed on a senior secured basis by each of the Company’s existing and future wholly-owned subsidiaries that guarantee the Senior Secured Credit Facility (other than the Company’s subsidiaries in France and Spain) (the “Guarantors”). The note guarantees rank equally in right of payment with all of the Guarantors’ existing and future senior secured debt and senior in right of payment to all of the Guarantors’ existing and future subordinated debt. The notes are structurally subordinated to all of the liabilities of each of the Company’s subsidiaries that do not guarantee the notes.
The indenture contains covenants that, among other things, limit the Company’s ability and the ability of the Company’s restricted subsidiaries to incur additional indebtedness, pay dividends or make other distributions, subject to certain exceptions. If the Senior Notes are assigned an investment grade by the rating agencies and the Company is not in default, certain covenants will be suspended. If the ratings on the Senior Notes decline to below investment grade, the suspended covenants will be reinstated. As of September 30, 2014,March 31, 2015, the Company was in compliance with all debt covenant requirements under the indenture.
Fees and expenses incurred in connection with the issuance of Senior Notes were approximately $42.0 million, which were capitalized and included in “Deferred charges and other assets” in the condensed consolidated balance sheet, and are being amortized into “Interest expense, net” in the condensed consolidated statement of operations over the term of the Senior Notes using the effective interest rate method.
Accounts Receivable Securitization Facility
In May 2013, the Company amended its existing accounts receivable securitization facility (“Accounts Receivable Securitization Facility”) which increased its borrowing capacity from $160.0 million to $200.0 million, extended the maturity date to May 2016 and allows for the expansion of the pool of eligible accounts receivable to include previously excluded U.S. and Netherlands subsidiaries. As a result of the amendment, the Company incurred $0.7 million in fees, which were capitalized within “Deferred charges and other assets” in the condensed consolidated balance sheet and are being amortized into “Interest expense, net” in the condensed consolidated statement of operations using the straight-line method over the remaining term.
The Accounts Receivable Securitization Facility is subject to interest charges against the amount of outstanding borrowings as well as the amount of available, but undrawn borrowings. As a result of the amendment to the Accounts Receivable Securitization Facility, in regards to outstanding borrowings, fixed interest charges decreased from 3.25% plus commercial paper rates to 2.60% plus variable commercial paper rates. In regards to available, but undrawn borrowings, fixed interest charges decreased from 1.50% to 1.40%.
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, there were no amounts outstanding under the Accounts Receivable Securitization Facility, with approximately $186.1$147.7 million and $143.8$136.1 million, respectively, of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.
NOTE G—FOREIGN EXCHANGE FORWARD CONTRACTS7— DERIVATIVE INSTRUMENTS
Foreign Exchange Forward Contracts
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our balance sheet against corresponding assets of the same currency such that any changes in liabilities due to fluctuations in exchange rates are offset by changes in their corresponding foreign currency assets. In order to further reduce its exposure, the Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on our assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment. The Company does not hold or enter into financial instruments for trading or speculative purposes.
During 2012, the Company entered into foreign exchange forward contracts with a notional U.S. dollar equivalent amount of $82.0 million. These contracts were settled in February and May 2013. The Company recognized no gains or losses during the three months ended September 30, 2013, and recognized losses of $0.6 million during the nine months ended September 30, 2013 related to these contracts.
In the third quarter of 2014, the Company entered into various foreign exchange forward contracts, each with an original maturity of less than three months. As of September 30, 2014,March 31, 2015, the Company had open foreign exchange forward contracts with a net notional U.S. dollar equivalent of $153.8$33.8 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of September 30, 2014.March 31, 2015.
Buy / (Sell) Euro Chinese Yuan Swiss Franc Indonesian Rupiah British Pound March 31,
2015 $ 167,979 $ (97,476 ) $ 40,700 $ (37,450 ) $ (12,157 )
Foreign Exchange Cash Flow Hedges
In March 2015, the Company entered into forward contracts with the objective of managing the currency risk associated with forecasted U.S. dollar-denominated raw materials purchases by one of its subsidiaries whose functional currency is the euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company will sell a designated amount of euros and buy U.S. dollars at the prevailing market rate to mitigate the risk associated with the fluctuations in the euro-to-U.S. dollar foreign currency exchange rates. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income to the extent effective, and reclassified to cost of goods sold in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.
The foreign exchange cash flow hedges, all of which remained open as of March 31, 2015, have maturities occurring over a period of 18 months, and have a net notional U.S. dollar equivalent of $90.0 million.
Summary of Derivative Instruments
Information regarding changes in the fair value of the Company’s derivative instruments, including those not designated for hedge accounting treatment is as follows:
Buy / (Sell) | September 30, 2014 | |||
Euro | $ | 302,824 | ||
Chinese Yuan | $ | (118,938 | ) | |
Swiss Franc | $ | 39,286 | ||
Indonesian Rupiah | $ | (32,550 | ) | |
Japanese Yen | $ | (9,829 | ) |
Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Balance Sheet | Gain (Loss) Recognized in Statement of Operations | |||||||||||||||||
Three Months Ended March 31, | Statement of Operations Classification | |||||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||
Designated as Cash Flow Hedges | ||||||||||||||||||
Foreign exchange cash flow hedges | $ | 1,035 | $ | — | $ | — | $ | — | Cost of sales | |||||||||
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Total | $ | 1,035 | $ | — | $ | — | $ | — | ||||||||||
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Not Designated as Hedges | ||||||||||||||||||
Foreign exchange forward contracts | $ | — | $ | — | $ | (20,962 | ) | $ | — | Other expense, net | ||||||||
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Total | $ | — | $ | — | $ | (20,962 | ) | $ | — | |||||||||
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The Company recorded losses from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges) of $21.0 million during the three months ended March 31, 2015. These losses offset net foreign exchange transaction gains of $18.0 million during the quarter, which resulted from the remeasurement of the Company’s foreign currency denominated assets and liabilities. The cash settlements of these foreign exchange forward contracts are included within operating activities in the condensed consolidated statement of cash flows.
As of March 31, 2015, none of the foreign exchange cash flow hedges entered into during the quarter had settled. As a result, no amounts have been reclassified out of other comprehensive income (loss). The Company has no ineffectiveness related to its foreign exchange cash flow hedges. Further, the Company expects to reclassify in the next twelve months approximately $0.7 million from other comprehensive income (loss) into earnings related to the Company’s outstanding cash flow hedges as of March 31, 2015 based on current foreign exchange rates.
Forward contracts are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract. As a result,such, in accordance with the Company’s existing accounting policy, we recordedrecord these foreign exchange forward contracts on a net basis, by counterparty within the condensed consolidated balance sheet.
The fair value Net unrealized gains and losses are recorded within “Accounts receivable, net of open foreign exchange forward contracts amounted to $13.3 million of net unrealized losses as of September 30, 2014, which was recorded inallowance” and “Accounts payable” on the condensed consolidated balance sheet. The following tables summarize the financial assets and liabilities includedpayable,” respectively, in the condensed consolidated balance sheet:sheets.
Information regarding the gross amounts of the Company’s derivative instruments and the amounts offset in the condensed consolidated balance sheets is as follows:
Description Foreign exchange forward contracts Foreign exchange cash flow hedges Total March 31, 2015 Gross Amounts of
Recognized
Assets Gross Amounts of Offset in the
Condensed Consolidated
Balance Sheet Net Amounts of Assets Presented
in the Condensed Consolidated
Balance Sheet $ 1,779 $ (1,779 ) $ — 1,074 — 1,074 $ 2,853 $ (1,779 ) $ 1,074
September 30, 2014 | March 31, 2015 | |||||||||||||||||||||||
Description | Gross Amounts of Recognized Assets | Gross Amounts of Offset in the Condensed Consolidated Balance Sheet | Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet | Gross Amounts of Recognized Liabilities | Gross Amounts of Offset in the Condensed Consolidated Balance Sheet | Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet | ||||||||||||||||||
Foreign exchange forward contracts | $ | 2,963 | $ | (2,963 | ) | $ | — | $ | 9,148 | $ | (1,779 | ) | $ | 7,369 | ||||||||||
Foreign exchange cash flow hedges | — | — | — | |||||||||||||||||||||
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Total | $ | 9,148 | $ | (1,779 | ) | $ | 7,369 | |||||||||||||||||
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September 30, 2014 | ||||||||||||||||||||||||
Description | Gross Amounts of Recognized Liabilities | Gross Amounts of Offset in the Condensed Consolidated Balance Sheet | Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet | |||||||||||||||||||||
Foreign exchange forward contracts | $ | 16,287 | $ | (2,963 | ) | $ | 13,324 | |||||||||||||||||
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The Company had no derivative assets or liabilities outstanding as
December 31, 2014 | ||||||||||||
Description | Gross Amounts of Recognized Assets | Gross Amounts of Offset in the Condensed Consolidated Balance Sheet | Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet | |||||||||
Foreign exchange forward contracts | $ | 2,037 | $ | (1,739 | ) | $ | 298 | |||||
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Total | $ | 2,037 | $ | (1,739 | ) | $ | 298 | |||||
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December 31, 2014 | ||||||||||||
Description | Gross Amounts of Recognized Liabilities | Gross Amounts of Offset in the Condensed Consolidated Balance Sheet | Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet | |||||||||
Foreign exchange forward contracts | $ | 6,589 | $ | (1,739 | ) | $ | 4,850 | |||||
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Total | $ | 6,589 | $ | (1,739 | ) | $ | 4,850 | |||||
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Refer to Note 8 of December 31, 2013.
As these foreign exchange forward contracts are not designatedthe condensed consolidated financial statements for hedge accounting treatment, changes infurther information regarding the fair value of underlying instruments are recognized in “Other expense (income), net” in the condensed consolidated statement of operations. The Company recorded losses from settlements and changes in the fair value of outstanding forward contracts of $19.5 million during the three months ended September 30, 2014. These losses largely offset net foreign exchange transaction gains of $21.8 million during the quarter which resulted from the remeasurement of the Company’s foreign currency denominated assets and liabilities. The cash settlements of these forward exchange forward contracts are included within operating activities in the condensed consolidated statement of cash flows.derivative instruments.
NOTE H—8—FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.
Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The following table summarizes the basis used to measure certain assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheet at September 30, 2014. As discussed in Notes G, there were no outstanding foreign exchange forward contractssheets as of March 31, 2015 and December 31, 2013, and as such, there were no balances to be recorded at fair value at that date.2014.
September 30, 2014 | March 31, 2015 | |||||||||||||||||||||||||||||||
Assets (Liabilities) at Fair Value | Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||||||
Foreign exchange forward contracts | $ | — | $ | (13,324 | ) | $ | — | $ | (13,324 | ) | ||||||||||||||||||||||
Foreign exchange forward contracts—Assets | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Foreign exchange forward contracts—(Liabilities) | — | (7,369 | ) | — | (7,369 | ) | ||||||||||||||||||||||||||
Foreign exchange cash flow hedges —Assets | — | 1,074 | — | 1,074 | ||||||||||||||||||||||||||||
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Total fair value | $ | — | $ | (13,324 | ) | $ | — | $ | (13,324 | ) | $ | — | $ | (6,295 | ) | $ | — | $ | (6,295 | ) | ||||||||||||
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December 31, 2014 | ||||||||||||||||
Assets (Liabilities) at Fair Value | Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Foreign exchange forward contracts—Assets | $ | — | $ | 298 | $ | — | $ | 298 | ||||||||
Foreign exchange forward contracts—(Liabilities) | — | (4,850 | ) | — | (4,850 | ) | ||||||||||
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Total fair value | $ | — | $ | (4,552 | ) | $ | — | $ | (4,552 | ) | ||||||
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The Company uses an income approach to value its foreign exchange forward contracts,derivative instruments, utilizing discounted cash flow techniques, considering the terms of the contract and observable market information available as of the reporting date. Significant inputs to the valuation for foreign exchange forward contracts are obtained from broker quotations or from listed or over-the-counter market data, and are classified as Level 2 in the fair value hierarchy.
Fair Value of Debt Instruments
The following table presents the estimated fair value of the Company’s outstanding debt not carried at fair value as of September 30, 2014March 31, 2015 and December 31, 2013,2014, respectively:
As of September 30, 2014 | As of December 31, 2013 | As of March 31, 2015 | As of December 31, 2014 | |||||||||||||
Senior Notes (Level 2) | $ | 1,255,106 | $ | 1,366,406 | $ | 1,253,616 | $ | 1,212,045 | ||||||||
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Total fair value | $ | 1,255,106 | $ | 1,366,406 | $ | 1,253,616 | $ | 1,212,045 | ||||||||
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There were no other significant financial instruments outstanding as of September 30, 2014March 31, 2015 and December 31, 2013.2014.
NOTE I—9—PROVISION FOR INCOME TAXES
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Effective income tax rate | (56.5 | )% | 54.9 | % | (138.3 | )% | (32.5 | )% |
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Effective income tax rate | 32.2 | % | 42.7 | % |
Provision for income taxes for the three and nine months ended September 30, 2014 were $3.7 million and $21.9 million, resulting in a negative effective tax rate of 56.5% and 138.3%, respectively. Provision for income taxes for the three and nine months ended September 30, 2013 were $6.0March 31, 2015 was $17.9 million, resulting in an effective tax rate of 54.9%, and $8.132.2%. Provision for income taxes for the three months ended March 31, 2014 was $12.8 million, resulting in a negativean effective tax rate of 32.5%, respectively.42.7%.
The effective income tax rates for the three and nine months ended September 30, 2014 wererate is impacted by losses of approximately $22.6 million and $119.8 million, respectively, primarily within our holding companies incorporated in Luxembourg, which diddo not provide a tax benefit to the Company. TheseFor the three months ended March 31, 2015 and 2014 these losses includedtotaled approximately $18.0 million and $23.9 million, respectively. In both periods, these losses were primarily from non-deductible interest and stock-based compensation expenses. Additionally, duringSpecifically, the nine months ended September 30, 2014, thesedecrease in losses included certain otheris the result of a decrease in non-deductible expenses, such as a $32.5 million charge related to an agreement with Dow to terminate the Latex JV Option Agreement and approximately $18.6 million of fees related to the termination of the Advisory Agreement with Bain Capital (both incurred in the second quarter; see Note N). The effective income tax rates for the three and nine months ended September 30, 2013 were impacted by losses of $15.4 million and $59.7 million, respectively, primarilyinterest expense within our the holding companies incorporated in Luxembourg, stemming mainly from non-deductible interest and stock-based compensation expenses.
Partially offsetting this unfavorable impactprimarily attributable to the effective tax rate was a tax benefit recognized duringredemption of $132.5 million in aggregate principal amount of the nine months ended September 30, 2014, as the Company effectively settled its 2010 and 2011 audits with the IRS and received a refund of $3.2 millionSenior Notes in July 2014. As a result, the Company recorded a previously unrecognized tax benefit in the amount of $2.7 million, including penalties and interest, relating to its 2011 tax return filing. No similar tax benefits were recorded in the nine months ended September 30, 2013.
NOTE J—10—COMMITMENTS AND CONTINGENCIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law, existing technologies and other information. As of September 30, 2014At March 31, 2015 and December 31, 2013,2014, the Company had no accrued obligations for environmental remediation and restoration costs. Pursuant to the terms of the Styron sales and purchase agreement, the pre-closing environmental conditions were retained by Dow and the Company has been indemnified by Dow from and against all environmental liabilities incurred or relating to the predecessor periods. There are several properties which the Company now owns on which Dow has been conducting investigation, monitoring, or remediation to address historical contamination. Those properties include Allyn’s Point, Connecticut,Connecticut; Dalton, Georgia,Georgia; and Livorno, Italy. There are other properties with historical contamination that are owned by Dow that the Company leases for its operations, including its facilities in Midland, Michigan,Michigan; Schkopau, Germany,Germany; Terneuzen, The Netherlands,Netherlands; and Guaruja, Brazil. No environmental claims have been asserted or threatened against the Company, and the Company is not a potentially responsible party at any Superfund Sites.
Inherent uncertainties exist in the Company’s potential environmental liabilities primarily due to unknown conditions, whether future claims may fall outside the scope of the indemnity, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. In connection with the Company’s existing indemnification, the possibility is considered remote that environmental remediation costs will have a material adverse impact on the condensed consolidated financial statements.
Purchase Commitments
In the normal course of business, the Company has certain raw material purchase contracts where it is required to purchase certain minimum volumes at current market prices. These commitments range from 1 to 76 years. In certain raw material purchase contracts, the Company has the right to purchase less than the required minimums and pay a liquidated damages fee, or, in case of a permanent plant shutdown, to terminate the contracts. In such cases, these obligations would be less than the annual commitment as disclosed in the 2013 consolidated financial statements.
The Company has service agreements with Dow which contain fixed annual fees. See Note N for further discussion.statements included in the 2014 Annual Report.
Litigation Matters
From time to time, the Company may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as product liability, antitrust/competition, past waste disposal practices and release of chemicals into the environment. While it is impossible at this time to determine with certainty the ultimate outcome of these routine claims, the Company does not believe that the ultimate resolution of these claims will have a material adverse effect on the Company’s results of operations, financial condition or cash flow.
Legal costs, including those legal costs expected to be incurred in connection with a loss contingency, are expensed as incurred.
NOTE K—11—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for all significant plans were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
Defined Benefit Pension Plans | ||||||||||||||||||||||||
Service cost | $ | 3,454 | $ | 3,795 | $ | 10,498 | $ | 11,152 | $ | 4,301 | $ | 3,515 | ||||||||||||
Interest cost | 1,902 | 1,853 | 5,778 | 5,174 | 1,360 | 1,933 | ||||||||||||||||||
Expected return on plan assets | (611 | ) | (416 | ) | (1,856 | ) | (1,272 | ) | (421 | ) | (621 | ) | ||||||||||||
Amortization of prior service credit | (252 | ) | (519 | ) | (765 | ) | (1,571 | ) | (423 | ) | (256 | ) | ||||||||||||
Amortization of net loss | 520 | 780 | 1,585 | 2,404 | 1,381 | 467 | ||||||||||||||||||
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Net periodic benefit cost | $ | 5,013 | $ | 5,493 | $ | 15,240 | $ | 15,887 | $ | 6,198 | $ | 5,038 | ||||||||||||
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2015 | 2014 | |||||||
Other Postretirement Plans | ||||||||
Service cost | $ | 88 | $ | 75 | ||||
Interest cost | 140 | 78 | ||||||
Amortization of prior service cost | 26 | 26 | ||||||
Amortization of net gain | — | (37 | ) | |||||
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Net periodic benefit cost | $ | 254 | $ | 142 | ||||
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Other Postretirement Plans Service cost Interest cost Amortization of prior service cost Amortization of net gain Net periodic benefit cost Three Months Ended
September 30, Nine Months Ended
September 30, 2014 2013 2014 2013 $ 74 $ 70 $ 224 $ 211 78 65 234 196 26 — 78 — (37 ) — (111 ) — $ 141 $ 135 $ 425 $ 407
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $158.7$178.5 million and $163.2$196.6 million, respectively. The net periodic benefit costs are recognized in the condensed consolidated statement of operations as “Cost of sales” and “Selling, general and administrative expenses.”
The Company made cash contributions of approximately $1.5 million and $8.4$4.8 million during the three and nine months ended September 30, 2014, respectively.March 31, 2015. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately $7.0$12.0 million to its defined benefit plans for the remainder of 2014.
Affiliation Agreements and Successor Plans
A majority of Company employees are participants in various defined benefit pension and other postretirement plans which are administered and sponsored by Trinseo. In connection with the Acquisition, the Company and Dow entered into affiliation agreements in certain jurisdictions (the “Affiliation Agreements”) allowing employees who transferred from Dow to the Company as of June 17, 2010 to remain in the Dow operated pension plans (“Dow Plans”) until the Company established its own pension plans. The Affiliation Agreements ended on December 31, 2012. Effective January 1, 2013, all remaining employees of the Company who were previously participants of the Dow Plans in Switzerland and the Netherlands transferred to separately administered and sponsored pension plans of the Company (the “Successor Plans”). The benefit obligation and related plan assets in the Dow Plans belonging to the Company’s employees were transferred to the Successor Plans. As a result of the transfer, the Company recognized prior service credits and net losses of approximately $26.8 million and $1.4 million, respectively, in other comprehensive income for the nine months ended September 30, 2013.2015.
NOTE L—STOCKHOLDERS’ EQUITY
On May 30, 2014, the Company amended its Articles of Association to effect a 1-for-436.69219 reverse split of its issued and outstanding common stock and to increase its authorized shares of common stock to 50.0 billion. Pursuant to the reverse split, every 436.69219 shares of the Company’s then issued and outstanding common stock was converted into one share of common stock. The reverse split did not change the par value of the Company’s common stock. The condensed consolidated financial statements have been retroactively adjusted to give effect to the reverse split.
On June 17, 2014, the Company completed the IPO of 11,500,000 ordinary shares at a price of $19.00 per share. The number of ordinary shares at closing included 1,500,000 of shares sold pursuant to the underwriters’ over-allotment option. The Company received cash proceeds of $203.2 million from this transaction, net of underwriting discounts. These net proceeds were used by the Company for: i) the July 2014 repayment of $132.5 million in aggregate principal amount of the 8.750% Senior Notes due 2019, together with accrued and unpaid interest thereon of $5.2 million and a call premium of $4.0 million (see Note F); ii) the payment of approximately $23.3 million in connection with the termination of the Advisory Agreement with Bain Capital (see Note N); iii) the payment of approximately $5.1 million of advisory, accounting, legal and printing expenses directly related to the offering which were recorded to additional paid-in capital in the condensed consolidated balance sheet; and iv) general corporate purposes.
NOTE M—12—STOCK-BASED COMPENSATION
Restricted Stock Awards issued by the Parent
On June 17, 2010, Bain Capital Everest Manager Holding SCA which we refer to as (“the “Parent”Parent”), an affiliate of Bain Capital, authorized the issuance of up to 750,000 shares in time-based and performance-based restricted stock to certain key members of management. Any related compensation associated with these awards is allocated to the Company from the Parent. With the adoption of the Company’s 2014 Omnibus Incentive Plan (see discussion below), no further grantsrestricted stock awards will be issued underby the Parent’s restricted stock awards plan.Parent on behalf of the Company.
Time-based Restricted Stock Awards
For the nine month periodthree months ended September 30, 2014,March 31, 2015, there were no grants of time-based restricted stock awards. Total compensation expense for time-based restricted stock awards was $1.1 million and $2.7$2.4 million for the three months ended September 30,March 31, 2015 and 2014, and 2013, respectively, and $5.8 million and $6.6 million for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014,March 31, 2015, there was $6.3$3.9 million of total unrecognized compensation cost related to time-based restricted stock awards. This costawards, which is expected to be recognized over a weighted-average period of 2.82.3 years.
Performance-basedModified Time-based Restricted Stock Awards
For the nine month periodthree months ended September 30, 2014,March 31, 2015, there were no grants of performance-based restricted stock awards. In previous periods, the performance-based restricted stock awards contained provisions wherein vesting was subject to the full satisfaction of both time and performance vesting criterion. The performance component of the awards could only be satisfied if certain targets were achieved based on various returns realized by the Company’s shareholders on a change in control or an IPO. The time vesting requirements for the performance-based restricted stock generally vested in the same manner as the related time-based award. Prior to the Company’s IPO, the Company had not recorded any compensation expense related to these awards as the likelihood of achieving the existing performance condition of a change in control or IPO was not deemed to be probable.
Prior to the completion of the Company’s IPO, on June 10, 2014 the Parent entered into agreements to modify the outstanding performance-based restricted stock awards held by the Company’s employees to remove the performance-based vesting condition associated with such awards related to the achievement of certain investment returns (while maintaining the requirement for a change in control or IPO). This modification also changed the time-based vesting requirement associated with such shares to provide that any shares which would have satisfied the time-based vesting condition previously applicable to such shares on or prior to June 30, 2017 will instead vest on June 30, 2017, subject to the holder remaining continuously employed by us through such date. Any such shares that are subject to a time-based vesting condition beyond June 30, 2017 will remain subject to the time-based vesting condition previously applicable to such awards. Henceforth, these awards will be described as the Company’s modified time-based restricted stock awards.
On June 17, 2014, with the completion of the Company’s IPO, the remaining performance condition associated with these modified time-based restricted stock awards was achieved. As a result, the Company has begun recognizing Total compensation expense related to these awards based on the vesting described above. Total compensation expenserecognized for modified time-based restricted stock awards was $1.3$0.9 million for the three and nine months ended September 30, 2014, respectively.March 31, 2015. As of September 30, 2014,March 31, 2015, there was $12.3$8.3 million of total unrecognized compensation cost related to thesethe modified time-based restricted stock awards, which willis expected to be recognized over a weighted-average period of 2.92.3 years.
Management Retention Awards
During the year ended December 31, 2012, the Parent agreed to retention awards with certain officers. These awards generally vest over one to four years, and are payable upon vesting subject to the participant’s continued employment with the Company on the vesting date. Compensation expense related to these retention awards is equivalent to the value of the award, and is being recognized ratably over the applicable service period. Total compensation expense for these retention awards was $0.2$0.1 million and $0.3$0.2 million for the three months ended September 30,March 31, 2015 and 2014, and 2013, respectively, and $0.7 million and $1.1 million for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014,March 31, 2015, there was $0.6$0.3 million in unrecognized compensation cost related to these retention awards. This cost is expected to be recognized over a period of 1.30.8 years.
2014 Omnibus Incentive Plan
In connection with the IPO, the Company’s board of directors approved the Trinseo S.A. 2014 Omnibus Incentive Plan (“2014 Omnibus Plan”), adopted on May 28, 2014, under which the maximum number of shares of common stock that may be delivered upon satisfaction of awards granted under such plan is 4.5 million shares. FollowingDuring the IPO, all equity-based awards grantedthree months ended March 31, 2015, the Board of Directors of the Company approved equity award grants for certain executives and employees, comprised of restricted share units (or RSUs) and options to purchase shares.
The RSUs vest in full on the third anniversary of the date of grant, generally subject to the employee remaining continuously employed by the Company on the vesting date. Upon a termination of employment due to the employee’s death or retirement or a termination of employment by the Company without cause in connection with a restructuring or redundancy or due to the employee’s disability prior to the vesting date, the RSUs will be granted undervest in full or in part, depending on the 2014 Omnibus Plan. The 2014 Omnibus Plan providestype of termination. Dividends and dividend equivalents will not accumulate on unvested RSUs. Compensation cost for awards of stock options, share appreciation rights, restricted stock, unrestricted stock, stock units, performance awards, cash awards and other awards convertible into or otherwisethe RSUs is measured at the grant date based on shares of the Company’s common stock. For a full description of all provisions of this plan, refer to the Company’s Registration Statement, to which the 2014 Omnibus Plan in full has been filed as an exhibit.
In connection with the IPO, two of the Company’s newly appointed independent directors (Messrs. Cote and De Leener) received a grant of 4,736 restricted stock units, respectively, under the 2014 Omnibus Plan each with a grant date fair value of $0.1 million. Thesethe award and is recognized ratably as expense over the three year vesting term.
The option awards, willwhich contain an exercise term of nine years from the date of grant, vest in fullthree equal annual installments beginning on the on the first anniversary of the date of grant, generally subject to the director’s continuedemployee remaining continuously employed on the applicable vesting date. Upon a termination of employment due to the employee’s death or retirement or a termination of employment by the Company without cause in connection with a restructuring or redundancy or due to the employee’s disability prior to a vesting date, the options will vest in full or will continue to vest on the original vesting schedule, depending on the type of termination. In the event employment is terminated for cause, all vested and unvested options will be forfeited. Compensation cost for the option awards is measured at the grant date based on the fair value of the award and is recognized as expense over the appropriate service as a memberperiod utilizing graded vesting.
The fair value of RSUs is equal to the fair market value of the Company’s board throughcommon shares based on the closing price on the date of grant. During the three months ended March 31, 2015, the Company granted 412,538 RSUs at a weighted-average grant date fair value of $18.14 per unit. Total compensation expense recognized for the RSUs was $0.2 million for the three months ended March 31, 2015. As of March 31, 2015, there was $7.3 million of total unrecognized compensation cost related to the RSUs, which is expected to be recognized over a weighted-average period of 2.9 years.
The fair value for option awards is computed using the Black-Scholes pricing model, whose significant inputs and assumptions are determined at the date of grant. Determining the fair value of the option awards requires considerable judgment, including estimating the expected term of stock options and the expected volatility of the Company’s stock price. During the three months ended March 31, 2015, the Company granted 603,702 option awards to purchase common shares at a weighted-average grant date fair value of $7.79 per option award.
Since the Company’s equity interests were privately held prior to the IPO in June 2014, there is limited publicly traded stock history, and as a result the expected volatility used in the Black-Scholes pricing model is based on the historical volatility of similar companies’ stock that are publicly traded as well as the Company’s debt-to-equity ratio. Until such date. time that the Company has enough publicly traded stock history to determine expected volatility based solely on its stock, estimated volatility of options granted will be based on a combination of our historical volatility and similar companies’ stock that are publicly traded. The expected term of options represents the period of time that options granted are expected to be outstanding. For the grants presented herein, the simplified method was used to calculate the expected term of options, given the Company’s limited historical exercise data. The risk free interest rate for the periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is assumed to be zero based on historical and expected dividend activity.
The following are the weighted-average assumptions used within the Black-Scholes pricing model for grants during the three months ended March 31, 2015:
Assumptions | Three Months Ended March 31, 2015 | |||
Expected term (in years) | 5.50 | |||
Expected volatility | 45.00 | % | ||
Risk-free interest rate | 1.65 | % | ||
Dividend yield | 0.00 | % |
Total compensation expense for these restricted stock unitsthe option awards was less than $0.1$0.2 million for the three and nine months ended September 30, 2014, respectively.March 31, 2015. As of March 31, 2015, there was $4.5 million of total unrecognized compensation cost related to the option awards, which is expected to be recognized over a weighted-average period of 2.9 years.
NOTE N—13—RELATED PARTY AND DOW TRANSACTIONS
In connection with the Acquisition, the Company entered into a ten year initial term advisory agreement with Bain Capital (the “Advisory Agreement”) wherein Bain Capital provides management and consulting services and financial and other advisory services to the Company. The Advisory Agreement terminated upon consummation of the Company’s IPO in June 2014 and pursuant to its terms, the Company paid $23.3 million of termination fees representing acceleration of the advisory fees for the remainder of the original term. The termination fees were paid in June 2014 using the proceeds from the IPO, and were recorded as an expense within “Selling, general and administrative expenses” in the condensed consolidated statements of operations for the nine months ended September 30, 2014. Bain Capital will continue to provide an immaterial level of ad hoc advisory services for the Company going forward. In conjunction with the above, we paid Bain Capital fees (including out-of-pocket expenses) of $0.1 million and $1.2 million for the three months ended September 30,March 31, 2015 and 2014, and 2013, respectively, and $2.2 million and $3.6 million for the nine months ended September 30, 2014 and 2013, respectively (excluding the termination fees noted above).respectively.
Bain Capital also providesprovided advice pursuant to a 10-year transaction services agreement with fees payable equaling 1% of the transaction value of each financing, acquisition or similar transaction. In connection with the IPO, Bain Capital received $2.2 million of transaction fees, which were recorded within “Additional paid-in-capital” on the condensed consolidated balance sheet as of September 30, 2014 (see Note L). Bain CapitalMarch 31, 2015 and December 31, 2014. This transaction services agreement also received fees of approximately $13.9 million related to the issuance of the Senior Notes and the amendment to the Senior Secured Credit Facility in January 2013, which were included in the financing fees capitalized and included in “Deferred charges and other assets” in the condensed consolidated balance sheet (see Note F for further discussion).
In connection with the Acquisition in 2010, certainterminated upon consummation of the Company’s affiliates entered intoIPO in June 2014.
NOTE 14—SEGMENTS
Until January 1, 2015, the chief executive officer, who is the Company’s chief operating decision maker, managed the Company’s operations under two divisions, Emulsion Polymers and Plastics, which included the following four reporting segments: Latex, Synthetic Rubber, Styrenics, and Engineered Polymers.
Effective January 1, 2015, the Company was reorganized under two new divisions called Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division now includes the following reporting segments: Synthetic Rubber, Latex, and Performance Plastics. The Basic Plastics & Feedstocks division represents a latex joint venture option agreement (the “Latex JV Option Agreement”) with Dow, pursuant to which Dow was granted an irrevocable option to purchase 50%separate segment for financial reporting purposes. This new organizational structure better reflects the nature of the issuedCompany by grouping together segments with similar strategies, business drivers and outstanding interests in a joint venture to be formed by Dow and the Company’s affiliates with respect to the SB Latex business in Asia, Latin America, the Middle East, Africa, Eastern Europe, Russia and India. On May 30, 2014, the Company’s affiliates entered into an agreement with Dow to terminate the Latex JV Option Agreement, Dow’s rights to the option, and all other obligations thereunder, in exchange for a termination payment of $32.5 million. This termination payment was made on May 30, 2014, and the termination of the Latex JV Option Agreement became effective as of such date. This termination payment was recorded as an expense within “Other expense (income), net” in the condensed consolidated statements of operationsoperating characteristics.
The information below for the ninethree months ended September 30, 2014.
NOTE O—SEGMENTS
The Company operates four segments under two principal business units. The Emulsion Polymers business unit includes a Latex segment and a Synthetic Rubber segment. The Plastics business unit includes a Styrenics segment and an Engineered Polymers segment.March 31, 2014 has been retroactively adjusted to reflect this change in reporting segments.
The Latex segment produces styrene-butadieneSB latex (“SB latex”) primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex applications. The Synthetic Rubber segment produces synthetic rubber products used predominantly in tires, with additional applications in polymer modification and technical rubber goods, including conveyer and fan belts, hoses, seals and gaskets. The StyrenicsPerformance Plastics segment produces highly engineered compounds and Engineered Polymers segments offer complementary plastics products with formulations developedblends for durable applications, suchautomotive end markets, as well as consumer electronics, automotivemedical, and construction. Through theselighting, collectively consumer essential markets, or CEM. The Basic Plastics & Feedstocks segment includes styrenic polymers, polycarbonate, or PC, and styrene monomer, and also includes the results of the Company’s two segments, the Company provides a broad set of plastics product solutions to its customers.50%-owned joint ventures, Americas Styrenics and Sumika Styron Polycarbonate.
Emulsion Polymers | Plastics | |||||||||||||||||||||||
Three Months Ended | Latex | Synthetic Rubber | Styrenics | Engineered Polymers | Corporate Unallocated | Total | ||||||||||||||||||
September 30, 2014 | ||||||||||||||||||||||||
Sales to external customers | $ | 328,394 | $ | 155,452 | $ | 560,527 | $ | 261,120 | $ | — | $ | 1,305,493 | ||||||||||||
Equity in earnings (losses) of unconsolidated affiliates | — | — | 10,854 | (1,587 | ) | — | 9,267 | |||||||||||||||||
EBITDA(1) | 25,389 | 26,590 | 21,628 | 1,838 | ||||||||||||||||||||
Investment in unconsolidated affiliates | — | — | 131,460 | 33,044 | — | 164,504 | ||||||||||||||||||
Depreciation and amortization | 6,456 | 8,653 | 7,279 | 3,856 | 1,613 | 27,857 | ||||||||||||||||||
September 30, 2013 | ||||||||||||||||||||||||
Sales to external customers | $ | 332,102 | $ | 141,549 | $ | 576,276 | $ | 259,032 | $ | — | $ | 1,308,959 | ||||||||||||
Equity in earnings of unconsolidated affiliates | — | — | 15,208 | 7 | — | 15,215 | ||||||||||||||||||
EBITDA(1) | 24,052 | 12,805 | 66,005 | 1,967 | ||||||||||||||||||||
Investment in unconsolidated affiliates | — | — | 121,403 | 37,289 | — | 158,692 | ||||||||||||||||||
Depreciation and amortization | 6,068 | 7,051 | 6,861 | 1,932 | 1,325 | 23,237 |
Emulsion Polymers | Plastics | Performance Materials | ||||||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended | Latex | Synthetic Rubber | Styrenics | Engineered Polymers | Corporate Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||||
September 30, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Latex | Synthetic Rubber | Performance Plastics | Basic Plastics & Feedstocks | Corporate Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||||
March 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Sales to external customers | $ | 975,382 | $ | 497,091 | $ | 1,744,608 | $ | 788,479 | $ | — | $ | 4,005,560 | $ | 238,256 | $ | 129,404 | $ | 196,944 | $ | 453,661 | $ | — | $ | 1,018,265 | ||||||||||||||||||||||||
Equity in earnings (losses) of unconsolidated affiliates | — | — | 33,196 | (3,601 | ) | — | 29,595 | |||||||||||||||||||||||||||||||||||||||||
Equity in earnings of unconsolidated affiliates | — | — | — | 36,707 | — | 36,707 | ||||||||||||||||||||||||||||||||||||||||||
EBITDA(1) | 75,717 | 106,722 | 91,060 | 4,591 | 21,459 | 26,177 | 25,097 | 59,012 | ||||||||||||||||||||||||||||||||||||||||
Investment in unconsolidated affiliates | — | — | 131,460 | 33,044 | — | 164,504 | — | — | — | 189,364 | — | 189,364 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 20,095 | 24,298 | 22,028 | 8,796 | 3,581 | 78,798 | 6,370 | 7,790 | 1,413 | 6,230 | 751 | 22,554 | ||||||||||||||||||||||||||||||||||||
September 30, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
Sales to external customers | $ | 1,033,820 | $ | 474,139 | $ | 1,775,573 | $ | 778,771 | $ | — | $ | 4,062,303 | $ | 326,305 | $ | 176,714 | $ | 202,005 | $ | 654,108 | $ | — | $ | 1,359,132 | ||||||||||||||||||||||||
Equity in earnings (losses) of unconsolidated affiliates | — | — | 27,586 | (643 | ) | — | 26,943 | |||||||||||||||||||||||||||||||||||||||||
Equity in earnings of unconsolidated affiliates | — | — | — | 14,950 | — | 14,950 | ||||||||||||||||||||||||||||||||||||||||||
EBITDA(1) | 72,825 | 71,410 | 108,968 | (1,750 | ) | 25,513 | 43,101 | 17,349 | 22,558 | |||||||||||||||||||||||||||||||||||||||
Investment in unconsolidated affiliates | — | — | 121,403 | 37,289 | — | 158,692 | — | — | — | 164,859 | — | 164,859 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 19,539 | 21,490 | 21,765 | 5,405 | 2,838 | 71,037 | 6,304 | 7,170 | 1,243 | 7,920 | 1,091 | 23,728 |
(1) | Reconciliation of EBITDA to net income |
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
Total Segment EBITDA | $ | 75,445 | $ | 104,829 | $ | 278,090 | $ | 251,453 | $ | 131,745 | $ | 108,521 | ||||||||||||
Corporate unallocated | (23,950 | ) | (37,774 | ) | (119,569 | ) | (106,244 | ) | (24,731 | ) | (22,139 | ) | ||||||||||||
Less: Interest expense, net | 30,098 | 32,881 | 95,518 | 98,927 | 28,856 | 32,818 | ||||||||||||||||||
Less: Provision for income taxes | 3,650 | 6,001 | 21,850 | 8,051 | 17,900 | 12,750 | ||||||||||||||||||
Less: Depreciation and amortization | 27,857 | 23,237 | 78,798 | 71,037 | 22,554 | 23,728 | ||||||||||||||||||
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Net income (loss) | $ | (10,110 | ) | $ | 4,936 | $ | (37,645 | ) | $ | (32,806 | ) | |||||||||||||
Net income | $ | 37,704 | $ | 17,086 | ||||||||||||||||||||
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Corporate unallocated includes certain corporate overhead costs loss on extinguishment of long-term debt, and certain other income and expenses.
The primary measure of segment operating performance is EBITDA, which is defined as net income (loss) before interest, income taxes, depreciation and amortization. EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure that management believes reflects the Company’s core operating performance. EBITDA is useful for analytical purposes; however, it should not be considered an alternative to the Company’s reported GAAP results, as there are limitations in using such financial measures. Other companies in the industry may define EBITDA differently than the Company, and as a result, it may be difficult to use EBITDA, or similarly-named financial measures, that other companies may use to compare the performance of those companies to the Company’s performance.
Asset and capital expenditure information is not accounted for at the segment level and consequently is not reviewed or included with the Company’s internal management reporting. Therefore, the Company has not disclosed asset and capital expenditure information for each reportable segment.
NOTE P—15—DIVESTITURES
EPS Divestiture
In June 2013, the Company’s board of directors approved the sale of its expandable polystyrene (“EPS”) business within the Company’s StyrenicsBasic Plastics & Feedstocks segment, under a sale and purchase agreement which was signed in July 2013. The sale closed on September 30, 2013 and the Company received $15.2 million of sales proceeds during the third quarter of 2013, subject to a $0.7 million working capital adjustment, which was paid by the Company during the first quarter of 2014 and is reflected within investing activities in the condensed consolidated statement of cash flows the nine months ended September 30, 2014. The Company recognized a loss from the sale of $4.2 million recorded in “Other expense (income), net” in the condensed consolidated statement of operations for the nine months ended September 30, 2013, of which $1.0 million was recognized during the three months ended September 30, 2013.
EPS business results of operations were not classified as discontinued operations as the Company will have significant continuing cash flows as a result of a long-term supply agreement of styrene monomer to the EPS business, which was entered into contemporaneously with the sale and purchase agreement. The supply agreement will have an initial term of approximately 10 years from the closing date of the sale and will continue year-to-year thereafter. Under the supply agreement, we will supply a minimum of approximately 77 million pounds and a maximum of approximately 132 million pounds of styrene monomer annually or equivalent to 70% to 100% of the EPS business’s historical production consumption.March 31, 2014.
Further, under the terms of the sale and purchase agreement, should the divested EPS business record EBITDA (as defined therein) greater than zero for fiscal year 2014, the Company willwould receive an incremental payment of €0.5 million. The EBITDA threshold was met for fiscal year 2014 and the Company received the €0.5 million to be payablepayment (approximately $0.6 million based upon the applicable foreign exchange rate in the first half of 2015. Asperiod the meeting of this EBITDA thresholdpayment was received) during the three months ended March 31, 2015, which is not yet considered probable, the Company has not recorded the contingent gain on sale related to this potential incremental payment as of September 30, 2014.
Livorno Land Sale
In April 2014, the Company completed the sale of a portion of land at its manufacturing sitereflected within cash flows used in Livorno, Italy for a purchase price of €4.95 million (approximately $6.8 million). As a result, the Company recognized a gain on sale of $0.1 million within “Other expense (income), net”investing activities in the condensed consolidated statementsstatement of operationscash flows for the nine months ended September 30, 2014. As of December 31, 2013, this land was classified as held-for-sale within the caption “Other current assets” in the condensed consolidated balance sheet.period.
NOTE Q—16—RESTRUCTURING
Restructuring in Engineered Polymers BusinessPolycarbonate
During the second quarter of 2014, the Company announced a planned restructuring within its Engineered Polymers businessBasic Plastics & Feedstocks segment to exit the commodity market for polycarbonate in North America and to terminate existing arrangements with Dow regarding manufacturing services for the Company at Dow’s Freeport, Texas facility.facility (the “Freeport facility”). The Company also entered into a new long-term supply contract with a third party to supply polycarbonate in North America. These revised arrangements are expected to becomebecame operational in the fourth quarter of 2014. In addition, the Company has executed revised supply contracts for certain raw materials that arewere processed at its polycarbonate manufacturing facility in Stade, Germany, which is expected to taketook effect beginning January 1, 2015. These revised agreements are expected to facilitate improvements in future results of operations for the Engineered PolymersBasic Plastics & Feedstocks segment. Production at the Freeport facility ceased as of September 30, 2014, and decommissioning and demolition began thereafter, with completion in the first quarter of 2015.
The Company recorded certain restructuring charges during the year ended December 31, 2014 primarily relating to the reimbursement of decommissioning and demolition costs incurred by Dow, none of which were incurred during the three months ended March 31, 2014. Of the charges incurred, $4.2 million remained accrued within “Accounts payable” in the condensed consolidated balance sheet as of December 31, 2014. For the three and nine months ended September 30, 2014,March 31, 2015, the Company recorded the remainder of the expected restructuring charges of $2.0$0.5 million and $3.5 million, respectively, relatingrelated to the accelerated depreciationreimbursement of the related assets at Dow’s Freeport, Texas facilitydecommissioning and other charges.demolition costs incurred by Dow. These charges were included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations, and were allocated entirely to the Engineered PolymersBasic Plastics & Feedstocks segment. Production atThere were no remaining amounts accrued in the Freeport, Texas facility ceasedcondensed consolidated balance sheet as of September 30, 2014, and decommissioning and demolition is expected to occur in the fourth quarter of 2014 and throughoutMarch 31, 2015. The Company is likely to incur charges, not to exceed $7.0 million, in conjunction with the reimbursement of Dow’s expected decommissioning and demolition costs from this facility, which will be expensed as incurred.
Altona Plant Shutdown
In July 2013, the Company’s board of directors approved the plan to close the Company’s latex manufacturing facility in Altona, Australia. This restructuring plan was a strategic business decision to improve the results of the overall Latex segment. The facility manufactured SB latex used in the carpet and paper markets. Production at the facility ceased in the third quarter of 2013, followed by decommissioning, with demolition expected throughout 2014. As a resultmost of the plant closure, the Company recorded restructuring charges of $10.8 million for2014.
For the year ended December 31, 2013 ($2.5 million and $9.0 million of which were recorded in the three and nine month periods ended September 30, 2013, respectively). These charges consisted of property, plant and equipment and other asset impairment charges, employee termination benefit charges, contract termination charges, and incurred decommissioning charges, of which approximately $4.8 million remained accrued on the Company’s consolidated balance sheet as of December 31, 2013. For the three and nine months ended September 30, 2014, the Company recorded additional net restructuring charges of approximately $0.7 million and $2.8 million, respectively, related primarily to incremental employee termination benefit charges, contract termination charges, and decommissioning costs.costs (of which $0.6 million was recorded during the three months ended March 31, 2014). These charges were included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations, and were allocated entirely to the Latex segment. TheThere were no additional restructuring charges recorded related to the Altona plant shutdown during the three months ended March 31, 2015. Of the remaining employee termination benefits, contract termination costs,balances at March 31, 2015 and decommissioning costsDecember 31, 2014, $1.0 million and $1.2 million, respectively, are recorded in “Accrued expenses and other current liabilities” and $0.8 million and $0.9 million, respectively, were recorded in “Other noncurrent liabilities” in the condensed consolidated balance sheet.
The following table providestables provide a rollforward of the liability balances associated with the Altona plant shutdown:shutdown for the three months ended March 31, 2015:
Balance at December 31, 2013 | Expenses | Deductions* | Balance at September 30, 2014 | Balance at December 31, 2014 | Expenses | Deductions(1) | Balance at March 31, 2015 | |||||||||||||||||||||||||
Employee termination benefit charges | $ | 1,408 | $ | 302 | $ | (1,559 | ) | $ | 151 | |||||||||||||||||||||||
Contract termination charges | 3,388 | 1,409 | (2,269 | ) | 2,528 | $ | 2,128 | $ | — | $ | (369 | ) | $ | 1,759 | ||||||||||||||||||
Other** | 26 | 1,263 | (1,040 | ) | 249 | |||||||||||||||||||||||||||
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Total | $ | 4,822 | $ | 2,974 | $ | (4,868 | ) | $ | 2,928 | $ | 2,128 | $ | — | $ | (369 | ) | $ | 1,759 | ||||||||||||||
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Includes primarily payments made against the existing |
NOTE R—17—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss), net of income taxes, consisted of:
Currency Translation Adjustment, Net | Employee Benefits, Net | Foreign Exchange Cash Flow Hedges, Net | Total | |||||||||||||||||||||||||
December 31, 2014 | $ | (17,755 | ) | $ | (57,462 | ) | $ | — | $ | (75,217 | ) | |||||||||||||||||
Other comprehensive income (loss) | (114,155 | ) | 837 | 1,035 | (112,283 | ) | ||||||||||||||||||||||
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March 31, 2015 | $ | (131,910 | ) | $ | (56,625 | ) | $ | 1,035 | $ | (187,500 | ) | |||||||||||||||||
Currency Translation Adjustment, Net | Employee Benefits, Net | Total |
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December 31, 2013 | $ | 116,146 | $ | (27,768 | ) | $ | 88,378 | $ | 116,146 | $ | (27,768 | ) | $ | — | $ | 88,378 | ||||||||||||
Other comprehensive income (loss) | (95,220 | ) | 866 | (94,354 | ) | (1,425 | ) | 244 | — | (1,181 | ) | |||||||||||||||||
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September 30, 2014 | $ | 20,926 | $ | (26,902 | ) | $ | (5,976 | ) | ||||||||||||||||||||
March 31, 2014 | $ | 114,721 | $ | (27,524 | ) | $ | — | $ | 87,197 | |||||||||||||||||||
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December 31, 2012 | $ | 62,807 | $ | (38,234 | ) | $ | 24,573 | |||||||||||||||||||||
Other comprehensive income (loss) | 30,126 | 18,310 | 48,436 | |||||||||||||||||||||||||
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September 30, 2013 | $ | 92,933 | $ | (19,924 | ) | $ | 73,009 | |||||||||||||||||||||
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As noted above, the foreign exchange cash flow hedges were first entered during the three months ended March 31, 2015, with no settled contracts during that period. As such, for the three months ended March 31, 2015, there were no amounts related to the foreign exchange cash flow hedges reclassified into net income (loss) from accumulated other comprehensive income (loss). In future periods, when the underlying hedged transaction occurs, the effective portion of the gain or loss on the derivative will be reclassified from accumulated other comprehensive income (loss) into “Cost of sales” within the condensed consolidated statement of operations.
NOTE S—18—EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (“basic EPS”) is computed by dividing net income (loss) available to common shareholders by the weighted average number of the Company’s common shares outstanding for the applicable period. Diluted earnings (loss) per share (“diluted EPS”) is calculated using net income (loss) available to common shareholders divided by diluted weighted-average shares of common shares outstanding during each period, which includes unvested restricted shares.RSUs and stock option awards. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.
The following table presents basic EPS and diluted EPS for the three and nine months ended September 30,March 31, 2015 and 2014, and 2013, respectively. These balances have been retroactively adjusted to give effect to the Company’s 1-for-436.69219 reverse stock split declared effective on May 30, 2014, discussed in Note L to the condensed consolidated financial statements.1.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
(in thousands, except per share data) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||||
Earnings (losses): | ||||||||||||||||||||||||
Net income (loss) available to common shareholders | $ | (10,110 | ) | $ | 4,936 | $ | (37,645 | ) | $ | (32,806 | ) | |||||||||||||
Net income available to common shareholders | $ | 37,704 | $ | 17,086 | ||||||||||||||||||||
Shares: | ||||||||||||||||||||||||
Weighted average common shares outstanding | 48,770 | 37,270 | 41,693 | 37,270 | 48,770 | 37,270 | ||||||||||||||||||
Dilutive effect of restricted stock units* | — | — | — | — | ||||||||||||||||||||
Dilutive effect of RSUs and option awards* | 81 | — | ||||||||||||||||||||||
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Diluted weighted average shares outstanding | 48,770 | 37,270 | 41,693 | 37,270 | 48,851 | 37,270 | ||||||||||||||||||
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Income (loss) per share: | ||||||||||||||||||||||||
Income (loss) per share—basic and diluted | $ | (0.21 | ) | $ | 0.13 | $ | (0.90 | ) | $ | (0.88 | ) | |||||||||||||
Income per share: | ||||||||||||||||||||||||
Income per share—basic | $ | 0.77 | $ | 0.46 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Income per share—diluted | $ | 0.77 | $ | 0.46 | ||||||||||||||||||||
|
|
* | Refer to Note |
NOTE T—19—SUBSEQUENT EVENTS
In October 2014,May 2015, the Company announced that effective Januaryissued $700.0 million equivalent in gross proceeds of senior notes, consisting of $300.0 million of senior notes due May 1, 2015, it will realign its business divisions, creating two new business groups called Performance Materials2022 (the “Dollar Notes”) and Basic Plastics€375.0 million of senior notes due May 1, 2022 (the “Euro Notes” and, Feedstocks. This new alignment will better reflect the nature of our businesses, grouping together businesses with similar strategies and aspirations, with the intention of accelerating growth in PerformanceDollar Notes, the “Notes”) by its subsidiaries Trinseo Materials Operating S.C.A. and optimizing profitability and cash generation in Basic Plastics and Feedstocks. The PerformanceTrinseo Materials division will includeFinance, Inc. (together, the following reporting segments: Rubber, Latex and Performance Plastics (consisting of the Automotive and Consumer Essential Markets businesses)“Issuers”). The Basic PlasticsDollar Notes will bear interest at a rate of 6.750% and Feedstocks divisionthe Euro Notes will also representbear interest at a separate segment for reporting purposesrate of 6.375%. The Issuers will pay interest semi-annually in arrears on the Notes on May 1 and November 1 of each year beginning on November 1, 2015.
Additionally, in May 2015, the Company entered into a new senior secured credit facility to, among other things, issue a $500.0 million term loan facility (the “Term Loans”) bearing an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor. The Term Loans were issued with an original issue discount of 0.25%, and mature November 1, 2021. The new senior secured credit facility includes a revolving credit facility with a borrowing capacity of $325.0 million that matures in May 2020.
The net proceeds from the Notes offering, together with approximately $500.0 million of borrowings under the Term Loans and available cash, will includebe used to repay all outstanding indebtedness under the following businesses: Styrenic Polymers (Polystyrene, ABS, SAN), Polycarbonate,Issuers’ 8.750% Senior Secured Notes due 2019 totaling $1,192.5 million, together with a call premium of approximately $69.0 million and Styrene Monomer.accrued and unpaid interest thereon of approximately $30.0 million.
NOTE U—20—SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In connection with the issuance of the Senior Notes by Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers”), this supplemental guarantor financial statement disclosure is included in accordance with Rule 3-10 of Regulation S-X. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, in each case, subject to certain exceptions, by Trinseo S.A. (the “Parent Guarantor”) and by certain subsidiaries (together, the “Guarantor Subsidiaries”).
Each of the Guarantor Subsidiaries is 100 percent owned by the Company. None of the other subsidiaries of the Company, either direct or indirect, guarantee the Senior Notes (together, the “Non-Guarantor Subsidiaries”). The Guarantor Subsidiaries of the Senior Notes, excluding the Parent Guarantor, will be automatically released from those guarantees upon the occurrence of certain customary release provisions.
The following supplemental condensed consolidating financial information is presented to comply with the Company’s requirements under Rule 3-10 of Regulation S-X:
The Condensed Consolidating Financial Statements are presented using the equity method of accounting for its investments in 100 percent owned subsidiaries. Under the equity method, the investments in subsidiaries are recorded at cost and adjusted for the share of the subsidiaries cumulative results of operations, capital contributions, distributions and other equity changes. The elimination entries principally eliminate investments in subsidiaries and intercompany balances and transactions. The financial information in this footnote should be read in conjunction with the Condensed Consolidated Financial Statements presented and other notes related thereto contained within this Quarterly Report.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
September 30, 2014 | March 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuers | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,322 | $ | 1,267 | $ | 98,498 | $ | 51,040 | $ | — | $ | 152,127 | $ | 332 | $ | 672 | $ | 146,314 | $ | 71,379 | $ | — | $ | 218,697 | ||||||||||||||||||||||||
Accounts receivable, net | — | 58 | 248,836 | 477,399 | — | 726,293 | ||||||||||||||||||||||||||||||||||||||||||
Accounts receivable, net of allowance | 17 | 71 | 208,344 | 381,244 | 389 | 590,065 | ||||||||||||||||||||||||||||||||||||||||||
Intercompany receivables | — | �� | 523,204 | 1,492,030 | 141,537 | (2,156,771 | ) | — | — | 466,636 | 1,322,623 | 109,510 | (1,898,769 | ) | — | |||||||||||||||||||||||||||||||||
Inventories | — | — | 400,069 | 111,241 | (2,843 | ) | 508,467 | — | — | 312,440 | 82,845 | (4,313 | ) | 390,972 | ||||||||||||||||||||||||||||||||||
Deferred income tax assets | — | — | 5,911 | 6,812 | — | 12,723 | — | — | 4,811 | 3,612 | — | 8,423 | ||||||||||||||||||||||||||||||||||||
Other current assets | — | 229 | 9,317 | 12,444 | — | 21,990 | — | 67 | 5,879 | 5,432 | — | 11,378 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total current assets | 1,322 | 524,758 | 2,254,661 | 800,473 | (2,159,614 | ) | 1,421,600 | 349 | 467,446 | 2,000,411 | 654,022 | (1,902,693 | ) | 1,219,535 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Investments in unconsolidated affiliates | — | — | 164,504 | — | — | 164,504 | — | — | 189,364 | — | — | 189,364 | ||||||||||||||||||||||||||||||||||||
Property, plant and equipment, net | — | — | 426,152 | 125,886 | — | 552,038 | — | — | 381,705 | 123,400 | — | 505,105 | ||||||||||||||||||||||||||||||||||||
Other assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | — | — | 34,316 | — | — | 34,316 | — | — | 30,540 | — | — | 30,540 | ||||||||||||||||||||||||||||||||||||
Other intangible assets, net | — | — | 171,415 | 1,508 | — | 172,923 | — | — | 143,555 | 1,771 | — | 145,326 | ||||||||||||||||||||||||||||||||||||
Investments in subsidiaries | 417,646 | 1,412,250 | 730,759 | — | (2,560,655 | ) | — | 258,121 | 1,268,922 | 531,264 | — | (2,058,307 | ) | — | ||||||||||||||||||||||||||||||||||
Intercompany notes receivable— noncurrent | — | 1,332,663 | 16,332 | — | (1,348,995 | ) | — | — | 1,277,039 | 13,837 | — | (1,290,876 | ) | — | ||||||||||||||||||||||||||||||||||
Deferred income tax assets—noncurrent | — | — | 34,016 | 4,082 | — | 38,098 | — | — | 41,465 | 6,755 | — | 48,220 | ||||||||||||||||||||||||||||||||||||
Deferred charges and other assets | — | 39,049 | 24,201 | 817 | 535 | 64,602 | — | 35,241 | 20,200 | 752 | 813 | 57,006 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total other assets | 417,646 | 2,783,962 | 1,011,039 | 6,407 | (3,909,115 | ) | 309,939 | 258,121 | 2,581,202 | 780,861 | 9,278 | (3,348,370 | ) | 281,092 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total assets | $ | 418,968 | $ | 3,308,720 | $ | 3,856,356 | $ | 932,766 | $ | (6,068,729 | ) | $ | 2,448,081 | $ | 258,470 | $ | 3,048,648 | $ | 3,352,341 | $ | 786,700 | $ | (5,251,063 | ) | $ | 2,195,096 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Short-term borrowings | $ | — | $ | — | $ | — | $ | 8,813 | $ | — | $ | 8,813 | $ | — | $ | — | $ | — | $ | 4,139 | $ | — | $ | 4,139 | ||||||||||||||||||||||||
Accounts payable | 12 | 1,872 | 419,091 | 65,955 | — | 486,930 | — | 2,439 | 335,572 | 57,020 | — | 395,031 | ||||||||||||||||||||||||||||||||||||
Intercompany payables | 1,823 | 948,814 | 559,835 | 646,265 | (2,156,737 | ) | — | 9,489 | 844,367 | 488,649 | 556,217 | (1,898,722 | ) | — | ||||||||||||||||||||||||||||||||||
Income taxes payable | — | — | 8,327 | 2,364 | (564 | ) | 10,127 | — | — | 15,168 | 170 | 630 | 15,968 | |||||||||||||||||||||||||||||||||||
Deferred income tax liabilities | — | — | 1,580 | 379 | — | 1,959 | — | — | 1,454 | 476 | — | 1,930 | ||||||||||||||||||||||||||||||||||||
Accrued expenses and other current liabilities | 62 | 26,111 | 56,049 | 14,257 | — | 96,479 | 73 | 26,862 | 46,801 | 11,010 | — | 84,746 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total current liabilities | 1,897 | 976,797 | 1,044,882 | 738,033 | (2,157,301 | ) | 604,308 | 9,562 | 873,668 | 887,644 | 629,032 | (1,898,092 | ) | 501,814 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Noncurrent liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | — | 1,192,500 | 2,301 | — | — | 1,194,801 | — | 1,192,500 | 2,121 | — | — | 1,194,621 | ||||||||||||||||||||||||||||||||||||
Intercompany notes payable—noncurrent | — | — | 1,312,819 | 36,176 | (1,348,995 | ) | — | — | — | 1,251,314 | 39,562 | (1,290,876 | ) | — | ||||||||||||||||||||||||||||||||||
Deferred income tax liabilities—noncurrent | — | 2,541 | 20,748 | 7,976 | — | 31,265 | — | 3,175 | 18,232 | 7,739 | — | 29,146 | ||||||||||||||||||||||||||||||||||||
Other noncurrent obligations | — | — | 188,214 | 12,422 | — | 200,636 | — | — | 208,523 | 12,084 | — | 220,607 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total noncurrent liabilities | — | 1,195,041 | 1,524,082 | 56,574 | (1,348,995 | ) | 1,426,702 | — | 1,195,675 | 1,480,190 | 59,385 | (1,290,876 | ) | 1,444,374 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Commitments and contingencies (Note J) | ||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and contingencies (Note 10) | ||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 417,071 | 1,136,882 | 1,287,392 | 138,159 | (2,562,433 | ) | 417,071 | 248,908 | 979,305 | 984,507 | 98,283 | (2,062,095 | ) | 248,908 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 418,968 | $ | 3,308,720 | $ | 3,856,356 | $ | 932,766 | $ | (6,068,729 | ) | $ | 2,448,081 | $ | 258,470 | $ | 3,048,648 | $ | 3,352,341 | $ | 786,700 | $ | (5,251,063 | ) | $ | 2,195,096 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
December 31, 2013 | December 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuers | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 2 | $ | 954 | $ | 154,770 | $ | 40,777 | $ | — | $ | 196,503 | $ | 904 | $ | 2,653 | $ | 166,106 | $ | 51,123 | $ | — | $ | 220,786 | ||||||||||||||||||||||||
Accounts receivable, net | — | — | 272,745 | 444,739 | (2 | ) | 717,482 | |||||||||||||||||||||||||||||||||||||||||
Accounts receivable, net of allowance | — | 62 | 207,465 | 393,539 | — | 601,066 | ||||||||||||||||||||||||||||||||||||||||||
Intercompany receivables | — | 554,795 | 1,242,405 | 93,841 | (1,891,041 | ) | — | 55 | 493,090 | 1,369,837 | 101,716 | (1,964,698 | ) | — | ||||||||||||||||||||||||||||||||||
Inventories | — | — | 439,952 | 93,019 | (2,780 | ) | 530,191 | — | — | 381,797 | 99,709 | (7,645 | ) | 473,861 | ||||||||||||||||||||||||||||||||||
Deferred income tax assets | — | — | 5,077 | 4,743 | — | 9,820 | — | — | 5,382 | 6,404 | — | 11,786 | ||||||||||||||||||||||||||||||||||||
Other current assets | — | 3,954 | 4,386 | 14,410 | — | 22,750 | — | 148 | 6,476 | 8,540 | — | 15,164 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total current assets | 2 | 559,703 | 2,119,335 | 691,529 | (1,893,823 | ) | 1,476,746 | 959 | 495,953 | 2,137,063 | 661,031 | (1,972,343 | ) | 1,322,663 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Investments in unconsolidated affiliates | — | — | 155,887 | — | — | 155,887 | — | — | 167,658 | — | — | 167,658 | ||||||||||||||||||||||||||||||||||||
Property, plant and equipment, net | — | — | 476,137 | 130,290 | — | 606,427 | — | — | 426,905 | 129,792 | — | 556,697 | ||||||||||||||||||||||||||||||||||||
Other assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | — | — | 37,273 | — | — | 37,273 | — | — | 34,574 | — | — | 34,574 | ||||||||||||||||||||||||||||||||||||
Other intangible assets, net | — | — | 171,352 | 162 | — | 171,514 | — | — | 164,020 | 1,338 | — | 165,358 | ||||||||||||||||||||||||||||||||||||
Investments in subsidiaries | 343,429 | 1,232,608 | 615,153 | — | (2,191,190 | ) | — | 327,100 | 1,327,675 | 595,755 | — | (2,250,530 | ) | — | ||||||||||||||||||||||||||||||||||
Intercompany notes receivable— noncurrent | — | 1,359,637 | 17,739 | — | (1,377,376 | ) | — | |||||||||||||||||||||||||||||||||||||||||
Intercompany notes receivable—noncurrent | — | 1,323,401 | 15,664 | — | (1,339,065 | ) | — | |||||||||||||||||||||||||||||||||||||||||
Deferred income tax assets—noncurrent | — | — | 36,260 | 6,678 | — | 42,938 | — | — | 43,676 | 3,136 | — | 46,812 | ||||||||||||||||||||||||||||||||||||
Deferred charges and other assets | — | 48,801 | 33,607 | 990 | 598 | 83,996 | — | 36,899 | 23,398 | 718 | 1,339 | 62,354 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total other assets | 343,429 | 2,641,046 | 911,384 | 7,830 | (3,567,968 | ) | 335,721 | 327,100 | 2,687,975 | 877,087 | 5,192 | (3,588,256 | ) | 309,098 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total assets | $ | 343,431 | $ | 3,200,749 | $ | 3,662,743 | $ | 829,649 | $ | (5,461,791 | ) | $ | 2,574,781 | $ | 328,059 | $ | 3,183,928 | $ | 3,608,713 | $ | 796,015 | $ | (5,560,599 | ) | $ | 2,356,116 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Short-term borrowings | $ | — | $ | 3,646 | $ | — | $ | 5,108 | $ | — | $ | 8,754 | $ | — | $ | — | $ | — | $ | 7,559 | $ | — | $ | 7,559 | ||||||||||||||||||||||||
Accounts payable | — | 2,570 | 436,147 | 70,378 | (2 | ) | 509,093 | 46 | 2,323 | 366,882 | 65,441 | — | 434,692 | |||||||||||||||||||||||||||||||||||
Intercompany payables | 158 | 763,022 | 550,741 | 576,354 | (1,890,275 | ) | — | 6,944 | 888,660 | 522,930 | 546,150 | (1,964,684 | ) | — | ||||||||||||||||||||||||||||||||||
Income taxes payable | — | — | 9,407 | 276 | — | 9,683 | — | — | 8,864 | 549 | — | 9,413 | ||||||||||||||||||||||||||||||||||||
Deferred income tax liabilities | — | — | 784 | 2,119 | — | 2,903 | — | — | 1,171 | 242 | — | 1,413 | ||||||||||||||||||||||||||||||||||||
Accrued expenses and other current liabilities | 71 | 58,977 | 66,061 | 11,020 | — | 136,129 | 204 | 52,001 | 55,412 | 13,311 | — | 120,928 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total current liabilities | 229 | 828,215 | 1,063,140 | 665,255 | (1,890,277 | ) | 666,562 | 7,194 | 942,984 | 955,259 | 633,252 | (1,964,684 | ) | 574,005 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Noncurrent liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | — | 1,325,000 | 2,667 | — | — | 1,327,667 | — | 1,192,500 | 2,148 | — | — | 1,194,648 | ||||||||||||||||||||||||||||||||||||
Intercompany notes payable—noncurrent | — | — | 1,347,773 | 29,602 | (1,377,375 | ) | — | — | — | 1,296,121 | 42,944 | (1,339,065 | ) | — | ||||||||||||||||||||||||||||||||||
Deferred income tax liabilities—noncurrent | — | 1,600 | 17,115 | 8,217 | — | 26,932 | — | 2,300 | 16,145 | 8,866 | — | 27,311 | ||||||||||||||||||||||||||||||||||||
Other noncurrent obligations | — | — | 198,479 | 11,939 | — | 210,418 | — | — | 226,708 | 12,579 | — | 239,287 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total noncurrent liabilities | — | 1,326,600 | 1,566,034 | 49,758 | (1,377,375 | ) | 1,565,017 | — | 1,194,800 | 1,541,122 | 64,389 | (1,339,065 | ) | 1,461,246 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Commitments and contingencies (Note J) | ||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and contingencies (Note 10) | ||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 343,202 | 1,045,934 | 1,033,569 | 114,636 | (2,194,139 | ) | 343,202 | 320,865 | 1,046,144 | 1,112,332 | 98,374 | (2,256,850 | ) | 320,865 | ||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 343,431 | $ | 3,200,749 | $ | 3,662,743 | $ | 829,649 | $ | (5,461,791 | ) | $ | 2,574,781 | $ | 328,059 | $ | 3,183,928 | $ | 3,608,713 | $ | 796,015 | $ | (5,560,599 | ) | $ | 2,356,116 | ||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Three Months Ended September 30, 2014 | ||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales | $ | — | $ | — | $ | 1,201,521 | $ | 343,949 | $ | (239,977 | ) | $ | 1,305,493 | |||||||||||
Cost of sales | — | 98 | 1,144,191 | 333,048 | (240,080 | ) | 1,237,257 | |||||||||||||||||
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| |||||||||||||
Gross profit | — | (98 | ) | 57,330 | 10,901 | 103 | 68,236 | |||||||||||||||||
Selling, general and administrative expenses | 3,197 | 648 | 39,943 | 4,325 | — | 48,113 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates | — | — | 9,267 | — | — | 9,267 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Operating income (loss) | (3,197 | ) | (746 | ) | 26,654 | 6,576 | 103 | 29,390 | ||||||||||||||||
Interest expense, net | — | 29,046 | 559 | 493 | — | 30,098 | ||||||||||||||||||
Intercompany interest expense (income), net | 3 | (20,571 | ) | 17,685 | 2,905 | (22 | ) | — | ||||||||||||||||
Loss on extinguishment of long-term debt | — | 7,390 | — | — | — | 7,390 | ||||||||||||||||||
Other expense (income), net | 579 | 180 | (6,653 | ) | 4,256 | — | (1,638 | ) | ||||||||||||||||
Equity in loss (earnings) of subsidiaries | 6,331 | (15,458 | ) | 2,063 | — | 7,064 | — | |||||||||||||||||
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|
|
|
|
| |||||||||||||
Income (loss) before income taxes | (10,110 | ) | (1,333 | ) | 13,000 | (1,078 | ) | (6,939 | ) | (6,460 | ) | |||||||||||||
Provision for (benefit from) income taxes | — | — | 3,893 | 185 | (428 | ) | 3,650 | |||||||||||||||||
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|
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|
| |||||||||||||
Net income (loss) | $ | (10,110 | ) | $ | (1,333 | ) | $ | 9,107 | $ | (1,263 | ) | $ | (6,511 | ) | $ | (10,110 | ) | |||||||
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|
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|
|
|
|
|
| |||||||||||||
Comprehensive income (loss) | $ | (94,692 | ) | $ | (85,915 | ) | $ | (73,219 | ) | $ | (3,519 | ) | $ | 162,653 | $ | (94,692 | ) | |||||||
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|
|
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Three Months Ended March 31, 2015 | ||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales | $ | — | $ | — | $ | 936,736 | $ | 271,853 | $ | (190,324 | ) | $ | 1,018,265 | |||||||||||
Cost of sales | — | 156 | 840,114 | 268,578 | (193,662 | ) | 915,186 | |||||||||||||||||
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|
|
| |||||||||||||
Gross profit | — | (156 | ) | 96,622 | 3,275 | 3,338 | 103,079 | |||||||||||||||||
Selling, general and administrative expenses | 3,107 | 82 | 43,884 | 4,702 | — | 51,775 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates | — | — | 36,707 | — | — | 36,707 | ||||||||||||||||||
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|
| |||||||||||||
Operating income (loss) | (3,107 | ) | (238 | ) | 89,445 | (1,427 | ) | 3,338 | 88,011 | |||||||||||||||
Interest expense, net | — | 28,692 | 133 | 31 | — | 28,856 | ||||||||||||||||||
Intercompany interest expense (income), net | 3 | (18,847 | ) | 16,239 | 2,605 | — | — | |||||||||||||||||
Other expense (income), net | 2,476 | (2,966 | ) | (4,054 | ) | 8,092 | 3 | 3,551 | ||||||||||||||||
Equity in loss (earnings) of subsidiaries | (43,290 | ) | (53,480 | ) | (36,218 | ) | — | 132,988 | — | |||||||||||||||
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|
| |||||||||||||
Income (loss) before income taxes | 37,704 | 46,363 | 113,345 | (12,155 | ) | (129,653 | ) | 55,604 | ||||||||||||||||
Provision for (benefit from) income taxes | — | 969 | 16,573 | (818 | ) | 1,176 | 17,900 | |||||||||||||||||
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| |||||||||||||
Net income (loss) | $ | 37,704 | $ | 45,394 | $ | 96,772 | $ | (11,337 | ) | $ | (130,829 | ) | $ | 37,704 | ||||||||||
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| |||||||||||||
Comprehensive income (loss) | $ | (74,579 | ) | $ | (66,889 | ) | $ | (13,012 | ) | $ | (13,836 | ) | $ | 93,737 | $ | (74,579 | ) | |||||||
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|
|
|
|
|
|
Three Months Ended September 30, 2013 | ||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales | $ | — | $ | — | $ | 1,177,331 | $ | 358,806 | $ | (227,178 | ) | $ | 1,308,959 | |||||||||||
Cost of sales | — | 104 | 1,091,387 | 347,966 | (227,015 | ) | 1,212,442 | |||||||||||||||||
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|
| |||||||||||||
Gross profit | — | (104 | ) | 85,944 | 10,840 | (163 | ) | 96,517 | ||||||||||||||||
Selling, general and administrative expenses | 3,051 | 1,692 | 42,703 | 6,326 | — | 53,772 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates | — | — | 15,215 | — | — | 15,215 | ||||||||||||||||||
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|
|
|
|
| |||||||||||||
Operating income (loss) | (3,051 | ) | (1,796 | ) | 58,456 | 4,514 | (163 | ) | 57,960 | |||||||||||||||
Interest expense, net | — | 31,574 | 609 | 698 | — | 32,881 | ||||||||||||||||||
Intercompany interest expense (income), net | 3 | (23,531 | ) | 20,247 | 3,267 | 14 | — | |||||||||||||||||
Other expense (income), net | 4 | (6,530 | ) | 14,227 | 6,244 | 197 | 14,142 | |||||||||||||||||
Equity in loss (earnings) of subsidiaries | (7,994 | ) | (14,517 | ) | (4,260 | ) | — | 26,771 | — | |||||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Income (loss) before income taxes | 4,936 | 11,208 | 27,633 | (5,695 | ) | (27,145 | ) | 10,937 | ||||||||||||||||
Provision for (benefit from) income taxes | — | — | 4,900 | 712 | 389 | 6,001 | ||||||||||||||||||
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|
|
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|
|
|
|
|
|
| |||||||||||||
Net income (loss) | $ | 4,936 | $ | 11,208 | $ | 22,733 | $ | (6,407 | ) | $ | (27,534 | ) | $ | 4,936 | ||||||||||
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| |||||||||||||
Comprehensive income (loss) | $ | 44,079 | $ | 50,351 | $ | 59,996 | $ | (4,527 | ) | $ | (105,820 | ) | $ | 44,079 | ||||||||||
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|
|
|
|
|
|
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Nine Months Ended September 30, 2014 | ||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales | $ | — | $ | — | $ | 3,665,478 | $ | 1,049,870 | $ | (709,788 | ) | $ | 4,005,560 | |||||||||||
Cost of sales | — | 466 | 3,448,159 | 1,007,326 | (709,666 | ) | 3,746,285 | |||||||||||||||||
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|
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|
|
| |||||||||||||
Gross profit | — | (466 | ) | 217,319 | 42,544 | (122 | ) | 259,275 | ||||||||||||||||
Selling, general and administrative expenses | 8,493 | 17,778 | 131,127 | 14,953 | — | 172,351 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates | — | — | 29,595 | — | — | 29,595 | ||||||||||||||||||
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|
|
|
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|
|
| |||||||||||||
Operating income (loss) | (8,493 | ) | (18,244 | ) | 115,787 | 27,591 | (122 | ) | 116,519 | |||||||||||||||
Interest expense, net | — | 92,263 | 1,199 | 2,056 | — | 95,518 | ||||||||||||||||||
Intercompany interest expense (income), net | 8 | (61,299 | ) | 52,363 | 8,918 | 10 | — | |||||||||||||||||
Loss on extinguishment of long-term debt | — | 7,390 | — | — | — | 7,390 | ||||||||||||||||||
Other expense (income), net | 1,306 | 20,986 | (7,372 | ) | 14,504 | (18 | ) | 29,406 | ||||||||||||||||
Equity in loss (earnings) of subsidiaries | 27,838 | (74,471 | ) | 5,876 | — | 40,757 | — | |||||||||||||||||
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|
| |||||||||||||
Income (loss) before income taxes | (37,645 | ) | (3,113 | ) | 63,721 | 2,113 | (40,871 | ) | (15,795 | ) | ||||||||||||||
Provision for (benefit from) income taxes | — | 1,016 | 17,094 | 4,242 | (502 | ) | 21,850 | |||||||||||||||||
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|
|
| |||||||||||||
Net income (loss) | $ | (37,645 | ) | $ | (4,129 | ) | $ | 46,627 | $ | (2,129 | ) | $ | (40,369 | ) | $ | (37,645 | ) | |||||||
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|
|
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|
| |||||||||||||
Comprehensive income (loss) | $ | (131,999 | ) | $ | (98,483 | ) | $ | (45,124 | ) | $ | (4,732 | ) | $ | 148,339 | $ | (131,999 | ) | |||||||
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|
|
|
|
|
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Nine Months Ended September 30, 2013 | Three Months Ended March 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuers | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||||
Net sales | $ | — | $ | — | $ | 3,669,809 | $ | 1,125,480 | $ | (732,986 | ) | $ | 4,062,303 | $ | — | $ | — | $ | 1,227,563 | $ | 347,297 | $ | (215,728 | ) | $ | 1,359,132 | ||||||||||||||||||||||
Cost of sales | — | 682 | 3,458,437 | 1,094,098 | (733,743 | ) | 3,819,474 | — | 157 | 1,147,077 | 329,723 | (216,454 | ) | 1,260,503 | ||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||
Gross profit | — | (682 | ) | 211,372 | 31,382 | 757 | 242,829 | — | (157 | ) | 80,486 | 17,574 | 726 | 98,629 | ||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 8,317 | 3,097 | 126,508 | 17,084 | — | 155,006 | 2,706 | 685 | 42,076 | 4,563 | — | 50,030 | ||||||||||||||||||||||||||||||||||||
Equity in earnings of unconsolidated affiliates | — | — | 26,943 | — | — | 26,943 | — | — | 14,950 | — | — | 14,950 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Operating income (loss) | (8,317 | ) | (3,779 | ) | 111,807 | 14,298 | 757 | 114,766 | (2,706 | ) | (842 | ) | 53,360 | 13,011 | 726 | 63,549 | ||||||||||||||||||||||||||||||||
Interest expense, net | — | 94,135 | 3,086 | 1,706 | — | 98,927 | — | 31,590 | 312 | 916 | — | 32,818 | ||||||||||||||||||||||||||||||||||||
Intercompany interest expense (income), net | 6 | (66,640 | ) | 57,003 | 9,613 | 18 | — | 2 | (19,831 | ) | 16,647 | 3,152 | 30 | — | ||||||||||||||||||||||||||||||||||
Loss on extinguishment of long-term debt | — | 20,744 | — | — | — | 20,744 | ||||||||||||||||||||||||||||||||||||||||||
Other expense (income), net | 3 | (2,869 | ) | 9,955 | 12,745 | 16 | 19,850 | — | (3,088 | ) | (824 | ) | 4,807 | — | 895 | |||||||||||||||||||||||||||||||||
Equity in loss (earnings) of subsidiaries | 24,480 | (37,205 | ) | 20,644 | — | (7,919 | ) | — | (19,794 | ) | (35,386 | ) | (27,168 | ) | — | 82,348 | — | |||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (32,806 | ) | (11,944 | ) | 21,119 | (9,766 | ) | 8,642 | (24,755 | ) | 17,086 | 25,873 | 64,393 | 4,136 | (81,652 | ) | 29,836 | |||||||||||||||||||||||||||||||
Provision for (benefit from) income taxes | — | 176 | 8,392 | (1,686 | ) | 1,169 | 8,051 | |||||||||||||||||||||||||||||||||||||||||
Provision for income taxes | — | — | 9,182 | 3,316 | 252 | 12,750 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (32,806 | ) | $ | (12,120 | ) | $ | 12,727 | $ | (8,080 | ) | $ | 7,473 | $ | (32,806 | ) | $ | 17,086 | $ | 25,873 | $ | 55,211 | $ | 820 | $ | (81,904 | ) | $ | 17,086 | |||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | 15,630 | $ | 36,316 | $ | 58,411 | $ | (5,328 | ) | $ | (89,399 | ) | $ | 15,630 | $ | 15,905 | $ | 24,692 | $ | 54,636 | $ | 214 | $ | (79,542 | ) | $ | 15,905 | |||||||||||||||||||||
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|
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
Nine Months Ended September 30, 2014 | Three Months Ended March 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuers | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by (used in) operating activities | $ | (626 | ) | $ | (94,841 | ) | $ | 41,451 | $ | 55,677 | $ | — | $ | 1,661 | $ | (636 | ) | $ | (36,376 | ) | $ | 42,502 | $ | 37,424 | $ | — | $ | 42,914 | ||||||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures | — | — | (59,942 | ) | (9,327 | ) | — | (69,269 | ) | — | — | (22,689 | ) | (4,981 | ) | — | (27,670 | ) | ||||||||||||||||||||||||||||||
Proceeds from the sale of businesses and other assets | — | — | — | 6,257 | — | 6,257 | — | — | 560 | — | — | 560 | ||||||||||||||||||||||||||||||||||||
Payment for working capital adjustment from sale of business | — | — | (700 | ) | — | — | (700 | ) | ||||||||||||||||||||||||||||||||||||||||
Distributions from unconsolidated affiliates | — | — | 978 | — | — | 978 | ||||||||||||||||||||||||||||||||||||||||||
Investments in subsidiaries | (196,400 | ) | (199,400 | ) | (196,626 | ) | — | 592,426 | — | |||||||||||||||||||||||||||||||||||||||
Intercompany investing activities | — | 2,000 | (250,817 | ) | — | 248,817 | — | — | — | 15,691 | — | (15,691 | ) | — | ||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||
Cash provided by (used in) investing activities | (196,400 | ) | (197,400 | ) | (507,107 | ) | (3,070 | ) | 841,243 | (62,734 | ) | |||||||||||||||||||||||||||||||||||||
Cash used in investing activities | — | — | (6,438 | ) | (4,981 | ) | (15,691 | ) | (27,110 | ) | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from initial public offering, net of offering costs | 198,087 | — | — | — | — | 198,087 | ||||||||||||||||||||||||||||||||||||||||||
Intercompany short-term borrowings, net | 260 | 49,631 | 4,670 | (6,144 | ) | (48,417 | ) | — | 65 | 34,046 | (48,986 | ) | (816 | ) | 15,691 | — | ||||||||||||||||||||||||||||||||
Short-term borrowings, net | — | (3,646 | ) | (208 | ) | (39,576 | ) | — | (43,430 | ) | — | — | (66 | ) | (9,421 | ) | — | (9,487 | ) | |||||||||||||||||||||||||||||
Contributions from parent companies | — | 189,400 | 395,800 | 7,226 | (592,426 | ) | — | |||||||||||||||||||||||||||||||||||||||||
Repayments of Senior Notes | — | (132,500 | ) | — | — | — | (132,500 | ) | ||||||||||||||||||||||||||||||||||||||||
Proceeds from (repayments of) intercompany long-term debt | — | 189,400 | 13,000 | (2,000 | ) | (200,400 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Proceeds from Accounts Receivable Securitization Facility | — | — | — | 283,292 | — | 283,292 | ||||||||||||||||||||||||||||||||||||||||||
Repayments of Accounts Receivable Securitization Facility | — | — | — | (283,859 | ) | — | (283,859 | ) | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Cash provided by (used in) financing activities | 198,347 | 292,285 | 413,262 | (41,061 | ) | (841,243 | ) | 21,590 | 65 | 34,046 | (49,052 | ) | (10,237 | ) | 15,691 | (9,487 | ) | |||||||||||||||||||||||||||||||
Effect of exchange rates on cash | (1 | ) | 269 | (3,878 | ) | (1,283 | ) | — | (4,893 | ) | (1 | ) | 349 | (6,804 | ) | (1,950 | ) | — | (8,406 | ) | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Net change in cash and cash equivalents | 1,320 | 313 | (56,272 | ) | 10,263 | — | (44,376 | ) | (572 | ) | (1,981 | ) | (19,792 | ) | 20,256 | — | (2,089 | ) | ||||||||||||||||||||||||||||||
Cash and cash equivalents—beginning of period | 2 | 954 | 154,770 | 40,777 | — | 196,503 | 904 | 2,653 | 166,106 | 51,123 | — | 220,786 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Cash and cash equivalents—end of period | $ | 1,322 | $ | 1,267 | $ | 98,498 | $ | 51,040 | $ | — | $ | 152,127 | $ | 332 | $ | 672 | $ | 146,314 | $ | 71,379 | $ | — | $ | 218,697 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
Nine Months Ended September 30, 2013 | ||||||||||||||||||||||||
Parent Guarantor | Issuers | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||
Cash provided by (used in) operating activities | $ | (44 | ) | $ | 3,607 | $ | 34,551 | $ | 55,474 | $ | — | $ | 93,588 | |||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||
Capital expenditures | — | — | (45,075 | ) | (7,243 | ) | — | (52,318 | ) | |||||||||||||||
Proceeds from the sale of businesses and other assets | — | — | 15,221 | — | — | 15,221 | ||||||||||||||||||
Proceeds from capital expenditures subsidy | — | — | 6,575 | — | — | 6,575 | ||||||||||||||||||
Advance payment refunded | — | — | — | (2,711 | ) | — | (2,711 | ) | ||||||||||||||||
Distributions from unconsolidated affiliates | — | — | 1,055 | — | — | 1,055 | ||||||||||||||||||
Intercompany investing activities | — | (4,000 | ) | (139,267 | ) | — | 143,267 | — | ||||||||||||||||
Decrease in restricted cash | — | — | — | 7,852 | — | 7,852 | ||||||||||||||||||
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|
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|
|
| |||||||||||||
Cash provided by (used in) investing activities | — | (4,000 | ) | (161,491 | ) | (2,102 | ) | 143,267 | (24,326 | ) | ||||||||||||||
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|
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Cash flows from financing activities | ||||||||||||||||||||||||
Deferred financing fees | — | (46,572 | ) | (262 | ) | — | — | (46,834 | ) | |||||||||||||||
Intercompany short-term borrowings, net | 53 | 57,490 | 57,654 | 24,070 | (139,267 | ) | — | |||||||||||||||||
Short-term borrowings, net | — | (5,540 | ) | (199 | ) | (26,937 | ) | — | (32,676 | ) | ||||||||||||||
Proceeds from (repayments of) intercompany long-term debt | — | — | — | 4,000 | (4,000 | ) | — | |||||||||||||||||
Repayments of Term Loans | — | (1,239,000 | ) | — | — | — | (1,239,000 | ) | ||||||||||||||||
Proceeds from issuance of Senior Notes | — | 1,325,000 | — | — | — | 1,325,000 | ||||||||||||||||||
Proceeds from Accounts Receivable Securitization Facility | — | — | — | 351,630 | — | 351,630 | ||||||||||||||||||
Repayments of Accounts Receivable Securitization Facility | — | — | — | (391,181 | ) | — | (391,181 | ) | ||||||||||||||||
Proceeds from Revolving Facility | — | 405,000 | — | — | — | 405,000 | ||||||||||||||||||
Repayments of Revolving Facility | — | (525,000 | ) | — | — | — | (525,000 | ) | ||||||||||||||||
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Cash provided by (used in) financing activities | 53 | (28,622 | ) | 57,193 | (38,418 | ) | (143,267 | ) | (153,061 | ) | ||||||||||||||
Effect of exchange rates on cash | — | (72 | ) | 1,356 | (116 | ) | — | 1,168 | ||||||||||||||||
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Net change in cash and cash equivalents | 9 | (29,087 | ) | (68,391 | ) | 14,838 | — | (82,631 | ) | |||||||||||||||
Cash and cash equivalents—beginning of period | 3 | 29,411 | 182,088 | 24,855 | — | 236,357 | ||||||||||||||||||
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Cash and cash equivalents—end of period | $ | 12 | $ | 324 | $ | 113,697 | $ | 39,693 | $ | — | $ | 153,726 | ||||||||||||
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Parent Guarantor | Issuers | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||
Cash provided by (used in) operating activities | $ | (15 | ) | $ | (33,173 | ) | $ | 14,291 | $ | 17,714 | $ | — | $ | (1,183 | ) | |||||||||
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Capital expenditures | — | — | (38,254 | ) | (2,887 | ) | — | (41,141 | ) | |||||||||||||||
Payment for working capital adjustment from sale of business | — | — | (700 | ) | — | — | (700 | ) | ||||||||||||||||
Distributions from unconsolidated affiliates | — | — | 978 | — | — | 978 | ||||||||||||||||||
Investments in subsidiaries | — | (10,000 | ) | — | — | 10,000 | — | |||||||||||||||||
Intercompany investing activities | — | — | (76,566 | ) | — | 76,566 | — | |||||||||||||||||
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Cash provided by (used in) investing activities | — | (10,000 | ) | (114,542 | ) | (2,887 | ) | 86,566 | (40,863 | ) | ||||||||||||||
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Intercompany short-term borrowings, net | 30 | 44,908 | 13,050 | 5,578 | (63,566 | ) | — | |||||||||||||||||
Short-term borrowings, net | — | (2,188 | ) | (70 | ) | (12,579 | ) | — | (14,837 | ) | ||||||||||||||
Contributions from parent companies | — | — | 10,000 | — | (10,000 | ) | — | |||||||||||||||||
Proceeds from issuance of intercompany indebtedness | — | — | 13,000 | — | (13,000 | ) | — | |||||||||||||||||
Proceeds from Accounts Receivable Securitization Facility | — | — | — | 60,971 | — | 60,971 | ||||||||||||||||||
Repayments of Accounts Receivable Securitization Facility | — | — | — | (61,538 | ) | — | (61,538 | ) | ||||||||||||||||
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Cash provided by (used in) financing activities | 30 | 42,720 | 35,980 | (7,568 | ) | (86,566 | ) | (15,404 | ) | |||||||||||||||
Effect of exchange rates on cash | — | 2 | 322 | (288 | ) | — | 36 | |||||||||||||||||
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Net change in cash and cash equivalents | 15 | (451 | ) | (63,949 | ) | 6,971 | — | (57,414 | ) | |||||||||||||||
Cash and cash equivalents—beginning of period | 2 | 954 | 154,770 | 40,777 | — | 196,503 | ||||||||||||||||||
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Cash and cash equivalents—end of period | $ | 17 | $ | 503 | $ | 90,821 | $ | 47,748 | $ | — | $ | 139,089 | ||||||||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a leading global materials company engaged in the manufacturemanufacturing and marketing of emulsion polymerssynthetic rubber, latex, and plastics, including various specialty and technologically differentiated products. We have leading market positions in many of the markets in which we compete. We believe we have developed these strong market positions due to our technological differentiation, diverse global manufacturing base, long-standing customer relationships, commitment to sustainable solutions and competitive cost positions. We believe that growth in overall consumer spending and construction activity, increased demand in the automotive industry for higher fuel efficiency and lighter-weight materials, and improving living standards in emerging markets will result in growth in the global markets in which we compete. In addition, we believe our increasing business presence in developing regions such as China, Southeast Asia Latin America, and Eastern Europe further enhances our prospects.
We develop emulsion polymerssynthetic rubber, latex, and plastics products that are incorporated into a wide range of our customers’ products throughout the world, including tires and other products for automotive applications, carpet and artificial turf backing, coated paper and packaging board, food service packaging, appliances, medical devices, consumer electronics and construction applications, among others. We seek to regularly develop new and improved products and processes, supported by our strong patent portfolio, designed to enhance our customers’ product offerings. We have long-standing relationships with a diverse base of global customers, many of whom are leaders in their markets and rely on us for formulation, technological differentiation, and compounding expertise to find sustainable solutions for their businesses. Many of our products represent only a small portion of a finished product’s production costs, but provide critical functionality to the finished product and are often specifically developed to customer specifications. We believe these product traits result in substantial customer loyalty for our products.
We operateUntil January 1, 2015, we operated in four reporting segments under two business units. Our Emulsion Polymers business unit includes oursegments: Latex, reporting segment and our Synthetic Rubber, reporting segment. Our Plastics business unit includes our Styrenics reporting segment and our Engineered Polymers reporting segment.
2014 Year-to-Date Highlights
In February 2014, the Company announced plans to add an additional 25 kMT of SB latex capacity at our facility in Zhangjiagang, China, which we expect to become operational in the second quarter of 2015 and will represent a 33% increase in our SB latex capacity in China. This expansion will allow us to capitalize on the expected growth in demand for latex in China’s paper and paperboard industry, forecast to grow in the next five years.
In March 2014, the Company entered into an agreement with material supplier JSR to acquire its current production capacity rights at the Company’s rubber production facility in Schkopau, Germany for a purchase price of €19.0 million (approximately $26.1 million). Prior to this agreement, JSR held 50% of the capacity rights of one of the Company’s three SSBR production trains in Schkopau. As a result, effective March 31, 2014, the Company had full capacity rights to this production train, enabling us to increase our capabilities to serve the global tire market.
In April 2014, the Company completed the sale of a portion of our land at our manufacturing site in Livorno, Italy for a purchase price of €4.95 million (approximately $6.8 million). This sale had no significant impact on the ongoing operations of the Company, but provided an opportunity to generate additional cash flows for the Company.
Also in April 2014, the Company announced plans for the conversion of our nickel polybutadiene rubber (“Ni-PBR”) production train in Schkopau, Germany, to neodymium polybutadiene rubber (“Nd-PBR”), which we expect to be completed and operational in the fourth quarter of 2015. Nd-PBR is a synthetic rubber used mainly in the production of tires as well as in a variety of other applications such as industrial rubber goods and polymer modification. Nd-PBR in ultra-high performance tires allows for the increase of elasticity, endurance and durability which results in improved rolling resistance in tires. The Nd-PBR conversion will allow us to further grow our rubber business and broaden our product range.
On May 30, 2014, our affiliates entered into an agreement with Dow to terminate the Latex JV Option Agreement, eliminating Dow’s right to exercise their option, and all other obligations of the Company thereunder, in exchange for a termination payment thereon of $32.5 million.
During the second quarter of 2014, the Company announced a planned restructuring within our Engineered Polymers business to exit the commodity market for polycarbonate in North America and to terminate its existing arrangements with Dow regarding manufacturing services for the Company at Dow’s Freeport, Texas facility. The Company also entered into a new long-term supply contract with a third party to supply polycarbonate in North America. These revised arrangements became operational in the fourth quarter of 2014. In addition, the Company has executed revised supply contracts for certain raw materials that are processed at its polycarbonate manufacturing facility in Stade, Germany, which is expected to take effect beginning January 1, 2015. These revised agreements are expected to facilitate improvements in our future results of operations of our Engineered Polymers segment.
On June 17, 2014, the Company completed an initial public offering of 11,500,000 ordinary shares at a price of $19.00 per share, receiving cash proceeds of $203.2 million from this transaction, net of underwriting discounts. These net proceeds were primarily used by the Company in July 2014 to repay $132.5 million in aggregate principal amount of our 8.750% Senior Notes due 2019 at a call premium of 103%, together with accrued and unpaid interest thereon, along with certain related contract termination and offering expenses and general corporate purposes.
In October 2014, the Company announced that effectivePolymers. Effective January 1, 2015, it will realign itswe reorganized our business divisions, creatingunder two new business groupsdivisions called Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division now includes the following reporting segments: Synthetic Rubber, Latex, and Feedstocks. ThisPerformance Plastics. The Basic Plastics & Feedstocks division represents a separate segment for financial reporting purposes and includes styrenic polymers, polycarbonate, or PC, and styrene monomer. In addition, the Basic Plastics & Feedstocks division includes the results of our two 50%-owned joint ventures, Americas Styrenics LLC, or Americas Styrenics, and Sumika Styron Polycarbonate Limited, or Sumika Styron Polycarbonate. The following chart provides an overview of our new alignmentorganizational structure.
We believe that this new organizational structure better reflects the nature of our businesses,Company by grouping together businessessegments with similar strategies, business drivers and aspirations, withoperating characteristics. Our two new divisions are of similar size in terms of sales, but have different margin profiles, different strategic focus, different value drivers and different operating requirements. By organizing the intentionCompany in this way, we believe that we can manage and operate more effectively in order to accelerate the growth of accelerating growth in Performance Materials and optimizing profitability and cash generation in Basic Plastics and Feedstocks. Theour Performance Materials division will includeand improve the following reporting segments:profitability of our Basic Plastics & Feedstocks division. We also believe that this new organizational structure allows our investors to better understand the drivers of our business.
Prior period financial information included within this Quarterly Report has been recast from its previous presentation to reflect the Company’s new organizational structure.
Our major products include: styrene-butadiene latex, or SB latex, and styrene-acrylate latex, or SA latex, in our Latex segment; solution styrene-butadiene rubber, or SSBR, lithium polybutadiene rubber, or Li-PBR, emulsion styrene-butadiene rubber, or ESBR, and nickel polybutadiene rubber, or Ni-PBR, in our Synthetic Rubber Latexsegment; highly engineered compounds and blends products for automotive end markets, as well as consumer electronics, medical, and lighting, which we collectively call consumer essential markets (CEM) in our Performance Plastics (consistingsegment; and PC, polystyrene, acrylonitrile-butadiene styrene, or ABS, and styrene-acrylonitrile, or SAN, in our Basic Plastics & Feedstocks segment.
2015 Year-to-Date Highlights
Name Change and Rebranding
In the first quarter of 2015, we completed a rebranding process to change our operating name and legal entities from “Styron” to “Trinseo.” We believe that this new name reflects our breadth as a company with broad global reach and a diverse portfolio of materials and technologies. We believe Trinseo captures our commitment to deliver innovative and sustainable materials that provide value to our customers’ products.
Debt Refinancing
In May 2015, the AutomotiveCompany issued $700.0 million equivalent in gross proceeds of senior notes, consisting of $300.0 million of senior notes due May 1, 2022 (the “Dollar Notes”) and Consumer Essential Markets businesses)€375.0 million of senior notes due May 1, 2022 (the “Euro Notes” and, together with the Dollar Notes, the “Notes”) by its subsidiaries Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (together, the “Issuers”). The Basic PlasticsDollar Notes will bear interest at a rate of 6.750% and Feedstocks divisionthe Euro Notes will also representbear interest at a separate segment for reporting purposesrate of 6.375%. The Issuers will pay interest semi-annually in arrears on the Notes on May 1 and November 1 of each year beginning on November 1, 2015.
Additionally, in May 2015, the Company entered into a new senior secured credit facility to, among other things, issue a $500.0 million term loan facility (the “Term Loans”) bearing an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor. The Term Loans were issued with an original issue discount of 0.25%, and mature November 1, 2021. The new senior secured credit facility includes a revolving credit facility with a borrowing capacity of $325.0 million that matures in May 2020.
The net proceeds from the Notes offering, together with approximately $500.0 million of borrowings under the Term Loans and available cash, will includebe used to repay all outstanding indebtedness under the following businesses: Styrenic Polymers (Polystyrene, ABS, SAN), Polycarbonate,Issuers’ 8.750% Senior Secured Notes due 2019 totaling $1,192.5 million, together with a call premium of approximately $69.0 million and Styrene Monomer.accrued and unpaid interest thereon of approximately $30.0 million.
This new capital structure is expected to reduce the Company’s annual interest expense by approximately $37.0 million.
Results of Operations
Results of Operations for the Three Ended March 31, 2015 and Nine Months Ended September 30, 2014 and 2013
The tables below set forth our historical results of operations, and these results as a percentage of net sales for the periods indicated:
(in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net sales | $ | 1,305.5 | $ | 1,309.0 | $ | 4,005.6 | $ | 4,062.3 | ||||||||
Cost of sales | 1,237.3 | 1,212.5 | 3,746.3 | 3,819.5 | ||||||||||||
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Gross profit | 68.2 | 96.5 | 259.3 | 242.8 | ||||||||||||
Selling, general and administrative expenses | 48.1 | 53.8 | 172.4 | 155.0 | ||||||||||||
Equity in earnings of unconsolidated affiliates | 9.3 | 15.2 | 29.6 | 26.9 | ||||||||||||
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Operating income | 29.4 | 57.9 | 116.5 | 114.7 | ||||||||||||
Interest expense, net | 30.1 | 32.9 | 95.5 | 98.9 | ||||||||||||
Loss on extinguishment of long-term debt | 7.4 | — | 7.4 | 20.7 | ||||||||||||
Other expense (income), net | (1.7 | ) | 14.1 | 29.3 | 19.8 | |||||||||||
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Income (loss) before income taxes | (6.4 | ) | 10.9 | (15.7 | ) | (24.7 | ) | |||||||||
Provision for income taxes | 3.7 | 6.0 | 21.9 | 8.1 | ||||||||||||
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Net income (loss) | $ | (10.1 | ) | $ | 4.9 | $ | (37.6 | ) | $ | (32.8 | ) | |||||
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2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
(in millions) | Three Months Ended March 31, | |||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | $ | 1,018.3 | $ | 1,359.1 | ||||||||||||
Cost of sales | 94.8 | % | 92.6 | % | 93.5 | % | 94.0 | % | 915.2 | 1,260.5 | ||||||||||||||
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Gross profit | 5.2 | % | 7.4 | % | 6.5 | % | 6.0 | % | 103.1 | 98.6 | ||||||||||||||
Selling, general and administrative expenses | 3.7 | % | 4.1 | % | 4.3 | % | 3.8 | % | 51.8 | 50.0 | ||||||||||||||
Equity in earnings of unconsolidated affiliates | 0.7 | % | 1.2 | % | 0.7 | % | 0.7 | % | 36.7 | 15.0 | ||||||||||||||
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Operating income | 2.2 | % | 4.5 | % | 2.9 | % | 2.9 | % | 88.0 | 63.6 | ||||||||||||||
Interest expense, net | 2.3 | % | 2.5 | % | 2.4 | % | 2.4 | % | 28.9 | 32.8 | ||||||||||||||
Loss on extinguishment of long-term debt | 0.6 | % | 0.0 | % | 0.2 | % | 0.5 | % | ||||||||||||||||
Other expense (income), net | (0.1 | )% | 1.1 | % | 0.7 | % | 0.5 | % | ||||||||||||||||
Other expense, net | 3.5 | 0.9 | ||||||||||||||||||||||
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Income (loss) before income taxes | (0.6 | )% | 0.9 | % | (0.4 | )% | (0.5 | )% | ||||||||||||||||
Income before income taxes | 55.6 | 29.9 | ||||||||||||||||||||||
Provision for income taxes | 0.3 | % | 0.5 | % | 0.5 | % | 0.2 | % | 17.9 | 12.8 | ||||||||||||||
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Net income (loss) | (0.9 | )% | 0.4 | % | (0.9 | )% | (0.7 | )% | ||||||||||||||||
Net income | $ | 37.7 | $ | 17.1 | ||||||||||||||||||||
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Net sales Cost of sales Gross profit Selling, general and administrative expenses Equity in earnings of unconsolidated affiliates Operating income Interest expense, net Other expense, net Income before income taxes Provision for income taxes Net income Three Months Ended
March 31, 2015 2014 100.0 % 100.0 % 89.9 % 92.7 % 10.1 % 7.3 % 5.1 % 3.7 % 3.6 % 1.1 % 8.6 % 4.7 % 2.8 % 2.4 % 0.3 % 0.1 % 5.5 % 2.2 % 1.8 % 0.9 % 3.7 % 1.3 %
Three Months Ended September 30, 2014March 31, 2015 Compared to the Three Months Ended September 30, 2013March 31, 2014
Net Sales
Net sales for the three months ended September 30, 2014March 31, 2015 decreased by $3.5$340.8 million, or 0.3%25.1%, to $1,305.5$1,018.3 million from $1,309.0$1,359.1 million for the three months ended September 30, 2013.March 31, 2014. Of the 0.3%25.1% decrease, 2.2%22.8% was due to lower selling prices which was partially offset by a favorable currency impact of approximately 1.0%, as the U.S. dollar weakened compared to the euro, and a 0.9% increase due to sales volume driven by higher SSBR volume. The overall decrease in selling prices was primarily due to the pass through of lower styrene pricesbutadiene costs to our customers in Latex and Synthetic Rubber and styrene monomer to our customers in Latex and Basic Plastics & Feedstocks. In addition, 6.9% of the Styrenics segment.decrease was related to an unfavorable currency impact across our segments, as the U.S. dollar strengthened compared to the euro. Partially offsetting these decreases was a 4.5% increase due to higher sales volumes across all of our reporting segments.
Cost of Sales
Cost of sales for the three months ended September 30, 2014 increasedMarch 31, 2015 decreased by $24.8$345.3 million, or 2.0%27.4%, to $1,237.3$915.2 million from $1,212.5$1,260.5 million for the three months ended September 30, 2013.March 31, 2014. Of the 2.0% increase, 5.3%27.4% decrease, 24.4% was attributable to higherlower prices in styrene-relatedfor raw materials, withprimarily butadiene and styrene monomer, while an additional 1.0% increase6.7% of the decrease was due to an unfavorablea favorable currency impact across our segments, as the U.S. dollar weakenedstrengthened compared to the euro. These increases were partially offset byPartially offsetting these decreases was a 4.1% decrease3.6% increase due to volume mix, as we had a decrease in higher cost products offsetting the increase in lower cost products.sales volumes across all of our reporting segments.
Gross Profit
Gross profit for the three months ended September 30, 2014 decreasedMarch 31, 2015 increased by $28.3$4.5 million, or 29.3%4.6%, to $68.2$103.1 million from $96.5$98.6 million for the three months ended September 30, 2013.March 31, 2014. The decreaseincrease was primarily attributable to lower margins in the Styrenics segment, driven by a reduction in the spread on styrene monomer production compared to the prior year,higher sales volumes across all of our reporting segments, which was partially offset by higher volume and margins in Synthetic Rubber.an unfavorable currency impact, as the U.S. dollar strengthened compared to the euro.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, or SG&A, expenses for the three months ended September 30, 2014 decreased by $5.7 million, or 10.6%,March 31, 2015 remained relatively flat compared to $48.1 million from $53.8 million for the three months ended September 30, 2013.March 31, 2015, increasing by $1.8 million, or 3.6%, to $51.8 million from $50.0 million. The decreaseincrease in SG&A expenses was primarily due to lower restructuring charges incurred in 2014increased costs of approximately $0.7$1.3 million related to the shutdownprocess of changing our latex facilitycorporate name from Styron to Trinseo, and increases in Altona, Australia compared to charges of $2.5 million in 2013, approximately $1.1 million less in advisory fees to Bain Capital compared to prior year as a result of the termination of the Advisory Agreement upon the consummation of the IPO on June 17, 2014, and decreases in incentive compensation and normal operating costs.other employee benefits. These decreasesincreases were partially offset by $2.0a $1.2 million of additional chargesdecrease in fees incurred in the third quarter of 2014 in connection with the restructuring of part of our Engineered Polymers businessrelated to exit the commodity market for polycarbonate in North America. For more information regarding the Advisory Agreement termination feewith Bain, which was terminated upon completion of the Company’s IPO in June 2014, and restructuring charges noted above, referby decreases related to Notes N and Qa favorable currency impact across our segments, as the U.S. dollar strengthened compared to the condensed consolidated financial statements.euro.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates for the three months ended September 30, 2014March 31, 2015 was $9.3$36.7 million compared to equity in earnings of $15.2$15.0 million for the three months ended September 30, 2013. AmStyMarch 31, 2014. Americas Styrenics equity earnings decreasedincreased to $10.9$35.2 million for the three months ended September 30, 2014March 31, 2015 from $15.2$15.5 million for the three months ended September 30, 2013 whileMarch 31, 2014, driven by higher polystyrene margin from lower raw material prices, and from higher volumes of styrene monomer sold. Sumika Styron Polycarbonate had equity lossesearnings of $1.6$1.5 million for the three months ended September 30, 2014 andMarch 31, 2015 compared to equity earningslosses of less than $0.1$0.5 million for the three months ended September 30, 2013, respectively. AmSty earnings decreased primarily dueMarch 31, 2014 as market conditions within polycarbonate begin to lower styrene production margins.improve.
Interest Expense, Net
Interest expense, net for the three months ended September 30, 2014March 31, 2015 was $30.1$28.9 million compared to $32.9$32.8 million for the three months ended September 30, 2013.March 31, 2014. This decrease in interest expense was primarily attributable to the redemption of $132.5 million in aggregate principal amount of the Senior Notes in July 2014 as well as the lower average borrowings and outstanding balance on the Accounts Receivable Securitization Facility during the three months ended September 30, 2014 compared to the three months ended September 30, 2013.
Loss on Extinguishment of Long-Term Debt
Loss on extinguishment of long-term debt was $7.4 million for the three months ended September 30, 2014, related to the redemption of $132.5 million in aggregate principal amount of the Senior Notes in July 2014, using proceeds from the Company’s IPO. This loss was comprised of a $4.0 million call premium and a $3.4 million write-off of related unamortized debt issuance costs. There was no loss on extinguishment of long-term debt incurred during the three months ended September 30, 2013.2014.
Other Expense (Income), net
Other income,expense, net for the three months ended September 30, 2014March 31, 2015 was $1.7$3.5 million, which consisted primarily of $2.2 million of net foreign exchange transaction gains, partially offset bylosses of approximately $3.0 million and other expenses.expenses of $0.5 million. During the thirdfirst quarter of 2014,2015, the Company recorded foreign exchange transaction gains of $21.8$18.0 million primarily driven by the remeasurement of our euro denominated payables due to the strengthening of the U.S. dollar against the euro during the quarter. Separately, beginning in the third quarter, the Company entered into foreign exchange forward contracts, andwhich recorded related losses of approximately $19.5$21.0 million, largely offsetting the above described net gains (seegains. See Note G7 in the condensed consolidated financial statements).statements for further details.
Other expense, net forin the three months ended September 30, 2013March 31, 2014 was $14.1$0.9 million, which consisted primarily of $11.9 million of foreign exchange transaction losses a $1.0of approximately $0.4 million additional loss on the sale of the Company’s Styrenics EPS business (refer to Note P in the condensed consolidated financial statements), and other expenses.
Foreignexpense of $0.5 million. The foreign exchange transaction gains and losses arewere driven primarily driven by the remeasurement of our net receivables denominated in Chinese renminbi, which weakened against the U.S. dollar during the first quarter of 2014. These losses were partially offset by foreign exchange transaction gains from our Indonesian rupiah and euro denominatednet payables to the U.S. dollar.
Provision for Income Taxes
Provision for income taxes for the three months ended September 30, 2014March 31, 2015 was $3.7 million, resulting in a negative effective tax rate of 56.5%. Provision for income tax for the three months ended September 30, 2013 was $6.0$17.9 million, resulting in an effective tax rate of 54.9%32.2%. Provision for income taxes for the three months ended March 31, 2014 was $12.8 million, resulting in an effective tax rate of 42.7%.
The decreaseincrease in provision for income taxes was primarily driven by a reductionthe $25.7 million, or 86.0%, increase in income before income taxes, from $10.9$29.9 million of income for the three months ended September 30, 2013March 31, 2014 to $6.5$55.6 million of loss for the three months ended September 30, 2014. March 31, 2015.
This decreaseincrease in the provision for income taxes was partially offset by a lower proportion of income before taxes attributable to non-U.S. jurisdictions, where the statutory income tax rate is lower than the U.S. statutory income tax rate.
Although the Company had losses before income taxes of $6.5 million for the three months ended September 30, 2014, approximately $22.6 million of losses were generated primarily within our holding companies incorporated in Luxembourg, which diddo not provide a tax benefit to the CompanyCompany. For the three months ended March 31, 2015 and therefore unfavorably impacted our effective tax rate during period. These2014 these losses stemmedtotaled approximately $18.0 million and $23.9 million, respectively. In both periods, these losses were primarily from non-deductible interest and stock-based compensation expenses. The effective income tax rate forSpecifically, the three months ended September 30, 2013 was impacted bydecrease in losses is the result of $15.4 million, primarilya decrease in non-deductible interest expense within our holding companies incorporated in Luxembourg, related to non-deductible interest and stock-based compensation expenses.
Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
Net Sales
Net sales for the nine months ended September 30, 2014 decreased by $56.7 million, or 1.4%, to $4,005.6 million from $4,062.3 million for the nine months ended September 30, 2013. Of the 1.4% decrease, 4.3% was due to lower selling prices, which was partially offset by a favorable currency impact of approximately 2.1% as the U.S. dollar weakened compared to the euro and a 1.1% increase in sales volume driven by the Synthetic Rubber segment. The overall decrease in selling prices was primarily due to the pass through of lower butadiene costs to our customers in Latex and Synthetic Rubber and styrene monomer to our Styrenics and Latex customers.
Cost of Sales
Cost of sales for the nine months ended September 30, 2014 decreased by $73.2 million, or 1.9%, to $3,746.3 million from $3,819.5 million for the nine months ended September 30, 2013. Of the 1.9% decrease, 2.0% was attributable to lower prices for raw materials, primarily butadiene and styrene monomer, while an additional 2.0% decrease was due to volume mix, as we had a decrease in higher cost products offsetting the increase in lower cost products. These decreases were partially offset by an unfavorable currency impact of approximately 2.1% due to the weakening of the U.S. dollar compared to the euro.
Gross Profit
Gross profit for the nine months ended September 30, 2014 increased by $16.5 million, or 6.8%, to $259.3 million from $242.8 million for the nine months ended September 30, 2013. The increase was primarily attributable to higher volume to SSBR customers due to the improving tire market in Europe, as well as higher margins due to lower raw material costs.
Selling, General and Administrative Expenses
SG&A expenses for the nine months ended September 30, 2014 increased by $17.4 million, or 11.2%, to $172.4 million from $155.0 million for the nine months ended September 30, 2013. The increase in SG&A expenses was primarily due to $23.3 million in termination fees paid related to the Advisory Agreement with Bain Capital which terminated upon consummation of the IPO on June 17, 2014, and $3.5 million of charges in connection with the restructuring part of our Engineered Polymers business to exit the commodity market for polycarbonate in North America. These increases were offset by higher restructuring charges incurred in the first three quarters of 2013 of approximately $9.0 million related to the shutdown of our latex facility in Altona, Australia compared to charges of $2.8 million in 2014. Other decreases in expenses included incentive compensation and other normal operating costs. For more information regarding the Advisory Agreement termination fee and restructuring charges noted above, refer to Notes N and Q to the condensed consolidated financial statements.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates for the nine months ended September 30, 2014 was $29.6 million compared to equity in earnings of $26.9 million for the nine months ended September 30, 2013. AmSty equity earnings increased to $33.2 million for the nine months ended September 30, 2014 from $27.6 million for the nine months ended September 30, 2013 primarily due to stronger operating performance driven by improved market conditions. Sumika Styron had equity losses of $3.6 million for the nine months ended September 30, 2014 and $0.6 million for the nine months ended September 30, 2013, respectively.
Interest Expense, Net
Interest expense, net for the nine months ended September 30, 2014 was $95.5 million compared to $98.9 million for the nine months ended September 30, 2013. The decrease in interest expense is primarily attributable to the redemption of $132.5 million in aggregate principal amount of the Senior Notes in July 2014 as well as lower average borrowings and outstanding principal balances on both the Revolving Facility and the Accounts Receivable Securitization Facility during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.
Loss on Extinguishment of Long-Term Debt
Loss on extinguishment of long-term debt was $7.4 million for the nine months ended September 30, 2014, related to the redemption of $132.5 million in aggregate principal amount of the Senior Notes in July 2014, using proceeds from the Company’s IPO. This loss was comprised of a $4.0 million call premium and a $3.4 million write-off of related unamortized debt issuance costs.
Loss on extinguishment of long-term debt was $20.7 million for the nine months ended September 30, 2013 related to the extinguishment of our $1,239.0 million Term Loans under our Senior Secured Credit Facility, which was comprised of the write-off of existing unamortized deferred financing fees and original issue discount attributable to the Term Loans totaling $14.4 million and $6.3 million, respectively.
Other Expense (Income), net
Other expense, net for the nine months ended September 30, 2014 was $29.3 million, which included a $32.5 million payment made to Dow in connection with termination of the Latex JV Option Agreement as discussed in Note N in the condensed consolidated financial statements, slightly offset by net foreign exchange transaction gains of $3.9 million.
During 2014, the Company recorded foreign exchange transaction gains of $23.4 million primarily driven by the remeasurement of our euro denominated payables due to the strengthening of the U.S. dollar against the euro during the year. Separately, beginning in the third quarter, the Company entered into foreign exchange forward contracts and recorded related losses of approximately $19.5 million, largely offsetting the above described net gains (see Note G in the condensed consolidated financial statements).
Other expense, net for the nine months ended September 30, 2013 was $19.8 million, which included a $4.2 million loss on the sale of the Company’s Styrenics EPS business (refer to Note P in the condensed consolidated financial statements), $12.2 million of foreign exchange transaction losses, and other expenses.
Foreign exchange transaction gains and losses are primarily driven by the remeasurement of our euro denominated payables to the U.S. dollar.
Provision for Income Taxes
Provision for income taxes for the nine months ended September 30, 2014 was $21.9 million, resulting in a negative effective tax rate of 138.3%. Provision for income taxes for the nine months ended September 30, 2013 was $8.1 million, resulting in a negative effective tax rate of 32.5%. The increase in provision for income taxes was primarily driven by higher taxable income in our subsidiaries outside of Luxembourg.
Although the Company had losses before income taxes of $15.8 million for the nine months ended September 30, 2014, approximately $119.8 million of losses were generated primarily within our holding companies incorporated in Luxembourg, which did not provide a tax benefit to the Company and therefore unfavorably impacted the effective tax rate during the period. Included in these losses were non-deductible interest and stock-based compensation expenses, as well as certain non-deductible expenses, such as a $32.5 million charge related to an agreement with Dow to terminate the Latex JV Option Agreement and approximately $18.6 million of fees related to the termination of the Advisory Agreement with Bain Capital. The effective income tax rate for the nine months ended September 30, 2013 was impacted by losses of $59.7 million, primarily within our holding companies incorporated in Luxembourg, related to non-deductible interest and stock-based compensation expenses.2014.
Partially offsetting this unfavorable impact to the effective tax rate was a tax benefit recognized during the nine months ended September 30, 2014, as the Company effectively settled its 2010 and 2011 audit with the IRS and received a refund of $3.2 million in July 2014. As a result, the Company recorded a previously unrecognized tax benefit in the amount of $2.7 million, including penalties and interest, relating to its 2011 tax return filing. No similar tax benefits were recorded in the nine months ended September 30, 2013.
Selected Segment Information
The following tables present net sales and EBITDA by segment and as a percentage of total net sales and net sales by segment, respectively, for the following periods:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||||
Net sales(1) | ||||||||||||||||||||||||
Latex segment | $ | 328.4 | $ | 332.1 | $ | 975.4 | $ | 1,033.8 | $ | 238.3 | $ | 326.3 | ||||||||||||
Synthetic Rubber segment | 155.5 | 141.5 | 497.1 | 474.1 | 129.4 | 176.7 | ||||||||||||||||||
Styrenics segment | 560.5 | 576.3 | 1,744.6 | 1,775.6 | ||||||||||||||||||||
Engineered Polymers segment | 261.1 | 259.1 | 788.5 | 778.8 | ||||||||||||||||||||
Performance Plastics segment | 196.9 | 202.0 | ||||||||||||||||||||||
Basic Plastics & Feedstocks segment | 453.7 | 654.1 | ||||||||||||||||||||||
Corporate unallocated(2) | — | — | — | — | — | — | ||||||||||||||||||
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Total | $ | 1,305.5 | $ | 1,309.0 | $ | 4,005.6 | $ | 4,062.3 | $ | 1,018.3 | $ | 1,359.1 | ||||||||||||
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EBITDA(3) | ||||||||||||||||||||||||
Latex segment | $ | 25.4 | $ | 24.0 | $ | 75.7 | $ | 72.8 | $ | 21.5 | $ | 25.5 | ||||||||||||
Synthetic Rubber segment | 26.6 | 12.8 | 106.7 | 71.4 | 26.2 | 43.1 | ||||||||||||||||||
Styrenics segment | 21.6 | 66.0 | 91.1 | 109.0 | ||||||||||||||||||||
Engineered Polymers segment | 1.8 | 2.0 | 4.6 | (1.8 | ) | |||||||||||||||||||
Performance Plastics segment | 25.1 | 17.3 | ||||||||||||||||||||||
Basic Plastics & Feedstocks segment | 59.0 | 22.6 | ||||||||||||||||||||||
Corporate unallocated(2) | (23.9 | ) | (37.8 | ) | (119.6 | ) | (106.2 | ) | (24.8 | ) | (22.1 | ) | ||||||||||||
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Total | $ | 51.5 | $ | 67.0 | $ | 158.5 | $ | 145.2 | $ | 107.0 | $ | 86.4 | ||||||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
Net sales(1) | ||||||||||||||||||||||||
Latex segment | 25.2 | % | 25.4 | % | 24.4 | % | 25.4 | % | ||||||||||||||||
Synthetic Rubber segment | 11.9 | % | 10.8 | % | 12.4 | % | 11.7 | % | ||||||||||||||||
Styrenics segment | 42.9 | % | 44.0 | % | 43.6 | % | 43.7 | % | ||||||||||||||||
Engineered Polymers segment | 20.0 | % | 19.8 | % | 19.6 | % | 19.2 | % | ||||||||||||||||
Corporate unallocated(2) | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||
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Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
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EBITDA(3) | ||||||||||||||||||||||||
Latex segment | 7.7 | % | 7.2 | % | 7.8 | % | 7.0 | % | ||||||||||||||||
Synthetic Rubber segment | 17.1 | % | 9.0 | % | 21.5 | % | 15.1 | % | ||||||||||||||||
Styrenics segment | 3.9 | % | 11.5 | % | 5.2 | % | 6.1 | % | ||||||||||||||||
Engineered Polymers segment | 0.7 | % | 0.8 | % | 0.6 | % | (0.2 | )% | ||||||||||||||||
Corporate unallocated(2) | (1.8 | )% | (2.9 | )% | (3.0 | )% | (2.6 | )% | ||||||||||||||||
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Total | 3.9 | % | 5.1 | % | 4.0 | % | 3.6 | % | ||||||||||||||||
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Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Net sales(1) | ||||||||
Latex segment | 23.4 | % | 24.0 | % | ||||
Synthetic Rubber segment | 12.7 | % | 13.0 | % | ||||
Performance Plastics segment | 19.3 | % | 14.9 | % | ||||
Basic Plastics & Feedstocks segment | 44.6 | % | 48.1 | % | ||||
Corporate unallocated(2) | — | — | ||||||
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Total | 100.0 | % | 100.0 | % | ||||
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EBITDA(3) | ||||||||
Latex segment | 9.0 | % | 7.8 | % | ||||
Synthetic Rubber segment | 20.2 | % | 24.4 | % | ||||
Performance Plastics segment | 12.7 | % | 8.6 | % | ||||
Basic Plastics & Feedstocks segment | 13.0 | % | 3.5 | % | ||||
Corporate unallocated(2) | (2.4 | )% | (1.6 | )% | ||||
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Total | 10.5 | % | 6.4 | % | ||||
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(1) | Inter-segment sales have been eliminated. |
(2) | Corporate unallocated includes corporate overhead costs |
(3) | EBITDA is a non-GAAP financial measure that we refer to in making operating decisions because we believe it provides meaningful supplemental information regarding our operational performance. We present EBITDA because we believe that it is useful for investors to analyze disclosures of our operating results on the same basis as that used by our management. We believe the use of EBITDA as a metric assists our board of directors, management and investors in comparing our operating performance on a consistent basis because it removes the impact of our capital structure (such as interest expense), asset base (such as depreciation and amortization) and tax structure. See a reconciliation of net income (loss) to EBITDA below: |
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||||
Net income (loss) | $ | (10.1 | ) | $ | 4.9 | $ | (37.6 | ) | $ | (32.8 | ) | |||||||||||||
Net income | $ | 37.7 | $ | 17.1 | ||||||||||||||||||||
Interest expense, net | 30.1 | 32.9 | 95.5 | 98.9 | 28.9 | 32.8 | ||||||||||||||||||
Provision for income taxes | 3.7 | 6.0 | 21.9 | 8.1 | 17.9 | 12.8 | ||||||||||||||||||
Depreciation and amortization | 27.8 | 23.2 | 78.7 | 71.0 | 22.5 | 23.7 | ||||||||||||||||||
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EBITDA | $ | 51.5 | $ | 67.0 | $ | 158.5 | $ | 145.2 | $ | 107.0 | $ | 86.4 | ||||||||||||
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There are limitations to using financial measures such as EBITDA. Other companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of our EBITDA results to our net income (loss), which is determined in accordance with GAAP.
Latex Segment
We are a global leader in SB latex, holding a strong market position across the geographies and applications in which we compete.compete, including the #1 position in SB latex in Europe and the #2 position in North America. We produce SB latex primarily for coated paper used in advertising and magazines, packaging board coatings, carpet and artificial turf backings, as well as a number of performance latex applications. For the ninethree months ended September 30, 2014,March 31, 2015, approximately half of our Latex segment’s net sales were generated in Europe, approximately 25% were generated in the United States and the remainder wasmajority of the remaining sales were generated in Asia and other geographies.Asia.
Three Months Ended September 30, 2014March 31, 2015 Compared to the Three Months Ended September 30, 2013March 31, 2014
Net sales for the three months ended September 30, 2014March 31, 2015 decreased by $3.7$88.0 million, or 1.1%27.0%, to $328.4$238.3 million from $332.1$326.3 million for the three months ended September 30, 2013.March 31, 2014. Of the 1.1%27.0% decrease in net sales, 1.9%24.1% was due to lower selling prices primarily from the pass through of lower styrene prices as well as continued competitive pressures, which was partially offset a by favorable currency impact of 0.7% as the U.S. dollar weakened compared the euro and a slight increase in sales volume.
EBITDA for the three months ended September 30, 2014 increased by $1.4 million, or 5.8%, to $25.4 million from $24.0 million for the three months ended September 30, 2013. The EBITDA increase was driven by a decrease in restructuring related charges of $1.8 million (see Note Q in the condensed consolidated financial statements), as well as higher volume impact of 2.8% and a decrease in fixed costs of approximately 17.5% driven by Altona operating costs in the prior year, a higher level of fixed cost absorption in the current year, and continued fixed cost management. These favorable impacts were partially offset by lower margins which decreased EBITDA by approximately 23.1%, due to higher raw material costs and a continued competitive environment.
Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
Net sales for the nine months ended September 30, 2014 decreased by $58.4 million, or 5.6%, to $975.4 million from $1,033.8 million for the nine months ended September 30, 2013. Of the 5.6% decrease in net sales, 5.2% was due to lower selling prices primarily from the pass through of lower butadiene and styrene cost and 1.9%5.0% was due to an unfavorable currency impact as the U.S. dollar strengthened compared to the euro. These decreases were slightly offset by a 2.1% increase from higher sales volume.
EBITDA for the three months ended March 31, 2015 decreased by $4.0 million, or 15.7%, to $21.5 million from $25.5 million for the three months ended March 31, 2014. Of this 15.7% decrease, 10.9% was driven by lower margins due to the timing of raw material costs and 6.7% was driven by higher fixed costs. In addition, currency had an unfavorable impact of approximately 3.5% as the U.S. dollar strengthened compared to the euro. Partially offsetting these decreases was a 5.2% increase in sales volume driven by lowerprimarily related to increased sales to the Europe and North America paper markets. The volume impact was partially offset by a 1.5% favorable currency impact as the U.S. dollar weakened compared to the euro.
EBITDA for the nine months ended September 30, 2014 increased by $2.9 million, or 4.0%, to $75.7 million from $72.8 million for the nine months ended September 30, 2013. The EBITDA increase was driven by a decrease in restructuring related charges of $6.2 million (see Note Q in the condensed consolidated financial statements) as well as a favorable currency impact of 1.4% as the U.S. dollar weakened compared to the euro. Offsetting these increases was lower sales volume, driven by lower sales to the Europe and North America paper markets, which caused EBITDA to decrease by 4.0%.
Synthetic Rubber Segment
We are a significant producer of styrene-butadiene and polybutadiene-based rubber products and we have a leading European market position in SSBR. While 100% of our sales were generated in Europe for the ninethree months ended September 30, 2014,March 31, 2015, approximately 15% of these net sales were exported to Asia, 10% to Latin America and 7%10% to North America.
We have a broad synthetic rubber technology and product portfolio, focusing on specialty products, such as SSBR and lithium polybutadiene rubber (“Li-PBR”),Li-PBR, while also producing core products, such as emulsion styrene-butadiene rubber (“ESBR”),ESBR and Ni-PBR. Our synthetic rubber products are extensively used in tires, with an estimated 86%approximately 85% of our net sales from this segment in 20132014 attributable to the tire market. We estimate that three quarters of these sales relate to replacement tires. We have strong relationships with many of the top global tire manufacturers and believe we have remained a supplier of choice as a result of our broad rubber portfolio and ability to offer technologically differentiated product and product customization capabilities. Other applications for our synthetic rubber products include polymer modification and technical rubber goods.
Three Months Ended September 30, 2014March 31, 2015 Compared to the Three Months Ended September 30, 2013March 31, 2014
Net sales for the three months ended September 30, 2014 increasedMarch 31, 2015 decreased by $14.0$47.3 million, or 9.9%26.8%, to $155.5$129.4 million from $141.5$176.7 million for the three months ended September 30, 2013.March 31, 2014. Of the 9.9% increase26.8% decrease in net sales, 5.1%19.6% was due to lower selling prices primarily resulting from the pass through of lower butadiene and styrene costs to customers and 10.6% was due to an unfavorable currency impact as the U.S. dollar strengthened compared to the euro. These decreases were slightly offset by a 3.5% increase infrom higher sales volume resulting from higher sales of SSBR to tire producers,producers.
EBITDA for the three months ended March 31, 2015 decreased by $16.9 million, or 39.2%, to $26.2 million from $43.1 million for the three months ended March 31, 2014. Of this decrease, 42.6% was driven by lower margins primarily related to the timing of raw material costs and 3.1%an unfavorable currency impact of approximately 6.6% as the U.S. dollar strengthened compared to the euro. Partially offsetting these decreases was a 2.6% increase due to sales volume driven by higher SSBR sales and a 7.2% increase due to higher fixed costs absorption, driven by a build of inventory in anticipation of a planned outage in the second quarter of 2015.
Performance Plastics Segment
Our Performance Plastics segment produces highly engineered compounds and blends for automotive end markets, as well as consumer electronics, medical, and lighting, which we collectively call consumer essential markets, or CEM. Our strategy in this segment focuses on developing differentiated compounds and blends in line with key industry trends, such as light-weighting and improved aesthetics in automotive, increased recycled material content and a push toward LED lighting in CEM. Our history of innovation has contributed to long-standing relationships with customers who are recognized leaders in their respective end-markets. We have established a strong market presence in the global automotive and electronics sector, targeting both component suppliers and final product manufacturers.
In automotive end applications, we aim to maintain and develop sustainable, long-standing relationships with industry leaders, taking advantage of our production capacity located across Europe, Asia, North America, and Latin America to drive original equipment manufacturer, or OEM, platform design wins. We believe that the strategic locations of these facilities combined with close customer collaboration to develop offerings tailored to their needs offers us a strategic advantage in serving our customers.
Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014
Net sales for the three months ended March 31, 2015 decreased by $5.1 million, or 2.5%, to $196.9 million from $202.0 million for the three months ended March 31, 2014. Of the 2.5% decrease in net sales, 2.5% was due to higherlower selling prices mostly from higher butadieneprimarily related to the pass through of lower raw material costs passed throughand 5.7% was due to customers. A favorablean unfavorable currency impact contributed an additional 1.7% increase as the U.SU.S. dollar weakenedstrengthened compared to the euro. These decreases were partially offset by a 5.6% increase in sales volume, primarily to the consumer electronics market in Asia.
EBITDA for the three months ended September 30, 2014 more than doubled compared to the prior year, increasingMarch 31, 2015 increased by $13.8$7.8 million, or 107.8%45.1%, to $26.6$25.1 million compared to $12.8from $17.3 million for the three months ended September 30, 2013. Higher volume,March 31, 2014. The EBITDA increase was driven by an increase in SSBR sales and margin, driven by favorablevolume, primarily to the consumer electronics market in Asia, as well as higher margins due to decreasing raw material cost timing, resulted incosts during the quarter, which contributed to 69.6% of the increase. Slightly offsetting this increase was a 127.7% increase in EBITDA. These favorable impacts were partially offset by a 22.0% decrease in EBITDA due to higher fixed costs related primarily to a planned turnaround at one of our ESBR plants.
Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
Net sales for the nine months ended September 30, 2014 increased by $23.0 million, or 4.9%, to $497.1 million from $474.1 million for the nine months ended September 30, 2013. Of the 4.9% increase in net sales, 11.0% was due to an increase in sales volume resulting from higher sales of SSBR to tire producers, and 3.3% was due to a favorable7.7% unfavorable currency impact as the U.SU.S. dollar weakenedstrengthened compared to the euro. These increases were offset by lower selling priceseuro and a 16.9% decrease due to the pass through of lower butadiene costs to customers, which decreased net sales by approximately 9.5%.increased fixed costs.
EBITDA for the nine months ended September 30, 2014 increased by $35.3 million, or 49.4%, to $106.7 million from $71.4 million for the nine months ended September 30, 2013. Higher volume, driven by higher SSBR sales, and margin, driven by favorable raw material cost timing, increased EBITDA by approximately 57.0%. In addition, currency had a favorable impact of approximately 3.7% as the U.S. dollar weakened compared to the euro. These increases were partially offset by higher fixed costs, which decreased EBITDA by approximately 11.2%, and were driven by a lower level of fixed cost absorption.
StyrenicsBasic Plastics & Feedstocks Segment
Our StyrenicsBasic Plastics & Feedstocks segment includesconsists of styrenic polymers, including polystyrene, acrylonitrile butadiene-styrene (“ABS”)ABS, and styrene-acrylonitrile (“SAN”)SAN products, as well as PC and styrene monomer, which includes our internal production and sourcing of styrene, monomer, a raw material common in SB latex, synthetic rubber and styrenics products. We are a leading producer of polystyrene and mass ABS, or mABS, where we focus our efforts on differentiated applications such as the liners and encasements of appliances and consumer electronics including smartphones and tablets. Within these applications, we have worked collaboratively with customers to develop more advanced grades of plastics such as our high impact polystyrene, (“HIPS”)or HIPS, and mABS products. These products offer superior properties, such as rigidity, insulation and colorability, and, in some cases, an improved environmental footprint compared to general purpose polystyrene or emulsion ABS. Our StyrenicsThrough this segment we also servesserve the packaging and construction end-markets, where we have launched a new general purpose polystyrene product for improved performance in foam insulation applications.
PC has high levels of clarity, impact resistance and temperature resistance. PC can be used in its neat form (prior to any compounding or blending) for markets such as construction sheet, optical media and LED lighting. Additionally, PC can be compounded or blended with other polymers, such as ABS, which imparts specific performance attributes tailored to the product’s end-use. A significant portion of our PC is consumed in our Performance Plastics segment for the manufacture of our compounds and blends products. We continue to drive improvements in profitability of PC as a result of savings from our restructuring activities, as well as from improvements in industry supply and demand.
This segment also includes the results of our two 50%-owned joint ventures, Americas Styrenics and Sumika Styron Polycarbonate. We do not anticipate investing for organic growth in this segment in the near term. Rather, our strategy for this segment is focused on operational enhancements, margin improvement, and cash generation.
Three Months Ended September 30, 2014March 31, 2015 Compared to the Three Months Ended September 30, 2013March 31, 2014
Net sales for the three months ended September 30, 2014March 31, 2015 decreased by $15.8$200.4 million, or 2.7%30.6%, to $560.5$453.7 million from $576.3$654.1 million for the three months ended September 30, 2013.March 31, 2014. Of the 2.7%30.6% decrease in net sales, 4.5% was driven by decreases in selling prices due primarily to the pass through of lower styrene cost to customers, partially offset by a favorable currency impact of approximately 1.0% as the U.S. dollar weakened compared to the euro and a 0.8% increase due to sales volume.
EBITDA for the three months ended September 30, 2014 decreased by $44.4 million, or 67.3%, to $21.6 million from $66.0 million for the three months ended September 30, 2013. Of the 67.3% decrease, 65.3% was due to lower margins, driven by a reduction in the spread on styrene monomer production compared to the prior year. In addition, a $4.4 million decrease in equity earnings from our AmSty joint venture resulted in a 6.6% reduction in EBITDA. These decreases were partially offset by a 4.5% increase from lower fixed costs and a 1.5% increase due to an impairment loss in the prior year in connection with the sale of our EPS business.
Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
Net sales for the nine months ended September 30, 2014 decreased by $31.0 million, or 1.7%, to $1,744.6 million from $1,775.6 million for the nine months ended September 30, 2013. Of the 1.7% decrease in net sales, 3.6%29.2% was driven by decreases in selling prices due to the pass through of lower styrene costs to customers and approximately 0.3%7.1% was due to a decrease in sales volume.unfavorable currency impact as the U.S. dollar strengthened compared to the euro. These decreases were partially offset by a 2.2% favorable currency impact to our net sales as the U.S. dollar weakened compared to the euro.
EBITDA for the nine months ended September 30, 2014 decreased by $17.9 million, or 16.4%, to $91.1 million from $109.0 million for the nine months ended September 30, 2013. Of the 16.4% decrease, 27.3% was driven by lower margins due mainly to a reduction in the spread on styrene monomer production margins compared to the prior year. Also contributing to the decrease was a 7.9% reduction5.7% increase in sales volume driven by lower sales in Europe and Asia polystyrene. These decreases were offset by a 7.9% increase in EBITDA due to lower fixed costs, driven by the EPS divestiture and continued cost management, as well as a 5.1% increase due to equity earnings from our AmSty joint venture which increased $5.6 million during the nine months ended September 30, 2014. Currency had a favorable impact of approximately 2.1%.
Engineered Polymers Segment
We are a leading producer of engineered polymers. Our products are predominantly used in the automotive, consumer electronics, construction, and medical device markets. We are focused on differentiated products which we produce in our polymer and compounds and blends manufacturing facilities located across Europe, Asia, North America and Latin America. We believe that the strategic locations of these facilities combined with close customer collaboration offers us a strategic advantage in serving our customers. Many of our polycarbonate (“PC”) products and more than half of our compounds and blends products are differentiated based on their physical properties, performance and aesthetic advantages. Our history of innovation has contributed to long-standing relationships with customers who are recognized leaders in their respective end-markets. We have established a strong market presence in the global automotive and electronics sector, targeting both component suppliers and final product manufacturers. Our Engineered Polymers segment also compounds and blends our PC and mABS plastics into differentiated products for customers within these sectors, as well as into compounds of polypropylene. We have also developed compounds containing post-consumer recycle polymers to respond to what we believe is a growing need for some customers to include recycled content in their products. We are currently focused on reducing costs in order to improve our competitiveness in polycarbonate.
Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013
Net sales for the three months ended September 30, 2014 increased by $2.0 million, or 0.8%, to $261.1 million from $259.1 million for the three months ended September 30, 2013. The 0.8% increase in net sales was primarily due to favorable currency impactcustomer restocking in the current year, after a period of approximately 0.8% asdestocking in the U.S. dollar weakened compared to the euro, with minimal impact from changes in volume or selling price.latter half of 2014.
EBITDA for the three months ended September 30, 2014 decreasedMarch 31, 2015 increased by $0.2$36.4 million, or 10.0%161.1%, to $1.8$59.0 million from $2.0$22.6 million for the three months ended September 30, 2013. This decrease was primarily due to lower equity affiliate income from Sumika Styron which was mostly offset by lower utility costs in our Polycarbonate business.
Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
Net sales for the nine months ended September 30, 2014 increased by $9.7 million, or 1.2%, to $788.5 million from $778.8 million for the nine months ended September 30, 2013.March 31, 2014. The 1.2%EBITDA increase in net sales was due to higher volume, higher margins, improved polycarbonate market conditions and our polycarbonate restructuring efforts, as well as fixed costs savings from our exit of the Freeport, Texas polycarbonate manufacturing agreement. In addition, increased equity earnings from our two joint ventures, primarily Americas Styrenics, contributed to 96.5% of the increase. Increased EBITDA from Americas Styrenics was driven by higher polystyrene margin from lower raw material prices, and from higher volumes of styrene monomer sold. Partially offsetting these increases was a favorable21.6% unfavorable currency impact of 1.8% as the U.S. dollar weakenedstrengthened compared to the euro, as well as increased sales volume of approximately 1.1% from higher sales to the Europe, North America, and Asia automotive markets as well as the Asia electronics market. These increases were partially offset by a 1.6% decrease in selling prices primarily due to the continued competitive challenges in the polycarbonate market.
EBITDA for the nine months ended September 30, 2014 increased by $6.4 million, or 355.6%, to $4.6 million from $(1.8) million for the nine months ended September 30, 2013. This increase was primarily due to higher volume and margins in 2014 from sales of our compounds and blends products to the automotive and electronic markets.euro.
Other Important Performance Measures
We believe that the presentation of Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation provides investors with a useful analytical indicator of our performance and of our ability to service our indebtedness.
We define Adjusted EBITDA as income (loss) from continuing operations before interest expense, net; income tax provision; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; advisory fees paid to affiliates of Bain Capital; gains or losses on the dispositions of businesses and assets; restructuring and other non-recurring items. We describe these other costs in more detail below.
We present Adjusted EBITDA excluding inventory revaluation in order to facilitate the comparability of results from period to period by adjusting cost of sales to reflect the cost of raw material during the period, which is often referred to as the replacement cost method of inventory valuation. We believe this measure minimizes the impact of raw material purchase price volatility in evaluating our performance. Our approach to calculating inventory revaluation is intended to represent the difference between the results under the FIFO and the replacement cost methods. However, our calculation could differ from the replacement cost method if the monthly raw material standards are different from the actual raw material prices during the month and production and purchase volumes differ from sales volumes during the month. These factors could have a significant impact on the inventory revaluation calculation.
There are limitations to using financial measures such as Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation. These performance measures are not intended to represent cash flow from operations as defined by GAAP and should not be used as alternatives to net income (loss) as indicators of operating performance or to cash flow as measures of liquidity. Other companies in our industry may define Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation differently than we do. As a result, it may be difficult to use these or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of these performance measures to our net income (loss), which is determined in accordance with GAAP.
Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation are calculated as follows for the three and nine months ended September 30,March 31, 2015 and 2014, and 2013, respectively:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income (loss) | $ | (10.1 | ) | $ | 4.9 | $ | (37.6 | ) | $ | (32.8 | ) | |||||
Interest expense, net | 30.1 | 32.9 | 95.5 | 98.9 | ||||||||||||
Provision for income taxes | 3.7 | 6.0 | 21.9 | 8.1 | ||||||||||||
Depreciation and amortization | 27.8 | 23.2 | 78.7 | 71.0 | ||||||||||||
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EBITDA(a) | $ | 51.5 | $ | 67.0 | $ | 158.5 | $ | 145.2 | ||||||||
Loss on extinguishment of long-term debt | 7.4 | — | 7.4 | 20.7 | ||||||||||||
Asset impairment charges or write-offs (b) | — | — | — | 0.7 | ||||||||||||
Net loss on disposition of businesses and assets (c) | — | 1.0 | — | 4.2 | ||||||||||||
Restructuring and other charges (d) | 0.8 | 2.6 | 3.5 | 9.1 | ||||||||||||
Fees paid pursuant to advisory agreement (e) | — | 1.2 | 25.4 | 3.6 | ||||||||||||
Other non-recurring items (f) | 1.9 | — | 34.4 | 1.1 | ||||||||||||
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Adjusted EBITDA | $ | 61.6 | $ | 71.8 | $ | 229.2 | $ | 184.6 | ||||||||
Inventory revaluation | 0.8 | 26.4 | (7.4 | ) | 52.4 | |||||||||||
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Adjusted EBITDA, excluding inventory revaluation (g) | $ | 62.4 | $ | 98.2 | $ | 221.8 | $ | 237.0 | ||||||||
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Three Months Ended March 31, | ||||||||
(in millions) | 2015 | 2014 | ||||||
Net income | $ | 37.7 | $ | 17.1 | ||||
Interest expense, net | 28.9 | 32.8 | ||||||
Provision for income taxes | 17.9 | 12.8 | ||||||
Depreciation and amortization | 22.5 | 23.7 | ||||||
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EBITDA(a) | $ | 107.0 | $ | 86.4 | ||||
Restructuring and other charges (b) | 0.5 | 0.5 | ||||||
Fees paid pursuant to advisory agreement (c) | — | 1.2 | ||||||
Other non-recurring items (d) | 1.3 | — | ||||||
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Adjusted EBITDA | $ | 108.8 | $ | 88.1 | ||||
Inventory revaluation | 42.1 | (5.6 | ) | |||||
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Adjusted EBITDA, excluding inventory revaluation (e) | $ | 150.9 | $ | 82.5 | ||||
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(a) | We refer to EBITDA in making operating decisions because we believe it provides meaningful supplemental information regarding our operational performance. Other companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of our EBITDA results to our net income (loss), which is determined in accordance with GAAP. See |
(b) |
Restructuring and other charges for the three |
Represents fees paid under the terms of our Advisory Agreement with Bain Capital. |
Other non-recurring items |
See the discussion above this table for a description of Adjusted EBITDA, excluding inventory revaluation. |
Liquidity and Capital Resources
Cash Flows
The table below summarizes our primary sources and uses of cash for the ninethree months ended September 30,March 31, 2015 and 2014, and 2013, respectively. We have derived the summarized cash flow information from our unaudited financial statements.
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
(in millions) | 2014 | 2013 | 2015 | 2014 | ||||||||||||
Net cash provided by (used in): | ||||||||||||||||
Operating activities | $ | 1.7 | $ | 93.6 | $ | 42.9 | $ | (1.2 | ) | |||||||
Investing activities | (62.7 | ) | (24.3 | ) | (27.1 | ) | (40.8 | ) | ||||||||
Financing activities | 21.6 | (153.1 | ) | (9.5 | ) | (15.4 | ) | |||||||||
Effect of exchange rates on cash | (5.0 | ) | 1.2 | |||||||||||||
Effect of exchange rates on cash* | (8.4 | ) | — | |||||||||||||
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Net change in cash and cash equivalents | $ | (44.4 | ) | $ | (82.6 | ) | $ | (2.1 | ) | $ | (57.4 | ) | ||||
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* | For the three months ended March 31, 2014, the effect of exchange rates on cash was less than $0.1 million. |
Operating Activities
Net cash provided by operating activities during the ninethree months ended September 30,March 31, 2015 totaled $42.9 million, driven by the overall strong earnings for the quarter. Also impacting cash provided by operating activities for the period was an increase due to $15.0 million in dividends from our 50%-owned joint venture, Americas Styrenics, and a decrease due to a $52.2 million semi-annual interest payment made on the Senior Notes. Net cash used in operating assets and liabilities for the three months ended March 31, 2015 totaled $7.3 million, the most significant components of which were increases in accounts receivable of $42.1 million and decreases in accounts payable and other current and non-current liabilities of $29.9 million, offset by a decrease in inventories of $53.7 million. The increase in accounts receivable is primarily due to timing of customer payments, as net sales remained relatively consistent from the fourth quarter of 2014 to the first quarter of 2015. Accounts payable and other current liabilities decreased mainly due to the timing of payments to vendors and continued decreases in the prices of raw materials. Inventory decreased due to higher volume sold during the first quarter of 2015 when compared to the fourth quarter of 2014, as well as decreases in raw materials prices.
Net cash used in operating activities during the three months ended March 31, 2014 totaled $1.7$1.2 million, with net cash used in operating assets and liabilities totaling $66.5$42.7 million. The most significant components of the changes in operating assets and liabilities for the ninethree months ended September 30,March 31, 2014 of $66.5$42.7 million was an increase in accounts receivable of $42.0 million, and a decrease in other liabilities of $19.2 million. The increase in accounts receivable is primarily due to higher sales during the third quarter of 2014, compared to the fourth quarter of 2013. Our other liabilities decreased mainly due to reductions in normal operating costs. Our operating cash flow for the nine months ended September 30, 2014 was negatively impacted by two significant one-time cash payments in the second quarter of 2014 totaling approximately $55.8 million related to the termination of our Latex JV Option Agreement with Dow and our Advisory Agreement with Bain Capital. Refer to Note N of the condensed consolidated financial statements for further details.
Net cash provided by operating activities during the nine months ended September 30, 2013 totaled $93.6 million, with net cash provided by operating assets and liabilities totaling $26.5 million. The most significant components of the changes in operating assets and liabilities for the nine months ended September 30, 2013 of $26.5 million were decreases in inventories of $93.9 million offset by increases in accounts receivable of $41.5$79.2 million, and decreasesoffset by increases in accounts payable and other current liabilities of $31.7$18.5 million and decreases in inventories of $20.1 million. Inventory decreased due to lower raw materials prices in the third quarter of 2013, as well as a decrease in volumes on hand compared to the fourth quarter of 2012, due to unusually higher inventory volumes on hand at the end of 2012 resulting from our rubber capacity expansion project placed in operation in the fourth quarter of 2012. The increase in accounts receivable reflects an increase in sales in September 2013,during the first quarter of 2014 when compared to sales in December 2012,the fourth quarter of 2013, driven primarily by higher sales volume . Increase in accounts receivable was alsoand a favorable impact of currency exchange primarily between U.S. dollar and the euro. Inventory decreased due to extended credit termshigher volume sold during the first quarter of 2014 when compared to certain customers, and accelerated collectionthe fourth quarter of receivables in December 2012. Accounts2013. Our accounts payable and other current liabilities decreasedincreased mainly due to the timing of payments in normal course of business, lower production volumes, and lower raw materials prices in the third quarter of 2013.payments.
Investing Activities
Net cash used in investing activities for the ninethree months ended September 30, 2014March 31, 2015 totaled $62.7$27.1 million consisting primarily of capital expenditures of $69.3$27.7 million during the period.
Net cash used in investing activities for the three months ended March 31, 2014 totaled $40.8 million consisting primarily of capital expenditures of $41.1 million, of which approximately $26.1 million (€19.0 million) was related to the Company’s acquisition of production capacity rights from JSR at its rubber production facility in Schkopau, Germany. These investing activities were partially offset by cash proceeds of $6.3 million from the sale of a portion of land at our manufacturing site in Livorno, Italy.
Net cash used in investing activities for the nine months ended September 30, 2013 totaled $24.3 million consisting primarily of capital expenditures of $52.3 million during the period, offset by proceeds received from a government subsidy of $6.6 million related to our capital expansion project at our rubber facility in Schkopau, Germany. Also offsetting these capital expenditures were cash proceeds from the sale of our EPS business of $15.2 million received on September 30, 2013 and cash proceeds of $7.9 million from our accounts receivable securitization facility released from restrictions. Refer to Note P of the condensed consolidated financial statements for details of the EPS business divestiture.
Financing Activities
Net cash provided byused in financing activities during the ninethree months ended September 30, 2014March 31, 2015 totaled $21.6$9.5 million. During the period, the Company completed the IPO of 11,500,000 ordinary shares at a price of $19.00 per share. As a result, the Company received net cash proceeds from the issuance of common stock of $198.1 million, which is net of underwriting discounts as well as advisory, accounting, and legal expenses directly related to the offering. In July 2014, using proceeds from the Company’s IPO, the Company redeemed $132.5 million in aggregate principal amount of the Senior Notes (see Note L of the condensed consolidated financial statements for further details). In addition, we had net repayments of short-term borrowings of $43.4$9.5 million, which largely consisted of borrowings under our short-term revolving credit facility through our subsidiary in China. We also continue to utilize
Net cash used in financing activities during the three months ended March 31, 2014 totaled $15.4 million. During the period, we had net repayments of short-term borrowings of $14.8 million, which largely consisted of borrowings under our short-term revolving credit facility through our subsidiary in China. In addition, during the period, we utilized our Accounts Receivable Securitization Facility to fund our working capital requirements. For the ninethree months ended September 30,March 31, 2014, we had borrowings from our Accounts Receivable Securitization Facility of $283.3$61.0 million and repayments of $283.9$61.5 million, resulting in net repayments of $0.6$0.5 million due to changes in foreign currency exchange rates, as a portion of our borrowings under the Accounts Receivable Securitization Facility originate in euros.
Net cash used in financing activities during the nine months ended September 30, 2013 totaled $153.1 million. During the period, we repaid our outstanding Term Loans of $1,239.0 million using the proceeds from the issuance of $1,325.0 million in Senior Notes issued in January 2013. In connection with the issuance of the Senior Notes and the amendments to our Senior Secured Credit Facility and our Accounts Receivable Securitization Facility, we paid approximately $46.8 million of refinancing fees. In addition, during the period, we continued to utilize our Revolving Facility and our Accounts Receivable Securitization Facility to fund our working capital requirements. During the nine months ended September 30, 2013, our borrowings and repayments to our Revolving Facility were $405.0 million and $525.0 million, respectively, and we had net repayments to our Accounts Receivable Securitization Facility of $39.6 million.
Indebtedness and Liquidity
The following table outlines our outstanding indebtedness as of September 30, 2014March 31, 2015 and December 31, 20132014 and the associated interest expense, including amortization of deferred financing fees, and debt discounts, and effective interest rates for such borrowings as of September 30, 2014March 31, 2015 and December 31, 2013.2014. Note that the effective interest rates below exclude the impact of deferred financing fee amortization.
As of and for the Nine Months Ended September 30, 2014 | As of and for the Year Ended December 31, 2013 | As of and for the Three Months Ended March 31, 2015 | As of and for the Year Ended December 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | Balance | Effective Interest Rate | Interest Expense | Balance | Effective Interest Rate | Interest Expense | Balance | Effective Interest Rate | Interest Expense | Balance | Effective Interest Rate | Interest Expense | ||||||||||||||||||||||||||||||||||||
Senior Secured Credit Facility | ||||||||||||||||||||||||||||||||||||||||||||||||
Term Loans | $ | — | n/a | $ | — | $ | — | n/a | $ | 8.0 | ||||||||||||||||||||||||||||||||||||||
Revolving Facility | — | 0 | % | 3.5 | — | 6.6 | % | 5.7 | — | — | 1.2 | — | — | 4.7 | ||||||||||||||||||||||||||||||||||
Senior Notes | 1,192.5 | 8.8 | % | 88.7 | 1,325.0 | 8.8 | % | 111.9 | 1,192.5 | 8.8 | % | 27.5 | 1,192.5 | 8.8 | % | 116.2 | ||||||||||||||||||||||||||||||||
Accounts Receivable Securitization Facility | — | 2.7 | % | 3.3 | — | 3.1 | % | 5.6 | — | — | 1.0 | — | 2.7 | % | 4.3 | |||||||||||||||||||||||||||||||||
Other Indebtedness | 11.1 | 1.2 | % | 0.1 | 11.4 | 1.6 | % | 0.1 | ||||||||||||||||||||||||||||||||||||||||
Other Indebtedness* | 6.3 | 1.5 | % | — | 9.7 | 1.1 | % | 0.1 | ||||||||||||||||||||||||||||||||||||||||
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Total | $ | 1,203.6 | $ | 95.6 | $ | 1,336.4 | $ | 131.3 | $ | 1,198.8 | $ | 29.7 | $ | 1,202.2 | $ | 125.3 | ||||||||||||||||||||||||||||||||
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* | For the three months ended March 31, 2015, interest expense on Other Indebtedness was less than $0.1 million. |
Senior Secured Credit Facility
In January 2013, the Company amended its Senior Secured Credit Facility to, among other things, increase its Revolving Facility borrowing capacity from $240.0 million to $300.0 million, decrease the borrowing rate of the Revolving Facility through a decrease in the applicable margin rate from 4.75% to 3.00% as applied to base rate loans (which shall bear interest at a rate per annum equal to the base rate plus the applicable margin (as defined therein)), or 5.75% to 4.00% as applied to LIBO rate loans (which shall bear interest at a rate per annum equal to the LIBO rate plus the applicable margin and the mandatory cost (as defined therein), if applicable), and extend the maturity date to January 2018. Concurrently, the Company repaid its then outstanding Term Loans of $1,239.0 million using the proceeds from its sale of $1,325.0 million aggregate principal amount of the 8.750% Senior Notes issued in January 2013.
This amendment replaced the Company’s total leverage ratio requirement with a first lien net leverage ratio (as defined under the amended agreement) and removed the interest coverage ratio requirement. If the outstanding balance on the Revolving Facility exceeds 25% of the $300.0 million borrowing capacity (excluding undrawn letters of credit up to $10.0 million) at a quarter end, then the Company’s first lien net leverage ratio may not exceed 5.25 to 1.00 for the quarter ending March 31, 2013, 5.00 to 1.00 for the subsequent quarters through December 31, 2013, 4.50 to 1.00 for each of the quarters ending in 2014 and 4.25 to 1.00 for each of the quarters ending in 2015 and thereafter. As of September 30, 2014,March 31, 2015, the Company was in compliance with all debt covenant requirements under the Senior Secured Credit Facility.
There wereAs of March 31, 2015, the Company had no amounts outstanding under the Revolving Facility asborrowings, and had $291.2 million (net of September 30, 2014. Available$8.8 million outstanding letters of credit) of funds available for borrowings under the Revolving Facility totaled $293.1 million (net of $6.9 million of outstanding letters of credit) as of September 30, 2014.Facility.
Senior Notes
In January 2013, the Company issued $1,325.0 million 8.750% Senior Notes.Notes under the indenture. Interest on the Senior Notes is payable semi-annually on February 1st and August 1st of each year, which commenced on August 1, 2013. The notes will mature on February 1, 2019, at which time the principal amounts then outstanding will be due and payable. The proceeds from the issuance of the Senior Notes were used to repay all of the Company’s outstanding Term Loans and related refinancing fees and expenses.
The Company may redeem all or part of the Senior Notes at any time prior to August 1, 2015 by paying a call premium, plus accrued and unpaid interest to the redemption date. The Company may redeem all or part of the Senior Notes at any time after August 1, 2015 at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the notes redeemed, to the applicable date of redemption, if redeemed during the twelve-month period beginning on of the year indicated below:
12-month period commencing August 1 in Year | Percentage | |||
2015 | 104.375 | % | ||
2016 | 102.188 | % | ||
2017 and thereafter | 100.000 | % |
In addition, at any time prior to August 1, 2015, the Company may redeem up to 35% of the original principal amount of the notes at a redemption price equal to 108.750% of the face amount thereof plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds that the Company raises in certain equity offerings. The Company may also redeem, during any 12-month period commencing from the issue date until August 1, 2015, up to 10% of the original principal amount of the Senior Notes at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.
In July 2014, using proceeds from the Company’s IPO, (see Note L to the condensed consolidated financial statements), the Company redeemed $132.5 million in aggregate principal amount of the Senior Notes, including a 103% call premium totaling $4.0 million, together with accrued and unpaid interest thereon of $5.2 million. As a result of this redemption, during the third quarter of 2014 the Company incurred a loss on the extinguishment of debt of approximately $7.4 million, which includes the above $4.0 million call premium and a $3.4 million write-off of related unamortized debt issuance costs. Pursuant to the Indenture,indenture, the Company may redeem another 10% of the original principal amount of the Senior Notes prior to August 1, 2015.
The Senior Notes rank equally in right of payment with all of the Company’s existing and future senior secured debt and pari passu with the Company and the Guarantors’ (as defined below) indebtedness that is secured by first-priority liens, including the Company’s Senior Secured Credit Facility (as defined above), to the extent of the value of the collateral securing such indebtedness and ranking senior in right of payment to all of the Company’s existing and future subordinated debt. However, claims under the Senior Notes effectively rank behind the claims of holders of debt, including interest, under ourthe Senior Secured Credit Facility in respect of proceeds from any enforcement action with respect to the collateral or in any bankruptcy, insolvency or liquidation proceeding. The Senior Notes are unconditionally guaranteed on a senior secured basis by each of ourthe Company’s existing and future wholly-owned subsidiaries that guarantee ourthe Senior Secured Credit Facility (other than ourthe Company’s subsidiaries in France and Spain) (the “Guarantors”). The note guarantees rank equally in right of payment with all of the Guarantors’ existing and future senior secured debt and senior in right of payment to all of the Guarantors’ existing and future subordinated debt. The notes are structurally subordinated to all of the liabilities of each of ourthe Company’s subsidiaries that do not guarantee the notes.
The indenture contains covenants that, among other things, limit the Company’s ability and the ability of the Company’s restricted subsidiaries to incur additional indebtedness, pay dividends or make other distributions, subject to certain exceptions. If the Senior Notes are assigned an investment grade by the rating agencies and the Company is not in default, certain covenants will be suspended. If the ratings on the Senior Notes decline to below investment grade, the suspended covenants will be reinstated. As of September 30, 2014,March 31, 2015, the Company was in compliance with all debt covenant requirements under the indenture.
Accounts Receivable Securitization Facility
In May 2013, the Company amended its existing Accounts Receivable Securitization Facility, which increased its borrowing capacity from $160.0 million to $200.0 million, extended the maturity date to May 2016 and allows for the expansion of the pool of eligible accounts receivable to include previously excluded U.S. and Netherlands subsidiaries.
The Accounts Receivable
Securitization Facility is subject to interest charges against the amount of outstanding borrowings as well as the amount of available, but undrawn borrowings. As a result of the amendment to our Accounts Receivable Securitization Facility, in regards to outstanding borrowings, fixed interest charges decreased from 3.25% plus commercial paper rates to 2.60% plus variable commercial paper rates. In regards to available, but undrawn borrowings, fixed interest charges decreased from 1.50% to 1.40%.
As of September 30, 2014,March 31, 2015, there were no amounts outstanding under the Accounts Receivable Securitization Facility, with approximately $186.1$147.7 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.
Other Indebtedness
As of September 30, 2014,March 31, 2015, we had $8.8$4.1 million of outstanding borrowings under our short-term revolving credit facility through our subsidiary in China that provides for up to $15.0 million of uncommitted funds available for borrowings, subject to the availability of collateral. The facility is subject to annual renewal.
Our Senior Secured Credit Facility limits our foreign working capital facilities to an aggregate principal amount of $75.0 million and further limits our foreign working capital facilities in certain jurisdictions in Asia, including China, to an aggregate principal amount of $25.0 million, except as otherwise permitted by the Senior Secured Credit Facility.
Capital Resources and Liquidity
Our sources of liquidity include cash on hand, cash flow from operations and amounts available under the Senior Secured Credit Facility and the Accounts Receivable Securitization Facility. We believe, based on our current level of operations, that these sources of liquidity will be sufficient to fund our operations, capital expenditures and debt service for at least the next twelve months.
Our liquidity requirements are significant due to our highly leveraged nature, as well as our working capital requirements. As of September 30, 2014,March 31, 2015, we had $1,203.6$1,198.8 million in outstanding indebtedness and $817.3$717.7 million in working capital. As of December 31, 2013,2014, we had $1,336.4$1,202.2 million in outstanding indebtedness and $810.2$748.7 million in working capital. As of September 30, 2014March 31, 2015 and December 31, 2013,2014, we had $76.8$103.8 million and $74.0$94.7 million of foreign cash and cash equivalents on our balance sheet, respectively, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries.
As discussed above, in January 2013, we repaid our outstanding Term Loans of $1,239.0 million through issuance of $1,325.0 million in Senior Notes. Concurrently, with this repayment, we amended our Senior Secured Credit Facility to increase our Revolving Facility borrowing capacity from $240.0 million to $300.0 million. Also, in May 2013, we amended our Accounts Receivable Securitization Facility to increase our borrowing capacity from $160.0 million to $200.0 million, extend the maturity date to May 2016, and expand the pool of eligible accounts receivable to include previously excluded U.S. and Netherlands subsidiaries. These amendments to our facilities provide for additional liquidity resources for us.
Also noted above, in July 2014, using proceeds from the Company’s IPO, the Company redeemed $132.5 million in aggregate principal amount of the Senior Notes, at a 103% call premium totaling $4.0 million, together with accrued and unpaid interest thereon of $5.2 million.
Our ability to raise additional financing and our borrowing costs may be impacted by short and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios.
We and our subsidiaries, affiliates or significant direct or indirect shareholders may from time to time seek to retire or purchase our outstanding debt through cash purchases in the open market, privately negotiated transactions, exchange transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
We cannot make assurances that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Senior Secured Credit Facility in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Further, our highly leveraged nature may limit our ability to procure additional financing in the future. As of September 30, 2014March 31, 2015 and December 31, 2013,2014, we were in compliance with all the covenants and default provisions under our credit arrangements.
We believe that funds provided by operations, our existing cash and cash equivalent balances, borrowings available under our Revolving Facility and borrowings available under our Accounts Receivable Securitization Facility will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current operating conditions. However, if we were to undertake any significant acquisitions or investments, it may be necessary for us to obtain additional debt or equity financings. We may not be able to obtain such financing on reasonable terms, or at all.
Debt Refinancing
In May 2015, the Company executed the refinancing of its current debt profile through the issuance of $700.0 million equivalent in gross proceeds of senior notes and entering a new senior secured credit facility, which included a $500.0 million term loan facility and a revolving credit facility with a borrowing capacity of $325.0 million.
The net proceeds from the senior notes offering, together with approximately $500.0 million of borrowings under the term loan facility and available cash, will be used to repay all outstanding indebtedness under the Issuers’ 8.750% Senior Secured Notes due 2019 totaling $1,192.5 million, together with a call premium of approximately $69.0 million and accrued and unpaid interest thereon of approximately $30.0 million.
This new capital structure is expected to reduce the Company’s annual interest expense by approximately $37.0 million. See “—2015 Year-to-Date Highlights” for further detail.
Contractual Obligations and Commercial Commitments
Other than the impact of payments related to the terminationissuance of our Advisory Agreement with Bain Capitalnew our senior notes and the redemption of $132.5 millionnew senior secured credit facility which occurred in Senior Notes in July 2014 in connection with the IPOMay 2015 (discussed in Notes N and FNote 19 to the condensed consolidated financial statements, respectively)statements), there have been no material revisions outside the ordinary course of business to our contractual obligations as described within “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Commercial Commitments” within our Registration Statement.Annual Report.
Critical Accounting Policies and Estimates
Our unaudited interim condensed consolidated financial statements are based on the selection and application of significant accounting policies. The preparation of unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses at the date of and during the reporting period. Actual results could differ from those estimates. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.
We describe our significant accounting policies in Note B,2, Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Registration Statement,Annual Report, while we discuss our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Registration Statement.Annual Report.
There have been no material revisions to the critical accounting policies as filed in our Registration Statement.Annual Report.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note B2 to our condensed consolidated financial statements, included elsewhere within this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Registration Statement,Annual Report, we are exposed to changes in interest rates and foreign currency exchange rates as well as changes in the prices of certain commodities that we use in production. There have been no material changes in our exposure to market risks from the information provided within our Registration Statement.Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining internal controls designed to provide reasonable assurance that information required to be disclosed by us in our reports that we file or submit under the Exchange Act (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, with the participation of our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2014March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
From time to time we may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as product liability, antitrust, competition, waste disposal practices, release of chemicals into the environment and other matters that may arise in the ordinary course of our business. We currently believe that there is no litigation pending that is likely to have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Our business faces various risks. Certain important factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the risk factors related to our ordinary shares which have been previously disclosed in Item 1A. of our Quarterly Report on Form 10-Q for the period ended June 30, 2014 as well those risk factors related to our business and industry which have been previously disclosed in Item 1A. of our Registration Statement under “Risk Factors- Risks relating to our Business and our Industry”,Annual Report for the year ended December 31, 2014, for which there have been no material changes. We encourage you to consider these risks, in their entirety, in addition to other information contained in or incorporated by reference into this Quarterly Report and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) | Recent sales of unregistered securities |
None.
(b) | Use of Proceeds from registered securities |
On June 11, 2014, our Registration Statement on Form S-1, as amended (File No. 333-194561), relating to our initial public offering of 10,000,000 ordinary shares was declared effective by the SEC. On June 17, 2014, we closed the sale of 11,500,000 of our ordinary shares at a price of $19 per share, which included the sale of an additional 1,500,000 shares of our ordinary shares pursuant to underwriters’ over-allotment option. Goldman, Sachs & Co., Deutsche Bank Securities Inc., Citigroup and Morgan Stanley & Co. LLC served as joint book-running managers and the representatives of the underwriters. Barclays Capital Inc., BofA Merrill Lynch, HSBC Securities (USA) Inc. and Jefferies LLC also acted as book-running managers. Mizuho Securities USA Inc., Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc. and Wells Fargo Securities, LLC acted as co-managers of the offering.
We paid to the underwriters underwriting discounts and commissions totaling $15.3 million in connection with the offering. In addition, we incurred additional costs of $5.1 million in connection with the offering, which when added to the underwriting discounts and commissions paid by us, amounts to total fees and costs of $20.4 million. We received $198.1 million of proceeds from the offering, net of underwriting fees and estimated expenses. No offering costs were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.
On July 14, 2014, the net proceeds from the offering were used to redeem $132.5 million in aggregate principal amount of our 8.750% Senior Secured Notes due 2019, at a redemption price equal to 103% of the principal amount plus accrued and unpaid interest through the redemption date. The remaining proceeds were used to pay fees and expenses associated with the offering and for working capital and general corporate purposes.None.
(c) | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
See Exhibit Index.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: November 14, 2014May 8, 2015
TRINSEO S.A. | ||
By: | ||
Name: | Christopher D. Pappas | |
Title: | President and Chief Executive Officer
| |
By: | ||
Name: | John A. Feenan | |
Title: | Executive Vice President and Chief Financial Officer
|
EXHIBIT INDEX
Exhibit No. | Description | |
3.1 | Amended and Restated Articles of Association of Trinseo S.A. (incorporated herein by reference to Exhibit 3.1 to | |
4.1 | Form of Specimen Share Certificate of Trinseo S.A. (incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to the Registration Statement filed on Form S-1, File No. 333-194561, filed May 16, 2014) | |
4.2 | Indenture, dated as of January 29, 2013, including Form of 8.750% Senior Secured Notes due 2019, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.1 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013) | |
4.3 | First Supplemental Indenture, dated as of March 12, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.2 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013) | |
4.4 | Second Supplemental Indenture, dated as of May 10, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.3 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013) | |
4.5 | Third Supplemental Indenture, dated as of September 16, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.4 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013) | |
4.6 | Fourth Supplemental Indenture, dated as of December 3, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.9 to Amendment No. 1 to the Registration Statement filed on Form S-4, File No. 333-191460, filed December 6, 2013) | |
4.7 | Fifth Supplemental Indenture, dated as of July 9, 2014, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee. (incorporated herein by reference to Exhibit 4.7 to the quarterly report on Form 10-Q for the quarterly period ended June 30, 2014, File No. 001-36473, filed August 11, 2014) | |
4.8 | Intercreditor and Collateral Agency Agreement, dated as of January 29, 2013, by and among Trinseo Materials Operating S.C.A., the other Grantors party hereto, Deutsche Bank AG New York Branch, Wilmington Trust, National Association and each Additional Collateral Agent from time to time party hereto. (incorporated herein by reference to Exhibit 4.5 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013) | |
4.9 | Registration Rights Agreement, dated as of January 29, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors party hereto and Deutsche Bank Securities Inc. (incorporated herein by reference to Exhibit 4.6 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013) | |
4.10 | Purchase Agreement, dated January 24, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors party hereto and Deutsche Bank Securities Inc. (incorporated herein by reference to Exhibit 4.8 to Amendment No. 1 to the Registration Statement filed on Form S-4, File No. 333-191460, filed December 6, 2013) | |
4.11 | Joinder to Purchase Agreement, dated May 10, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors party hereto and Deutsche Bank Securities Inc. (incorporated herein by reference to Exhibit 4.7 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013) |
31.1† | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2† | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1†† | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2†† | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101* | INS — XBRL Instance Document | |
101* | SCH — XBRL Taxonomy Extension Schema Document | |
101* | CAL — XBRL Taxonomy Extension Calculation Linkbase Document | |
101* | DEF — XBRL Taxonomy Extension Definition Linkbase Document | |
101* | LAB — XBRL Taxonomy Extension Label Linkbase Document | |
101* | PRE — XBRL Taxonomy Extension Presentation Linkbase Document |
† | Filed herewith. |
†† | Furnished herewith. |
* | Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |