UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2023
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 PLC
Trinseo S.A.
(Exact name of registrant as specified in its charter)
| |
Ireland | N/A |
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|
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
440 East Swedesford Road
1000 Chesterbrook BoulevardSuite 301
Suite 300Wayne, PA19087
Berwyn, PA 19312
(Address of Principal Executive Offices)
(610) (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 ☒ 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 ☒ No ◻ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | |
| | | | | |
| | | | | |
Large accelerated filer | ☒ | Accelerated filer | ◻ |
| |
| | | | | |
Non-accelerated filer | ◻ | Smaller reporting company |
| Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of Each Class | Trading symbol | Name of Exchange on which registered |
Ordinary Shares, par value $0.01 per share | TSE | New York Stock Exchange |
As of November 1, 2017,April 28, 2023, there were 43,704,68935,146,342 of the registrant’s ordinary shares outstanding.
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| | Notes to Condensed Consolidated Financial Statements (Unaudited) | | 9 | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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2
Trinseo PLC
Trinseo S.A.
Quarterly Report on Form 10-Q
For the quarterly period ended September 30, 2017March 31, 2023
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.PLC (NYSE: TSE), a public limited liability company (société anonyme) existing under the laws of Luxembourg,Ireland, and not its subsidiaries. The terms “Company,” “we,” “us” and “our” refer to Trinseo and its consolidated subsidiaries, taken as a consolidated entity. Trinseo PLC is the surviving entity of a cross-border merger with our predecessor company, Trinseo S.A., which merger was completed in October 2021. All financial data provided in this Quarterly Report is the financial data of the Company,Trinseo PLC, unless otherwise indicated.
Prior to the formation of the Company, our business was wholly owned by The Dow Chemical Company (together with other affiliates, “Dow”). In June 2010, investment funds advised The Company may distribute cash to shareholders under Irish law via dividends or managed by affiliatesdistributions made out of Bain Capital Partners, LLCdistributable profits.
Definitions of capitalized terms not defined herein appear within our Annual Report on Form 10-K for the year ended December 31, 2022 (“Bain Capital”Annual Report”) acquired an ownership interest in our business through an indirect ownership interest in us. During 2016, Bain Capital Everest Manager Holding SCA (“the former Parent”), an affiliate of Bain Capital, sold its entire ownership interest in the Company pursuant to the Company’s shelf registration statement filed with the Securities and Exchange Commission (“SEC”). on February 27, 2023.
Definitions of capitalized terms not defined herein appear in the notes to our condensed consolidated financial statements.The Company may distribute cash to shareholders under Luxembourg law via repayments of equity or an allocation of statutory profits. Since the Company began paying dividends, all distributions have been considered repayments of equity under Luxembourg law.
Cautionary Note on Forward-Looking Statements
This Quarterly Report contains, forward-looking statements including, without limitation, statements concerning plans, objectives, goals, projections, forecasts, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. Forward-looking statements may be identified by the use of words like “expect,” “anticipate,” “believe,” “intend,” “forecast,” ”estimate,” “see,” “outlook,” “will,” “may,” “might,” “potential,” “likely,” “target,” “plan,” “contemplate,” “seek,” “attempt,” “should,” “could,” “would”“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 cause future results to differ from those expressed by the forward-looking statements, or otherwise 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, our ability to successfully execute our transformation strategy and business strategy; increased costs or disruption in the supply of raw materials; increased energy costs; our ability to successfully generate cost savings and increase profitability through asset restructuring initiatives; compliance with laws and regulations impacting our business; conditions in the global economy and capital markets; our ability to successfully investigate and remediate chemical releases on or from our sites, make related capital expenditures, reimburse third-party cleanup costs or settle potential regulatory penalties or other claims; and those discussed in our Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”) filed with the SEC on March 1, 2017February 27, 2023 under Part I, Item IA— “Risk Factors”, and elsewhereFactors,” within this Quarterly Report.Report and in other filings and furnishings made by the Company with the SEC from time to time.
As a result of these or other factors, our actual results, performance or achievements 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. Therefore, we caution you against relying on 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.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge through the Investor Relations section of our website, www.trinseo.com, as soon as reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange Commission.SEC. We provide this website and information contained in or connected to it for informational purposes only. That information is not a part of this Quarterly Report.
3
PART I —FINANCIAL INFORMATION
TRINSEO S.A.PLC
Condensed Consolidated Balance Sheets
(In thousands,millions, except per share data)
(Unaudited)
| | | | | | | |
| | March 31, | | December 31, | | ||
|
| 2023 | | 2022 | | ||
Assets |
| | | | |
| |
Current assets | | | | | | | |
Cash and cash equivalents | | $ | 217.1 | | $ | 211.7 | |
Accounts receivable, net of allowance for doubtful accounts (March 31, 2023: $6.9; December 31, 2022: $7.3) | | | 622.5 | | | 586.0 | |
Inventories | |
| 502.6 | |
| 553.6 | |
Other current assets | |
| 34.1 | |
| 39.4 | |
Total current assets | |
| 1,376.3 | |
| 1,390.7 | |
Investments in unconsolidated affiliates | |
| 252.7 | |
| 255.1 | |
Property, plant and equipment, net of accumulated depreciation (March 31, 2023: $708.4; December 31, 2022: $668.8) | |
| 681.0 | | | 691.1 | |
Other assets | | | | | | | |
Goodwill | |
| 414.2 | |
| 410.4 | |
Other intangible assets, net | |
| 759.4 | |
| 772.0 | |
Right-of-use assets - operating, net | | | 73.0 | | | 76.1 | |
Deferred income tax assets | |
| 114.2 | |
| 97.3 | |
Deferred charges and other assets | |
| 70.7 | |
| 67.5 | |
Total other assets | |
| 1,431.5 | |
| 1,423.3 | |
Total assets | | $ | 3,741.5 | | $ | 3,760.2 | |
Liabilities and shareholders’ equity | | | | | | | |
Current liabilities | | | | | | | |
Short-term borrowings and current portion of long-term debt | | $ | 16.6 | | $ | 16.0 | |
Accounts payable | |
| 454.6 | |
| 438.1 | |
Current lease liabilities - operating | | | 16.7 | | | 17.1 | |
Income taxes payable | |
| 2.7 | |
| 9.9 | |
Accrued expenses and other current liabilities | |
| 227.2 | |
| 208.3 | |
Total current liabilities | |
| 717.8 | |
| 689.4 | |
Noncurrent liabilities | | | | | | | |
Long-term debt, net of unamortized deferred financing fees | |
| 2,299.9 | |
| 2,301.6 | |
Noncurrent lease liabilities - operating | | | 57.2 | | | 60.2 | |
Deferred income tax liabilities | |
| 53.7 | |
| 59.8 | |
Other noncurrent obligations | |
| 236.7 | |
| 228.9 | |
Total noncurrent liabilities | |
| 2,647.5 | |
| 2,650.5 | |
Commitments and contingencies (Note 13) | | | | | | | |
Shareholders’ equity | | | | | | | |
Ordinary shares, $0.01 nominal value, 4,000.0 shares authorized (March 31, 2023: 39.3 shares issued and 35.2 shares outstanding; December 31, 2022: 39.2 shares issued and 35.1 shares outstanding) | | | 0.4 | | | 0.4 | |
Preferred shares, €0.01 nominal value, 1,000.0 shares authorized (no shares issued or outstanding) | | | — | | | — | |
Deferred ordinary shares, €1.00 nominal value, 0.025 shares authorized (March 31, 2023: 0.025 shares issued and outstanding; December 31, 2022: 0.025 shares issued and outstanding) | | | — | | | — | |
Additional paid-in-capital | |
| 493.3 | |
| 486.7 | |
Treasury shares, at cost (March 31, 2023: 4.1 shares; December 31, 2022: 4.1 shares) | | | (200.0) | | | (200.0) | |
Retained earnings | |
| 210.4 | |
| 264.5 | |
Accumulated other comprehensive loss | |
| (127.9) | |
| (131.3) | |
Total shareholders’ equity | |
| 376.2 | |
| 420.3 | |
Total liabilities and shareholders’ equity | | $ | 3,741.5 | | $ | 3,760.2 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
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|
| September 30, |
| December 31, |
| |
|
|
| 2017 |
| 2016 |
| |
Assets |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 318,703 |
| $ | 465,114 |
|
Accounts receivable, net of allowance for doubtful accounts (September 30, 2017: $6,045; December 31, 2016: $3,138) |
|
| 719,094 |
|
| 564,428 |
|
Inventories |
|
| 483,158 |
|
| 385,345 |
|
Other current assets |
|
| 24,591 |
|
| 17,999 |
|
Total current assets |
|
| 1,545,546 |
|
| 1,432,886 |
|
Investments in unconsolidated affiliates |
|
| 161,883 |
|
| 191,418 |
|
Property, plant and equipment, net of accumulated depreciation (September 30, 2017: $505,100; December 31, 2016: $420,343) |
|
| 600,067 |
|
| 513,757 |
|
Other assets |
|
|
|
|
|
|
|
Goodwill |
|
| 62,774 |
|
| 29,485 |
|
Other intangible assets, net |
|
| 207,819 |
|
| 177,345 |
|
Deferred income tax assets—noncurrent |
|
| 46,942 |
|
| 40,187 |
|
Deferred charges and other assets |
|
| 31,521 |
|
| 24,412 |
|
Total other assets |
|
| 349,056 |
|
| 271,429 |
|
Total assets |
| $ | 2,656,552 |
| $ | 2,409,490 |
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt |
| $ | 7,000 |
| $ | 5,000 |
|
Accounts payable |
|
| 415,709 |
|
| 378,029 |
|
Income taxes payable |
|
| 32,006 |
|
| 23,784 |
|
Accrued expenses and other current liabilities |
|
| 140,988 |
|
| 135,357 |
|
Total current liabilities |
|
| 595,703 |
|
| 542,170 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
Long-term debt, net of unamortized deferred financing fees |
|
| 1,165,924 |
|
| 1,160,369 |
|
Deferred income tax liabilities—noncurrent |
|
| 40,332 |
|
| 24,844 |
|
Other noncurrent obligations |
|
| 284,551 |
|
| 237,054 |
|
Total noncurrent liabilities |
|
| 1,490,807 |
|
| 1,422,267 |
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
Ordinary shares, $0.01 nominal value, 50,000,000 shares authorized (September 30, 2017: 48,778 shares issued and 43,703 shares outstanding; December 31, 2016: 48,778 shares issued and 44,301 shares outstanding) |
|
| 488 |
|
| 488 |
|
Additional paid-in-capital |
|
| 576,790 |
|
| 573,662 |
|
Treasury shares, at cost (September 30, 2017: 5,075 shares; December 31, 2016: 4,477 shares) |
|
| (263,673) |
|
| (217,483) |
|
Retained earnings |
|
| 423,456 |
|
| 258,540 |
|
Accumulated other comprehensive loss |
|
| (167,019) |
|
| (170,154) |
|
Total shareholders’ equity |
|
| 570,042 |
|
| 445,053 |
|
Total liabilities and shareholders’ equity |
| $ | 2,656,552 |
| $ | 2,409,490 |
|
4
TRINSEO PLC
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(Unaudited)
| | | | | | | |
| Three Months Ended | | | ||||
| March 31, | |
| ||||
| 2023 |
| 2022 |
|
| ||
Net sales | $ | 996.3 |
| $ | 1,386.7 | | |
Cost of sales |
| 959.1 | |
| 1,210.7 | | |
Gross profit |
| 37.2 | |
| 176.0 | | |
Selling, general and administrative expenses |
| 84.7 | |
| 96.7 | | |
Equity in earnings of unconsolidated affiliates |
| 17.6 | |
| 21.6 | | |
Impairment and other charges | | 0.3 | | | 36.3 | | |
Operating income (loss) |
| (30.2) | |
| 64.6 | | |
Interest expense, net |
| 38.3 | |
| 21.9 | | |
Other expense (income), net | | (2.9) | | | 3.0 | | |
Income (loss) from continuing operations before income taxes |
| (65.6) | |
| 39.7 | | |
Provision for (benefit from) income taxes |
| (16.7) | |
| 22.6 | | |
Net income (loss) from continuing operations | | (48.9) | | | 17.1 | | |
Net loss from discontinued operations, net of income taxes | | — | | | (0.4) | | |
Net income (loss) | $ | (48.9) | | $ | 16.7 | | |
Weighted average shares- basic | | 35.0 | | | 37.3 | | |
Net income (loss) per share- basic: | | | | | | | |
Continuing operations | $ | (1.40) | | $ | 0.46 | | |
Discontinued operations | | — | | | (0.01) | | |
Net income (loss) per share- basic | $ | (1.40) | | $ | 0.45 | | |
Weighted average shares- diluted |
| 35.0 | |
| 38.1 | | |
Net income (loss) per share- diluted: | | | | | | | |
Continuing operations | $ | (1.40) | | $ | 0.45 | | |
Discontinued operations | | — | | | (0.01) | | |
Net income (loss) per share- diluted | $ | (1.40) | | $ | 0.44 | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
5
TRINSEO S.A.PLC
Condensed Consolidated Statements of Operations
(In thousands, except per share data)millions)
(Unaudited)
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net sales |
| $ | 1,096,582 |
| $ | 935,410 |
| $ | 3,346,271 |
| $ | 2,799,188 |
|
Cost of sales |
|
| 949,457 |
|
| 795,026 |
|
| 2,876,137 |
|
| 2,349,392 |
|
Gross profit |
|
| 147,125 |
|
| 140,384 |
|
| 470,134 |
|
| 449,796 |
|
Selling, general and administrative expenses |
|
| 65,732 |
|
| 73,900 |
|
| 181,552 |
|
| 180,635 |
|
Equity in earnings of unconsolidated affiliates |
|
| 43,807 |
|
| 36,686 |
|
| 93,029 |
|
| 110,314 |
|
Operating income |
|
| 125,200 |
|
| 103,170 |
|
| 381,611 |
|
| 379,475 |
|
Interest expense, net |
|
| 18,436 |
|
| 18,832 |
|
| 55,355 |
|
| 56,542 |
|
Loss on extinguishment of long-term debt |
|
| 65,260 |
|
| — |
|
| 65,260 |
|
| — |
|
Other expense (income), net |
|
| (11) |
|
| 1,084 |
|
| (6,072) |
|
| 16,628 |
|
Income before income taxes |
|
| 41,515 |
|
| 83,254 |
|
| 267,068 |
|
| 306,305 |
|
Provision for income taxes |
|
| 8,300 |
|
| 16,000 |
|
| 56,400 |
|
| 66,500 |
|
Net income |
| $ | 33,215 |
| $ | 67,254 |
| $ | 210,668 |
| $ | 239,805 |
|
Weighted average shares- basic |
|
| 43,745 |
|
| 45,865 |
|
| 43,900 |
|
| 47,152 |
|
Net income per share- basic |
| $ | 0.76 |
| $ | 1.47 |
| $ | 4.80 |
| $ | 5.09 |
|
Weighted average shares- diluted |
|
| 44,782 |
|
| 46,961 |
|
| 45,046 |
|
| 48,041 |
|
Net income per share- diluted |
| $ | 0.74 |
| $ | 1.43 |
| $ | 4.68 |
| $ | 4.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
| $ | 0.36 |
| $ | 0.30 |
| $ | 1.02 |
| $ | 0.60 |
|
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 | | ||
Net income (loss) |
| $ | (48.9) |
| $ | 16.7 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Cumulative translation adjustments (net of tax of $0.0 and $0.0) | | | 10.5 | |
| (4.3) | |
Net gain (loss) on cash flow hedges (net of tax (benefit) of $(2.5) and $0.0) | | | (7.4) | | | 1.5 | |
Pension and other postretirement benefit plans: | | | | | | | |
Amounts reclassified from accumulated other comprehensive income | | | 0.3 | | | 0.3 | |
Total other comprehensive income (loss), net of tax | |
| 3.4 | |
| (2.5) | |
Comprehensive income (loss) | | $ | (45.5) | | $ | 14.2 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
6
TRINSEO S.A.PLC
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, unless otherwise stated)millions, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Shares |
| Shareholders' Equity | |||||||||||||||||||||||
|
| Ordinary Shares Outstanding | | Treasury Shares | | Deferred Ordinary Shares |
| Ordinary Shares | | Deferred Ordinary Shares | | Additional |
| Treasury Shares |
| Accumulated Other Comprehensive Income (Loss) |
| Retained Earnings |
| Total | |||||||
Balance at December 31, 2022 |
| 35.1 | | 4.1 | | — | | $ | 0.4 | | $ | — | | $ | 486.7 | | $ | (200.0) | | $ | (131.3) | | $ | 264.5 | | $ | 420.3 |
Net loss |
| — | | — | | — | | | — | | | — | | | — | | | — | | | — | | | (48.9) | |
| (48.9) |
Other comprehensive income |
| — | | — | | — | | | — | | | — | | | — | | | — | | | 3.4 | | | — | |
| 3.4 |
Share-based compensation activity |
| 0.1 | | — | | — | | | — | | | — | | | 6.6 | | | — | | | — | | | — | |
| 6.6 |
Dividends on ordinary shares ($0.14 per share) | | — | | — | | — | | | — | | | — | | | — | | | — | | | — | | | (5.2) | | | (5.2) |
Balance at March 31, 2023 |
| 35.2 | | 4.1 | | — | | $ | 0.4 | | $ | — | | $ | 493.3 | | $ | (200.0) | | $ | (127.9) | | $ | 210.4 | | $ | 376.2 |
Balance at December 31, 2021 |
| 37.9 | | 1.0 | | — | | $ | 0.4 | | $ | — | | $ | 468.1 | | $ | (50.0) | | $ | (147.2) | | $ | 741.8 | | $ | 1,013.1 |
Net income |
| — | | — | | — | |
| — | | | — | |
| — | |
| — | |
| — | |
| 16.7 | |
| 16.7 |
Other comprehensive loss |
| — | | — | | — | |
| — | | | — | |
| — | |
| — | |
| (2.5) | |
| — | |
| (2.5) |
Share-based compensation activity |
| 0.2 | | — | | — | |
| — | | | — | |
| 7.6 | |
| — | |
| — | |
| — | |
| 7.6 |
Purchase of treasury shares | | (0.9) | | 0.9 | | — | | | — | | | | | | — | | | (50.0) | | | — | | | — | | | (50.0) |
Dividends on ordinary shares ($0.32 per share) | | — | | — | | — | | | — | | | — | | | — | | | — | | | — | | | (12.1) | | | (12.1) |
Balance at March 31, 2022 |
| 37.2 | | 1.9 | | — | | $ | 0.4 | | $ | — | | $ | 475.7 | | $ | (100.0) | | $ | (149.7) | | $ | 746.4 | | $ | 972.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net income |
| $ | 33,215 |
| $ | 67,254 |
| $ | 210,668 |
| $ | 239,805 |
|
Other comprehensive income (loss), net of tax (tax amounts shown in millions below for the three and nine months ended September 30, 2017 and 2016, respectively): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustments |
|
| (1,561) |
|
| 1,488 |
|
| 21,614 |
|
| 3,906 |
|
Net loss on cash flow hedges |
|
| (3,715) |
|
| (2,280) |
|
| (21,491) |
|
| (3,676) |
|
Pension and other postretirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss arising during period (net of tax of: 2017—$0 and $0; 2016—$0 and ($0.5)) |
|
| — |
|
| — |
|
| — |
|
| (800) |
|
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| 840 |
|
| 533 |
|
| 3,012 |
|
| 1,612 |
|
Total other comprehensive income (loss), net of tax |
|
| (4,436) |
|
| (259) |
|
| 3,135 |
|
| 1,042 |
|
Comprehensive income |
| $ | 28,779 |
| $ | 66,995 |
| $ | 213,803 |
| $ | 240,847 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
7
TRINSEO S.A.PLC
Condensed Consolidated Statements of Shareholders’ Equity
(In thousands, except per share data)millions)
(Unaudited)
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 | | ||
Cash flows from operating activities |
| |
|
| |
|
|
Net income (loss) | | $ | (48.9) | | $ | 16.7 | |
Less: Net loss from discontinued operations | | | — | | | (0.4) | |
Net income (loss) from continuing operations | | | (48.9) | | | 17.1 | |
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities - continuing operations | | | | | | | |
Depreciation and amortization | |
| 56.0 | |
| 53.0 | |
Amortization of deferred financing fees and issuance discount | |
| 2.3 | |
| 2.3 | |
Deferred income tax (benefit) | |
| (16.6) | |
| 9.0 | |
Share-based compensation expense | |
| 8.2 | |
| 8.3 | |
Earnings of unconsolidated affiliates, net of dividends | |
| 2.4 | |
| (14.1) | |
Unrealized net (gain) loss on foreign exchange forward contracts | |
| 1.5 | |
| (2.6) | |
Unrealized net loss on commodity economic swap contracts | | | 5.8 | | | — | |
Gain on sale of businesses and other assets | |
| — | | | (0.3) | |
Impairment charges or write-offs | |
| 0.3 | | | 0.7 | |
Changes in assets and liabilities | | | | | | | |
Accounts receivable | |
| (29.2) | |
| (79.8) | |
Inventories | |
| 55.1 | |
| (66.2) | |
Accounts payable and other current liabilities | |
| 26.5 | |
| 42.0 | |
Income taxes payable | |
| (7.0) | |
| 5.9 | |
Other assets, net | |
| 3.8 | |
| 12.7 | |
Other liabilities, net | |
| (14.8) | |
| 6.8 | |
Cash provided by (used in) operating activities - continuing operations | |
| 45.4 | |
| (5.2) | |
Cash provided by operating activities - discontinued operations | | | — | | | 0.2 | |
Cash provided by (used in) operating activities | | | 45.4 | | | (5.0) | |
Cash flows from investing activities | | | | | | | |
Capital expenditures | |
| (21.8) | |
| (23.9) | |
Cash paid for asset or business acquisitions, net of cash acquired ($0.0 and $1.0) | | | — | | | (22.2) | |
Cash used in investing activities - continuing operations | |
| (21.8) | |
| (46.1) | |
Cash used in investing activities - discontinued operations | | | — | | | (0.9) | |
Cash used in investing activities | | | (21.8) | | | (47.0) | |
Cash flows from financing activities | | | | | | | |
Short-term borrowings, net | |
| (2.7) | |
| (3.6) | |
Purchase of treasury shares | | | — | | | (51.9) | |
Dividends paid | | | (11.8) | | | (12.4) | |
Proceeds from exercise of option awards | | | 0.1 | | | 1.7 | |
Withholding taxes paid on restricted share units | | | (1.3) | | | (0.8) | |
Acquisition-related contingent consideration payment | | | (1.2) | | | — | |
Repurchases and repayments of long-term debt | | | (3.6) | | | (3.6) | |
Cash used in financing activities | |
| (20.5) | |
| (70.6) | |
Effect of exchange rates on cash | |
| 2.3 | |
| (1.7) | |
Net change in cash, cash equivalents, and restricted cash | |
| 5.4 | |
| (124.3) | |
Cash, cash equivalents, and restricted cash—beginning of period | |
| 211.7 | |
| 573.0 | |
Cash, cash equivalents, and restricted cash—end of period | | $ | 217.1 | | $ | 448.7 | |
Less: Restricted cash | | | — | | | — | |
Cash and cash equivalents—end of period | | $ | 217.1 | | $ | 448.7 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
| Shareholders' Equity |
| ||||||||||||||||||
|
| Ordinary Shares Outstanding |
| Treasury Shares |
| Ordinary Shares |
| Additional |
| Treasury Shares |
| Accumulated Other Comprehensive Income (Loss) |
| Retained Earnings (Accumulated Deficit) |
| Total |
| ||||||
Balance at December 31, 2016 |
| 44,301 |
| 4,477 |
| $ | 488 |
| $ | 573,662 |
| $ | (217,483) |
| $ | (170,154) |
| $ | 258,540 |
| $ | 445,053 |
|
Net income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 210,668 |
|
| 210,668 |
|
Other comprehensive income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 3,135 |
|
| — |
|
| 3,135 |
|
Stock-based compensation activity |
| 440 |
| (440) |
|
| — |
|
| 3,128 |
|
| 15,674 |
|
| — |
|
| — |
|
| 18,802 |
|
Purchase of treasury shares |
| (1,038) |
| 1,038 |
|
| — |
|
| — |
|
| (61,864) |
|
| — |
|
| — |
|
| (61,864) |
|
Dividends on ordinary shares ($1.02 per share) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (45,752) |
|
| (45,752) |
|
Balance at September 30, 2017 |
| 43,703 |
| 5,075 |
| $ | 488 |
| $ | 576,790 |
| $ | (263,673) |
| $ | (167,019) |
| $ | 423,456 |
| $ | 570,042 |
|
Balance at December 31, 2015 |
| 48,778 |
| — |
| $ | 488 |
| $ | 556,532 |
| $ | — |
| $ | (149,717) |
| $ | (18,289) |
| $ | 389,014 |
|
Adoption of new accounting standard |
| — |
| — |
|
| — |
|
| 915 |
|
| — |
|
| — |
|
| (915) |
|
| — |
|
Net income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 239,805 |
|
| 239,805 |
|
Other comprehensive income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 1,042 |
|
| — |
|
| 1,042 |
|
Stock-based compensation activity |
| 25 |
| (25) |
|
| — |
|
| 14,057 |
|
| 914 |
|
| — |
|
| — |
|
| 14,971 |
|
Purchase of treasury shares |
| (4,150) |
| 4,150 |
|
| — |
|
| — |
|
| (194,079) |
|
| — |
|
| — |
|
| (194,079) |
|
Dividends on ordinary shares ($0.60 per share) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (27,316) |
|
| (27,316) |
|
Balance at September 30, 2016 |
| 44,653 |
| 4,125 |
| $ | 488 |
| $ | 571,504 |
| $ | (193,165) |
| $ | (148,675) |
| $ | 193,285 |
| $ | 423,437 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
TRINSEO S.A.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| ||||
|
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
Net income |
| $ | 210,668 |
| $ | 239,805 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 80,220 |
|
| 71,744 |
|
Amortization of deferred financing fees and issuance discount |
|
| 3,968 |
|
| 4,469 |
|
Deferred income tax |
|
| (2,636) |
|
| 9,895 |
|
Stock-based compensation expense |
|
| 10,752 |
|
| 14,842 |
|
Earnings of unconsolidated affiliates, net of dividends |
|
| (4,097) |
|
| (8,972) |
|
Unrealized net losses (gains) on foreign exchange forward contracts |
|
| (2,804) |
|
| 3,533 |
|
Loss on extinguishment of long-term debt |
|
| 65,260 |
|
| — |
|
Loss (gain) on sale of businesses and other assets |
|
| (10,473) |
|
| 13,091 |
|
Impairment charges |
|
| 4,293 |
|
| 14,310 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
Accounts receivable |
|
| (92,776) |
|
| (30,229) |
|
Inventories |
|
| (57,315) |
|
| (27,605) |
|
Accounts payable and other current liabilities |
|
| (989) |
|
| 23,138 |
|
Income taxes payable |
|
| 6,297 |
|
| 3,973 |
|
Other assets, net |
|
| (14,407) |
|
| (18,426) |
|
Other liabilities, net |
|
| (1,116) |
|
| 11,130 |
|
Cash provided by operating activities |
|
| 194,845 |
|
| 324,698 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Capital expenditures |
|
| (108,875) |
|
| (82,678) |
|
Cash paid to acquire a business, net of cash acquired |
|
| (79,650) |
|
| — |
|
Proceeds from the sale of businesses and other assets |
|
| 46,166 |
|
| 174 |
|
Distributions from unconsolidated affiliates |
|
| 857 |
|
| 4,809 |
|
Cash used in investing activities |
|
| (141,502) |
|
| (77,695) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Deferred financing fees |
|
| (19,175) |
|
| — |
|
Short-term borrowings, net |
|
| (191) |
|
| (126) |
|
Purchase of treasury shares |
|
| (65,225) |
|
| (194,079) |
|
Dividends paid |
|
| (42,231) |
|
| (13,920) |
|
Proceeds from exercise of option awards |
|
| 8,349 |
|
| 203 |
|
Withholding taxes paid on restricted share units |
|
| (302) |
|
| (74) |
|
Net proceeds from issuance of 2024 Term Loan B |
|
| 700,000 |
|
| — |
|
Repayments of 2021 Term Loan B |
|
| (492,500) |
|
| (3,750) |
|
Net proceeds from issuance of 2025 Senior Notes |
|
| 500,000 |
|
| — |
|
Repayments of 2022 Senior Notes |
|
| (745,950) |
|
| — |
|
Prepayment penalty on long-term debt |
|
| (52,978) |
|
| — |
|
Cash used in financing activities |
|
| (210,203) |
|
| (211,746) |
|
Effect of exchange rates on cash |
|
| 10,449 |
|
| (231) |
|
Net change in cash and cash equivalents |
|
| (146,411) |
|
| 35,026 |
|
Cash and cash equivalents—beginning of period |
|
| 465,114 |
|
| 431,261 |
|
Cash and cash equivalents—end of period |
| $ | 318,703 |
| $ | 466,287 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
TRINSEO S.A.PLC
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands,millions, unless otherwise stated)
(Unaudited)
NOTE 1—BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of Trinseo S.A.PLC and its subsidiaries (the “Company”) as of and for the periods ended September 30, 2017March 31, 2023 and 20162022 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 20162022 audited consolidated financial statements included within the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on February 27, 2023. The Company’s condensed consolidated financial statements presented herein reflect the latest estimates and assumptions made by management that affect the reported amounts and related disclosures as of and for the period ended March 1, 2017.31, 2023. However, actual results could differ from these estimates and assumptions.
The December 31, 20162022 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 20162022 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.
Certain prior yearThroughout this Quarterly Report, unless otherwise indicated, amounts have been reclassified to conform to the current period presentation. These reclassifications did not haveand activity are presented on a material impact on the Company’s financial position or results. Refer to Note 14 for further information.continuing operations basis.
NOTE 2—RECENT ACCOUNTING GUIDANCE
In May 2014,As of March 31, 2023, there was no recently issued accounting standards which would have a material effect on the Financial Accounting Standards BoardCompany’s condensed consolidated financial statements.
NOTE 3—ACQUISITIONS
Acquisition of Heathland B.V.
On January 3, 2022, the Company completed the acquisition of Heathland B.V. (“FASB”Heathland”) from Heathland Holding B.V. (“Heathland Holding”), through the purchase of all issued and the International Accounting Standards Board (“IASB”) jointly issued guidance which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”outstanding shares (the “Heathland Acquisition”). Heathland is a leading collector and recycler of post-consumer and post-industrial plastic wastes in Europe. The core principletotal purchase price consideration is estimated to be $29.3 million, including an initial cash purchase price of $22.9 million which was paid during the three months ended March 31, 2022, as well as $6.4 million of contingent cash consideration, representing the fair value of certain earn-out payments. The maximum amount of potential earn-out payments is $6.8 million, which will become payable to Heathland Holding as and when the related performance milestones or thresholds are achieved over the three-year period following the date of acquisition. Heathland results are included within the Plastics Solution segment. The Company allocated the purchase price of the guidance is that an entity should recognize revenueacquisition to depictidentifiable assets acquired and liabilities assumed based on their estimated fair values as of the transfer of promised goods or servicesacquisition date. Refer to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangeAnnual Report for those goods or services. Additionally, the FASB has issued certain clarifying updates to this guidance, whichfurther information.
In February 2023, the Company will consider as partdelivered the first year earn-out to Heathland Holding based on its first related performance milestones or threshold in the amount of our adoption,$1.2 million.
NOTE 4—DIVESTITURES AND DISCONTINUED OPERATIONS
On December 1, 2021, the Company completed the divestiture of its Synthetic Rubber business to Synthos S.A. and certain of its subsidiaries (together, “Synthos”) for a purchase price of $402.4 million, which will be effective asreflected a reduction of January 1, 2018. The Company has completed its scoping assessmentapproximately $41.6 million for the adoptionassumption of this guidancepension liabilities by conducting surveys with relevant stakeholdersSynthos and $47.0 million for net working capital (excluding inventory) retained by Trinseo. Refer to the Annual Report for further information. At closing, the Company and Synthos executed a long-term supply agreement, in which Trinseo will supply Synthos certain raw materials used in the Synthetic Rubber business including commercialsubsequent to the sale. For the three months ended March 31, 2023, the
9
Company recorded $13.5 million in net sales and finance leadership, reviewing a representative sample$15.4 million in cost of revenue arrangements across all businesses, and identifying a set of applicable qualitative revenue recognition changessales related to the new standard update. In completing this phase,supply agreement, which is recorded in continuing operations.
The results of the Company has identified its major revenue streams,Synthetic Rubber business for the three months ended March 31, 2023 was insignificant. The following table summarizes the results of the Synthetic Rubber business for the three months ended March 31, 2022, which are concentrated within individual product sales within each of our reportable segments. As a result of this work, the Company has concluded that it will adopt this new guidance applying the modified retrospective approach. The Company remains in the process of establishing and documenting key accounting policies, assessing new disclosure requirements, and evaluating impacts on business processes, information technology, and controls resulting from the adoption of this new standard. Additionally, while our final assessment has not been completed, we continue to progress in the quantification of the impacts that this standard will have on our consolidated financial statements and are refining certain estimates that will be used in order to calculate such impacts.
In July 2015, the FASB issued guidance which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (“NRV”) test. NRV is calculatedreflected as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. The Company adopted this guidance effective January 1, 2017, and the adoption did not have a material impact to the Company’s financial position or results of operations.
In February 2016, the FASB issued guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize on the consolidated balance sheets lease liabilities and corresponding right-of-use assets for all leases with terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. This new guidance is effective for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. The Company is in the process of assessing the impact on its consolidated financial
9
statements from the adoption of the new guidance. However, as we are the lessee under various real estate, railcar, and other equipment leases, which we currently account for as operating leases, we anticipate an increase in the recognition of right-of-use assets and lease liabilities as a result of this adoption.
In August 2016, the FASB issued guidance that aims to eliminate diversity in practice for how certain cash receipts and payments are presented and classified in the consolidated statements of cash flows. Additionally, the FASB has issued further guidance related to the presentation of restricted cash on the consolidated statements of cash flows. The Company adopted this guidance effective September 30, 2017. The most significant impact of this adoption to the Company was the requirement to classify debt prepayment or extinguishment costs, which the Company had historically classified within cash flows from operating activities, as financing cash outflows. This change is reflecteddiscontinued operations in the Company’s condensed consolidated statementstatements of cash flowsoperations:
| | | | |
| | Three Months Ended | | |
| | March 31, | | |
|
| 2022 |
| |
Net sales |
| $ | 0.1 |
|
Cost of sales | |
| 0.7 | |
Gross loss | |
| (0.6) | |
Selling, general and administrative expenses | |
| (0.2) | |
Operating loss | |
| (0.4) | |
Other expense, net | | | — | |
Loss from discontinued operations before income taxes | |
| (0.4) | |
Provision for income taxes | |
| — | |
Net loss from discontinued operations | | $ | (0.4) | |
NOTE 5—NET SALES
Refer to the Annual Report for information on the Company's accounting policies and further background related to its net sales.
The following table provides disclosure of net sales to external customers by primary geographical market (based on the location where sales originated), by segment for the ninethree months ended September 30, 2017, including the impacts of the Company’s debt refinancing during the third quarter of 2017 (refer to Note 5 for further information). While this adoption was applied using the retrospective approach, there were no transactions during the nine months ended September 30, 2016 that required the condensed consolidated statement of cash flows for that period to be recast.March 31, 2023 and 2022.
In January 2017, the FASB issued guidance that revises the definition of a business in order to assist in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the new guidance, fewer transactions are expected to be accounted for as business combinations. The Company adopted this guidance effective January 1, 2017. We expect this adoption could affect conclusions reached for future transactions in several areas, including acquisitions and disposals.
| | | | | | | | | | | | | | | | | | | |
| | Engineered | | Latex | | Plastics | | | | | | | |
| |||||
Three Months Ended | | Materials | | Binders | | Solutions | | Polystyrene | | Feedstocks | | Total |
| ||||||
March 31, 2023 | | | | | | | | | | | | | | | | | | | |
United States | | $ | 110.9 | | $ | 67.6 | | $ | 68.7 | | $ | — | | $ | 3.6 | | $ | 250.8 | |
Europe | |
| 73.5 | |
| 128.1 | |
| 165.3 | |
| 138.5 | |
| 39.4 | |
| 544.8 | |
Asia-Pacific | |
| 18.9 | |
| 50.7 | |
| 27.8 | |
| 70.6 | |
| — | |
| 168.0 | |
Rest of World | |
| 2.9 | |
| 1.7 | |
| 28.1 | |
| — | |
| — | |
| 32.7 | |
Total | | $ | 206.2 | | $ | 248.1 | | $ | 289.9 | | $ | 209.1 | | $ | 43.0 | | $ | 996.3 | |
March 31, 2022 | | | | | | | | | | | | | | | | | | | |
United States | | $ | 138.4 | | $ | 82.2 | | $ | 84.5 | | $ | — | | $ | 3.9 | | $ | 309.0 | |
Europe | |
| 118.7 | |
| 150.9 | |
| 246.6 | |
| 214.6 | |
| 66.4 | |
| 797.2 | |
Asia-Pacific | |
| 35.3 | |
| 71.7 | |
| 37.2 | |
| 103.4 | |
| — | | | 247.6 | |
Rest of World | |
| 2.8 | |
| 1.9 | |
| 28.2 | |
| — | |
| — | |
| 32.9 | |
Total | | $ | 295.2 | | $ | 306.7 | | $ | 396.5 | | $ | 318.0 | | $ | 70.3 | | $ | 1,386.7 | |
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment by removing Step 2 of the test, which requires a hypothetical purchase price allocation. As a result, a goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company adopted this guidance effective January 1, 2017, which did not have a material impact to the Company’s financial position or results of operations.
In March 2017, the FASB issued guidance that requires employers to present the service cost component of net periodic benefit cost in the same statement of operations line item as other employee compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are to be presented outside of any subtotal of operating income. This presentation amendment is relevant to the Company and will be applied on a retrospective basis. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted.
NOTE 6—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company is currently assessing the impact of adopting this guidance on its results of operations.
In August 2017, the FASB issued significant amendments to existing hedge accounting guidance. Among other things, this guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting, amend presentation and disclosure requirements, and change how companies assess effectiveness. This guidance is required for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the timing and related impact of adopting this guidance on its financial position and results of operations.
NOTE 3—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
During the nine months ended September 30, 2017, the Company had twosupplemented by one joint ventures:venture, Americas Styrenics LLC (“Americas Styrenics”,Styrenics,” a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP) and Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate”, a polycarbonate joint venture with Sumitomo Chemical Company Limited). Investments held in the unconsolidated affiliates arewhich is accounted for byusing the equity method. The results of Americas Styrenics are included within its own reporting segment, and the resultssegment.
10
Both of the unconsolidated affiliates areAmericas Styrenics is a privately held companies;company; therefore, a quoted market pricesprice for their stock areits equity interests is not available. The summarized financial information of the Company’s unconsolidated affiliatesaffiliate is shown below. This table includes summarized financial information for Sumika Styron Polycarbonate through the date of sale in January 2017.
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
Sales |
| $ | 443.3 |
| $ | 524.4 | |
Gross profit | | $ | 52.9 | | $ | 48.1 | |
Net income | | $ | 37.8 | | $ | 36.1 | |
|
| ||||||||||||
|
| ||||||||||||
10
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Sales |
| $ | 458,744 |
| $ | 460,305 |
| $ | 1,369,572 |
| $ | 1,241,908 |
|
Gross profit |
| $ | 90,594 |
| $ | 84,095 |
| $ | 176,352 |
| $ | 240,366 |
|
Net income |
| $ | 81,059 |
| $ | 65,041 |
| $ | 141,508 |
| $ | 188,853 |
|
Americas Styrenics
As of September 30, 2017March 31, 2023 and December 31, 2016, respectively,2022, the Company’s investment in Americas Styrenics was $161.9$252.7 million and $149.7$255.1 million, respectively, which was $49.1$7.0 million and $71.2$8.4 million lessgreater than the Company’s 50% share of the underlying net assets of Americas Styrenics,. respectively. This amount represents the difference between the book value of assets contributed toheld by 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, andinclusive of 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 3.11.8 years as of September 30, 2017.March 31, 2023. The Company received dividends from Americas Styrenicsof $35.0$20.0 million and $80.0$7.5 million from Americas Styrenics during the three and nine months ended September 30, 2017, respectively, compared to $40.0 millionMarch 31, 2023 and $100.0 million during the three and nine months ended September 30, 2016,2022, respectively.
Sumika Styron Polycarbonate
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited for total sales proceeds of approximately $42.1 million. As a result, the Company recorded a gain on sale of $9.3 million during the nine months ended September 30, 2017, which was included within “Other expense (income), net” in the condensed consolidated statement of operations and was allocated entirely to the Basic Plastics segment. In addition, the parties have entered into a long-term agreement to continue sourcing polycarbonate resin from Sumika Styron Polycarbonate to the Company’s Performance Plastics segment.
As of December 31, 2016, the Company’s investment in Sumika Styron Polycarbonate was $41.8 million. Due to the sale in January 2017, the Company no longer has an investment in Sumika Styron Polycarbonate as of September 30, 2017. The Company received dividends from Sumika Styron Polycarbonate of zero and $9.8 million during the three and nine months ended September 30, 2017, respectively, compared to zero and $6.2 million during the three and nine months ended September 30, 2016, respectively. The dividend received during the nine months ended September 30, 2017 from Sumika Styron Polycarbonate related to the Company’s proportionate share of earnings for the year ended December 31, 2016.
NOTE 4—7—INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
Finished goods |
| $ | 239,663 |
| $ | 187,577 |
|
Raw materials and semi-finished goods |
|
| 211,186 |
|
| 168,804 |
|
Supplies |
|
| 32,309 |
|
| 28,964 |
|
Total |
| $ | 483,158 |
| $ | 385,345 |
|
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2023 | | 2022 | ||
Finished goods |
| $ | 195.3 |
| $ | 218.4 |
Raw materials and semi-finished goods | |
| 265.9 | |
| 295.6 |
Supplies | |
| 41.4 | |
| 39.6 |
Total | | $ | 502.6 | | $ | 553.6 |
NOTE 5—8—DEBT
Refer to discussion belowthe Annual Report for details of the Company’s debt refinancing that occurred during the third quarter of 2017. For definitions of capitalized terms not included herein refer toand further background on the Annual Report.Company’s debt structure discussed below. The Company was in compliance with all debt related covenants as of September 30, 2017March 31, 2023 and December 31, 2016.
2022.
11
As of September 30, 2017March 31, 2023 and December 31, 2016,2022, debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| |||||||
|
| Interest Rate as of September 30, 2017 |
| Maturity |
| Carrying |
| Unamortized |
| Total Debt, |
| |||
Senior Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Revolving Facility(2) |
| Various |
| September 2022 |
| $ | — |
| $ | — |
| $ | — |
|
2024 Term Loan B(3) |
| 3.735% |
| September 2024 |
|
| 700,000 |
|
| (18,957) |
|
| 681,043 |
|
2025 Senior Notes |
| 5.375% |
| September 2025 |
|
| 500,000 |
|
| (9,600) |
|
| 490,400 |
|
Accounts Receivable Securitization Facility(4) |
| Various |
| May 2019 |
|
| — |
|
| — |
|
| — |
|
Other indebtedness |
| Various |
| Various |
|
| 1,481 |
|
| — |
|
| 1,481 |
|
Total debt |
|
|
|
|
| $ | 1,201,481 |
| $ | (28,557) |
| $ | 1,172,924 |
|
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
| (7,000) |
|
Total long-term debt, net of unamortized deferred financing fees |
|
|
|
|
|
|
|
|
|
|
| $ | 1,165,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
| |||||||
|
| Interest Rate as of December 31, 2016 |
| Maturity |
| Carrying |
| Unamortized |
| Total Debt, |
| |||
2020 Senior Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Revolving Facility |
| Various |
| May 2020 |
| $ | — |
| $ | — |
| $ | — |
|
2021 Term Loan B |
| 4.250% |
| November 2021 |
|
| 491,545 |
|
| (9,159) |
|
| 482,386 |
|
2022 Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Notes |
| 6.750% |
| May 2022 |
|
| 300,000 |
|
| (5,726) |
|
| 294,274 |
|
Euro Notes |
| 6.375% |
| May 2022 |
|
| 394,275 |
|
| (7,157) |
|
| 387,118 |
|
Accounts Receivable Securitization Facility |
| Various |
| May 2019 |
|
| — |
|
| — |
|
| — |
|
Other indebtedness |
| Various |
| Various |
|
| 1,591 |
|
| — |
|
| 1,591 |
|
Total debt |
|
|
|
|
| $ | 1,187,411 |
| $ | (22,042) |
| $ | 1,165,369 |
|
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
| (5,000) |
|
Total long-term debt, net of unamortized deferred financing fees |
|
|
|
|
|
|
|
|
|
|
| $ | 1,160,369 |
|
|
|
|
|
|
|
|
|
2020 Senior Credit Facility
On May 5, 2015, the Company entered into a credit agreement which included $825.0 million of senior secured financing (the “2020 Senior Credit Facility”), inclusive of a $325.0 million revolving credit facility maturing in May 2020 (the “2020 Revolving Facility”) and a $500.0 million senior secured term loan B facility maturing in November 2021 (the “2021 Term Loan B”).
In September 2017, upon completion of the refinancing transactions discussed below, the Company terminated the 2020 Senior Credit Facility. Prior to this termination, the Company had no outstanding borrowings under the 2020 Revolving Facility and had $490.0 million outstanding under the 2021 Term Loan B, excluding unamortized original
12
issue discount. As a result of this termination, the Company recognized a $0.8 million loss on extinguishment of long-term debt, comprised entirely of the write-off of a portion of the existing unamortized deferred financing fees and unamortized original issue discount related to the 2021 Term Loan B. The remaining unamortized deferred financing fees and unamortized original issue discount for both the 2020 Revolving Facility and 2021 Term Loan B remain capitalized and will be amortized along with new deferred financing fees over the life of the new facilities, discussed in further detail below.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | March 31, 2023 | | December 31, 2022 | | ||||||||||||||
|
| Interest Rate as of |
| Maturity Date |
| Carrying Amount |
| Unamortized Deferred Financing Fees (1) |
| Total Debt, Less Unamortized Deferred Financing Fees |
| Carrying Amount |
| Unamortized Deferred Financing Fees (1) |
| Total Debt, Less | | ||||||
Senior Credit Facility |
|
| | | | | | | | | | | | | | | | | | | | | |
2024 Term Loan B | | 6.840% | | September 2024 | | $ | 661.7 | | $ | (4.4) | | $ | 657.3 | | $ | 663.4 | | $ | (5.1) | | $ | 658.3 | |
2028 Term Loan B |
| 7.340% | | May 2028 | | | 734.1 | | | (13.8) | | | 720.3 | | | 735.9 | | | (14.4) | | | 721.5 | |
2026 Revolving Facility |
| Various | | May 2026 | | | — | | | — | | | — | | | — | | | — | | | — | |
2029 Senior | | 5.125% | | April 2029 | | | 447.0 | | | (12.5) | | | 434.5 | | | 447.0 | | | (12.9) | | | 434.1 | |
2025 Senior Notes | | 5.375% | | September 2025 | | | 500.0 | | | (3.4) | | | 496.6 | | | 500.0 | | | (3.7) | | | 496.3 | |
Accounts Receivable Securitization Facility |
| Various | | November 2024 | | | — | | | — | | | — | | | — | | | — | | | — | |
Other indebtedness | | Various | | Various | | | 7.8 | | | — | | | 7.8 | | | 7.4 | | | — | | | 7.4 | |
Total debt |
|
| | | | $ | 2,350.6 | | $ | (34.1) | | $ | 2,316.5 | | $ | 2,353.7 | | $ | (36.1) | | $ | 2,317.6 | |
Less: current portion | | | | | | | | | | | | | (16.6) | | | | | | | | | (16.0) | |
Total long-term debt, net of unamortized deferred financing | | | | | | | | | | | | $ | 2,299.9 | | | | | | | | $ | 2,301.6 | |
| (1) | This caption does not include deferred financing
|
| (2) | As of March 31, 2023, under the 2026 Revolving Facility, the Company had a capacity of $375.0 million and $22.0 million outstanding letters of credit. As of March 31, 2023, the Company had funds available for borrowing of $100.5 million (net of the applicable $12.0 million outstanding letters of credit as defined in the secured credit agreement), which reflects the borrowing limit imposed by the springing covenant. The |
| (3) | As of March 31, 2023, this facility had a borrowing capacity of $150.0 million, and the Company had approximately $150.0 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable. |
| (4) | The current portion of long-term debt was primarily related to
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 9—GOODWILL
The following table shows changes in the carrying amount of goodwill, by segment, from December 31, 2022 to March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | |
| | Engineered | | Latex | | Plastics | | | | | | Americas | | | |
| ||||||
|
| Materials |
| Binders |
| Solutions |
| Polystyrene |
| Feedstocks |
| Styrenics |
| Total |
| |||||||
Balance at December 31, 2022 | | $ | 348.9 | | $ | 14.8 | | $ | 42.5 | | $ | 4.2 | | $ | — | | $ | — | | $ | 410.4 | |
Foreign currency impact | |
| 2.6 | | | 0.3 | | | 0.8 | | | 0.1 | | | — | | | — | |
| 3.8 | |
Balance at March 31, 2023 | | $ | 351.5 | | $ | 15.1 | | $ | 43.3 | | $ | 4.3 | | $ | — | | $ | — | | $ | 414.2 | |
As a result of the Company’s fourth quarter 2022 impairment testing, an impairment charge was taken for the PMMA business and Aristech Surfaces reporting units primarily due to the continuation of the challenging macroeconomic environment experienced in 2022 into the fourth quarter of 2022, including significantly lower demand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||||||||||||||
|
| Estimated |
| Gross |
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
| ||
|
| Useful Life |
| Carrying |
| Accumulated |
|
|
|
| Carrying |
| Accumulated |
|
|
|
| ||||
|
| (Years) |
| Amount |
| Amortization |
| Net |
| Amount |
| Amortization |
| Net |
| ||||||
Developed technology(1) |
| 9 - 15 |
| $ | 198,535 |
| $ | (91,078) |
| $ | 107,457 |
| $ | 166,230 |
| $ | (72,159) |
| $ | 94,071 |
|
Customer Relationships(1) |
| 19 |
|
| 14,520 |
|
| (171) |
|
| 14,349 |
|
| — |
|
| — |
|
| — |
|
Manufacturing Capacity Rights |
| 6 |
|
| 22,426 |
|
| (12,728) |
|
| 9,698 |
|
| 19,977 |
|
| (8,908) |
|
| 11,069 |
|
Software |
| 5 - 10 |
|
| 87,412 |
|
| (22,617) |
|
| 64,795 |
|
| 82,275 |
|
| (15,095) |
|
| 67,180 |
|
Software in development |
| N/A |
|
| 8,617 |
|
| — |
|
| 8,617 |
|
| 4,751 |
|
| — |
|
| 4,751 |
|
Other(1) |
| 3 |
|
| 3,056 |
|
| (153) |
|
| 2,903 |
|
| 274 |
|
| — |
|
| 274 |
|
Total |
|
|
| $ | 334,566 |
| $ | (126,747) |
| $ | 207,819 |
| $ | 273,507 |
| $ | (96,162) |
| $ | 177,345 |
|
12
for building & construction and wellness applications, which led to lower operating results including slower growth projections, and a prolonged drop in market capitalization, as well as an increase in the weighted average cost of capital. This goodwill may be at risk for future impairment due to the remaining fair value being equal to carrying value as a result of the recorded impairment. While the challenging macroeconomic environment has continued to impact these businesses in the first quarter of 2023, the Company performed qualitative analyses over this goodwill, including consideration of current and estimated future financial results of the related businesses, general and industry-specific economic conditions, changes in reporting unit carrying values and potential changes to the assumptions used in the previous fair value calculations. Based on these analyses, the Company has not identified any triggering events since the fourth quarter of 2022 impairment test indicating that is more likely than not that goodwill is impaired. Should these conditions persist, or other events occur indicating that the estimated future cash flows of these businesses have declined, the Company may be required to record future non-cash impairment charges related to goodwill.
As of March 31, 2023 and December 31, 2022, the reported balance of goodwill included accumulated impairment losses of $297.1 million in the Engineered Materials segment.
NOTE 10—DERIVATIVE INSTRUMENTS
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates, interest rate risk, and commodity price risk, in particular natural gas. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts, interest rate swap agreements, and commodity swaps agreements, forward contracts, or options. The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives are recorded on the condensed consolidated balance sheets at fair value.
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 its 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 this exposure, the Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment.
As of March 31, 2023, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $657.5 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of March 31, 2023:
| | | |
| | March 31, | |
Buy / (Sell) |
| 2023 | |
Euro | | $ | (520.9) |
Chinese Yuan | | $ | (48.4) |
South Korean Won | | $ | (21.8) |
Swiss Franc | | $ | (19.6) |
Swedish Krona | | $ | 14.7 |
Open foreign exchange forward contracts as of March 31, 2023 had maturities occurring over a period of two months.
Foreign Exchange Cash Flow Hedges
The Company also enters into forward contracts, as deemed appropriate, 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
13
hedges, the Company buys a designated amount of U.S. dollars and sells euros 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 (“AOCI”) to the extent effective, and reclassified to cost of sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.
The Company had no open foreign exchange cash flow hedges as of March 31, 2023.
Commodity Cash Flow Hedges & Commodity Economic Hedges
The Company purchases certain commodities, primarily natural gas, to operate facilities and generate heat and steam for various manufacturing processes, which purchases are subject to price volatility. In order to manage the risk of price fluctuations associated with these commodity purchases, as deemed appropriate, the Company may enter into commodity swaps, forward contracts, or options. As of March 31, 2023, the Company had open commodity swap agreements, which effectively convert a portion of its natural gas costs into a fixed rate obligation. These commodity derivatives are designated as cash flow hedges, and as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to cost of sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.
Open commodity cash flow hedges as of March 31, 2023 had maturities occurring over a period of 21 months and had a notional value of approximately 964 thousand megawatt hours of natural gas purchases.
The Company may also enter into certain commodity swap agreements to economically hedge the impact of these price fluctuations, which are not designated for hedge accounting treatment. Open commodity economic hedges as of March 31, 2023 had maturities occurring over a period of 24 months and had a notional value of approximately 895 thousand megawatt hours of natural gas purchases.
Interest Rate Swaps
On September 6, 2017, the Company issued the 2024 Term Loan B, which currently bears an interest rate of LIBOR plus 2.00%, subject to a 0.00% LIBOR floor. In order to reduce the variability in interest payments associated with the Company’s variable rate debt, during 2017 the Company entered into certain interest rate swap agreements to convert a portion of these variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges, and as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur. Under the terms of the swap agreements, with a net notional U.S. dollar equivalent of $200.0 million and an effective date of September 29, 2017, the Company was required to pay the counterparties a stream of fixed interest payments at a rate of 1.81%, and in turn, receives variable interest payments based on 1-month LIBOR from the counterparties. These interest rate swap agreements matured in September 2022, and the Company has no remaining open interest rate swap agreements.
Net Investment Hedge
The Company accounts for its cross currency swaps (“CCS”) under the spot method, meaning that changes in the fair value of the hedge included in the assessment of effectiveness (changes due to spot foreign exchange rates) are recorded within AOCI, where they remain until either the sale or substantially complete liquidation of the subsidiary subject to the hedge. Additionally, the initial value of any component excluded from the assessment of effectiveness is recognized in income using a systematic and rational method over the life of the hedging instrument and any difference between the change in the fair value of the excluded component and amounts recognized in income under that systematic and rational method is recognized in AOCI. When applicable, the Company amortizes any initial excluded component value of a CCS as a reduction of “Interest expense, net” in the condensed consolidated statements of operations using the straight-line method over the remaining term of the related CCS. Additionally, interest receipts and payments are accrued under the terms of the Company’s CCS and are recognized within “Interest expense, net” in the condensed consolidated statements of operations.
The Company entered into a CCS arrangement (the “2017 CCS”) on September 1, 2017, swapping U.S. dollar principal and interest payments of $500.0 million at an interest rate of 5.375% on its 2025 Senior Notes for euro-denominated payments of €420.0 million at a weighted average interest rate of 3.45% for approximately five years. On
14
February 26, 2020, the Company settled its 2017 CCS and replaced it with a new CCS arrangement (the “2020 CCS”) that carried substantially the same terms as the 2017 CCS. Under the 2020 CCS, the Company notionally exchanged $500.0 million at an interest rate of 5.375% for €459.3 million at a weighted average interest rate of 3.672% for approximately 2.7 years, with a final maturity of November 3, 2022. The cash flows under the 2020 CCS are aligned with the Company’s principal and interest obligations on its 5.375% 2025 Senior Notes.Refer to the Annual Report for further information.
On April 7, 2022, the Company settled its existing 2020 CCS, which were set to mature in November 2022. Upon settlement of the 2020 CCS, the Company realized net cash proceeds of $1.9 million.
15
Summary of Derivative Instruments
The following table presents the effect of the Company’s derivative instruments, including those not designated for hedge accounting treatment, on the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
| | Location and Amount of Gain (Loss) Recognized in | ||||||||||||||||
| | Three Months Ended | | Three Months Ended | ||||||||||||||
| | March 31, 2023 | | March 31, 2022 | ||||||||||||||
|
| Cost of | | Interest expense, net | | Other (expense) income, net | | Cost of | | Interest expense, net | | Other (expense) income, net | ||||||
Total amount of income and (expense) line items presented in the statements of operations in which the effects of derivative instruments are recorded | | $ | (959.1) | | $ | (38.3) | | $ | 2.9 | | $ | (1,210.7) | | $ | (21.9) | | $ | (3.0) |
| | | | | | | | | | | | | | | | | | |
The effects of cash flow hedge instruments: | | | | | | | | | | | | | | | | | | |
Commodity cash flow hedges | | | | | | | | | | | | | | | | | | |
Amount of loss reclassified from AOCI into income | | $ | (6.4) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Interest rate swaps | | | | | | | | | | | | | | | | | | |
Amount of loss reclassified from AOCI into income | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (0.8) | | $ | — |
| | | | | | | | | | | | | | | | | | |
The effects of net investment hedge instruments: | | | | | | | | | | | | | | | | | | |
Cross currency swaps | | | | | | | | | | | | | | | | | | |
Amount of gain excluded from effectiveness testing | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2.1 | | $ | — |
| | | | | | | | | | | | | | | | | | |
The effects of derivatives not designated as hedge instruments: | | | | | | | | | | | | | | | | | | |
Foreign exchange forward contracts | | | | | | | | | | | | | | | | | | |
Amount of gain (loss) recognized in income | | $ | — | | $ | — | | $ | (7.8) | | $ | — | | $ | — | | $ | 8.8 |
Commodity economic hedges | | | | | | | | | | | | | | | | | | |
Amount of loss recognized in income | | $ | (12.4) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
The following table presents the effect of cash flow and net investment hedge accounting on AOCI for the three months ended March 31, 2023 and 2022:
| | | | | | |
` | | Gain (Loss) Recognized in AOCI on Balance Sheet | ||||
| | Three Months Ended | ||||
| | March 31, | ||||
| | 2023 | | 2022 | ||
Designated as Cash Flow Hedges | | | | | | |
Commodity cash flow hedges | | $ | (9.9) | | $ | — |
Interest rate swaps | | | — | | | 1.5 |
Total | | $ | (9.9) | | $ | 1.5 |
Designated as Net Investment Hedges | | | | | | |
Cross currency swaps (CCS) | | $ | — | | $ | 6.1 |
Total | | $ | — | | $ | 6.1 |
16
| | | | | | | | |
| | Gain (Loss) Recognized in Other expense (income), net in Statement of Operations | | |||||
| | Three Months Ended | | | ||||
| | March 31, | | | ||||
|
| 2023 |
| 2022 |
|
| ||
Settlements and changes in the fair value of forward contracts (not designated as hedges) |
| $ | (7.8) |
| $ | 8.8 |
|
|
Remeasurement of foreign currency-denominated assets and liabilities | | $ | 10.5 | | $ | (10.2) | | |
Total | | $ | 2.7 | | $ | (1.4) | | |
The Company expects to reclassify in the next twelve months an approximate $23.0 million net loss from AOCI into earnings related to the Company’s outstanding commodity cash flow hedges as of March 31, 2023, based on current commodity price indices.
The following tables summarize the gross and net unrealized gains and losses, as well as the balance sheet classification, of outstanding derivatives recorded in the condensed consolidated balance sheets:
| | | | | | | | | | | | |
| | March 31, 2023 | ||||||||||
| | Foreign | | | | | | | | | ||
| | Exchange | | Commodity | | Commodity | | | | |||
Balance Sheet | | Forward | | Economic | | Cash Flow | | | ||||
Classification |
| Contracts | | Hedges | | Hedges | | Total | ||||
Asset Derivatives: | | | | | | | | | | | | |
Accounts receivable, net of allowance | | $ | 0.1 | | $ | — | | $ | 0.1 | | $ | 0.2 |
Gross derivative asset position | | | 0.1 | | | — | | | 0.1 | | | 0.2 |
Less: Counterparty netting | | | (0.1) | | | — | | | (0.1) | | | (0.2) |
Net derivative asset position | | $ | — | | $ | — | | $ | — | | $ | — |
Liability Derivatives: | | | | | | | | | | | | |
Accounts payable | | $ | (12.5) | | $ | (13.5) | | $ | (23.1) | | $ | (49.1) |
Other noncurrent obligations | | | — | | | (1.9) | | | (2.5) | | | (4.4) |
Gross derivative liability position | | | (12.5) | | | (15.4) | | | (25.6) | | | (53.5) |
Less: Counterparty netting | | | 0.1 | | | — | | | 0.1 | | | 0.2 |
Net derivative liability position | | $ | (12.4) | | $ | (15.4) | | $ | (25.5) | | $ | (53.3) |
Total net derivative position | | $ | (12.4) | | $ | (15.4) | | $ | (25.5) | | $ | (53.3) |
| | | | | | | | | | | | | |
| | December 31, 2022 |
| ||||||||||
| | Foreign | | | | | | |
| ||||
| | Exchange | | Commodity | | Commodity | | | | | |||
Balance Sheet | | Forward | | Economic | | Cash Flow | | |
| ||||
Classification |
| Contracts |
| Hedges |
| Hedges |
| Total |
| ||||
Asset Derivatives: | | | | | | | | | | | | | |
Accounts receivable, net of allowance | | $ | 0.2 | | $ | — | | $ | — | | $ | 0.2 | |
Gross derivative asset position | | | 0.2 | | | — | | | — | | | 0.2 | |
Less: Counterparty netting | | | (0.1) | | | — | | | — | | | (0.1) | |
Net derivative asset position | | $ | 0.1 | | $ | — | | $ | — | | $ | 0.1 | |
Liability Derivatives: | | | | | | | | | | | | | |
Accounts payable | | $ | (11.1) | | $ | (5.3) | | $ | (11.3) | | $ | (27.7) | |
Other noncurrent obligations | | | — | | | (1.3) | | | (0.9) | | | (2.2) | |
Gross derivative liability position | | | (11.1) | | | (6.6) | | | (12.2) | | | (29.9) | |
Less: Counterparty netting | | | 0.1 | | | — | | | — | | | 0.1 | |
Net derivative liability position | | $ | (11.0) | | $ | (6.6) | | $ | (12.2) | | $ | (29.8) | |
Total net derivative position | | $ | (10.9) | | $ | (6.6) | | $ | (12.2) | | $ | (29.7) | |
17
Forward contracts, interest rate swaps, commodity forward contracts, swaps, or options, and cross currency swaps 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 such, in accordance with the Company’s accounting policy, these derivative instruments are recorded on a net basis by counterparty within the condensed consolidated balance sheets.
Refer to Notes 11 and 18 of the condensed consolidated financial statements for further information regarding the fair value of the Company’s derivative instruments and the related changes in AOCI.
NOTE 11—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 sheets as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | |
| | March 31, 2023 |
| ||||||||||
| | Quoted Prices in Active Markets for Identical Items | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | | |
| |||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
Foreign exchange forward contracts—(Liabilities) | | $ | — | | $ | (12.4) | | $ | — | | $ | (12.4) | |
Commodity economic hedges—(Liabilities) | | | — | | | (15.4) | | | — | | | (15.4) | |
Commodity cash flow hedges—(Liabilities) | | | — | | | (25.5) | | | — | | | (25.5) | |
Total fair value | | $ | — | | $ | (53.3) | | $ | — | | $ | (53.3) | |
18
| | | | | | | | | | | | | |
| | December 31, 2022 |
| ||||||||||
| | Quoted Prices in Active Markets for Identical Items | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | | |
| |||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
Foreign exchange forward contracts—Assets | | $ | — |
| $ | 0.1 |
| $ | — |
| $ | 0.1 | |
Foreign exchange forward contracts—(Liabilities) | | | — | | | (11.0) | | | — | | | (11.0) | |
Commodity economic hedges—(Liabilities) | | | — | | | (6.6) | | | — | | | (6.6) | |
Commodity cash flow hedges—(Liabilities) | | | — | | | (12.2) | | | — | | | (12.2) | |
Total fair value | | $ | — | | $ | (29.7) | | $ | — | | $ | (29.7) | |
The Company uses an income approach to value its derivative instruments, utilizing discounted cash flow techniques, considering the terms of the contract and observable market information available as of the reporting date, such as interest rate yield curves and currency spot and forward rates. Significant inputs to the valuation for these derivative instruments 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.
Nonrecurring Fair Value Measurements
The Company measured certain financial assets at fair value on a nonrecurring basis during the year ended December 31, 2022, which were still held as of March 31, 2023. These financial assets represent the Company’s styrene monomer assets in Boehlen, Germany, which it continued to operate until the fourth quarter of 2022 when the Company decided to close this plant in connection with the asset restructuring plan. Refer to Note 17 for further information. These assets were measured at fair value using underlying fixed asset records in conjunction with the use of industry experience and available market data, which are classified as Level 3 significant unobservable inputs in the fair value hierarchy. During the three months ended March 31, 2023, the Company recorded additional impairment charges of $0.3 million related to capital expenditures at the Boehlen styrene monomer facility that it determined to be impaired, which are also included within “Impairment and other charges” on the condensed consolidated statements of operations. Refer to the Company’s Annual Report for further information. As of March 31, 2023 and December 31, 2022, the value of the Boehlen styrene monomer assets are recorded at $3.2 million within the Company’s condensed consolidated balance sheets herein.
There were no other financial assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2022.
19
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 March 31, 2023 and December 31, 2022:
| | | | | | | |
|
| As of | | As of |
| ||
|
| March 31, 2023 |
| December 31, 2022 |
| ||
2029 Senior Notes | | $ | 269.1 | | $ | 292.3 | |
2028 Term Loan B | | | 662.1 | | | 687.1 | |
2025 Senior Notes | | | 406.8 | | | 416.9 | |
2024 Term Loan B | | | 653.8 | | | 645.6 | |
Total fair value | | $ | 1,991.8 | | $ | 2,041.9 | |
The fair value of the Company’s debt facilities above (each Level 2 securities) is determined using over-the-counter market quotes and benchmark yields received from independent vendors. Fair value amount presented reflect the Company’s carrying value of debt, net of original issuance discount.
There were no other significant financial instruments outstanding as of March 31, 2023 and December 31, 2022.
NOTE 12—PROVISION FOR INCOME TAXES
| | | | | | | | |
| | Three Months Ended | | | ||||
| | March 31, | | | ||||
|
| 2023 |
| 2022 |
| | ||
Effective income tax rate | | | 25.4 | % | | 56.9 | % | |
Benefit from income taxes for the three months ended March 31, 2023 totaled $16.7 million, resulting in an effective tax rate of 25.4%. Provision for income taxes for the three months ended March 31, 2022 totaled $22.6 million, resulting in an effective tax rate of 56.9%.
The most significant driver of the decrease in the effective income tax rate for the three months ended March 31, 2023 compared to the prior year was the change in the Company’s forecasted jurisdictional mix of earnings, where income expected to be generated in higher rate jurisdictions exceeds income expected to be generated in lower rate jurisdictions, partially offset by losses not anticipated to provide a tax benefit.
The effective income tax rate for the three months ended March 31, 2022 was primarily impacted by a $35.6 million charge related to the European Commission request for information, as described within Note 13 in the condensed consolidated financial statements, for which the Company estimates no tax benefit.
NOTE 13—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. Pursuant to the terms of the agreement associated with the Company’s formation, the pre-closing environmental liabilities were retained by Dow, and Dow agreed, subject to temporal, monetary, and other limitations to indemnify the Company from and against environmental liabilities incurred or relating to the predecessor periods. Other than certain immaterial environmental liabilities assumed as part of the PMMA Acquisition and the Aristech Surfaces Acquisition, no material environmental claims have been asserted against the Company, and the Company does not have any material accrued obligations for any Superfund Sites. As of March 31, 2023 and December 31, 2022, the Company had $3.5 million of accrued obligations for environmental remediation or restoration costs, which were recorded at fair value within the opening balance sheets of the PMMA business and Aristech Surfaces during 2021.
20
On March 24, 2023, due to equipment failure at the Bristol, Pennsylvania facility, operated by our wholly-owned subsidiary, Altuglas LLC, an accidental release of a latex emulsion product occurred, which ultimately flowed into a local waterway (the “Bristol Spill”). We reported the event and cooperated closely with local, state, and federal authorities on the response activities. Water sampling conducted by the authorities did not detect site-related material in the waterway. See “Litigation Matters”below for information on environmental proceedings related to this incident. In the event of one or more adverse determinations related to this matter, it is possible that the ultimate liability resulting from this matter and the impact on the Company’s results of operations could be material.
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 over the next 12 months.
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 one to four 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 Notes to Consolidated Financial Statements included in the Annual Report.
Asset Retirement Obligations
The Company has built certain manufacturing facilities on leased land and is required to remove these facilities at the end of the corresponding contract term. Legal obligations for these demolition and decommissioning activities exist in connection with the retirement of these assets triggered upon closure of the facilities. In instances when the Company plans to continue operations at these facilities indefinitely, and therefore, a reasonable estimate of fair value cannot be determined, an asset retirement obligation is not recognized.
In connection with the Asset Restructuring Plan as described within Note 17, the Company concluded the Boehlen, Germany site no longer had an indeterminate life. Accordingly, during the fourth quarter of 2022, the Company recorded the fair value of an asset retirement obligation and a corresponding asset retirement cost, which was capitalized as part of the carrying amount of the related long-lived assets and depreciated over the asset’s shortened useful life. The asset retirement cost was fully depreciated during the fourth quarter of 2022.
| | | |
| | Balance at | |
Change in asset retirement obligation | | March 31, 2023 | |
Balance at beginning of period | | $ | 35.8 |
Obligations incurred | | | 0.9 |
Settlements | | | (2.2) |
Accretion expense | | | 0.5 |
Currency translation adjustment | | | 0.6 |
Balance at end of period | | $ | 35.6 |
Accretion expense is included within “Selling, general and administrative expenses” in the condensed consolidated statement of operations. The current portion of the asset retirement obligation is recorded within “Accrued expenses and other current liabilities” and the long-term portion is recorded within “Other noncurrent obligations” in the condensed consolidated balance sheets. As of March 31, 2023 and December 31, 2022, the current portion was $24.6 million and $25.3 million, respectively, and the long-term portion was $11.0 million and $10.5 million, respectively.
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 employees, 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
21
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.
Legal Proceedings related to the Bristol Spill
| (a) | Jonnie Helfrich v. Trinseo PLC (No. 2:23-cv-01525) (United States District Court for the Eastern District of Pennsylvania) |
On April 20, 2023, a complaint was filed which purports to be on behalf of a class of purchasers of the Company’s securities between May 3, 2021 and March 27, 2023. It names as defendants the Company and our chief executive officer and chief financial officer, and seeks unspecified damages and other relief for alleged violations of Sections 10(b) and 20(a) of, and Rule 10b-5 under, of the Securities Exchange Act of 1934. Given the early stage of this matter, we are not able to estimate whether a material loss to our business is probable or remote, or estimate a potential range of loss, if any. The Company intends to vigorously defend this action.
| (b) | Timothy McGraw, Emily Cohen & Danielle Byrd v. Altuglas LLC and Trinseo LLC (Court of Common Pleas of Philadelphia County) |
On March 29, 2023, a putative class action complaint was filed which seeks to certify a class that could potentially include all persons and entities that reside in the area served by the Baxter Drinking Water Treatment Plant. The plaintiffs allege claims of breach of duty of care based on negligence as a result of the Bristol Spill, as well as other causes of action, and seek compensatory damages, restitution, or refund of damages, including actual, statutory, and punitive damages, as well as injunctive relief. Given the early stage of this matter, we are not able to estimate whether a material loss to our business is probable or remote, or estimate a potential range of loss, if any. The Company intends to vigorously defend this action.
| (c) | Environmental Proceedings |
On March 25, 2023, the Company received a Notice of Federal Interest from the United States Coast Guard (“USCG”), identifying the Company as a “potentially responsible party” (“PRP”) related to the Bristol Spill. The Company also received a Notice of Federal Assumption and an Administrative Order, dated April 20, 2023 from the USCG, identifying the Company as a PRP related to the Bristol Spill. The USCG notices and order do not designate specific fines or penalties against the Company. It is not possible at this time for the Company to estimate its ultimate liability pursuant to the USCG notices or order, or other potential administrative actions related to the Bristol Spill, whether a material loss to our business is probable or remote, or estimate a potential range of loss, if any.
Synthos Matter
On November 21, 2022, the Company received formal notice from the German Arbitration Institute that Synthos had initiated an arbitration dispute on October 14, 2022 against Trinseo and its following subsidiaries: Trinseo Deutschland GmbH, Trinseo Belgium BV, Trinseo Europe GmbH, and Trinseo Export GmbH, related to Synthos’ purchase of Trinseo’s Rubber Business in 2021.
As discussed in Note 4, Synthos and Trinseo are parties to an asset purchase agreement (“APA”) dated May 21, 2021, whereby Trinseo transferred its Rubber Business to Synthos, pending regulatory approval and other administrative pre-closing conditions, for an enterprise value of approximately $491.0 million. This transaction formally closed on December 1, 2021. Synthos claims that Trinseo did not properly disclose certain information including the natural gas pricing mechanism for the steam which is supplied by a third party to the Rubber Business. Synthos is seeking non-monetary restitution and monetary damages related to the spike of utility prices in Germany that commenced in the fall of 2021.
The Company believes it has valid and prevailing defenses to Synthos’ claims and intends to vigorously defend itself against all allegations.
European Commission Request for Information
On June 6, 2018, Trinseo Europe GmbH, a subsidiary of the Company, received a request for information in the form of a letter from the European Commission Directorate General for Competition (the “European Commission”) related to styrene monomer commercial activity in the European Economic Area. The Company
22
subsequently commenced an internal investigation into these commercial activities and discovered instances of inappropriate activity.
As a result of further developments in this matter, during the first quarter of 2022, the Company recorded a charge of $35.6 million which is included within “Impairment and other charges” on the condensed consolidated statements of operations. In November 2022, the Company reached a final settlement with the European Commission in respect of this matter of $33.8 million, adjusted for foreign exchange rate impacts, which was subsequently paid in full in December 2022.
NOTE 14—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for all significant plans were as follows:
| | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | ||||||||
| | March 31, | | March 31, | | ||||||||
| | Non-U.S. Defined Benefit Pension Plans | | U.S. Defined Benefit Pension | | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Net periodic benefit cost |
| | | | | | | | | | | | |
Service cost | | $ | 2.0 | | $ | 3.2 |
| $ | 0.1 | | $ | 0.2 | |
Interest cost | |
| 1.7 | |
| 0.7 | |
| 0.2 | |
| 0.2 | |
Expected return on plan assets | |
| (0.2) | |
| (0.1) | |
| (0.1) | |
| (0.2) | |
Amortization of prior service credit | |
| (0.1) | |
| (0.1) | |
| — | |
| — | |
Amortization of net loss | |
| (0.8) | |
| 0.7 | |
| — | |
| — | |
Net periodic benefit cost | | $ | 2.6 | | $ | 4.4 | | $ | 0.2 | | $ | 0.2 | |
The Company had less than $0.2 million of net periodic benefit costs for its other postretirement plans for the three months ended March 31, 2023 and 2022.
Service cost related to the Company’s defined benefit pension plans and other postretirement plans is included within “Cost of sales” and “Selling, general and administrative expenses,” whereas all other components of net periodic benefit cost are included within “Other expense (income), net” in the condensed consolidated statements of operations. As of March 31, 2023 and December 31, 2022, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $183.4 million and $177.8 million, respectively.
The Company made cash contributions and benefit payments to unfunded plans of approximately $1.7 million during the three months ended March 31, 2023. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately $11.4 million to its defined benefit plans for the remainder of 2023.
NOTE 15—SHARE-BASED COMPENSATION
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s share-based compensation programs included in the tables below.
The following table summarizes the Company’s share-based compensation expense for the three months ended March 31, 2023 and 2022, as well as unrecognized compensation cost as of March 31, 2023:
23
| | | | | | | | | | | | |
| | | | | | | | As of | | |||
| | Three Months Ended | | March 31, 2023 | | |||||||
| | March 31, | | Unrecognized | | Weighted | | |||||
|
| 2023 |
| 2022 |
| Compensation Cost |
| Average Years | | |||
RSUs | | $ | 4.8 | | $ | 4.6 | | $ | 13.5 | | 2.0 | |
Options | | | 2.6 | | | 3.0 | | | 3.9 | | 1.6 | |
PSUs | | | 0.8 | | | 0.7 | | | 7.4 | | 2.4 | |
Total share-based compensation expense | | $ | 8.2 | | $ | 8.3 | | | | | | |
The following table summarizes awards granted and the respective weighted average grant date fair value for the three months ended March 31, 2023:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, 2023 | ||||
| | Awards Granted | | Weighted Average Grant Date Fair Value per Award | ||
RSUs | | | 394,292 | | $ | 24.10 |
Options | | | 438,727 | | | 10.86 |
PSUs | | | 219,238 | | | 20.23 |
Option Awards
The following are the weighted average assumptions used within the Black-Scholes pricing model for the Company’s option awards granted during the three months ended March 31, 2023:
| | | |
| | Three Months Ended | |
| March 31, 2023 | ||
Expected term (in years) | 5.50 | | |
Expected volatility | 54.01 | % | |
Risk-free interest rate | 4.06 | % | |
Dividend yield | | 2.00 | % |
The expected volatility assumption is determined based on the historical volatility of the Company’s publicly traded ordinary shares. The expected term of option awards represents the period of time that option awards granted are expected to be outstanding. For the option awards granted during the three months ended March 31, 2023, the simplified method was used to calculate the expected term, given the Company’s limited historical exercise data. The risk-free interest rate for the periods within the expected term of option awards is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is estimated based on historical and expected dividend activity.
Performance Share Units (PSUs)
The following are the weighted average assumptions used within the Monte Carlo valuation model for PSUs granted during the three months ended March 31, 2023:
| | | |
| | Three Months Ended | |
| | March 31, 2023 | |
Expected term (in years) | | 3.00 | |
Expected volatility |
| 62.60 | % |
Risk-free interest rate |
| 4.41 | % |
Share price | $ | 24.08 | |
Determining the fair value of PSUs requires considerable judgment, including estimating the expected volatility of the price of the Company’s ordinary shares, the correlation between the Company’s share price and that of its peer companies, and the expected rate of interest. The expected volatility for each grant is determined based on the historical volatility of the Company’s ordinary shares. The expected term of PSUs represents the length of the performance period.
24
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a duration equivalent to the performance period. The share price is the closing price of the Company’s ordinary shares on the grant date.
NOTE 16—SEGMENTS
The Company operates under six segments: Engineered Materials, Latex Binders, Plastics Solutions, Polystyrene, Feedstocks, and Americas Styrenics. On January 1, 2023, the Base Plastics segment was renamed to Plastics Solutions to better reflect Trinseo’s strategic focus on providing solutions in areas such as sustainability and material substitution. The Engineered Materials segment includes the Company’s compounds and blends products sold into higher growth and value applications, such as consumer electronics and medical, as well as soft thermoplastic elastomers (“TPEs”) products which are sold into markets such as footwear and automotive. Additionally, following the PMMA Acquisition and the Aristech Surfaces Acquisition in 2021, the Engineered Materials segment also includes PMMA and MMA products, which are sold into a variety of applications including automotive, building & construction, medical, consumer electronics, and wellness, among others. The Latex Binders segment produces styrene-butadiene latex (“SB latex”) and other latex polymers and binders, primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex binders applications, such as adhesive, building and construction and the technical textile paper market. The Plastics Solutions segment contains the results of the acrylonitrile-butadiene-styrene (“ABS”), styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses, as well as compounds and blends for automotive and other applications. The Plastics Solutions segment also includes the results of Heathland, which was acquired in the first quarter of 2022. The Polystyrene segment includes a variety of general purpose polystyrenes (“GPPS”) and polystyrene that has been modified with polybutadiene rubber to increase its impact resistant properties (“HIPS”). The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, and ABS resins. Lastly, the Americas Styrenics segment consists solely of the operations of the Company’s 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America.
The following table provides disclosure of the Company’s segment Adjusted EBITDA, which is used to measure segment operating performance and is defined below, for the three months ended March 31, 2023 and 2022. Asset and intersegment sales information by reporting segment is not regularly reviewed or included with the Company’s reporting to the chief operating decision maker. Therefore, this information has not been disclosed below. Refer to Note 5 for the Company’s net sales to external customers by segment for the three months ended March 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | |
| | Engineered | | Latex | | Plastics | | | | | | Americas |
| ||||||
Three Months Ended (1) | | Materials | | Binders | | Solutions | | Polystyrene | | Feedstocks | | Styrenics |
| ||||||
March 31, 2023 |
| $ | (11.7) |
| $ | 26.0 | | $ | 25.6 | | $ | 15.7 |
| $ | (10.8) |
| $ | 17.6 | |
March 31, 2022 | | $ | 34.7 | | $ | 30.2 | | $ | 68.6 | | $ | 45.3 | | $ | 4.1 | | $ | 21.6 | |
(1) |
|
Amortization expense on other intangible assets totaled $7.2 million and $19.6 million for the three and nine months ended September 30, 2017, respectively, and $5.0 million and $15.2 million for the three and nine months ended September 30, 2016.
15
In addition to the significant accounting policies disclosed in Note 2 in our Annual Report, Basis of Presentation and Summary of Significant Accounting Policies, the Company notes the following significant accounting policies related to certain definite-lived intangible assets, for which we had substantial activity during the quarter ended September 30, 2017 as a result of the API Plastics acquisition.
Developed Technology
Acquired developed technology is recorded at fair value upon acquisition and is amortized using the straight-line method over the estimated useful life ranging from 9 years to 15 years. We determine amortization periods for developed technology based on our assessment of various factors impacting estimated useful lives and timing and extent of estimated cash flows of the acquired assets. This includes estimates of expected period of future economic benefit and competitive advantage related to existing processes and procedures at the date of acquisition. Significant changes to any of these factors may result in a reduction in the useful life of these assets.
Customer Relationships
Customer relationships are recorded at fair value upon acquisition and are amortized using the straight-line method over the estimated useful life of 19 years. We determine amortization periods for customer relationships based on our assessment of various factors impacting estimated useful lives and timing and extent of estimated cash flows of the acquired assets. This includes estimates of expected period of future economic benefit and customer retention rates. Significant changes to any of these factors may result in a reduction in the useful life of these assets.
NOTE 7—DERIVATIVE INSTRUMENTS
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates and interest rate risk. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts and interest rate swap agreements. The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives are recorded on the condensed consolidated balance sheets at fair value.
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.
As of September 30, 2017, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $327.9 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of September 30, 2017.
|
|
|
|
|
|
| September 30, |
| |
Buy / (Sell) |
| 2017 |
| |
Euro |
| $ | (161,885) |
|
Chinese Yuan |
| $ | (58,335) |
|
Indonesian Rupiah |
| $ | (29,493) |
|
Swiss Franc |
| $ | 16,762 |
|
Korean Won |
| $ | (10,983) |
|
Foreign Exchange Cash Flow Hedges
The Company also enters 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 buys a designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the
16
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/loss (“AOCI”) to the extent effective, and reclassified to cost of sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.
Open foreign exchange cash flow hedges as of September 30, 2017 have maturities occurring over a period of 15 months, and have a net notional U.S. dollar equivalent of $196.5 million.
Interest Rate Swaps
As discussed in Note 5, on September 6, 2017, the Company issued the 2024 Term Loan B, which bears an interest rate of LIBOR plus 2.50%, subject to a 0.00% LIBOR floor. In order to reduce the variability in interest payments associated with the Company’s variable rate debt, during the third quarter of 2017, the Company entered into certain interest rate swap agreements to convert a portion of these variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges, and as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.
As of September 30, 2017, the Company had open interest rate swap agreements with a net notional U.S. dollar equivalent of $200.0 million which had an effective date of September 29, 2017 and mature over a period of five years.
Net Investment Hedge
Through August 31, 2017, the Company had designated a portion (€280 million) of the original principal amount of the Company’s previous €375.0 million Euro Notes as a hedge of the foreign currency exposure of the Issuers’ net investment in certain European subsidiaries. Effective September 1, 2017, the Company de-designated the Euro Notes as a net investment hedge of the Issuers’ net investment in certain European subsidiaries, as the Euro Notes were redeemed on September 7, 2017 (refer to Note 5 for further information). Through the date of de-designation, this hedge was deemed to be highly effective, and changes in the Euro Notes’ carrying value resulting from fluctuations in the euro exchange rate were recorded as cumulative foreign currency translation loss of $24.1 million within AOCI as of September 30, 2017.
On August 29, 2017, the Issuers executed an indenture pursuant to which they issued the $500.0 million 5.375% 2025 Senior Notes (refer to Note 5 for further information). Subsequently, on September 1, 2017, the Company entered into certain fixed-for-fixed cross currency swaps (“CCS”), swapping USD principal and interest payments on the newly issued 2025 Senior Notes for euro-denominated payments. Under the terms of the CCS, the Company has notionally exchanged $500.0 million at an interest rate of 5.375% for €420 million at a weighted-average interest rate of 3.45% for approximately five years.
Effective September 1, 2017, the Company designated the full notional amount of the CCS (€420 million) as a hedge of the Issuers’ net investment in certain European subsidiaries. As the CCS were deemed to be highly effective hedges, changes in the fair value of the CCS were recorded as cumulative foreign currency translation loss of $7.1 million within AOCI as of September 30, 2017.
17
Summary of Derivative Instruments
Information regarding changes in the fair value of the Company’s derivative instruments, net of tax, including those not designated for hedge accounting treatment, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain (Loss) Recognized in |
| Gain (Loss) Recognized in |
|
| ||||||||
|
| AOCI on Balance Sheet |
| Statement of Operations |
|
| ||||||||
|
| Three Months Ended September 30, |
| Statement of Operations | ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Classification | ||||
Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | (4,458) |
| $ | (2,280) |
| $ | (2,666) |
| $ | 245 |
| Cost of sales |
Interest rate swaps |
|
| 743 |
|
| — |
|
| (6) |
|
| — |
| Interest expense, net |
Total |
| $ | (3,715) |
| $ | (2,280) |
| $ | (2,672) |
| $ | 245 |
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
| $ | (13,924) |
| $ | (2,128) |
| $ | — |
| $ | — |
|
|
Cross-currency swaps (CCS) |
|
| (7,112) |
|
| — |
|
| — |
|
| — |
|
|
Total |
| $ | (21,036) |
| $ | (2,128) |
| $ | — |
| $ | — |
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
| $ | — |
| $ | — |
| $ | (6,526) |
| $ | 1,060 |
| Other expense (income), net |
Total |
| $ | — |
| $ | — |
| $ | (6,526) |
| $ | 1,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain (Loss) Recognized in |
| Gain (Loss) Recognized in |
|
| ||||||||
|
| AOCI on Balance Sheet |
| Statement of Operations |
|
| ||||||||
|
| Nine Months Ended September 30, |
| Statement of Operations | ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Classification | ||||
Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | (22,234) |
| $ | (3,676) |
| $ | 794 |
| $ | 616 |
| Cost of sales |
Interest rate swaps |
|
| 743 |
|
| — |
|
| (6) |
|
| — |
| Interest expense, net |
Total |
| $ | (21,491) |
| $ | (3,676) |
| $ | 788 |
| $ | 616 |
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
| $ | (38,584) |
| $ | (4,615) |
| $ | — |
| $ | — |
|
|
Cross-currency swaps (CCS) |
|
| (7,112) |
|
| — |
|
| — |
|
| — |
|
|
Total |
| $ | (45,696) |
| $ | (4,615) |
| $ | — |
| $ | — |
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
| $ | — |
| $ | — |
| $ | (17,036) |
| $ | 2,054 |
| Other expense (income), net |
Total |
| $ | — |
| $ | — |
| $ | (17,036) |
| $ | 2,054 |
|
|
The Company recorded losses of $6.5 million and $17.0 million during the three and nine months ended September 30, 2017, respectively, and gains of $1.1 million and $2.1 million during the three and nine months ended September 30, 2016, respectively, from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges). The gains and losses from these forward contracts offset net foreign exchange transaction gains of $8.2 million and $16.1 million during the three and nine months ended September 30, 2017, respectively, and losses of $1.5 million and $4.1 million during the three and nine months ended September 30, 2016, respectively, 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 September 30, 2017, the Company had no ineffectiveness related to its derivatives designated as hedging instruments. Further, the Company expects to reclassify in the next twelve months an approximate $10.3 million net loss from AOCI into earnings related to the Company’s outstanding foreign exchange cash flow hedges and interest rate swaps as of September 30, 2017 based on current foreign exchange rates.
18
The following table summarizes the net unrealized gains and losses and balance sheet classification of outstanding derivatives recorded in the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||||||||||||||||||||
|
| Foreign |
| Foreign |
| Interest |
| Cross- |
|
|
| Foreign |
| Foreign |
|
|
| ||||||||
|
| Forward |
| Cash Flow |
| Rate |
| Currency |
|
|
| Forward |
| Cash Flow |
|
|
| ||||||||
Balance Sheet Classification |
| Contracts |
| Hedges |
| Swaps |
| Swaps |
| Total |
| Contracts |
| Hedges |
| Total |
| ||||||||
Asset Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance |
| $ | 3,368 |
| $ | — |
| $ | — |
| $ | 6,420 |
| $ | 9,788 |
| $ | 1,664 |
| $ | 11,018 |
| $ | 12,682 |
|
Deferred charges and other assets |
|
| — |
|
| — |
|
| 1,432 |
|
| — |
|
| 1,432 |
|
| — |
|
| — |
|
| — |
|
Total asset derivatives |
| $ | 3,368 |
| $ | — |
| $ | 1,432 |
| $ | 6,420 |
| $ | 11,220 |
| $ | 1,664 |
| $ | 11,018 |
| $ | 12,682 |
|
Liability Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 117 |
| $ | 9,612 |
| $ | 688 |
| $ | — |
| $ | 10,417 |
| $ | 511 |
| $ | — |
| $ | 511 |
|
Other noncurrent obligations |
|
| — |
|
| 2,148 |
|
| — |
|
| 13,531 |
|
| 15,679 |
|
| — |
|
| — |
|
| — |
|
Total liability derivatives |
| $ | 117 |
| $ | 11,760 |
| $ | 688 |
| $ | 13,531 |
| $ | 26,096 |
| $ | 511 |
| $ | — |
| $ | 511 |
|
Forward contracts, interest rate swaps, and cross currency swaps 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 such, in accordance with the Company’s accounting policy, we record these derivative instruments on a net basis by counterparty within the condensed consolidated balance sheet. Information regarding the gross amounts of the Company’s derivative instruments and the amounts offset in the condensed consolidated balance sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Amounts |
| Gross Amounts |
| Net Amounts |
| |||
|
| Recognized in the |
| Offset in the |
| Presented in the |
| |||
|
| Balance Sheet |
| Balance Sheet |
| Balance Sheet |
| |||
Balance at September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
Derivative assets |
| $ | 12,793 |
| $ | (1,573) |
| $ | 11,220 |
|
Derivative liabilities |
|
| 27,669 |
|
| (1,573) |
|
| 26,096 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
Derivative assets |
| $ | 23,401 |
| $ | (10,719) |
| $ | 12,682 |
|
Derivative liabilities |
|
| 11,230 |
|
| (10,719) |
|
| 511 |
|
Refer to Notes 8 and 16 of the condensed consolidated financial statements for further information regarding the fair value of the Company’s derivative instruments and the related changes in AOCI.
NOTE 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.
19
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 sheets as of September 30, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| ||||||||||
|
| Quoted Prices in Active Markets for Identical Items |
| Significant Other Observable Inputs |
| Significant Unobservable Inputs |
|
|
|
| |||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
Foreign exchange forward contracts—Assets |
| $ | — |
| $ | 3,368 |
| $ | — |
| $ | 3,368 |
|
Foreign exchange forward contracts—(Liabilities) |
|
| — |
|
| (117) |
|
| — |
|
| (117) |
|
Foreign exchange cash flow hedges—(Liabilities) |
|
| — |
|
| (11,760) |
|
| — |
|
| (11,760) |
|
Interest rate swaps—Assets |
|
| — |
|
| 1,432 |
|
| — |
|
| 1,432 |
|
Interest rate swaps—(Liabilities) |
|
| — |
|
| (688) |
|
| — |
|
| (688) |
|
Cross-currency swaps—Assets |
|
| — |
|
| 6,420 |
|
| — |
|
| 6,420 |
|
Cross-currency swaps—(Liabilities) |
|
| — |
|
| (13,531) |
|
| — |
|
| (13,531) |
|
Total fair value |
| $ | — |
| $ | (14,876) |
| $ | — |
| $ | (14,876) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
| ||||||||||
|
| Quoted Prices in Active Markets for Identical Items |
| Significant Other Observable Inputs |
| Significant Unobservable Inputs |
|
|
|
| |||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
Foreign exchange forward contracts—Assets |
| $ | — |
| $ | 1,664 |
| $ | — |
| $ | 1,664 |
|
Foreign exchange forward contracts—(Liabilities) |
|
| — |
|
| (511) |
|
| — |
|
| (511) |
|
Foreign exchange cash flow hedges—Assets |
|
| — |
|
| 11,018 |
|
| — |
|
| 11,018 |
|
Total fair value |
| $ | — |
| $ | 12,171 |
| $ | — |
| $ | 12,171 |
|
The Company uses an income approach to value its derivative instruments, utilizing discounted cash flow techniques, considering the terms of the contract and observable market information available as of the reporting date, such as interest rate yield curves and currency spot and forward rates. Significant inputs to the valuation for these derivative instruments 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, 2017 and December 31, 2016, respectively:
|
|
|
|
|
|
|
|
|
| As of |
| As of |
| ||
|
| September 30, 2017 |
| December 31, 2016 |
| ||
2025 Senior Notes |
| $ | 515,625 |
| $ | — |
|
2022 Senior Notes |
|
|
|
|
|
|
|
USD Notes |
|
| — |
|
| 315,000 |
|
Euro Notes |
|
| — |
|
| 424,437 |
|
2024 Term Loan B |
|
| 707,441 |
|
| — |
|
2021 Term Loan B |
|
| — |
|
| 498,041 |
|
Total fair value |
| $ | 1,223,066 |
| $ | 1,237,478 |
|
The fair value of the Company’s debt facilities above (each Level 2 securities) is determined using over-the-counter market quotes and benchmark yields received from independent vendors.
There were no other significant financial instruments outstanding as of September 30, 2017 and December 31, 2016.
20
NOTE 9—PROVISION FOR INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
|
| ||||||||
|
| September 30, |
| September 30, |
|
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| ||||
Effective income tax rate |
|
| 20.0 | % |
| 19.2 | % |
| 21.1 | % |
| 21.7 | % |
|
Provision for income taxes for the three and nine months ended September 30, 2017 were $8.3 million, resulting in an effective tax rate of 20.0%, and $56.4 million, resulting in an effective tax rate of 21.1%, respectively. Provision for income taxes for the three and nine months ended September 30, 2016 were $16.0 million, resulting in an effective tax rate of 19.2%, and $66.5 million, resulting in an effective tax rate of 21.7%, respectively.
While the effective tax rate for the three and nine months ended September 30, 2017 and 2016 remained relatively consistent, the rate was impacted by non-recurring items in both periods.
The effective tax rate for the three and nine months ended September 30, 2017 was impacted by payments made of $10.9 million related to a portion of the fees associated with the call premium paid to retire the Company’s 2022 Senior Notes, which are not anticipated to provide a tax benefit to the Company in the future (refer to Note 5 for further information). The effective tax rate for the three and nine months ended September 30, 2016 was impacted by an impairment charge of $0.3 million and $13.2 million, respectively, for the estimated loss on sale of Trinseo Brazil. Refer to Note 13 for further information.
NOTE 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. Pursuant to the terms of the agreement associated with the Company’s formation, the pre-closing environmental conditions were retained by Dow and Dow has agreed to indemnify the Company from and against all environmental liabilities incurred or relating to the predecessor periods. No environmental claims have been asserted or threatened against the Company, and the Company is not a potentially responsible party at any Superfund Sites. As of September 30, 2017 and December 31, 2016, the Company had no accrued obligations for environmental remediation and restoration costs.
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 5 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 consolidated financial statements included in the 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.
21
NOTE 11—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for all significant plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Defined Benefit Pension Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 5,000 |
| $ | 4,156 |
| $ | 14,291 |
| $ | 12,438 |
|
Interest cost |
|
| 1,184 |
|
| 1,391 |
|
| 3,376 |
|
| 4,160 |
|
Expected return on plan assets |
|
| (450) |
|
| (492) |
|
| (1,285) |
|
| (1,474) |
|
Amortization of prior service credit |
|
| (503) |
|
| (488) |
|
| (1,456) |
|
| (1,459) |
|
Amortization of net loss |
|
| 1,479 |
|
| 1,058 |
|
| 4,232 |
|
| 3,169 |
|
Net settlement and curtailment loss(1) |
|
| — |
|
| — |
|
| 129 |
|
| — |
|
Net periodic benefit cost |
| $ | 6,710 |
| $ | 5,625 |
| $ | 19,287 |
| $ | 16,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Other Postretirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 53 |
| $ | 67 |
| $ | 161 |
| $ | 196 |
|
Interest cost |
|
| 63 |
|
| 135 |
|
| 189 |
|
| 385 |
|
Amortization of prior service cost |
|
| 26 |
|
| 25 |
|
| 77 |
|
| 77 |
|
Amortization of net gain |
|
| (11) |
|
| (43) |
|
| (32) |
|
| (128) |
|
Net periodic benefit cost |
| $ | 131 |
| $ | 184 |
| $ | 395 |
| $ | 530 |
|
As of September 30, 2017 and December 31, 2016, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $221.6 million and $195.8 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 and benefit payments to unfunded plans of approximately $1.7 million and $11.9 million during the three and nine months ended September 30, 2017, respectively. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately $4.0 million to its defined benefit plans for the remainder of 2017.
NOTE 12—STOCK-BASED COMPENSATION
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s stock-based compensation programs included in the tables below.
22
The following table summarizes the Company’s stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016, as well as unrecognized compensation cost as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of |
| |||
|
| Three Months Ended |
| Nine Months Ended |
| September 30, 2017 |
| |||||||||||
|
| September 30, |
| September 30, |
| Unrecognized |
| Weighted |
| |||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Compensation Cost |
| Average Years |
| |||||
RSUs |
| $ | 2,287 |
| $ | 1,476 |
| $ | 6,295 |
| $ | 3,826 |
| $ | 11,682 |
| 1.8 |
|
Options |
|
| 454 |
|
| 733 |
|
| 3,661 |
|
| 4,867 |
|
| 1,659 |
| 1.4 |
|
PSUs |
|
| 324 |
|
| — |
|
| 796 |
|
| — |
|
| 3,062 |
| 2.4 |
|
Restricted Stock Awards issued by Former Parent |
|
| — |
|
| 3,817 |
|
| — |
|
| 6,149 |
|
| — |
| — |
|
Total Stock-based Compensation Expense |
| $ | 3,065 |
| $ | 6,026 |
| $ | 10,752 |
| $ | 14,842 |
|
|
|
|
|
|
The following table summarizes awards granted and the respective weighted-average grant date fair value for the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| ||||
|
| September 30, 2017 |
| ||||
|
| Awards Granted |
| Weighted Average Grant Date Fair Value per Award |
| ||
RSUs |
|
| 110,767 |
| $ | 70.85 |
|
Options |
|
| 192,546 |
|
| 20.61 |
|
PSUs |
|
| 50,937 |
|
| 75.74 |
|
Option Awards
The following are the weighted-average assumptions used within the Black-Scholes pricing model for the Company’s option awards granted during the nine months ended September 30, 2017:
| ||||
| ||||
| ||||
|
| |||
|
|
| ||
|
|
| ||
|
|
|
Since the Company’s equity interests were privately held prior to its initial public offering (“IPO”) in June 2014, there is limited publicly available trading history of the Company’s ordinary shares. Until such time that the Company can determine expected volatility based solely on the publicly traded history of its ordinary shares, expected volatility used in the Black-Scholes model for option awards granted is based on a combination of the Company’s historical volatility and similar companies’ stock that are publicly traded. The expected term of option awards represents the period of time that option awards granted are expected to be outstanding. For the option awards granted during the nine months ended September 30, 2017, the simplified method was used to calculate the expected term, given the Company’s limited historical exercise data. The risk-free interest rate for the periods within the expected term of option awards is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is estimated based on historical and expected dividend activity.
Performance Share Units (PSUs)
The Company granted PSUs for the first time during the nine months ended September 30, 2017. The PSUs, which are granted to executives, cliff vest on the third anniversary of the date of grant, generally subject to the executive remaining continuously employed by the Company through the vesting date and achieving certain performance conditions. The number of the PSUs that vest upon completion of the service period can range from 0 to 200 percent of the original grant, subject to certain limitations, contingent upon the Company’s total shareholder return (“TSR”) during the performance period relative to a pre-defined set of industry peer companies. Upon a termination of employment due
23
to the executive’s death or retirement, or termination in connection with a change in control or other factors prior to the vesting date, the PSUs will vest in full or in part, depending on the type of termination and the achievement of the performance conditions. Dividend equivalents will accumulate on PSUs during the vesting period, will be paid in cash upon vesting, and do not accrue interest. When PSUs vest, shares will be issued from the existing pool of treasury shares. The fair value for PSU awards is computed using a Monte Carlo valuation model.
NOTE 13—ACQUISITIONS AND DIVESTITURES
Acquisition of API Plastics
On July 10, 2017, the Company acquired 100% of the equity interests of API Applicazioni Plastiche Industriali S.p.A, or API Plastics, a privately held company. The gross purchase price for the acquisition was $90.5 million, inclusive of $8.4 million of cash acquired, yielding a net purchase price of $82.1 million. These amounts are subject to certain customary post-closing adjustments. During the nine months ended September 30, 2017, the Company paid $79.7 million for this acquisition, leaving an additional $2.4 million of unpaid purchase price accrued, which is expected to be paid during the fourth quarter of 2017. API Plastics, based in Mussolente, Italy, is a manufacturer of soft-touch polymers and bioplastics, such as thermoplastic elastomers (“TPEs”). TPEs can be molded over rigid plastics such as ABS and PC/ABS, which presents opportunities for complementary technology product offerings within our Performance Plastics segment. The acquisition was funded through existing cash on hand.
The Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The Company calculated the fair value of the assets acquired using the income and cost approaches (or a combination thereof). Fair values were determined based on Level 3 inputs including estimated future cash flows, discount rates, royalty rates, growth rates, sales projections, retention rates and terminal values, all of which require significant management judgment.
The purchase price allocation is based upon preliminary information and is subject to change if additional information about the facts and circumstances that existed at the acquisition date becomes available. Additional information is being gathered to finalize these preliminary measurements, particularly with respect to property, plant and equipment, intangible assets, inventory, deferred income taxes and income taxes payable. Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed, including goodwill, during the measurement period.
24
The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:
|
|
|
|
|
|
| July 10, |
| |
|
| 2017 |
| |
Cash and cash equivalents |
| $ | 8,431 |
|
Accounts receivable |
|
| 16,484 |
|
Inventories |
|
| 10,282 |
|
Other current assets |
|
| 728 |
|
Property, plant, and equipment |
|
| 24,146 |
|
Other intangible assets(1) |
|
|
|
|
Customer relationships |
|
| 14,000 |
|
Developed technology |
|
| 11,500 |
|
Other amortizable intangible assets |
|
| 2,700 |
|
Total fair value of assets acquired |
| $ | 88,271 |
|
|
|
|
|
|
Accounts payable |
| $ | 12,219 |
|
Income taxes payable |
|
| 202 |
|
Accrued expenses and other current liabilities |
|
| 1,416 |
|
Deferred income tax liabilities—noncurrent |
|
| 11,262 |
|
Other noncurrent obligations |
|
| 1,277 |
|
Total fair value of liabilities assumed |
| $ | 26,376 |
|
Net identifiable assets acquired |
| $ | 61,895 |
|
Goodwill(2) |
|
| 28,598 |
|
Net assets acquired |
| $ | 90,493 |
|
|
|
|
|
During the three and nine months ended September 30, 2017, transaction and integration costs related to advisory and professional fees incurred in conjunction with the API Plastics acquisition were $2.4 million and $3.5 million, respectively, and were included within “Selling, general and administrative expenses” in the condensed consolidated statement of operations. Additionally, during the three and nine months ended September 30, 2017, the Company recorded a $1.3 million non-cash fair value inventory adjustment related to the API Plastics acquisition which was included within “Cost of sales” in the condensed consolidated statement of operations.
Pro forma results of operations information has not been presented, as the effect of the API Plastics acquisition is not material. The operating results of API Plastics are included within the Company's condensed consolidated statement of operations since the acquisition date of July 10, 2017 and were not material to the Company's results for the three and nine months ended September 30, 2017.
Divestiture of Brazil Business
During the second quarter of 2016, the Company signed a definitive agreement to sell Trinseo do Brasil Comercio de Produtos Quimicos Ltda. (“Trinseo Brazil”), its primary operating entity in Brazil, including both a latex binders and automotive business. The sale closed on October 1, 2016.
As a result of this agreement, during the three and nine months ended September 30, 2016, the Company recorded impairment charges for the estimated loss on sale of approximately $0.3 million, and $13.2 million, respectively, within “Other expense (income), net” in the condensed consolidated statement of operations. The $13.2 million charge was allocated as $8.4 million, $4.2 million, and $0.6 million to the Performance Plastics segment, Latex Binders segment, and Corporate, respectively. During the year ended December 31, 2016, the Company received $1.8 million in proceeds
25
from the sale of these businesses, with an additional $1.7 million received during the nine months ended September 30, 2017.
NOTE 14—SEGMENTS
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the business is managed and results are reviewed by the chief executive officer, who is the Company’s chief operating decision maker. This change in segments was made to provide increased clarity and understanding around the indicators of profitability and cash flow of the Company. The previous Basic Plastics & Feedstocks segment was split into three new segments: Basic Plastics, which includes polystyrene, copolymers, and polycarbonate; Feedstocks, which represents the Company’s styrene monomer business; and Americas Styrenics, which reflects the equity earnings from its 50%-owned styrenics joint venture. In addition, certain highly differentiated acrylonitrile-butadiene-styrene, or ABS, supplied into Performance Plastics markets, which was previously included in the results of Basic Plastics & Feedstocks, is now included in Performance Plastics. Finally, the Latex segment was renamed to Latex Binders. In conjunction with the segment realignment, the Company also changed its primary measure of segment operating performance from EBITDA to Adjusted EBITDA. Refer to the discussion below for further information about Adjusted EBITDA.
The information in the tables below has been retroactively adjusted to reflect the changes in reporting segments and segment operating performance.
The Latex Binders segment produces styrene-butadiene latex, or SB latex, and other latex polymers and binders, primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex binders applications, such as adhesive, building and construction and the technical textile paper market. The Synthetic Rubber segment produces synthetic rubber products used predominantly in high-performance tires, impact modifiers and technical rubber products, such as conveyer belts, hoses, seals and gaskets. The Performance Plastics segment produces highly engineered compounds and blends and some specialized ABS grades for automotive end markets, as well as consumer electronics, medical, electrical and lighting, collectively consumer essential markets, or CEM. The Basic Plastics segment produces styrenic polymers, including polystyrene, basic ABS, and styrene-acrylonitrile, or SAN, products, as well as polycarbonate, or PC, all of which are used as inputs in a variety of end use markets. The Basic Plastics segment also included the results of our previously 50%-owned joint venture, Sumika Styron Polycarbonate, until the Company sold its share in the entity in January 2017 (refer to Note 3 for further information). The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, ABS resins, solution styrene-butadiene rubber, or SSBR, etc. Lastly, the Americas Styrenics segment consists solely of the operations of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America.
Asset, capital expenditure, and intersegment sales information is not reviewed or included with the Company’s reporting to the chief operating decision maker. Therefore, the Company has not disclosed this information for each reportable segment.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Materials |
| Basic Plastics & Feedstocks |
|
|
|
|
|
|
| ||||||||||||||
|
| Latex |
| Synthetic |
| Performance |
| Basic |
|
|
| Americas |
| Corporate |
|
|
|
| |||||||
Three Months Ended |
| Binders |
| Rubber |
| Plastics |
| Plastics |
| Feedstocks |
| Styrenics |
| Unallocated |
| Total |
| ||||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 266,260 |
| $ | 118,684 |
| $ | 206,999 |
| $ | 393,622 |
| $ | 111,017 |
| $ | — |
| $ | — |
| $ | 1,096,582 |
|
Equity in earnings of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 43,807 |
|
| — |
|
| 43,807 |
|
Adjusted EBITDA(1) |
|
| 32,343 |
|
| (5,579) |
|
| 29,436 |
|
| 42,062 |
|
| 45,597 |
|
| 43,807 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 161,883 |
|
| — |
|
| 161,883 |
|
Depreciation and amortization |
|
| 6,046 |
|
| 8,960 |
|
| 4,102 |
|
| 4,274 |
|
| 3,603 |
|
| — |
|
| 2,191 |
|
| 29,176 |
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 242,600 |
| $ | 112,690 |
| $ | 175,355 |
| $ | 323,729 |
| $ | 81,036 |
| $ | — |
| $ | — |
| $ | 935,410 |
|
Equity in earnings of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 2,356 |
|
| — |
|
| 34,330 |
|
| — |
|
| 36,686 |
|
Adjusted EBITDA(1) |
|
| 29,815 |
|
| 28,491 |
|
| 30,187 |
|
| 34,134 |
|
| 12,729 |
|
| 34,330 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 38,197 |
|
| — |
|
| 148,802 |
|
| — |
|
| 186,999 |
|
Depreciation and amortization |
|
| 5,742 |
|
| 9,138 |
|
| 1,372 |
|
| 4,057 |
|
| 2,446 |
|
| — |
|
| 1,016 |
|
| 23,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Materials |
| Basic Plastics & Feedstocks |
|
|
|
|
|
|
| ||||||||||||||
|
| Latex |
| Synthetic |
| Performance |
| Basic |
|
|
| Americas |
| Corporate |
|
|
|
| |||||||
Nine Months Ended |
| Binders |
| Rubber |
| Plastics |
| Plastics |
| Feedstocks |
| Styrenics |
| Unallocated |
| Total |
| ||||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 846,721 |
| $ | 456,055 |
| $ | 581,724 |
| $ | 1,156,831 |
| $ | 304,940 |
| $ | — |
| $ | — |
| $ | 3,346,271 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 810 |
|
| — |
|
| 92,219 |
|
| — |
|
| 93,029 |
|
Adjusted EBITDA(1) |
|
| 105,228 |
|
| 68,381 |
|
| 79,799 |
|
| 112,691 |
|
| 86,342 |
|
| 92,219 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 161,883 |
|
| — |
|
| 161,883 |
|
Depreciation and amortization |
|
| 17,469 |
|
| 26,027 |
|
| 8,947 |
|
| 12,094 |
|
| 9,172 |
|
| — |
|
| 6,511 |
|
| 80,220 |
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 684,552 |
| $ | 326,278 |
| $ | 527,875 |
| $ | 1,029,683 |
| $ | 230,800 |
| $ | — |
| $ | — |
| $ | 2,799,188 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 5,375 |
|
| — |
|
| 104,939 |
|
| — |
|
| 110,314 |
|
Adjusted EBITDA(1) |
|
| 70,042 |
|
| 81,787 |
|
| 103,745 |
|
| 115,050 |
|
| 66,087 |
|
| 104,939 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 38,197 |
|
| — |
|
| 148,802 |
|
| — |
|
| 186,999 |
|
Depreciation and amortization |
|
| 17,904 |
|
| 26,073 |
|
| 4,505 |
|
| 11,581 |
|
| 8,071 |
|
| — |
|
| 3,610 |
|
| 71,744 |
|
(1)The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring;restructuring charges; acquisition related costs and benefits and other items. Segment Adjusted 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 core operating performance by removing the impact of transactions and events that would not be considered a part of core operations. Adjusted 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 segment Adjusted EBITDA differently than the Company, and as a result, it may be difficult to use segment Adjusted EBITDA, or similarly named financial measures, that other companies may use to compare the performance of those companies to the Company’s segment performance.
25
The reconciliation of income from continuing operations before income taxes to segment Adjusted EBITDA is as follows:
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
Income (loss) from continuing operations before income taxes | | $ | (65.6) | | $ | 39.7 | |
Interest expense, net | |
| 38.3 | |
| 21.9 | |
Depreciation and amortization | | | 56.0 | |
| 53.0 | |
Corporate Unallocated(2) | | | 26.1 | | | 26.9 | |
Adjusted EBITDA Addbacks(3) | |
| 7.6 | |
| 63.0 | |
Segment Adjusted EBITDA | | $ | 62.4 | | $ | 204.5 | |
27
(2) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(3) | Adjusted EBITDA addbacks for the three
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
Net gain on disposition of businesses and assets | | $ | — | | $ | (0.3) | |
Restructuring and other charges (Note 17) | | | 3.7 | | | 0.4 | |
Acquisition transaction and integration net costs (Note 3) | | | — | | | 3.2 | |
Asset impairment charges or write-offs (Note 11) | | | 0.3 | | | 0.7 | |
European Commission request for information (Note 13) | | | — | | | 35.6 | |
Other items (a) | | | 3.6 | | | 23.4 | |
Total Adjusted EBITDA Addbacks | | $ | 7.6 | | $ | 63.0 | |
|
|
NOTE 17—RESTRUCTURING
Refer to the Annual Report for further details regarding the Company’s previously announced restructuring activities included in the tables below. Restructuring charges are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations.
26
The following table provides detail of the Company’s restructuring charges for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | |
| | Three Months Ended | | Cumulative | | | | |||||
| | March 31, | | Life-to-date | | | | |||||
| | 2023 |
| 2022 | | Charges |
| Segment | | |||
Asset Restructuring Plan(1) | | | | | | | | | | | | |
Feedstocks: | | | | | | | | | | | | |
Accelerated depreciation | | $ | 0.9 | | $ | — | | $ | 36.0 | | Feedstocks | |
Employee termination benefits | | | (0.2) | | | — | | | 3.7 | | Feedstocks | |
Contract terminations | | | 2.5 | | | — | | | 2.9 | | Feedstocks | |
Decommissioning and other | | | 0.5 | | | — | | | 3.7 | | Feedstocks | |
Plastics Solutions: | | | | | | | | | | | | |
Accelerated depreciation | | | — | | | — | | | 1.4 | | Plastics Solutions | |
Employee termination benefits | | | (0.4) | | | — | | | 3.0 | | Plastics Solutions | |
Decommissioning and other | | | 0.7 | | | — | | | 0.7 | | Plastics Solutions | |
Engineered Materials: | | | | | | | | | | | | |
Accelerated depreciation | | | 3.1 | | | — | | | 6.3 | | Engineered Materials | |
Employee termination benefits | | | — | | | — | | | 2.4 | | Engineered Materials | |
Decommissioning and other | | | 0.6 | | | — | | | 4.3 | | Engineered Materials | |
Asset Restructuring Plan subtotal | | $ | 7.7 | | $ | — | | $ | 64.4 | | | |
Transformational Restructuring Program | | | | | | | | | | | | |
Employee termination benefits | | $ | — | | $ | 0.3 | | $ | 8.8 | | | |
Transformational Restructuring Program Subtotal | | $ | — | | $ | 0.3 | | $ | 8.8 | | N/A(2) | |
Other Restructurings | | | — | | | 0.1 | | | | | Various | |
Total Restructuring Charges | | $ | 7.7 | | $ | 0.4 | | | | | | |
| (1) | In December 2022, the Company announced an asset restructuring plan designed to reduce costs, improve profitability, reduce exposure to cyclical markets and elevated natural gas prices, and address market overcapacity. The asset restructuring plan includes (i) closure of manufacturing operations at the styrene production facility in Boehlen, Germany, (ii) closure of one of its production lines at the Stade, Germany polycarbonate plant, and (iii) closure of the PMMA sheet manufacturing site in Matamoros, Mexico. The program is expected to be substantially completed by the end of 2024. In connection with this restructuring plan, during the three
decommissioning and other charges of $1.8 million. Production at all facilities have ceased and decommissioning activities are expected to continue through the end of 2024. The | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
On April 4, 2023, the Company entered into an agreement to sell its land, buildings and equipment in Matamoros, Mexico for a cash consideration of approximately $19.0 million. The transaction is expected to close within the second quarter of 2023.
| (2) | In May 2021, the Company approved a transformational restructuring program associated with the Company’s |
27
Refer to Note 13 for further information regarding the asset retirement obligation. The following table provides a roll forward of the other liability balances associated with the Company’s restructuring activities as of March 31, 2023. Employee termination benefit and contract termination charges are primarily recorded within “Accrued expenses and other current liabilities” in the condensed consolidated balance sheets.
| | | | | | | | | | | | | |
|
| Balance at |
| | |
| | |
| Balance at |
| ||
|
| December 31, 2022 |
| Expenses |
| Deductions(1) |
| March 31, 2023 |
| ||||
Employee termination benefits | | $ | 13.3 | | $ | (0.6) | | $ | (2.1) | | $ | 10.6 | |
Contract terminations | |
| — | |
| 2.5 | |
| (2.5) | |
| — | |
Decommissioning and other | | | — | | | 1.8 | | | (1.8) | | | — | |
Total | | $ | 13.3 | | $ | 3.7 | | $ | (6.4) | | $ | 10.6 | |
| (1) | Primarily includes payments made against the |
NOTE 18—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of AOCI, net of income taxes, consisted of:
| | | | | | | | | | | | | |
|
| Cumulative |
| Pension & Other |
| | | | | | | ||
| | Translation | | Postretirement Benefit | | | Cash Flow | | | | | ||
Three Months Ended March 31, 2023 and 2022 |
| Adjustments |
| Plans, Net |
| | Hedges, Net |
| Total |
| |||
Balance as of December 31, 2022 | | $ | (151.2) | | $ | 29.0 | | $ | (9.1) | | $ | (131.3) | |
Other comprehensive income (loss) | |
| 10.5 | |
| — | |
| (13.2) | |
| (2.7) | |
Amounts reclassified from AOCI to net income(1) | | | — | | | 0.3 | | | 5.8 | | | 6.1 | |
Balance as of March 31, 2023 | | $ | (140.7) | | $ | 29.3 | | $ | (16.5) | | $ | (127.9) | |
| | | | | | | | | | | | | |
Balance as of December 31, 2021 | | $ | (114.3) | | $ | (33.6) | | $ | 0.7 | | $ | (147.2) | |
Other comprehensive income (loss) | |
| (4.3) | |
| — | |
| 0.7 | |
| (3.6) | |
Amounts reclassified from AOCI to net income (1) | | | — | | | 0.3 | | | 0.8 | | | 1.1 | |
Balance as of March 31, 2022 | | $ | (118.6) | | $ | (33.3) | | $ | 2.2 | | $ | (149.7) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
|
|
|
|
|
|
| Balance at |
| ||
|
| December 31, 2016 |
| Expenses |
| Deductions(1) |
| September 30, 2017 |
| ||||
Employee termination benefits |
| $ | 5,021 |
| $ | 2,492 |
| $ | (5,674) |
| $ | 1,839 |
|
Contract terminations |
|
| 269 |
|
| 590 |
|
| (122) |
|
| 737 |
|
Decommissioning and other |
|
| — |
|
| 2,474 |
|
| (2,474) |
|
| — |
|
Total |
| $ | 5,290 |
| $ | 5,556 |
| $ | (8,270) |
| $ | 2,576 |
|
|
|
29
NOTE 16—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of AOCI, net of income taxes, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative |
| Pension & Other |
|
|
|
|
|
|
| ||
|
| Translation |
| Postretirement Benefit |
|
| Cash Flow |
|
|
|
| ||
Three Months Ended September 30, 2017 and 2016 |
| Adjustments |
| Plans, Net |
|
| Hedges, Net |
| Total |
| |||
Balance as of June 30, 2017 |
| $ | (95,747) |
| $ | (61,332) |
| $ | (5,504) |
| $ | (162,583) |
|
Other comprehensive income (loss) |
|
| (1,561) |
|
| — |
|
| (6,387) |
|
| (7,948) |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 840 |
|
| 2,672 |
|
| 3,512 |
|
Balance as of September 30, 2017 |
| $ | (97,308) |
| $ | (60,492) |
| $ | (9,219) |
| $ | (167,019) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2016 |
| $ | (106,702) |
| $ | (45,887) |
| $ | 4,173 |
| $ | (148,416) |
|
Other comprehensive income (loss) |
|
| 1,488 |
|
| — |
|
| (2,035) |
|
| (547) |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 533 |
|
| (245) |
|
| 288 |
|
Balance as of September 30, 2016 |
| $ | (105,214) |
| $ | (45,354) |
| $ | 1,893 |
| $ | (148,675) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative |
| Pension & Other |
|
|
|
|
|
| |||
|
| Translation |
| Postretirement Benefit |
| Cash Flow |
|
|
|
| |||
Nine Months Ended September 30, 2017 and 2016 |
| Adjustments |
| Plans, Net |
| Hedges, Net |
| Total |
| ||||
Balance as of December 31, 2016 |
| $ | (118,922) |
| $ | (63,504) |
| $ | 12,272 |
| $ | (170,154) |
|
Other comprehensive income (loss) |
|
| 21,614 |
|
| — |
|
| (20,703) |
|
| 911 |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 3,012 |
|
| (788) |
|
| 2,224 |
|
Balance as of September 30, 2017 |
| $ | (97,308) |
| $ | (60,492) |
| $ | (9,219) |
| $ | (167,019) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
| $ | (109,120) |
| $ | (46,166) |
| $ | 5,569 |
| $ | (149,717) |
|
Other comprehensive income (loss) |
|
| 3,906 |
|
| (800) |
|
| (3,060) |
|
| 46 |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 1,612 |
|
| (616) |
|
| 996 |
|
Balance as of September 30, 2016 |
| $ | (105,214) |
| $ | (45,354) |
| $ | 1,893 |
| $ | (148,675) |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
28
| | | | | | | | | |
| | Three Months Ended | | | | ||||
| | March 31, | | Statements of Operations | | ||||
AOCI Components |
| 2023 |
| 2022 |
| Classification | | ||
Cash flow hedging items | | | | | | | | | |
Commodity cash flow hedges | | $ | 6.4 | | $ | — | | Cost of sales | |
Interest rate swaps | | | — | | | 0.8 | | Interest expense, net | |
Total before tax | | | 6.4 | | | 0.8 | | | |
Tax effect | | | (0.6) | | | — | | Provision for (benefit from) income taxes | |
Total, net of tax | | $ | 5.8 | | $ | 0.8 | | | |
| | | | | | | | | |
Amortization of pension and other postretirement benefit plan items | | | | | | | | | |
Prior service cost (credit) | | $ | 0.1 | | $ | (0.1) | | (a) | |
Net actuarial loss | | | 0.3 | | | 0.6 | | (a) | |
Total before tax | | | 0.4 | | | 0.5 | | | |
Tax effect | | | (0.1) | | | (0.2) | | Provision for (benefit from) income taxes | |
Total, net of tax | | $ | 0.3 | | $ | 0.3 | | | |
| (a) | These AOCI components are included in the computation of net periodic benefit costs (see Note 14). |
.
NOTE 19—EARNINGS PER SHARE
Basic earnings per ordinary share (“basic EPS”) is computed by dividing net income available to ordinary shareholders by the weighted average number of the Company’s ordinary shares outstanding for the applicable period. Diluted earnings per ordinary share (“diluted EPS”) is calculated using net income available to ordinary shareholders divided by diluted weighted average ordinary shares outstanding during each period, which includes unvested RSUs, option awards, and PSUs. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss from continuing operations because the inclusion of the potential ordinary shares would have an anti-dilutive effect.
The following table presents basic EPS and diluted EPS for the three months ended March 31, 2023 and 2022.
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
(in millions, except per share data) |
| 2023 |
| 2022 |
| ||
Earnings: | | | | | | | |
Net income (loss) from continuing operations | | $ | (48.9) | | $ | 17.1 | |
Net loss from discontinued operations | | | — | | | (0.4) | |
Net income (loss) | | $ | (48.9) | | $ | 16.7 | |
Shares: | | | | | | | |
Weighted average ordinary shares outstanding | |
| 35.0 | |
| 37.3 | |
Dilutive effect of RSUs, option awards, and PSUs(1) | |
| — | |
| 0.8 | |
Diluted weighted average ordinary shares outstanding | |
| 35.0 | |
| 38.1 | |
Income (loss) per share: | | | | | | | |
Income (loss) per share—basic: | | | | | | | |
Continuing operations | | $ | (1.40) | | $ | 0.46 | |
Discontinued operations | | | — | | | (0.01) | |
Income (loss) per share—basic | | $ | (1.40) | | $ | 0.45 | |
Income (loss) per share—diluted: | | | | | | | |
Continuing operations | | $ | (1.40) | | $ | 0.45 | |
Discontinued operations | | | — | | | (0.01) | |
Income (loss) per share—diluted | | $ | (1.40) | | $ | 0.44 | |
*
| (1) | Refer to Note |
29
NOTE 20—IMPAIRMENT AND OTHER CHARGES
Impairment and other charges consisted of the following:
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
Asset impairment charges or write-offs (Note 11) | | $ | 0.3 | | $ | 0.7 | |
European Commission request for information (Note 13) | | | — | | | 35.6 | |
Total | | $ | 0.3 | | $ | 36.3 | |
t
34
our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, partially offset by gains of $1.1 million from our foreign exchange forward contracts.
Provision for Income Taxes
Provision for income taxes for the three months ended September 30, 2017 totaled $8.3 million resulting in an effective tax rate of 20.0%. Provision for income taxes for the three months ended September 30, 2016 totaled $16.0 million resulting in an effective tax rate of 19.2%.
The decrease in provision for income taxes was primarily driven by the $41.8 million decrease in income before income taxes, due predominantly to costs incurred related to the Company’s debt refinancing that occurred during the third quarter of 2017. Refer to Note 5 in the condensed consolidated financial statements for further information.
Nine Months Ended - September 30, 2017 vs. September 30, 2016
Net Sales
Of the 20% increase, 20% was due to higher selling prices primarily from the pass through of higher raw material costs, including higher styrene and butadiene costs to customers across our segments. Additionally, 1% of the increase was due to slightly higher sales volume, as increases in Performance Plastics and Synthetic Rubber sales volume were partially offset by decreases in Latex Binders and Basic Plastics sales volume. Offsetting these increases in net sales was a net 1% decrease related to portfolio adjustments.
Cost of Sales
Of the 22% increase, 23% was attributable to higher prices for raw materials, primarily related to styrene monomer and butadiene, and an additional 1% of the increase was due to increased sales volume, primarily in Performance Plastics and Synthetic Rubber. Portfolio adjustments resulted in a 1% decrease in cost of sales, which was mostly offset by a slight increase in fixed costs.
Gross Profit
The increase was primarily attributable to higher year-to-date margins per unit sold, especially within the Latex Binders and Feedstocks segments, due to more favorable market conditions. Higher sales volume in Synthetic Rubber and Performance Plastics was partially offset by lower sales volume in Basic Plastics and Latex Binders, as well as margin compression in Performance Plastics due to higher raw material costs.
Selling, General and Administrative Expenses
The $1.0 million year-over-year increase is comprised of several offsetting factors. Restructuring expenses decreased by $12.5 million, noting $16.1 million in asset impairment and other charges recorded in the prior year as a result of our decision to cease manufacturing operations at our latex facility in Livorno, Italy, partially offset by $2.9 million in charges in the current year related to the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands. Offsetting the decrease in restructuring expenses were increased costs incurred supporting growth initiatives of approximately $4.0 million, transaction and integration related costs of $3.5 million related to the API Plastics acquisition, and $3.6 million of asset impairment charges on certain long-lived assets within the Performance Plastics segment. Refer to Notes 13 and 15 in the condensed consolidated financial statements for further information.
Equity in Earnings of Unconsolidated Affiliates
Equity earnings decreased in 2017, as equity earnings from Americas Styrenics decreased from $104.9 million in 2016 to $92.2 million in 2017, primarily due to the planned and extended first quarter styrene outage at its St. James, LA facility, including lower margins on second quarter sales of styrene purchased during the outage. Additionally, equity earnings from Sumika Styron Polycarbonate decreased from $5.4 million in 2016 to $0.8 million in 2017, as the Company completed the sale of its 50% share in the entity to Sumitomo Chemical Company Limited in January 2017,
35
and therefore did not have an ownership interest in the joint venture for the majority of the nine months ended September 30, 2017. Refer to Note 3 in the condensed consolidated financial statements for further information.
Interest Expense, Net
This slight decrease was primarily attributable to lower deferred financing fee amortization recorded into interest expense from our Accounts Receivable Securitization Facility. As the Company’s debt refinancing during the third quarter of 2017 did not occur until later in the period, there was no significant impact on interest expense for the nine months ended September 30, 2017. Refer to Note 5 in the condensed consolidated financial statements for further information.
Loss on Extinguishment of Long-Term Debt
Loss on extinguishment of long-term debt was $65.3 million for the nine months ended September 30, 2017, which related to the Company’s debt refinancing during the third quarter of 2017. This amount was comprised of a $53.0 million call premium paid to retire the Company’s 2022 Senior Notes and a $11.5 million write-off of unamortized deferred financing fees related to these notes, as well as the write-off of $0.8 million of unamortized deferred financing fees and unamortized original issue discount related to the termination of the Company’s 2021 Term Loan B.
Other Expense (Income), net
Other income, net for the nine months ended September 30, 2017 was $6.2 million, which primarily includes a $9.3 million gain related to the sale of the Company’s 50% share in Sumika Styron Polycarbonate in January 2017 (refer to Note 3 in the condensed consolidated financial statements for further information). Additionally, net foreign exchange transaction losses for the period were $0.9 million, which included $16.1 million of foreign exchange transaction gains primarily due to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more than offset by $17.0 million of losses from our foreign exchange forward contracts. Additionally, other expenses included $1.2 million of fees incurred in conjunction with the Company’s debt refinancing during the third quarter of 2017.
Other expense, net for the nine months ended September 30, 2016 was $16.7 million, which includes an impairment charge for the estimated loss on sale of our latex and automotive businesses in Brazil of approximately $13.2 million. Refer to Note 13 in the condensed consolidated financial statements for further information. Adding to these losses were net foreign exchange transaction losses of $2.0 million. Included in these net losses of $2.0 million were foreign exchange transactions losses of $4.1 million, primarily due to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, partially offset by gains of $2.1 million from our foreign exchange forward contracts.
Provision for Income Taxes
Provision for income taxes for the nine months ended September 30, 2017 totaled $56.4 million resulting in an effective tax rate of 21.1%. Provision for income taxes for the nine months ended September 30, 2016 totaled $66.5 million resulting in an effective tax rate of 21.7%.
The decrease in provision for income taxes was primarily driven by the $39.2 million decrease in income before income taxes, due predominantly to costs incurred related to the Company’s debt refinancing that occurred during the third quarter of 2017. Refer to Note 5 in the condensed consolidated financial statements for further information.
Outlook
Overall, we expect continued strong fundamental business performance through the remainder of 2017. European styrene monomer margin over raw materials is forecast to decline in the fourth quarter from third quarter levels by approximately $110 per ton, on average, as offline capacity begins to come back online. Additionally, in the fourth quarter, the Company will open a new SSBR pilot plant in Germany. This incremental capacity will allow for more
36
efficient use of our production facilities and help speed up innovation in the performance tires market and will also deliver sufficient quantities of new SSBR formulations required for real-life tire testing.
Profitability should be higher in 2018 due mainly to Performance Materials growth initiatives and continued, strong supply and demand dynamics in Basic Plastics & Feedstocks.
37
Selected Segment Information
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the business is now managed and results are reviewed by the chief executive officer, who is the Company’s chief operating decision maker. The Company’s reportable segments are now as follows: Latex Binders, Synthetic Rubber, Performance Plastics, Basic Plastics, Feedstocks, and Americas Styrenics. In conjunction with this segment realignment, the Company changed its primary measure of segment operating performance to Adjusted EBITDA. Refer to the Annual Report for a description of our segments, including a detailed overview, products and end uses, and competition and customers.
The following sections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the three and nine months ended September 30, 2017 and 2016, which have been recast to reflect the above changes. Inter-segment sales have been eliminated. Refer to Note 14 in the condensed consolidated financial statements for further information on these changes, as well as for a detailed definition of Adjusted EBITDA and a reconciliation of income before income taxes to segment Adjusted EBITDA.
References to portfolio adjustments below represent the impacts of the Company’s acquisition and divestiture activity, including the sale of our business in Brazil during 2016, the sale of our joint venture Sumika Styron Polycarbonate during 2017, and the acquisition of API Plastics during 2017. Refer to the condensed consolidated financial statements for further information.
Latex Binders Segment
Our Latex Binders segment produces SB latex and other latex polymers and binders primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex applications,such as adhesive, building and construction and the technical textile paper market.
|
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| Three Months Ended |
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| Nine Months Ended |
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| ||||||||||||
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|
| September 30, |
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| September 30, |
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| ||||||||||
(in millions) |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
|
| ||||
Net sales |
|
| $ | 266.3 |
|
| $ | 242.6 |
|
| 10 | % |
| $ | 846.7 |
|
| $ | 684.6 |
|
| 24 | % |
|
|
Adjusted EBITDA |
|
| $ | 32.3 |
|
| $ | 29.8 |
|
| 8 | % |
| $ | 105.2 |
|
| $ | 70.0 |
|
| 50 | % |
|
|
Adjusted EBITDA margin |
|
|
| 12 | % |
|
| 12 | % |
|
|
|
|
| 12 | % |
|
| 10 | % |
|
|
|
|
|
Three Months Ended - September 30, 2017 vs. September 30, 2016
Net sales increased 10% from the prior year, due mostly to higher selling prices, which resulted in a 15% increase. These higher selling prices were primarily due to the pass through of higher butadiene and styrene costs to our customers. Offsetting this increase was a 4% decrease due to lower sales volume to the North America paper and carpet markets, as well as an additional 4% decrease due to portfolio adjustments. A favorable currency impact increased net sales by 2% as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis.
The increase in Adjusted EBITDA of 8% was due to margin improvements of $9.8 million, a 33% increase, primarily due to better market conditions in Asia, partially offset by lower sales volume, which resulted in a 12% decrease. Increased fixed costs resulted in a 9% decrease in Adjusted EBITDA, while portfolio adjustments resulted in an additional 4% decrease in Adjusted EBITDA.
Nine Months Ended - September 30, 2017 vs. September 30, 2016
Of the 24% increase in net sales, 29% was due to higher selling prices, primarily due to the pass through of higher butadiene and styrene costs to our customers. Offsetting this increase was a 4% decrease due to portfolio adjustments and a 1% decrease in sales volume.
Adjusted EBITDA increased by $35.2 million, or 50%, year-over-year primarily due to margin improvements of $44.3 million, or 63%, particularly in Asia, resulting from favorable market conditions. Partially offsetting these margin improvements was a 7% decrease due to lower sales volume, primarily within the North America and European paper and carpet markets, and a 3% decrease due to increased fixed costs. Portfolio adjustments resulted in a 4% decrease to Adjusted EBITDA.
38
Synthetic Rubber Segment
Our Synthetic Rubber segment produces styrene-butadiene and polybutadiene-based rubber products used predominantly in high-performance tires, impact modifiers and technical rubber products, such as conveyor belts, hoses, seals and gaskets. We have a broad synthetic rubber technology and product portfolio, focusing on specialty products, such as SSBR, lithium polybutadiene rubber, or Li-PBR, nickel polybutadiene rubber, or Ni-PBR, and neodymium polybutadiene rubber, or Nd-PBR, while also producing core products, such as emulsion styrene-butadiene rubber, or ESBR.
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(in millions) |
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| 2017 |
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| 2016 |
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| % Change |
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| 2017 |
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| 2016 |
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| % Change |
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Net sales |
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| $ | 118.7 |
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| $ | 112.7 |
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| 5 | % |
| $ | 456.1 |
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| $ | 326.3 |
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| 40 | % |
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Adjusted EBITDA |
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| $ | (5.6) |
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| $ | 28.5 |
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| (120) | % |
| $ | 68.4 |
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| $ | 81.8 |
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| (16) | % |
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Adjusted EBITDA margin |
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| (5) | % |
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| 25 | % |
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| 15 | % |
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| 25 | % |
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Three Months Ended - September 30, 2017 vs. September 30, 2016
Net sales increased 5% from the prior year, with higher selling prices contributing to 9% of the increase, primarily resulting from the pass through of higher butadiene and styrene costs to customers. A favorable currency impact increased net sales by 5% as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis. Offsetting these increases was an 8% decrease due to lower sales volume, primarily from customer destocking in SSBR.
The majority of the overall $34.1 million decrease in Adjusted EBITDA was due to unfavorable raw material timing, due to rapidly declining butadiene prices, which led to a $23.9 million decrease related to margin as higher cost raw materials purchased in previous periods were reflected in our cost of goods sold during the third quarter. Additionally, lower sales volume, primarily from customer destocking in SSBR, contributed to a $7.2 million decrease.
Nine Months Ended - September 30, 2017 vs. September 30, 2016
Net sales increased 40% from the prior year, with higher selling prices contributing to 34% of the increase, primarily resulting from the pass through of higher butadiene and styrene costs to customers. Additionally, 6% of the increase was due to higher sales volume which was a result of higher customer demand for SSBR and ESBR, as well as higher sales of Ni-PBR, noting decreased production in the prior year to allow for Nd-PBR trials.
The majority of the overall $13.4 million decrease in Adjusted EBITDA was primarily due to unfavorable raw material timing resulting from declining butadiene prices during the period, net of favorable price lag, which resulted in a 14% decrease due to lower margins. Higher fixed costs, primarily from growth initiatives, resulted in a 9% decrease in Adjusted EBITDA. These decreases were partially offset by higher sales volume primarily related to higher demand for SSBR, ESBR, and Ni-PBR, which resulted in a 6% increase in Adjusted EBITDA.
Performance Plastics Segment
Our Performance Plastics segment consists of compounds and blends and some specialized ABS grades. We are a producer of highly engineered compounds and blends for automotive end markets, as well as consumer electronics, medical, electrical and lighting, collectively referred to as consumer essential markets. In July 2017, the Company completed the acquisition of API Plastics, the results of which are reported within the Performance Plastics segment. Refer to Note 13 in the condensed consolidated financial statements for further information.
39
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(in millions) |
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| 2017 |
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| 2016 |
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| % Change |
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| 2017 |
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| 2016 |
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| % Change |
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Net sales |
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| $ | 207.0 |
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| $ | 175.4 |
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| 18 | % |
| $ | 581.7 |
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| $ | 527.9 |
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| 10 | % |
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Adjusted EBITDA |
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| $ | 29.4 |
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| $ | 30.2 |
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| (3) | % |
| $ | 79.8 |
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| $ | 103.7 |
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| (23) | % |
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Adjusted EBITDA margin |
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| 14 | % |
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| 17 | % |
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| 14 | % |
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| 20 | % |
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Three Months Ended - September 30, 2017 vs. September 30, 2016
Of the 18% increase in net sales, 7% was due to higher selling prices due to the pass through of higher raw material costs to our customers, as well as a 7% increase due to increased sales volume as a result of higher volumes sold to the automotive market in North America and the consumer electronics market in Asia. A favorable currency impact increased net sales by 3% as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis with an additional 1% increase due to portfolio adjustments.
The slight decrease in Adjusted EBITDA was due to several offsetting factors. A 14% increase in Adjusted EBITDA was due to increased sales volume to the automotive market in North America and the consumer electronics market in Asia, with an additional 2% net increase due to portfolio adjustments. Offsetting these increases was a 12% decrease due to margin compression from increased costs of raw materials, such as polycarbonate, not all of which were able to be passed through to our customers. Additionally, an inventory build during 2016 resulted in increased fixed cost absorption in the prior year, contributing to an overall 8% decrease in Adjusted EBITDA in the current year related to fixed costs.
Nine Months Ended - September 30, 2017 vs. September 30, 2016
Of the 10% increase in net sales, 5% was due to higher selling prices due to the pass through of higher raw material costs to our customers, as well as an 8% increase due to increased sales volume, primarily related to higher sales to the automotive markets in Europe and North America and the consumer electronics market in Asia. Portfolio adjustments resulted in a 2% decrease in net sales.
The overall decrease in Adjusted EBITDA of $23.9 million was the result of several factors. Unfavorable raw material timing led to lower margins for the period. In addition, the Company experienced margin compression from increased costs of raw materials, not all of which were able to be passed through to our customers. These two factors contributed to a combined 33% decrease in Adjusted EBITDA compared to the prior year. Additionally, increased fixed costs contributed to a 6% decrease in Adjusted EBITDA. Partially offsetting these decreases was a 13% increase due to increased sales volume growth to the automotive markets in Europe and North America and a 3% increase due to portfolio adjustments.
Basic Plastics Segment
The Basic Plastics segment produces styrenic polymers, including polystyrene, basic ABS, and SAN products, as well as PC, all of which are used as inputs in a variety of end use markets. The Basic Plastics segment also included the results of our previously 50%-owned joint venture Sumika Styron Polycarbonate prior to its sale in January 2017. Refer to Note 3 in the condensed consolidated financial statements for further information.
40
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(in millions) |
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| 2017 |
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| 2016 |
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| % Change |
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| 2017 |
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| 2016 |
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| % Change |
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Net sales |
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| $ | 393.6 |
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| $ | 323.7 |
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| 22 | % |
| $ | 1,156.9 |
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| $ | 1,029.6 |
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| 12 | % |
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Adjusted EBITDA |
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| $ | 42.1 |
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| $ | 34.2 |
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| 23 | % |
| $ | 112.7 |
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| $ | 115.1 |
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| (2) | % |
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Adjusted EBITDA margin |
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| 11 | % |
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| 11 | % |
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| 10 | % |
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| 11 | % |
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Three Months Ended - September 30, 2017 vs. September 30, 2016
Of the 22% increase in net sales, 10%
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2023 Year-to-Date Highlights
During the three months ended March 31, 2023, Trinseo recognized net loss from continuing operations of $48.9 million and Adjusted EBITDA of $36.3 million. Continued customer destocking and underlying demand weakness from the uncertain economic and geopolitical macroenvironment originating in the second half of 2022 drove lower sales volume and margins across all segments year-over-year. While overall demand remains constrained, especially in building & construction and consumer durables applications, the impact to our operating performance was mitigated from the asset restructuring initiatives that were announced in the fourth quarter of 2022 as well as lower input costs and commercial actions. Refer to the discussion below for further information and refer to “Non-GAAP Performance Measures” for discussion of our use of non-GAAP measures in evaluating our performance and a reconciliation of these measures.
Amid this challenging environment, the Company continues to implement numerous liquidity improvement actions, including reducing working capital, deferring capital expenditures and reducing cash dividends. As a result of these actions, the Company achieved positive cash generation from operating activities, and strong quarter-end liquidity. The Company continues to have access to capital resources, no maintenance covenants on our debt agreements, and no significant debt maturing until September 2024. Refer to the “Capital Resources and Liquidity” section below for further information. Other highlights for the year are described below.
Restarting Exploration for Divestiture of Styrenics Business
In November 2021, the Company announced that it had begun work to explore the divestiture of our styrenics business and subsequently launched a formal sales process in the first quarter of 2022, which was paused in July 2022 as a result of the deterioration of financing markets and the geopolitical economic uncertainty, particularly in the European energy markets. The Company is restarting the sales process due to interest from third parties for all or part of the business. The scope of the potential divestiture is expected to include the Feedstocks and Polystyrene reporting segments as well as our 50% ownership of Americas Styrenics, and will include marketing individual assets and regional businesses as needed in order to ensure the Company obtains full value for the styrenics business.
Sale of Matamoros, Mexico Manufacturing Facility
On April 4, 2023, Trinseo entered into an agreement to sell its land, buildings and equipment at its PMMA sheet manufacturing facility in Matamoros, Mexico for a cash consideration of approximately $19.0 million. The transaction is expected to close within the second quarter of 2023. This site was part of the previously-announced asset restructuring plan approved in the fourth quarter of 2022 to consolidate our sheet manufacturing business and optimize our resources.
Bristol Spill
On March 24, 2023, due to equipment failure at the Bristol, Pennsylvania facility, operated by our wholly-owned subsidiary, Altuglas LLC, an accidental release of a latex emulsion product occurred, which ultimately flowed into a local waterway (the “Bristol Spill”). We reported the event and cooperated closely with local, state, and federal authorities on the response activities. Water sampling conducted by the authorities did not detect site-related material in the waterway. The safety of our employees, our communities and our environment are a top priority, and we are committed to operate safely and without disturbance to our community. Refer to Note 13 in our condensed consolidated financial statements for additional information related to this matter.
31
Results of Operations
Results of Operations for the Three Months Ended March 31, 2023 and 2022
| | | | | | | | | | | | | |
| | Three Months Ended | | | |||||||||
| | March 31, | | | |||||||||
(in millions) |
| 2023 |
| % | | | 2022 |
| % | | | ||
Net sales | | $ | 996.3 |
| 100 | % | | $ | 1,386.7 |
| 100 | % | |
Cost of sales | |
| 959.1 | | 96 | % | |
| 1,210.7 | | 87 | % | |
Gross profit | |
| 37.2 | | 4 | % | |
| 176.0 | | 13 | % | |
Selling, general and administrative expenses | |
| 84.7 | | 9 | % | |
| 96.7 | | 7 | % | |
Equity in earnings of unconsolidated affiliates | |
| 17.6 | | 2 | % | |
| 21.6 | | 2 | % | |
Impairment and other charges | | | 0.3 | | — | % | | | 36.3 | | 3 | % | |
Operating income (loss) | |
| (30.2) | | (3) | % | |
| 64.6 | | 5 | % | |
Interest expense, net | |
| 38.3 | | 4 | % | |
| 21.9 | | 2 | % | |
Other expense (income), net | |
| (2.9) | | — | % | |
| 3.0 | | — | % | |
Income (loss) from continuing operations before income taxes | |
| (65.6) | | (7) | % | |
| 39.7 | | 3 | % | |
Provision for (benefit from) income taxes | |
| (16.7) | | (2) | % | |
| 22.6 | | 2 | % | |
Net income (loss) from continuing operations | | $ | (48.9) | | (5) | % | | $ | 17.1 | | 1 | % | |
Net loss from discontinued operations, net of income taxes | |
| — | | — | % | |
| (0.4) | | — | % | |
Net income (loss) | | $ | (48.9) | | (5) | % | | $ | 16.7 | | 1 | % | |
Three Months Ended – March 31, 2023 vs. March 31, 2022
Net Sales
Net sales decreased 28% year-over-year. Lower sales volumes resulted in a 20% decrease from continued customer destocking and underlying demand weakness from an uncertain economic and geopolitical macroenvironment, particularly in applications supporting building & construction and consumer durables. Additionally, a decrease of 7% was related to lower selling prices from the pass through of lower raw material costs.
Cost of Sales
The 21% decrease in cost of sales was primarily attributable to a 17% decrease due to lower sales volumes and a 9% decrease in raw material costs. Natural gas hedges contributed to an $18.8 million unfavorable impact year-over-year.
Gross Profit
The decrease in gross profit of 79% was primarily attributable to lower sales volumes as discussed above as well as lower margins from weaker market conditions including low demand and available supply. Margins were also pressured by unfavorable impacts from natural gas hedges as discussed above. See the segment discussion below for further information.
Selling, General and Administrative Expenses (SG&A)
The $12.0 million, or 12%, decrease in SG&A was primarily due to a decrease of $17.7 million in costs associated with the Company’s strategic initiatives, including the exploration of a potential divestiture of our styrenics business, a $3.1 million decrease in acquisition transaction and integration costs, and a $2.1 million decrease in costs incurred in connection with the Company’s enterprise resource planning system upgrade. Offsetting these decreased costs was a $3.3 million increase in restructuring costs, driven by the asset restructuring plan approved in the fourth quarter of 2022, a $3.1 million increase in depreciation expense, and a $1.6 million increase in travel-related expenses.
32
Equity in Earnings of Unconsolidated Affiliates
The decrease in equity earnings from Americas Styrenics of $4.0 million was due to lower styrene margin which was partially offset by higher polystyrene margin.
Impairment and Other Charges
During the three months ended March 31, 2023 and 2022, the Company recorded impairment charges of $0.3 million and $0.7 million, respectively, related to our Boehlen styrene monomer assets, as described within Note 11 in the condensed consolidated financial statements. Additionally, during the three months ended March 31, 2022, the Company recorded an estimated liability of $35.6 million related to the European Commission request for information, as described within Note 13 in the condensed consolidated financial statements.
Interest Expense, Net
The increase in interest expense, net of $16.4 million, or 75%, was primarily attributable to the increase in the LIBO rate year-over-year. Refer to Note 8 in the condensed consolidated financial statements for further information.
Other Expense (Income), Net
Other income, net for the three months ended March 31, 2023 was $2.9 million, which was primarily driven by foreign exchange transaction gains of $2.7 million. These net foreign exchange transaction gains included $10.5 million of gains primarily from the remeasurement of our euro-denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, partially offset by $7.8 million of losses from our foreign exchange forward contracts.
Other expense, net for the three months ended March 31, 2022 was $3.0 million, which included a $1.2 million of expense related to the non-service cost components of net periodic benefit cost as well as foreign exchange transaction losses of $1.4 million. These net foreign exchange transaction losses included $10.2 million of losses primarily from the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, partially offset by $8.8 million of gains from our foreign exchange forward contracts.
Provision for (Benefit from) Income Taxes
Benefit from income taxes for the three months ended March 31, 2023 totaled $16.7 million, resulting in an effective tax rate of 25.4%. Provision for income taxes for the three months ended March 31, 2022 totaled $22.6 million, resulting in an effective tax rate of 56.9%.
The decrease in provision for income taxes is primarily driven by the decrease of $105.3 million in income from continuing operations before income taxes.
Net Income (Loss) from Discontinued Operations, Net of Income Taxes
Net income (loss) from discontinued operations, net of income taxes during the three months ended March 31, 2022 was $(0.4) million, and was related to the results and sale of our Synthetic Rubber business. Refer to Note 4 in the condensed consolidated financial statements for further information.
Outlook
While some of the challenging operating conditions from the second half of 2022 have persisted into the beginning of 2023, such as customer destocking and underlying demand weakness, we have seen a meaningful decrease in European natural gas prices and, with the removal of COVID-related restrictions in China, more limited arbitrage opportunities for lower-cost standard grade products to enter Europe from Asia. Despite continued demand weakness, we expect improved profitability from higher margins, as a result of moderating input costs and pricing initiatives, as well as cost savings from our previously announced asset restructuring initiatives. We expect additional improvement in the second quarter and the rest of the year from lower input and other costs, with a gradual demand increase through the end of the year. Market recovery and natural gas hedges remain a headwind, although natural gas hedge losses are expected to decrease as current forward rates stabilize.
33
The Company has access to capital resources and continues to focus on liquidity improvement actions to manage the anticipated impact of the challenging macroeconomic environment on our business operations for the foreseeable future. The profitability improvement factors noted above, coupled with certain cash preservation initiatives that we have undertaken, such as a reduction in working capital, capital expenditure deferments, and a planned further substantial reduction to our cash dividend, will strengthen our liquidity and balance sheet and are expected to position us to deliver sustained financial strength.
Selected Segment Information
The following sections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the three months ended March 31, 2023 and 2022. Inter-segment sales have been eliminated. Refer to Note 16 in the condensed consolidated financial statements for further information on our segments, as well as for a detailed definition of Adjusted EBITDA and a reconciliation of income from continuing operations before income taxes to higher selling prices due to the pass through of higher styrene costs to customers and 7% was due to higher polystyrene and copolymer sales volume. Additionally, a favorable currency impact increased net sales by 4% as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis.
Adjusted EBITDA increased 23%, or $7.9 million, of which 21% was due to higher margins, particularly in polycarbonate due to very tight market conditions. An additional 13% increase was due to higher sales volume, particularly in copolymers. Partially offsetting these increases was a 6% decrease due to increased fixed costs, which includes start-up costs incurred related to our new ABS capacity in Asia, and a 7% decrease due to portfolio adjustments, which included the impact of the sale of Sumika Styron Polycarbonate during the first quarter of 2017.
Nine Months Ended - September 30, 2017 vs. September 30, 2016
Of the 12% increase in net sales, 16% was due to higher selling prices due to the pass through of increased raw material costs to customers, primarily styrene. This increase was partially offset by a 3% decrease due to lower sales volume, primarily related to lower polystyrene sales in Asia, as we have increased our focus on higher margin business.
The slight decrease in Adjusted EBITDA was partly due to several offsetting factors. Firstly, an 11% increase in Adjusted EBITDA was due to higher year-to-date margins, primarily within ABS and polycarbonate. However, this increase was offset by lower sales volume, which resulted in a decrease of 4%, primarily related to Europe and Asia polystyrene sales, with competitor supply outages in Europe in the prior year and with an increased focus on higher margins in Asia. Higher fixed costs, including start-up costs incurred related to our new ABS capacity in Asia, contributed to an additional decrease of 4%. Portfolio adjustments resulted in a 4% decrease in Adjusted EBITDA, due to the sale of Sumika Styron Polycarbonate during the first quarter of 2017.
Feedstocks Segment
The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, ABS resins, SSBR, etc.
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| ||||||||||
(in millions) |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
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| ||||
Net sales |
|
| $ | 111.0 |
|
| $ | 81.0 |
|
| 37 | % |
| $ | 304.9 |
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| $ | 230.8 |
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| 32 | % |
|
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Adjusted EBITDA |
|
| $ | 45.6 |
|
| $ | 12.7 |
|
| 259 | % |
| $ | 86.3 |
|
| $ | 66.1 |
|
| 31 | % |
|
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Adjusted EBITDA margin |
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| 41 | % |
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| 16 | % |
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| 28 | % |
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| 29 | % |
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|
Three Months Ended - September 30, 2017 vs. September 30, 2016
The 37% increase in net sales was almost entirely due to the pass through of higher styrene prices, which contributed to 33% of the increase. A favorable currency impact increased net sales by 4% as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis.
41
The increase in Adjusted EBITDA was primarily due to higher styrene margin due to unplanned industry production outages, including the impact of Hurricane Harvey, which resulted in a $33.1 million increase in Adjusted EBITDA, slightly offset by a $1.4 million decrease due to higher maintenance-related fixed costs.
Nine Months Ended - September 30, 2017 vs. September 30, 2016
The 32% increase in net sales was almost entirely due to the pass through of higher styrene prices, which contributed to 30% of the increase. Higher styrene-related sales volume also resulted in a 3% increase in net sales.
The increase in Adjusted EBITDA was primarily due to higher margins as a result of favorable market conditions, which resulted in a 38% increase in Adjusted EBITDA, slightly offset by a 7% decrease due to higher maintenance-related fixed costs.
Americas Styrenics Segment
The Americas Styrenics segment consists solely of the operations of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America. Styrene monomer is a basic building block of plastics and a key input to many of the Company’s products, as well as a key raw material for the production of polystyrene. Major applications for the polystyrene products Americas Styrenics produces include appliances, food packaging, food service disposables, consumer electronics and building and construction materials.
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| ||||||||||
(in millions) |
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| 2017 |
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| 2016 |
|
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
|
| ||||
Adjusted EBITDA* |
|
| $ | 43.8 |
|
| $ | 34.3 |
|
| 28 | % |
| $ | 92.2 |
|
| $ | 104.9 |
|
| (12) | % |
|
|
*The results of this segment are comprised entirely of earnings from Americas Styrenics, our equity method investment. As such, Adjusted EBITDA related to this segment is included within “Equity in earnings of unconsolidated affiliates” in the consolidated statements of operations.
Three Months Ended - September 30, 2017 vs. September 30, 2016
The increase in Adjusted EBITDA was primarily due to higher styrene sales volume, including impacts from a stronger export market, as well as higher styrene margin as a result of unplanned industry supply outages, including the impact of Hurricane Harvey, which was offset by lower polystyrene margin.
Nine Months Ended – September 30, 2017 vs. September 30, 2016
The decrease in Adjusted EBITDA was primarily due to the planned first quarter styrene outage at the Americas Styrenics St. James, LA facility, which was extended in order to complete repairs on critical equipment. The facility came back online at full production in early April 2017. As a result of this extended outage, the Company incurred an unfavorable impact of approximately $23 million to Adjusted EBITDA.
Engineered Materials Segment
Our Engineered Materials segment consists of rigid thermoplastic compounds and blends products sold into high growth and high value applications in markets such as consumer electronics and medical, as well as soft thermoplastic elastomers (“TPEs”) products which are sold into markets such as footwear and automotive. The Engineered Materials segment also includes polymethyl methacrylates (“PMMA”) and activated methyl methacrylates (“MMA”) products, which are sold into a variety of applications including automotive, building & construction, medical, consumer electronics, and wellness, among others.
| | | | | | | | | | | | |
| | | Three Months Ended | | | | ||||||
| | | March 31, | | | | | |||||
($ in millions) |
| | 2023 | |
| 2022 | | | % Change | | ||
Net sales | | | $ | 206.2 | |
| $ | 295.2 | |
| (30) | % |
Adjusted EBITDA | | | $ | (11.7) | | | $ | 34.7 | |
| (134) | % |
Adjusted EBITDA margin | | |
| (6) | % | |
| 12 | % | | | |
Three Months Ended – March 31, 2023 vs. March 31, 2022
The 30% decrease in net sales was primarily attributable to a 23% decrease due to lower sales volumes from weak underlying demand and continued customer destocking, particularly in building & construction, consumer electronics, and wellness applications. Lower pricing also contributed to a 6% decrease year-over-year.
The $46.4 million, or 134%, decrease in Adjusted EBITDA was primarily due to a decrease of $18.0 million, or 52%, due to lower sales volumes as described above. Lower margins resulted in a decrease of $24.7 million, or 71%, due to weaker MMA market conditions, as well as a $9.6 million unfavorable impact from natural gas hedges. Higher fixed costs also resulted in a $6.1 million, or 18%, decrease in Adjusted EBITDA due to manufacturing cost under absorption.
Latex Binders Segment
Our Latex Binders segment produces styrene-butadiene latex (“SB latex”) and other latex polymers and binders primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a broad range of
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performance latex binders products, including SB latex, styrene-acrylate latex (“SA latex”), and vinylidene chloride latex for coatings, adhesives, sealants, and elastomers (“CASE”) applications.
| | | | | | | | | | | | |
| | | Three Months Ended | | | | ||||||
| | | March 31, | | | | | |||||
($ in millions) |
| | 2023 | |
| 2022 | | | % Change | | ||
Net sales | | | $ | 248.1 | |
| $ | 306.7 | |
| (19) | % |
Adjusted EBITDA | | | $ | 26.0 | | | $ | 30.2 | |
| (14) | % |
Adjusted EBITDA margin | | |
| 10 | % | |
| 10 | % | | | |
Three Months Ended – March 31, 2023 vs. March 31, 2022
The 19% decrease in net sales was primarily due to a 14% decrease due to lower sales volumes across all regions and applications and a 3% decrease in pricing from the pass through of lower raw material costs.
The $4.2 million, or 14%, decrease in Adjusted EBITDA was primarily due to a decrease of $10.6 million, or 35%, from lower sales volumes from customer destocking and reduced demand in building & construction applications, in addition to a decrease of $0.8 million, or 3%, due to unfavorable foreign exchange rate impacts. These decreases were partially offset by a $7.5 million, or 25%, increase attributable to higher margins from favorable pricing initiatives.
Plastics Solutions Segment
On January 1, 2023, the Base Plastics segment was renamed to Plastics Solutions. Our Plastics Solutions segment consists of a variety of compounds and blends, the majority of which are for automotive applications. The segment also includes our acrylonitrile-butadiene-styrene (“ABS”), styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses. The Plastics Solutions segment also includes the results of Heathland, which was acquired in the first quarter of 2022. However, this did not have a material impact on sales or Adjusted EBITDA for the period.
| | | | | | | | | | | | |
| | | Three Months Ended | | | | ||||||
| | | March 31, | | | | | |||||
($ in millions) |
| | 2023 | |
| 2022 | | | % Change | | ||
Net sales | | | $ | 289.9 | |
| $ | 396.5 | |
| (27) | % |
Adjusted EBITDA | | | $ | 25.6 | | | $ | 68.6 | |
| (63) | % |
Adjusted EBITDA margin | | |
| 9 | % | |
| 17 | % | | | |
Three Months Ended – March 31, 2023 vs. March 31, 2022
Net sales decreased by 27% year-over-year, primarily due to lower sales volume which contributed a 20% decrease. Sales volumes were primarily impacted by a decrease in polycarbonate from the announced shutdown of one production line as well as in copolymers in building & construction, industrial, and consumer durables applications, partially offset by higher volumes to automotive applications. Also contributing to the overall decrease was a 5% decrease from lower pricing due to the pass through of lower raw material costs.
The $43.0 million, or 63%, decrease in Adjusted EBITDA was primarily due to lower sales volumes and margins. Lower sales volumes, as described above, contributed to a $20.7 million, or 30%, decrease in Adjusted EBITDA. In addition, Adjusted EBITDA decreased by $16.0 million, or 23%, due to lower margins in polycarbonate and ABS products from weaker market conditions. Higher fixed costs also contributed a $4.4 million, or 6%, decrease in Adjusted EBITDA. Volumes supporting automotive applications improved 6% versus prior year, mainly from Europe and North America, as production and supply chain constraints eased.
Polystyrene Segment
Our product offerings in our Polystyrene segment include a variety of general purpose polystyrenes (“GPPS”) and polystyrene that has been modified with polybutadiene rubber to increase its impact resistant properties (“HIPS”). These products provide customers with performance and aesthetics at a low cost across applications, including appliances,
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packaging, including food packaging and food service disposables, consumer electronics, and building and construction materials.
| | | | | | | | | | | | |
| | | Three Months Ended | | | | ||||||
| | | March 31, | | | | | |||||
($ in millions) |
| | 2023 | |
| 2022 | | | % Change | | ||
Net sales | | | $ | 209.1 | |
| $ | 318.0 | |
| (34) | % |
Adjusted EBITDA | | | $ | 15.7 | | | $ | 45.3 | |
| (65) | % |
Adjusted EBITDA margin | | |
| 8 | % | |
| 14 | % | | | |
Three Months Ended – March 31, 2023 vs. March 31, 2022
Net sales decreased by 34% year-over-year. Lower sales volumes due to weaker demand in appliance and building & construction applications led to a 22% decrease in net sales from the prior year. Also contributing to the overall decrease was a 10% decrease from lower pricing, primarily from the pass through of lower styrene costs.
The $29.6 million, or 65%, decrease in Adjusted EBITDA was primarily due to weaker demand which negatively impacted volumes and margins, particularly in building & construction and appliance applications. This resulted in a decrease of $13.1 million, or 29%, due to lower volumes, and a decrease of $17.7 million, or 39%, due to lower margins. These decreases were partially offset by an increase of $1.8 million, or 4%, from lower fixed costs.
Feedstocks Segment
The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material for the production of polystyrene, expandable polystyrene, SAN resins, SA latex, SB latex, ABS resins, and unsaturated polyethylene resins.
| | | | | | | | | | | | |
| | | Three Months Ended | | | | ||||||
| | | March 31, | | | | | |||||
($ in millions) |
| | 2023 | |
| 2022 | | | % Change | | ||
Net sales | | | $ | 43.0 | |
| $ | 70.3 | |
| (39) | % |
Adjusted EBITDA | | | $ | (10.8) | | | $ | 4.1 | |
| (363) | % |
Adjusted EBITDA margin | | |
| (25) | % | |
| 6 | % | | | |
Three Months Ended – March 31, 2023 vs. March 31, 2022
Net sales decreased 39% year-over-year. Lower styrene-related sales volume resulted in a 19% decrease along with a 17% decrease due to lower pricing.
The decrease of $14.9 million in Adjusted EBITDA was primarily attributed to a $15.4 million, or 379%, decrease from lower styrene margins, including impacts from a $7.3 million unfavorable net timing variance. The styrene plant in Terneuzen, the Netherlands was restarted in late January 2023 and, as part of our asset restructuring plan, the Boehlen, Germany styrene plant was permanently closed in December 2022.
Americas Styrenics Segment
This segment consists solely of the equity earnings from of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America. Styrene monomer is a basic building block of plastics and a key input to many of the Company’s products, as well as a key raw material for the production of polystyrene. Major applications for the polystyrene products Americas Styrenics produces include appliances, food packaging, food service disposables, consumer electronics, and building and construction materials.
| | | | | | | | | | | | |
| | | Three Months Ended | | | | ||||||
| | | March 31, | | | | | |||||
($ in millions) |
| | 2023 | |
| 2022 | | | % Change | | ||
Adjusted EBITDA* | | | $ | 17.6 | | | $ | 21.6 | |
| (19) | % |
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*The results of this segment are comprised entirely of earnings from Americas Styrenics, our equity method investment. As such, Adjusted EBITDA related to this segment is included within “Equity in earnings of unconsolidated affiliates” in the condensed consolidated statements of operations.
Three Months Ended – March 31, 2023 vs. March 31, 2022
The decrease in Adjusted EBITDA was mainly due to lower styrene margin which was partially offset by higher polystyrene margin.
Non-GAAP Performance Measures
We present Adjusted EBITDA as a non-GAAP financial performance measure, which we define as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring charges; gains or losses on the dispositions of businesses and assets; restructuring; acquisition related costs and other items. In doing so, we are providing management, investors, and credit rating agencies with an indicator of our ongoing performance and business trends, by removing the impact of transactions and events that we would not consider a part of our core operations.
There are limitations to using the financial performance measures such as Adjusted EBITDA. This performance measure is not intended to represent net income or other measures of financial performance. As such, it should not be used as an alternative to net income as an indicator of operating performance. Other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use this 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 a reconciliation of this performance measure to our net income, which is determined in accordance with GAAP.
Adjusted EBITDA is calculated as follows for the three months ended March 31, 2023 and 2022:
| | | | | | | | |
| | Three Months Ended | | | ||||
| | March 31, | |
| ||||
(in millions) |
| 2023 |
| 2022 | |
| ||
Net income (loss) |
| $ | (48.9) |
| $ | 16.7 | | |
Net loss from discontinued operations | | | — | | | (0.4) | | |
Net income (loss) from continuing operations | | | (48.9) | | | 17.1 | | |
Interest expense, net | |
| 38.3 | |
| 21.9 | | |
Provision for (benefit from) income taxes | |
| (16.7) | |
| 22.6 | | |
Depreciation and amortization | |
| 56.0 | |
| 53.0 | | |
EBITDA(a) | | $ | 28.7 | | $ | 114.6 | | |
Net gain on disposition of businesses and assets | | | — | | | (0.3) | | |
Restructuring and other charges(b) | | | 3.7 | | | 0.4 | | |
Acquisition transaction and integration net costs (c) | | | — | | | 3.2 | | |
Asset impairment charges or write-offs(d) | | | 0.3 | | | 0.7 | | |
European Commission request for information(e) | | | — | | | 35.6 | | |
Other items(f) | | | 3.6 | | | 23.4 | | |
Adjusted EBITDA | | $ | 36.3 | | $ | 177.6 | | |
| (a) | EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because we believe it provides our management as well as our investors and credit agencies with meaningful information regarding the Company’s operational performance. 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. 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
|
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| (b) | Amounts for the three
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| (c) | Amounts for the three months ended March 31, 2022 relate to expenses incurred for the Company’s acquisition and
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| (d) | Amounts for the
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| (e) | Amount for the three months ended
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| (f) | Other items for
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Liquidity and Capital Resources
Cash Flows
The table below summarizes our primary sources and uses of cash for the three months ended March 31, 2023 and 2022. We have derived the summarized cash flow information from our unaudited financial statements.
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
(in millions) |
| 2023 |
| 2022 |
| ||
Net cash provided by (used in): | | | |
| | | |
Operating activities - continuing operations | | $ | 45.4 | | $ | (5.2) | |
Operating activities - discontinued operations | | | — | | | 0.2 | |
Operating activities | | | 45.4 | | | (5.0) | |
Investing activities - continuing operations | |
| (21.8) | | | (46.1) | |
Investing activities - discontinued operations | | | — | | | (0.9) | |
Investing activities | | | (21.8) | | | (47.0) | |
Financing activities | |
| (20.5) | | | (70.6) | |
Effect of exchange rates on cash | |
| 2.3 | | | (1.7) | |
Net change in cash, cash equivalents, and restricted cash | | $ | 5.4 | | $ | (124.3) | |
Operating Activities
Net cash provided by operating activities from continuing operations during the three months ended March 31, 2023 totaled $45.4 million, which included $20.0 million of dividends received from Americas Styrenics. Although operating results continued to be challenged by customer destocking and macroeconomic conditions, which resulted in reduced customer demand and negative earnings, there was a significant working capital release during the quarter. This working capital release was primarily a result of targeted inventory control actions and cash improvement initiatives. Net cash used in operating activities from discontinued operations during the three months ended March 31, 2023 was not significant.
Net cash used in operating activities from continuing operations during the three months ended March 31, 2022 totaled $5.2 million. Solid earnings during the period, including $7.5 million of dividends received from Americas Styrenics, were more than offset by a significant working capital build. This working capital build was driven by significantly increasing raw material and utility prices, coupled with a build of inventory ahead of planned turnaround activities. Net cash provided by operating activities from discontinued operations during the three months ended March 31, 2022 totaled $0.2 million.
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Investing Activities
Net cash used in investing activities from continuing operations during the three months ended March 31, 2023 totaled $21.8 million, which was primarily attributable to capital expenditures. The Company has taken proactive measures to reduce and defer capital expenditures during the year as part of our liquidity improvement actions.
Net cash used in investing activities from continuing operations during the three months ended March 31, 2022 totaled $46.1 million, which was primarily attributable to net cash paid for asset or business acquisitions of $22.2 million (see Note 3), and capital expenditures, including cash spent for our ongoing ERP upgrade, of $23.9 million. Net cash used in investing activities from discontinued operations during the three months ended March 31, 2022 totaled $0.9 million.
Financing Activities
Net cash used in financing activities during the three months ended March 31, 2023 totaled $20.5 million. This activity was primarily due to $11.8 million of dividends paid, and $6.3 million in debt repayments.
Net cash used in financing activities during the three months ended March 31, 2022 totaled $70.6 million. This activity was primarily due to $51.9 million of payments related to the repurchase of ordinary shares, $12.4 million of dividends paid, $3.6 million of net repayments of short-term borrowings, and $3.6 million of net principal payments related to our 2024 Term Loan B and 2028 Term Loan B during the period. This activity was partially offset by $1.7 million in proceeds from the exercise of option awards during the period.
Free Cash Flow
We use Free Cash Flow as a non-GAAP measures to evaluate and discuss the Company’s liquidity position and results. Free Cash Flow is defined as cash from operating activities, less capital expenditures. We believe that Free Cash Flow provides an indicator of the Company’s ongoing ability to generate cash through core operations, as it excludes the cash impacts of various financing transactions as well as cash flows from business combinations that are not considered organic in nature. We also believe that Free Cash Flow provides management and investors with useful analytical indicator of our ability to service our indebtedness, pay dividends (when declared), and meet our ongoing cash obligations.
Free Cash Flow is not intended to represent cash flows from operations as defined by GAAP, and therefore, should not be used as an alternative for that measure. Other companies in our industry may define Free Cash Flow differently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the liquidity and cash generation of those companies to our own. We compensate for these limitations by providing a reconciliation to cash provided by operating activities from continuing operations, which is determined in accordance with GAAP.
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
(in millions) |
| 2023 |
| 2022 |
| ||
Cash provided by (used in) operating activities | | $ | 45.4 | | $ | (5.0) | |
Capital expenditures | | | (21.8) | | | (24.8) | |
Free Cash Flow | | $ | 23.6 | | $ | (29.8) | |
Refer to the discussion above for significant impacts to cash provided by operating activities for the three months ended March 31, 2023 and 2022.
Capital Resources and Liquidity
We require cash principally for day-to-day operations, to finance capital investments and other initiatives, to purchase materials, to service our outstanding indebtedness, and to fund the return of capital to shareholders via dividend payments and ordinary share repurchases, when deemed appropriate. Our sources of liquidity include cash on hand, cash flow from operations from continuing operations, and amounts available under the Senior Credit Facility and the Accounts Receivable Securitization Facility (discussed further below).
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At March 31, 2023 and December 31, 2022, we had $2,350.6 million and $2,353.7 million, respectively, in outstanding indebtedness and $658.5 million and $701.3 million, respectively, in working capital. In addition, as of March 31, 2023 and December 31, 2022, we had $123.8 million and $168.7 million, respectively, of foreign cash and cash equivalents on our balance sheet, outside of Ireland, our country of domicile, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries.
The following table outlines our outstanding indebtedness as of March 31, 2023 and December 31, 2022 and the associated interest expense, including amortization of deferred financing fees and debt discounts. Effective interest rates for the borrowings included in the table below exclude the impact of deferred financing fee amortization, certain other fees charged to interest expense (such as fees for unused commitment fees during the period), and the impacts of derivatives designated as hedging instruments. For definitions of capitalized terms not included herein, refer to our Annual Report on Form 10-K (“Annual Report”).
| | | | | | | | | | | | | | | | | |
| | As of and for the Three Months Ended | | As of and for the Year Ended |
| ||||||||||||
| | March 31, 2023 | | December 31, 2022 |
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| | | | Effective | | | | | | Effective | | |
| ||||
| | | | Interest | | Interest | | | | Interest | | Interest |
| ||||
($ in millions) |
| Balance |
| Rate |
| Expense |
| Balance | | Rate |
| Expense |
| ||||
Senior Credit Facility | | | | | | | | | | | | | | | | | |
2024 Term Loan B | | $ | 661.7 | | 6.5 | % | $ | 11.6 | | $ | 663.4 | | 3.9 | % | $ | 29.1 | |
2028 Term Loan B | | | 734.1 | | 7.0 | % | | 13.8 | | | 735.9 | | 4.2 | % | | 34.7 | |
2026 Revolving Facility | | | — | | — | % | | 0.5 | | | — | | — | % | | 1.8 | |
2029 Senior Notes | | | 447.0 | | 5.1 | % | | 6.3 | | | 447.0 | | 5.1 | % | | 24.8 | |
2025 Senior Notes | | | 500.0 | | 5.4 | % | | 7.0 | | | 500.0 | | 5.4 | % | | 25.8 | |
Accounts Receivable Securitization Facility | |
| — | | — | % |
| 0.3 | |
| — | | — | % |
| 1.4 | |
Other indebtedness | |
| 7.8 | | 5.6 | % |
| 0.1 | |
| 7.4 | | 5.1 | % |
| 0.1 | |
Total | | $ | 2,350.6 | | | | $ | 39.6 | | $ | 2,353.7 | | | | $ | 117.7 | |
As of March 31, 2023, our Senior Credit Facility included the 2026 Revolving Facility, which is scheduled to mature in May 2026 and had a borrowing capacity of $375.0 million and $22.0 million outstanding letters of credit. The 2026 Revolving Facility contains a springing covenant which applies when 30% or more is drawn from the facility. This covenant requires the Company to meet a first lien net leverage ratio (as defined in our secured credit agreement) not to exceed 3.50x at the end of each financial quarter. As of March 31, 2023, the first lien net leverage ratio was 4.85x, and as such, the Company had $100.5 million of funds available for borrowing (net of $12.0 million outstanding letters of credit as defined in the secured credit agreement). Further, as of March 31, 2023, the Company is required to pay a quarterly commitment fee in respect of any unused commitments under the 2026 Revolving Facility equal to 0.375% per annum.
Also included in our Senior Credit Facility is our 2024 Term Loan B (with original principal of $700.0 million, maturing in September 2024), and our 2028 Term Loan B (with original principal of $750.0 million, maturing in May 2028).
As of March 31, 2023, our 2025 Senior Notes, as issued under the Indenture executed in 2017, include $500.0 million aggregate principal amount of 5.375% senior notes that mature on September 1, 2025.
As of March 31, 2023, our 2029 Senior Notes, as issued under the Indenture executed in 2021, include $447.0 million aggregate principal amount of 5.125% senior notes that mature on April 1, 2029.
We also continue to maintain our Accounts Receivable Securitization Facility, which matures in November 2024 and has an outstanding borrowing capacity of $150.0 million. As of March 31, 2023, there were no amounts outstanding under this facility and the Company had approximately $150.0 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.Refer to Note 8 in the consolidated financial statements for further information on the facility.
Our ability to raise additional financing and our borrowing costs may be impacted by short- and long-term debt
40
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 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.
Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers” of our 2029 Senior Notes and 2025 Senior Notes and “Borrowers” under our Senior Credit Facility) are dependent upon the cash generation and receipt of distributions and dividends or other payments from our subsidiaries and joint venture in order to satisfy their debt obligations. There are no known significant restrictions by third parties on the ability of subsidiaries of the Company to disburse or dividend funds to the Issuers and the Borrowers in order to satisfy these obligations. However, as the Company’s subsidiaries are located in a variety of jurisdictions, the Company can give no assurances that our subsidiaries will not face transfer restrictions in the future due to regulatory or other reasons beyond our control.
The Senior Credit Facility and Indentures also limit the ability of the Borrowers and Issuers, respectively, to pay dividends or make other distributions to Trinseo PLC, which could then be used to make distributions to shareholders. During the three months ended March 31, 2023, the Company declared dividends of $0.14 per ordinary share, totaling $5.2 million, all of which was accrued as of March 31, 2023 and was paid in April 2023. These dividends are well within the available capacity under the terms of the restrictive covenants contained in the Senior Credit Facility and Indentures. Further, additional capacity continues to be available under the terms of these covenants to support expected future dividends to shareholders, should the Company continue to declare them.
Despite the challenging and uncertain market conditions we are continuing to experience in 2023, the Company generated positive cash flows from operating activities for the three months ended March 31, 2023 primarily due to our cash improvement initiatives and working capital reductions. We believe funds provided by operations, our cash and cash equivalent balances of $217.1 million as of March 31, 2023, coupled with borrowings available under our 2026 Revolving Facility and our Accounts Receivable Securitization Facility totaling a minimum of $250.5 million, will be adequate to meet all necessary operating and capital expenditures for at least the next 12 months under the current operating environment, while continuing to evolve as a specialty material and sustainable solutions provider. As we weather these trough conditions, the Company maintains access to capital resources and will continue to focus on liquidity improvement actions until customer destocking ends and sales volumes stabilize, at which point we expect our cash flow generation to resume to normal operating levels.
Further, we also believe that our financial resources will allow us to manage the anticipated impact of this challenging macroeconomic environment on our business operations for the foreseeable future, which could include lower demand, reductions in revenue or delays in payments from customers and other third parties. Our ability to generate cash from operations to pay our indebtedness and meet other liquidity needs is subject to certain risks described herein and under Part I, Item 1A – Risk Factors of our Annual Report, as well as risk factors included in Part II, Item 1A herein. As of March 31, 2023, we were in compliance with all the covenants and default provisions under our debt agreements. Refer to our Annual Report for further information on the details of the covenant requirements.
Contractual Obligations and Commercial Commitments
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 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.
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We describe our significant accounting policies in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our 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 Annual Report. There have been no material revisions to the significant accounting policies or critical accounting policies and estimates as filed in our 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 2 of our condensed consolidated financial statements, included elsewhere within this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As discussed in “Quantitative and Qualitative Disclosures About Market Risk” within our 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 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. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2023. 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 were effective to provide the reasonable level of assurance described above.
Changes in Internal Control over Financial Reporting
There were no additional changes 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 March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
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. 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. For information regarding new matters and material developments in legal proceedings during the quarter ended March 31, 2023, see “Litigation Matters” in Note 13 to our condensed consolidated financial statements.
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Item 1A. Risk 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 as well those risk factors related to our business and industry which have been previously disclosed in Part 1, Item 1A of our Annual Report for the year ended December 31, 2022. Certain material updates to these risk factors are included below.
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.
We may not be successful in the proposed divestiture of our styrenics businesses.
In May 2023, we announced our intention to restart the sale of our styrenics business, which had been paused since July 2022, including marketing of individual businesses and sites. While the divestiture of our styrenics businesses remains a key part of our transformation strategy, we cannot estimate whether economic conditions and capital markets will sufficiently improve to allow us to restart and successfully complete a sale of all or a portion of our styrenics business, or guarantee that we will be successful in our efforts to restart the sale process, generate interest in a sale of all or a portion of the business, locate an adequate buyer or buyers, or negotiate terms of a sale acceptable to the Company.
A successful divestiture depends on various factors, including our ability to effectively transfer liabilities, contracts, facilities and employees to any purchaser, revise our legal entity structure, negotiate continued equity ownership, identify and separate intellectual property, reduce fixed costs previously associated with the divested assets or business, and collect the proceeds from any sale. Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impacts from the loss of revenue associated with the divested business, as well as significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition. All of these efforts require varying levels of management resources, which may divert our attention from other business operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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None.
(b) | Use of Proceeds from registered securities |
None.
(c) | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
On September 2, 2022, the board of directors of the Company unanimously approved the authorization of a share repurchase program where the Company may repurchase up to $200.0 million of our ordinary shares, subject to certain parameters defined by the board of directors. The repurchase authorization expires after 18 months and repurchases may be effected through open market purchases, 10b5-1 plans or by other means. There were no share repurchases during the three months ended March 31, 2023. There was $200.0 million remaining for share repurchases as of March 31, 2023.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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EXHIBIT INDEX
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10.1*† | Employment Agreement between Trinseo LLC and Paula Cooney, dated October 15, 2021. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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101.INS† | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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*Compensatory plan or arrangement. † Filed herewith. |
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