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 June 30, 20162017
or
◻TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36473
Trinseo S.A.
(Exact name of registrant as specified in its charter)
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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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ◻
Indicate by check mark whether the Companyregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer |
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Non-accelerated filer | ◻ (Do not check if a smaller reporting company) | 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 a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ☒
As of August 1, 2016,2017, there were 46,406,33343,772,953 of the registrant’s ordinary shares outstanding.
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| Condensed Consolidated Balance Sheets as of June 30, |
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| Notes to Condensed Consolidated Financial Statements (Unaudited) |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
Trinseo S.A.
Quarterly Report on Form 10-Q
For the quarterly period ended June 30, 20162017
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 and as required by context, may also include our business as owned by our predecessor, The Dow Chemical Company, for any dates prior to June 17, 2010. The terms “Trinseo Materials Operating S.C.A.” and “Trinseo Materials Finance, Inc.” refer to Trinseo’s indirect subsidiaries, Trinseo Materials Operating S.C.A., a Luxembourg partnership limited by shares incorporated under the laws of Luxembourg, and Trinseo Materials Finance, Inc., a Delaware corporation, and not their subsidiaries.entity. All financial data provided in this Quarterly Report is the financial data of the Company, unless otherwise indicated.
Prior to ourthe formation of the Company, our business was wholly owned by The Dow Chemical Company. We refer to our predecessor business as “the Styron business.” OnCompany (together with other affiliates, “Dow”). In June 17, 2010, investment funds advised or managed by affiliates of Bain Capital Partners, LLC (“Bain Capital”) acquired the Styron business and Dow Europe Holding B.V., which we refer to as “Dow Europe,” or, together with other affiliates of The Dow Chemical Company, “Dow,” retained an ownership interest in the Styronour business through an indirect ownership interest in us. We refer to our acquisition byDuring 2016, Bain Capital as Everest Manager Holding SCA (“the “Acquisition.”former Parent”), an affiliate of Bain Capital, sold its entire ownership interest in the Company pursuant to the Company’s shelf registration statement filed with the SEC.
Definitions of capitalized terms not defined herein appear in the notes to our condensed consolidated financial statements.The Company may distribute cash to shareholders under Luxembourg law via repayments of equity or an allocation of statutory profits. Since the Company began paying dividends, all distributions have been considered repayments of equity under Luxembourg law.
Cautionary Note on Forward-Looking Statements
This Quarterly Report contains forward-looking statements including, without limitation, statements concerning plans, objectives, goals, projections, 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,” “outlook,” “will,” “may,” “might,” “potential,” “likely,” “target,” “plan,” “contemplate,” “seek,” “attempt,” “should,” “could,” “would” or expressions of similar meaning. Forward-looking statements reflect management’s evaluation of information currently available and are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 20152016 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 11, 20161, 2017 under Part I, Item IA— “Risk Factors”, and elsewhere within this Quarterly Report.
As a result of these or other factors, our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Therefore, we caution you against relying on these forward-looking statements. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge through the Investor Relations section of our website, www.trinseo.com, as soon as reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange Commission. We provide this website and information contained in or connected to it for informational purposes only. That information is not a part of this Quarterly Report.
3
PART I —FINANCIAL INFORMATIONINFORMATION
TRINSEO S.A.
Condensed Consolidated Balance SheetsSheets
(In thousands, except per share data)
(Unaudited)
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| June 30, |
| December 31, |
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| June 30, |
| December 31, |
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| 2016 |
| 2015 |
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| 2017 |
| 2016 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 465,213 |
| $ | 431,261 |
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| $ | 399,928 |
| $ | 465,114 |
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Accounts receivable, net of allowance for doubtful accounts (June 30, 2016: $2,862; December 31, 2015: $2,417) |
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| 534,860 |
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| 494,556 |
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Accounts receivable, net of allowance for doubtful accounts (June 30, 2017: $3,670; December 31, 2016: $3,138) |
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| 723,264 |
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| 564,428 |
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Inventories |
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| 365,139 |
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| 353,097 |
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| 473,936 |
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| 385,345 |
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Other current assets |
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| 27,096 |
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| 10,120 |
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| 14,366 |
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| 17,999 |
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Total current assets |
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| 1,392,308 |
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| 1,289,034 |
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| 1,611,494 |
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| 1,432,886 |
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Investments in unconsolidated affiliates |
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| 190,314 |
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| 182,836 |
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| 153,077 |
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| 191,418 |
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Property, plant and equipment, net of accumulated depreciation (June 30, 2016: $410,753; December 31, 2015: $375,315) |
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| 505,319 |
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| 518,751 |
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Property, plant and equipment, net of accumulated depreciation (June 30, 2017: $479,983; December 31, 2016: $420,343) |
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| 556,481 |
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| 513,757 |
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Other assets |
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Goodwill |
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| 31,169 |
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| 31,064 |
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| 31,990 |
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| 29,485 |
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Other intangible assets, net |
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| 171,644 |
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| 158,218 |
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| 178,270 |
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| 177,345 |
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Deferred income tax assets—noncurrent |
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| 42,705 |
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| 51,395 |
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| 37,095 |
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| 40,187 |
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Deferred charges and other assets |
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| 29,168 |
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| 27,596 |
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| 32,847 |
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| 24,412 |
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Total other assets |
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| 274,686 |
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| 268,273 |
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| 280,202 |
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| 271,429 |
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Total assets |
| $ | 2,362,627 |
| $ | 2,258,894 |
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| $ | 2,601,254 |
| $ | 2,409,490 |
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Liabilities and shareholders’ equity |
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Current liabilities |
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Short-term borrowings and current portion of long-term debt |
| $ | 5,000 |
| $ | 5,000 |
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| $ | 5,000 |
| $ | 5,000 |
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Accounts payable |
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| 330,413 |
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| 324,629 |
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| 394,033 |
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| 378,029 |
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Income taxes payable |
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| 20,229 |
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| 20,804 |
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| 34,066 |
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| 23,784 |
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Accrued expenses and other current liabilities |
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| 107,828 |
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| 98,836 |
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| 127,322 |
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| 135,357 |
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Total current liabilities |
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| 463,470 |
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| 449,269 |
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| 560,421 |
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| 542,170 |
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Noncurrent liabilities |
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Long-term debt, net of unamortized deferred financing fees |
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| 1,183,287 |
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| 1,177,120 |
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| 1,192,844 |
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| 1,160,369 |
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Deferred income tax liabilities—noncurrent |
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| 27,979 |
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| 25,764 |
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| 30,325 |
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| 24,844 |
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Other noncurrent obligations |
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| 224,478 |
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| 217,727 |
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| 257,391 |
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| 237,054 |
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Total noncurrent liabilities |
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| 1,435,744 |
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| 1,420,611 |
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| 1,480,560 |
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| 1,422,267 |
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Commitments and contingencies (Note 10) |
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Commitments and contingencies (Note 8) |
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Shareholders’ equity |
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Ordinary shares, $0.01 nominal value, 50,000,000 shares authorized (June 30, 2016: 48,778 shares issued and 46,403 shares outstanding; December 31, 2015: 48,778 shares issued and outstanding) |
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| 488 |
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| 488 |
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Ordinary shares, $0.01 nominal value, 50,000,000 shares authorized (June 30, 2017: 48,778 shares issued and 43,733 shares outstanding; December 31, 2016: 48,778 shares issued and 44,301 shares outstanding) |
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| 488 |
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| 488 |
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Additional paid-in-capital |
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| 565,590 |
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| 556,532 |
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| 575,011 |
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| 573,662 |
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Treasury shares, at cost (June 30, 2016: 2,374 shares; December 31, 2015: zero shares) |
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| (93,676) |
|
| — |
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Retained earnings (accumulated deficit) |
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| 139,427 |
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| (18,289) |
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Treasury shares, at cost (June 30, 2017: 5,045 shares; December 31, 2016: 4,477 shares) |
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| (258,913) |
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| (217,483) |
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Retained earnings |
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| 406,270 |
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| 258,540 |
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Accumulated other comprehensive loss |
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| (148,416) |
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| (149,717) |
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| (162,583) |
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| (170,154) |
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Total shareholders’ equity |
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| 463,413 |
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| 389,014 |
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| 560,273 |
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| 445,053 |
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Total liabilities and shareholders’ equity |
| $ | 2,362,627 |
| $ | 2,258,894 |
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| $ | 2,601,254 |
| $ | 2,409,490 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TRINSEO S.A.
Condensed Consolidated Statements of OperationsOperations
(In thousands, except per share data)
(Unaudited)
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| Three Months Ended |
| Six Months Ended |
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| Three Months Ended |
| Six Months Ended |
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| June 30, |
| June 30, |
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| June 30, |
| June 30, |
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| 2016 |
| 2015 |
| 2016 |
| 2015 |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Net sales |
| $ | 969,694 |
| $ | 1,028,673 |
| $ | 1,863,778 |
| $ | 2,046,938 |
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| $ | 1,145,199 |
| $ | 969,694 |
| $ | 2,249,689 |
| $ | 1,863,778 |
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Cost of sales |
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| 799,954 |
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| 886,536 |
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| 1,554,366 |
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| 1,801,722 |
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| 1,019,992 |
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| 799,954 |
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| 1,926,680 |
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| 1,554,366 |
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Gross profit |
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| 169,740 |
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| 142,137 |
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| 309,412 |
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| 245,216 |
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| 125,207 |
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| 169,740 |
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| 323,009 |
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| 309,412 |
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Selling, general and administrative expenses |
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| 52,249 |
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| 50,739 |
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| 106,735 |
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| 102,514 |
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| 55,384 |
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| 52,249 |
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| 115,820 |
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| 106,735 |
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Equity in earnings of unconsolidated affiliates |
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| 38,602 |
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| 40,841 |
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| 73,628 |
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| 77,548 |
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| 29,927 |
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| 38,602 |
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| 49,222 |
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| 73,628 |
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Operating income |
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| 156,093 |
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| 132,239 |
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| 276,305 |
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| 220,250 |
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| 99,750 |
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| 156,093 |
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| 256,411 |
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| 276,305 |
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Interest expense, net |
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| 18,814 |
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| 25,600 |
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| 37,710 |
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| 54,456 |
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| 18,719 |
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| 18,814 |
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| 36,919 |
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| 37,710 |
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Loss on extinguishment of long-term debt |
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| — |
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| 95,150 |
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| — |
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| 95,150 |
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Other expense, net |
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| 12,875 |
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| 3,233 |
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| 15,544 |
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| 6,784 |
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Other expense (income), net |
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| 2,072 |
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| 12,875 |
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| (6,061) |
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| 15,544 |
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Income before income taxes |
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| 124,404 |
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| 8,256 |
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| 223,051 |
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| 63,860 |
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| 78,959 |
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| 124,404 |
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| 225,553 |
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| 223,051 |
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Provision for income taxes |
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| 28,600 |
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| 7,500 |
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| 50,500 |
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| 25,400 |
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| 18,800 |
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| 28,600 |
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| 48,100 |
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| 50,500 |
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Net income |
| $ | 95,804 |
| $ | 756 |
| $ | 172,551 |
| $ | 38,460 |
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| $ | 60,159 |
| $ | 95,804 |
| $ | 177,453 |
| $ | 172,551 |
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Weighted average shares- basic |
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| 46,952 |
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| 48,771 |
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| 47,803 |
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| 48,770 |
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| 43,902 |
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| 46,952 |
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| 43,979 |
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| 47,803 |
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Net income per share- basic |
| $ | 2.04 |
| $ | 0.02 |
| $ | 3.61 |
| $ | 0.79 |
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| $ | 1.37 |
| $ | 2.04 |
| $ | 4.03 |
| $ | 3.61 |
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Weighted average shares- diluted |
|
| 47,857 |
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| 48,907 |
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| 48,554 |
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| 48,896 |
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| 44,995 |
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| 47,857 |
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| 45,165 |
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| 48,554 |
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Net income per share- diluted |
| $ | 2.00 |
| $ | 0.02 |
| $ | 3.55 |
| $ | 0.79 |
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| $ | 1.34 |
| $ | 2.00 |
| $ | 3.93 |
| $ | 3.55 |
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Repayment of equity per share |
| $ | 0.30 |
| $ | — |
| $ | 0.30 |
| $ | — |
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Dividends per share |
| $ | 0.36 |
| $ | 0.30 |
| $ | 0.66 |
| $ | 0.30 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TRINSEO S.A.
Condensed Consolidated Statements of Comprehensive Income (Loss)(Loss)
(In thousands, unless otherwise stated)
(Unaudited)
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| Three Months Ended |
| Six Months Ended |
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| Three Months Ended |
| Six Months Ended |
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| June 30, |
| June 30, |
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| June 30, |
| June 30, |
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| 2016 |
| 2015 |
| 2016 |
| 2015 |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Net income |
| $ | 95,804 |
| $ | 756 |
| $ | 172,551 |
| $ | 38,460 |
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| $ | 60,159 |
| $ | 95,804 |
| $ | 177,453 |
| $ | 172,551 |
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Other comprehensive income (loss), net of tax (tax amounts shown in millions below for the three and six months ended June 30, 2016 and 2015, respectively): |
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Other comprehensive income (loss), net of tax (tax amounts shown in millions below for the three and six months ended June 30, 2017 and 2016, respectively): |
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Cumulative translation adjustments |
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| (11,005) |
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| 35,241 |
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| 2,418 |
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| (78,914) |
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| 18,974 |
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| (11,005) |
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| 23,175 |
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| 2,418 |
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Net gain (loss) on foreign exchange cash flow hedges |
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| 6,029 |
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| (1,440) |
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| (1,396) |
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| (405) |
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| (12,966) |
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| 6,029 |
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| (17,776) |
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| (1,396) |
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Pension and other postretirement benefit plans: |
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Net gain (loss) arising during period (net of tax of: 2016—$0 and ($0.5); 2015—$0 and $0) |
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| — |
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| — |
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| (800) |
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| — |
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Net loss arising during period (net of tax of: 2017—$0 and $0; 2016—$0 and ($0.5)) |
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| — |
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| — |
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| — |
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| (800) |
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Amounts reclassified from accumulated other comprehensive income (loss) |
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| 539 |
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| 791 |
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| 1,079 |
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| 1,628 |
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| 796 |
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| 539 |
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| 2,172 |
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| 1,079 |
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Total other comprehensive income (loss), net of tax |
|
| (4,437) |
|
| 34,592 |
|
| 1,301 |
|
| (77,691) |
|
|
| 6,804 |
|
| (4,437) |
|
| 7,571 |
|
| 1,301 |
|
Comprehensive income (loss) |
| $ | 91,367 |
| $ | 35,348 |
| $ | 173,852 |
| $ | (39,231) |
| |||||||||||||
Comprehensive income |
| $ | 66,963 |
| $ | 91,367 |
| $ | 185,024 |
| $ | 173,852 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
TRINSEO S.A.
Condensed Consolidated Statements of Shareholders’ EquityEquity
(In thousands)thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shareholders' Equity |
| ||||||||||||||||
|
| Ordinary Shares Outstanding |
| Ordinary Shares |
| Additional |
| Treasury Shares |
| Accumulated Other Comprehensive Income (Loss) |
| Retained Earnings (Accumulated Deficit) |
| Total |
| ||||||
Balance at December 31, 2015 |
| 48,778 |
| $ | 488 |
| $ | 556,532 |
| $ | — |
| $ | (149,717) |
| $ | (18,289) |
| $ | 389,014 |
|
Adoption of new accounting standard(1) |
| — |
|
| — |
|
| 915 |
|
| — |
|
| — |
|
| (915) |
|
| — |
|
Net income |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 172,551 |
|
| 172,551 |
|
Other comprehensive income |
| — |
|
| — |
|
| — |
|
| — |
|
| 1,301 |
|
| — |
|
| 1,301 |
|
Stock-based compensation activity |
| 16 |
|
| — |
|
| 8,143 |
|
| 686 |
|
| — |
|
| — |
|
| 8,829 |
|
Purchase of treasury shares |
| (2,391) |
|
| — |
|
| — |
|
| (94,362) |
|
| — |
|
| — |
|
| (94,362) |
|
Repayment of equity on ordinary shares |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (13,920) |
|
| (13,920) |
|
Balance at June 30, 2016 |
| 46,403 |
| $ | 488 |
| $ | 565,590 |
| $ | (93,676) |
| $ | (148,416) |
| $ | 139,427 |
| $ | 463,413 |
|
Balance at December 31, 2014 |
| 48,770 |
| $ | 488 |
| $ | 547,530 |
| $ | — |
| $ | (75,217) |
| $ | (151,936) |
| $ | 320,865 |
|
Net income |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 38,460 |
|
| 38,460 |
|
Other comprehensive loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (77,691) |
|
| — |
|
| (77,691) |
|
Stock-based compensation activity |
| 8 |
|
| — |
|
| 6,219 |
|
| — |
|
| — |
|
| — |
|
| 6,219 |
|
Balance at June 30, 2015 |
| 48,778 |
| $ | 488 |
| $ | 553,749 |
| $ | — |
| $ | (152,908) |
| $ | (113,476) |
| $ | 287,853 |
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
TRINSEO S.A.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| ||||
|
| June 30, |
| ||||
|
| 2016 |
| 2015 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
Net income |
| $ | 172,551 |
| $ | 38,460 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 47,973 |
|
| 44,281 |
|
Amortization of deferred financing fees and issuance discount |
|
| 3,134 |
|
| 4,478 |
|
Deferred income tax |
|
| 10,684 |
|
| (10,617) |
|
Stock-based compensation expense |
|
| 8,816 |
|
| 6,219 |
|
Earnings of unconsolidated affiliates, net of dividends |
|
| (12,287) |
|
| (32,552) |
|
Unrealized net losses (gains) on foreign exchange forward contracts |
|
| 3,965 |
|
| (7,747) |
|
Loss on extinguishment of debt |
|
| — |
|
| 95,150 |
|
Prepayment penalty on long-term debt |
|
| — |
|
| (68,603) |
|
Loss on sale of businesses and other assets |
|
| 12,915 |
|
| — |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
Accounts receivable |
|
| (52,954) |
|
| (40,431) |
|
Inventories |
|
| (16,685) |
|
| 45,892 |
|
Accounts payable and other current liabilities |
|
| (1,098) |
|
| (12,134) |
|
Income taxes payable |
|
| (1,005) |
|
| 17,821 |
|
Other assets, net |
|
| (7,060) |
|
| (415) |
|
Other liabilities, net |
|
| 10,758 |
|
| (5,056) |
|
Cash provided by operating activities |
|
| 179,707 |
|
| 74,746 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Capital expenditures |
|
| (53,153) |
|
| (43,594) |
|
Proceeds from capital expenditures subsidy |
|
| — |
|
| 2,191 |
|
Proceeds from the sale of businesses and other assets |
|
| 129 |
|
| 689 |
|
Distributions from unconsolidated affiliates |
|
| 4,809 |
|
| — |
|
Cash used in investing activities |
|
| (48,215) |
|
| (40,714) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Deferred financing fees |
|
| — |
|
| (27,661) |
|
Short-term borrowings, net |
|
| (126) |
|
| (15,823) |
|
Repayments of term loans |
|
| (2,500) |
|
| — |
|
Purchase of treasury shares |
|
| (94,362) |
|
| — |
|
Stock-based compensation activity, net |
|
| 13 |
|
| — |
|
Net proceeds from issuance of 2021 Term Loan B |
|
| — |
|
| 498,750 |
|
Net proceeds from issuance of 2022 Senior Notes |
|
| — |
|
| 716,625 |
|
Repayments of 2019 Senior Notes |
|
| — |
|
| (1,192,500) |
|
Proceeds from Accounts Receivable Securitization Facility |
|
| — |
|
| 25,000 |
|
Repayments of Accounts Receivable Securitization Facility |
|
| — |
|
| (25,000) |
|
Cash used in financing activities |
|
| (96,975) |
|
| (20,609) |
|
Effect of exchange rates on cash |
|
| (565) |
|
| (3,104) |
|
Net change in cash and cash equivalents |
|
| 33,952 |
|
| 10,319 |
|
Cash and cash equivalents—beginning of period |
|
| 431,261 |
|
| 220,786 |
|
Cash and cash equivalents—end of period |
| $ | 465,213 |
| $ | 231,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
| Shareholders' Equity |
| ||||||||||||||||||
|
| Ordinary Shares Outstanding |
| Treasury Shares |
| Ordinary Shares |
| Additional |
| Treasury Shares |
| Accumulated Other Comprehensive Income (Loss) |
| Retained Earnings (Accumulated Deficit) |
| Total |
| ||||||
Balance at December 31, 2016 |
| 44,301 |
| 4,477 |
| $ | 488 |
| $ | 573,662 |
| $ | (217,483) |
| $ | (170,154) |
| $ | 258,540 |
| $ | 445,053 |
|
Net income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 177,453 |
|
| 177,453 |
|
Other comprehensive income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 7,571 |
|
| — |
|
| 7,571 |
|
Stock-based compensation activity |
| 327 |
| (327) |
|
| — |
|
| 1,349 |
|
| 11,624 |
|
| — |
|
| — |
|
| 12,973 |
|
Purchase of treasury shares |
| (895) |
| 895 |
|
| — |
|
| — |
|
| (53,054) |
|
| — |
|
| — |
|
| (53,054) |
|
Dividends on ordinary shares ($0.66 per share) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (29,723) |
|
| (29,723) |
|
Balance at June 30, 2017 |
| 43,733 |
| 5,045 |
| $ | 488 |
| $ | 575,011 |
| $ | (258,913) |
| $ | (162,583) |
| $ | 406,270 |
| $ | 560,273 |
|
Balance at December 31, 2015 |
| 48,778 |
| — |
| $ | 488 |
| $ | 556,532 |
| $ | — |
| $ | (149,717) |
| $ | (18,289) |
| $ | 389,014 |
|
Adoption of new accounting standard |
| — |
| — |
|
| — |
|
| 915 |
|
| — |
|
| — |
|
| (915) |
|
| — |
|
Net income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 172,551 |
|
| 172,551 |
|
Other comprehensive income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 1,301 |
|
| — |
|
| 1,301 |
|
Stock-based compensation activity |
| 16 |
| (16) |
|
| — |
|
| 8,143 |
|
| 686 |
|
| — |
|
| — |
|
| 8,829 |
|
Purchase of treasury shares |
| (2,391) |
| 2,391 |
|
| — |
|
| — |
|
| (94,362) |
|
| — |
|
| — |
|
| (94,362) |
|
Dividends on ordinary shares ($0.30 per share) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (13,920) |
|
| (13,920) |
|
Balance at June 30, 2016 |
| 46,403 |
| 2,375 |
| $ | 488 |
| $ | 565,590 |
| $ | (93,676) |
| $ | (148,416) |
| $ | 139,427 |
| $ | 463,413 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
87
TRINSEO S.A.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| ||||
|
| June 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
Net income |
| $ | 177,453 |
| $ | 172,551 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 51,044 |
|
| 47,973 |
|
Amortization of deferred financing fees and issuance discount |
|
| 2,719 |
|
| 3,134 |
|
Deferred income tax |
|
| 8,862 |
|
| 10,684 |
|
Stock-based compensation expense |
|
| 7,687 |
|
| 8,816 |
|
Earnings of unconsolidated affiliates, net of dividends |
|
| 4,709 |
|
| (12,287) |
|
Unrealized net losses on foreign exchange forward contracts |
|
| 5,011 |
|
| 3,965 |
|
Loss (gain) on sale of businesses and other assets |
|
| (10,275) |
|
| 12,915 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
Accounts receivable |
|
| (137,696) |
|
| (52,954) |
|
Inventories |
|
| (66,802) |
|
| (16,685) |
|
Accounts payable and other current liabilities |
|
| (9,779) |
|
| (1,098) |
|
Income taxes payable |
|
| 9,089 |
|
| (1,005) |
|
Other assets, net |
|
| (6,215) |
|
| (7,060) |
|
Other liabilities, net |
|
| 781 |
|
| 10,758 |
|
Cash provided by operating activities |
|
| 36,588 |
|
| 179,707 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Capital expenditures |
|
| (74,286) |
|
| (53,153) |
|
Proceeds from the sale of businesses and other assets |
|
| 43,680 |
|
| 129 |
|
Distributions from unconsolidated affiliates |
|
| 857 |
|
| 4,809 |
|
Cash used in investing activities |
|
| (29,749) |
|
| (48,215) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Short-term borrowings, net |
|
| (126) |
|
| (126) |
|
Repayments of term loans |
|
| (2,500) |
|
| (2,500) |
|
Purchase of treasury shares |
|
| (56,415) |
|
| (94,362) |
|
Dividends paid |
|
| (26,473) |
|
| — |
|
Proceeds from exercise of option awards |
|
| 5,984 |
|
| 87 |
|
Withholding taxes paid on restricted share units |
|
| (288) |
|
| (74) |
|
Cash used in financing activities |
|
| (79,818) |
|
| (96,975) |
|
Effect of exchange rates on cash |
|
| 7,793 |
|
| (565) |
|
Net change in cash and cash equivalents |
|
| (65,186) |
|
| 33,952 |
|
Cash and cash equivalents—beginning of period |
|
| 465,114 |
|
| 431,261 |
|
Cash and cash equivalents—end of period |
| $ | 399,928 |
| $ | 465,213 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
TRINSEO S.A.
Notes to Condensed Consolidated Financial StatementsStatements
(Dollars in thousands, 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 June 30, 20162017 and 20152016 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 20152016 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 March 11, 2016.1, 2017.
The December 31, 20152016 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 20152016 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications did not have a material impact on the Company’s financial position.position or results. Refer to Note 212 for further discussion.information.
NOTE 2—RECENT ACCOUNTING GUIDANCE
In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) jointly issued new guidance which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the FASB has issued certain clarifying updates to this guidance, which the Company will consider as part of our adoption. This guidance isadoption, which will be effective for public entities for annual and interim periods beginning after December 15, 2017.as of January 1, 2018. The Company is currently assessinghas completed its scoping assessment for the impactadoption of adopting this guidance on its financial position and results of operations.
In April 2015, the FASB issued guidance that requires deferred financing fees related to a recognized debt liability be presentedby conducting surveys with relevant stakeholders in the balance sheet asbusiness, including commercial and finance leadership, reviewing a direct reductionrepresentative sample of the carrying valuerevenue arrangements across all businesses, and identifying a set of that debt liability, consistent with debt discounts. Theapplicable qualitative revenue recognition and measurement guidance for deferred financing fees are not affected. The Company adopted this guidance effective January 1, 2016. Balances as of December 31, 2015 presented herein have been retrospectively adjusted, with $25.7 million of unamortized deferred financing fees being reclassified from “Deferred charges and other assets” and netted against “Long-term debt, net of unamortized deferred financing fees” on the condensed consolidated balance sheet. In accordance with this guidance, unamortized deferred financing feeschanges related to the Company’s revolving debt facilities were not reclassified as a reductionnew standard update. In completing this phase, the Company has concluded that it will adopt this new guidance applying the modified retrospective approach. The Company remains in the process of long-term debt,establishing and remain included within “Deferred chargesdocumenting key accounting policies, assessing new disclosure requirements, and other assets”evaluating impacts on business process, information technology, and controls, and determining the condensed consolidated balance sheets.quantitative impact resulting from the adoption of this new standard.
In July 2015, the FASB issued guidance which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (“NRV”) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, and prospective adoption is required. The Company does not expect the impact of adoptingadopted this guidance effective January 1, 2017, and the adoption did not have a material impact to be material to its the Company’s financial position andor results of operations.
In February 2016, the FASB issued new guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize on the consolidated balance sheetsheets lease liabilities and corresponding right-of-use assets for all leases with terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. This new guidance is effective for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. The Company is in the process of assessing the impact on its consolidated financial statements from the adoption of the new guidance. However, as we are the lessee under various real estate, railcar, and other equipment leases, which we currently account for as operating leases, we anticipate an increase in the recognition of right-of-use assets and lease liabilities as a result of this adoption.
In August 2016, the FASB issued guidance that aims to eliminate diversity in practice for how certain cash
9
receipts and payments are presented and classified in the consolidated statements of cash flows. This guidance is effective for public companies for annual and interim periods beginning after December 15, 2017, with early adoption permitted. This guidance must be adopted using a retrospective approach, and provides for certain practical expedients. Additionally, the FASB has issued further guidance related to the presentation of restricted cash on the consolidated statements of cash flows. While the Company continues to assess the timing and related impact of adopting this guidance on its consolidated statement of cash flows, the most significant expected impact on the Company’s financial statements will be the requirement to classify debt prepayment or extinguishment costs as financing cash outflows, as opposed to the Company’s prior classification of these types of costs within operating activities.
In January 2017, the FASB issued guidance that revises the definition of a business in order to assist in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the new guidance, fewer transactions are expected to be accounted for as business combinations. The Company adopted this guidance effective January 1, 2017. We expect this adoption could affect conclusions reached for future transactions in several areas, including acquisitions and disposals.
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment by removing Step 2 of the test, which requires a hypothetical purchase price allocation. As a result, a goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company adopted this guidance effective January 1, 2017, which did not have a material impact to the Company’s financial position or results of operations.
In March 2017, the FASB issued guidance that requires employers to present the service cost component of net periodic benefit cost in the same statement of operations line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost are to be presented outside of any subtotal of operating income. This presentation amendment is relevant to the Company and will be applied on a retrospective basis. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently assessing the impact of adopting this guidance on its financial position and results of operations.
In March 2016, the FASB issued new guidance that simplifies several aspects of accounting for share-based payments. The Company adopted this guidance effective April 1, 2016. Under this guidance, excess tax benefits associated with share-based payment awards are recognized in the statement of operations when the awards vest or settle, rather than in shareholders’ equity, and all tax-related cash flows resulting from share-based payments are reported as operating activities on the statement of cash flows. In addition, this guidance modified the minimum statutory withholding requirements to allow entities to withhold an amount up to the employees’ maximum individual tax rate in the relevant jurisdiction without triggering liability classification of the award, while also clarifying that all cash payments made to taxing authorities on employees’ behalf for withheld shares are to be reported as financing activities on the statement of cash flows. The adoption of these changes did not materially impact the Company’s financial position and result of operations. Additionally, as part of this adoption, the Company made an accounting policy election to recognize forfeitures as incurred, rather than estimating the forfeitures in advance. The impact of this change was applied utilizing a modified retrospective approach, with an adjustment of $0.9 million recorded during the three months ended June 30, 2016 to decrease opening retained earnings and increase opening additional paid-in-capital.
NOTE 3—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
TheDuring the six months ended June 30, 2017, the Company is supplemented byhad two strategic joint ventures, the results of which are included within the Basic Plastics & Feedstocks reporting segment:: Americas Styrenics LLC (“Americas Styrenics”, a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP) and Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate”, a polycarbonate joint venture with Sumitomo Chemical Company Limited). Investments held in the unconsolidated affiliates are accounted for by the equity method. The results of Americas Styrenics are included within its own reporting segment, and the results of Sumika Styron Polycarbonate were included within the Basic Plastics reporting segment until the Company sold its 50% share of the entity in January 2017. Refer to the discussion below for further information about the sale of the Company’s share in Sumika Styron Polycarbonate during the first quarter of 2017.
Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their stock are not available. The summarized financial information of the Company’s unconsolidated affiliates is shown below. This table includes summarized financial information for Sumika Styron Polycarbonate through the date of sale in January 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Sales |
| $ | 476,882 |
| $ | 405,351 |
| $ | 910,828 |
| $ | 781,603 |
|
Gross profit |
| $ | 65,170 |
| $ | 87,867 |
| $ | 85,758 |
| $ | 156,271 |
|
Net income |
| $ | 54,121 |
| $ | 71,015 |
| $ | 60,449 |
| $ | 123,812 |
|
Americas Styrenics
As of June 30, 20162017 and December 31, 2015,2016, respectively, the Company’s investment in Americas Styrenics was $154.5$153.1 million and $143.9$149.7 million, which was $79.7$52.3 million and $91.9$71.2 million less than the Company’s 50% share of the underlying net assets of Americas Styrenics. This amount represents the difference between the book value of assets contributed to the joint venture at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the joint venture’s assets and certain adjustments to conform with the Company’s accounting policies. This difference is being amortized over a weighted average remaining useful life of the contributed assets of approximately 4.33.3 years as of June 30, 2016.2017. The Company received dividends from Americas Styrenics of $37.5
10
million and $45.0 million during the three and six months ended June 30, 2017, respectively, compared to $30.0 million and $60.0 million during the three and six months ended June 30, 2016, respectively, comparedrespectively.
Sumika Styron Polycarbonate
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to $30.0Sumitomo Chemical Company Limited for total sales proceeds of approximately $42.1 million. As a result, the Company recorded a gain on sale of $9.3 million during the six months ended June 30, 2017, which was included within “Other expense (income), net” in the condensed consolidated statement of operations and $45.0was allocated entirely to the Basic Plastics segment. In addition, the parties have entered into a long-term agreement to continue sourcing polycarbonate resin from Sumika Styron Polycarbonate to the Company’s Performance Plastics segment.
As of December 31, 2016, the Company’s investment in Sumika Styron Polycarbonate was $41.8 million. Due to the sale in January 2017, the Company no longer has an investment in Sumika Styron Polycarbonate as of June 30, 2017. The Company received dividends from Sumika Styron Polycarbonate of zero and $9.8 million during the three and six months ended June 30, 2015, respectively.
As of June 30, 2016 and December 31, 2015,2017, respectively, the Company’s investment in Sumika Styron Polycarbonate was $35.8 million and $39.0 million, which was $16.2 million and $19.8 million greater than the Company’s 50% share of the underlying net assets of Sumika Styron Polycarbonate. This amount primarily represents the fair value of certain identifiable assets which have not been recorded on the historical financial statements of Sumika Styron Polycarbonate. This difference is being amortized over the remaining useful life of the contributed assets of 9.3 years as of June 30, 2016. The Company received dividends from Sumika Styron Polycarbonate ofcompared to zero and $6.2 million during the three and six months ended June 30, 2016, respectively. The Companydividend received no dividends from Sumika Styron Polycarbonate during the three and six months ended June 30, 2015.2017 from Sumika Styron Polycarbonate related to the Company’s proportionate share of earnings for the year ended December 31, 2016.
Both
NOTE 4—INVENTORIES
Inventories consisted of the unconsolidated affiliates are privately held companies; therefore, quoted market pricesfollowing:
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
Finished goods |
| $ | 242,824 |
| $ | 187,577 |
|
Raw materials and semi-finished goods |
|
| 199,324 |
|
| 168,804 |
|
Supplies |
|
| 31,788 |
|
| 28,964 |
|
Total |
| $ | 473,936 |
| $ | 385,345 |
|
NOTE 5—DEBT
Refer to the Annual Report for their stock aredefinitions of capitalized terms not available. The summarized financial information ofincluded herein and further background on the Company’s unconsolidated affiliates is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Sales |
| $ | 405,351 |
| $ | 500,803 |
| $ | 781,603 |
| $ | 940,373 |
|
Gross profit |
| $ | 87,867 |
| $ | 91,692 |
| $ | 156,271 |
| $ | 169,363 |
|
Net income |
| $ | 71,015 |
| $ | 74,461 |
| $ | 123,812 |
| $ | 140,481 |
|
debt structure discussed below. The Company was in compliance with all debt related covenants as of June 30, 2017 and December 31, 2016.
1011
NOTE 4—INVENTORIES
InventoriesAs of June 30, 2017 and December 31, 2016, debt consisted of the following:
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
| ||
|
| 2016 |
| 2015 |
| ||
Finished goods |
| $ | 178,449 |
| $ | 170,380 |
|
Raw materials and semi-finished goods |
|
| 156,396 |
|
| 151,444 |
|
Supplies |
|
| 30,294 |
|
| 31,273 |
|
Total |
| $ | 365,139 |
| $ | 353,097 |
|
NOTE 5—GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill by segment from December 31, 2015 to June 30, 2016:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Materials |
|
|
|
|
|
|
| |||||||
|
|
|
|
| Synthetic |
| Performance |
| Basic Plastics |
|
|
|
| |||
|
| Latex |
| Rubber |
| Plastics |
| & Feedstocks |
| Total |
| |||||
Balance at December 31, 2015 |
| $ | 12,412 |
| $ | 8,501 |
| $ | 2,914 |
| $ | 7,237 |
| $ | 31,064 |
|
Divestiture (Note 15) |
|
| (418) |
|
| — |
|
| — |
|
| — |
|
| (418) |
|
Foreign currency impact |
|
| 209 |
|
| 143 |
|
| 49 |
|
| 122 |
|
| 523 |
|
Balance at June 30, 2016 |
| $ | 12,203 |
| $ | 8,644 |
| $ | 2,963 |
| $ | 7,359 |
| $ | 31,169 |
|
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets as of June 30, 2016 and December 31, 2015, respectively:
|
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|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2016 |
| December 31, 2015 |
| ||||||||||||||
|
| Estimated |
| Gross |
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
| ||
|
| Useful Life |
| Carrying |
| Accumulated |
|
|
|
| Carrying |
| Accumulated |
|
|
|
| ||||
|
| (Years) |
| Amount |
| Amortization |
| Net |
| Amount |
| Amortization |
| Net |
| ||||||
Developed technology |
| 15 |
| $ | 175,574 |
| $ | (70,067) |
| $ | 105,507 |
| $ | 172,675 |
| $ | (62,870) |
| $ | 109,805 |
|
Manufacturing Capacity Rights |
| 6 |
|
| 21,100 |
|
| (7,698) |
|
| 13,402 |
|
| 20,750 |
|
| (5,888) |
|
| 14,862 |
|
Software |
| 5 - 10 |
|
| 49,349 |
|
| (11,807) |
|
| 37,542 |
|
| 18,006 |
|
| (9,494) |
|
| 8,512 |
|
Software in development |
| N/A |
|
| 15,004 |
|
| — |
|
| 15,004 |
|
| 24,516 |
|
| — |
|
| 24,516 |
|
Other |
| N/A |
|
| 189 |
|
| — |
|
| 189 |
|
| 523 |
|
| — |
|
| 523 |
|
Total |
|
|
| $ | 261,216 |
| $ | (89,572) |
| $ | 171,644 |
| $ | 236,470 |
| $ | (78,252) |
| $ | 158,218 |
|
As of June 30, 2016, the Company had $15.0 million capitalized as software in development, primarily related to our project to upgrade our legacy enterprise resource planning (“ERP”) environment to the latest version of SAP. During the second quarter of 2016, we began a phased implementation of this ERP environment by geographic region, which we anticipate will be completed by the end of 2016.
Amortization expense on other intangible assets totaled $5.8 million and $10.1 million for the three and six months ended June 30, 2016, respectively, and $4.4 million and $8.9 million for the three and six months ended June 30, 2015, respectively.
11
The following table details the Company’s estimated amortization expense for the next five years, excluding any amortization expense related to software currently in development:
|
|
|
|
|
Estimated Amortization Expense for the Next Five Years |
| |||
Remainder of 2016 |
| $ | 11,935 |
|
2017 |
|
| 23,581 |
|
2018 |
|
| 22,890 |
|
2019 |
|
| 22,706 |
|
2020 |
|
| 19,765 |
|
2021 |
|
| 14,234 |
|
NOTE 6—DEBT
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| June 30, |
| December 31, |
|
|
|
|
|
| June 30, 2017 |
| December 31, 2016 |
| ||||||||||||||||
|
| 2016 |
| 2015 |
|
| Interest Rate as of June 30, 2017 |
| Maturity |
| Carrying |
| Unamortized |
| Total Debt, |
| Carrying |
| Unamortized |
| Total Debt, |
| ||||||||
Senior Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Revolving Facility |
| $ | — |
| $ | — |
|
| Various |
| May 2020 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
2021 Term Loan B |
|
| 493,954 |
|
| 496,365 |
|
| 4.476% |
| November 2021 |
|
| 489,136 |
|
| (8,292) |
|
| 480,844 |
|
| 491,545 |
|
| (9,159) |
|
| 482,386 |
|
2022 Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Notes |
|
| 300,000 |
|
| 300,000 |
|
| 6.750% |
| May 2022 |
|
| 300,000 |
|
| (5,277) |
|
| 294,723 |
|
| 300,000 |
|
| (5,726) |
|
| 294,274 |
|
Euro Notes |
|
| 416,438 |
|
| 409,538 |
|
| 6.375% |
| May 2022 |
|
| 427,301 |
|
| (6,590) |
|
| 420,711 |
|
| 394,275 |
|
| (7,157) |
|
| 387,118 |
|
Accounts Receivable Securitization Facility |
|
| — |
|
| — |
|
| Various |
| May 2019 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Other indebtedness |
|
| 1,784 |
|
| 1,895 |
|
| Various |
| Various |
|
| 1,566 |
|
| — |
|
| 1,566 |
|
| 1,591 |
|
| — |
|
| 1,591 |
|
Total debt |
|
| 1,212,176 |
|
| 1,207,798 |
|
|
|
|
|
| $ | 1,218,003 |
| $ | (20,159) |
| $ | 1,197,844 |
| $ | 1,187,411 |
| $ | (22,042) |
| $ | 1,165,369 |
|
Less: current portion |
|
| (5,000) |
|
| (5,000) |
|
|
|
|
|
|
|
|
|
|
|
|
| (5,000) |
|
|
|
|
|
|
|
| (5,000) |
|
Less: unamortized deferred financing fees(1) |
|
| (23,889) |
|
| (25,678) |
| |||||||||||||||||||||||
Total long-term debt, net of unamortized deferred financing fees |
| $ | 1,183,287 |
| $ | 1,177,120 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,192,844 |
|
|
|
|
|
|
| $ | 1,160,369 |
|
(1) |
|
| (2) | The Company had $308.1 million (net of $16.9 million outstanding letters of credit) of funds available for borrowing under this facility as of June 30, 2017. Additionally, the Borrowers were required to pay a quarterly commitment fee in respect of any unused commitments under this facility equal to 0.375% per annum. |
12
(3) | Carrying amounts presented above are net of an original issue discount, which was 0.25% of the original $500.0 million facility. This facility bears an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor. As of June 30, 2017, $5.0 million of the scheduled future payments related to this facility were classified as current debt on the Company’s condensed consolidated balance sheet. |
(4) | This facility has a borrowing capacity of $200.0 million. As of June 30, 2017, the Company had approximately $151.3 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable. In regards to outstanding borrowings, fixed interest charges are 2.6% plus variable commercial paper rates, while for available, but undrawn commitments, fixed interest charges are 1.4%. |
facility, with a $25.0 million swingline subfacility and a $35.0 million letter of credit subfacility (the “2020 Revolving Facility”) maturing in May 2020 and (ii) $500.0 million senior secured term loan B facility maturing in November 2021 (the “2021 Term Loan B”). Amounts under the 2020 Revolving Facility are available in U.S. dollars and euros.
The 2021 Term Loan B bears an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor, and was issued at a 0.25% original issue discount. Further, the 2021 Term Loan B requires scheduled quarterly payments in amounts equal to 0.25% of the original principal amount of the 2021 Term Loan B, with the balance to be paid at maturity. As of June 30, 2016, $5.0 million of these scheduled future payments were classified as current debt on the Company’s condensed consolidated balance sheet.
Loans under the 2020 Revolving Facility, at the Borrowers’ option, may be maintained as (a) LIBO rate loans, which bear interest at a rate per annum equal to the LIBO rate plus the applicable margin (as defined in the Credit Agreement), if applicable, or (b) base rate loans which shall bear interest at a rate per annum equal to the base rate plus the applicable margin (as defined in the Credit Agreement). As of June 30, 2016, the Borrowers will be required to pay a quarterly commitment fee in respect of any unused commitments under the 2020 Revolving Facility equal to 0.375% per annum.
As of June 30, 2016, the Company had no outstanding borrowings, and had $308.9 million (net of $16.1 million outstanding letters of credit) of funds available for borrowing under the 2020 Revolving Facility. The Senior Credit Facility contains certain customary affirmative, negative and financial covenants. As of June 30, 2016, the Company was in compliance with all debt covenant requirements under the Senior Credit Facility. Refer to the Annual Report for further information.
2019 Senior Notes
In January 2013, the Company issued $1,325.0 million 8.750% senior notes due to mature on February 1, 2019 (the “2019 Senior Notes”). In July 2014, using proceeds from the Company’s initial public offering in June 2014 (the “IPO”), the Company redeemed $132.5 million in aggregate principal amount of the 2019 Senior Notes.
On May 13, 2015, using the net proceeds from the issuance of the 2021 Term Loan B, together with the net proceeds from the issuance of the 2022 Senior Notes (defined and discussed below) and available cash, the Company redeemed all outstanding borrowings under the 2019 Senior Notes, totaling $1,192.5 million in principal, together with a call premium of $68.6 million (with a redemption price of 103% on the first $132.5 million and 106.097% on the remaining balance) and accrued and unpaid interest thereon of $29.6 million.
As a result of this redemption, during the three and six months ended June 30, 2015, the Company recorded a loss on extinguishment of long-term debt of $94.5 million, which includes the above $68.6 million call premium and $25.9 million write-off of unamortized deferred financing fees related to the 2019 Senior Notes.
2022 Senior Notes
On May 5, 2015, the Issuers executed an indenture (the “Indenture”) pursuant to which they issued $300.0 million aggregate principal amount of 6.750% senior notes due May 1, 2022 (the “USD Notes”) and €375.0 million aggregate principal amount of 6.375% senior notes due May 1, 2022 (the “Euro Notes”, and together with the USD Notes, the “2022 Senior Notes”). Interest on the 2022 Senior Notes is payable semi-annually on May 1 and November 1 of each year, commencing on November 1, 2015.
The Indenture contains certain provisions allowing the Issuers’ to redeem the 2022 Senior Notes prior to their maturity. Additionally, the Indenture contains certain customary covenants, which the Company was in compliance with as of June 30, 2016. Refer to the Annual Report for further information.
Accounts Receivable Securitization Facility
The Company’s accounts receivable securitization facility (“Accounts Receivable Securitization Facility”) has a borrowing capacity of $200.0 million and was set to mature in May 2016. In February 2016, the Company amended the facility to extend the maturity date to May 2019.
The Accounts Receivable Securitization Facility is subject to interest charges against the amount of outstanding borrowings as well as the amount of available, but undrawn commitments. In regards to outstanding borrowings, fixed interest charges are 2.60% plus variable commercial paper rates, while for available, but undrawn commitments, fixed interest charges are 1.40%.
13
As of June 30, 2016 and December 31, 2015, there were no amounts outstanding under the Accounts Receivable Securitization Facility, with approximately $129.7 million and $123.4 million, respectively, of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.
NOTE 7—6—DERIVATIVE INSTRUMENTS
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates. To manage these risks, the Company periodically enters into derivative financial instruments such as foreign exchange forward contracts. The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives are recorded on the condensed consolidated balance sheets at fair value.
Foreign Exchange Forward Contracts
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our balance sheet against corresponding assets of the same currency such that any changes in liabilities due to fluctuations in exchange rates are offset by changes in their corresponding foreign currency assets. In order to further reduce its exposure, the Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on our assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment.
12
As of June 30, 2016,2017, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $155.2$302.1 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of June 30, 2016.2017.
| ||||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
|
|
|
|
|
|
|
| June 30, |
| |
Buy / (Sell) |
| 2017 |
| |
Euro |
| $ | (146,217) |
|
Chinese Yuan |
| $ | (74,647) |
|
Indonesian Rupiah |
| $ | (33,617) |
|
Swiss Franc |
| $ | 18,686 |
|
Japanese Yen |
| $ | (7,706) |
|
Foreign Exchange Cash Flow Hedges
The Company also enters into forward contracts with the objective of managing the currency risk associated with forecasted U.S. dollar-denominated raw materials purchases by one of its subsidiaries whose functional currency is the euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company buys a designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the 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)income/loss (“AOCI”) to the extent effective, and reclassified to cost of sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.
Open foreign exchange cash flow hedges as of June 30, 20162017 have maturities occurring over a period of 18 months, and have a net notional U.S. dollar equivalent of $270.0$255.0 million.
Net Investment Hedge
The Company’s outstanding debt includes €375.0 million of Euro Notes (see(refer to Note 65 for details). As of June 30, 2016,2017, the Company has designated a portion (€280.0280 million) of the principal amount of these Euro Notes as a hedge of the foreign currency exposure of the Issuers’ net investment in certain European subsidiaries. As this debt was deemed to be a highly effective hedge, changes in the Euro Notes’ carrying value resulting from fluctuations in the euro exchange rate were recorded as cumulative foreign currency translation loss of $2.1$10.2 million within accumulated other comprehensive lossAOCI as of June 30, 2016.2017.
14
Summary of Derivative Instruments
Information regarding changes in the fair value of the Company’s derivative instruments, net of tax, including those not designated for hedge accounting treatment, is as follows:
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain (Loss) Recognized in |
| Gain (Loss) Recognized in |
|
|
| Gain (Loss) Recognized in |
| Gain (Loss) Recognized in |
|
| ||||||||||||||||
|
| AOCI on Balance Sheet |
| Statement of Operations |
|
|
| AOCI on Balance Sheet |
| Statement of Operations |
|
| ||||||||||||||||
|
| Three Months Ended June 30, |
| Statement of Operations |
| Three Months Ended June 30, |
| Statement of Operations | ||||||||||||||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| Classification |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Classification | ||||||||
Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | 6,029 |
| $ | (1,440) |
| $ | (735) |
| $ | 76 |
| Cost of sales |
| $ | (12,966) |
| $ | 6,029 |
| $ | 1,009 |
| $ | (735) |
| Cost of sales |
Total |
| $ | 6,029 |
| $ | (1,440) |
| $ | (735) |
| $ | 76 |
|
|
| $ | (12,966) |
| $ | 6,029 |
| $ | 1,009 |
| $ | (735) |
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
| $ | 3,798 |
| $ | (2,438) |
| $ | — |
| $ | — |
| Other expenses, net |
| $ | (19,670) |
| $ | 3,798 |
| $ | — |
| $ | — |
| Other expense (income), net |
Total |
| $ | 3,798 |
| $ | (2,438) |
| $ | — |
| $ | — |
|
|
| $ | (19,670) |
| $ | 3,798 |
| $ | — |
| $ | — |
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
| $ | — |
| $ | — |
| $ | (2,138) |
| $ | 7,264 |
| Other expenses, net |
| $ | — |
| $ | — |
| $ | (8,835) |
| $ | (2,138) |
| Other expense (income), net |
Total |
| $ | — |
| $ | — |
| $ | (2,138) |
| $ | 7,264 |
|
|
| $ | — |
| $ | — |
| $ | (8,835) |
| $ | (2,138) |
|
|
13
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|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
| Gain (Loss) Recognized in |
| Gain (Loss) Recognized in |
|
|
| Gain (Loss) Recognized in |
| Gain (Loss) Recognized in |
|
| ||||||||||||||||
|
| AOCI on Balance Sheet |
| Statement of Operations |
|
|
| AOCI on Balance Sheet |
| Statement of Operations |
|
| ||||||||||||||||
|
| Six Months Ended June 30, |
| Statement of Operations |
| Six Months Ended June 30, |
| Statement of Operations | ||||||||||||||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| Classification |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Classification | ||||||||
Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | (1,396) |
| $ | (405) |
| $ | 370 |
| $ | 76 |
| Cost of sales |
| $ | (17,776) |
| $ | (1,396) |
| $ | 3,460 |
| $ | 370 |
| Cost of sales |
Total |
| $ | (1,396) |
| $ | (405) |
| $ | 370 |
| $ | 76 |
|
|
| $ | (17,776) |
| $ | (1,396) |
| $ | 3,460 |
| $ | 370 |
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
| $ | (2,487) |
| $ | (2,438) |
| $ | — |
| $ | — |
| Other expenses, net |
| $ | (24,660) |
| $ | (2,487) |
| $ | — |
| $ | — |
| Other expense (income), net |
Total |
| $ | (2,487) |
| $ | (2,438) |
| $ | — |
| $ | — |
|
|
| $ | (24,660) |
| $ | (2,487) |
| $ | — |
| $ | — |
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
| $ | — |
| $ | — |
| $ | 995 |
| $ | (13,698) |
| Other expenses, net |
| $ | — |
| $ | — |
| $ | (10,510) |
| $ | 995 |
| Other expense (income), net |
Total |
| $ | — |
| $ | — |
| $ | 995 |
| $ | (13,698) |
|
|
| $ | — |
| $ | — |
| $ | (10,510) |
| $ | 995 |
|
|
The Company recorded losses of $8.8 million and $2.110.5 million during the three and six months ended June 30, 2017, respectively, and losses of $2.1 million and gains of $1.0 million during the three and six months ended June 30, 2016, respectively, and gains of $7.3 million and losses of $13.7 million during the three and six months ended June 30, 2015, respectively, from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges). The gains and losses from these forward contracts offset net foreign exchange transaction gains of $7.3 million and $7.9 million during the three and six months ended June 30, 2017, respectively, and gains of $2.3 million and losses of $2.6 million during the three and six months ended June 30, 2016, respectively, and losses of $10.4 million and gains of $7.6 million during the three and six months ended June 30, 2015, respectively, which resulted from the remeasurement of the Company’s foreign currency denominated assets and liabilities. The cash settlements of these foreign exchange forward contracts are included within operating activities in the condensed consolidated statement of cash flows.
As of June 30, 2016,2017, the Company has no ineffectiveness related to its foreign exchange cash flow hedges. Further, the Company expects to reclassify in the next twelve months an approximate $2.3$4.7 million net gainloss from other comprehensive income (loss)AOCI into earnings related to the Company’s outstanding cash flow hedges as of June 30, 20162017 based on current foreign exchange rates.
15
The following table summarizes the net unrealized gains and losses and balance sheet classification of outstanding derivatives recorded in the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2016 |
| December 31, 2015 |
|
| June 30, 2017 |
| December 31, 2016 |
| ||||||||||||||||||||||||||||
|
| Foreign |
| Foreign |
|
|
| Foreign |
| Foreign |
|
|
|
| Foreign |
| Foreign |
|
|
| Foreign |
| Foreign |
|
|
| ||||||||||||
|
| Forward |
| Cash Flow |
|
|
| Forward |
| Cash Flow |
|
|
|
| Forward |
| Cash Flow |
|
|
| Forward |
| Cash Flow |
|
|
| ||||||||||||
Balance Sheet Classification |
| Contracts |
| Hedges |
| Total |
| Contracts |
| Hedges |
| Total |
|
| Contracts |
| Hedges |
| Total |
| Contracts |
| Hedges |
| Total |
| ||||||||||||
Asset Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance |
| $ | 1,432 |
| $ | 2,449 |
| $ | 3,881 |
| $ | 4,592 |
| $ | 4,958 |
| $ | 9,550 |
|
| $ | 514 |
| $ | — |
| $ | 514 |
| $ | 1,664 |
| $ | 11,018 |
| $ | 12,682 |
|
Deferred charges and other assets |
|
| — |
|
| 1,137 |
|
| 1,137 |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total asset derivatives |
| $ | 1,432 |
| $ | 3,586 |
| $ | 5,018 |
| $ | 4,592 |
| $ | 4,958 |
| $ | 9,550 |
|
| $ | 514 |
| $ | — |
| $ | 514 |
| $ | 1,664 |
| $ | 11,018 |
| $ | 12,682 |
|
Liability Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 999 |
| $ | 164 |
| $ | 1,163 |
| $ | 194 |
| $ | — |
| $ | 194 |
|
| $ | 4,830 |
| $ | 4,745 |
| $ | 9,575 |
| $ | 511 |
| $ | — |
| $ | 511 |
|
Other noncurrent obligations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
| 2,069 |
|
| 2,069 |
|
| — |
|
| — |
|
| — |
|
Total liability derivatives |
| $ | 999 |
| $ | 164 |
| $ | 1,163 |
| $ | 194 |
| $ | — |
| $ | 194 |
|
| $ | 4,830 |
| $ | 6,814 |
| $ | 11,644 |
| $ | 511 |
| $ | — |
| $ | 511 |
|
14
Forward contracts are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract. As such, in accordance with the Company’s accounting policy, we record these foreign exchange forward contracts on a net basis by counterparty within the condensed consolidated balance sheet. Information regarding the gross amounts of the Company’s derivative instruments and the amounts offset in the condensed consolidated balance sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Amounts |
| Gross Amounts |
| Net Amounts |
|
| Gross Amounts |
| Gross Amounts |
| Net Amounts |
| ||||||
|
| Recognized in the |
| Offset in the |
| Presented in the |
|
| Recognized in the |
| Offset in the |
| Presented in the |
| ||||||
|
| Balance Sheet |
| Balance Sheet |
| Balance Sheet |
|
| Balance Sheet |
| Balance Sheet |
| Balance Sheet |
| ||||||
Balance at June 30, 2016 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at June 30, 2017 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Derivative assets |
| $ | 6,816 |
| $ | (1,798) |
| $ | 5,018 |
|
| $ | 1,289 |
| $ | (775) |
| $ | 514 |
|
Derivative liabilities |
|
| 2,961 |
|
| (1,798) |
|
| 1,163 |
|
|
| 12,419 |
|
| (775) |
|
| 11,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at December 31, 2016 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Derivative assets |
| $ | 10,044 |
| $ | (494) |
| $ | 9,550 |
|
| $ | 23,401 |
| $ | (10,719) |
| $ | 12,682 |
|
Derivative liabilities |
|
| 688 |
|
| (494) |
|
| 194 |
|
|
| 11,230 |
|
| (10,719) |
|
| 511 |
|
Refer to Notes 87 and 1714 of the condensed consolidated financial statements for further information regarding the fair value of the Company’s derivative instruments and the related changes in accumulated other comprehensive incomeAOCI.
NOTE 8—7—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.
16
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 June 30, 20162017 and December 31, 2015.2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2017 |
| ||||||||||
|
| Quoted Prices in Active Markets for Identical Items |
| Significant Other Observable Inputs |
| Significant Unobservable Inputs |
|
|
|
| |||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
Foreign exchange forward contracts—Assets |
| $ | — |
| $ | 514 |
| $ | — |
| $ | 514 |
|
Foreign exchange forward contracts—(Liabilities) |
|
| — |
|
| (4,830) |
|
| — |
|
| (4,830) |
|
Foreign exchange cash flow hedges—(Liabilities) |
|
| — |
|
| (6,814) |
|
| — |
|
| (6,814) |
|
Total fair value |
| $ | — |
| $ | (11,130) |
| $ | — |
| $ | (11,130) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2016 |
| ||||||||||
|
| Quoted Prices in |
| Significant |
| Significant |
|
|
|
| |||
|
| Active Markets for |
| Other Observable |
| Unobservable |
|
|
|
| |||
|
| Identical Items |
| Inputs |
| Inputs |
|
|
|
| |||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
Foreign exchange forward contracts—Assets |
| $ | — |
| $ | 1,432 |
| $ | — |
| $ | 1,432 |
|
Foreign exchange forward contracts—(Liabilities) |
|
| — |
|
| (999) |
|
| — |
|
| (999) |
|
Foreign exchange cash flow hedges—Assets |
|
| — |
|
| 3,586 |
|
| — |
|
| 3,586 |
|
Foreign exchange cash flow hedges—(Liabilities) |
|
| — |
|
| (164) |
|
| — |
|
| (164) |
|
Total fair value |
| $ | — |
| $ | 3,855 |
| $ | — |
| $ | 3,855 |
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| December 31, 2015 |
| |||||||||||||||||||||||
|
| Quoted Prices in |
| Significant |
| Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Active Markets for |
| Other Observable |
| Unobservable |
|
|
|
|
| December 31, 2016 |
| |||||||||||||
|
| Identical Items |
| Inputs |
| 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 |
| $ | — |
| $ | 4,592 |
| $ | — |
| $ | 4,592 |
|
| $ | — |
| $ | 1,664 |
| $ | — |
| $ | 1,664 |
|
Foreign exchange forward contracts—(Liabilities) |
|
| — |
|
| (194) |
|
| — |
|
| (194) |
|
|
| — |
|
| (511) |
|
| — |
|
| (511) |
|
Foreign exchange cash flow hedges—Assets |
|
| — |
|
| 4,958 |
|
| — |
|
| 4,958 |
|
|
| — |
|
| 11,018 |
|
| — |
|
| 11,018 |
|
Total fair value |
| $ | — |
| $ | 9,356 |
| $ | — |
| $ | 9,356 |
|
| $ | — |
| $ | 12,171 |
| $ | — |
| $ | 12,171 |
|
The Company uses an income approach to value its derivative instruments, utilizing discounted cash flow techniques, considering the terms of the contract and observable market information available as of the reporting date. Significant inputs to the valuation for foreign exchange forward contracts and foreign exchange cash flow hedges are obtained from broker quotations or from listed or over-the-counter market data, and are classified as Level 2 in the fair value hierarchy.
Fair Value of Debt Instruments
The following table presents the estimated fair value of the Company’s outstanding debt not carried at fair value as of June 30, 20162017 and December 31, 2015,2016, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of |
| As of |
|
| As of |
| As of |
| ||||
|
| June 30, 2016 |
| December 31, 2015 |
|
| June 30, 2017 |
| December 31, 2016 |
| ||||
2022 Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Notes |
|
| 301,500 |
|
| 296,250 |
|
| $ | 318,750 |
| $ | 315,000 |
|
Euro Notes |
|
| 420,914 |
|
| 410,054 |
|
|
| 456,187 |
|
| 424,437 |
|
2021 Term Loan B |
|
| 493,456 |
|
| 491,401 |
|
|
| 494,596 |
|
| 498,041 |
|
Total fair value |
| $ | 1,215,870 |
| $ | 1,197,705 |
|
| $ | 1,269,533 |
| $ | 1,237,478 |
|
The fair value of the Company’s Term Loan B, USD Notes, and Euro Notes (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 June 30, 20162017 and December 31, 2015.
17
NOTE 9—PROVISION FOR INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
|
| ||||||||
|
| June 30, |
| June 30, |
|
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
|
| ||||
Effective income tax rate |
|
| 23.0 | % |
| 90.9 | % |
| 22.6 | % |
| 39.8 | % |
|
Provision for income taxes for the three and six months ended June 30, 2016 were $28.6 million, resulting in an effective tax rate of 23.0%, and $50.5 million, resulting in an effective tax rate of 22.6%, respectively. Provision for income taxes for the three and six months ended June 30, 2015 were $7.5 million, resulting in an effective tax rate of 90.9%, and $25.4 million, resulting in an effective tax rate of 39.8%, respectively.
The effective income tax rate for the three and six months ended June 30, 2016 was impacted by losses generated primarily within our holding companies incorporated in Luxembourg and our primary operating company incorporated in Brazil, which were not anticipated to provide a tax benefit to the Company in the future. For the three and six months ended June 30, 2016, these losses totaled approximately $29.0 million and $41.7 million, respectively. Included in these losses was an impairment charge of $12.9 million for the estimated loss on sale of Trinseo Brazil. Refer to Note 15 for further information.
The effective income tax rate for the three and six months ended June 30, 2015 was impacted by losses generated primarily within our holding companies incorporated in Luxembourg, which were not anticipated to provide a tax benefit to the Company in the future. For the three and six months ended June 30, 2015, these losses totaled approximately $41.2 million and $58.8 million, respectively. Included in these losses were payments made during the three months ended June 30, 2015 of $18.1 million related to a portion of the fees associated with the call premium paid to retire the Company’s 2019 Senior Notes and $4.3 million related to the write-off of the related unamortized deferred financing fees. Refer to Note 6 for further information.
2016.
NOTE 10—8—COMMITMENTS AND CONTINGENCIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law, existing technologies and other information. As of June 30, 2016 and December 31, 2015, the Company had no accrued obligations for environmental remediation and restoration costs. Pursuant to the terms of the sales and purchase agreement forassociated with the Styron business,Company’s formation, the pre-closing environmental conditions were retained by Dow and Dow has agreed to indemnify the Company has been indemnified by Dow from and against all environmental liabilities incurred or relating to the predecessor periods. There are several properties which the Company now owns on which Dow has been conducting investigation, monitoring or remediation to address historical contamination. Those properties include Allyn’s Point, Connecticut; Dalton, Georgia; and Livorno, Italy. There are other properties with historical contamination that are owned by Dow that the Company leases for its operations, including its facilities in Midland, Michigan; Schkopau, Germany; and Terneuzen, The Netherlands. No environmental claims have been asserted or threatened against the Company, and the Company is not a potentially responsible party at any Superfund Sites. As of June 30, 2017 and December 31, 2016, the Company had no accrued obligations for environmental remediation and restoration costs.
Inherent uncertainties exist in the Company’s potential environmental liabilities primarily due to unknown conditions, whether future claims may fall outside the scope of the indemnity, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. In connection with the Company’s existing indemnification, the possibility is considered remote that environmental remediation costs will have a material adverse impact on the condensed consolidated financial statements.
Purchase Commitments
In the normal course of business, the Company has certain raw material purchase contracts where it is required to purchase certain minimum volumes at current market prices. These commitments range from 1 to 5 years. In certain raw
16
material purchase contracts, the Company has the right to purchase less than the required minimums and pay a liquidated damages fee, or, in case of a permanent plant shutdown, to terminate the contracts. In such cases, these obligations would be less than the annual commitment as disclosed in the consolidated financial statements included in the Annual Report.
18
Litigation Matters
From time to time, the Company may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as product liability, antitrust/competition, past waste disposal practices and release of chemicals into the environment. While it is impossible at this time to determine with certainty the ultimate outcome of these routine claims, the Company does not believe that the ultimate resolution of these claims will have a material adverse effect on the Company’s results of operations, financial condition or cash flow. Legal costs, including those legal costs expected to be incurred in connection with a loss contingency, are expensed as incurred.
NOTE 11—9—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for all significant plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| June 30, |
| June 30, |
|
| June 30, |
| June 30, |
| ||||||||||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||
Defined Benefit Pension Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 4,211 |
| $ | 4,075 |
| $ | 8,282 |
| $ | 8,376 |
|
| $ | 4,707 |
| $ | 4,211 |
| $ | 9,291 |
| $ | 8,282 |
|
Interest cost |
|
| 1,408 |
|
| 1,287 |
|
| 2,768 |
|
| 2,647 |
|
|
| 1,111 |
|
| 1,408 |
|
| 2,192 |
|
| 2,768 |
|
Expected return on plan assets |
|
| (499) |
|
| (399) |
|
| (982) |
|
| (820) |
|
|
| (423) |
|
| (499) |
|
| (835) |
|
| (982) |
|
Amortization of prior service credit |
|
| (493) |
|
| (402) |
|
| (971) |
|
| (825) |
|
|
| (482) |
|
| (493) |
|
| (953) |
|
| (971) |
|
Amortization of net loss |
|
| 1,073 |
|
| 1,308 |
|
| 2,111 |
|
| 2,689 |
|
|
| 1,395 |
|
| 1,073 |
|
| 2,753 |
|
| 2,111 |
|
Net settlement and curtailment loss(1) |
|
| — |
|
| — |
|
| 129 |
|
| — |
| |||||||||||||
Net periodic benefit cost |
| $ | 5,700 |
| $ | 5,869 |
| $ | 11,208 |
| $ | 12,067 |
|
| $ | 6,308 |
| $ | 5,700 |
| $ | 12,577 |
| $ | 11,208 |
|
(1) | Represents a settlement loss of approximately $0.5 million triggered by benefit payments exceeding the sum of service and interest cost for one of the Company’s pension plans in Switzerland, partially offset by a curtailment gain of approximately $0.4 million related to a reduction in the number of participants in the Company’s pension plan in Japan. |
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|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| June 30, |
| June 30, |
|
| June 30, |
| June 30, |
| ||||||||||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||
Other Postretirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 65 |
| $ | 86 |
| $ | 128 |
| $ | 174 |
|
| $ | 54 |
| $ | 65 |
| $ | 108 |
| $ | 128 |
|
Interest cost |
|
| 129 |
|
| 133 |
|
| 250 |
|
| 273 |
|
|
| 63 |
|
| 129 |
|
| 126 |
|
| 250 |
|
Amortization of prior service cost |
|
| 26 |
|
| 26 |
|
| 52 |
|
| 52 |
|
|
| 25 |
|
| 26 |
|
| 51 |
|
| 52 |
|
Amortization of net gain |
|
| (43) |
|
| — |
|
| (86) |
|
| — |
|
|
| (10) |
|
| (43) |
|
| (21) |
|
| (86) |
|
Net periodic benefit cost |
| $ | 177 |
| $ | 245 |
| $ | 344 |
| $ | 499 |
|
| $ | 132 |
| $ | 177 |
| $ | 264 |
| $ | 344 |
|
As of June 30, 20162017 and December 31, 2015,2016, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $181.3$211.7 million and $172.5$195.8 million, respectively. The net periodic benefit costs are recognized in the condensed consolidated statement of operations as “Cost of sales” and “Selling, general and administrative expenses.”
The Company made cash contributions and benefit payments to unfunded plans of approximately $2.4$5.0 million and $5.3$10.2 million during the three and six months ended June 30, 2016.2017, respectively. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately $11.0$5.5 million to its defined benefit plans for the remainder of 2016.
Supplemental Employee Retirement Plan
The Company established a non-qualified supplemental employee retirement plan in 2010. As of December 31, 2015, benefit obligations under this plan were $13.7 million, noting $1.6 million of net loss included in AOCI, of which $1.0 million was expected to be amortized from AOCI into net periodic benefit cost in 2016. Lastly, as of December 31, 2015, the estimated future benefit payments under this plan were $13.9 million, expected to be paid in 2017.
During the six months ended June 30, 2016, this retirement plan was amended to, among other things, extend the employment period covered by the plan, resulting in an increase to the benefit obligation under this plan of $1.3 million and a corresponding actuarial loss recorded to AOCI. The amounts expected to be amortized from AOCI into net periodic benefit cost for 2016 remains approximately $1.0 million. As a result of this amendment, the estimated future
1917
benefit payments under this plan were $15.3 million as of June 30, 2016, and are expected to be paid in 2018.
NOTE 12—10—STOCK-BASED COMPENSATION
Restricted Stock Awards issued by the Parent
On June 17, 2010, Bain Capital Everest Manager Holding SCA (“the Parent”), an affiliate of Bain Capital, authorized the issuance of up to 750,000 shares in time-based and performance-based restricted stock to certain key members of management. Any related compensation associated with these awards is allocatedRefer to the Company from the Parent. With the adoptionAnnual Report for definitions of the Trinseo S.A. 2014 Omnibus Incentive Plan (“2014 Omnibus Plan”) during 2014, discussedcapitalized terms not included herein and further below, restricted stock awards are no longer issued by the Parentbackground on behalf of the Company.
Time-based Restricted Stock Awards
For the six month period ended June 30, 2016, there were no grants of time-based restricted stock awards. Total compensation expense for time-based restricted stock awards was $0.4 million and $0.9 million for the three months ended June 30, 2016 and 2015, respectively, and $0.8 million and $2.1 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, there was $0.8 million of total unrecognized compensation cost related to time-based restricted stock awards, which is expected to be recognized over a weighted-average period of 1.3 years.
Modified Time-based Restricted Stock Awards
For the six month period ended June 30, 2016, there were no grants of modified time-based restricted stock awards. Total compensation expense recognized for modified time-based restricted stock awards was $0.7 million and $0.9 million for the three months ended June 30, 2016 and 2015, respectively, and $1.5 million and $1.8 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, there was $3.0 million of total unrecognized compensation cost related to the modified time-based restricted stock awards, which is expected to be recognized over a weighted-average period of 1.1 years.
2014 Omnibus Incentive Plan
In connection with the IPO, the Company’s board of directors approvedstock-based compensation programs included in the 2014 Omnibus Plan, adopted on May 28, 2014, under which the maximum number of ordinary shares that may be delivered upon satisfaction of awards granted under such plan is 4.5 million shares. Since that time, the board of directors of the Company has approved equity award grants for certain executives and employees, comprised of restricted share units (or RSUs) and options to purchase shares (“option awards”).
Restricted Share Units (RSUs)tables below.
The RSUs granted to executives and employees vest in full on the third anniversary of the date of grant, generally subject to the employee remaining continuously employed by the Company on the vesting date. RSUs granted to directors of the Company vest in full on the first anniversary of the date of grant. Upon a termination of employment due to the employee’s death or retirement or a termination of employment by the Company without cause in connection with a restructuring or redundancy or due to the employee’s disability prior to the vesting date, the RSUs will vest in full or in part, depending on the type of termination. In the event employment is terminated for cause, all unvested RSUs will be forfeited. Dividends and dividend equivalents will not accumulate on unvested RSUs. Compensation costs for the RSUs are measured at the grant date based on the fair value of the award and are recognized ratably as expense over the applicable vesting term.
The fair value of RSUs is equal to the fair market value offollowing table summarizes the Company’s ordinary shares based on the closing price on the date of grant. During the three and six months ended June 30, 2016, the Company granted 21,446 and 340,551 RSUs, respectively, at a weighted-average grant date fair value per unit of $47.45 and $28.26, respectively. Totalstock-based compensation expense recognized for all outstanding RSUs was $1.4 million and $2.5 million for the three and six months ended June 30, 2017 and 2016 respectively,as well as unrecognized compensation cost as of June 30, 2017:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of |
| |||
|
| Three Months Ended |
| Six Months Ended |
| June 30, 2017 |
| |||||||||||
|
| June 30, |
| June 30, |
| Unrecognized |
| Weighted |
| |||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Compensation Cost |
| Average Years |
| |||||
RSUs |
| $ | 2,135 |
| $ | 1,355 |
| $ | 4,008 |
| $ | 2,349 |
| $ | 12,854 |
| 2.0 |
|
Options |
|
| 502 |
|
| 763 |
|
| 3,207 |
|
| 4,135 |
|
| 2,094 |
| 1.5 |
|
PSUs |
|
| 321 |
|
| — |
|
| 472 |
|
| — |
|
| 3,386 |
| 2.6 |
|
Restricted Stock Awards issued by Former Parent |
|
| — |
|
| 1,104 |
|
| — |
|
| 2,332 |
|
| — |
| — |
|
Total Stock-based Compensation Expense |
| $ | 2,958 |
| $ | 3,222 |
| $ | 7,687 |
| $ | 8,816 |
|
|
|
|
|
|
The following table summarizes awards granted and $0.5 million and $0.7 millionthe respective weighted-average grant date fair value for the three and six months ended June 30, 2015, respectively. As of June 30, 2016, there was $12.4 million of total unrecognized compensation cost related to outstanding RSUs, which is expected to be recognized over a weighted-average period of 2.3 years.2017:
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| ||||
|
| June 30, 2017 |
| ||||
|
| Awards Granted |
| Weighted Average Grant Date Fair Value per Award |
| ||
RSUs |
|
| 110,117 |
| $ | 70.87 |
|
Options |
|
| 191,565 |
|
| 20.61 |
|
PSUs |
|
| 50,937 |
|
| 75.74 |
|
Option Awards
The option awards, which contain an exercise term of nine years from the date of grant, vest in three equal annual installments beginning on the first anniversary of the date of grant, generally subject to the employee remaining continuously employed on the applicable vesting date. Upon a termination of employment due to the employee’s death
20
or retirement or a termination of employment by the Company without cause in connection with a restructuring or redundancy or due to the employee’s disability prior to a vesting date, the options will vest in full or will continue to vest on the original vesting schedule, depending on the type of termination. In the event employment is terminated for cause, all vested and unvested options will be forfeited. Compensation cost for the option awards is measured at the grant date based on the fair value of the award and is recognized as expense over the appropriate service period utilizing graded vesting.
The fair value for option awards is computed using the Black-Scholes pricing model, whose inputs and assumptions are determined as of the date of grant. Determining the fair value of the option awards requires considerable judgment, including estimating the expected term of stock options and the expected volatility of the price of the Company’s ordinary shares. During the three and six months ended June 30, 2016, the Company granted 27,404 and 568,981 option awards, respectively, at a weighted-average grant date fair value per option award of $14.16 and $10.10, respectively.
Since the Company’s equity interests were privately held prior to the IPO in June 2014, there is limited publicly traded history of the Company’s ordinary shares. Until such time that the Company has enough publicly traded history of its ordinary shares to determine expected volatility based solely on its ordinary shares, estimated volatility of options granted will be based on a combination of our historical volatility and similar companies’ stock that are publicly traded. The expected term of options represents the period of time that options granted are expected to be outstanding. For the options granted during the three and six months ended June 30, 2016, the simplified method was used to calculate the expected term of options, given the Company’s limited historical exercise data. The risk-free interest rate for the periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is estimated based on historical and expected dividend activity.
The following are the weighted-average assumptions used within the Black-Scholes pricing model for optionsthe Company’s option awards granted during the six months ended June 30, 2016:
2017:
|
|
|
|
|
| Six Months Ended |
|
|
| June 30, |
|
|
|
|
|
Expected term (in years) |
| 5.50 |
|
Expected volatility |
| 35.00 | % |
Risk-free interest rate |
| 2.19 | % |
Dividend yield |
| 2.00 | % |
Total compensation expenseSince the Company’s equity interests were privately held prior to its initial public offering (“IPO”) in June 2014, there is limited publicly available trading history of the Company’s ordinary shares. Until such time that the Company can determine expected volatility based solely on the publicly traded history of its ordinary shares, expected volatility used in the Black-Scholes model for option awards granted is based on a combination of the Company’s historical volatility and similar companies’ stock that are publicly traded. The expected term of option awards represents the period of time that option awards granted are expected to be outstanding. For the option awards was $0.8 million and $4.1 million forgranted during the three and six months ended June 30, 2016, respectively, and $1.2 million and $1.4 million2017, 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 three and six months ended June 30, 2015, respectively. Asperiods within the expected term of June 30, 2016, there was $2.8 million of total unrecognized compensation cost related to the option awards which 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 to be recognized over a weighted-average period of 1.4 years.
Adoption of Accounting Standards Update
As discussed in Note 2, effective April 1, 2016, the Company adopted new accounting guidance issued by the FASB that simplifies several aspects of accounting for share-based payments. Among other things, as part of this adoption, the Company made an accounting policy election to recognize forfeitures as incurred, rather than estimating the forfeitures in advance. The impact of this change was applied utilizing a modified retrospective approach, with an adjustment of $0.9 million recorded during the three months ended June 30, 2016 to decrease opening retained earnings and increase opening additional paid-in-capital. All other impacts of this adoption were not material to the Company’s financial position and results of operations.dividend activity.
NOTE 13—RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company entered into a ten year initial term advisory agreement with Bain Capital Partners, LLC and Portfolio Company Advisors Limited (the “Advisory Agreement”) wherein Bain Capital Partners, LLC and Portfolio Company Advisors Limited provides management and consulting services and financial and other advisory services to the Company. The Advisory Agreement terminated upon consummation of the Company’s IPO in June 2014. Bain Capital will continue to provide an immaterial level of ad hoc advisory services for the Company going forward. In conjunction with the foregoing, we incurred Bain Capital Partners, LLC and Portfolio Company
2118
Advisors Limited fees (including out-of-pocket expenses) of zero
Performance Share Units (PSUs)
The Company granted PSUs for the three andfirst time during the six months ended June 30, 2016, respectively,2017. The PSUs, which are granted to executives, cliff vest on the third anniversary of the date of grant, generally subject to the executive remaining continuously employed by the Company through the vesting date and $0.1 millionachieving certain performance conditions. The number of the PSUs that vest upon completion of the service period can range from 0 to 200 percent of the original grant, subject to certain limitations, contingent upon the Company’s total shareholder return (“TSR”) during the performance period relative to a pre-defined set of industry peer companies. Upon a termination of employment due to the executive’s death or retirement, or termination in connection with a change in control or other factors prior to the vesting date, the PSUs will vest in full or in part, depending on the type of termination and $0.2 millionthe achievement of the performance conditions. Dividend equivalents will accumulate on PSUs during the vesting period, will be paid in cash upon vesting, and do not accrue interest. When PSUs vest, shares will be issued from the existing pool of treasury shares. The fair value for PSU awards is computed using a Monte Carlo valuation model.
NOTE 11—DIVESTITURES
During the three and six months ended June 30, 2015, respectively.
In Marchsecond quarter of 2016, the Company announced that the Parent agreedsigned a definitive agreement to sell 10,600,000 ordinary shares pursuant to the Company’s shelf registration statement filed with the SEC. In May 2016, the Parent agreed to sell an additional 8,000,000 ordinary shares (see Note 18 for further details). In connection with these offerings,Trinseo do Brasil Comercio de Produtos Quimicos Ltda. (“Trinseo Brazil”), its primary operating entity in Brazil, including both a latex binders and under the termsautomotive business. The sale closed on October 1, 2016.
As a result of the Acquisition, the Company incurred advisory, accounting, legal and printing expenses on behalf of the Parent of $0.3 million and $2.2 millionthis agreement, during the three and six months ended June 30, 2016, respectively. These expenses were includedthe Company recorded impairment charges for the estimated loss on sale of approximately $12.9 million within “Selling, general and administrative expenses” on“Other expense (income), net” in the condensed consolidated statement of operations.
These charges, which are subject to certain post-closing settlement activities, were allocated as $8.6 million, $4.0 million, and $0.3 million to the Performance Plastics segment, Latex Binders segment, and Corporate, respectively. During the year ended December 31, 2016, the Company received $1.8 million in proceeds from the sale of these businesses, with an additional $1.5 million received during the six months ended June 30, 2017.
NOTE 14—12—SEGMENTS
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the business is now managed and results are reviewed by the chief executive officer, who is the Company’s chief operating decision maker. This change in segments was made to provide increased clarity and understanding around the indicators of profitability and cash flow of the Company. The Company operates under two divisions: Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division includes the following reporting segments: Synthetic Rubber, Latex, and Performance Plastics. Theprevious Basic Plastics & Feedstocks divisionsegment was split into three new segments: Basic Plastics, which includes polystyrene, copolymers, and polycarbonate; Feedstocks, which represents a separatethe Company’s styrene monomer business; and Americas Styrenics, which reflects the equity earnings from its 50%-owned styrenics joint venture. In addition, certain highly differentiated acrylonitrile-butadiene-styrene, or ABS, supplied into Performance Plastics markets, which was previously included in the results of Basic Plastics & Feedstocks, is now included in Performance Plastics. Finally, the Latex segment was renamed to Latex Binders. In conjunction with the segment realignment, the Company also changed its primary measure of segment operating performance from EBITDA to Adjusted EBITDA. Refer to the discussion below for financialfurther information about Adjusted EBITDA.
The information in the tables below has been retroactively adjusted to reflect the changes in reporting purposes.segments and segment operating performance.
The Latex Binders segment produces styrene-butadiene latex, or SB latex, and other latex polymers and binders, primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex applications.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, with additional applications in polymer modificationimpact modifiers and technical rubber goods, includingproducts, such as conveyer and fan belts, hoses, seals and gaskets. The Performance Plastics segment produces highly engineered compounds and blends and some specialized ABS grades for automotive end markets, as well as consumer electronics, medical, electrical and lighting, collectively consumer essential markets, or CEM. The Basic Plastics &segment produces styrenic polymers, including polystyrene, basic ABS, and styrene-acrylonitrile, or SAN, products, as well as polycarbonate, or PC, all of which are used as inputs in a variety of end use markets. The Basic Plastics segment also included the results of our previously 50%-owned joint venture, Sumika Styron Polycarbonate, until the Company sold its share in the entity in January 2017 (refer to Note 3 for further information). The Feedstocks segment includes styrenic polymers, polycarbonate, or PC,the Company’s production and procurement of styrene monomer and also includes the resultsoutside of North America, which is used as a key raw material in many of the Company’s two 50%-owned joint ventures,products, including polystyrene, SB latex, ABS resins, solution styrene-butadiene rubber, or SSBR, etc. Lastly, the Americas Styrenics and Sumika Styron Polycarbonate.segment consists solely of the
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|
|
|
|
| Performance Materials |
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
| Synthetic |
| Performance |
| Basic Plastics |
| Corporate |
|
|
|
| ||||
Three Months Ended |
| Latex |
| Rubber |
| Plastics |
| & Feedstocks |
| Unallocated |
| Total |
| ||||||
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 232,471 |
| $ | 111,391 |
| $ | 183,891 |
| $ | 441,941 |
| $ | — |
| $ | 969,694 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 38,602 |
|
| — |
|
| 38,602 |
|
EBITDA(1) |
|
| 16,929 |
|
| 30,216 |
|
| 22,273 |
|
| 121,007 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 190,314 |
|
| — |
|
| 190,314 |
|
Depreciation and amortization |
|
| 5,881 |
|
| 8,892 |
|
| 1,589 |
|
| 6,701 |
|
| 1,790 |
|
| 24,853 |
|
June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 247,512 |
| $ | 115,370 |
| $ | 185,304 |
| $ | 480,487 |
| $ | — |
| $ | 1,028,673 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 40,841 |
|
| — |
|
| 40,841 |
|
EBITDA(1) |
|
| 14,904 |
|
| 18,461 |
|
| 21,256 |
|
| 122,155 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 200,206 |
|
| — |
|
| 200,206 |
|
Depreciation and amortization |
|
| 6,196 |
|
| 7,378 |
|
| 1,373 |
|
| 6,015 |
|
| 765 |
|
| 21,727 |
|
2219
operations of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America.
Asset, capital expenditure, and intersegment sales information is not reviewed or included with the Company’s reporting to the chief operating decision maker. Therefore, the Company has not disclosed this information for each reportable segment.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performance Materials |
|
|
|
|
|
|
|
|
|
|
| Performance Materials |
| Basic Plastics & Feedstocks |
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
| Synthetic |
| Performance |
| Basic Plastics |
| Corporate |
|
|
|
|
| Latex |
| Synthetic |
| Performance |
| Basic |
|
|
| Americas |
| Corporate |
|
|
|
| |||||||||||
Six Months Ended |
| Latex |
| Rubber |
| Plastics |
| & Feedstocks |
| Unallocated |
| Total |
| |||||||||||||||||||||||||||||||
Three Months Ended |
| Binders |
| Rubber |
| Plastics |
| Plastics |
| Feedstocks |
| Styrenics |
| Unallocated |
| Total |
| |||||||||||||||||||||||||||
June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Sales to external customers |
| $ | 291,530 |
| $ | 174,009 |
| $ | 190,173 |
| $ | 382,460 |
| $ | 107,027 |
| $ | — |
| $ | — |
| $ | 1,145,199 |
| |||||||||||||||||||
Equity in earnings of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 29,927 |
|
| — |
|
| 29,927 |
| |||||||||||||||||||
Adjusted EBITDA(1) |
|
| 36,070 |
|
| 27,689 |
|
| 23,489 |
|
| 31,768 |
|
| (1,151) |
|
| 29,927 |
|
|
|
|
|
|
| |||||||||||||||||||
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 153,077 |
|
| — |
|
| 153,077 |
| |||||||||||||||||||
Depreciation and amortization |
|
| 5,761 |
|
| 8,688 |
|
| 2,466 |
|
| 4,130 |
|
| 3,092 |
|
| — |
|
| 2,187 |
|
| 26,324 |
| |||||||||||||||||||
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales to external customers |
| $ | 441,952 |
| $ | 213,588 |
| $ | 352,520 |
| $ | 855,718 |
| $ | — |
| $ | 1,863,778 |
|
| $ | 232,471 |
| $ | 111,391 |
| $ | 183,891 |
| $ | 363,325 |
| $ | 78,616 |
| $ | — |
| $ | — |
| $ | 969,694 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 73,628 |
|
| — |
|
| 73,628 |
| |||||||||||||||||||||||||
EBITDA(1) |
|
| 35,033 |
|
| 53,295 |
|
| 52,265 |
|
| 217,611 |
|
|
|
|
|
|
| |||||||||||||||||||||||||
Equity in earnings of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 926 |
|
| — |
|
| 37,676 |
|
| — |
|
| 38,602 |
| |||||||||||||||||||
Adjusted EBITDA(1) |
|
| 21,461 |
|
| 30,216 |
|
| 38,472 |
|
| 43,150 |
|
| 32,548 |
|
| 37,676 |
|
|
|
|
|
|
| |||||||||||||||||||
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 190,314 |
|
| — |
|
| 190,314 |
|
|
| — |
|
| — |
|
| — |
|
| 35,842 |
|
| — |
|
| 154,472 |
|
| — |
|
| 190,314 |
|
Depreciation and amortization |
|
| 12,161 |
|
| 16,935 |
|
| 3,133 |
|
| 13,151 |
|
| 2,593 |
|
| 47,973 |
|
|
| 5,881 |
|
| 8,892 |
|
| 1,589 |
|
| 3,941 |
|
| 2,760 |
|
| — |
|
| 1,790 |
|
| 24,853 |
|
June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Sales to external customers |
| $ | 485,768 |
| $ | 244,774 |
| $ | 382,249 |
| $ | 934,147 |
| $ | — |
| $ | 2,046,938 |
| |||||||||||||||||||||||||
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 77,548 |
|
| — |
|
| 77,548 |
| |||||||||||||||||||||||||
EBITDA(1) |
|
| 36,352 |
|
| 44,632 |
|
| 46,344 |
|
| 181,145 |
|
|
|
|
|
|
| |||||||||||||||||||||||||
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 200,206 |
|
| — |
|
| 200,206 |
| |||||||||||||||||||||||||
Depreciation and amortization |
|
| 12,566 |
|
| 15,169 |
|
| 2,786 |
|
| 12,244 |
|
| 1,516 |
|
| 44,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Materials |
| Basic Plastics & Feedstocks |
|
|
|
|
|
|
| ||||||||||||||
|
| Latex |
| Synthetic |
| Performance |
| Basic |
|
|
| Americas |
| Corporate |
|
|
|
| |||||||
Six Months Ended |
| Binders |
| Rubber |
| Plastics |
| Plastics |
| Feedstocks |
| Styrenics |
| Unallocated |
| Total |
| ||||||||
June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 580,461 |
| $ | 337,371 |
| $ | 374,724 |
| $ | 763,210 |
| $ | 193,923 |
| $ | — |
| $ | — |
| $ | 2,249,689 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 810 |
|
| — |
|
| 48,412 |
|
| — |
|
| 49,222 |
|
Adjusted EBITDA(1) |
|
| 72,885 |
|
| 73,959 |
|
| 50,364 |
|
| 70,629 |
|
| 40,745 |
|
| 48,412 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 153,077 |
|
| — |
|
| 153,077 |
|
Depreciation and amortization |
|
| 11,424 |
|
| 17,067 |
|
| 4,844 |
|
| 7,820 |
|
| 5,568 |
|
| — |
|
| 4,321 |
|
| 51,044 |
|
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
| $ | 441,952 |
| $ | 213,588 |
| $ | 352,520 |
| $ | 705,954 |
| $ | 149,764 |
| $ | — |
| $ | — |
| $ | 1,863,778 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 3,019 |
|
| — |
|
| 70,609 |
|
| — |
|
| 73,628 |
|
Adjusted EBITDA(1) |
|
| 40,228 |
|
| 53,295 |
|
| 73,558 |
|
| 80,917 |
|
| 53,358 |
|
| 70,609 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 35,842 |
|
| — |
|
| 154,472 |
|
| — |
|
| 190,314 |
|
Depreciation and amortization |
|
| 12,161 |
|
| 16,935 |
|
| 3,133 |
|
| 7,525 |
|
| 5,626 |
|
| — |
|
| 2,593 |
|
| 47,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Total segment EBITDA |
| $ | 190,425 |
| $ | 176,776 |
| $ | 358,204 |
| $ | 308,473 |
|
Corporate unallocated |
|
| (22,354) |
|
| (121,193) |
|
| (49,470) |
|
| (145,876) |
|
Less: Interest expense, net |
|
| 18,814 |
|
| 25,600 |
|
| 37,710 |
|
| 54,456 |
|
Less: Provision for income taxes |
|
| 28,600 |
|
| 7,500 |
|
| 50,500 |
|
| 25,400 |
|
Less: Depreciation and amortization |
|
| 24,853 |
|
| 21,727 |
|
| 47,973 |
|
| 44,281 |
|
Net income |
| $ | 95,804 |
| $ | 756 |
| $ | 172,551 |
| $ | 38,460 |
|
Corporate unallocated includes corporate overhead costs and certain other income and expenses, as well as loss on extinguishment of long-term debt.
(1)The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as net income (loss)from continuing operations before interest expense, net; provision for income taxes,taxes; depreciation and amortization.amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring; acquisition related costs and other items. 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 the Company’s core operating performance.performance by removing the impact of transactions and events that would not be considered a part of core operations. Adjusted EBITDA is useful for analytical purposes; however, it should not be considered an alternative to the Company’s reported GAAP results, as there are limitations in using such financial measures. Other companies in the industry may define Adjusted EBITDA differently than the Company, and as a result, it may be difficult to use Adjusted EBITDA, or similarly-namedsimilarly named financial measures, that other companies may use to compare the performance of those companies to the Company’s performance.
Asset and capital expenditure information is not accounted for at the segment level and consequently is not reviewed or included with the Company’s internal management reporting. Therefore, the Company has not disclosed asset and capital expenditure information for each reportable segment.performance.
NOTE 15—DIVESTITURES
Divestiture of Brazil Business
During the second quarter of 2016, the Company signed a definitive agreement to sell Trinseo do Brasil Comercio de Produtos Quimicos Ltda. (“Trinseo Brazil”), its primary operating entity in Brazil which includes both a latex and automotive business. Under the agreement of sale, which is expected to close no later than the fourth quarter of 2016, Trinseo Brazil will be sold to a single counterparty, for a selling price that is subject to certain contingent consideration payments, which could be paid by the buyer over a 5-year period subsequent to the closing date, based on the results of the Trinseo Brazil latex business during that time.
2320
As a result
The reconciliation of this agreement, during the three and six months ended June 30, 2016, the Company recorded an impairment charge for the estimated loss on sale of approximately $12.9 million within “Other expense, net” in the condensed consolidated statement of operations. This charge primarily relatesincome before income taxes to the unrecoverable net book value of property, plant and equipment along with certain working capital balances and has been allocatedSegment Adjusted EBITDA is as $8.6 million, $4.0 million, and $0.3 million to the Performance Plastics segment, Latex segment, and Corporate, respectively. This loss on sale has been recorded as an estimate based on available information and is subject to change through the completion of the sale.
In addition, as of June 30, 2016, the Company recorded all assets and liabilities associated with Trinseo Brazil as held-for-sale within “Other current assets” and “Accrued expenses and other current liabilities,” respectively, in the condensed consolidated balance sheet. The key components of the assets, adjusted for the above impairment charges, and liabilities classified as held-for-sale at June 30, 2016 consisted of the following:follows:
| ||||
| ||||
| ||||
|
| |||
| ||||
| ||||
| ||||
|
| |||
| ||||
|
| |||
| ||||
| ||||
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Income before income taxes |
| $ | 78,959 |
| $ | 124,404 |
| $ | 225,553 |
| $ | 223,051 |
|
Interest expense, net |
|
| 18,719 |
|
| 18,814 |
|
| 36,919 |
|
| 37,710 |
|
Depreciation and amortization |
|
| 26,324 |
|
| 24,853 |
|
| 51,044 |
|
| 47,973 |
|
Corporate Unallocated(2) |
|
| 21,559 |
|
| 21,153 |
|
| 49,024 |
|
| 46,370 |
|
Adjusted EBITDA Addbacks(3) |
|
| 2,231 |
|
| 14,299 |
|
| (5,546) |
|
| 16,861 |
|
Segment Adjusted EBITDA |
| $ | 147,792 |
| $ | 203,523 |
| $ | 356,994 |
| $ | 371,965 |
|
The results of operations associated with the latex(2)Corporate unallocated includes corporate overhead costs and automotive businesses of Trinseo Brazil were not classified as discontinued operations as the decision to divest these businesses does not represent a strategic shift that has, or will have, a major effect on the Company’s financial position or results of operations.
EPS Divestiture
In June 2013, the Company’s board of directors approved the sale of its expandable polystyrene (“EPS”) business within the Company’s Basic Plastics & Feedstocks segment, under a salecertain other income and purchase agreement which was signed in July 2013 and closed on September 30, 2013.
Under the terms of the sale and purchase agreement, should the divested EPS business record EBITDA (as defined therein) greater than zero for fiscal year 2014, the Company would receive an incremental payment of €0.5 million. The EBITDA threshold was met for fiscal year 2014 and the Company received the €0.5 million payment (approximately $0.6 million based upon the applicable foreign exchange rate in the period the payment was received) during the first quarter of 2015, which is reflected within cash flows used in investing activities in the condensed consolidated statement of cash flows for the six months ended June 30, 2015.
NOTE 16—RESTRUCTURING
Divestiture of Brazil Business
As discussed in Note 15, during the second quarter of 2016, the Company signed a definitive agreement to sell Trinseo Brazil. While the majority of the Company’s current operations in Brazil will be transferred to the buyer, certain corporate functions not included in the sale will be eliminated by the Company prior to the completion of the sale, resulting in the exit of all direct operations in Brazil.expenses.
As a result,(3)Adjusted EBITDA addbacks for the three and six months ended June 30, 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net (gain) loss on disposition of businesses and assets (Notes 3 and 11) |
| $ | — |
| $ | 12.9 |
| $ | (9.9) |
| $ | 12.9 |
|
Restructuring and other charges (Note 13) |
|
| 1.1 |
|
| 1.1 |
|
| 3.3 |
|
| 1.8 |
|
Acquisition transaction and integration costs(a) |
|
| 1.1 |
|
| — |
|
| 1.1 |
|
| — |
|
Other items(b) |
|
| — |
|
| 0.3 |
|
| — |
|
| 2.2 |
|
Total Adjusted EBITDA Addbacks |
| $ | 2.2 |
| $ | 14.3 |
| $ | (5.5) |
| $ | 16.9 |
|
(a) | Acquisition transaction and integration costs for the three and six months ended June 30, 2017 relate to advisory and professional fees incurred in conjunction with the Company’s acquisition of API Applicazioni Plastiche Industriali S.p.A (“API Plastics”), which closed on July 10, 2017. Refer to Note 16 for further information. |
(b) | Other items for the three and six months ended June 30, 2016 relate to fees incurred in conjunction with the Company’s secondary offerings completed during these periods. |
21
NOTE 13—RESTRUCTURING
Refer to the Company recordedAnnual Report for details regarding the Company’s previously announced restructuring activities included in the tables below. New restructuring activities are discussed in greater detail below. Restructuring charges of $0.6 million related to employee termination benefit charges, which are included within “Selling, general and administrative expenses” in the condensed consolidated statementsstatement of operations and were allocated entirely to Corporate. As no
24
amounts related to these charges have been paid as of June 30, 2016, the entire balance of these charges is recorded within “Accrued expenses and other current liabilities” in the condensed consolidated balance sheet.operations.
Allyn’s Point Plant Shutdown
In September 2015, the Company approved the plan to close its Allyn’s Point latex manufacturing facility in Gales Ferry, Connecticut. This restructuring plan was a strategic business decision to improve the resultsThe following table provides detail of the overall Latex segment due to continuing declines in the coated paper industry in North America. Production at the facility ceased at the end of 2015, followed by decommissioning activities which began in 2016.
The Company recordedCompany’s restructuring charges of zero and $0.5 million for the three and six months ended June 30, 2016, respectively, relating to2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| Cumulative |
|
|
| |||||||||
|
| June 30, |
| June 30, |
| Life-to-date |
|
|
| |||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Charges |
| Segment |
| |||||
Terneuzen Compounding Restructuring(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment/accelerated depreciation |
| $ | 574 |
| $ | — |
| $ | 1,131 |
| $ | — |
| $ | 1,131 |
|
|
|
Employee termination benefits |
|
| 156 |
|
| — |
|
| 156 |
|
| — |
|
| 156 |
|
|
|
Contract terminations |
|
| — |
|
| — |
|
| 590 |
|
| — |
|
| 590 |
|
|
|
Decommissioning and other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 626 |
|
|
|
Terneuzen Subtotal |
| $ | 730 |
| $ | — |
| $ | 1,877 |
| $ | — |
| $ | 2,503 |
| Performance Plastics |
|
Livorno Plant Restructuring(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment/accelerated depreciation |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 14,345 |
|
|
|
Employee termination benefits |
|
| 206 |
|
| — |
|
| 358 |
|
| — |
|
| 4,990 |
|
|
|
Contract terminations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 269 |
|
|
|
Decommissioning and other |
|
| 479 |
|
| — |
|
| 1,063 |
|
| — |
|
| 1,740 |
|
|
|
Livorno Subtotal |
| $ | 685 |
| $ | — |
| $ | 1,421 |
| $ | — |
| $ | 21,344 |
| Latex Binders |
|
Other Restructurings |
|
| 349 |
|
| 1,101 |
|
| 1,164 |
|
| 2,233 |
|
|
|
| Various |
|
Total Restructuring Charges |
| $ | 1,764 |
| $ | 1,101 |
| $ | 4,462 |
| $ | 2,233 |
|
|
|
|
|
|
(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. The Company expects to incur incremental accelerated depreciation charges of $2.4 million and estimated decommissioning and other charges of approximately $1.3 million throughout 2017 and 2018, the majority of which are expected to be paid in 2018. |
(2) | In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders manufacturing facility in Livorno, Italy. The Company expects to incur incremental employee termination benefit charges of $0.4 million throughout 2017, which are expected to be paid in early 2018. The Company also expects to incur additional decommissioning costs associated with this plant shutdown in 2017, the cost of which will be expensed as incurred. |
The following table provides a rollforward of the related assets atliability balances associated with the Allyn’s Point facility, and $0.5 million and $1.2 million, respectively,Company’s restructuring activities as of employeeJune 30, 2017. Employee termination benefit and decommissioning charges, which are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations and were allocated entirely to the Latex segment. No charges were incurred during the three and six months ended June 30, 2015. Employeecontract termination benefit charges are recorded within “Accrued expenses and other current liabilities” in the condensed consolidated balance sheet, the balances for which are displayed in the below table.
sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
|
|
|
|
|
|
| Balance at |
| ||
|
| December 31, 2015 |
| Expenses |
| Deductions(1) |
| June 30, 2016 |
| ||||
Employee termination benefit charges |
| $ | 434 |
| $ | 363 |
| $ | (135) |
| $ | 662 |
|
Other(2) |
|
| — |
|
| 839 |
|
| (839) |
|
| — |
|
Total |
| $ | 434 |
| $ | 1,202 |
| $ | (974) |
| $ | 662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
|
|
|
|
|
|
| Balance at |
| ||
|
| December 31, 2016 |
| Expenses |
| Deductions(1) |
| June 30, 2017 |
| ||||
Employee termination benefits |
| $ | 5,021 |
| $ | 2,102 |
| $ | (5,563) |
| $ | 1,560 |
|
Contract terminations |
|
| 269 |
|
| 590 |
|
| (127) |
|
| 732 |
|
Decommissioning and other |
|
| — |
|
| 1,360 |
|
| (1,360) |
|
| — |
|
Total |
| $ | 5,290 |
| $ | 4,052 |
| $ | (7,050) |
| $ | 2,292 |
|
(1) | Includes primarily payments made against the existing |
|
|
The Company does not expect to incur additional employee termination benefit charges related to this restructuring, with the majority of the benefits expected to be paid by December 31, 2016. The Company also expects to incur additional decommissioning costs associated with this plant shutdown in 2016, the cost of which will be expensed as incurred, within the Latex segment.
Restructuring in Polycarbonate
During the second quarter of 2014, the Company announced a restructuring within its Basic Plastics & Feedstocks segment to exit the commodity market for PC in North America and to terminate existing arrangements with Dow regarding manufacturing services for the Company at Dow’s Freeport, Texas facility (the “Freeport facility”). Production at the Freeport facility ceased as of September 30, 2014, and decommissioning and demolition was completed in the first quarter of 2015.
For the three and six months ended June 30, 2015, the Company recorded restructuring charges of zero and $0.5 million, respectively, related to the reimbursement of decommissioning and demolition costs incurred by Dow. These charges were included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations, and were allocated entirely to the Basic Plastics & Feedstocks segment. There were no remaining amounts accrued in the condensed consolidated balance sheet as of December 31, 2015.
2522
NOTE 17—14—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (AOCI),AOCI, net of income taxes, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Currency |
| Pension & Other |
|
| Foreign Exchange |
|
|
|
|
|
| Cumulative |
| Pension & Other |
|
| Foreign Exchange |
|
|
|
| ||||
|
| Translation |
| Postretirement Benefit |
|
| Cash Flow |
|
|
|
|
|
| Translation |
| Postretirement Benefit |
|
| Cash Flow |
|
|
|
| ||||
Three Months Ended June 30, 2016 and 2015 |
| Adjustments |
| Plans, Net |
|
| Hedges, Net |
|
| Total |
| ||||||||||||||||
Three Months Ended June 30, 2017 and 2016 |
| Adjustments |
| Plans, Net |
|
| Hedges, Net |
| Total |
| |||||||||||||||||
Balance as of March 31, 2017 |
| $ | (114,721) |
| $ | (62,128) |
| $ | 7,462 |
| $ | (169,387) |
| ||||||||||||||
Other comprehensive income (loss) |
|
| 18,974 |
|
| — |
|
| (11,957) |
|
| 7,017 |
| ||||||||||||||
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 796 |
|
| (1,009) |
|
| (213) |
| ||||||||||||||
Balance as of June 30, 2017 |
| $ | (95,747) |
| $ | (61,332) |
| $ | (5,504) |
| $ | (162,583) |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Balance as of March 31, 2016 |
| $ | (95,697) |
| $ | (46,426) |
| $ | (1,856) |
|
| $ | (143,979) |
|
| $ | (95,697) |
| $ | (46,426) |
| $ | (1,856) |
| $ | (143,979) |
|
Other comprehensive income (loss) |
|
| (11,005) |
|
| — |
|
| 5,294 |
|
|
| (5,711) |
|
|
| (11,005) |
|
| — |
|
| 5,294 |
|
| (5,711) |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 539 |
|
| 735 |
|
|
| 1,274 |
|
|
| — |
|
| 539 |
|
| 735 |
|
| 1,274 |
|
Balance as of June 30, 2016 |
| $ | (106,702) |
| $ | (45,887) |
| $ | 4,173 |
|
| $ | (148,416) |
|
| $ | (106,702) |
| $ | (45,887) |
| $ | 4,173 |
| $ | (148,416) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2015 |
| $ | (131,910) |
| $ | (56,625) |
| $ | 1,035 |
|
| $ | (187,500) |
| |||||||||||||
Other comprehensive income (loss) |
|
| 35,241 |
|
| — |
|
| (1,370) |
|
|
| 33,871 |
| |||||||||||||
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 791 |
|
| (70) |
|
|
| 721 |
| |||||||||||||
Balance as of June 30, 2015 |
| $ | (96,669) |
| $ | (55,834) |
| $ | (405) |
|
| $ | (152,908) |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Currency |
| Pension & Other |
|
| Foreign Exchange |
|
|
|
|
| ||
|
| Translation |
| Postretirement Benefit |
|
| Cash Flow |
|
|
|
|
| ||
Six Months Ended June 30, 2016 and 2015 |
| Adjustments |
| Plans, Net |
|
| Hedges, Net |
|
| Total |
| |||
Balance at December 31, 2015 |
| $ | (109,120) |
| $ | (46,166) |
| $ | 5,569 |
|
| $ | (149,717) |
|
Other comprehensive income (loss) |
|
| 2,418 |
|
| (800) |
|
| (1,026) |
|
|
| 592 |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 1,079 |
|
| (370) |
|
|
| 709 |
|
Balance at June 30, 2016 |
| $ | (106,702) |
| $ | (45,887) |
| $ | 4,173 |
|
| $ | (148,416) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
| $ | (17,755) |
| $ | (57,462) |
| $ | — |
|
| $ | (75,217) |
|
Other comprehensive income (loss) |
|
| (78,914) |
|
| — |
|
| (335) |
|
|
| (79,249) |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 1,628 |
|
| (70) |
|
|
| 1,558 |
|
Balance at June 30, 2015 |
| $ | (96,669) |
| $ | (55,834) |
| $ | (405) |
|
| $ | (152,908) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative |
| Pension & Other |
| Foreign Exchange |
|
|
|
| |||
|
| Translation |
| Postretirement Benefit |
| Cash Flow |
|
|
|
| |||
Six Months Ended June 30, 2017 and 2016 |
| Adjustments |
| Plans, Net |
| Hedges, Net |
| Total |
| ||||
Balance as of December 31, 2016 |
| $ | (118,922) |
| $ | (63,504) |
| $ | 12,272 |
| $ | (170,154) |
|
Other comprehensive income (loss) |
|
| 23,175 |
|
| — |
|
| (14,316) |
|
| 8,859 |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 2,172 |
|
| (3,460) |
|
| (1,288) |
|
Balance as of June 30, 2017 |
| $ | (95,747) |
| $ | (61,332) |
| $ | (5,504) |
| $ | (162,583) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
| $ | (109,120) |
| $ | (46,166) |
| $ | 5,569 |
| $ | (149,717) |
|
Other comprehensive income (loss) |
|
| 2,418 |
|
| (800) |
|
| (1,026) |
|
| 592 |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 1,079 |
|
| (370) |
|
| 709 |
|
Balance as of June 30, 2016 |
| $ | (106,702) |
| $ | (45,887) |
| $ | 4,173 |
| $ | (148,416) |
|
(1) | The following is a summary of amounts reclassified from AOCI to net income for the three and six months ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount Reclassified from AOCI |
| Amount Reclassified from AOCI |
|
|
|
| Amount Reclassified from AOCI |
| Amount Reclassified from AOCI |
|
|
| ||||||||||||||||
AOCI Components |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| Statement of Operations |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| Statement of Operations |
| ||||||||||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| Classification |
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Classification |
| ||||||||
Cash flow hedging items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | 735 |
| $ | (76) |
| $ | (370) |
| $ | (76) |
| Cost of sales |
|
| $ | (1,009) |
| $ | 735 |
| $ | (3,460) |
| $ | (370) |
| Cost of sales |
|
Total before tax |
|
| 735 |
|
| (76) |
|
| (370) |
|
| (76) |
|
|
|
|
| (1,009) |
|
| 735 |
|
| (3,460) |
|
| (370) |
|
|
|
Tax effect |
|
| — |
|
| 6 |
|
| — |
|
| 6 |
| Provision for income taxes |
|
|
| — |
|
| — |
|
| — |
|
| — |
| Provision for income taxes |
|
Total, net of tax |
| $ | 735 |
| $ | (70) |
| $ | (370) |
| $ | (70) |
|
|
|
| $ | (1,009) |
| $ | 735 |
| $ | (3,460) |
| $ | (370) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement benefit plan items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
| $ | (467) |
| $ | (376) |
| $ | (920) |
| $ | (773) |
| (a) |
|
| $ | (456) |
| $ | (467) |
| $ | (902) |
| $ | (920) |
| (a) |
|
Net actuarial loss |
|
| 1,265 |
|
| 1,512 |
|
| 2,519 |
|
| 3,097 |
| (a) |
|
|
| 1,613 |
|
| 1,265 |
|
| 3,189 |
|
| 2,519 |
| (a) |
|
Net settlement and curtailment loss |
|
| — |
|
| — |
|
| 648 |
|
| — |
| (a) |
| |||||||||||||||
Total before tax |
|
| 798 |
|
| 1,136 |
|
| 1,599 |
|
| 2,324 |
|
|
|
|
| 1,157 |
|
| 798 |
|
| 2,935 |
|
| 1,599 |
|
|
|
Tax effect |
|
| (259) |
|
| (345) |
|
| (520) |
|
| (696) |
| Provision for income taxes |
|
|
| (361) |
|
| (259) |
|
| (763) |
|
| (520) |
| Provision for income taxes |
|
Total, net of tax |
| $ | 539 |
| $ | 791 |
| $ | 1,079 |
| $ | 1,628 |
|
|
|
| $ | 796 |
| $ | 539 |
| $ | 2,172 |
| $ | 1,079 |
|
|
|
(a) | These AOCI components are included in the computation of net periodic benefit costs (see Note |
2623
NOTE 18—SHAREHOLDERS’ EQUITY
Secondary Offerings and Tender Offer
In March 2016, the Company announced that the Parent agreed to sell 10,600,000 of the Company’s ordinary shares pursuant to the Company’s shelf registration statement filed with the SEC. Goldman, Sachs & Co. acted as the sole bookrunning manager for the offering (the “Underwriter”). The Underwriter purchased these shares from the Parent at a price of $35.63 per share. In May 2016, the Underwriter purchased an additional 8,000,000 of the Company’s ordinary shares from the Parent at a price of $42.90. No ordinary shares were sold by the Company as a result of these transactions.
Concurrently with the completion of the offering in March 2016, the Company agreed to repurchase from the Underwriter 1,600,000 of the ordinary shares that were sold by the Parent in the offering at the same $35.63 price per share paid by the Underwriter to the Parent, resulting in an aggregate purchase price of $57.0 million. These repurchased shares have been recorded at cost within “Treasury shares” in the condensed consolidated balance sheet as of June 30, 2016.
Additionally, because a repurchase transaction was completed as part of the offering, in order to satisfy certain requirements of Luxembourg law, promptly following the completion of the offering, the Company commenced a tender offer to purchase up to an additional 1,165,000 shares from its shareholders (other than the Parent) at the same price per share that it paid to the Underwriter for the shares repurchased as part of this offering. The tender offer expired on April 25, 2016, with 38,702 ordinary shares repurchased by the Company for an aggregate purchase price of $1.4 million.
Share Repurchases and Repayment of Equity
During the second quarter of 2016, the Company purchased an additional 752,437 ordinary shares from its shareholders through a combination of open market transactions for an aggregate purchase price of $36.0 million. These repurchased shares have been recorded at cost within “Treasury shares” in the condensed consolidated balance sheet as of June 30, 2016.
In June 2016, pursuant the authority granted to it by its shareholders, the Company’s board of directors declared a repayment of equity of $0.30 per ordinary share payable in cash on July 20, 2016 to shareholders of record as of the close of business on July 6, 2016. The total amount payable of $13.9 million was recorded within “Accrued expenses and other current liabilities” on the Company’s condensed consolidated balance sheet as of June 30, 2016.
NOTE 19—15—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 stock option awards.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.
27
The following table presents basic EPS and diluted EPS for the three and six months ended June 30, 20162017 and 2015,2016, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| June 30, |
| June 30, |
|
| June 30, |
| June 30, |
| ||||||||||||||||
(in thousands, except per share data) |
| 2016 |
| 2015 |
| 2016 |
| 2015 |
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||
Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 95,804 |
| $ | 756 |
| $ | 172,551 |
| $ | 38,460 |
|
| $ | 60,159 |
| $ | 95,804 |
| $ | 177,453 |
| $ | 172,551 |
|
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average ordinary shares outstanding |
|
| 46,952 |
|
| 48,771 |
|
| 47,803 |
|
| 48,770 |
|
|
| 43,902 |
|
| 46,952 |
|
| 43,979 |
|
| 47,803 |
|
Dilutive effect of RSUs and option awards* |
|
| 905 |
|
| 136 |
|
| 751 |
|
| 126 |
| |||||||||||||
Dilutive effect of RSUs, option awards, and PSUs |
|
| 1,093 |
|
| 905 |
|
| 1,186 |
|
| 751 |
| |||||||||||||
Diluted weighted-average ordinary shares outstanding |
|
| 47,857 |
|
| 48,907 |
|
| 48,554 |
|
| 48,896 |
|
|
| 44,995 |
|
| 47,857 |
|
| 45,165 |
|
| 48,554 |
|
Income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share—basic |
| $ | 2.04 |
| $ | 0.02 |
| $ | 3.61 |
| $ | 0.79 |
|
| $ | 1.37 |
| $ | 2.04 |
| $ | 4.03 |
| $ | 3.61 |
|
Income per share—diluted |
| $ | 2.00 |
| $ | 0.02 |
| $ | 3.55 |
| $ | 0.79 |
|
| $ | 1.34 |
| $ | 2.00 |
| $ | 3.93 |
| $ | 3.55 |
|
* Refer to Note 1210 for discussion of RSUs, and option awards, and PSUs granted to certain Company directors and employees. The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share were 0.3 million and 0.2 million for the three and six months ended June 30, 2017, respectively, and zero million and zero million for the three and six months ended June 30, 2016, respectively.
NOTE 16—SUBSEQUENT EVENTS
On July 10, 2017, the Company completed the acquisition of API Applicazioni Plastiche Industriali S.p.A, or API Plastics, for a purchase price of $83.8 million, net of cash acquired, subject to certain customary post-closing adjustments. API Plastics, based in Mussolente, Italy, is a manufacturer of soft-touch polymers and bioplastics, such as thermoplastic elastomers (“TPEs”). TPEs are often molded over rigid plastics such as ABS and PC/ABS, which presents opportunities for complementary technology product offerings within our Performance Plastics segment. The acquisition was funded through existing cash on hand.
2824
Item 2. Management’s DiscussionDiscussion and Analysis of Financial Condition and Results of Operations
20162017 Year-to-Date Highlights
TheIn the second quarter of 2016 resulted in continued strong performance for2017, Trinseo notingrecognized net income of $96 million, Adjusted EBITDA of $182$60.2 million and Adjusted EBITDA excluding inventory revaluation of $169$126.2 million. We’ve experienced similar results onOn a year-to-date basis, notingwe recognized net income of $173 million, Adjusted EBITDA of $326$177.5 million and Adjusted EBITDA excluding inventory revaluation of $322$308.0 million. Refer to “Other Important“Non-GAAP Performance Measures” below for further discussion of our use of non-GAAP measures in evaluating our performance.
performance and a reconciliation of these measures. Other highlights for the year are described below.
Secondary Offerings and Tender OfferAcquisition of API Plastics
In March 2016,On July 10, 2017, the Company announced thatcompleted the Parent agreedacquisition of API Applicazioni Plastiche Industriali S.p.A, or API Plastics, for a purchase price of $83.8 million, net of cash acquired, subject to sell 10,600,000 ordinary shares pursuantcertain customary post-closing adjustments. API Plastics, based in Mussolente, Italy, is a manufacturer of soft-touch polymers and bioplastics, such as thermoplastic elastomers, or TPEs. TPEs are often molded over rigid plastics such as ABS and PC/ABS, which presents opportunities for complementary technology product offerings within our Performance Plastics segment.
Sale of Sumika Styron Polycarbonate
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited for total sales proceeds of approximately $42.1 million. As a result, the Company recorded a gain on sale of $9.3 million during the six months ended June 30, 2017. In addition, the parties have entered into a long-term agreement to continue sourcing polycarbonate resin from Sumika Styron Polycarbonate to the Company’s shelf registration statement filed withPerformance Plastics segment.
Share Repurchases and Dividends
In June 2017, the SEC. Goldman, Sachs & Co. acted asCompany’s board of directors authorized an increase to our quarterly dividend, from $0.30 per share to $0.36 per share, a 20% increase. In addition, the sole bookrunning manager forboard of directors authorized the offering (the “Underwriter”). The Underwriter purchased therepurchase of up to two million shares from the Parent at a price of $35.63 per share. In May 2016, the Underwriter purchased an additional 8,000,000 of the Company’s ordinary shares from the Parent at a price of $42.90.
Concurrently with the completion of the offering in March 2016, the Company agreed to repurchase from the Underwriter 1,600,000 of the ordinary shares that were sold by the Parent in the offering at the same $35.63 price per share paid by the Underwriter to the Parent, resulting in an aggregate purchase price of $57.0 million. Additionally, because a repurchase transaction was completed as part of the offering, in order to satisfy certain requirements of Luxembourg law, the Company commenced a tender offer which resulted in the repurchase of 38,702 ordinary shares for an aggregate purchase price of $1.4 million.
Share Repurchases and Repayment of Equityshares.
During the second quartersix months ended June 30, 2017, under existing authority from its board of 2016,directors, the Company purchased an additional 752,437894,604 ordinary shares from its shareholders through a combination of open market transactions for an aggregate purchase price of $36.0$56.4 million. InAdditionally, during the six months ended June 2016, the Company’s board of directors authorized additional repurchases of up to $100.0 million of the Company’s ordinary shares through periodic open market transactions.
In June 2016,30, 2017, the Company’s board of directors declared a repaymentquarterly dividends for an aggregate value of equity of $0.30$0.66 per ordinary share, payable in cash on July 20, 2016 to shareholdersor $29.7 million, $16.5 million of recordwhich remained accrued as of the close of business on July 6, 2016.
Appointment of Chief Financial Officer
In May 2016, the Company announced the appointment of Barry Niziolek as Executive Vice President and Chief Financial Officer of Trinseo, effective June 13, 2016.
Divestiture of Brazil Businesses
During the second quarter of 2016, the Company signed a definitive agreement to sell its primary operating entity in Brazil, which includes both a latex and automotive business. The sale is expected to close no later than the fourth quarter of 2016. As a result, during the second quarter of 2016, the Company recorded an impairment charge for the estimated loss on sale of approximately $12.9 million as well as $0.6 million of restructuring charges. Refer to Notes 15 and 16 in the condensed consolidated financial statements for further information. We do not expect this divestiture to have a material impact on the Company’s ongoing financial position or results of operations.
30, 2017.
2925
Results of Operations
Results of Operations for the Three and Six Months Ended June 30, 20162017 and 20152016
The tablestable below setsets forth our historical results of operations, and these results as a percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||||||||
|
| June 30, |
| June 30, |
|
| June 30, |
|
| June 30, |
|
| ||||||||||||||||||||||||||
(in millions) |
| 2016 |
| 2015 |
| 2016 |
| 2015 |
|
| 2017 |
| % |
| 2016 |
| % |
|
| 2017 |
| % |
| 2016 |
| % |
|
| ||||||||||
Net sales |
| $ | 969.7 |
| $ | 1,028.7 |
| $ | 1,863.8 |
| $ | 2,046.9 |
|
| $ | 1,145.2 |
| 100 | % |
| $ | 969.7 |
| 100 | % |
| $ | 2,249.7 |
| 100 | % |
| $ | 1,863.8 |
| 100 | % |
|
Cost of sales |
|
| 800.0 |
|
| 886.5 |
|
| 1,554.4 |
|
| 1,801.7 |
|
|
| 1,020.0 |
| 89 | % |
|
| 800.0 |
| 83 | % |
|
| 1,926.7 |
| 86 | % |
|
| 1,554.4 |
| 83 | % |
|
Gross profit |
|
| 169.7 |
|
| 142.2 |
|
| 309.4 |
|
| 245.2 |
|
|
| 125.2 |
| 11 | % |
|
| 169.7 |
| 18 | % |
|
| 323.0 |
| 14 | % |
|
| 309.4 |
| 17 | % |
|
Selling, general and administrative expenses |
|
| 52.2 |
|
| 50.7 |
|
| 106.7 |
|
| 102.4 |
|
|
| 55.4 |
| 5 | % |
|
| 52.2 |
| 5 | % |
|
| 115.8 |
| 5 | % |
|
| 106.7 |
| 6 | % |
|
Equity in earnings of unconsolidated affiliates |
|
| 38.6 |
|
| 40.8 |
|
| 73.6 |
|
| 77.5 |
|
|
| 29.9 |
| 3 | % |
|
| 38.6 |
| 4 | % |
|
| 49.2 |
| 2 | % |
|
| 73.6 |
| 4 | % |
|
Operating income |
|
| 156.1 |
|
| 132.3 |
|
| 276.3 |
|
| 220.3 |
|
|
| 99.7 |
| 9 | % |
|
| 156.1 |
| 16 | % |
|
| 256.4 |
| 12 | % |
|
| 276.3 |
| 15 | % |
|
Interest expense, net |
|
| 18.8 |
|
| 25.6 |
|
| 37.7 |
|
| 54.5 |
|
|
| 18.7 |
| 2 | % |
|
| 18.8 |
| 2 | % |
|
| 36.9 |
| 2 | % |
|
| 37.7 |
| 2 | % |
|
Loss on extinguishment of long-term debt |
|
| — |
|
| 95.2 |
|
| — |
|
| 95.2 |
| |||||||||||||||||||||||||
Other expense, net |
|
| 12.9 |
|
| 3.2 |
|
| 15.5 |
|
| 6.7 |
| |||||||||||||||||||||||||
Other expense (income), net |
|
| 2.0 |
| 0 | % |
|
| 12.9 |
| 1 | % |
|
| (6.1) |
| (0) | % |
|
| 15.5 |
| 1 | % |
| |||||||||||||
Income before income taxes |
|
| 124.4 |
|
| 8.3 |
|
| 223.1 |
|
| 63.9 |
|
|
| 79.0 |
| 7 | % |
|
| 124.4 |
| 13 | % |
|
| 225.6 |
| 10 | % |
|
| 223.1 |
| 12 | % |
|
Provision for income taxes |
|
| 28.6 |
|
| 7.5 |
|
| 50.5 |
|
| 25.4 |
|
|
| 18.8 |
| 2 | % |
|
| 28.6 |
| 3 | % |
|
| 48.1 |
| 2 | % |
|
| 50.5 |
| 3 | % |
|
Net income |
| $ | 95.8 |
| $ | 0.8 |
| $ | 172.6 |
| $ | 38.5 |
|
| $ | 60.2 |
| 5 | % |
| $ | 95.8 |
| 10 | % |
| $ | 177.5 |
| 8 | % |
| $ | 172.6 |
| 9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Net sales |
|
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Cost of sales |
|
| 82.5 | % |
| 86.2 | % |
| 83.4 | % |
| 88.0 | % |
Gross profit |
|
| 17.5 | % |
| 13.8 | % |
| 16.6 | % |
| 12.0 | % |
Selling, general and administrative expenses |
|
| 5.4 | % |
| 4.9 | % |
| 5.7 | % |
| 5.0 | % |
Equity in earnings of unconsolidated affiliates |
|
| 4.0 | % |
| 4.0 | % |
| 3.9 | % |
| 3.8 | % |
Operating income |
|
| 16.1 | % |
| 12.9 | % |
| 14.8 | % |
| 10.8 | % |
Interest expense, net |
|
| 1.9 | % |
| 2.5 | % |
| 2.0 | % |
| 2.7 | % |
Loss on extinguishment of long-term debt |
|
| — | % |
| 9.3 | % |
| — | % |
| 4.7 | % |
Other expense, net |
|
| 1.3 | % |
| 0.3 | % |
| 0.8 | % |
| 0.3 | % |
Income before income taxes |
|
| 12.9 | % |
| 0.8 | % |
| 12.0 | % |
| 3.1 | % |
Provision for income taxes |
|
| 2.9 | % |
| 0.7 | % |
| 2.7 | % |
| 1.2 | % |
Net income |
|
| 10.0 | % |
| 0.1 | % |
| 9.3 | % |
| 1.9 | % |
Three Months Ended - June 30, 2017 vs. June 30, 2016 Compared to the Three Months Ended June 30, 2015
Net Sales
Net sales for the three months ended June 30, 2016 decreased by $59.0 million, or 5.7%, to $969.7 million from $1,028.7 million for the three months ended June 30, 2015. Of the 5.7% decrease, 8.3%18% increase, 21% was due to lowerhigher selling prices primarily due tofrom the pass through of lowerhigher raw material costs, including lowerhigher styrene and butadiene costs to customers across our customerssegments. Additionally, 1% of the increase was due to slightly higher sales volume, as increases in Synthetic Rubber, Performance Plastics, and Feedstocks sales volume were mostly offset by decreases in Latex Binders and Synthetic Rubber. Partially offsetting this decreaseBasic Plastics sales volume. Offsetting these increases in selling pricesnet sales was a slight2% decrease related to the prior year divestiture of our business in Brazil, as well as a 2% decrease due to an unfavorable currency impact across our segments, as the euro weakened in comparison to the U.S. dollar.
Cost of Sales
Of the 28% increase, of 0.7%33% was attributable to higher prices for raw materials, primarily butadiene and styrene monomer. This increase was partially offset by a 1% decrease due to sales volume mix, as well as an increasea 2% decrease due to the prior year divestiture of 1.9%our business in Brazil. In addition, a decrease of 3% was due to a favorable currency impact across our segments, as the euro strengthenedweakened in comparison to the U.S. dollar.
Gross Profit
This decrease was primarily due to unfavorable raw material timing impacts, net of a favorable price lag impact, which contributed significantly to lower margins within Feedstocks, Basic Plastics, and Synthetic Rubber. Partially offsetting these timing impacts were higher sales volume in Synthetic Rubber and Performance Plastics as well as higher margins within Latex Binders. Other contributing factors to the overall decrease were margin compression in Performance Plastics and lower sales volume in Basic Plastics and Latex Binders.
Selling, General and Administrative Expenses
The majority of the increase is due to costs from additional resources supporting growth initiatives as well as transaction and integration costs incurred in connection with the Company’s acquisition of API Plastics, which closed in July 2017. Additionally, restructuring charges increased $0.7 million, primarily related to the Company’s decision in August 2016 to cease manufacturing activities at our latex facility in Livorno, Italy, as well as charges related to the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands, which was announced in March 2017. Refer to Notes 16 and 13, respectively, in the condensed consolidated financial statements for further information.
3026
Cost
Equity in Earnings of SalesUnconsolidated Affiliates
CostEquity earnings decreased in 2017, as equity earnings from Americas Styrenics decreased from $37.7 million in 2016 to $29.9 million in 2017, primarily due to lower margins on second quarter sales of sales forstyrene purchased during the first quarter maintenance-related outage at the St. James, LA, facility in a decreasing price environment. Additionally, equity earnings from Sumika Styron Polycarbonate decreased from $0.9 million in 2016 to zero in 2017, as the Company completed the sale of its 50% share in the entity to Sumitomo Chemical Company Limited in January 2017 and therefore did not have an ownership interest in the joint venture during the three months ended June 30, 2016 decreased by $86.5 million, or 9.8%, to $800.0 million from $886.5 million for the three months ended June 30, 2015. Of the 9.8% decrease, 9.1% was attributable to lower prices for raw materials, primarily butadiene and styrene monomer, while an additional 1.5% of the decrease was due to slightly lower fixed costs from prior year plant turnaround activity. Partially offsetting this decrease was an increase of 1.8% due to an unfavorable currency impact across our segments as the euro strengthened in comparison to the U.S. dollar.
Gross Profit
Gross profit for the three months ended June 30, 2016 increased by $27.5 million, or 19.3%, to $169.7 million from $142.2 million for the three months ended June 30, 2015. The increase was primarily attributable to higher margins in polycarbonate, or PC, as well as in our Latex and Performance Plastics segments, as well as a favorable currency impact as the euro strengthened in comparison to the U.S. dollar.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 2016 increased by $1.5 million, or 3.0%, to $52.2 million from $50.7 million for the three months ended June 30, 2015. The slight increase in SG&A expenses was primarily related to an increase in restructuring charges of $1.0 million as a result of our Allyn’s Point plant closure and our decision to divest our operations in Brazil.2017. Refer to Note 163 in the condensed consolidated financial statements for further information.
EquityInterest Expense, Net
The slight decrease in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates for the three months ended June 30, 2016 was $38.6 million compared to equity in earnings of $40.8 million for the three months ended June 30, 2015. This decreaseinterest expense was primarily attributable to a slight decrease in the equity earningslower deferred financing fee amortization recorded into interest expense from Americas Styrenics for the period, due to lower margin from the timing of raw material purchases. Sumika Styron Polycarbonate noted equity earnings of $0.9 million for the period, compared to $0.2 million in the prior year, noting improved PC market conditions.our Accounts Receivable Securitization Facility.
InterestOther Expense Net(Income), net
InterestOther expense, net for the three months ended June 30, 20162017 was $18.8$2.0 million, compared to $25.6which consisted primarily of net foreign exchange transaction losses of approximately $1.5 million for the three months ended June 30, 2015. This decreaseand other expenses of $0.5 million. Included in interest expense wasthese net losses of $1.5 million were foreign exchange transactions gains of $7.3 million, primarily attributabledue to the impactremeasurement of the debt refinancing executed in May 2015, which reduced applicable interest rates. Refer to Note 6 in the condensed consolidated financial statements for further information.
Loss on Extinguishment of Long-Term Debt
Loss on extinguishment of long-term debt was zero for the three months ended June 30, 2016, compared to $95.2 million for the three months ended June 30, 2015, relatedour euro denominated payables due to the debt refinancingrelative changes in May 2015. This amount was comprisedrates between the U.S. dollar and the euro during the period, more than offset by losses of a $68.6$8.8 million call premium paid to retire the Company’s 2019 Senior Notes and a $25.9 million write-off of unamortized deferred financing fees related to these notes, as well as the write-off of $0.7 million of unamortized deferred financing fees related to the termination of the Company’s 2018 Revolving Facility.
Other Expense, netfrom our foreign exchange forward contracts.
Other expense, net for the three months ended June 30, 2016 was $12.9 million, driven bywhich includes an impairment charge for the estimated loss on sale of itsour latex and automotive businesses in Brazil of approximately $12.9 million, as well as other expenses of $0.2 million. Refer to Note 1511 in the condensed consolidated financial statements for further information. These losses were slightly offset by net foreign exchange transaction gains of approximately $0.2 million. Included in this net gain of $0.2 million were foreign exchange transactiontransactions gains of $2.3 million, primarily driven bydue to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the quarter,period, partially offset by losses of $2.1 million in losses from our foreign exchange forward contracts.
Provision for Income Taxes
Provision for income taxes for the three months ended June 30, 2017 totaled $18.8 million resulting in an effective tax rate of 23.8%. Provision for income taxes for the three months ended June 30, 2016 totaled $28.6 million resulting in an effective tax rate of 23.0%.
The decrease in provision for income taxes was primarily due to the $45.4 million decrease in income before income taxes.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Net Sales
Of the 21% increase, 24% was due to higher selling prices primarily from the pass through of higher raw material costs, including higher styrene and butadiene costs to customers across our segments. Additionally, 1% of the increase was due to slightly higher sales volume, as increases in Synthetic Rubber, Performance Plastics, and Feedstocks sales volume were mostly offset by a decrease in Basic Plastics sales volume. Offsetting these increases in net sales was a 2% decrease related to the prior year divestiture of our business in Brazil, as well as a 2% decrease due to an unfavorable currency impact across our segments, as the euro weakened in comparison to the U.S. dollar.
Cost of Sales
Of the 24% increase, 28% was attributable to higher prices for raw materials, primarily butadiene and styrene monomer. This increase was partially offset by a 2% decrease due to the prior year divestiture of our business in Brazil
3127
Other expense,as well as a 2% decrease due to a favorable currency impact across our segments, as the euro weakened in comparison to the U.S. dollar.
Gross Profit
The increase was primarily attributable to higher year-to-date margins, especially within the Latex Binders and Synthetic Rubber segments. Higher sales volume in Synthetic Rubber and Performance Plastics was partially offset by lower sales volume in Basic Plastics, as well as margin compression in Performance Plastics and lower styrene margins in Feedstocks, in addition to the styrene outage in Americas Styrenics. Also offsetting this net increase was an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
Selling, General and Administrative Expenses
Increased restructuring charges contributed to $2.2 million of this increase, primarily related to the Company’s decision to cease manufacturing activities at our latex facility in Livorno, Italy, as well as charges related to the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands. Additionally, the increase includes costs from additional resources supporting growth initiatives as well as transaction and integration costs incurred in connection with Company’s acquisition of API Plastics, which closed in July 2017. Refer to Notes 13 and 16, respectively, in the condensed consolidated financial statements for further information.
Equity in Earnings of Unconsolidated Affiliates
Equity earnings decreased in 2017, as equity earnings from Americas Styrenics decreased from $70.6 million in 2016 to $48.4 million in 2017, primarily due to the planned and extended first quarter styrene outage at its St. James, LA, facility, including lower margins on second quarter sales of styrene purchased during the outage. Additionally, equity earnings from Sumika Styron Polycarbonate decreased from $3.0 million in 2016 to $0.8 million in 2017, as the Company completed the sale of its 50% share in the entity to Sumitomo Chemical Company Limited in January 2017 and therefore did not have an ownership interest in the joint venture for the threemajority of the six months ended June 30, 20152017. Refer to Note 3 in the condensed consolidated financial statements for further information.
Interest Expense, Net
The decrease in interest expense was $3.2primarily attributable to lower deferred financing fee amortization recorded into interest expense from our Accounts Receivable Securitization Facility and lower interest expense incurred on the Company’s Euro Notes as a result of fluctuations in the euro foreign exchange rate.
Other Expense (Income), net
Other income, net for the six months ended June 30, 2017 was $6.1 million, which consisted primarily includes a $9.3 million gain related to the sale of the Company’s 50% share in Sumika Styron Polycarbonate in January 2017 (refer to Note 3 in the condensed consolidated financial statements for further information). Additionally, net foreign exchange transaction losses of approximately $3.1for the period were $2.6 million, and other expenseswhich included $7.9 million of $0.1 million. Included in the net foreign exchange losses of $3.1 million were foreign exchange transaction losses of $10.4 million,gains primarily driven bydue to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the quarter,period, more than offset by $7.3$10.5 million in gainsof losses from our foreign exchange forward contracts.
Provision for Income Taxes
Provision for income taxes for the three months ended June 30, 2016 was $28.6 million, resulting in an effective tax rate of 23.0%. Provision for income taxes for the three months ended June 30, 2015 was $7.5 million, resulting in an effective tax rate of 90.9%.
The increase in provision for income taxes was primarily driven by the $116.1 million increase in income before income taxes, from $8.3 million for the three months ended June 30, 2015 to $124.4 million for the three months ended June 30, 2016.
This increase in the provision for income taxes was partially offset by a net reduction of losses generated within companies which are not anticipated to provide a tax benefit to the Company in the future. These losses are primarily generated within our holding companies incorporated in Luxembourg and our primary operating company incorporated in Brazil. For the three months ended June 30, 2016 these losses totaled approximately $29.0 million and included an impairment charge of $12.9 million for the estimated loss on sale of Trinseo Brazil. Refer to Note 15 in the condensed consolidated financial statements for further information.
For the three months ended June 30, 2015 these losses totaled approximately $41.2 million and included payments made in our Luxembourg entities of $18.1 million related to a portion of the fees associated with the call premium paid to retire the Company’s 2019 Senior Notes and $4.3 million related to the write off of the related unamortized deferred financing fees. Refer to Note 6 in the condensed consolidated financial statements for further information.
Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015
Net Sales
Net sales for the six months ended June 30, 2016 decreased by $183.1 million, or 8.9%, to $1,863.8 million from $2,046.9 million for the six months ended June 30, 2015. Of the 8.9% decrease, 6.5% was due to lower selling prices primarily due to the pass through of lower raw material costs, including lower styrene and butadiene costs to our customers in Latex and Synthetic Rubber. Also driving this reduction in net sales was a decrease of 1.7% due to sales volume, primarily within both the polystyrene and Performance Plastics markets in Asia, and a decrease of 0.7% due to an unfavorable currency impact across our segments, as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
Cost of Sales
Cost of sales for the six months ended June 30, 2016 decreased by $247.3 million, or 13.7%, to $1,554.4 million from $1,801.7 million for the six months ended June 30, 2015. Of the 13.7% decrease, 10.3% was attributable to lower prices for raw materials, primarily butadiene and styrene monomer, while an additional 1.9% of the decrease was due to lower sales volume primarily within both the polystyrene and Performance Plastics markets in Asia. Also contributing to the decrease was a 0.9% impact from the reduction in fixed costs due to prior year plant turnaround activity and a 0.7% decrease due to a favorable currency impact across our segments, as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
Gross Profit
Gross profit for the six months ended June 30, 2016 increased by $64.2 million, or 26.2%, to $309.4 million from $245.2 million for the six months ended June 30, 2015. The increase was primarily attributable to higher margins in our Basic Plastics & Feedstocks, Latex, and Performance Plastics segments. Partially offsetting this increase was an unfavorable volume impact driven by lower sales to both the polystyrene and Performance Plastics markets in Asia as well as an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
32
Selling, General and Administrative Expenses
SG&A expenses for the six months ended June 30, 2016 increased by $4.3 million, or 4.2%, to $106.7 million from $102.4 million for the six months ended June 30, 2015. The increase in SG&A expenses was primarily related to an increase in stock-based compensation expense of $2.6 million as well as an increase in restructuring charges of $1.4 million primarily as a result of our Allyn’s Point plant closure and our decision to divest our operations in Brazil. Refer to Note 16 in the condensed consolidated financial statements for further information.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates for the six months ended June 30, 2016 was $73.6 million compared to equity in earnings of $77.5 million for the six months ended June 30, 2015. This decrease was primarily attributable the equity earnings from Americas Styrenics, which decreased to $70.6 million from $75.8 million, driven primarily by the impact to gross profit caused by the planned turnaround at their St. James, Louisiana styrene facility during the first quarter of 2016. Sumika Styron Polycarbonate noted equity earnings of $3.0 million for the period, compared to $1.7 million in the prior year, noting improved PC market conditions.
Interest Expense, Net
Interest expense, net for the six months ended June 30, 2016 was $37.7 million compared to $54.5 million for the six months ended June 30, 2015. This decrease in interest expense was primarily attributable to the impact of the debt refinancing executed in May 2015, which reduced applicable interest rates. Refer to Note 6 in the condensed consolidated financial statements for further information.
Loss on Extinguishment of Long-Term Debt
Loss on extinguishment of long-term debt was zero for the six months ended June 30, 2016, compared to $95.2 million for the six months ended June 30, 2015, related to the debt refinancing in May 2015. This amount was comprised of a $68.6 million call premium paid to retire the Company’s 2019 Senior Notes and a $25.9 million write-off of unamortized deferred financing fees related to these notes, as well as the write-off of $0.7 million of unamortized deferred financing fees related to the termination of the Company’s 2018 Revolving Facility.
Other Expense, net
Other expense, net for the six months ended June 30, 2016 was $15.5 million, driven bywhich includes an impairment charge for the estimated loss on sale of itsour latex and automotive businesses in Brazil of approximately $12.9 million, as well as other expenses of $1.0 million. Refer to Note 1511 in the condensed consolidated financial statements for further information. Adding to these losses were net foreign exchange transaction losses of $1.6 million. Included in these net losses of $1.6 million were foreign exchange transactiontransactions losses of $2.6 million, primarily drivendue to by the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, partially offset by gains of $1.0 million in gains from our foreign exchange forward contracts.
Other expense, net for the six months ended June 30, 2015 was $6.7 million, which consisted primarily
28
Provision for Income Taxes
Provision for income taxes for the six months ended June 30, 2016 was $50.52017 totaled $48.1 million resulting in an effective tax rate of 22.6%21.3%. Provision for income taxes for the six months ended June 30, 2015 was $25.42016 totaled $50.5 million resulting in an effective tax rate of 39.8%22.6%.
The increasedecrease in provision for income taxes was primarily driven by the $159.2 million increase indue to a lower amount of income before income taxes from $63.9subject to tax. Included in the $225.6 million income before income taxes for the six months ended June 30, 2015 to2017 is the $9.3 million gain on sale of our 50% share in Sumika Styron Polycarbonate, which was exempt from tax. Conversely, included in the $223.1 million income before income taxes for the six months ended June 30, 2016.
33
This increase2016 was an in the provision for income taxes was partially offset by a net reduction of losses generated within companies which are not anticipated to provide a tax benefit to the Company in the future. These losses are primarily generated within our holding companies incorporated in Luxembourg and our primary operating company incorporated in Brazil. For the six months ended June 30, 2016 these losses totaled approximately $41.7 million and included an impairment charge of $12.9 million for the estimated loss on sale of Trinseo Brazil. ReferBrazil, which did not provide a tax benefit to Note 15the Company.
2017 Outlook
We expect continued strong fundamental business performance over the remainder of 2017. However, due to recent sharp volatility in the condensed consolidated financial statementsprices of our key raw materials, we expect our results for further information.
For the six months ended June 30, 2015 these losses totaled approximately $58.8second half of 2017 to be impacted by unfavorable raw material timing, net of favorable price lag. We continue to make strong progress on the growth initiatives within our Performance Materials segments, including our recently completed acquisition of API Plastics, to go along with our other investments such as the SSBR expansion and pilot plant, new ABS capacity in China, and new product and application growth initiatives. Additionally, we expect to continue our strategy of balanced cash deployment and maximizing shareholder value, noting the recent approval from our board of directors of a 20% dividend increase as well as an increased repurchase authorization of 2 million and included payments made in our Luxembourg entities of $18.1 million related to a portion of the fees associated with the call premium paid to retire the Company’s 2019 Senior Notes and $4.3 million related to the write off of the related unamortized deferred financing fees. Refer to Note 6 in the condensed consolidated financial statements for further information.shares.
3429
Selected Segment Information
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the business is now managed and results are reviewed by the chief executive officer, who is the Company’s chief operating decision maker. The Company’s reportable segments are now as follows: Latex Binders, Synthetic Rubber, Performance Plastics, Basic Plastics, Feedstocks, and Americas Styrenics. In conjunction with this segment realignment, the Company changed its primary measure of segment operating performance to Adjusted EBITDA. Refer to the Annual Report for a description of our segments, including a detailed overview, products and end uses, and competition and customers.
The following tables presentsections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the three and six months ended June 30, 2017 and 2016, which have been recast to reflect the above changes. Inter-segment sales have been eliminated. Refer to Note 12 in the condensed consolidated financial statements for further information on these changes, as well as for a detailed definition of Adjusted EBITDA and a reconciliation of income before income taxes to segment Adjusted EBITDA.
Latex Binders Segment
Our Latex Binders segment produces SB latex and other latex polymers and binders primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a percentagenumber of totalperformance latex applications,such as adhesive, building and construction and the technical textile paper market.
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(in millions) |
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| 2017 |
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| 2016 |
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| % Change |
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| 2017 |
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| 2016 |
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| % Change |
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| ||||
Net sales |
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| $ | 291.5 |
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| $ | 232.5 |
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| 25 | % |
| $ | 580.5 |
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| $ | 442.0 |
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| 31 | % |
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Adjusted EBITDA |
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| $ | 36.1 |
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| $ | 21.5 |
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| 68 | % |
| $ | 72.9 |
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| $ | 40.2 |
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| 81 | % |
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Adjusted EBITDA margin |
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| 12 | % |
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| 9 | % |
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| 13 | % |
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| 9 | % |
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Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 25% increase in net sales, 36% was due to higher selling prices, primarily due to the pass through of higher butadiene and styrene costs to our customers. Offsetting this increase was a 5% decrease due to lower sales volume from North America paper customer destocking and a declining market. Additionally, 4% of the decrease was due to the prior year divestiture of our business in Brazil and 2% of the decrease was due to an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The increase in Adjusted EBITDA was due to margin improvements of $17.7 million, an 82% increase, which included favorable raw material timing, net of price lag, as market conditions have improved, particularly in Asia. Higher margins were also the result of continued diversification of our chemistries and markets as well as higher operating rates. Additionally, fixed cost improvements contributed to 8% of the increase. Lastly, the prior year divestiture of our business in Brazil resulted in a 5% decrease in Adjusted EBITDA.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 31% increase in net sales, 37% was due to higher selling prices, primarily due to the pass through of higher butadiene and styrene costs to our customers. Offsetting this increase was a 4% decrease due to the prior year divestiture of our business in Brazil as well as a 2% decrease due to an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The increase in Adjusted EBITDA was due to margin improvements of $34.9 million, an 87% increase, primarily due to favorable raw material timing, net of price lag, as market conditions have improved, particularly in Asia. Higher margins were also the result of continued diversification of our chemistries and markets as well as higher operating rates. Additionally, fixed cost improvements contributed to 2% of the increase. Lastly, the prior year divestiture of our business in Brazil resulted in a 3% decrease in Adjusted EBITDA.
30
Synthetic Rubber Segment
Our Synthetic Rubber segment produces styrene-butadiene and polybutadiene-based rubber products used predominantly in high-performance tires, impact modifiers and technical rubber products, such as conveyor belts, hoses, seals and gaskets. We have a broad synthetic rubber technology and product portfolio, focusing on specialty products, such as SSBR, lithium polybutadiene rubber, or Li-PBR, nickel polybutadiene rubber, or Ni-PBR, and neodymium polybutadiene rubber, or Nd-PBR, while also producing core products, such as emulsion styrene-butadiene rubber, or ESBR.
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(in millions) |
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| 2017 |
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| % Change |
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Net sales |
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| $ | 174.0 |
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| $ | 111.4 |
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| 56 | % |
| $ | 337.4 |
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| $ | 213.6 |
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| 58 | % |
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Adjusted EBITDA |
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| $ | 27.7 |
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| $ | 30.2 |
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| (8) | % |
| $ | 74.0 |
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| $ | 53.3 |
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| 39 | % |
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Adjusted EBITDA margin |
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| 16 | % |
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| 27 | % |
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|
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| 22 | % |
|
| 25 | % |
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Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 56% increase in net sales, 53% was due to higher selling prices, primarily resulting from the pass through of higher butadiene and styrene costs to customers. Additionally, 8% of the increase was due to higher sales volume which was a result of higher customer demand for SSBR due to the growing performance tire market,as well as higher sales of Ni-PBR, noting decreased production in the prior year to allow for Nd-PBR trials. These increases were partially offset by a 4% decrease due to an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was primarily due to unfavorable raw material timing, partly offset by favorable price lag, which led to a 29% decrease due to margin. Offsetting this decrease was a 25% increase due to higher sales volume and favorable product mix, primarily related to higher demand for SSBR and Ni-PBR.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 58% increase in net sales, 49% was due to higher selling prices, primarily resulting from the pass through of higher butadiene and styrene costs to customers. Additionally, 14% of the increase was due to higher sales volume which was a result of higher customer demand for SSBR and ESBR, as well as higher sales of Ni-PBR, noting decreased production in the prior year to allow for Nd-PBR trials. These increases were partially offset by a 4% decrease due to an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The increase in Adjusted EBITDA was primarily due to improved year-to-date margins, which contributed to 27% of the increase, mainly from favorable raw material timing, net of unfavorable price lag. Higher sales volume contributed to 23% of the increase, primarily related to higher demand for SSBR, ESBR, and Ni-PBR. Partially offsetting these increases was a 10% decrease due to higher production costs.
Performance Plastics Segment
Our Performance Plastics segment respectively,consists of compounds and blends and some specialized ABS grades. We are a producer of highly engineered compounds and blends for automotive end markets, as well as consumer electronics, medical, electrical and lighting, collectively referred to as consumer essential markets.
31
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(in millions) |
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| 2017 |
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| 2016 |
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| % Change |
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| 2017 |
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| 2016 |
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| % Change |
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Net sales |
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| $ | 190.2 |
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| $ | 183.9 |
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| 3 | % |
| $ | 374.7 |
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| $ | 352.5 |
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| 6 | % |
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Adjusted EBITDA |
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| $ | 23.5 |
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| $ | 38.5 |
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| (39) | % |
| $ | 50.4 |
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| $ | 73.6 |
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| (32) | % |
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Adjusted EBITDA margin |
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| 12 | % |
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| 21 | % |
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| 13 | % |
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| 21 | % |
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Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 3% increase in net sales, 6% was due to higher selling prices due to the pass through of higher raw material costs to our customers, as well as a 3% increase due to increased sales volume as a result of higher volumes sold to the automotive market in North America and the consumer electronics market in Asia. Partially offsetting these increases was a 4% decrease due to the prior year divestiture of our business in Brazil and a 1% unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to a 39% decrease, primarily due to margin compression from increased costs of raw materials, such as polycarbonate, not all of which was able to be passed through to our customers. Partially offsetting these decreases was a 3% increase due to increased sales volumes to the automotive market in North America and the consumer electronics market in Asia and a 2% increase related to the prior year divestiture of our business in Brazil.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 6% increase in net sales, 3% was due to higher selling prices due to the pass through of higher raw material costs to our customers as well as an 8% increase due to increased sales volume, primarily related to higher sales to the automotive markets in Europe and North America, the electrical and medical markets in Europe, and the consumer electronics market in Asia. Partially offsetting these increases was a 3% decrease due to the prior year divestiture of our business in Brazil and a 1% unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to a 42% decrease in margins from unfavorable raw material timing, net of price lag unfavorable price lag, as well as margin compression from increased costs of raw materials, such as polycarbonate, not all of which was able to be passed through to our customers. Partially offsetting this decrease was a 13% increase due to increased sales volume growth to the automotive markets in Europe and North America and a 3% increase related to the prior year divestiture of our business in Brazil.
Basic Plastics Segment
The Basic Plastics segment produces styrenic polymers, including polystyrene, basic ABS, and SAN products, as well as PC, all of which are used as inputs in a variety of end use markets. The Basic Plastics segment also included the results of our previously 50%-owned joint venture Sumika Styron Polycarbonate prior to its sale in January 2017. Refer to Note 3 in the condensed consolidated financial statements for further information.
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| Three Months Ended |
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| Six Months Ended |
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| June 30, |
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| June 30, |
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(in millions) |
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| 2017 |
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| 2016 |
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| % Change |
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| 2017 |
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| 2016 |
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| % Change |
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Net sales |
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| $ | 382.5 |
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| $ | 363.3 |
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| 5 | % |
| $ | 763.2 |
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| $ | 705.9 |
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| 8 | % |
|
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Adjusted EBITDA |
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| $ | 31.8 |
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| $ | 43.1 |
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| (26) | % |
| $ | 70.6 |
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| $ | 80.9 |
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| (13) | % |
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Adjusted EBITDA margin |
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| 8 | % |
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| 12 | % |
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| 9 | % |
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| 11 | % |
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Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 5% increase in net sales, 11% was due to higher selling prices due to the pass through of higher styrene costs to customers. This increase was partially offset by a 3% decrease due to lower sales volume, primarily related to lower polystyrene sales volume in Asia, as we have increased our focus on higher margin business, as well as lower
32
external polycarbonate sales volume due to higher internal utilization. Additionally, an unfavorable currency impact resulted in a 2% decrease as the euro weakened in comparison to the U.S. dollar.
Adjusted EBITDA decreased 26%, primarily due to unfavorable raw material timing resulting in lower margins, which contributed to a 15% decrease, while lower sales volume contributed to 7% of the decrease. The sale of Sumika Styron Polycarbonate in the current year resulted in a 2% decrease in Adjusted EBITDA.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 8% increase in net sales, 18% was due to higher selling prices due to the pass through of higher styrene costs to customers. This increase was partially offset by a 7% decrease due to lower sales volume, primarily related to lower polystyrene sales in Asia, as we have increased our focus on higher margin business. Additionally, an unfavorable currency impact resulted in a 2% decrease as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to an 11% decrease related to lower sales volume, primarily related to Europe and Asia polystyrene sales, with competitor supply outages in Europe in the prior year and with an increased focus on higher margins in Asia. Higher fixed costs, including start-up costs incurred related to our new ABS capacity in Asia, contributed to a decrease of 3% while the sale of Sumika Styron Polycarbonate in the current year resulted in a 3% decrease in Adjusted EBITDA. Partially offsetting these decreases was a 5% increase due to higher year-to-date margins, primarily due to favorable raw material timing.
Feedstocks Segment
The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, ABS resins, SSBR, etc.
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| Three Months Ended |
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| Six Months Ended |
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| June 30, |
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| June 30, |
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(in millions) |
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| 2017 |
|
| 2016 |
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| % Change |
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| 2017 |
|
| 2016 |
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| % Change |
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| ||||
Net sales |
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| $ | 107.0 |
|
| $ | 78.6 |
|
| 36 | % |
| $ | 193.9 |
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| $ | 149.8 |
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| 29 | % |
|
|
Adjusted EBITDA |
|
| $ | (1.2) |
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| $ | 32.5 |
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| (104) | % |
| $ | 40.7 |
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| $ | 53.4 |
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| (24) | % |
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Adjusted EBITDA margin |
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| (1) | % |
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| 41 | % |
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| 21 | % |
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| 36 | % |
|
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|
Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 36% increase in net sales, 16% was due to higher selling prices, primarily due to the pass through of higher styrene costs to customers, as well as a 22% increase due to higher styrene-related sales volume. Partially offsetting these increases was a 2% decrease as a result of an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to a 98% decrease as a result of lower styrene margins, including unfavorable raw material timing, as well as a 4% decrease due to higher maintenance-related fixed costs.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 29% increase in net sales, 27% was due to higher selling prices, primarily due to the pass through of higher styrene costs to customers, as well as a 4% increase due to higher styrene-related sales volume. Partially offsetting these increases was a 2% decrease as a result of an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to a 16% decrease as a result of lower styrene margins, including unfavorable raw material timing, as well as a 6% decrease due to higher maintenance-related fixed costs.
Americas Styrenics Segment
The Americas Styrenics segment consists solely of the operations of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America. Styrene monomer is a basic building
33
block of plastics and a key input to many of the Company’s products, as well as a key raw material for the following periods:production of polystyrene. Major applications for the polystyrene products Americas Styrenics produces include appliances, food packaging, food service disposables, consumer electronics and building and construction materials.
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| Three Months Ended |
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| Six Months Ended |
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| June 30, |
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| June 30, |
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(in millions) |
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| 2017 |
|
| 2016 |
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| % Change |
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| 2017 |
|
| 2016 |
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| % Change |
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| ||||
Adjusted EBITDA* |
|
| $ | 29.9 |
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| $ | 37.7 |
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| (21) | % |
| $ | 48.4 |
|
| $ | 70.6 |
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| (31) | % |
|
|
*The results of this segment are comprised entirely of earnings from Americas Styrenics, our equity method investment. As such, Adjusted EBITDA related to this segment is included within “Equity in earnings of unconsolidated affiliates” in the consolidated statements of operations.
Three Months Ended - June 30, 2017 vs. June 30, 2016
The decrease in Adjusted EBITDA was primarily due to lower margins on second quarter sales of styrene purchased during the first quarter maintenance-related outage at the St. James, LA, styrene facility in a decreasing price environment.
Six Months Ended - June 30, 2017 vs. June 30, 2016
The decrease in Adjusted EBITDA was primarily due to the planned first quarter styrene outage at its St. James, LA, facility, which was extended in order to complete repairs on critical equipment. The facility came back online at full production in early April 2017. As a result of this extended outage, the Company incurred an unfavorable impact of approximately $23 million to Adjusted EBITDA through the second quarter of 2017.
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; acquisition related costs and other items. In doing so, we are providing management, investors, and credit rating agencies with an indicator of our ongoing performance and business trends, by removing the impact of transactions and events that we would not consider a part of our core operations.
There are limitations to using the financial performance measures such as Adjusted EBITDA. This performance measure is not intended to represent net income or other measures of financial performance. As such, it should not be used as an alternative to net income as an indicator of operating performance. Other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We
34
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 six months ended June 30, 2017 and 2016, respectively:
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| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
(in millions) |
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Net sales(1) |
|
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|
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Latex segment |
| $ | 232.5 |
| $ | 247.5 |
| $ | 442.0 |
| $ | 485.8 |
|
Synthetic Rubber segment |
|
| 111.4 |
|
| 115.4 |
|
| 213.6 |
|
| 244.8 |
|
Performance Plastics segment |
|
| 183.9 |
|
| 185.3 |
|
| 352.5 |
|
| 382.2 |
|
Basic Plastics & Feedstocks segment |
|
| 441.9 |
|
| 480.5 |
|
| 855.7 |
|
| 934.1 |
|
Corporate unallocated(2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total |
| $ | 969.7 |
| $ | 1,028.7 |
| $ | 1,863.8 |
| $ | 2,046.9 |
|
EBITDA(3) |
|
|
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|
Latex segment |
| $ | 16.9 |
| $ | 14.9 |
| $ | 35.0 |
| $ | 36.4 |
|
Synthetic Rubber segment |
|
| 30.2 |
|
| 18.5 |
|
| 53.3 |
|
| 44.6 |
|
Performance Plastics segment |
|
| 22.3 |
|
| 21.3 |
|
| 52.3 |
|
| 46.3 |
|
Basic Plastics & Feedstocks segment |
|
| 121.0 |
|
| 122.2 |
|
| 217.6 |
|
| 181.1 |
|
Corporate unallocated(2) |
|
| (22.3) |
|
| (121.3) |
|
| (49.5) |
|
| (145.8) |
|
Total |
| $ | 168.1 |
| $ | 55.6 |
| $ | 308.7 |
| $ | 162.6 |
|
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|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||
|
|
| June 30, |
|
| June 30, |
| ||||||
|
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
Net sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Latex segment |
|
| 24.0 | % |
| 24.1 | % |
| 23.7 | % |
| 23.7 | % |
Synthetic Rubber segment |
|
| 11.5 | % |
| 11.2 | % |
| 11.5 | % |
| 12.0 | % |
Performance Plastics segment |
|
| 19.0 | % |
| 18.0 | % |
| 18.9 | % |
| 18.7 | % |
Basic Plastics & Feedstocks segment |
|
| 45.5 | % |
| 46.7 | % |
| 45.9 | % |
| 45.6 | % |
Corporate unallocated(2) |
|
| — | % |
| — | % |
| — | % |
| — | % |
Total |
|
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
EBITDA(3) |
|
|
|
|
|
|
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|
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|
|
Latex segment |
|
| 7.3 | % |
| 6.0 | % |
| 7.9 | % |
| 7.5 | % |
Synthetic Rubber segment |
|
| 27.1 | % |
| 16.0 | % |
| 25.0 | % |
| 18.2 | % |
Performance Plastics segment |
|
| 12.1 | % |
| 11.5 | % |
| 14.8 | % |
| 12.1 | % |
Basic Plastics & Feedstocks segment |
|
| 27.4 | % |
| 25.4 | % |
| 25.4 | % |
| 19.4 | % |
Corporate unallocated(2) |
|
| (2.3) | % |
| (11.8) | % |
| (2.7) | % |
| (7.1) | % |
Total |
|
| 17.3 | % |
| 5.4 | % |
| 16.6 | % |
| 7.9 | % |
|
|
|
|
|
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|
|
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|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net income |
| $ | 60.2 |
| $ | 95.8 |
| $ | 177.5 |
| $ | 172.6 |
|
Interest expense, net |
|
| 18.7 |
|
| 18.8 |
|
| 36.9 |
|
| 37.7 |
|
Provision for income taxes |
|
| 18.8 |
|
| 28.6 |
|
| 48.1 |
|
| 50.5 |
|
Depreciation and amortization |
|
| 26.3 |
|
| 24.9 |
|
| 51.0 |
|
| 47.9 |
|
EBITDA(a) |
| $ | 124.0 |
| $ | 168.1 |
| $ | 313.5 |
| $ | 308.7 |
|
Net loss (gain) on disposition of businesses and assets(b) |
|
| — |
|
| 12.9 |
|
| (9.9) |
|
| 12.9 |
|
Restructuring and other charges(c) |
|
| 1.1 |
|
| 1.1 |
|
| 3.3 |
|
| 1.8 |
|
Acquisition transaction and integration costs(d) |
|
| 1.1 |
|
| — |
|
| 1.1 |
|
| — |
|
Other items(e) |
|
| — |
|
| 0.3 |
|
| — |
|
| 2.2 |
|
Adjusted EBITDA |
| $ | 126.2 |
| $ | 182.4 |
| $ | 308.0 |
| $ | 325.6 |
|
|
|
|
|
| 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 |
35
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| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
(in millions) |
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Net income |
| $ | 95.8 |
| $ | 0.8 |
| $ | 172.6 |
| $ | 38.5 |
|
Interest expense, net |
|
| 18.8 |
|
| 25.6 |
|
| 37.7 |
|
| 54.5 |
|
Provision for income taxes |
|
| 28.6 |
|
| 7.5 |
|
| 50.5 |
|
| 25.4 |
|
Depreciation and amortization |
|
| 24.9 |
|
| 21.7 |
|
| 47.9 |
|
| 44.2 |
|
EBITDA |
| $ | 168.1 |
| $ | 55.6 |
| $ | 308.7 |
| $ | 162.6 |
|
There are limitations to using financial measures such as EBITDA. Other companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of our EBITDA results to our net income, which is determined in accordance with GAAP.
Latex Segment
We are a global leader in styrene-butadiene latex, or SB latex, holding a strong market position across the geographies and applications in which we compete, including the #1 position in SB latex in Europe and the #2 position in North America. We produce SB latex primarily for coated paper used in advertising and magazines, packaging board coatings, carpet and artificial turf backings, as well as a number of performance latex applications. For the six months ended June 30, 2016, approximately 43% of our Latex segment’s net sales were generated in Europe, approximately 27% were generated in the United States, and the majority of the remaining sales were generated in Asia.
Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015
Net sales for the three months ended June 30, 2016 decreased by $15.0 million, or 6.1%, to $232.5 million from $247.5 million for the three months ended June 30, 2015. Of the 6.1% decrease in net sales, 6.8% was due to lower selling prices primarily due to the pass through of lower butadiene and styrene costs to our customers and 0.6% was driven by decreased sales volume in Europe and North America, partially offset by higher sales volume to the Asia paper and carpet markets. These decreases were partially offset by an increase of 1.3% due to a favorable currency impact as the euro strengthened in comparison to the U.S. dollar.
EBITDA for the three months ended June 30, 2016 increased by $2.0 million, or 13.4%, to $16.9 million from $14.9 million for the three months ended June 30, 2015. Driving this increase were improvements in margin of approximately $6.8 million driven by price increases in North America as well as unfavorable price lag in the prior year. This increase was partially offset by an impairment charge of $4.0 million recorded during 2016 on the estimated loss on sale of the Company’s latex business in Brazil as well as increased restructuring charges of $0.6 million compared to prior year related to our Allyn’s Point plant closure. Refer to Notes 15 and 16, respectively, in the condensed consolidated financial statements for further information.
Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015
Net sales for the six months ended June 30, 2016 decreased by $43.8 million, or 9.0%, to $442.0 million from $485.8 million for the six months ended June 30, 2015. Of the 9.0% decrease in net sales, 7.2% was due to lower selling prices, primarily due to the pass through of lower butadiene and styrene costs to our customers, and 1.3% was due to lower sales volume in Europe and North America, partially offset by higher sales volume to the Asia paper and carpet markets. In addition, 0.5% of the decrease was driven by an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
EBITDA for the six months ended June 30, 2016 decreased by $1.4 million, or 3.8%, to $35.0 million from $36.4 million for the six months ended June 30, 2015. Driving this decrease was an impairment charge of $4.0 million recorded during 2016 on the estimated loss on sale of the Company’s latex business in Brazil as well as increased restructuring charges of $1.2 million compared to prior year related to our Allyn’s Point plant closure. Refer to Notes 15 and 16, respectively, in the condensed consolidated financial statements for further information. Partially offsetting these decreases were margin improvements of $5.3 million driven by price increases in North America.
36
Synthetic Rubber Segment
We are a significant producer of styrene-butadiene and polybutadiene-based rubber products and we have a leading European market position in solution styrene-butadiene rubber, or SSBR. While substantially all of our sales were generated in Europe for the six months ended June 30, 2016, approximately 23% of these net sales were exported to Asia, 7% to Latin America and 9% to North America.
We have a broad synthetic rubber technology and product portfolio, focusing on specialty products, such as SSBR, lithium polybutadiene rubber, or Li-PBR, and neodymium polybutadiene rubber, or Nd-PBR, while also producing core products, such as emulsion styrene-butadiene rubber, or ESBR. Our synthetic rubber products are extensively used in tires, with approximately 83% of our net sales from this segment in 2015 attributable to the tire market. We estimate that three quarters of these sales relate to replacement tires. We have strong relationships with many of the top global tire manufacturers and believe we have remained a supplier of choice as a result of our broad rubber portfolio and ability to offer technologically differentiated product and product customization capabilities. Other applications for our synthetic rubber products include polymer modification and technical rubber goods.
Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015
Net sales for the three months ended June 30, 2016 decreased by $4.0 million, or 3.5%, to $111.4 million from $115.4 million for the three months ended June 30, 2015. Of the 3.5% decrease in net sales, 4.1% was due to lower selling prices, primarily resulting from the pass through of lower butadiene and styrene costs to customers, and 2.3% was due to decreased sales volume, particularly in nickel polybutadiene rubber, or Ni-PBR. These decreases were partially offset by an increase of 3.0% due to a favorable currency impact as the euro strengthened in comparison to the U.S. dollar.
EBITDA for the three months ended June 30, 2016 increased by $11.7 million, or 63.2%, to $30.2 million from $18.5 million for the three months ended June 30, 2015. This increase from prior year was primarily driven by a 50.6% improvement in fixed costs, as the prior year included an inventory draw and higher maintenance costs due to a planned turnaround. Also driving this increase was an 8.2% benefit driven by higher margins, mainly due to favorable inventory timing, and a 3.8% benefit due to a favorable currency impact as the euro strengthened in comparison to the U.S. dollar.
Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015
Net sales for the six months ended June 30, 2016 decreased by $31.2 million, or 12.7%, to $213.6 million from $244.8 million for the six months ended June 30, 2015. Of the 12.7% decrease in net sales, 6.7% was due to lower selling prices, primarily resulting from the pass through of lower butadiene and styrene costs to customers, and 5.0% was due to decreased sales volume, particularly in Ni-PBR. In addition, 1.1% of the decrease was driven by an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
EBITDA for the six months ended June 30, 2016 increased by $8.7 million, or 19.5%, to $53.3 million from $44.6 million for the six months ended June 30, 2015. This increase from prior year was primarily driven by an increase of 22.4% due to improved fixed costs, as the prior year included an inventory draw and higher maintenance costs due to a planned turnaround, as well as an increase of 6.6% driven by improved margins. These increases were partially offset by a decrease of 7.9% due to decreased sales volumes compared to the prior year, particularly in Ni-PBR.
Performance Plastics Segment
We are a producer of highly engineered compounds and blends for automotive end markets, as well as consumer electronics, medical, and electrical lighting, which we collectively call consumer essential markets, or CEM. Our strategy in this segment focuses on developing differentiated compounds and blends in line with key industry trends, such as light-weighting and improved aesthetics in automotive, increased recycled material content and a push toward LED lighting in CEM. Our history of innovation has contributed to long-standing relationships with customers who are recognized leaders in their respective end-markets. We have established a strong market presence in the global automotive and electronics sector, targeting both component suppliers and final product manufacturers. Our Performance Plastics segment also compounds and blends our PC and mass acrylonitrile-butadiene-styrene, or mABS, plastics into differentiated products for customers within these sectors, as well as into compounds of polypropylene. We have also
37
developed compounds containing post-consumer recycle polymers to respond to what we believe is a growing need for some customers to include recycled content in their products.
We believe growth in this segment is driven by a number of factors, including consumer preference for lighter weight and impact-resistant products and the development of new consumer electronics, increases in LED lighting applications and continuing growth in medical device applications. Additionally, we believe growth is bolstered by sustainability trends, such as the substitution of lighter-weight plastics for metal in automobiles, as well as more energy efficient, glazing solutions.
In automotive end applications, we aim to maintain and develop sustainable, long-standing relationships with industry leaders, taking advantage of our production capacity located across four continents to drive original equipment manufacturer, or OEM, platform design wins. In 2015, we experienced growth in sales related to the automotive market, with a 2% increase in sales volume outside of Latin America, which experienced declines due to lower consumer confidence and higher interest rates. We continue to focus on our strategic plans to grow this segment through both current technologies and expanded offerings for car exteriors and semi-structural applications.
Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015
Net sales for the three months ended June 30, 2016 decreased by $1.4 million, or 0.8%, to $183.9 million from $185.3 million for the three months ended June 30, 2015. Of the 0.8% decrease in net sales, 3.2% was due to lower selling prices primarily related to the pass through of lower raw material costs to our customers. This was offset by a 1.1% increase due to increased sales volume, particularly within the automotive market, which was partially offset by lower sales to the Asia Performance Plastics market. Also impacting net sales was a 1.4% increase due to a favorable currency impact as the euro strengthened in comparison to the U.S. dollar.
EBITDA for the three months ended June 30, 2016 increased by $1.0 million, or 4.7%, to $22.3 million from $21.3 million for the three months ended June 30, 2015. Of this 4.7% increase, 34.4% was due to higher margins in automotive and an unfavorable price lag impact in the prior year, and 2.6% was due to increased sales volume. These increases were partially offset by an impairment charge of $8.6 million recorded during 2016 on the estimated loss on sale of the Company’s automotive business in Brazil. Refer to Note 15 in the condensed consolidated financial statements for further information.
Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015
Net sales for the six months ended June 30, 2016 decreased by $29.7 million, or 7.8%, to $352.5 million from $382.2 million for the six months ended June 30, 2015. Of the 7.8% decrease in net sales, 5.2% was due to lower selling prices, primarily related to the pass through of lower raw material costs to our customers, and 2.1% was due to decreased sales volume, driven by lower sales to the consumer electronics market in Asia. In addition, 0.5% of the decrease was driven by an unfavorable currency impact as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis.
EBITDA for the six months ended June 30, 2016 increased by $6.0 million, or 13.0%, to $52.3 million from $46.3 million for the six months ended June 30, 2015. Of the 13.0% increase, 28.3% was due to higher margins, including unfavorable inventory timing and price lag impacts in the prior year, and 7.5% was due to improved fixed costs. These increases were partially offset by a 3.9% decrease driven by lower sales volume, primarily caused by lower sales to the consumer electronics market in Asia, which were partially offset by higher sales to the automotive market. Also offsetting this overall increase was an impairment charge of $8.6 million recorded during 2016 on the estimated loss on sale of the Company’s automotive business in Brazil. Refer to Note 15 in the condensed consolidated financial statements for further information.
Basic Plastics & Feedstocks Segment
Basic Plastics & Feedstocks consists of styrenic polymers, including polystyrene, acrylonitrile-butadiene-styrene, or ABS, and styrene-acrylonitrile, or SAN, products, as well as PC and styrene monomer, which includes our internal productions and sourcing of styrene. This segment also includes the results of our two joint ventures, Americas Styrenics and Sumika Styron Polycarbonate. We do not anticipate investing in strategic growth initiatives in this
38
segment in the near term. Rather, our strategy for this segment is focused on operational enhancements, margin improvement, and cash generation.
We are a leading producer of polystyrene and mABS, where we focus our efforts on differentiated applications such as the liners and encasements of appliances and consumer electronics including smartphones and tablets. Within these applications, we have worked collaboratively with customers to develop more advanced grades of plastics such as our HIPS and mABS products. For example, we work with appliance manufacturers around the world to develop improved environmental stress crack resistant products and with our construction sheet customers on smooth ABS. These products offer superior properties, such as rigidity, insulation and colorability, and, in some cases, an improved environmental footprint compared to general purpose polystyrene or emulsion ABS. Our Basic Plastics & Feedstocks segment also serves the packaging and construction end-markets, where we have launched a new general purpose polystyrene product for improved performance in foam insulation applications.
PC has high levels of clarity, impact resistance and temperature resistance. PC can be used in its neat form (prior to any compounding or blending) for markets such as construction sheet, optical media and LED lighting. Additionally, PC can be compounded or blended with other polymers, such as ABS, which imparts specific performance attributes tailored to the product’s end-use. A significant portion of our PC is consumed in our Performance Plastics segment for the manufacture of our compounds and blends products. We continue to drive improvements in profitability of PC as a result of savings from our restructuring activities, as well as from improvements in industry supply and demand.
Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015
Net sales for the three months ended June 30, 2016 decreased by $38.6 million, or 8.0%, to $441.9 million from $480.5 million for the three months ended June 30, 2015. Of the 8.0% decrease in net sales, 12.1% was driven by decreases in selling prices due to the pass through of lower styrene costs to customers, partially offset by an increase of 2.0% driven by higher volumes and an increase of 2.1% due to a favorable currency impact as the euro strengthened in comparison to the U.S. dollar.
EBITDA for the three months ended June 30, 2016 decreased by $1.2 million, or 1.0%, to $121.0 million from $122.2 million for the three months ended June 30, 2015. Of this 1.0% decrease, 1.8% was due to a decrease in the equity earnings from our two joint ventures, while 4.3% was due to lower margin, which was driven by unfavorable inventory timing. Partially offsetting these decreases was a 3.0% increase driven by reduced fixed costs and a 1.8% favorable currency impact as the euro strengthened in comparison to the U.S. dollar.
Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015
Net sales for the six months ended June 30, 2016 decreased by $78.4 million, or 8.4%, to $855.7 million from $934.1 million for the six months ended June 30, 2015. Of the 8.4% decrease in net sales, 6.7% was driven by decreases in selling prices, due to the pass through of lower styrene costs to customers, and 0.8% was due to decreases in sales volume, due to decreases in Asia polystyrene sales. In addition, 0.8% of the decrease was driven by an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
EBITDA for the six months ended June 30, 2016 increased by $36.5 million, or 20.2%, to $217.6 million from $181.1 million for the six months ended June 30, 2015. This EBITDA increase was due primarily to higher margins in styrene, styrenic polymers, and PC. In addition, 2.9% of the increase was driven by reduced fixed costs, primarily due to prior year charges of $0.5 million related to our PC restructuring efforts. Refer to Note 16 in the condensed consolidated financial statements for further details. These increases were partially offset by a 2.2% decrease due to lower equity earnings from our two joint ventures and a 0.9% decrease due to an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
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Other Important Performance Measures
We believe that the presentation of Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation provides investors with a useful analytical indicator of our performance and of our ability to service our indebtedness.
We define Adjusted EBITDA as income (loss) from continuing operations before interest expense, net; income tax provision; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring and other items. We describe these other costs in more detail below.
We present Adjusted EBITDA excluding inventory revaluation in order to facilitate the comparability of results by investors from period to period by adjusting cost of sales to reflect the cost of raw material during the period, which is often referred to as the replacement cost method of inventory valuation. We believe this measure minimizes the impact of raw material purchase price volatility in evaluating our performance. Our approach to calculating inventory revaluation is intended to represent the difference between the results under the FIFO and the replacement cost methods. However, our calculation could differ from the replacement cost method if the monthly raw material standards are different from the actual raw material prices during the month and production and purchase volumes differ from sales volumes during the month. These factors could have a significant impact on the inventory revaluation calculation.
There are limitations to using financial measures such as Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation. These performance measures are not intended to represent cash flow from operations as defined by GAAP and should not be used as alternatives to net income (loss) as indicators of operating performance or to cash flow as measures of liquidity. Other companies in our industry may define Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation differently than we do. As a result, it may be difficult to use these or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of these performance measures to our net income (loss), which is determined in accordance with GAAP.
Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation are calculated as follows for the three and six months ended June 30, 2016 and 2015, respectively:
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| Six Months Ended |
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| June 30, |
| June 30, |
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(in millions) |
| 2016 |
| 2015 |
| 2016 |
| 2015 |
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Net income |
| $ | 95.8 |
| $ | 0.8 |
| $ | 172.6 |
| $ | 38.5 |
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Interest expense, net |
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| 18.8 |
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| 25.6 |
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| 37.7 |
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| 54.5 |
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Provision for income taxes |
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| 28.6 |
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| 7.5 |
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| 50.5 |
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| 25.4 |
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Depreciation and amortization |
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| 24.9 |
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| 21.7 |
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| 47.9 |
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| 44.2 |
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EBITDA(a) |
| $ | 168.1 |
| $ | 55.6 |
| $ | 308.7 |
| $ | 162.6 |
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Loss on extinguishment of long-term debt |
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| — |
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| 95.2 |
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| — |
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| 95.2 |
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Net loss on disposition of businesses and assets(b) |
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| 12.9 |
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| — |
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| 12.9 |
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| — |
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Restructuring and other charges(c) |
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| 1.1 |
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| (0.1) |
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| 1.8 |
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| 0.4 |
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Other items(d) |
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| 0.3 |
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| 0.6 |
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| 2.2 |
|
| 1.9 |
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Adjusted EBITDA |
| $ | 182.4 |
| $ | 151.3 |
| $ | 325.6 |
| $ | 260.1 |
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Inventory revaluation |
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| (12.9) |
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| (29.4) |
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| (3.2) |
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| 12.8 |
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Adjusted EBITDA excluding inventory revaluation(e) |
| $ | 169.5 |
| $ | 121.9 |
| $ | 322.4 |
| $ | 272.9 |
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(b) | Net gain on disposition of businesses and assets during the six months ended June 30, 2017 relates primarily to the sale of our 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited, for which the Company recorded a gain on sale of $9.3 million during the period. Refer to Note 3 in the condensed consolidated financial statements for further information. During the three and six months ended June 30, 2016, the Company recorded an impairment charge for the estimated loss on sale of |
(c) | Restructuring and other charges for the three and six months ended June 30, 2017 primarily relate to employee termination benefit and decommissioning charges incurred in connection with the decision to cease manufacturing activities at our latex binders manufacturing facility in Livorno, Italy, as well as contract termination charges related to the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands. Refer to Note 13 in the condensed consolidated financial statements for further information. Restructuring and other charges for the three and six months ended June 30, 2016 primarily relate to employee termination benefit and decommissioning charges incurred in connection with the Allyn’s Point shutdown within our latex binders business, as well as |
Note that the accelerated depreciation charges incurred as part of both the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands as well as the Allyn’s Point shutdown announced in September 2015 are included within the “Depreciation and amortization” caption above, and therefore are not included as a separate adjustment within this caption. Refer to Note 16 in the condensed consolidated financial statements for further information.
(d) | Acquisition transaction and integration costs for the three and six months ended June 30, 2017 relate to advisory and professional fees incurred in conjunction with the Company’s acquisition of API Plastics, which closed in July 2017. Refer to Note 16 in the condensed consolidated financial statements for further information. |
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(e) | Other items for the three and six months ended June 30, 2016 relate to fees incurred in conjunction with the Company’s secondary offerings completed during these periods. |
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Liquidity and Capital Resources
Cash Flows
The table below summarizes our primary sources and uses of cash for the six months ended June 30, 20162017 and 2015,2016, respectively. We have derived the summarized cash flow information from our unaudited financial statements.
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Net cash provided by (used in): |
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Operating activities |
| $ | 179.7 |
| $ | 74.7 |
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| $ | 36.6 |
| $ | 179.7 |
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Investing activities |
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| (48.2) |
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| (40.7) |
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| (29.7) |
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| (48.2) |
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Financing activities |
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| (97.0) |
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| (20.6) |
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| (79.8) |
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| (97.0) |
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Effect of exchange rates on cash |
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| (0.5) |
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| (3.1) |
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| 7.7 |
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| (0.5) |
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Net change in cash and cash equivalents |
| $ | 34.0 |
| $ | 10.3 |
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| $ | (65.2) |
| $ | 34.0 |
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Operating Activities
Net cash provided by operating activities during the six months ended June 30, 2017 totaled $36.6 million, inclusive of $45.0 million in dividends from Americas Styrenics, as well as dividends from Sumika Styron Polycarbonate, $8.9 million of which were classified as operating activities, with the remaining $0.9 million classified as investing activities. Refer to Note 3 in the condensed consolidated financial statements for further information. Net cash used in operating assets and liabilities for the six months ended June 30, 2017 totaled $210.6 million, due primarily to increases in accounts receivable of $137.7 million and inventories of $66.8 million, respectively. The increases in accounts receivable and inventories were primarily due to increased raw material prices.
Net cash provided by operating activities during the six months ended June 30, 2016 totaled $179.7 million, driven bydue primarily to earnings for the period. Also drivingimpacting cash flowflows from operating activities for the period was $60.0 million in dividends from our 50%-owned joint venture, Americas Styrenics.
Net cash used in operating assets and liabilities for the six months ended June 30, 2016 totaled $68.0 million, the most significant drivers of which weredue primarily to increases in accounts receivable of $53.0 million and inventories of $16.7 million, respectively. The increase in accounts receivable iswas primarily due to higher net sales during the second quarter of 2016, compared to the fourth quarter of 2015, due primarily driven byto increasing raw material prices as well as volume increases. The increase in inventory iswas primarily due to increasing raw material prices.
Investing Activities
Net cash provided by operatingused in investing activities during the six months ended June 30, 2015 totaled $74.7 million, driven by earnings for the period. Also driving cash from operating activities for the period was $45.0 million in dividends from our 50%-owned joint venture, Americas Styrenics. These increases were noted despite several significant decreases to
41
operating cash flows, which included $81.7 million in interest payments made on our 2019 Senior Notes prior to their May 2015 retirement as well as a $68.6 million call premium paid to retire those notes. Refer to Note 6 in the condensed consolidated financial statements for further details. Net cash provided by operating assets and liabilities for the six months ended June 30, 20152017 totaled $5.7$29.7 million, primarily from capital expenditures of $74.3 million during the most significant components of which were decreases in inventories of $45.9 million and increases in income taxes payable of $17.8 million,period, partially offset by an increase in accounts receivableproceeds received of $40.4 million. Inventory decreased due to higher volume sold during$42.1 million from the second quartersale of 2015 when compared to the fourth quarter of 2014, as well as decreases in raw materials prices. Increase in income taxes payable is driven primarily by the Company’s significant improvement50% share in earnings before taxes comparedSumika Styron Polycarbonate to the prior year, particularly in our 50%-owned joint venture, Americas Styrenics. The increase in accounts receivable is primarily due to timing of customer payments.
Investing ActivitiesSumitomo Chemical Company Limited.
Net cash used in investing activities for the six months ended June 30, 2016 totaled $48.2 million, driven byprimarily from capital expenditures of $53.2 million during the period, a significant portion of which related to our project to upgrade our legacy ERP environment to the latest version of SAP. Partially offsetting these capital expenditures were dividends received from Sumika Styron Polycarbonate during the period, $4.8 million of which were classified as investing activities on the condensed consolidated statement of cash flows, with the remaining $1.4 million classified as operating activities.
Financing Activities
Net cash used in investingfinancing activities forduring the six months ended June 30, 20152017 totaled $40.7$79.8 million. This activity was primarily due to $56.4 million consisting primarily of capital expenditurespayments related to the repurchase of $41.4 millionordinary shares during the period netand $26.5
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million of dividends paid, as well as $2.5 million of principal payments related to our 2021 Term Loan B. Partially offsetting these uses of cash was $6.0 million of proceeds received from a government subsidythe exercise of $2.2 million related to our capital expansion project at our rubber facility in Schkopau, Germany.
Financing Activitiesoption awards.
Net cash used in financing activities during the six months ended June 30, 2016 totaled $97.0 million. This activity was primarily driven bydue to $94.4 million of payments related to the repurchase of ordinary shares during the period (see Note 18 to the condensed consolidated financial statements) as well as $2.5 million of principal payments related to our 2021 Term Loan B.
Net
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.
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 financingour industry may define Free Cash Flow differently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the liquidity and cash generation of those companies to our own. We compensate for these limitations by providing a reconciliation to cash provided by operating activities, duringwhich is determined in accordance with GAAP.
Prior period information below has been recast from its previous presentation to reflect the Company’s current method for calculating Free Cash Flow. Prior to the third quarter of 2016, we calculated Free Cash Flow as cash from both operating and investing activities less the impact of changes in restricted cash. The Company believes our revised method is more aligned to investors’ common understanding of Free Cash Flow and allows for easier comparisons between the Company and its peers. Additionally, the Company has not reported material restricted cash balances since 2012 and is not expected to do so under its current practices.
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| June 30, |
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(in millions) |
| 2017 |
| 2016 |
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Cash provided by operating activities |
| $ | 36.6 |
| $ | 179.7 |
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Capital expenditures |
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| (74.3) |
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| (53.2) |
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Free Cash Flow |
| $ | (37.7) |
| $ | 126.5 |
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Refer to the discussion above for significant impacts to cash provided by operating activities for the six months ended June 30, 2015 totaled $20.6 million. The most significant activity during the period related to the May 2015 debt refinancing, which included net proceeds of $1,215.4 million from the issuance of our 2021 Term Loan B2017 and our 2022 Senior Notes, offset by the retirement of our existing 2019 Senior Notes totaling $1,192.5 million and deferred financing fees paid in conjunction with the refinancing of $27.7 million. Also during the period, we had net repayments of short-term borrowings of $15.8 million, which largely consisted of borrowings under our short-term revolving credit facility through our subsidiary in China. We also noted borrowings from and repayments of our Accounts Receivable Securitization Facility of $25.0 million, respectively, during the period.2016, respectively.
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 repayments of equitydividend payments to our shareholders, should the Company continue to declare them.shareholders. 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.
As of June 30, 20162017 and December 31, 2015,2016, we had $1,212.2$1,218.0 million and $1,207.8$1,187.4 million, respectively, in outstanding indebtedness and $928.8$1,051.1 million and $839.8$890.7 million, respectively, in working capital. We believe, based on our current level of operations, that these sources of liquidity will be sufficient to fund our operations, capital expenditures and debt service for at least the next twelve months.
In addition, as of June 30, 20162017 and December 31, 2015,2016, we had $97.7$91.5 million and $73.7$88.8 million of foreign cash and cash equivalents on our balance sheet, respectively, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries.
Refer to our Annual Report for a detailed description of the Company’s debt structure, borrowing rates, and expected future payment obligations.
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As is typical, our indebtedness could affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, and expose us to interest rate risk. Management reacts strategically to mitigate these risks and monitor compliance with debt covenants in order to limit potential material impacts to our financial condition and flexibility.
The following table outlines our outstanding indebtedness as of June 30, 20162017 and December 31, 20152016 and the associated interest expense, including amortization of deferred financing fees, and effective interest rates for such borrowings as of June 30, 20162017 and December 31, 2015.2016. Note that the effective interest rates below exclude the impact of deferred financing fee amortization.
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2018 Revolving Facility |
| $ | — |
| — |
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| $ | — |
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| $ | 1.6 |
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Senior Credit Facility |
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2021 Term Loan B |
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| 494.0 |
| 4.3 | % |
| 11.6 |
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| 496.4 |
| 4.3 | % |
| 15.4 |
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2020 Revolving Facility |
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| — |
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| 1.6 |
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| 2.3 |
|
2019 Senior Notes |
|
| — |
| — |
|
| — |
|
| — |
| 8.8 | % |
| 40.4 |
|
2022 Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Notes |
|
| 300.0 |
| 6.8 | % |
| 10.5 |
|
| 300.0 |
| 6.8 | % |
| 13.8 |
|
Euro Notes |
|
| 416.4 |
| 6.4 | % |
| 13.8 |
|
| 409.5 |
| 6.4 | % |
| 17.9 |
|
Accounts Receivable Securitization Facility |
|
| — |
| — |
|
| 2.0 |
|
| — |
| 2.7 | % |
| 4.1 |
|
Other indebtedness* |
|
| 1.8 |
| 4.8 | % |
| — |
|
| 1.9 |
| 2.5 | % |
| 0.1 |
|
Total |
| $ | 1,212.2 |
|
|
| $ | 39.5 |
| $ | 1,207.8 |
|
|
| $ | 95.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of and for the Six Months Ended |
| As of and for the Year Ended |
| ||||||||||||
|
| June 30, 2017 |
| December 31, 2016 |
| ||||||||||||
|
|
|
| Effective |
|
|
|
|
| Effective |
|
|
| ||||
|
|
|
| Interest |
| Interest |
|
|
| Interest |
| Interest |
| ||||
(dollars in millions) |
| Balance |
| Rate |
| Expense |
| Balance |
| Rate |
| Expense |
| ||||
Senior Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 Term Loan B |
| $ | 489.1 |
| 4.3 | % | $ | 11.5 |
| $ | 491.5 |
| 4.3 | % | $ | 23.3 |
|
2020 Revolving Facility |
|
| — |
| — |
|
| 1.7 |
|
| — |
| — |
|
| 3.3 |
|
2022 Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Notes |
|
| 300.0 |
| 6.8 | % |
| 10.6 |
|
| 300.0 |
| 6.8 | % |
| 21.1 |
|
Euro Notes |
|
| 427.3 |
| 6.4 | % |
| 13.5 |
|
| 394.3 |
| 6.4 | % |
| 27.4 |
|
Accounts Receivable Securitization Facility |
|
| — |
| — |
|
| 1.4 |
|
| — |
| — |
|
| 3.3 |
|
Other indebtedness* |
|
| 1.6 |
| 4.8 | % |
| — |
|
| 1.6 |
| 4.8 | % |
| 0.1 |
|
Total |
| $ | 1,218.0 |
|
|
| $ | 38.7 |
| $ | 1,187.4 |
|
|
| $ | 78.5 |
|
*For the six months ended June 30, 2016,2017, interest expense on “Other indebtedness” wastotaled less than $0.1 million.
Our Senior Credit Facility includes the 2020 Revolving Facility, which matures in May 2020, and has a borrowing capacity of $325.0 million. As of June 30, 2016,2017, the Company had no outstanding borrowings, and had $308.9$308.1 million (net of $16.1$16.9 million outstanding letters of credit) of funds available for borrowingsborrowing under the 2020 Revolving Facility. Further, we note that, as of June 30, 2016,2017, the Borrowers are required to pay a quarterly commitment fee in respect of any unused commitments under the 2020 Revolving Facility equal to 0.375% per annum.
We also continue to maintain our Accounts Receivable Securitization Facility set to mature in May 2019, under which our borrowing capacity is $200.0 million. As of June 30, 2016,2017, there were no amounts outstanding under the Accounts Receivable Securitization Facility, with approximately $129.7$151.3 million of funds available for borrowing under this facility, based on the pool of eligible accounts receivable.
Our other borrowing arrangements include our $500.0 million 2021 Term Loan B (maturing in November 2021), which requires scheduled quarterly payments in amounts equal to 0.25% of the original principal, and our 2022 Senior Notes (maturing in May 2022), whose U.S. dollar equivalent outstanding amount as of June 30, 20162017 totaled $716.4$727.3 million.
The Senior Credit Facility and Indenture contain certain customary affirmative, negative and financial covenants. As of June 30, 2016,2017, the Company was in compliance with all of these debt covenant requirements. Refer to the Annual Report for further information on the details of these covenant requirements.
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.
43
We and our subsidiaries, affiliates or significant direct or indirect shareholders may from time to time seek to retire or purchase our outstanding debt through cash purchases in the open market, privately negotiated transactions, exchange transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers” of our 2022 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 venturesventure 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 its subsidiaries will not
38
face transfer restrictions in the future due to regulatory or other reasons beyond our control.
As noted above, during the six months ended June 30, 2016, the Company continued to generateThe Company’s cash flow generation in recent years has been strong, with positive cash flows from operations.expected to continue for full year 2017. However, we can make no assurances that, in the future, our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Senior Credit Facility in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. In addition, our current indebtedness may limit our ability to procure additional financing in the future. As of June 30, 2016 and December 31, 2015, we were in compliance with all the covenants and default provisions under our debt agreements.
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. As noted in Note 18 toIn April 2017, the condensed consolidated financial statements, as of June 30, 2016, Trinseo S.A. had declaredCompany paid a repayment of equity to shareholdersdividend of $0.30 per ordinary share. This declaration wasshare (totaling $13.7 million), with an additional dividend to shareholders of $0.36 per ordinary share declared in June 2017 (to be paid in July 2017). 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 repayments of equitydividends to shareholders, should the Company continue to declare them.
We believe that funds provided by operations, our existing cash and cash equivalent balances, borrowings available under our 2020 Revolving Facility and borrowings available under our Accounts Receivable Securitization Facility will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current operating conditions. However, if we were to undertake any significant acquisitions or investments, it may be necessary for us to obtain additional debt or equity financings. We may not be able to obtain such financing on reasonable terms, or at all.
Contractual Obligations and Commercial Commitments
Other than the impact of the amendment to our supplemental employee retirement plan, which increased our projected benefit obligation under this plan by $1.3 million and extended the expected estimate of future benefit payments to 2018 (discussed in Note 11 to the condensed consolidated financial statements), thereThere 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, of the Notes to Consolidated Financial Statements included in our Annual Report, while we discuss our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report.
There have been no material revisions to the critical accounting policies as filed in our Annual Report.
44
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 to our condensed consolidated financial statements, included elsewhere within this Quarterly Report.
Item 3. Quantitative and QualitativeQualitative Disclosures about Market Risk
As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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
39
exposure to market risks from the information provided within our Annual Report.Report, except to our risks related to changes in the prices of certain commodities that we use in the production of our products.
Commodity Price Risk
We purchase certain raw materials such as benzene, ethylene, butadiene, BPA and styrene primarily under short- and long-term supply contracts. The pricing terms for these raw material purchases are generally determined based on commodity indices and prevailing market conditions within the relevant geography. The selling prices of our products are generally based, in part, on the current or forecasted costs of our key raw materials, but are often subject to a predetermined lag period for the pass through of these costs. As such, during periods of significant raw material price volatility, the Company may experience material volatility in earnings and cash flows due to the lag in passing through raw material costs, primarily benzene, ethylene, butadiene, and styrene. Assuming no changes in sales price, volume or mix, a hypothetical 10% change in the market price of our raw materials would have impacted cost of sales by $155 million for the six months ended June 30, 2017.
We mitigate the risk of volatility in commodity prices where possible by passing changes in raw material costs through to our customers by adjusting our prices or including provisions in our contracts that allow us to adjust prices in such a circumstance or by including pricing formulas which utilize commodity indices. Nevertheless, we may be subject to the timing differences described above for the pass through of these costs. In addition, even when raw material costs may be passed on to our customers, during periods of high raw material price volatility, customers without minimum purchase requirements with us may choose to delay purchases of our materials or, in some cases, substitute purchases of our materials with less costly products.
We do not enter into derivative financial instruments for trading or speculative purposes to manage our commodity price risk relating to our raw material contracts.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining internal controls designed to provide reasonable assurance that information required to be disclosed by us in our reports that we file or submit under the Exchange Act (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, with the participation of our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2016.2017. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report were effective to provide the reasonable level of assurance described above.
Changes in Internal Control over Financial Reporting
In 2015, the Company began a two-year project to upgrade our legacy ERP environment to an updated version of SAP through a phased implementation approach. During the second quarter of 2016, we completed the migration of our North America operations, with implementation in our Asia Pacific and European operations expected to be completed by the end of 2016. In connection with this implementation, we have updated the processes that constitute our internal control over financial reporting, as necessary, to accommodate related changes to our business processes.
The Company believes we have maintained appropriate internal controls during our initial phased implementation period and will continue to evaluate, test and monitor our internal controls over financial reporting for effectiveness as processes and procedures in each of these impacted areas and regions evolve.
There have beenwas no other changeschange 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 June 30, 20162017 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal ProceedingsProceedings
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.
4540
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 Item 1A of our Annual Report for the year ended December 31, 2015. The information presented below provides an update to, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report.2016, for which there have been no material changes. We encourage you to consider these risks, in their entirety, in addition to other information contained in or incorporated by reference into this Quarterly Report and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.operations.
Adverse events affecting the health of the European Union economy, along with potential weakening of consumer confidence, may have a negative effect on regional and global economic conditions, financial markets and our business.
In 2015, 60% of our net sales were deliveries to Europe, 5% of which were to customers in the United Kingdom. Adverse events affecting European economies, including sovereign debt and economic crises in certain European Union member states, a refugee crisis, terrorist attacks, and the June 2016 United Kingdom referendum to withdraw from the European Union (“Brexit”), could have a negative impact on the health of the European economy. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and on the stability of global financial markets. During any period of heightened market volatility and uncertainty, consumer confidence may decline which could lead to a decline in demand for our products. Additionally, during periods of uncertain asset valuations, currency exchange rates may experience increased market volatility. We estimate that a 1% weakening of the euro would result in a corresponding $1 million decrease in our annual EBITDA for 2016. Additionally, we estimate that a 1% weakening of the British pound would result in a corresponding $400,000 decrease in our annual EBITDA for 2016.
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
The following table contains information regarding purchases of our ordinary shares made during the quarter ended June 30, 20162017 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 |
| Total number of shares purchased as part of publicly announced plans or programs |
| Approximate dollar value of shares that may yet be purchased under the plans or programs |
| Total number of shares purchased |
| Average price |
| 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 | |||||
April 1 - April 30, 2016 |
| 38,702 |
| $ | 35.63 |
| 38,702 |
| $ | - | (1) | ||||||||||
May 1 - May 31, 2016 |
| 319,821 |
| $ | 47.13 |
| 319,821 |
| $ | 20,926,836 | (2) | ||||||||||
June 1 - June 30, 2016 |
| 432,616 |
| $ | 48.31 |
| 432,616 |
| $ | 100,000,000 | (3) | ||||||||||
April 1 - April 30, 2017 |
| 111,300 |
| $ | 64.34 |
| 111,300 |
| 1,849,062 | (1) | |||||||||||
May 1 - May 31, 2017 |
| 280,366 |
| $ | 63.25 |
| 280,366 |
| 1,568,696 | (1) | |||||||||||
June 1 - June 30, 2017 |
| 75,733 |
| $ | 64.35 |
| 75,733 |
| 2,000,000 | (2) | |||||||||||
Total |
| 791,139 |
| $ | 47.22 |
| 791,139 |
|
|
|
| 467,399 |
| $ | 63.69 |
| 467,399 |
|
|
|
(1) |
|
46
|
In order to satisfy certain requirements of Luxembourg law, promptly following the completion of the offering, the Company commenced a tender offer on March 28, 2016 to offer to purchase up to an additional 1,165,000 shares from its shareholders other than the Parent at the same price per share that it paid to the Underwriter for the shares repurchased as part of the secondary offering. The tender offer expired on April 25, 2016 with 38,702 ordinary shares repurchased by the Company. At the conclusion of the tender offer, the Company’s $125 million repurchase program also concluded.
|
|
| The general meeting of our shareholders on June 21, 2016 authorized the Company to repurchase up to 4.5 million ordinary shares at a price per share of not less than $1.00 and not more than $1,000. This authorization ends on June 21, 2018 or on the date of its renewal by a subsequent general meeting of shareholders. |
(2) | The general meeting of our shareholders on June 21, 2017 authorized the Company to sunset the 2016 share repurchase authorization and replace it with a new authorization to repurchase up to 4.0 million ordinary shares at a price per share of not less than $1.00 and not more than $1,000. This authorization ends on June 21, 2020 or on the date of its renewal by a subsequent general meeting of shareholders. On June 22, |
Item 3. Defaults Upon Senior Securities
None.
41
4742
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: August 3, 20162017
| TRINSEO S.A. | |
|
|
|
| By: | /s/ Christopher D. Pappas |
| Name: | Christopher D. Pappas |
| Title: | President, Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
| By: | /s/ Barry J. Niziolek |
| Name: | Barry J. Niziolek |
| Title: | Executive Vice President, Chief Financial Officer |
|
| (Principal Financial Officer) |
|
|
|
| |||
Exhibit No. | Description | ||
| |||
|
| ||
4.1 | |||
|
| ||
4.2 | |||
|
| ||
| |||
4.4† | |||
10.1† | |||
|
| ||
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† | |||
|
| ||
32.2† | |||
|
| ||
101.INS† | XBRL Instance Document | ||
|
| ||
101.SCH† | XBRL Taxonomy Extension Schema Document | ||
|
| ||
101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document | ||
|
| ||
101.DEF† | XBRL Taxonomy Extension Definition Linkbase Document | ||
|
| ||
101.LAB† | XBRL Taxonomy Extension Label Linkbase Document | ||
|
| ||
101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document | ||
|
| ||
† Filed herewith.