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, 2019~~March 31, 2020

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

For the transition period from to

Commission File Number: 001-36473

Trinseo S.A.

(Exact name of registrant as specified in its charter)

Luxembourg

N/A

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1000 Chesterbrook Boulevard

Suite 300

Berwyn, PA 19312

(Address of Principal Executive Offices)

(610) 240-3200

(Registrant’s telephone number)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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. ☐

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 ~~October 31, 2019,~~May 4, 2020, there were ~~48,777,934~~38,238,977 of the registrant’s ordinary shares outstanding.

Table of Contents

Trinseo S.A.

Quarterly Report on Form 10-Q

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

Unless otherwise indicated or required by context, as used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the term “Trinseo” refers to Trinseo S.A. (NYSE: TSE), a public limited liability company (société anonyme) existing under the laws of Luxembourg, and not its subsidiaries. The terms “Company,” “we,” “us” and “our” refer to Trinseo and its consolidated subsidiaries, taken as a consolidated entity. All financial data provided in this Quarterly Report is the financial data of the Company, 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”).

Definitions of capitalized terms not defined herein appear within our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on February 28, ~~2019.~~2020. 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,~~Until 2020, all distributions ~~have~~had 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, 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,” “intend,” “forecast,” ”estimate,” “see,” “outlook,” “will,” “may,” “might,” “potential,” “likely,” “target,” “plan,” “contemplate,” “seek,” “attempt,” “should,” “could,” “would” or expressions of similar meaning. Forward-looking statements reflect management’s evaluation of information currently available and are based on our current expectations and assumptions regarding the impact from the COVID-19 pandemic, our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.

Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in our Annual Report filed with the SEC on February 28, ~~2019~~2020 under Part I, Item IA— “Risk Factors,” ~~and elsewhere~~ within this Quarterly ~~Report.~~Report and in other filings and furnishings made by the Company with the Securities and Exchange Commission from time to time.

As a result of these or other factors, our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. 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 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.

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

TRINSEO S.A.

Condensed Consolidated Balance Sheets

(In millions, except per share data)

(Unaudited)


	September 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Assets
Current assets
Cash and cash equivalents	$	483.3	$	452.3	$	440.1	$	456.2
Accounts receivable, net of allowance for doubtful accounts (September 30, 2019: $5.1; December 31, 2018: $6.1)		598.2		648.1
Accounts receivable, net of allowance for doubtful accounts (March 31, 2020: $6.7 ; December 31, 2019: $5.3)						576.0		570.8
Inventories		446.7		510.4		405.5		438.2
Other current assets		26.6		20.5		16.6		25.9
Total current assets		1,554.8		1,631.3		1,438.2		1,491.1
Investments in unconsolidated affiliates		199.8		179.1		197.9		188.1
Property, plant and equipment, net of accumulated depreciation (September 30, 2019: $629.0; December 31, 2018: $590.6)		559.9		592.1
Property, plant and equipment, net of accumulated depreciation (March 31, 2020: $702.9; December 31, 2019: $665.7)						572.4		625.8
Other assets
Goodwill		66.0		69.0		66.2		67.7
Other intangible assets, net		185.5		191.1		188.1		191.5
Right-of-use assets - operating		67.1		—		77.2		71.4
Deferred income tax assets		28.6		26.7		78.7		67.5
Deferred charges and other assets		63.7		37.5		38.7		55.7
Total other assets		410.9		324.3		448.9		453.8
Total assets	$	2,725.4	$	2,726.8	$	2,657.4	$	2,758.8
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings and current portion of long-term debt	$	11.5	$	7.0	$	11.5	$	11.1
Accounts payable		351.1		354.2		301.9		343.0
Current lease liabilities - operating		14.2		—		14.8		14.1
Income taxes payable		6.5		16.0		1.9		5.0
Accrued expenses and other current liabilities		155.6		159.8		151.4		154.4
Total current liabilities		538.9		537.0		481.5		527.6
Noncurrent liabilities
Long-term debt, net of unamortized deferred financing fees		1,162.6		1,160.8		1,162.2		1,162.6
Noncurrent lease liabilities - operating		53.2		—		64.1		58.0
Deferred income tax liabilities		43.1		45.4		45.9		41.5
Other noncurrent obligations		212.6		214.9		300.7		300.2
Total noncurrent liabilities		1,471.5		1,421.1		1,572.9		1,562.3
Commitments and contingencies (Note 11)
Shareholders’ equity
Ordinary shares, $0.01 nominal value, 50,000.0 shares authorized (September 30, 2019: 48.8 shares issued and 39.5 shares outstanding; December 31, 2018: 48.8 shares issued and 41.6 shares outstanding)		0.5		0.5
Ordinary shares, $0.01 nominal value, 50,000.0 shares authorized (March 31, 2020: 48.8 shares issued and 38.2 shares outstanding; December 31, 2019: 48.8 shares issued and 39.0 shares outstanding)						0.5		0.5
Additional paid-in-capital		574.2		575.4		575.7		574.7
Treasury shares, at cost (September 30, 2019: 9.3 shares; December 31, 2018: 7.2 shares)		(505.8)		(418.1)
Treasury shares, at cost (March 31, 2020: 10.6 shares; December 31, 2019: 9.8 shares)						(548.2)		(524.9)
Retained earnings		791.0		753.2		729.2		781.0
Accumulated other comprehensive loss		(144.9)		(142.3)		(154.2)		(162.4)
Total shareholders’ equity		715.0		768.7		603.0		668.9
Total liabilities and shareholders’ equity	$	2,725.4	$	2,726.8	$	2,657.4	$	2,758.8

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

Table of Contents

TRINSEO S.A.

Condensed Consolidated Statements of Operations

(In millions, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
Net sales	$	922.1	$	1,199.7	$	2,887.0	$	3,557.8	$	853.5	$	1,013.1
Cost of sales		836.9		1,068.1		2,618.1		3,088.3		783.8		915.7
Gross profit		85.2		131.6		268.9		469.5		69.7		97.4
Selling, general and administrative expenses		67.6		60.0		208.0		186.1		77.5		68.8
Equity in earnings of unconsolidated affiliates		25.7		34.5		98.2		113.3		9.8		32.2
Operating income		43.3		106.1		159.1		396.7
Impairment charges										38.3		—
Operating income (loss)										(36.3)		60.8
Interest expense, net		9.2		10.1		29.3		35.8		10.3		10.2
Loss on extinguishment of long-term debt		—		—		—		0.2
Other expense, net		2.3		2.1		7.7		2.9		1.6		4.0
Income before income taxes		31.8		93.9		122.1		357.8
Provision for income taxes		9.3		19.2		35.8		64.5
Net income	$	22.5	$	74.7	$	86.3	$	293.3
Income (loss) before income taxes										(48.2)		46.6
Provision for (benefit from) income taxes										(11.9)		10.8
Net income (loss)									$	(36.3)	$	35.8
Weighted average shares- basic		40.1		42.6		40.7		43.0		38.5		41.3
Net income per share- basic	$	0.56	$	1.75	$	2.12	$	6.82
Net income (loss) per share- basic									$	(0.94)	$	0.87
Weighted average shares- diluted		40.4		43.3		41.2		43.9		38.5		41.8
Net income per share- diluted	$	0.56	$	1.72	$	2.09	$	6.68
Net income (loss) per share- diluted									$	(0.94)	$	0.86

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

Table of Contents

TRINSEO S.A.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
Net income	$	22.5	$	74.7	$	86.3	$	293.3
Net income (loss)									$	(36.3)	$	35.8
Other comprehensive income (loss), net of tax:
Cumulative translation adjustments		0.5		(4.6)		3.2		(22.8)		10.7		(0.3)
Net gain (loss) on cash flow hedges		0.2		2.1		(5.1)		16.8		(3.7)		0.1
Pension and other postretirement benefit plans:
Net loss arising during period (net of tax of: $0.1, $0.0, $0.3, and $0.0)		(0.7)		—		(2.7)		—
Net gain (loss) during period (net of tax of: $0.1 and $(0.2))										0.6		(2.0)
Amounts reclassified from accumulated other comprehensive income		0.7		0.6		2.0		1.8		0.6		1.0
Total other comprehensive income (loss), net of tax		0.7		(1.9)		(2.6)		(4.2)		8.2		(1.2)
Comprehensive income	$	23.2	$	72.8	$	83.7	$	289.1
Comprehensive income (loss)									$	(28.1)	$	34.6

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

Table of Contents

TRINSEO S.A.

Condensed Consolidated Statements of Shareholders’ Equity

(In millions, except per share data)

(Unaudited)

Shares

Shareholders' Equity


Ordinary Shares Outstanding

Treasury Shares

Ordinary Shares

Additional
Paid-In Capital

Treasury Shares

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

Total
Balance at December 31, 2018

41.6

7.2

$
0.5

$
575.4

$
(418.1)

$
(142.3)

$
753.2

$
768.7
Net income

—

—

—

—

—

—

35.8

35.8
Other comprehensive loss

—

—

—

—

—

(1.2)

—

(1.2)
Share-based compensation activity

0.1

(0.1)

—

(6.6)

7.0

—

—

0.4
Purchase of treasury shares

(0.7)

0.7

—

—

(34.0)

—

—

(34.0)
Dividends on ordinary shares ($0.40 per share)

—

—

—

—

—

—

(16.6)

(16.6)
Balance at March 31, 2019

41.0

7.8

$
0.5

$
568.8

$
(445.1)

$
(143.5)

$
772.4

$
753.1
Net income

—

—

—

—

—

—

28.0

28.0
Other comprehensive income

—

—

—

—

—

(2.1)

—

(2.1)
Share-based compensation activity

0.1

(0.1)

—

2.4

1.7

—

—

4.1
Purchase of treasury shares

(0.5)

0.5

—

—

(21.7)

—

—

(21.7)
Dividends on ordinary shares ($0.40 per share)

—

—

—

—

—

—

(16.3)

(16.3)
Balance at June 30, 2019

40.6

8.2

$
0.5

$
571.2

$
(465.1)

$
(145.6)

$
784.1

$
745.1
Net income

—

—

—

—

—

—

22.5

22.5
Other comprehensive income

—

—

—

—

—

0.7

—

0.7
Share-based compensation activity

—

—

—

3.0

0.2

—

—

3.2
Purchase of treasury shares

(1.1)

1.1

—

—

(40.9)

—

—

(40.9)
Dividends on ordinary shares ($0.40 per share)

—

—

—

—

—

—

(15.6)

(15.6)
Balance at September 30, 2019

39.5

9.3

$
0.5

$
574.2

$
(505.8)

$
(144.9)

$
791.0

$
715.0

Shares

Shareholders' Equity


Ordinary Shares Outstanding

Treasury Shares

Ordinary Shares

Additional
Paid-In Capital

Treasury Shares

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

Total
Balance at December 31, 2017

43.4

5.4

$
0.5

$
578.8

$
(286.8)

$
(145.6)

$
527.9

$
674.8
Net income

—

—

—

—

—

—

120.3

120.3
Other comprehensive income

—

—

—

—

—

1.3

—

1.3
Share-based compensation activity

0.3

(0.3)

—

(12.2)

11.5

—

—

(0.7)
Purchase of treasury shares

(0.3)

0.3

—

—

(24.2)

—

—

(24.2)
Dividends on ordinary shares ($0.36 per share)

—

—

—

—

—

—

(15.8)

(15.8)
Balance at March 31, 2018

43.4

5.4

$
0.5

$
566.6

$
(299.5)

$
(144.3)

$
632.4

$
755.7
Net income

—

—

—

—

—

—

98.3

98.3
Other comprehensive loss

—

—

—

—

—

(3.6)

—

(3.6)
Share-based compensation activity

0.1

(0.1)

—

2.5

1.2

—

—

3.7
Purchase of treasury shares

(0.5)

0.5

—

—

(35.0)

—

—

(35.0)
Dividends on ordinary shares ($0.40 per share)

—

—

—

—

—

—

(17.3)

(17.3)
Balance at June 30, 2018

43.0

5.8

$
0.5

$
569.1

$
(333.3)

$
(147.9)

$
713.4

$
801.8
Net income

—

—

—

—

—

—

74.7

74.7
Other comprehensive loss

—

—

—

—

—

(1.9)

—

(1.9)
Share-based compensation activity

—

—

—

3.1

0.7

—

—

3.8
Purchase of treasury shares

(0.5)

0.5

—

—

(35.0)

—

—

(35.0)
Dividends on ordinary shares ($0.40 per share)

—

—

—

—

—

—

(17.2)

(17.2)
Balance at September 30, 2018

42.5

6.3

$
0.5

$
572.2

$
(367.6)

$
(149.8)

$
770.9

$
826.2


	Shares		Shareholders' Equity
	Ordinary Shares Outstanding	Treasury Shares	Ordinary Shares		Additional Paid-In Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balance at December 31, 2019	39.0	9.8	$	0.5	$	574.7	$	(524.9)	$	(162.4)	$	781.0	$	668.9
Net loss	—	—		—		—		—		—		(36.3)		(36.3)
Other comprehensive income	—	—		—		—		—		8.2		—		8.2
Share-based compensation activity	—	—		—		1.0		1.7		—		—		2.7
Purchase of treasury shares	(0.8)	0.8		—		—		(25.0)		—		—		(25.0)
Dividends on ordinary shares ($0.40 per share)	—	—		—		—		—		—		(15.5)		(15.5)
Balance at March 31, 2020	38.2	10.6	$	0.5	$	575.7	$	(548.2)	$	(154.2)	$	729.2	$	603.0
Balance at December 31, 2018	41.6	7.2	$	0.5	$	575.4	$	(418.1)	$	(142.3)	$	753.2		768.7
Net income	—	—		—		—		—		—		35.8		35.8
Other comprehensive loss	—	—		—		—		—		(1.2)		—		(1.2)
Share-based compensation activity	0.1	(0.1)		—		(6.6)		7.0		—		—		0.4
Purchase of treasury shares	(0.7)	0.7		—		—		(34.0)		—		—		(34.0)
Dividends on ordinary shares ($0.40 per share)	—	—		—		—		—		—		(16.6)		(16.6)
Balance at March 31, 2019	41.0	7.8	$	0.5	$	568.8	$	(445.1)	$	(143.5)	$	772.4	$	753.1

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

Table of Contents

TRINSEO S.A.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2019		2018		2020		2019
Cash flows from operating activities
Net income	$	86.3	$	293.3
Adjustments to reconcile net income to net cash provided by operating activities
Net income (loss)					$	(36.3)	$	35.8
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		101.7		96.0		36.4		33.9
Amortization of deferred financing fees, issuance discount, and excluded component of hedging instruments		(0.4)		0.8		0.4		(0.1)
Deferred income tax		(4.5)		2.1		(11.5)		(0.1)
Share-based compensation expense		10.8		12.3		3.2		4.1
Earnings of unconsolidated affiliates, net of dividends		(20.7)		(28.3)		(9.8)		(19.7)
Unrealized gain on foreign exchange forward contracts		(4.6)		(5.4)
Loss on extinguishment of long-term debt		—		0.2
Unrealized net gain on foreign exchange forward contracts						(11.5)		(6.6)
Gain on sale of businesses and other assets		(0.2)		(0.5)		(0.4)		(0.2)
Impairment charges		—		0.4		38.3		—
Pension settlement loss		1.2		—		—		0.7
Changes in assets and liabilities
Accounts receivable		34.7		(77.8)		(12.7)		(4.8)
Inventories		51.6		(86.1)		26.8		57.7
Accounts payable and other current liabilities		16.1		46.4		(28.9)		49.4
Income taxes payable		(9.6)		(16.3)		(3.3)		(2.0)
Other assets, net		0.6		(17.2)		(6.9)		2.8
Other liabilities, net		11.9		18.6		10.4		2.3
Cash provided by operating activities		274.9		238.5
Cash provided by (used in) operating activities						(5.8)		153.2
Cash flows from investing activities
Capital expenditures		(71.2)		(90.9)		(24.3)		(25.0)
Cash paid for asset or business acquisitions, net of cash acquired		(6.4)		—
Net cash received for asset and business acquisitions, net of cash acquired						0.2		—
Proceeds from capital expenditures subsidy		—		1.0		—		0.7
Proceeds from the sale of businesses and other assets		0.7		1.8		11.6		—
Cash used in investing activities		(76.9)		(88.1)
Proceeds from the settlement of hedging instruments						51.6		—
Cash provided by (used in) investing activities						39.1		(24.3)
Cash flows from financing activities
Deferred financing fees		—		(0.6)
Short-term borrowings, net		(4.8)		(0.2)		(3.5)		(0.1)
Purchase of treasury shares		(98.7)		(95.5)		(25.0)		(37.4)
Dividends paid		(50.0)		(49.0)		(15.9)		(17.4)
Proceeds from exercise of option awards		0.9		2.6		—		0.1
Withholding taxes paid on restricted share units		(3.9)		(8.1)		(0.6)		(3.8)
Net proceeds from issuance of 2024 Term Loan B		—		696.5
Repayments of 2024 Term Loan B		(5.3)		(701.8)		(1.7)		(1.8)
Cash used in financing activities		(161.8)		(156.1)		(46.7)		(60.4)
Effect of exchange rates on cash		(4.0)		(5.7)		(2.7)		(1.6)
Net change in cash, cash equivalents, and restricted cash		32.2		(11.4)		(16.1)		66.9
Cash, cash equivalents, and restricted cash—beginning of period		452.3		432.8		457.4		452.3
Cash, cash equivalents, and restricted cash—end of period	$	484.5	$	421.4	$	441.3	$	519.2
Less: Restricted cash, included in "Other current assets"		(1.2)		—		(1.2)		(2.8)
Cash and cash equivalents—end of period	$	483.3	$	421.4	$	440.1	$	516.4

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

Table of Contents

TRINSEO S.A.

Notes to Condensed Consolidated Financial Statements

(Dollars in millions, unless otherwise stated)

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) as of and for the periods ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ 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 ~~2018~~2019 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 28, ~~2019.~~2020. The Company expects the effects of the COVID-19 pandemic to negatively impact its results of operations, cash flows and financial position, which impact could be material, and dependent on numerous factors that are highly uncertain, for which the ultimate impact cannot be predicted at this time, including the duration and scope of the COVID-19 pandemic. 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 31, 2020. However, actual results could differ from these estimates and assumptions.

The December 31, ~~2018~~2019 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, ~~2018~~2019 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods. ~~The presentation of prior year amounts in the condensed consolidated statements of shareholders’ equity have been updated to conform to the current year presentation.~~

NOTE 2—RECENT ACCOUNTING GUIDANCE

In February 2016, the FASB issued guidance related to leases that outlines a comprehensive lease accounting model and supersedes prior lease guidance. The new guidance requires lessees to recognize on the consolidated balance sheets lease liabilities and corresponding right-of-use (“ROU”) 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. The new guidance must be adopted using a modified retrospective transition, applying the new standard to all leases existing at the date of initial application. The Company adopted the standard effective January 1, 2019, and as a result, the Company recorded ROU assets and lease liabilities of $73.0 million and $72.4 million, respectively, on the condensed consolidated balance sheet as of January 1, 2019. The Company’s adoption of this standard did not result in a cumulative effect adjustment being recorded to opening retained earnings as of January 1, 2019 and did not have a material impact on the Company’s condensed consolidated statements of operations or cash flows. Refer to Note 18 for new disclosure requirements in effect as a result of this adoption.

In August 2018, the FASB issued guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension plans or other postretirement plans. This amendment is effective for public companies for fiscal years ending after December 15, 2020. Early adoption is permitted, and the provisions of the amendment should be applied on a retrospective basis to all periods presented. The Company does not anticipate that adoption of the new guidance will have a material impact on its consolidated financial statements.

~~In August 2018, the FASB~~Financial Accounting Standards Board (“FASB”) issued guidance which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard prospectively, effective January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes. The amended guidance includes removal of certain exceptions to the general principles of Accounting Standards Codification 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. This ~~standard update~~guidance is effective for public ~~companies~~business entities for interim and annual reporting periods beginning after December 15, ~~2019,~~2020, with early adoption permitted. The Company ~~will adopt~~is currently assessing the ~~new~~timing and impacts of adopting this guidance ~~prospectively~~on its consolidated financial statements.

In March 2020, the FASB issued optional guidance for a limited period of time to ~~eligible costs incurred on or after~~ease the ~~date first applied.~~potential burden in accounting for the effects of the transition away from London Interbank Offered Rate (“LIBOR”) and other reference rates. The Company ~~does not anticipate that adoption of~~adopted this guidance ~~will~~upon issuance, noting that it did not have a material impact on ~~its~~the Company’s condensed consolidated financial ~~statements, barring significant future cloud computing transactions.~~statements.

NOTE 3—NET SALES

~~Sales are recognized at a point when control of the promised goods or services is transferred~~Refer to the ~~customer in an amount that reflects~~Annual Report for information on the ~~consideration the Company expects~~Company's accounting policies and further background related to be entitled to in exchange for those goods or services, and when the Company’s related performance obligation is satisfied under the terms of the contract. Standard terms of delivery are included in contracts of sale, order confirmation documents, and invoices. Sales and other taxes that theits net sales.

109

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Company collects concurrent with sales-producing activities are excluded from “Net sales” and included as a component of “Cost of sales” in the condensed consolidated statements of operations. Additionally, freight and any directly related costs of transporting finished products to customers are accounted for as fulfilment costs and are also included within “Cost of sales.” The amount of net sales recognized varies with changes in returns, rebates, cash sales incentives, and other allowances offered to customers based on the Company's experience.

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 three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Latex

Synthetic

Performance

Three Months Ended

Binders

Rubber

Plastics

Polystyrene

Feedstocks

Total

September 30, 2019

United States

$
69.4

$
—

$
75.0

$
—

$
3.1

$
147.5

Europe

94.2

104.2

170.5

109.5

37.8

516.2

Asia-Pacific

63.1

—

56.4

88.1

24.9

232.5

Rest of World

3.0

—

22.9

—

—

25.9

Total

$
229.7

$
104.2

$
324.8

$
197.6

$
65.8

$
922.1

September 30, 2018

United States

$
77.3

$
—

$
87.0

$
—

$
3.0

$
167.3

Europe

117.0

137.7

226.7

148.3

61.2

690.9

Asia-Pacific

80.0

—

62.7

104.0

66.8

313.5

Rest of World

3.7

—

24.3

—

—

28.0

Total

$
278.0

$
137.7

$
400.7

$
252.3

$
131.0

$
1,199.7


	Latex		Synthetic		Performance								Latex		Synthetic		Performance
Nine Months Ended	Binders		Rubber		Plastics		Polystyrene		Feedstocks		Total
September 30, 2019
Three Months Ended													Binders		Rubber		Plastics		Polystyrene		Feedstocks		Total
March 31, 2020
United States	$	199.9	$	—	$	235.3	$	—	$	8.1	$	443.3	$	62.2	$	—	$	70.6	$	—	$	2.6	$	135.4
Europe		294.8		340.9		571.3		363.6		111.4		1,682.0		101.9		99.8		165.0		109.8		29.1		505.6
Asia-Pacific		180.4		—		167.6		269.6		67.9		685.5		52.3		1.9		49.7		73.0		13.1		190.0
Rest of World		8.7		—		67.5		—		—		76.2		2.7		—		19.8		—		—		22.5
Total	$	683.8	$	340.9	$	1,041.7	$	633.2	$	187.4	$	2,887.0	$	219.1	$	101.7	$	305.1	$	182.8	$	44.8	$	853.5
September 30, 2018
March 31, 2019
United States	$	216.3	$	—	$	253.7	$	0.2	$	9.6	$	479.8	$	63.3	$	—	$	81.8	$	—	$	2.7	$	147.8
Europe		349.6		442.2		720.9		460.9		174.5		2,148.1		101.4		124.6		213.3		138.2		40.5		618.0
Asia-Pacific		236.9		—		171.0		316.4		123.6		847.9		56.5		—		51.6		90.3		23.6		222.0
Rest of World		11.4		—		70.6		—		—		82.0		2.7		—		22.6		—		—		25.3
Total	$	814.2	$	442.2	$	1,216.2	$	777.5	$	307.7	$	3,557.8	$	223.9	$	124.6	$	369.3	$	228.5	$	66.8	$	1,013.1

~~Table of Contents~~

NOTE 4—INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company’s investments held in unconsolidated affiliates are accounted for by the equity method. The Company is currently supplemented by 1 joint venture, Americas Styrenics LLC (“Americas Styrenics,” a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP). The results of Americas Styrenics are included within its own reporting segment.

Americas Styrenics is a privately held company; therefore, a quoted market price for its equity interests ~~are~~is not available. The summarized financial information of the Company’s unconsolidated affiliate is shown below.


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
Sales	$	374.6	$	462.1	$	1,162.2	$	1,430.2	$	322.2	$	369.2
Gross profit	$	59.6	$	74.1	$	199.6	$	242.3	$	7.2	$	54.2
Net income	$	44.6	$	62.1	$	160.3	$	206.4
Net income (loss)									$	(8.3)	$	42.9

Americas Styrenics

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company’s investment in Americas Styrenics was ~~$199.8~~$197.9 million and ~~$179.1~~$188.1 million, respectively, which was ~~$15.5~~$3.5 million and ~~$46.4~~$10.3 million less 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 to the joint venture at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the joint venture’s assets and certain adjustments to conform with the Company’s accounting policies. This difference is being amortized over the weighted average remaining useful life of the contributed assets of approximately ~~1.5~~1.9 years as of ~~September 30, 2019.~~March 31, 2020. The Company ~~received~~did not receive dividends from Americas Styrenics ~~of $25.0 million and $77.5 million~~ during the three ~~and nine~~ months ended ~~September 30, 2019, respectively, compared to $17.5~~March 31, 2020 and received dividends of $12.5 million ~~and $85.0 million~~from Americas Styrenics during the three ~~and nine~~ months ended ~~September 30, 2018, respectively.~~March 31, 2019.

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NOTE 5—INVENTORIES

Inventories consisted of the following:


	September 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Finished goods	$	208.9	$	269.8	$	200.2	$	210.8
Raw materials and semi-finished goods		203.3		205.8		168.5		190.1
Supplies		34.5		34.8		36.8		37.3
Total	$	446.7	$	510.4	$	405.5	$	438.2

~~Table of Contents~~

NOTE 6—DEBT

Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s debt structure discussed below. The Company was in compliance with all debt related covenants as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, debt consisted of the following:


			September 30, 2019						December 31, 2018								March 31, 2020						December 31, 2019
	Interest Rate as of September 30, 2019	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 Unamortized Deferred Financing Fees		Interest Rate as of March 31, 2020	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 Unamortized Deferred Financing Fees
Senior Credit Facility
2024 Term Loan B	4.044%	September 2024	$	686.0	$	(14.3)	$	671.7	$	691.3	$	(16.2)	$	675.1	2.989%	September 2024	$	682.6	$	(12.9)	$	669.7	$	684.3	$	(13.7)	$	670.6
2022 Revolving Facility⁽²⁾	Various	September 2022		—		—		—		—		—		—	Various	September 2022		—		—		—		—		—		—
2025 Senior Notes	5.375%	September 2025		500.0		(7.6)		492.4		500.0		(8.4)		491.6	5.375%	September 2025		500.0		(7.0)		493.0		500.0		(7.3)		492.7
Accounts Receivable Securitization Facility⁽³⁾	Various	September 2021		—		—		—		—		—		—	Various	September 2021		—		—		—		—		—		—
Other indebtedness	Various	Various		10.0		—		10.0		1.1		—		1.1	Various	Various		11.0		—		11.0		10.4		—		10.4
Total debt			$	1,196.0	$	(21.9)	$	1,174.1	$	1,192.4	$	(24.6)	$	1,167.8			$	1,193.6	$	(19.9)	$	1,173.7	$	1,194.7	$	(21.0)	$	1,173.7
Less: current portion⁽⁴⁾								(11.5)						(7.0)								(11.5)						(11.1)
Total long-term debt, net of unamortized deferred financing fees							$	1,162.6					$	1,160.8							$	1,162.2					$	1,162.6

(1)

This caption does not include deferred financing fees related to the Company’s revolving facilities, which are included within “Deferred charges and other assets” on the condensed consolidated balance sheets.

(2)

Under the 2022 Revolving Facility, the Company had a capacity of $375.0 million and funds available for borrowing of ~~$361.1~~$360.9 million (net of ~~$13.9~~$14.1 million outstanding letters of credit) as of ~~September 30, 2019.~~March 31, 2020. Additionally, the Company is required to pay a quarterly commitment fee in respect of any unused commitments under this facility equal to 0.375% per annum. On April 3, 2020, the Company drew down $100.0 million from the 2022 Revolving Facility.

(3)

This facility had a borrowing capacity of $150.0 million as of ~~September 30, 2019. Additionally, as~~March 31, 2020. As of ~~September 30, 2019,~~March 31, 2020, the Company had approximately ~~$128.5~~$135.6 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable. In regard to outstanding borrowings, fixed interest charges are 1.95% plus variable commercial paper rates, while for available, but undrawn commitments, fixed interest charges are 1.00%.

(4)

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the current portion of long-term debt primarily related to $7.0 million of the scheduled future principal payments on the 2024 Term Loan B.

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NOTE 7—GOODWILL

The following table shows changes in the carrying amount of goodwill, by segment, from December 31, ~~2018~~2019 to ~~September 30, 2019:~~March 31, 2020:


	Latex		Synthetic		Performance						Americas				Latex		Synthetic		Performance						Americas
	Binders		Rubber		Plastics		Polystyrene		Feedstocks		Styrenics		Total		Binders		Rubber		Plastics		Polystyrene		Feedstocks		Styrenics		Total
Balance at December 31, 2018	$	15.9	$	11.3	$	37.3	$	4.5	$	—	$	—	$	69.0
Balance at December 31, 2019															$	15.6	$	11.0	$	36.7	$	4.4	$	—	$	—	$	67.7
Foreign currency impact		(0.7)		(0.5)		(1.6)		(0.2)		—		—		(3.0)		(0.3)		(0.2)		(0.9)		(0.1)		—		—		(1.5)
Balance at September 30, 2019	$	15.2	$	10.8	$	35.7	$	4.3	$	—	$	—	$	66.0
Balance at March 31, 2020															$	15.3	$	10.8	$	35.8	$	4.3	$	—	$	—	$	66.2

~~Table of Contents~~

NOTE 8—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 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 ~~September 30, 2019,~~March 31, 2020, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of ~~$454.8~~$455.4 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of ~~September 30, 2019:~~March 31, 2020:


	September 30,		March 31,
Buy / (Sell)	2019		2020
Euro	$	(322.0)	$	(325.1)
Chinese Yuan			$	(43.7)
Swiss Franc	$	34.7	$	26.3
Chinese Yuan	$	(34.0)
Indonesian Rupiah	$	(18.2)	$	(16.3)
Mexican Peso	$	(13.0)
Korean Won			$	(13.1)

Open foreign exchange forward contracts as of ~~September 30, 2019~~March 31, 2020 had maturities occurring over a period of two months.

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 1 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 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.

Table of Contents

Open foreign exchange cash flow hedges as of ~~September 30, 2019~~March 31, 2020 had maturities occurring over a period of 15nine months, and had a net notional U.S. dollar equivalent of ~~$95.7~~$63.0 million.

Interest Rate Swaps

On September 6, 2017, the Company issued the 2024 Term Loan B, which currently bears an interest rate of ~~the London Interbank Offered Rate (“LIBOR”)~~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.

~~Table of Contents~~

As of ~~September 30, 2019,~~March 31, 2020, 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 in September 2022. Under the terms of the swap agreements, the Company is 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 ~~(2.04%~~(0.99% as of ~~September 30, 2019)~~March 31, 2020) from the counterparties.

Net Investment Hedge

On September 1, 2017, the Company entered into certain fixed-for-fixed cross currency swaps (“CCS”), swapping USD principal and interest payments on its 2025 Senior Notes for euro-denominated payments. Under the terms of ~~the~~this CCS (the “2017 CCS”), the Company ~~has~~ notionally exchanged $500.0 million at an interest rate of 5.375% for €420.0 million at a weighted average interest rate of 3.45% for approximately five years. On September 1, 2017, the Company designated the full notional amount of the 2017 CCS (€420.0 million) as a hedge of its net investment in certain European subsidiaries under the forward method, with all changes in the fair value of the 2017 CCS recorded as a component of AOCI, as the 2017 CCS were deemed to be highly effective hedges. A cumulative foreign currency translation loss of $38.0 million was recorded within AOCI related to the 2017 CCS through March 31, 2018.

Effective April 1, 2018, the Company elected as an accounting policy to re-designate the 2017 CCS as a net investment hedge (and any future similar hedges) under the spot method. As such, changes in the fair value of the 2017 CCS ~~that are~~ included in the assessment of effectiveness (changes due to spot foreign exchange rates) ~~are~~were recorded as cumulative foreign currency translation within OCI, and will remain in AOCI until either the sale or substantially complete liquidation of the subsidiary. As of ~~September 30, 2019,~~March 31, 2020, 0 gains or losses have been reclassified from AOCI into income related to the sale or substantially complete liquidation of the relevant subsidiaries. As an additional accounting policy election applied to similar hedges under this new standard, 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. 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. Prior to April 1, 2018, no components were excluded from the assessment of effectiveness for any of the Company’s existing net investment hedges.

As of April 1, 2018, the initial excluded component value related to the 2017 CCS was $23.6 million, which the Company elected to amortize 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 2017 CCS. Additionally, the accrual of periodic USD and euro-denominated interest receipts and payments under the terms of the 2017 CCS ~~are being~~were recognized within “Interest expense, net” in the condensed consolidated statements of operations.

On 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. Upon settlement of the 2017 CCS, the Company realized net cash proceeds of $51.6 million. The remaining $13.8 million unamortized balance of the initial excluded component related to the 2017 CCS at the time of settlement is no longer being amortized following the settlement and will remain in AOCI until either the sale or substantially complete liquidation of the relevant subsidiaries. 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.

1513

Table of Contents

Summary of Derivative Instruments

The following ~~tables present~~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 ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Location and Amount of Gain (Loss) Recognized in
Statements of Operations

Three Months Ended

Three Months Ended

September 30, 2019

September 30, 2018

Cost of
sales

Interest expense, net

Other expense, net

Cost of
sales

Interest expense, net

Other expense, net

Total amount of income and expense line items presented in the statements of operations in which the effects of derivative instruments are recorded

$
836.9

$
9.2

$
2.3

$
1,068.1

$
10.1

$
2.1

The effects of cash flow hedge instruments:

Foreign exchange cash flow hedges

Amount of gain (loss) reclassified from AOCI into income

$
1.9

$
—

$
—

$
(0.6)

$
—

$
—

Interest rate swaps

Amount of gain reclassified from AOCI into income

$
—

$
0.2

$
—

$
—

$
0.1

$
—

The effects of net investment hedge instruments:

Cross currency swaps (CCS)

Amount of gain excluded from effectiveness testing

$
—

$
4.2

$
—

$
—

$
3.8

$
—

The effects of derivatives not designated as hedge instruments:

Foreign exchange forward contracts

Amount of gain recognized in income

$
—

$
—

$
14.6

$
—

$
—

$
8.2


	Location and Amount of Gain (Loss) Recognized in Statements of Operations
	Three Months Ended						Three Months Ended
	March 31, 2020						March 31, 2019
	Cost of sales		Interest expense, net		Other expense, net		Cost of sales		Interest expense, net		Other expense, net
Total amount of income and expense line items presented in the statements of operations in which the effects of derivative instruments are recorded	$	783.8	$	10.3	$	1.6	$	915.7	$	10.2	$	4.0

The effects of cash flow hedge instruments:
Foreign exchange cash flow hedges
Amount of gain reclassified from AOCI into income	$	0.2	$	—	$	—	$	0.6	$	—	$	—
Interest rate swaps
Amount of gain (loss) reclassified from AOCI into income	$	—	$	(0.1)	$	—	$	—	$	0.3	$	—

The effects of net investment hedge instruments:
Cross currency swaps (CCS)
Amount of gain excluded from effectiveness testing ⁽¹⁾	$	—	$	3.4	$	—	$	—	$	4.0	$	—

The effects of derivatives not designated as hedge instruments:
Foreign exchange forward contracts
Amount of gain recognized in income	$	—	$	—	$	13.8	$	—	$	—	$	2.7

(1)

Amount for the three months ended March 31, 2020 includes the effects of the 2017 CCS through its settlement on February 26, 2020 and the effects of the 2020 CCS from when it was entered into on February 26, 2020 through March 31, 2020.

~~Table of Contents~~

Location and Amount of Gain (Loss) Recognized in
Statements of Operations

Nine Months Ended

Nine Months Ended

September 30, 2019

September 30, 2018


Cost of
sales

Interest expense, net

Other expense, net

Cost of
sales

Interest expense, net

Other expense, net

Total amount of income and expense line items presented in the statements of operations in which the effects of derivative instruments are recorded

$
2,618.1

$
29.3

$
7.7

$
3,088.3

$
35.8

$
2.9

Effects of cash flow hedge instruments:

Foreign exchange cash flow hedges

Amount of gain (loss) reclassified from AOCI into income

$
4.1

$
—

$
—

$
(6.8)

$
—

$
—

Interest rate swaps

Amount of gain reclassified from AOCI into income

$
—

$
0.9

$
—

$
—

$
0.1

$
—

Effects of net investment hedge instruments:

Cross currency swaps (CCS)

Amount of gain excluded from effectiveness testing

$
—

$
12.0

$
—

$
—

$
7.7

$
—

Effects of derivatives not designated as hedge instruments:

Foreign exchange forward contracts

Amount of gain recognized in income

$
—

$
—

$
14.9

$
—

$
—

$
17.0

The following table presents the effect of cash flow and net investment hedge accounting on AOCI for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

`

Gain (Loss) Recognized in AOCI on Balance Sheet

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018
Designated as Cash Flow Hedges

Foreign exchange cash flow hedges

$
1.2

$
1.2

$
1.7

$
11.3
Interest rate swaps

(1.0)

0.9

(6.8)

5.5
Total

$
0.2

$
2.1

$
(5.1)

$
16.8
Designated as Net Investment Hedges

Cross currency swaps (CCS)

$
22.1

$
(0.6)

$
30.0

$
9.7
Total

$
22.1

$
(0.6)

$
30.0

$
9.7


	Gain (Loss) Recognized in AOCI on Balance Sheet
	Three Months Ended
	March 31,
	2020		2019
Designated as Cash Flow Hedges
Foreign exchange cash flow hedges	$	2.1	$	2.3
Interest rate swaps		(5.8)		(2.2)
Total	$	(3.7)	$	0.1
Designated as Net Investment Hedges
Cross currency swaps (CCS) ⁽¹⁾	$	22.9	$	11.5
Total	$	22.9	$	11.5

(1)

Amount for the three months ended March 31, 2020 includes the effect on AOCI from the 2017 CCS through its settlement on February 26, 2020 and the effect on AOCI from the 2020 CCS from when it was entered into on February 26, 2020 through March 31, 2020.

The Company recorded gains of ~~$14.6~~$13.8 million and ~~$14.9~~$2.7 million during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and gains of $8.2 million and $17.0 million during the three and nine months ended September 30, 2018,~~ respectively, from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges). The gains from these forward contracts offset net foreign exchange transaction losses of $14.8 million and $15.3 million during the three and nine months ended September 30, 2019, respectively, and losses of $6.9 million and $12.6 million during the three and nine months ended September 30, 2018, respectively, which resulted from the re-measurement 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 statements of cash flows.

The Company expects to reclassify in the next twelve months an approximate $3.6 million net gain from AOCI into earnings related to the Company’s outstanding foreign exchange cash flow hedges and interest rate swaps as of

1714

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~~September 30,~~hedges). The gains from these forward contracts offset net foreign exchange transaction losses of $14.0 million and $3.1 million during the three months ended March 31, 2020 and 2019, respectively, which resulted from the re-measurement 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 statements of cash flows.

The Company expects to reclassify in the next twelve months an approximate $1.3 million net loss from AOCI into earnings related to the Company’s outstanding foreign exchange cash flow hedges and interest rate swaps as of March 31, 2020 based on current foreign exchange rates.

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:


	September 30, 2019										March 31, 2020
	Foreign		Foreign								Foreign		Foreign
	Exchange		Exchange		Interest		Cross				Exchange		Exchange		Interest		Cross
Balance Sheet	Forward		Cash Flow		Rate		Currency				Forward		Cash Flow		Rate		Currency
Classification	Contracts		Hedges		Swaps		Swaps		Total		Contracts		Hedges		Swaps		Swaps		Total
Asset Derivatives:
Accounts receivable, net of allowance	$	4.3	$	3.3	$	—	$	6.3	$	13.9	$	7.0	$	1.6	$	—	$	4.8	$	13.4
Deferred charges and other assets		—		0.2		—		32.3		32.5
Gross derivative asset position		4.3		3.5		—		38.6		46.4		7.0		1.6		—		4.8		13.4
Less: Counterparty netting		—		—		—		—		—		(0.1)		—		—		—		(0.1)
Net derivative asset position	$	4.3	$	3.5	$	—	$	38.6	$	46.4	$	6.9	$	1.6	$	—	$	4.8	$	13.3
Liability Derivatives:
Accounts payable	$	(1.3)	$	—	$	(0.3)	$	—	$	(1.6)	$	(0.1)	$	—	$	(2.9)	$	—	$	(3.0)
Other noncurrent obligations		—		—		(1.9)		—		(1.9)		—		—		(4.3)		(1.4)		(5.7)
Gross derivative liability position		(1.3)		—		(2.2)		—		(3.5)		(0.1)		—		(7.2)		(1.4)		(8.7)
Less: Counterparty netting		—		—		—		—		—		0.1		—		—		—		0.1
Net derivative liability position	$	(1.3)	$	—	$	(2.2)	$	—	$	(3.5)	$	—	$	—	$	(7.2)	$	(1.4)	$	(8.6)
Total net derivative position	$	3.0	$	3.5	$	(2.2)	$	38.6	$	42.9	$	6.9	$	1.6	$	(7.2)	$	3.4	$	4.7


	December 31, 2018										December 31, 2019
	Foreign		Foreign								Foreign		Foreign
	Exchange		Exchange		Interest		Cross				Exchange		Exchange		Interest		Cross
Balance Sheet	Forward		Cash Flow		Rate		Currency				Forward		Cash Flow		Rate		Currency
Classification	Contracts		Hedges		Swaps		Swaps		Total		Contracts		Hedges		Swaps		Swaps		Total
Asset Derivatives:
Accounts receivable, net of allowance	$	0.6	$	1.9	$	1.5	$	8.1	$	12.1	$	1.1	$	—	$	—	$	8.6	$	9.7
Deferred charges and other assets		—		—		3.2		—		3.2		—		—		—		19.2		19.2
Gross derivative asset position		0.6		1.9		4.7		8.1		15.3		1.1		—		—		27.8		28.9
Less: Counterparty netting		(0.5)		—		—		—		(0.5)		(0.4)		—		—		—		(0.4)
Net derivative asset position	$	0.1	$	1.9	$	4.7	$	8.1	$	14.8	$	0.7	$	—	$	—	$	27.8	$	28.5
Liability Derivatives:
Accounts payable	$	(2.1)	$	—	$	—	$	—	$	(2.1)	$	(5.7)	$	(0.5)	$	(0.4)	$	—	$	(6.6)
Other noncurrent obligations		—		—		—		(3.4)		(3.4)		—		—		(1.0)		—		(1.0)
Gross derivative liability position		(2.1)		—		—		(3.4)		(5.5)		(5.7)		(0.5)		(1.4)		—		(7.6)
Less: Counterparty netting		0.5		—		—		—		0.5		0.5		—		—		—		0.5
Net derivative liability position	$	(1.6)	$	—	$	—	$	(3.4)	$	(5.0)	$	(5.2)	$	(0.5)	$	(1.4)	$	—	$	(7.1)
Total net derivative position	$	(1.5)	$	1.9	$	4.7	$	4.7	$	9.8	$	(4.5)	$	(0.5)	$	(1.4)	$	27.8	$	21.4

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, these derivative instruments are recorded on a net basis by counterparty within the condensed consolidated balance sheets.

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Refer to Notes 9 and 1617 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 9—FAIR VALUE MEASUREMENTS~~

~~Table of Contents~~

NOTE 9—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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


	September 30, 2019								March 31, 2020
	Quoted Prices in Active Markets for Identical Items		Significant Other Observable Inputs		Significant Unobservable Inputs				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		(Level 1)		(Level 2)		(Level 3)		Total
Foreign exchange forward contracts—Assets	$	—	$	4.3	$	—	$	4.3	$	—	$	6.9	$	—	$	6.9
Foreign exchange forward contracts—(Liabilities)		—		(1.3)		—		(1.3)
Foreign exchange cash flow hedges—Assets		—		3.5		—		3.5		—		1.6		—		1.6
Interest rate swaps—(Liabilities)		—		(2.2)		—		(2.2)		—		(7.2)		—		(7.2)
Cross currency swaps—Assets		—		38.6		—		38.6		—		4.8		—		4.8
Cross currency swaps—(Liabilities)										—		(1.4)		—		(1.4)
Total fair value	$	—	$	42.9	$	—	$	42.9	$	—	$	4.7	$	—	$	4.7


	December 31, 2018								December 31, 2019
	Quoted Prices in Active Markets for Identical Items		Significant Other Observable Inputs		Significant Unobservable Inputs				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		(Level 1)		(Level 2)		(Level 3)		Total
Foreign exchange forward contracts—Assets	$	—	$	0.1	$	—	$	0.1	$	—	$	0.7	$	—	$	0.7
Foreign exchange forward contracts—(Liabilities)		—		(1.6)		—		(1.6)		—		(5.2)		—		(5.2)
Foreign exchange cash flow hedges—Assets		—		1.9		—		1.9
Interest rate swaps—Assets		—		4.7		—		4.7
Foreign exchange cash flow hedges—(Liabilities)										—		(0.5)		—		(0.5)
Interest rate swaps—(Liabilities)										—		(1.4)		—		(1.4)
Cross currency swaps—Assets		—		8.1		—		8.1		—		27.8		—		27.8
Cross currency swaps—(Liabilities)		—		(3.4)		—		(3.4)
Total fair value	$	—	$	9.8	$	—	$	9.8	$	—	$	21.4	$	—	$	21.4

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.

1916

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Nonrecurring Fair Value Measurements

The Company’s financial assets measured at fair value on a nonrecurring basis as of March 31, 2020 were as follows:


	March 31, 2020
	Quoted Prices in Active Markets for Identical Items		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Boehlen styrene monomer property, plant and equipment	$	—	$	—	$	3.4	$	3.4
Schkopau PBR property, plant and equipment		—		—		1.5		1.5
Total fair value	$	—	$	—	$	4.9	$	4.9

In 2020, the Company continued its strategy to focus efforts and increase investments in certain product offerings serving the following applications, which are less cyclical and offer significantly higher growth and margin potential: coatings, adhesives, sealants, and elastomers applications (“CASE”) within the Latex Binders segment; engineered materials applications within the Performance Plastics segment; and solution styrene butadiene rubber (“SSBR”) within the Synthetic Rubber segment.

As a result of continuing this strategy and other management considerations, in March of 2020, the Company initiated a consultation process with the Economic Council and Works Councils of Trinseo Deutschland regarding the disposition of its styrene monomer assets in Boehlen, Germany and its polybutadiene rubber (“PBR,” specifically nickel and neodymium-PBR) assets in Schkopau, Germany.

Based on the Company’s evaluation of these asset groups, it determined that the long-lived assets at both locations should be assessed for impairment during the three months ended March 31, 2020. These assessments indicated that the carrying values of the asset groups at each location were not recoverable when compared to the expected undiscounted future cash flows from the operation and potential disposition of these assets. Based upon the Company’s assessment, it concluded that the fair value of the Boehlen styrene monomer and Schkopau PBR asset groups totaled $3.4 million and $1.5 million, respectively, as of March 31, 2020. Therefore, the Company recorded impairment charges on the Boehlen styrene monomer assets and the Schkopau PBR assets of $10.3 million and $28.0 million, respectively, during the three months ended March 31, 2020, which are included within “Impairment charges” on the condensed consolidated statements of operations. The fair value of the depreciable assets at each location was determined through an analysis of the underlying fixed asset records in conjunction with the use of industry experience and available market data.

There were no other financial assets and no financial liabilities measured at fair value on a nonrecurring basis as of March 31, 2020 and there were no financial assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2019.

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, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


	As of		As of		As of		As of
	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
2025 Senior Notes	$	487.2	$	438.3	$	419.8	$	503.7
2024 Term Loan B		682.6		658.9		578.9		686.4
Total fair value	$	1,169.8	$	1,097.2	$	998.7	$	1,190.1

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, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

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NOTE 10—PROVISION FOR INCOME TAXES


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2019			2018			2019			2018			2020			2019
Effective income tax rate		29.3	%		20.5	%		29.3	%		18.0	%		24.6	%		23.1	%

Benefit from income taxes for the three months ended March 31, 2020 totaled $11.9 million, resulting in an effective tax rate of 24.6%. Provision for income taxes for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 totaled ~~$9.3~~$10.8 million, ~~and $35.8 million, respectively,~~ resulting in an effective tax rate of ~~29.3% for both periods. Provision for income taxes for the three and nine months ended September 30, 2018 totaled $19.2 million and $64.5 million, respectively, resulting in an~~23.1%.

The effective tax rate for 2020 was impacted by the jurisdictional mix of ~~20.5% and 18.0%, respectively.~~

~~The increase in the effective tax rates for the three and nine months ended September 30, 2019 as~~income before income taxes compared to the ~~same period in 2018 was primarily driven~~prior year, partially offset by ~~a lower proportion of income before taxes attributable to non-U.S. jurisdictions, which includes losses not anticipated to provide a tax benefit for~~ the ~~Company in the future. Included in the provision for income taxes for the three and nine months ended September 30, 2019 is a $7.4 million deferred~~ tax benefit related to the ~~re-measurement of~~impairment charges recorded during the period related to the Company’s ~~deferred tax~~ assets in Boehlen and liabilities in Switzerland due to changes in the Swiss Federal tax rules, which were enacted on August 6, 2019. This amount does not include the impact of Swiss cantonal tax law changes, which were enacted on October 25, 2019.Schkopau, Germany. Refer to Note 199 for further ~~information regarding the impacts of the new cantonal tax legislation.~~information.

NOTE 11—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. NaN 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, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had 0 accrued obligations for environmental remediation or 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 over the next 12 months.

~~Table of Contents~~

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 three 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~~.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 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 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.

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 subsequently commenced an internal investigation into these commercial activities and discovered instances of inappropriate activity.

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On October 28, 2019, a supplemental request for information was received from the European Commission. This request was limited to historical employment, entity, and organizational structures, along with certain financial, styrene purchasing, and styrene market ~~information. After responding to the initial request in 2018, the~~information, as well as certain spot styrene purchase contracts. The Company has provided this information and continues to fully cooperate with the European ~~Commission and is now in the process of responding to the most recent request.~~Commission.

Notwithstanding the delivery of the Company’s response to the European Commission, this matter remains open with the European Commission. Based on its findings, the European Commission may decide to: (i) require further information; (ii) conduct unannounced raids of the Company’s premises; (iii) adopt decisions imposing fines, interim measures to halt immediately any anti-competitive behavior, orders for the Company to cease anti-competitive activities, and/or certain behavioral or structural commitments from the Company; or (iv) take no further action. As a result of the above factors, the Company is unable to predict the ultimate outcome of this matter or estimate the range of reasonably possible losses that could be incurred. However, any potential losses incurred could be material to the Company’s results of operations, balance sheet, and cash flows for the period in which they are resolved or become probable and reasonably estimable.

NOTE 12—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				Three Months Ended
		September 30,				September 30,				March 31,
		2019		2018		2019		2018		2020		2019
Defined Benefit Pension Plans
Service cost	��	$	3.1	$	3.0	$	9.4	$	9.2	$	4.3	$	3.2
Interest cost			1.2		1.2		3.8		3.7		0.8		1.3
Expected return on plan assets			(0.5)		(0.5)		(1.6)		(1.6)		(0.3)		(0.5)
Amortization of prior service credit			(0.3)	��	(0.3)		(0.8)		(0.9)		(0.3)		(0.3)
Amortization of net loss			0.8		0.8		2.3		2.7		1.2		0.8
Net settlement loss			0.6		—		1.3		—		—		0.7
Net periodic benefit cost		$	4.9	$	4.2	$	14.4	$	13.1	$	5.7	$	5.2

~~Table~~The Company had less than $0.1 million of ~~Contents~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2019

2018

2019

2018

Other Postretirement Plans


Service cost

$
—

$
—

$
0.1

$
0.1

Interest cost

0.1

0.1

0.2

0.2

Amortization of prior service cost

—

—

—

0.1

Amortization of net gain

(0.1)

—

(0.3)

—

Net periodic benefit cost

$
—

$
0.1

$
—

$
0.4

net periodic benefit costs for its other postretirement plans for the three months ended March 31, 2020. Net periodic benefit costs for the Company’s other postretirement plans were comprised of $0.1 million in interest cost and $(0.1) million in amortization of net gain for the three months ended March 31, 2019.

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, net” in the condensed consolidated statements of operations. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were ~~$193.3~~$267.7 million and ~~$189.2~~$270.6 million, respectively.

The Company made cash contributions and benefit payments to unfunded plans of approximately ~~$1.1 million and $4.0~~$1.9 million during the three ~~and nine~~ months ended ~~September 30, 2019, respectively.~~March 31, 2020. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately ~~$2.1~~$5.8 million to its defined benefit plans for the remainder of ~~2019.~~2020.

NOTE 13—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.

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~~NOTE 13—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 ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ as well as unrecognized compensation cost as of ~~September 30, 2019:~~March 31, 2020:


									As of							As of
	Three Months Ended				Nine Months Ended				September 30, 2019			Three Months Ended				March 31, 2020
	September 30,				September 30,				Unrecognized		Weighted	March 31,				Unrecognized		Weighted
	2019		2018		2019		2018		Compensation Cost		Average Years	2020		2019		Compensation Cost		Average Years
RSUs	$	1.9	$	2.3	$	5.9	$	6.6	$	11.4	2.0	$	1.7	$	2.1	$	13.0	2.3
Options		0.6		0.5		2.6		3.9		2.2	1.4		1.0		1.1		3.7	1.6
PSUs		0.6		0.6		2.3		1.8		4.6	2.1		0.5		0.9		5.2	2.3
Total share-based compensation expense	$	3.1	$	3.4	$	10.8	$	12.3				$	3.2	$	4.1

The following table summarizes awards granted and the respective weighted average grant date fair value for the ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:


	Nine Months Ended				Three Months Ended
	September 30, 2019				March 31, 2020
	Awards Granted		Weighted Average Grant Date Fair Value per Award		Awards Granted		Weighted Average Grant Date Fair Value per Award
RSUs		236,156	$	48.63		264,604	$	24.30
Options		237,071		15.40		503,824		6.57
PSUs		117,053		54.01		102,545		24.54

~~Table of Contents~~

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~~three months ended ~~September 30, 2019:~~March 31, 2020:


	~~Nine~~Three Months Ended
	~~September 30, 2019~~March 31, 2020
Expected term (in years)	5.50
Expected volatility	~~36.00~~39.70	%
Risk-free interest rate	~~2.53~~1.24	%
Dividend yield	~~2.00~~3.25	%

~~Since~~The expected volatility assumption is predominantly determined based on the ~~Company’s equity interests were privately held prior to its initial public offering in September 2014, there is limited publicly traded history~~historical volatility 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’ shares that are publicly traded.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 ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, 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.

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Performance Share Units (PSUs)

The following are the weighted average assumptions used within the Monte Carlo valuation model for PSUs granted during the ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:


		Nine Months Ended			Three Months Ended
		September 30, 2019			March 31, 2020
Expected term (in years)		3.00			3.00
Expected volatility		36.40	%		40.50	%
Risk-free interest rate		2.58	%		1.16	%
Share Price	$	50.95		$	24.30

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. 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 14—~~SEGMENTS~~ACQUISITIONS AND DIVESTITURES

The Company operates under 6 segments: Latex Binders, Synthetic Rubber, Performance Plastics, Polystyrene, Feedstocks, and Americas Styrenics. 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 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 includes a variety of highly engineered compounds and blends, the Company’s acrylonitrile-butadiene-styrene (“ABS”), styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses, and the Company’s soft-touch polymers and bioplastics business, which includes thermoplastic elastomers (“TPEs”). 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, ABS resins, and solution styrene-

~~Table of Contents~~

butadiene rubber (“SSBR”). 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 and nine months ended September 30, 2019 and 2018. 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 3 for the Company’s net sales to external customers by segment for the three and nine months ended September 30, 2019 and 2018.

Latex

Synthetic

Performance

Americas

Three Months Ended ⁽¹⁾

Binders

Rubber

Plastics

Polystyrene

Feedstocks

Styrenics

September 30, 2019

$
21.0

$
7.4

$
36.3

$
16.3

$
0.1

$
25.7

September 30, 2018

$
24.7

$
15.5

$
43.8

$
5.0

$
40.3

$
34.5

Latex

Synthetic

Performance

Americas

Nine Months Ended ⁽¹⁾

Binders

Rubber

Plastics

Polystyrene

Feedstocks

Styrenics

September 30, 2019

$
59.1

$
29.1

$
106.1

$
49.3

$
16.7

$
98.2

September 30, 2018

$
88.2

$
71.6

$
158.2

$
28.0

$
114.3

$
113.3

~~(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 charges; acquisition related costs 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. 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.

~~The reconciliation of income before income taxes to segment Adjusted EBITDA is as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2019

2018

2019

2018

Income before income taxes

$
31.8

$
93.9

$
122.1

$
357.8

Interest expense, net

9.2

10.1

29.3

35.8

Depreciation and amortization

33.0

31.8

101.7

96.0

Corporate Unallocated⁽²⁾

18.7

20.9

65.6

65.6

Adjusted EBITDA Addbacks⁽³⁾

14.1

7.1

39.8

18.4

Segment Adjusted EBITDA

$
106.8

$
163.8

$
358.5

$
573.6

~~(2)~~

~~Corporate unallocated includes corporate overhead costs and certain other income and expenses.~~

~~(3)~~

~~Adjusted EBITDA addbacks for the three and nine months ended September 30, 2019 and 2018 are as follows:~~

~~Table of Contents~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Loss on extinguishment of long-term debt

$
—

$
—

$
—

$
0.2

Net gain on disposition of businesses and assets

—

—

(0.2)

(0.5)

Restructuring and other charges (Note 15)

0.2

0.9

0.3

2.6

Acquisition, transaction, and integration costs^(a)

0.6

0.1

1.3

0.6

Other items^(b)

13.3

6.1

38.4

15.5

Total Adjusted EBITDA Addbacks

$
14.1

$
7.1

$
39.8

$
18.4

~~(a)~~

Acquisition, transaction, and integration costs for the three and nine months ended September 30, 2019 and 2018 primarily relate to advisory and professional fees incurred in conjunction with the Company’s acquisition of production assets in Rheinmünster, Germany and its acquisition of API Plastics, respectively.

~~(b)~~

Other items for the three and nine months ended September 30, 2019 and 2018 primarily relate to advisory and professional fees incurred in conjunction with the Company’s initiative to transition business services from Dow, including certain administrative services such as accounts payable, logistics, and IT services. Also included within other items for the three and nine months ended September 30, 2019 are fees incurred in conjunction with certain of the Company’s strategic initiatives.

~~NOTE 15—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.

~~The following table provides detail of the Company’s restructuring charges for the three and nine months ended September 30, 2019 and 2018:~~

Three Months Ended

Nine Months Ended

Cumulative

September 30,

September 30,

Life-to-date

2019

2018

2019

2018

Charges

Segment

Terneuzen Compounding Restructuring ⁽¹⁾

Asset impairment/accelerated depreciation

$
—

$
0.3

$
—

$
0.8

$
3.1

Employee termination benefits

—

0.1

(0.4)

0.5

0.6

Contract terminations

—

—

—

—

0.3

Decommissioning and other

0.1

0.3

0.3

0.5

1.7

Terneuzen Subtotal

$
0.1

$
0.7

$
(0.1)

$
1.8

$
5.7

Performance Plastics

Livorno Plant Restructuring ⁽²⁾

Asset impairment/accelerated depreciation

$
—

$
—

$
—

$
0.4

$
14.7

Employee termination benefits

—

—

—

—

5.4

Contract terminations

—

—

—

—

0.3

Decommissioning and other

0.1

0.2

0.4

0.6

4.1

Livorno Subtotal

$
0.1

$
0.2

$
0.4

$
1.0

$
24.5

Latex Binders

Other Restructurings

—

0.3

—

0.7

Various

Total Restructuring Charges

$
0.2

$
1.2

$
0.3

$
3.5

~~(1)~~

In March 2017, the Company announced plans to upgrade its production capability for compounded resins with the construction of a new state-of-the art compounding facility to replace its existing compounding facility in Terneuzen, The Netherlands. As of September 30, 2019, the new facility is complete, noting certain

~~Table of Contents~~

ongoing quality assurance activities. Substantive production at the prior facility ceased and decommissioning activities began during the second quarter of 2019, which are expected to continue through 2020. The Company estimates it will incur decommissioning and other charges of approximately $0.7 million throughout the remainder of 2019 and 2020, the majority of which are expected to be paid during the remainder of 2019 and the first half of 2020.

~~(2)~~

In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders manufacturing facility in Livorno, Italy. Production at the facility ceased in October 2016 and decommissioning activities began in the fourth quarter of 2016. In September 2018, the Company entered into a preliminary agreement to sell the land where the former facility is located, subject to certain activities being completed prior to closing. The sale is considered probable to close within one year following the balance sheet date; therefore, as of September 30, 2019 and December 31, 2018, the land is recorded as held-for-sale within “Other current assets” at a value of $11.5 million and $12.0 million, respectively (adjusted for foreign currency impact), and the deferred tax liability associated with that land is recorded as held-for-sale within “Accrued expenses and other current liabilities” at a value of $2.7 million and $2.9 million, respectively (adjusted for foreign currency impact), on the Company’s condensed consolidated balance sheets. In conjunction with the execution of this agreement, the Company received $1.3 million of the purchase price as a prepayment, which is recorded within “Accrued expenses and other current liabilities” on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018. The Company expects to incur a limited amount of additional decommissioning costs associated with this plant shutdown through the closing date of the sale, which will be expensed as incurred.

The following table provides a roll forward of the liability balances associated with the Company’s restructuring activities as of September 30, 2019. Employee termination benefit and contract termination charges are recorded within “Accrued expenses and other current liabilities” in the condensed consolidated balance sheets.

Balance at





Balance at


December 31, 2018

Expenses

Deductions⁽¹⁾

September 30, 2019

Employee termination benefits

$
6.4

$
(0.3)

$
(5.9)

$
0.2

Contract terminations

0.3

—

—

0.3

Decommissioning and other

—

0.6

(0.6)

—

Total

$
6.7

$
0.3

$
(6.5)

$
0.5

~~(1)~~

~~Primarily includes payments made against the existing accrual, as well as immaterial impacts of foreign currency remeasurement.~~

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~~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, 2019 and 2018

Adjustments

Plans, Net


Hedges, Net

Total

Balance as of June 30, 2019

$
(109.1)

$
(40.1)

$
3.6

$
(145.6)

Other comprehensive income (loss)

0.5

(0.7)

2.3

2.1

Amounts reclassified from AOCI to net income ⁽¹⁾

—

0.7

(2.1)

(1.4)

Balance as of September 30, 2019

$
(108.6)

$
(40.1)

$
3.8

$
(144.9)

Balance as of June 30, 2018

$
(112.7)

$
(43.8)

$
8.6

$
(147.9)

Other comprehensive income (loss)

(4.6)

—

1.6

(3.0)

Amounts reclassified from AOCI to net income ⁽¹⁾

—

0.6

0.5

1.1

Balance as of September 30, 2018

$
(117.3)

$
(43.2)

$
10.7

$
(149.8)

Cumulative

Pension & Other


Translation

Postretirement Benefit

Cash Flow

Nine Months Ended September 30, 2019 and 2018

Adjustments

Plans, Net

Hedges, Net

Total

Balance at December 31, 2018

$
(111.8)

$
(39.4)

$
8.9

$
(142.3)

Other comprehensive income (loss)

3.2

(2.7)

(0.1)

0.4

Amounts reclassified from AOCI to net income⁽¹⁾

—

2.0

(5.0)

(3.0)

Balance at September 30, 2019

$
(108.6)

$
(40.1)

$
3.8

$
(144.9)

Balance as of December 31, 2017

$
(94.5)

$
(45.0)

$
(6.1)

$
(145.6)

Other comprehensive income (loss)

(22.8)

—

10.1

(12.7)

Amounts reclassified from AOCI to net income ⁽¹⁾

—

1.8

6.7

8.5

Balance as of September 30, 2018

$
(117.3)

$
(43.2)

$
10.7

$
(149.8)

~~(1)~~

~~The following is a summary of amounts reclassified from AOCI to net income for the three and nine months ended September 30, 2019 and 2018:~~

~~Table of Contents~~

Three Months Ended

Nine Months Ended

AOCI Components

September 30,

September 30,

Statements of Operations


2019

2018

2019

2018

Classification

Cash flow hedging items

Foreign exchange cash flow hedges

$
(1.9)

$
0.6

$
(4.1)

$
6.8

Cost of sales

Interest rate swaps

(0.2)

(0.1)

(0.9)

(0.1)

Interest expense, net

Total before tax

(2.1)

0.5

(5.0)

6.7

Tax effect

—

—

—

—

Provision for income taxes

Total, net of tax

$
(2.1)

$
0.5

$
(5.0)

$
6.7

Amortization of pension and other postretirement benefit plan items

Prior service credit

$
(0.3)

$
(0.2)

$
(0.8)

$
(0.7)

(a)

Net actuarial loss

0.7

1.0

2.3

3.2

(a)

Net settlement loss

0.6

—

1.3

—

(a)

Total before tax

1.0

0.8

2.8

2.5

Tax effect

(0.3)

(0.2)

(0.8)

(0.7)

Provision for income taxes

Total, net of tax

$
0.7

$
0.6

$
2.0

$
1.8

~~(a)~~

~~These AOCI components are included in the computation of net periodic benefit costs (see Note 12).~~

~~.....~~

~~NOTE 17—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 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 and nine months ended September 30, 2019 and 2018:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in millions, except per share data)

2019

2018

2019

2018

Earnings:

Net income

$
22.5

$
74.7

$
86.3

$
293.3

Shares:

Weighted average ordinary shares outstanding

40.1

42.6

40.7

43.0

Dilutive effect of RSUs, option awards, and PSUs⁽¹⁾

0.3

0.7

0.5

0.9

Diluted weighted average ordinary shares outstanding

40.4

43.3

41.2

43.9

Income per share:

Income per share—basic

$
0.56

$
1.75

$
2.12

$
6.82

Income per share—diluted

$
0.56

$
1.72

$
2.09

$
6.68

~~(1)~~

Refer to Note 13 for discussion of RSUs, option awards, and PSUs granted to certain Company directors and employees. The number of anti-dilutive shares that have been excluded from the computation of diluted earnings per share were 0.8 million and 0.7 million for the three and nine months ended September 30, 2019, respectively, and 0.2 million for both the three and nine months ended September 30, 2018.

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~~NOTE 18—LEASES~~

As discussed in Note 2, effective January 1, 2019, the Company adopted accounting guidance, Topic 842, issued by the FASB related to leases that outlines a comprehensive lease accounting model and supersedes the prior lease guidance. The Company adopted this guidance using the modified retrospective approach and elected the optional transition method. As a result, comparative prior periods in the Company’s financial statements are not adjusted for the impacts of the new standard. The Company’s accounting policy and practical expedient elections related to accounting for leases, including those elected as a result of the adoption of Topic 842, are summarized as follows:

●

Package of practical expedients – The Company did not reassess whether expired or existing contracts contain a lease, did not reassess the classification of expired or existing leases, and did not reassess whether lease initial direct costs would qualify for capitalization under the new lease accounting standards.

●

Lease and non-lease components as lessee – For leases across all asset classes in which the Company is a lessee (discussed below), the Company did not separate non-lease components from lease components and instead accounted for these items as a single lease component.

●

Portfolio approach – The Company elected to utilize the portfolio approach under which it did not have to consider the components to apply lease accounting. Specifically, the Company leveraged the portfolio approach in determining the discount rate within multiple asset classes, and in determining the lease term considerations for immaterial asset classes, including, but not limited to, motor vehicles and plant, office, and information technology equipment.

●

Land easements – The Company did not reassess whether existing or expired land easements that were not previously accounted for as leases are or contain a lease under the new lease accounting standards.

●

Use of hindsight and short-term lease exemption – The Company did not elect to utilize either the practical expedient related to the use of hindsight or the election to exclude short-term leases from balance sheet presentation.

The Company routinely enters into leasing arrangements for a variety of assets including buildings/offices, warehouses and tanks for product storage, railcars and other vehicles for product transportation, motor vehicles, and other equipment. The Company determines if a contract is or contains a lease based on its relevant terms in accordance with Topic 842, including whether it conveys to the Company the right to obtain substantially all the economic benefits of the identified leased asset and to direct its use.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date to determine the appropriate discount rate by multiple asset classes, pursuant to the aforementioned portfolio approach methodology. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight‐~~line basis over the expected lease term.~~

~~Table of Contents~~

~~The Company's ROU assets and lease liabilities are classified on its condensed consolidated balance sheets as follows:~~

As of

September 30,

2019

Location on Balance Sheet
Operating lease ROU assets
$
67.1

Right-of-use assets - operating
Finance lease ROU assets

6.4

Property, plant, and equipment, net of accumulated depreciation
Operating lease liabilities - current portion

(14.2)

Current lease liabilities - operating
Operating lease liabilities - noncurrent portion

(53.2)

Noncurrent lease liabilities - operating
Finance lease liabilities - current portion

(1.9)

Short-term borrowings and current portion of long-term debt
Finance lease liabilities - noncurrent portion

(4.5)

Long-term debt, net of unamortized deferred financing fees

~~The components of the Company's lease costs are classified on its condensed consolidated statements of operations as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2019
Finance lease cost:

Amortization of lease ROU assets
$
0.1

$
0.2
Interest on lease liabilities⁽¹⁾

—

—

Operating lease cost

4.7

13.8
Variable lease cost

0.1

0.2
Total lease cost
$
4.9

$
14.2

~~(1)~~

~~For the three and nine months ended September 30, 2019, amounts totaled less than $0.1 million.~~

~~The table below shows the cash and non-cash activity related to the Company’s lease liabilities during the period:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2019
Cash paid related to lease liabilities:

Operating cash flows from operating leases
$
4.6

$
12.6
Operating cash flows from finance leases⁽¹⁾

—

—
Financing cash flows from finance leases

0.1

0.2

Non-cash lease liability activity⁽²⁾:

ROU assets obtained in exchange for new operating lease liabilities
$
2.3

$
80.5
ROU assets obtained in exchange for new finance lease liabilities

4.5

6.6

~~(1)~~

~~For the three and nine months ended September 30, 2019, amounts totaled less than $0.1 million.~~

~~(2)~~

~~Amounts for the nine months ended September 30, 2019 include the impact of adopting the new lease accounting standard effective January 1, 2019.~~

~~Table of Contents~~

~~As of September 30, 2019, the maturities of the Company's operating and finance lease liabilities were as follows:~~

Maturity of lease liabilities by year

Remainder of 2019

2020

2021

2022

2023

Thereafter

Total Lease Payments

Less Imputed Interest

Lease Liability
Operating Leases
$
4.9

$
14.7

$
9.7

$
8.2

$
7.9

$
37.8

$
83.2

$
(15.8)

$
67.4
Finance Leases
$
0.7

$
2.1

$
2.1

$
1.7

$
0.1

$
0.2

$
6.9

$
(0.5)

$
6.4

As of September 30, 2019, the weighted average remaining lease term of the Company's operating and finance leases was 8.9 and 5.8 years, respectively, and the weighted average discount rate used to determine the lease liability for operating and finance leases was 4.6% and 4.3%, respectively.

As of September 30, 2019, the Company has additional operating and finance leases that have not yet commenced of $3.2 million and $1.1 million, respectively. These leases are expected to commence in the fourth quarter of 2019 with lease terms of 0.5 to 5.0 years.

~~Disclosures related to periods prior to adoption of Topic 842~~

As discussed above, the Company adopted Topic 842 effective January 1, 2019 using a modified retrospective approach. As required, the following disclosure is provided for periods prior to adoption. The Company’s total future minimum annual rentals in effect at December 31, 2018 for noncancelable operating leases, which were accounted for under the previous leasing standard, Accounting Standards Codification 840, were as follows:

Annual Commitment
2019

2020

2021

2022

2023

Thereafter

Total
$
17.5

$
14.4

$
9.0

$
10.6

$
5.4

$
16.0

$
72.9

~~NOTE 19 – SUBSEQUENT EVENTS~~

On October 1, 2019, the Company completed the acquisition from Dow of its latex binder production facilities and related infrastructure in Rheinmünster, Germany. The transaction includes full ownership and operational control of latex production facilities, site infrastructure, and service contracts, as well as certain employees transferring from Dow to Trinseo. This acquisition will provide Trinseo with manufacturing assets supporting its strategy to grow its Latex Binders business in applications serving the coatings, adhesives, specialty paper, and sealants markets. The transaction did not require any upfront cash outlay from Trinseo; however, Trinseo expects to assume approximately €40.0 million in pension liabilities, net of cash received, for transferred employees in exchange for the assets acquired.

On October 25, 2019, new cantonal income tax legislation was enacted in Switzerland, supplemental to the Swiss Federal tax legislation enacted in August 2019 (refer to Note 10). As a result, the Company anticipates a higher effective tax rate in its entities in Switzerland, beginning in 2020. Additionally, a one-time deferred tax benefit is expected to be recorded in the fourth quarter of 2019 related to the re-measurement of the Company’s deferred tax assets and liabilities in Switzerland, which the Company is in the process of quantifying.

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~~Item 2. Management’s Discussio~~~~n and Analysis of Financial Condition and Results of Operations~~

~~2019 Year-to-Date Highlights~~

During the three and nine months ended September 30, 2019, Trinseo recognized net income of $22.5 million and $86.3 million, respectively, and Adjusted EBITDA of $88.1 million and $292.9 million, respectively. Refer to “Non-GAAP Performance Measures” below for further discussion of our use of non-GAAP measures in evaluating our performance and a reconciliation of these measures. Other highlights for the year are described below.

~~Trinseo to Build New TPE Pilot Facility in Taiwan~~

On October 7, 2019, Trinseo announced its plans to build a thermoplastic elastomers (“TPE”) pilot facility at its existing manufacturing site in Hsinchu, Taiwan, with operations anticipated to begin in 2020. The TPE pilot facility emphasizes Trinseo’s growth strategy for TPEs globally and will serve customers in the automotive, consumer electronics, footwear, and medical markets. This investment, which is expected to total approximately $3.0 million, marks the next step of Trinseo’s TPE growth roadmap, following the acquisition of API Plastics in July 2017.

Acquisition of Latex Binders Assets in Germany

On October 1, 2019, the Company completed the acquisition from Dow of its latex ~~binders~~binder production facilities and related infrastructure in Rheinmünster, Germany. The transaction ~~includes~~included full ownership and operational control of latex production facilities, site infrastructure, and service contracts, as well as certain employees transferring from Dow to Trinseo. This acquisition ~~will provide~~provided Trinseo with manufacturing assets supporting ~~our~~its strategy to grow ~~our~~its Latex Binders business in applications serving the coatings, adhesives, specialty paper, and sealants markets. The transaction was accounted for as a business combination and did not require any upfront cash outlay from Trinseo. The Company assumed net liabilities of $2.0 million as well as employees transferred in connection with the acquisition during the year ended December 31, 2019. In exchange for the net liabilities assumed, Trinseo received net cash of $6.7 million during the year ended December 31, 2019, and an additional $0.2 million during the three months ended March 31, 2020.

~~Chief Executive Officer~~The Company allocated the purchase price of the acquisition to identifiable assets acquired and ~~Chief Financial Officer Transition~~liabilities assumed based on their estimated fair values as of the acquisition date. During the first quarter of 2020, there were no changes to the purchase price allocation for the acquisition. However, further adjustments may be necessary as a result of the Company’s ongoing assessment of additional information related to the fair value of assets acquired and liabilities assumed during the measurement period. Refer to the Annual Report for further information.

OnNOTE 15—SEGMENTS

The Company operates under 6 segments: Latex Binders, Synthetic Rubber, Performance Plastics, Polystyrene, Feedstocks, and Americas Styrenics. 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 broad range of performance latex binders products, including SB latex, SA latex, and vinylidene chloride latex for CASE applications. The Synthetic Rubber segment produces synthetic rubber products, including SSBR, used predominantly in high-performance tires, impact modifiers and technical rubber products, such as conveyer belts, hoses, seals and gaskets. The Performance Plastics segment includes a variety of highly engineered compounds and blends, the Company’s acrylonitrile-butadiene-styrene (“ABS”), styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses, and engineered materials applications, which includes consumer electronics, medical, and thermoplastic elastomers (“TPEs”) applications. 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, ABS resins, and SSBR. 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.

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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 4,31, 2020 and 2019. 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 3 for the Company’s net sales to external customers by segment for the three months ended March 31, 2020 and 2019.


	Latex		Synthetic		Performance						Americas
Three Months Ended ⁽¹⁾	Binders		Rubber		Plastics		Polystyrene		Feedstocks		Styrenics
March 31, 2020	$	21.5	$	15.3	$	36.7	$	11.8	$	(16.2)	$	9.8
March 31, 2019	$	17.5	$	8.8	$	35.5	$	16.8	$	17.2	$	32.2

(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 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. 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.

The reconciliation of income before income taxes to segment Adjusted EBITDA is as follows:


	Three Months Ended
	March 31,
	2020		2019
Income (loss) before income taxes	$	(48.2)	$	46.6
Interest expense, net		10.3		10.2
Depreciation and amortization		36.4		33.9
Corporate Unallocated⁽²⁾		21.9		26.0
Adjusted EBITDA Addbacks⁽³⁾		58.5		11.3
Segment Adjusted EBITDA	$	78.9	$	128.0

(2)

Corporate unallocated includes corporate overhead costs and certain other income and expenses.

(3)

Adjusted EBITDA addbacks for the three months ended March 31, 2020 and 2019 are as follows:


	Three Months Ended
	March 31,
	2020		2019
Net gain on disposition of businesses and assets	$	(0.4)	$	(0.2)
Restructuring and other charges (Note 16)		1.8		0.4
Acquisition transaction and integration net costs		0.1		—
Asset impairment charges or write-offs (Note 9)		38.3		—
Other items^(a)		18.7		11.1
Total Adjusted EBITDA Addbacks	$	58.5	$	11.3

(a) Other items for the three months ended March 31, 2020 and 2019 ~~Frank Bozich replaced Christopher Pappas~~primarily relate to advisory and professional fees incurred in conjunction with the Company’s initiative to transition business services from Dow, including certain administrative services such as ~~President~~accounts payable, logistics, finance, and ~~Chief Executive Officer. On July 1, 2019, David Stasse replaced Barry Niziolek as Executive Vice President and Chief Financial Officer. Both Messrs. Pappas and Niziolek had each~~IT services. Also included within other items for the three months ended March 31, 2020 are fees incurred in conjunction with certain of

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the Company’s strategic initiatives.

NOTE 16—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.

The following table provides detail of the Company’s restructuring charges for the three months ended March 31, 2020 and 2019:


	Three Months Ended				Cumulative
	March 31,				Life-to-date
	2020		2019		Charges		Segment
Corporate Restructuring Program
Accelerated depreciation	$	1.3	$	—	$	1.7
Employee termination benefits		0.3		—		17.3
Contract terminations		1.2		—		1.6
Corporate Program Subtotal	$	2.8	$	—	$	20.6	N/A⁽¹⁾
Terneuzen Compounding Restructuring
Asset impairment/accelerated depreciation	$	—	$	—	$	3.1
Employee termination benefits		—		—		0.7
Contract terminations		—		—		0.3
Decommissioning and other		0.1		0.2		2.1
Terneuzen Subtotal	$	0.1	$	0.2	$	6.2	Performance Plastics⁽²⁾
Livorno Plant Restructuring
Asset impairment/accelerated depreciation	$	—	$	—	$	14.7
Employee termination benefits		—		—		5.4
Contract terminations		—		—		0.3
Decommissioning and other		0.2		0.2		4.4
Livorno Subtotal	$	0.2	$	0.2	$	24.8	Latex Binders⁽³⁾
Total Restructuring Charges	$	3.1	$	0.4

(1)

In November 2019, the Company announced a corporate restructuring program associated with the Company’s shift to a global functional structure and business excellence initiatives to drive greater focus on business process optimization and efficiency. The corporate restructuring program is expected to be substantially completed by the end of 2020. In connection with this restructuring plan, during the three months ended March 31, 2020, the Company incurred employee termination benefit charges of $0.3 million, contract termination charges of $1.2 million, and accelerated depreciation charges of $1.3 million. The Company expects to incur incremental employee termination benefit charges of $0.7 million, inclusive of pension charges of approximately $0.4 million, as well as contract termination charges of $1.3 million and accelerated depreciation charges of $1.3 million through the end of 2020, the majority of which are expected to be paid by the end of 2020. As this was identified as a corporate-related activity, the charges related to this restructuring program were not allocated to a specific segment, but rather included within corporate unallocated.

(2)

In 2017, the Company announced plans to upgrade its production capability for compounded resins with the construction of a new state-of-the art compounding facility to replace its existing compounding facility in Terneuzen, The Netherlands. As of March 31, 2020, the new facility is complete, along with all substantive transition and quality assurance activities. Production at the prior facility ceased and decommissioning activities began in 2019, and are expected to continue through the first half of 2021. The Company estimates it will incur decommissioning and other charges of approximately $0.6 million through 2021, the majority of which are expected to be paid during the remainder of 2020.

(3)

In 2016, the Company ceased manufacturing activities at its latex binders manufacturing facility in Livorno, Italy and began decommissioning activities. In 2018, the Company entered into an agreement to sell the land where the former facility is located. This land sale closed in January 2020, for a total purchase price of $12.5 million. A prepayment of $1.3 million of this purchase price was received in 2018, and was recorded within “Accrued expenses and other current liabilities” on the condensed consolidated balance sheets as of December

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31, 2019. The remaining purchase price was received in January 2020 when the transaction closed. The Company recorded a net gain on sale of $0.6 million during the three months ended March 31, 2020, which was recorded within “Selling, general and administrative expenses” in the condensed consolidated statements of operations.

The following table provides a roll forward of the liability balances associated with the Company’s restructuring activities as of March 31, 2020. Employee termination benefit and contract termination charges are primarily recorded within “Accrued expenses and other current liabilities” in the condensed consolidated balance sheets. The liability balances as of March 31, 2020 primarily represents activity related to the corporate restructuring program. No other individual restructuring activity had a material liability balance as of March 31, 2020.


	Balance at						Balance at
	December 31, 2019		Expenses		Deductions⁽¹⁾		March 31, 2020
Employee termination benefits	$	17.2	$	0.3	$	(3.7)	$	13.8
Contract terminations		0.7		—		(0.5)		0.2
Decommissioning and other		—		0.3		(0.3)		—
Total	$	17.9	$	0.6	$	(4.5)	$	14.0

(1)

Primarily includes payments made against the existing accrual, as well as immaterial impacts of foreign currency remeasurement.

NOTE 17—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, 2020 and 2019	Adjustments		Plans, Net			Hedges, Net	Total
Balance at December 31, 2019	$	(106.7)	$	(56.3)	$	0.6	$	(162.4)
Other comprehensive income (loss)		10.7		0.6		(3.6)		7.7
Amounts reclassified from AOCI to net income ⁽¹⁾		—		0.6		(0.1)		0.5
Balance as of March 31, 2020	$	(96.0)	$	(55.1)	$	(3.1)	$	(154.2)

Balance at December 31, 2018	$	(111.8)	$	(39.4)	$	8.9	$	(142.3)
Other comprehensive income (loss)		(0.3)		(2.0)		1.0		(1.3)
Amounts reclassified from AOCI to net income (loss) ⁽¹⁾		—		1.0		(0.9)		0.1
Balance as of March 31, 2019	$	(112.1)	$	(40.4)	$	9.0	$	(143.5)

(1)

The following is a summary of amounts reclassified from AOCI to net income for the three months ended March 31, 2020 and 2019:

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	Three Months Ended
AOCI Components	March 31,				Statements of Operations
	2020		2019		Classification
Cash flow hedging items
Foreign exchange cash flow hedges	$	(0.2)	$	(0.6)	Cost of sales
Interest rate swaps		0.1		(0.3)	Interest expense, net
Total before tax		(0.1)		(0.9)
Tax effect		—		—	Provision for (benefit from) income taxes
Total, net of tax	$	(0.1)	$	(0.9)

Amortization of pension and other postretirement benefit plan items
Prior service credit	$	(0.3)	$	(0.3)	(a)
Net actuarial loss		1.2		0.9	(a)
Net settlement loss		—		0.8	(a)
Total before tax		0.9		1.4
Tax effect		(0.3)		(0.4)	Provision for (benefit from) income taxes
Total, net of tax	$	0.6	$	1.0

(a)

These AOCI components are included in the computation of net periodic benefit costs (see Note 12).

.....

NOTE 18—EARNINGS PER SHARE

The following table presents basic EPS and diluted EPS for the three months ended March 31, 2020 and 2019:


	Three Months Ended
	March 31,
(in millions, except per share data)	2020		2019
Earnings:
Net income (loss)	$	(36.3)	$	35.8
Shares:
Weighted average ordinary shares outstanding		38.5		41.3
Dilutive effect of RSUs, option awards, and PSUs⁽¹⁾		—		0.5
Diluted weighted average ordinary shares outstanding		38.5		41.8
Income (loss) per share:
Income (loss) per share—basic	$	(0.94)	$	0.87
Income (loss) per share—diluted	$	(0.94)	$	0.86

(1)

Refer to Note 13 for discussion of RSUs, option awards, and PSUs granted to certain Company directors and employees. As the Company recorded a net loss for the three months ended March 31, 2020, potential shares related to equity-based awards have been excluded from the calculation of diluted EPS, as doing so would be anti-dilutive. For the three months ended March 31, 2019 there were 1.1 million anti-dilutive shares excluded from the computation of diluted EPS.

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

2020 Year-to-Date Highlights

During the three months ended March 31, 2020, Trinseo recognized net loss of $36.3 million, and Adjusted EBITDA of $57.0 million. Refer to “Non-GAAP Performance Measures” below for further discussion of our use of non-GAAP measures in evaluating our performance and a reconciliation of these measures. Other highlights for the year are described below.

COVID-19 Pandemic

The Company noted adverse market and industry conditions beginning to emerge in mid-March 2020 stemming from the COVID-19 pandemic, particularly in the automotive and tire markets. As a result, during the three months ended March 31, 2020, the Company noted a negative impact to pre-tax income and Adjusted EBITDA of $6.0 million, driven predominantly from our Synthetic Rubber operations in China. During the first quarter, the Company has continued operations at the majority of its manufacturing locations and has not experienced any material disruptions in our supply chain, which has allowed us to continue meeting customer demand. Our procurement and supply chain teams continue to develop contingency plans in the event of a significant disruption or shutdown so that future customer demand can continue to be met with timeliness and quality. The Company has been actively responding to this situation to adjust its business operations, and will continue to monitor developments and take action as needed. Refer to the “Outlook” section below for further information on the ongoing and potential impacts of COVID-19 to the Company’s operations and results in future periods.

With regard to capital resources and liquidity, the Company continues to maintain a strong balance sheet, has substantial sources of liquidity available, no maintenance covenants on its debt agreements, and no significant debt maturing until September 2024. Refer to the “Capital Resources and Liquidity” section below for further information.

Impairment of Boehlen styrene monomer and Schkopau PBR Assets

In 2020, the Company continued its strategy, as described in the Company’s Annual Report for 2019, to focus efforts and increase investments in certain product offerings serving the following applications, which are less cyclical and offer significantly higher growth and margin potential: coatings, adhesives, sealants, and elastomers (“CASE”) applications within the Latex Binders segment; engineered materials (“Engineered Materials”) applications within the Performance Plastics segment, which includes consumer electronics, medical, and thermoplastic elastomers (“TPEs”) applications; and solution styrene butadiene rubber (“SSBR”) within the Synthetic Rubber segment. As a result of continuing this strategy and other management considerations, in March 2020, the Company initiated a consultation process with the Economic Council and Works Councils of Trinseo Deutschland regarding the disposition of its styrene monomer assets in Boehlen, Germany and its polybutadiene rubber (“PBR,” specifically nickel and neodymium-PBR) assets in Schkopau, Germany. Based on the Company’s evaluation of these assets, we determined that their ~~plans to retire.~~full carrying value was not recoverable and, as a result, we recorded an impairment charge on the assets of approximately $38.3 million during the three months ended March 31, 2020, which is recorded within “Impairment Charges” on the condensed consolidated statements of operations.

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Results of Operations

Results of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~

~~The table below sets forth our historical results of operations and these results as a percentage of net sales for the periods indicated.~~

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	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
(in millions)	2019		%		2018		%		2019		%		2018		%		2020		%		2019		%
Net sales	$	922.1	100	%	$	1,199.7	100	%	$	2,887.0	100	%	$	3,557.8	100	%	$	853.5	100	%	$	1,013.1	100	%
Cost of sales		836.9	91	%		1,068.1	89	%		2,618.1	91	%		3,088.3	87	%		783.8	92	%		915.7	90	%
Gross profit		85.2	9	%		131.6	11	%		268.9	9	%		469.5	13	%		69.7	8	%		97.4	10	%
Selling, general and administrative expenses		67.6	7	%		60.0	5	%		208.0	7	%		186.1	5	%		77.5	9	%		68.8	7	%
Equity in earnings of unconsolidated affiliates		25.7	3	%		34.5	3	%		98.2	3	%		113.3	3	%		9.8	1	%		32.2	3	%
Operating income		43.3	5	%		106.1	9	%		159.1	6	%		396.7	11	%
Impairment charges																		38.3	4	%		—	—
Operating income (loss)																		(36.3)	(4)	%		60.8	6	%
Interest expense, net		9.2	1	%		10.1	1	%		29.3	1	%		35.8	1	%		10.3	1	%		10.2	1	%
Loss on extinguishment of long-term debt		—	—	%		—	—	%		—	—	%		0.2	—	%
Other expense, net		2.3	—	%		2.1	—	%		7.7	—	%		2.9	—	%		1.6	—	%		4.0	—	%
Income before income taxes		31.8	3	%		93.9	8	%		122.1	4	%		357.8	10	%
Provision for income taxes		9.3	1	%		19.2	2	%		35.8	1	%		64.5	2	%
Net income	$	22.5	2	%	$	74.7	6	%	$	86.3	3	%	$	293.3	8	%
Income (loss) before income taxes																		(48.2)	(6)	%		46.6	5	%
Provision for (benefit from) income taxes																		(11.9)	(1)	%		10.8	1	%
Net income (loss)																	$	(36.3)	(4)	%	$	35.8	4	%

Three Months Ended – ~~September 30,~~March 31, 2020 vs. March 31, 2019 ~~vs. September 30, 2018~~

Net Sales

Of the ~~23%~~16% decrease in net sales, ~~16%~~8% was due mainly to lower selling prices resulting from the pass through of lower raw material costs, primarily from styrene and butadiene. There was also a 5% decrease due to lower sales volume within the Feedstocks, Synthetic Rubber, Performance Plastics, and Polystyrene segments, partially offset by higher sales volume within the Latex Binders segment. See segment discussion below for further information. An additional 2% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.

~~Cost of Sales~~

~~Of the 22% decrease in cost of sales, 15% was due to lower raw material costs, primarily from styrene and butadiene, as well as a 6% decrease~~ due to lower sales volume within the Feedstocks, Synthetic Rubber, Performance Plastics, and Polystyrene segments, partially offset by higher sales volume within the Latex Binders segment. An additional 6% decrease was attributable to lower selling prices mainly due to the pass through of lower raw material costs.

Cost of Sales

Of the 14% decrease in cost of sales, 7% was due to lower sales volume within the Feedstocks, Synthetic Rubber, Performance Plastics, and Polystyrene segments, partially offset by higher sales volume within the Latex Binders segment, and 5% was due to lower raw material costs, primarily from styrene and butadiene, An additional 2% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.

Gross Profit

The decrease in gross profit of ~~35%~~28% was primarily attributable to styrene margin compression in the Feedstocks ~~and Latex Binders segments. The decrease was also due~~segment, as well as an unfavorable net timing impact in comparison to ~~lower sales volume within~~ the ~~Synthetic Rubber, Performance Plastics, and Polystyrene segments.~~prior year. See the segment discussion below for further information.

Selling, General and Administrative Expenses (SG&A)

The ~~$7.6~~$8.7 million, or 13%, increase in SG&A was due to several factors. Higher advisory and professional fees, ~~as well as higher personnel costs, resulted in a $7.9 million increase. These increases were primarily a result of~~mainly related to the Company’s transition of business and technical services from ~~Dow. Additionally,~~Dow, resulted in a $6.3 million increase. Bad debt expense also increased by $2.6 million, and there was an increase of ~~$1.4~~$1.3 million related to increased depreciation. ~~Offsetting~~Partially offsetting these ~~increased costs~~increases was a ~~$1.0~~decrease of $1.4 million ~~decrease in restructuring charges and a $1.2 million decrease~~ due to currency impacts on our euro-based expenses, as the euro weakened in comparison to the U.S. dollar.

Impairment charges

Impairment charges for the three months ended March 31, 2020 were related to the impairment charges recorded on the Boehlen styrene monomer assets and Schkopau PBR assets during the period.

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Equity in Earnings of Unconsolidated Affiliates

The decrease in equity earnings of ~~$8.8~~$22.4 million was due to lower equity earnings from Americas Styrenics, mainly attributable to lower styrene margins ~~as a result of continued market weakness, which was partially offset by higher polystyrene margins.~~

~~Interest Expense, Net~~

~~The decrease in interest expense, net of $0.9 million, or 9%, was primarily attributable to an increase in interest income as a result of increased cash on hand~~and the impact from the planned turnaround at ~~period end when compared to the prior year.~~its St. James, Louisiana styrene facility.

Other Expense, Net

Other expense, net for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$2.3~~$1.6 million, which included ~~$1.7~~$1.4 million of expense related to the non-service cost components of net periodic benefit cost, as well as foreign exchange transaction losses of $0.2 million. Net foreign transaction losses included ~~$14.8~~$14.0 million of foreign exchange transaction 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, offset by ~~$14.6~~$13.8 million of gains from our foreign exchange forward contracts.

Other expense, net for the three months ended ~~September 30, 2018~~March 31, 2019 was ~~$2.1~~$4.0 million, which included $1.6 million of expense related to the non-service cost components of net periodic benefit cost, as well as other miscellaneous expenses of $1.8 million. Partially offsetting these expenses were net foreign exchange transaction gains for the period of $1.3 million, comprised of $6.9 million of foreign exchange transaction 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, more than offset by $8.2 million of gains from our foreign exchange forward contracts.

~~Provision for Income Taxes~~

Provision for income taxes for the three months ended September 30, 2019 totaled $9.3 million, resulting in an effective tax rate of 29.3%. Provision for income taxes for the three months ended September 30, 2018 totaled $19.2 million, resulting in an effective tax rate of 20.5%.

The decrease in provision for income taxes was primarily driven by the $62.1 million decrease in income before income taxes. This decrease was partially offset by a lower proportion of income before taxes attributable to non-U.S. jurisdictions, which includes losses not anticipated to provide a tax benefit to the Company in the future. Also included in the provision for income taxes for the three months ended September 30, 2019 is a $7.4 million deferred tax benefit related to the re-measurement of the Company’s deferred tax assets and liabilities in Switzerland due to changes in the Swiss Federal tax rules, which were enacted on August 6, 2019. This amount does not include the impact of Swiss cantonal tax law changes, which were enacted on October 25, 2019.

~~Nine Months Ended – September 30, 2019 vs. September 30, 2018~~

~~Net Sales~~

Of the 19% decrease in net sales, 14% was due to lower selling prices resulting from the pass through of lower raw material costs, primarily from styrene and butadiene. There was also a 3% decrease due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period. An additional 2% decrease was due to lower sales volume within the Feedstocks and Synthetic Rubber segments, partially offset by higher sales volume within the Polystyrene, Latex Binders, and Performance Plastics segments. See segment discussion below for further information.

~~Cost of Sales~~

Of the 15% decrease in cost of sales, 10% was due to lower raw material costs, primarily from styrene and butadiene, as well as a 3% decrease due to lower sales volume within the Feedstocks, Synthetic Rubber, and Performance Plastics segments, partially offset by higher sales volume within the Polystyrene and Latex Binders segments. An additional 3% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period, which was slightly offset by a 1% increase due to higher fixed costs.

~~Table of Contents~~

~~Gross Profit~~

The decrease in gross profit of 43% was primarily attributable to margin compression in the Feedstocks, Latex Binders, Synthetic Rubber, and Performance Plastics segments. Overall performance was impacted by weaker market conditions, including in certain key markets such as automotive, graphical paper, and tires. See the segment discussion below for further information.

~~Selling, General and Administrative Expenses (SG&A)~~

The $21.9 million, or 12%, increase in SG&A was due to several factors. Higher advisory and professional fees, as well as higher personnel costs, resulted in a $27.8 million increase. These increases were primarily a result the Company’s transition of business and technical services from Dow. Additionally, there was an increase of $3.8 million related to increased depreciation. Offsetting these increased costs was a $3.2 million decrease in restructuring charges and a $4.8 million decrease due to currency impacts on our euro-based expenses, as the euro weakened in comparison to the U.S. dollar.

~~Equity in Earnings of Unconsolidated Affiliates~~

The decrease in equity earnings of $15.1 million was due to lower equity earnings from Americas Styrenics, mainly attributable to less favorable styrene margins in the current year, as prior year results were positively impacted by several industry outages.

~~Interest Expense, Net~~

The decrease in interest expense, net of $6.5 million, or 18%, was primarily attributable to the benefits received from the cross currency swaps that the Company entered into in September 2017, which are now recorded as a benefit within interest expense as a result of our ~~adoption of new hedging accounting guidance~~ ~~during the second quarter of 2018.~~

~~Other Expense, Net~~

~~Other expense, net for the nine months ended September 30, 2019 was $7.7 million, which included $5.2~~$2.3 million of expense related to the non-service cost components of net periodic benefit cost, as well as foreign exchange transaction losses of $0.4 million. Net foreign transaction losses included ~~$15.3~~$3.1 million of foreign exchange transaction 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 ~~$14.9~~$2.7 million of gains from our foreign exchange forward contracts. Other expense, net also included ~~$2.3~~$1.5 million of other miscellaneous expenses during the period.

Other expense, net for the nine months ended September 30, 2018 was $2.9 million, which included $4.9 million of expense related to the non-service cost components of net periodic benefit cost and $0.5 million of fees incurred in conjunction with the repricing of the Company’s 2024 Term Loan B during the second quarter of 2018, and other miscellaneous expenses of $1.9 million. These expenses were partially offset by net foreign exchange transaction gains for the period of $4.4 million. Net foreign exchange transactions gains included $12.6 million of foreign exchange transaction 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, more than offset by $17.0 million of gains from our foreign exchange forward contracts.

Provision for (Benefit from) Income Taxes

~~Provision for~~Benefit from income taxes for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 totaled ~~$35.8~~$11.9 million, resulting in an effective tax rate of ~~29.3%~~24.6%. Provision for income taxes for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 totaled ~~$64.5~~$10.8 million, resulting in an effective tax rate of ~~18.0%~~23.1%.

The decrease in provision for income taxes was primarily driven by the ~~$235.7~~$94.8 million decrease in income before income taxes. ~~This~~Included in this decrease ~~was partially offset by a lower proportion of~~in income before income taxes ~~attributable~~were impairment charges of $38.3 million recorded during the period related to ~~non-U.S. jurisdictions,~~our assets in Boehlen and Schkopau, Germany. Refer to Note 9 in the condensed consolidated financial statements for further information.

Outlook

As described above in “2020 Year-to-Date Highlights,” the COVID-19 pandemic has created significant worldwide volatility, uncertainty and disruption, including impacts to our business and the end markets in which ~~includes losses not anticipated~~we operate. The Company’s actions taken in response to ~~provide a tax benefit~~this pandemic, as well as our outlook for operations, demand, and liquidity are described herein. Due to the ~~Company in~~significant uncertainty underlying the ~~future. Also included in~~duration, magnitude, long-term economic impact of and expectations for recovery from the ~~provision~~COVID-19 pandemic, there are inherent limitations underlying our future projections. Refer to the “Item 1A. Risk Factors” section below for ~~income taxes for~~further information regarding the ~~nine months ended September 30, 2019 is a $7.4 million deferred tax benefit~~risks related to the ~~re-measurement~~pandemic.

The Company has taken proactive steps to minimize the potential impact of the ~~Company’s deferred tax assets~~COVID-19 crisis to our stakeholders as well as the financial impacts to the Company. Our primary focus in this environment has been maintaining a safe and ~~liabilities~~healthy workplace for our employees and other stakeholders, which led to the formation of a COVID-19 crisis response team and implementation of a pandemic response plan. These actions have allowed us to ensure worker safety, optimize production schedules at our plants, and keep our supply chain intact while also proactively developing contingency plans and enabling the safe operation of our plants.

We have implemented actions to reduce cost and improve efficiency, including the continuation of our Business Excellence initiatives and the corporate restructuring program announced in ~~Switzerland due~~the fourth quarter of 2019. In April 2020, the reorganization of our executive leadership team was also announced. We have also taken actions to ~~changes~~bolster our already strong liquidity position, including the reduction of capital spending, operating expenses, and working capital. In addition, in April we announced the drawdown of $100.0 million on our 2022 Revolving Credit Facility as a precautionary measure.

Operationally, the Company has continued manufacturing at most of our locations and we have not experienced any material disruptions in our supply chain. We have seen resiliency in a number of our businesses, including sustained

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~~Swiss Federal tax rules, which were enacted on August 6, 2019. This amount does not include~~demand for polystyrene and latex binders for food packaging, polycarbonate for isolation sheeting, and engineered materials for medical applications. Additionally, despite the ~~impact of Swiss cantonal tax law changes, which were enacted on October 25, 2019.~~

~~Outlook~~

~~As discussed above,~~decline in demand in Feedstocks in the ~~Company’s results continue to be impacted by difficult global economic conditions. In particular, the third quarter was impacted by lower sequential styrene margins. For the fourth~~first quarter, we ~~expect these challenging market conditions~~have begun to ~~continue. Amid these conditions, we are constantly assessing our operations and are developing~~see margin improvement in Europe, as lower oil prices have started to impact the styrene cost ~~saving opportunities that we anticipate will improve our operating results. For example, we expect certain structural and raw material cost savings from~~curve, increasing the ~~ongoing review~~competitiveness of our ~~Stade, Germany polycarbonate facility, which are expected to result~~Europe-based assets. However, there has been a substantial decline in demand for a ~~more sustainable economic future for~~number of our products, especially those serving the ~~site. Also, the Company recently announced its transition to a global functional structure,~~automotive, tire, and textiles markets, which we anticipate will have a more pronounced impact on second quarter performance.

We expect this decreased demand will result in ~~greater focus~~modified production schedules at certain of our facilities. Though the overall pandemic has led to travel restrictions and ~~efficiency, enabling future~~remote working conditions for many of our employees, we do not anticipate that this will have a significant impact on our ability to achieve our desired business ~~process improvements once we complete~~goals, or meaningfully impair productivity.

Amid this market volatility and uncertainty, the Company has continued to maintain a strong financial position with ample access to capital resources and liquidity to manage the anticipated impact of the COVID-19 pandemic on our business ~~services~~operations for the foreseeable future. Refer to the “Capital Resources and ~~IT transition from Dow in the first quarter of 2020.~~Liquidity” section below for more information.

Selected Segment Information

The following sections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. Inter-segment sales have been eliminated. Refer to Note 1415 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 before income taxes to segment Adjusted EBITDA.

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 ~~number~~broad range of performance latex ~~applications, such as adhesive, building~~binders products, including SB latex, SA latex, and ~~construction, and the technical textile paper market.~~vinylidene chloride latex for CASE applications.

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions)


2019


2018


% Change

2019


2018

% Change

Net sales

$
229.7


$
278.0


(17)
%

$
683.8


$
814.2


(16)
%
Adjusted EBITDA

$
21.0

$
24.7

(15)
%

$
59.1

$
88.2


(33)
%
Adjusted EBITDA margin

9
%

9
%

9
%

11
%


	Three Months Ended
	March 31,
($ in millions)	2020			2019			% Change
Net sales	$	219.1		$	223.9		(2)	%
Adjusted EBITDA	$	21.5		$	17.5		23	%
Adjusted EBITDA margin		10	%		8	%

Three Months Ended – ~~September 30,~~March 31, 2020 vs. March 31, 2019 ~~vs. September 30, 2018~~

Of the ~~17%~~2% decrease in net sales, ~~20%~~7% was due to lower pricing from the pass through of lower raw material costs, primarily from styrene and ~~butadiene. This~~butadiene, and an additional 1% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period. These decreases were partially offset by a 4%7% increase due to higher sales volume ~~in the adhesives and construction market~~to CASE applications as well as ~~the textile market, which were partially offset by lower~~from our acquisition in Rheinmünster, Germany (see Note 14 for further information).

The $4.0 million, or 23%, increase in Adjusted EBITDA was primarily due to increased sales volume, which resulted in ~~the paper and board markets.~~

~~Adjusted EBITDA decreased by $3.7~~a $4.8 million, or ~~15%~~28%, ~~including a 20% decrease~~increase, as well as higher margins due to improved mix and lower ~~margins from~~ raw material ~~dynamics, competitive market conditions and global market uncertainty,~~costs, which resulted in ~~addition to~~ a ~~4% decrease due to higher fixed costs as a result of lower fixed cost absorption.~~$1.7 million, or 10%, increase. These impacts were partially offset by a ~~10% increase~~$2.8 million, or 16%, decrease due to higher ~~sales volume as described above.~~

~~Nine Months Ended – September 30, 2019 vs. September 30, 2018~~

~~The 16% decrease in net sales was primarily due to lower pricing from the pass through of lower raw material costs, primarily from styrene and butadiene.~~fixed costs.

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~~Adjusted EBITDA decreased by $29.1 million, or 33%, primarily due to lower margins from raw material dynamics, competitive market conditions and global market uncertainty.~~

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 solution styrene-butadiene rubber (“SSBR”), ~~nickel polybutadiene rubber, and neodymium polybutadiene rubber,~~ while also producing core products, such as emulsion styrene-butadiene rubber (“ESBR”).


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
($ in millions)	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Net sales	$	104.2		$	137.7		(24)	%	$	340.9		$	442.2		(23)	%	$	101.7		$	124.6		(18)	%
Adjusted EBITDA	$	7.4		$	15.5		(52)	%	$	29.1		$	71.6		(59)	%	$	15.3		$	8.8		74	%
Adjusted EBITDA margin		7	%		11	%				9	%		16	%				15	%		7	%

Three Months Ended – ~~September 30,~~March 31, 2020 vs. March 31, 2019 ~~vs. September 30, 2018~~

Of the ~~24%~~18% decrease in net sales, ~~13%~~7% was due to lower pricing from the pass through of lower raw material costs, ~~primarily~~mainly from styrene and butadiene, and 8% was due to decreased sales ~~of ESBR due to~~volumes from weak market conditions ~~and competitive dynamics.~~primarily resulting from the COVID-19 pandemic. An additional 3%2% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.

The $6.5 million, or 74%, increase in Adjusted EBITDA ~~decreased by $8.1 million, or 52%. Lower margins~~was primarily due to lower fixed costs, from a higher level of fixed cost absorption ahead of the planned second quarter maintenance turnaround, which resulted in a ~~22% decrease due to unfavorable~~$9.2 million, or 104%, increase. In addition, higher margins, from favorable net timing, ~~impacts, when compared to the prior year. Higher fixed costs, due mainly to lower fixed cost absorption in the current period,~~ resulted in a ~~19% decrease. In addition, there was a 12% decrease due to~~$2.9 million, or 33%, increase. These impacts were partially offset by lower ~~ESBR~~ sales volume as described ~~above.~~

~~Nine Months Ended – September 30, 2019 vs. September 30, 2018~~

~~Of the 23% decrease~~above, which resulted in ~~net sales, 12% was due to lower sales volume, primarily related to SSBR and ESBR as~~ a ~~result of weakness in the global tire market, and 7% was due to lower pricing from the pass through of lower raw material costs, primarily from styrene and butadiene.~~$4.8 million, or 54%, decrease. An additional 4%5% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.

Adjusted EBITDA decreased by $42.5 million, or 59%. Lower margins resulted in a 27% decrease due mainly to unfavorable net timing impacts, and lower sales volume resulted in a 23% decrease primarily as a result of weakness in the global tire market. In addition, higher fixed costs, due mainly to a lower level of fixed cost absorption, resulted in a 12% decrease.

Performance Plastics Segment

Our Performance Plastics segment ~~consists of~~includes a variety of highly engineered compounds and blends, our acrylonitrile-butadiene-styrene (“ABS”), styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses, and ~~our soft-touch polymers and bioplastics business,~~engineered materials applications, which includes ~~TPEs. We are a producer of highly engineered compounds and blends for automotive end markets, as well as~~ consumer electronics, medical, ~~electrical, lighting, building~~ and ~~construction, appliances, and footwear.~~thermoplastic elastomers (“TPEs”) applications.

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions)


2019


2018


% Change

2019


2018

% Change

Net sales

$
324.8


$
400.7


(19)
%

$
1,041.7


$
1,216.2


(14)
%

Adjusted EBITDA

$
36.3

$
43.8

(17)
%

$
106.1

$
158.2


(33)
%

Adjusted EBITDA margin

11
%

11
%

10
%

13
%

~~Table of Contents~~


	Three Months Ended
	March 31,
($ in millions)	2020			2019			% Change
Net sales	$	305.1		$	369.3		(17)	%
Adjusted EBITDA	$	36.7		$	35.5		3	%
Adjusted EBITDA margin		12	%		10	%

Three Months Ended – ~~September 30,~~March 31, 2020 vs. March 31, 2019 ~~vs September 30, 2018~~

Of the ~~19%~~17% decrease in net sales, ~~13%~~12% was due to lower sales volume, due to a delay in our raw material supply chain in PC as well as higher than normal sales volumes in the prior year due to pre-Brexit customer purchases. An additional 4% decrease was due to lower pricing from the pass through of lower ~~styrene~~raw material costs, ~~as well as lower PC prices~~primarily styrene.

The $1.2 million, or 3%, increase in Adjusted EBITDA was primarily due to higher margins of 21% from improved customer mix and lower ~~industry operating rates. In addition, there was~~raw material costs. These impacts were partially offset by a 4% decrease due to lower PC and ABS sales volume as a result of market weakness and new PC supply. An additional 2% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.

~~Adjusted EBITDA decreased by $7.5~~$5.8 million, or ~~17%. Higher fixed costs, due mainly to lower fixed cost absorption in the current period, resulted in a 15% decrease. There was a 7%~~16%, decrease due to lower sales volume as described above. ~~These impacts were partially offset by a 5% increase due to higher margins from pricing initiatives as well as favorable net timing impacts.~~

~~Nine Months Ended – September~~ 30 ~~2019 vs September 30, 2018~~

~~Of the 14% decrease in net sales, 12% was due to lower pricing from the pass through~~Table of lower styrene costs as well as lower PC prices due to lower industry operating rates. An additional 3% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.Contents

Adjusted EBITDA decreased by $52.1 million, or 33%. Lower margins, mainly related to ABS and PC, resulted in a $48.8 million, or 31%, decrease, due primarily to general market weakness as well as an increase in supply in the PC market. An additional 5% decrease was due to higher fixed costs from growth investments, including the ramp-up of the new ABS facility in China, as well as lower fixed cost absorption in the current year.

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, packaging, including food packaging and food service disposables, consumer electronics, and building and construction materials.


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
($ in millions)	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Net sales	$	197.6		$	252.3		(22)	%	$	633.2		$	777.5		(19)	%	$	182.8		$	228.5		(20)	%
Adjusted EBITDA	$	16.3		$	5.0		226	%	$	49.3		$	28.0		76	%	$	11.8		$	16.8		(30)	%
Adjusted EBITDA margin		8	%		2	%				8	%		4	%				6	%		7	%

Three Months Ended – ~~September 30,~~March 31, 2020 vs. March 31, 2019 ~~vs. September 30, 2018~~

Of the ~~22%~~20% decrease in net sales, ~~18%~~13% was due to lower sales volume primarily attributable to re-stocking activity in the prior year. There was an additional 6% decrease due to lower pricing from the pass through of lower styrene costs to our customers, as well as a 2% decrease due to lower sales volume in Europe, which was partially offset by higher sales volume in Asia. There was an additional 2% decrease due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.customers.

The ~~$11.3~~$5.0 million, or ~~226%~~30%, ~~increase~~decrease in Adjusted EBITDA was primarily due to ~~higher margins, due to weak market conditions~~a 26% decrease in ~~the prior year~~sales volume as well as ~~pricing initiatives in the current year, which resulted in an $11.8 million, or 236%, increase.~~

~~Nine Months Ended – September 30, 2019 vs. September 30, 2018~~

~~Of the 19% decrease in net sales, 18% was due to lower pricing from the pass through of lower styrene costs to our customers, as well~~ a 3%5% decrease due to ~~currency impacts as the euro weakened in comparison to the U.S. dollar during the period. These decreases were partially offset by a 2% increase attributable to~~ higher ~~sales volume, primarily from Asia.~~

~~Table of Contents~~

The $21.3 million, or 76%, increase in Adjusted EBITDA was primarily due to higher margins, primarily from pricing initiatives, which resulted in a $19.8 million, or 71%, increase as well as increased sales volume, which resulted in a $1.1 million, or 4%, increase.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, styrene-acrylate latex (“SA latex”), SB latex, ABS resins, unsaturated polyethylene resins, and styrene-butadiene rubber.


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
($ in millions)	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Net sales	$	65.8		$	131.0		(50)	%	$	187.4		$	307.7		(39)	%	$	44.8		$	66.8		(33)	%
Adjusted EBITDA	$	0.1		$	40.3		(100)	%	$	16.7		$	114.3		(85)	%	$	(16.2)		$	17.2		(194)	%
Adjusted EBITDA margin		0	%		31	%				9	%		37	%				(36)	%		26	%

Three Months Ended – ~~September 30,~~March 31, 2020 vs. March 31, 2019 ~~vs. September 30, 2018~~

Of the ~~50%~~33% decrease in net sales, ~~29%~~23% was due to lower styrene-related sales volume ~~as well as a 20% decrease~~and 9% was due to lower pricing from the pass through of lower styrene prices.

The decrease of ~~$40.2~~$33.4 million, or ~~100%~~194%, in Adjusted EBITDA was primarily due to lower margins in Europe and Asia from weaker market conditions, ~~and lower production,~~ which resulted in a ~~net $39.2~~$35.6 million, or ~~97%~~207%, decrease. ~~The lower production was a result of outages at the Company’s Boehlen, Germany and Terneuzen, The Netherlands styrene production facilities.~~

~~Nine Months Ended – September 30, 2019 vs. September 30, 2018~~

~~Of the 39% decrease in net sales, 19% was due to lower pricing from the pass through of lower styrene prices and 18% was due to lower styrene-related sales volume.~~

The decrease of $97.6 million, or 85%, in Adjusted EBITDA was primarily due to lower margins, as there were a significant number of unplanned industry outages which led to higher margins in the prior year, and lower production volume in the current year.

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

Nine Months Ended

September 30,

September 30,

($ in millions)


2019


2018


% Change

2019


2018

% Change

Adjusted EBITDA*

$
25.7

$
34.5

(26)
%

$
98.2

$
113.3


(13)
%

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	Three Months Ended
	March 31,
($ in millions)	2020		2019		% Change
Adjusted EBITDA*	$	9.8	$	32.2	(70)	%

*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.

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Three Months Ended – ~~September 30,~~March 31, 2020 vs. March 31, 2019 ~~vs. September 30, 2018~~

The decrease in Adjusted EBITDA was mainly due to lower styrene margins ~~as a result of continued market weakness, which were partially offset by higher polystyrene margins.~~

~~Nine Months Ended – September 30, 2019 vs. September 30, 2018~~

~~The decrease in Adjusted EBITDA was mainly due to less favorable~~and the impact from the planned styrene ~~margins in~~turnaround at the ~~current year, as prior year results were positively impacted by several industry outages.~~St. James, Louisiana styrene facility.

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; 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, 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 ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(in millions)	2019		2018		2019		2018		2020		2019
Net income	$	22.5	$	74.7	$	86.3	$	293.3
Net income (loss)									$	(36.3)	$	35.8
Interest expense, net		9.2		10.1		29.3		35.8		10.3		10.2
Provision for income taxes		9.3		19.2		35.8		64.5
Provision for (benefit from) income taxes										(11.9)		10.8
Depreciation and amortization		33.0		31.8		101.7		96.0		36.4		33.9
EBITDA^(a)	$	74.0	$	135.8	$	253.1	$	489.6	$	(1.5)	$	90.7
Loss on extinguishment of long-term debt		—		—		—		0.2
Net gain on disposition of businesses and assets		—		—		(0.2)		(0.5)
Restructuring and other charges^(b)		0.2		0.9		0.3		2.6
Acquisition transaction and integration costs^(c)		0.6		0.1		1.3		0.6
Net gain on disposition of businesses and assets^(b)										(0.4)		(0.2)
Restructuring and other charges^(c)										1.8		0.4
Acquisition transaction and integration net costs										0.1		—
Asset impairment charges or write-offs^(d)										38.3		—
Other items^(d)(e)		13.3		6.1		38.4		15.5		18.7		11.1
Adjusted EBITDA	$	88.1	$	142.9	$	292.9	$	508.0	$	57.0	$	102.0

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(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 reconciliations of our EBITDA results to our net income, which is determined in accordance with GAAP.

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(b)

The net gain on disposition of businesses and assets for the three months ended March 31, 2020 relates primarily to the sale of land in Livorno, Italy. The net gain on disposition of businesses and assets for the three months ended March 31, 2019 relates to consideration earned for the performance of our former latex business in Brazil.

(c)

Restructuring and other charges for the three ~~and nine~~ months ended ~~September 30, 2019 and 2018~~March 31, 2020 primarily relate to ~~decommissioning,~~employee termination benefit charges as well as contract termination charges incurred in connection with the Company’s corporate restructuring program announced in the fourth quarter of 2019. The restructuring and ~~employee termination benefit~~other charges for the three months ended March 31, 2019 primarily relate to decommissioning charges incurred in connection with the upgrade and replacement of our compounding facility in Terneuzen, The Netherlands as well as our decision to cease manufacturing activities at our latex binders manufacturing facility in Livorno, Italy. Refer to Note 1516 in the condensed consolidated financial statements for further information regarding restructuring activities.

~~(c)~~(d)

~~Acquisition, transaction, and integration costs~~Asset impairment charges or write-offs for the three ~~and nine~~ months ended ~~September 30, 2019 and 2018 primarily~~March 31, 2020 relate to ~~advisory and professional fees incurred~~the impairment of the Company’s styrene monomer assets in ~~conjunction with the our acquisition of production assets and related site infrastructure in Rheinmünster,~~Boehlen, Germany and ~~our acquisition of API Plastics, respectively.~~PBR assets in Schkopau, Germany. Refer to Note 9 in the condensed consolidated financial statements for further information.

~~(d)~~(e)

Other items for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ primarily relate to advisory and professional fees incurred in conjunction with our initiative to transition business services from Dow, including certain administrative services such as accounts payable, logistics, and IT services. Also included within other items for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 are fees incurred in conjunction with certain of the Company’s strategic initiatives.

Liquidity and Capital Resources

Cash Flows

The table below summarizes our primary sources and uses of cash for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. We have derived the summarized cash flow information from our unaudited financial statements.


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
(in millions)	2019		2018		2020		2019
Net cash provided by (used in):
Operating activities	$	274.9	$	238.5	$	(5.8)	$	153.2
Investing activities		(76.9)		(88.1)		39.1		(24.3)
Financing activities		(161.8)		(156.1)		(46.7)		(60.4)
Effect of exchange rates on cash		(4.0)		(5.7)		(2.7)		(1.6)
Net change in cash, cash equivalents, and restricted cash	$	32.2	$	(11.4)	$	(16.1)	$	66.9

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Operating Activities

Net cash ~~provided by~~used in operating activities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 totaled ~~$274.9 million, inclusive of $77.5 million in dividends from Americas Styrenics.~~$5.8 million. Net cash ~~provided by~~used in operating assets and liabilities for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 totaled ~~$105.3~~$14.6 million, noting ~~decreases~~an increase in ~~inventories of $51.6 million and~~ accounts receivable of ~~$34.7~~$12.7 million, ~~and an increase~~a decrease in accounts payable and other current liabilities of ~~$16.1~~$28.9 million, and a decrease in income taxes payable of $3.3 million. This activity was partially offset by a decrease in ~~income taxes payable~~inventories of ~~$9.6~~$26.8 million. ~~The decrease in inventories was primarily due to decreased raw material prices.~~ Accounts receivable at the end of the ~~third~~first quarter ~~decreased~~increased relative to the end of ~~2018~~2019 primarily due to ~~decreased raw material~~higher selling prices ~~as well as lower volumes.~~in the Performance Plastics and Polystyrene segments during the period. The ~~increase~~decrease in accounts payable and other current liabilities was due to timing of vendor payments, while the decrease in income taxes payable was primarily due to the overall reduction in earnings before income taxes. The decrease in inventories was primarily due to actions taken to reduce inventory levels as well as decreased raw material prices.

Net cash provided by operating activities during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 totaled ~~$238.5~~$153.2 million, inclusive of ~~$85.0~~$12.5 million in dividends from Americas Styrenics. Net cash ~~used in~~provided by operating assets and liabilities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 totaled ~~$132.4~~$105.4 million, noting ~~increases in accounts receivable of $77.8 million and inventories of $86.1 million, and~~ a decrease in ~~income taxes payable~~inventories of ~~$16.3 million. This activity was partially offset by~~$57.7 million as well as an increase in accounts payable and other current liabilities of ~~$46.4~~$49.4 million. These fluctuations were partially offset by an increase in accounts receivable of $4.8 million. The decrease in inventories was due to actions taken to reduce inventory levels as well as decreased raw material prices, while the increase in accounts payable and other current liabilities was primarily due to timing of vendor payments. Accounts receivable at the end of the ~~third~~first quarter increased relative to the end of 2017 primarily due to the pass through of increased raw material prices to our customers as well as increases sales volume, particularly within the Performance Plastics and Synthetic Rubber segments. The increase in inventories was2018 primarily due to increased raw material prices as well as an increase in volumes, as during the third quarter, the Company experienced significant customer destocking in certain businesses, in anticipation of lower fourth quarter raw material prices. The decrease in income taxes payable was a result

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of payment of certain cash taxes during the second quarter in our primary operating jurisdictions. The increase in accounts payable was primarily due to increases in raw material prices as well as timing of vendor payments.sales volume.

Investing Activities

Net cash ~~used in~~provided by investing activities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 totaled ~~$76.9~~$39.1 million, primarily resulting from proceeds from the settlement of hedging instruments of $51.6 million (see Note 8) as well as proceeds from the sale of businesses and other assets (primarily our land in Livorno, Italy – see Note 16) of $11.6 million. These impacts were partially offset by capital expenditures of ~~$71.2 million and cash paid for an asset acquisition of $6.4~~$24.3 million.

Net cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 totaled ~~$88.1~~$24.3 million, primarily resulting from capital expenditures of ~~$90.9~~$25.0 million. This was partially offset by proceeds received of $1.8 million from the sale of businesses and other assets, primarily comprised of $1.3 million received as a prepayment in connection with the Company’s preliminary agreement for the sale of certain land in Livorno, Italy (refer to Note 15 within the condensed consolidated financial statements for further information).

Financing Activities

Net cash used in financing activities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 totaled ~~$161.8~~$46.7 million. This activity was primarily due to ~~$98.7~~$25.0 million of payments related to the repurchase of ordinary shares, ~~$50.0~~$15.9 million of dividends paid, ~~$5.3~~$3.5 million of net repayments of short-term borrowings, and $1.7 million of net principal payments related to our 2024 Term Loan B during the period, and $4.8 million net repayments of short-term borrowings. Additionally, net cash used in financing activities included $3.9 million of withholding taxes paid related to the vesting of certain RSUs during the period, partially offset by $0.9 million of proceeds received from the exercise of option awards.period.

Net cash used in financing activities during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 totaled ~~$156.1~~$60.4 million. This activity was primarily due to ~~$95.5~~$37.4 million of payments related to the repurchase of ordinary shares, ~~$49.0~~$17.4 million of dividends paid, and ~~$5.3~~$1.8 million of net principal payments related to our 2024 Term Loan B during the period. Additionally, net cash used in financing activities included ~~$8.1~~$3.8 million of withholding taxes paid related to the vesting of certain RSUs during the ~~period, partially offset by $2.6 million of proceeds received from the exercise of option awards.~~period.

Free Cash Flow

We use Free Cash Flow as a non-GAAP measure 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 a useful analytical indicator of our ability to service our indebtedness, pay dividends (when declared), and meet our ongoing cash obligations.

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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 (used in) operating activities, which is determined in accordance with GAAP.

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	Nine Months Ended				Three Months Ended
	September 30,				March 31,
(in millions)	2019		2018		2020		2019
Cash provided by operating activities	$	274.9	$	238.5
Cash provided by (used in) operating activities					$	(5.8)	$	153.2
Capital expenditures		(71.2)		(90.9)		(24.3)		(25.0)
Free Cash Flow	$	203.7	$	147.6	$	(30.1)	$	128.2

Refer to the discussion ~~above~~on the previous page for significant impacts to cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

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, and amounts available under the Senior Credit Facility and the Accounts Receivable Securitization Facility (discussed further below).

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had ~~$1,196.0~~$1,193.6 million and ~~$1,192.4~~$1,194.7 million, respectively, in outstanding indebtedness and ~~$1,015.9~~$956.7 million and ~~$1,094.3~~$963.5 million, respectively, in working capital. In addition, as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had ~~$70.7~~$69.2 million and ~~$113.7~~$153.5 million, respectively, of foreign cash and cash equivalents on our balance sheet, outside of our country of domicile of Luxembourg, 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 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~~.Report.


	As of and for the Nine Months Ended						As of and for the Year Ended						As of and for the Three Months Ended						As of and for the Year Ended
	September 30, 2019						December 31, 2018						March 31, 2020						December 31, 2019
			Effective						Effective						Effective						Effective
			Interest		Interest				Interest		Interest				Interest		Interest				Interest		Interest
($ in millions)	Balance		Rate		Expense		Balance		Rate		Expense		Balance		Rate		Expense		Balance		Rate		Expense
Senior Credit Facility
2024 Term Loan B	$	686.0	4.4	%	$	24.1	$	691.3	4.1	%	$	31.6	$	682.6	3.7	%	$	7.1	$	684.3	4.3	%	$	31.5
2022 Revolving Facility		—	—			2.5		—	—			2.9		—	—			0.7		—	—			3.2
2025 Senior Notes		500.0	5.4	%		8.9		500.0	5.4	%		16.1		500.0	5.4	%		3.6		500.0	5.4	%		12.1
Accounts Receivable Securitization Facility		—	—			1.2		—	—			1.5		—	—			0.4		—	—			1.5
Other indebtedness*		10.0	2.8	%		—		1.1	4.8	%		0.1
Other indebtedness *														11.0	2.3	%		—		10.4	2.1	%		0.1
Total	$	1,196.0			$	36.7	$	1,192.4			$	52.2	$	1,193.6			$	11.8	$	1,194.7			$	48.4

*For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, interest expense on “Other indebtedness” totaled less than $0.1 million.

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Our Senior Credit Facility includes the 2022 Revolving Facility, which matures in September 2022, and has a borrowing capacity of $375.0 million. As of ~~September 30, 2019,~~March 31, 2020, the Company had no outstanding borrowings, and had ~~$361.1~~$360.9 million (net of ~~$13.9~~$14.1 million outstanding letters of credit) of funds available for borrowing under the 2022 Revolving Facility. Further, as of ~~September 30, 2019,~~March 31, 2020, the Company is required to pay a quarterly commitment fee in respect of any unused commitments under the 2022 Revolving Facility equal to 0.375% per annum.On April 3, 2020, the Company drew down $100.0 million from the 2022 Revolving Credit Facility as a precautionary measure to secure additional cash and ensure greater financial flexibility in light of the current economic uncertainty resulting from the COVID-19 pandemic. There is a springing covenant on the 2022 Revolving Credit Facility, subject to a first lien net leverage ratio not to exceed 2.0x, which applies when 30% ($112.5 million) or more is drawn from the facility at the end of a financial quarter. As of March 31, 2020 the first lien net leverage ratio (as defined in our secured credit agreement) was 0.7x.

Also included in our Senior Credit Facility is our 2024 Term Loan B (with original principal of $700.0 million, maturing in September 2024), which requires scheduled quarterly payments in amounts equal to 0.25% of the original principal. The stated interest rate on our 2024 Term Loan B is LIBOR plus 2.00% (subject to a 0.00% LIBOR floor).

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The Company made net principal payments of ~~$5.3~~$1.7 million on the 2024 Term Loan B during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, with an additional $7.0 million of scheduled future payments classified as current debt on the Company’s condensed consolidated balance sheet as of ~~September 30, 2019.~~March 31, 2020.

Our 2025 Senior Notes, as issued under the Indenture, include $500.0 million aggregate principal amount of 5.375% senior notes that mature on September 1, 2025. Interest on the 2025 Senior Notes is payable semi-annually on May 3 and November 3 of each year, which commenced on May 3, 2018. These notes may be redeemed prior to their maturity at the option of the Company under certain circumstances at specific redemption prices. Refer to our Annual Report for further information.

We continue to maintain our Accounts Receivable Securitization Facility which has a borrowing capacity of $150.0 million and matures in September 2021. As of ~~September 30, 2019,~~March 31, 2020, there were no amounts outstanding under this facility, and the Company had approximately ~~$128.5~~$135.6 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.

Our ability to raise additional financing and our borrowing costs may be impacted by short- and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios.

We and our subsidiaries, affiliates or significant 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 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 Indenture also limit the ability of the Borrowers and Issuers, respectively, to pay dividends or make other distributions to Trinseo S.A., which could then be used to make distributions to shareholders. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company declared dividends of ~~$1.20~~$0.40 per ordinary share, totaling ~~$48.5~~$15.5 million, all of which ~~$16.6 million, inclusive of dividend equivalents, remains~~was accrued as of ~~September 30, 2019~~March 31, 2020 and ~~the majority of~~ which ~~will be~~was paid in ~~October 2019.~~April 2020. These dividends are well within the available capacity under the terms of the restrictive covenants contained in the Senior Credit Facility and Indenture. Further, ~~significant~~ 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.

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The Company’s cash flow generation in recent years has been strong, with positive cash flows expected to continue for full year ~~2019.~~2020. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, under authority from our board of directors, the Company purchased approximately ~~2.4~~0.8 million ordinary shares from our shareholders through open market transactions for an aggregate purchase price of ~~$100.0~~$25.0 million. We believe that funds provided by operations, our existing cash, cash equivalent, and restricted cash balances, borrowings available under our 2022 Revolving Facility and our Accounts Receivable Securitization Facility will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current operating ~~conditions, while~~conditions. Further, we also ~~providing~~believe that our financial resources will allow us to manage the ~~Company~~anticipated impact of the ~~ability to return capital to~~COVID-19 pandemic on our ~~shareholders via dividend~~business operations for the foreseeable future, which could include lower demand, reductions in revenue or delays in payments from customers and ~~share repurchases. Nevertheless, our~~other third parties. Our ability to generate ~~future~~ cash ~~and~~from operations to pay our indebtedness and ~~fund~~meet other ~~liquidation~~liquidity needs is subject to certain risks described herein and under Part I, Item 1A-“Risk Factors” of our Annual Report. As of ~~September 30, 2019,~~March 31, 2020, 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.

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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.

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~~.Report. There have been no material revisions to the significant accounting policies or critical accounting policies and estimates as filed in our Annual ~~Report~~, other than the impacts to our significant accounting policies from the adoption of lease accounting guidance adopted January 1, 2019, discussed further within Notes 2 and 18 to the condensed consolidated financial statements.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 toof 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~~.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,

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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 ~~September 30, 2019.~~March 31, 2020. 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.

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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended ~~September 30, 2019~~March 31, 2020 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. We currently believe that there is no litigation pending that is likely to have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

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, ~~2018,~~2019. We are including the following additional risk factor, which updates the risk factors disclosed in our Annual Report on Form 10-K for ~~which there have been no material changes.~~the fiscal year ended December 31, 2019. 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.

The extent to which the novel coronavirus (“COVID-19”) pandemic will adversely impact our business, financial condition and results of operations is highly uncertain and cannot be predicted but could be material.

The COVID-19 pandemic has created significant worldwide volatility, uncertainty and disruption, and the situation remains dynamic and subject to rapid and possibly material change. In particular, the COVID-19 pandemic has resulted in a substantial curtailment of business activities, a significant number of business closures, suspensions or delays of production and commercial activity, government-mandated “shelter-in-place” and travel restrictions, and weakened economic conditions in the countries in which we operate.

The extent to which the COVID-19 pandemic will ultimately adversely impact our business, liquidity, financial condition and results of operations, which impact could be material, depends on numerous factors that are highly uncertain and cannot be predicted at this time. These factors include the duration and scope of the COVID-19 pandemic, travel restrictions and “shelter-in-place” directives; changes in customer demand; our relationship with, and the financial and operational capacities of, our customers and suppliers; impacts of raw material and feedstock prices affecting the cost competitiveness of our operations relative to similar operations in other regions; the health and safety of our employees and costs incurred to keep our employees safe while maintaining continued operations, including our ability to adjust our production schedules; potential future restructuring, impairment and other charges; and the impact on economic activity generally, including a global or national recession or depression, or other sustained adverse market conditions.

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Uncertain or depressed economic conditions, increased unemployment or a decline in consumer confidence as a result of the COVID-19 outbreak, could have an adverse effect on demand for our products and our customers’ products or otherwise adversely alter customer demand patterns which may negatively impact our business, liquidity, financial condition and results of operations.

The COVID-19 pandemic may also disrupt our supply chain, transportation and logistics networks, including the ability of our third party suppliers’ or logistics and transportation service providers to meet their obligations to us, which may negatively affect our operations. Ports and other channels of entry may be closed or operate at only a portion of capacity, and means of transporting products within regions or countries in which we operate may be limited.

In addition, if the COVID-19 crisis persists we face additional risks related to our liquidity and financial results, including risks associated with our indebtedness, including available capacity, compliance with financial covenants; risks related to the adequacy of our cash flow and earnings and other conditions which may affect our liquidity; and risks related to our ongoing ability to pay our quarterly dividend at prior levels.

Our efforts to manage and mitigate these factors and risks through cost-savings and other measures may not be successful and are subject to the factors described above, many of which are uncertain or outside of our control. We believe that business disruption relating to the COVID-19 pandemic will continue to negatively impact the global economy and may materially affect our businesses as outlined above, all of which would adversely impact our business and results of operations.

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

(a)

Recent sales of unregistered securities

None.

(b)

Use of Proceeds from registered securities

None.

(c)

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

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The following table contains information regarding purchases of our ordinary shares made during the quarter ended ~~September 30, 2019~~March 31, 2020 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934:


Issuer Purchases of Equity Securities	Issuer Purchases of Equity Securities							Issuer Purchases of Equity Securities
Period		Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate number of shares that may yet be purchased under the plans or programs			Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate number of shares that may yet be purchased under the plans or programs
July 1 - July 31, 2019		352,000	$	39.20	352,000	3,648,000	⁽¹⁾
August 1 - August 31, 2019		443,668	$	31.64	443,668	3,204,332	⁽¹⁾
September 1 - September 30, 2019		318,365	$	40.98	318,365	2,885,967	⁽¹⁾
January 1 - January 31, 2020									365,977	$	33.05	365,977	2,046,617	⁽¹⁾
February 1 - February 29, 2020									448,157	$	28.80	448,157	1,598,460	⁽¹⁾
March 1 - March 31, 2020									—	$	—	—	1,598,460	⁽¹⁾
Total		1,114,033	$	36.69	1,114,033				814,134	$	30.71	814,134

(1)

~~The~~At our annual general meeting ~~of our shareholders~~held on June 19, 2019, our shareholders authorized the Company to ~~sunset~~terminate the 2017 share repurchase authorization and replace it with a new authorization to repurchase up to 4.0 million ordinary shares over the next eighteen months at a price per share of not less than $1.00 and not more than $1,000.00.

Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

4740

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SIGNATURES

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

Date: ~~November 5, 2019~~May 8, 2020

	TRINSEO S.A.

	By:	/s/ Frank Bozich
	Name:	Frank Bozich
	Title:	President, Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ David Stasse
	Name:	David Stasse
	Title:	Executive Vice President, Chief Financial Officer
		(Principal Financial Officer)

`
		Page

Part I	Financial Information

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (Unaudited)	4

	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)	6

	Condensed Consolidated Statements of Shareholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)	98

	Notes to Condensed Consolidated Financial Statements (Unaudited)	109

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3226

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4537

Item 4.	Controls and Procedures	4537

Part II	Other Information

Item 1.	Legal Proceedings	4638

Item 1A.	Risk Factors	4638

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4639

Item 3.	Defaults Upon Senior Securities	4739

Item 4.	Mine Safety Disclosures	4740

Item 5.	Other Information	4740

Item 6.	Exhibits	4740

Exhibit Index

Signatures


	Maturity of lease liabilities by year
	Remainder of 2019		2020		2021		2022		2023		Thereafter		Total Lease Payments		Less Imputed Interest		Lease Liability
Operating Leases	$	4.9	$	14.7	$	9.7	$	8.2	$	7.9	$	37.8	$	83.2	$	(15.8)	$	67.4
Finance Leases	$	0.7	$	2.1	$	2.1	$	1.7	$	0.1	$	0.2	$	6.9	$	(0.5)	$	6.4


Annual Commitment
2019		2020		2021		2022		2023		Thereafter		Total
$	17.5	$	14.4	$	9.0	$	10.6	$	5.4	$	16.0	$	72.9

Exhibit No.	Description
3.1	Amended and Restated Articles of Association of Trinseo S.A., as amended (incorporated herein by reference to Exhibit 3.1 to the Quarterly Report ~~filed~~ on Form 10-Q ~~File No. 001-36473,~~for the quarter ended June 30, 2018, filed August 3, 2018)

4.1	Form of Specimen Share Certificate of Trinseo S.A. (incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to the Registration Statement filed on Form S-1, File No. 333-194561, filed May 16, 2014)

4.2	Indenture among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., and The Bank of New York Mellon, as Trustee, dated as of August 29, 2017 (incorporated herein by reference to Exhibit 4.1 to the Current Report ~~filed~~ on Form 8-K, ~~File No. 001-36473,~~ filed September 5, 2017)

~~10.1~~10.1*†	~~Separation~~ Agreement between ~~Hayati Yarkadas~~Trinseo, LLC and ~~Trinseo Europe GmbH,~~Angelo Chaclas dated ~~October 2, 2019 (incorporated herein by reference to Exhibit 10.1 to the Current Report filed on Form 8-K, File No. 001-36473, filed October 3, 2019)~~January 1, 2020.

~~10.2~~10.2*†	~~Letter Agreement Amendment to the Employment~~ Agreement between Timothy Stedman and Trinseo Europe GmbH dated ~~October 2, 2019 (incorporated herein by reference to Exhibit 10.2 to the Current Report filed on Form 8-K, File No. 001-36473, filed October 3, 2019)~~January 1, 2020.

~~10.3~~10.3*	~~Amended~~Separation Agreement between Timothy Stedman and ~~Restated 2014 Omnibus Incentive Plan~~Trinseo Europe GmbH, dated April 10, 2020 (incorporated ~~herein~~ by reference to Exhibit ~~4.2~~10.1 to the Current Report on Form ~~S-8, File No. 333-232925,~~8-K, filed ~~on July 31, 2019)~~April 15, 2020).

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

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

32.1†	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2†	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS†	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH†	XBRL Taxonomy Extension Schema Document

101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†	XBRL Taxonomy Extension Label Linkbase Document

101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document
104†	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)