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, 2017March 31, 2018
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 registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | 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 AugustMay 1, 2017,2018, there were 43,772,95343,177,966 of the registrant’s ordinary shares outstanding.
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| Notes to Condensed Consolidated Financial Statements (Unaudited) |
| 9 |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
Trinseo S.A.
Quarterly Report on Form 10-Q
For the quarterly period ended June 30, 2017March 31, 2018
Unless otherwise indicated or required by context, as used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the term “Trinseo” refers to Trinseo S.A. (NYSE: TSE), a public limited liability company (société anonyme) existing under the laws of Luxembourg, and not its subsidiaries. The terms “Company,” “we,” “us” and “our” refer to Trinseo and its consolidated subsidiaries, taken as a consolidated entity. All financial data provided in this Quarterly Report is the financial data of the Company, unless otherwise indicated.
Prior to the formation of the Company, our business was wholly owned by The Dow Chemical Company (together with other affiliates, “Dow”). In June 2010, investment funds advised or managed by affiliates of Bain Capital Partners, LLCLP (“Bain Capital”) acquired an ownership interest in our business through an indirect ownership interest in us. During 2016, Bain Capital Everest Manager Holding SCA (“the former Parent”), an affiliate of Bain Capital, solddivested its entire ownership interest in the Company pursuantin a series of secondary offerings to the Company’s shelf registration statement filed with the SEC.market.
Definitions of capitalized terms not defined herein appear inwithin our Annual Report on Form 10-K for the notes to our condensed consolidated financial statements.year ended December 31, 2017 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018. 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, 2016 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”)SEC on March 1, 20172018 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
TRINSEO S.A.
Condensed Consolidated Balance Sheets
(In thousands,millions, except per share data)
(Unaudited)
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| June 30, |
| December 31, |
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| March 31, |
| December 31, |
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| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 399,928 |
| $ | 465,114 |
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| $ | 398.9 |
| $ | 432.8 |
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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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Accounts receivable, net of allowance for doubtful accounts |
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| 728.7 |
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| 685.5 |
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Inventories |
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| 473,936 |
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| 385,345 |
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| 588.3 |
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| 510.4 |
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Other current assets |
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| 14,366 |
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| 17,999 |
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| 18.7 |
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| 17.5 |
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Total current assets |
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| 1,611,494 |
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| 1,432,886 |
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| 1,734.6 |
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| 1,646.2 |
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Investments in unconsolidated affiliates |
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| 153,077 |
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| 191,418 |
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| 168.1 |
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| 152.5 |
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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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Property, plant and equipment, net of accumulated depreciation (March 31, 2018: $556.5; December 31, 2017: $523.7) |
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| 635.2 |
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| 627.0 |
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Other assets |
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Goodwill |
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| 31,990 |
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| 29,485 |
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| 74.2 |
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| 72.5 |
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Other intangible assets, net |
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| 178,270 |
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| 177,345 |
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| 206.9 |
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| 207.5 |
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Deferred income tax assets—noncurrent |
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| 37,095 |
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| 40,187 |
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Deferred income tax assets |
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| 34.7 |
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| 35.5 |
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Deferred charges and other assets |
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| 32,847 |
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| 24,412 |
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| 32.7 |
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| 30.8 |
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Total other assets |
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| 280,202 |
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| 271,429 |
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| 348.5 |
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| 346.3 |
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Total assets |
| $ | 2,601,254 |
| $ | 2,409,490 |
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| $ | 2,886.4 |
| $ | 2,772.0 |
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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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| $ | 7.0 |
| $ | 7.0 |
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Accounts payable |
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| 394,033 |
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| 378,029 |
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| 454.2 |
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| 436.8 |
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Income taxes payable |
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| 34,066 |
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| 23,784 |
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| 36.9 |
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| 35.9 |
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Accrued expenses and other current liabilities |
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| 127,322 |
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| 135,357 |
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| 135.3 |
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| 146.9 |
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Total current liabilities |
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| 560,421 |
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| 542,170 |
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| 633.4 |
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| 626.6 |
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Noncurrent liabilities |
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Long-term debt, net of unamortized deferred financing fees |
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| 1,192,844 |
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| 1,160,369 |
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| 1,164.0 |
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| 1,165.0 |
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Deferred income tax liabilities—noncurrent |
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| 30,325 |
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| 24,844 |
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Deferred income tax liabilities |
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| 51.4 |
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| 49.2 |
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Other noncurrent obligations |
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| 257,391 |
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| 237,054 |
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| 281.9 |
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| 256.4 |
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Total noncurrent liabilities |
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| 1,480,560 |
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| 1,422,267 |
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| 1,497.3 |
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| 1,470.6 |
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Commitments and contingencies (Note 8) |
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Commitments and contingencies (Note 11) |
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Shareholders’ equity |
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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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Ordinary shares, $0.01 nominal value, 50,000.0 shares authorized (March 31, 2018: 48.8 shares issued and 43.4 shares outstanding; December 31, 2017: 48.8 shares issued and 43.4 shares outstanding) |
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| 0.5 |
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| 0.5 |
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Additional paid-in-capital |
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| 575,011 |
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| 573,662 |
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| 566.6 |
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| 578.8 |
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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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Treasury shares, at cost (March 31, 2018: 5.4 shares; December 31, 2017: 5.4 shares) |
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| (299.5) |
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| (286.8) |
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Retained earnings |
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| 406,270 |
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| 258,540 |
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| 632.4 |
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| 527.9 |
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Accumulated other comprehensive loss |
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| (162,583) |
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| (170,154) |
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| (144.3) |
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| (145.6) |
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Total shareholders’ equity |
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| 560,273 |
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| 445,053 |
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| 755.7 |
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| 674.8 |
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Total liabilities and shareholders’ equity |
| $ | 2,601,254 |
| $ | 2,409,490 |
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| $ | 2,886.4 |
| $ | 2,772.0 |
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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 Operations
(In thousands,millions, except per share data)
(Unaudited)
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| Three Months Ended |
| Six Months Ended |
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| Three Months Ended |
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| June 30, |
| June 30, |
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| March 31, |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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Net sales |
| $ | 1,145,199 |
| $ | 969,694 |
| $ | 2,249,689 |
| $ | 1,863,778 |
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| $ | 1,121.6 |
| $ | 1,104.5 |
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Cost of sales |
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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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| 946.4 |
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| 905.5 |
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Gross profit |
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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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| 175.2 |
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| 199.0 |
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Selling, general and administrative expenses |
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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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| 64.4 |
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| 59.6 |
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Equity in earnings of unconsolidated affiliates |
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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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| 45.5 |
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| 19.3 |
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Operating income |
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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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| 156.3 |
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| 158.7 |
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Interest expense, net |
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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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| 14.9 |
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| 18.2 |
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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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Other income, net |
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| (3.8) |
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| (6.1) |
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Income before income taxes |
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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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| 145.2 |
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| 146.6 |
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Provision for income taxes |
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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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| 24.9 |
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| 29.3 |
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Net income |
| $ | 60,159 |
| $ | 95,804 |
| $ | 177,453 |
| $ | 172,551 |
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| $ | 120.3 |
| $ | 117.3 |
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Weighted average shares- basic |
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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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| 43.4 |
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| 44.1 |
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Net income per share- basic |
| $ | 1.37 |
| $ | 2.04 |
| $ | 4.03 |
| $ | 3.61 |
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| $ | 2.77 |
| $ | 2.66 |
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Weighted average shares- diluted |
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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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| 44.4 |
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| 45.3 |
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Net income per share- diluted |
| $ | 1.34 |
| $ | 2.00 |
| $ | 3.93 |
| $ | 3.55 |
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| $ | 2.71 |
| $ | 2.59 |
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Dividends per share |
| $ | 0.36 |
| $ | 0.30 |
| $ | 0.66 |
| $ | 0.30 |
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| $ | 0.36 |
| $ | 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)
(In thousands, unless otherwise stated)millions)
(Unaudited)
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| Three Months Ended |
| Six Months Ended |
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| Three Months Ended |
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| June 30, |
| June 30, |
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| March 31, |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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Net income |
| $ | 60,159 |
| $ | 95,804 |
| $ | 177,453 |
| $ | 172,551 |
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| $ | 120.3 |
| $ | 117.3 |
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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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Other comprehensive income (loss), net of tax: |
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Cumulative translation adjustments |
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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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| (2.1) |
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| 4.2 |
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Net gain (loss) on foreign exchange cash flow hedges |
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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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Net gain (loss) on cash flow hedges |
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| 2.8 |
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| (4.8) |
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Pension and other postretirement benefit plans: |
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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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| 796 |
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| 539 |
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| 2,172 |
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| 1,079 |
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| 0.6 |
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| 1.4 |
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Total other comprehensive income (loss), net of tax |
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| 6,804 |
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| (4,437) |
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| 7,571 |
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| 1,301 |
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Total other comprehensive income, net of tax |
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| 1.3 |
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| 0.8 |
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Comprehensive income |
| $ | 66,963 |
| $ | 91,367 |
| $ | 185,024 |
| $ | 173,852 |
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| $ | 121.6 |
| $ | 118.1 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
TRINSEO S.A.
Condensed Consolidated Statements of Shareholders’ Equity
(In thousands,millions, except per share data)
(Unaudited)
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| Shares |
| Shareholders' Equity |
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| Shares |
| Shareholders' Equity |
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| Ordinary Shares Outstanding |
| Treasury Shares |
| Ordinary Shares |
| Additional |
| Treasury Shares |
| Accumulated Other Comprehensive Income (Loss) |
| Retained Earnings (Accumulated Deficit) |
| Total |
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| Ordinary Shares Outstanding |
| Treasury Shares |
| Ordinary Shares |
| Additional |
| Treasury Shares |
| Accumulated Other Comprehensive Income (Loss) |
| Retained Earnings |
| Total |
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Balance at December 31, 2017 |
| 43.4 |
| 5.4 |
| $ | 0.5 |
| $ | 578.8 |
| $ | (286.8) |
| $ | (145.6) |
| $ | 527.9 |
| $ | 674.8 |
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Net income |
| — |
| — |
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| — |
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| — |
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| — |
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| — |
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| 120.3 |
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| 120.3 |
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Other comprehensive income |
| — |
| — |
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| — |
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| — |
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| — |
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| 1.3 |
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| — |
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| 1.3 |
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Stock-based compensation activity |
| 0.3 |
| (0.3) |
|
| — |
|
| (12.2) |
|
| 11.5 |
|
| — |
|
| — |
|
| (0.7) |
| |||||||||||||||||||||||
Purchase of treasury shares |
| (0.3) |
| 0.3 |
|
| — |
|
| — |
|
| (24.2) |
|
| — |
|
| — |
|
| (24.2) |
| |||||||||||||||||||||||
Dividends on ordinary shares ($0.36 per share) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (15.8) |
|
| (15.8) |
| |||||||||||||||||||||||
Balance at March 31, 2018 |
| 43.4 |
| 5.4 |
| $ | 0.5 |
| $ | 566.6 |
| $ | (299.5) |
| $ | (144.3) |
| $ | 632.4 |
| $ | 755.7 |
| |||||||||||||||||||||||
Balance at December 31, 2016 |
| 44,301 |
| 4,477 |
| $ | 488 |
| $ | 573,662 |
| $ | (217,483) |
| $ | (170,154) |
| $ | 258,540 |
| $ | 445,053 |
|
| 44.3 |
| 4.5 |
| $ | 0.5 |
| $ | 573.7 |
| $ | (217.5) |
| $ | (170.2) |
| $ | 261.2 |
| $ | 447.7 |
|
Net income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 177,453 |
|
| 177,453 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 117.3 |
|
| 117.3 |
|
Other comprehensive income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 7,571 |
|
| — |
|
| 7,571 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 0.8 |
|
| — |
|
| 0.8 |
|
Stock-based compensation activity |
| 327 |
| (327) |
|
| — |
|
| 1,349 |
|
| 11,624 |
|
| — |
|
| — |
|
| 12,973 |
|
| 0.2 |
| (0.2) |
|
| — |
|
| 1.0 |
|
| 6.9 |
|
| — |
|
| — |
|
| 7.9 |
|
Purchase of treasury shares |
| (895) |
| 895 |
|
| — |
|
| — |
|
| (53,054) |
|
| — |
|
| — |
|
| (53,054) |
|
| (0.4) |
| 0.4 |
|
| — |
|
| — |
|
| (23.3) |
|
| — |
|
| — |
|
| (23.3) |
|
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) |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (13.7) |
|
| (13.7) |
|
Balance at June 30, 2016 |
| 46,403 |
| 2,375 |
| $ | 488 |
| $ | 565,590 |
| $ | (93,676) |
| $ | (148,416) |
| $ | 139,427 |
| $ | 463,413 |
| |||||||||||||||||||||||
Balance at March 31, 2017 |
| 44.1 |
| 4.7 |
| $ | 0.5 |
| $ | 574.7 |
| $ | (233.9) |
| $ | (169.4) |
| $ | 364.8 |
| $ | 536.7 |
|
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)millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||
|
| June 30, |
|
| March 31, |
| ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 177,453 |
| $ | 172,551 |
|
| $ | 120.3 |
| $ | 117.3 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 51,044 |
|
| 47,973 |
|
|
| 31.9 |
|
| 24.7 |
|
Amortization of deferred financing fees and issuance discount |
|
| 2,719 |
|
| 3,134 |
|
|
| 1.1 |
|
| 1.4 |
|
Deferred income tax |
|
| 8,862 |
|
| 10,684 |
|
|
| 2.5 |
|
| 11.3 |
|
Stock-based compensation expense |
|
| 7,687 |
|
| 8,816 |
|
|
| 5.5 |
|
| 4.7 |
|
Earnings of unconsolidated affiliates, net of dividends |
|
| 4,709 |
|
| (12,287) |
|
|
| (15.5) |
|
| (2.9) |
|
Unrealized net losses on foreign exchange forward contracts |
|
| 5,011 |
|
| 3,965 |
|
|
| 0.1 |
|
| 0.2 |
|
Loss (gain) on sale of businesses and other assets |
|
| (10,275) |
|
| 12,915 |
| |||||||
Gain on sale of businesses and other assets |
|
| (0.5) |
|
| (9.9) |
| |||||||
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (137,696) |
|
| (52,954) |
|
|
| (32.7) |
|
| (133.3) |
|
Inventories |
|
| (66,802) |
|
| (16,685) |
|
|
| (70.3) |
|
| (91.6) |
|
Accounts payable and other current liabilities |
|
| (9,779) |
|
| (1,098) |
|
|
| 3.0 |
|
| 49.9 |
|
Income taxes payable |
|
| 9,089 |
|
| (1,005) |
|
|
| 0.8 |
|
| 5.6 |
|
Other assets, net |
|
| (6,215) |
|
| (7,060) |
|
|
| (1.3) |
|
| (4.5) |
|
Other liabilities, net |
|
| 781 |
|
| 10,758 |
|
|
| (4.1) |
|
| 1.4 |
|
Cash provided by operating activities |
|
| 36,588 |
|
| 179,707 |
| |||||||
Cash provided by (used in) operating activities |
|
| 40.8 |
|
| (25.7) |
| |||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (74,286) |
|
| (53,153) |
|
|
| (30.6) |
|
| (36.0) |
|
Proceeds from the sale of businesses and other assets |
|
| 43,680 |
|
| 129 |
|
|
| 0.5 |
|
| 42.1 |
|
Distributions from unconsolidated affiliates |
|
| 857 |
|
| 4,809 |
|
|
| — |
|
| 0.8 |
|
Cash used in investing activities |
|
| (29,749) |
|
| (48,215) |
| |||||||
Cash provided by (used in) investing activities |
|
| (30.1) |
|
| 6.9 |
| |||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings, net |
|
| (126) |
|
| (126) |
|
|
| (0.1) |
|
| (0.1) |
|
Repayments of term loans |
|
| (2,500) |
|
| (2,500) |
| |||||||
Purchase of treasury shares |
|
| (56,415) |
|
| (94,362) |
|
|
| (23.8) |
|
| (26.6) |
|
Dividends paid |
|
| (26,473) |
|
| — |
|
|
| (16.2) |
|
| (13.3) |
|
Proceeds from exercise of option awards |
|
| 5,984 |
|
| 87 |
|
|
| 1.9 |
|
| 3.4 |
|
Withholding taxes paid on restricted share units |
|
| (288) |
|
| (74) |
|
|
| (8.0) |
|
| (0.1) |
|
Repayments of 2024 Term Loan B |
|
| (1.8) |
|
| — |
| |||||||
Repayments of 2021 Term Loan B |
|
| — |
|
| (1.3) |
| |||||||
Cash used in financing activities |
|
| (79,818) |
|
| (96,975) |
|
|
| (48.0) |
|
| (38.0) |
|
Effect of exchange rates on cash |
|
| 7,793 |
|
| (565) |
|
|
| 3.4 |
|
| 1.8 |
|
Net change in cash and cash equivalents |
|
| (65,186) |
|
| 33,952 |
|
|
| (33.9) |
|
| (55.0) |
|
Cash and cash equivalents—beginning of period |
|
| 465,114 |
|
| 431,261 |
|
|
| 432.8 |
|
| 465.1 |
|
Cash and cash equivalents—end of period |
| $ | 399,928 |
| $ | 465,213 |
|
| $ | 398.9 |
| $ | 410.1 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
TRINSEO S.A.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands,millions, unless otherwise stated)
(Unaudited)
NOTE 1—BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) as of and for the periods ended June 30,March 31, 2018 and 2017 and 2016 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 20162017 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 1, 2017.2018.
The December 31, 20162017 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 20162017 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 or results. Refer to Note 12Notes 2, 7, and 15 for further information.
NOTE 2—RECENT ACCOUNTING GUIDANCE
In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) jointly issued guidance (“Topic 606”) 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, which the FASB issued certain clarifying updates for, 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 Company adopted Topic 606 effective January 1, 2018, electing to apply the FASB has issued certain clarifying updatesmodified retrospective approach only to this guidance, whichcontracts that were not completed as of the Company will consider as partdate of initial application at the individual contract level, rather than applying the portfolio approach. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with historical accounting standards (“Topic 605”). As a result of our adoption, which will be effective as of January 1, 2018. The Company has completed its scoping assessment forimplementation procedures, we have determined that the cumulative effect to retained earnings from initially applying Topic 606 was immaterial and therefore, no adjustment was recorded. Furthermore, based on current contracts with customers, we do not expect the adoption of this guidance by conducting surveys with relevant stakeholders in the business, including commercial and finance leadership, reviewing a representative sample of revenue arrangements across all businesses, and identifying a set of applicable qualitative revenue recognition changes related to the new revenue 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 establishing and documenting key accounting policies, assessing new disclosure requirements, and evaluating impacts on business process, information technology, and controls, and determining the 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. The Company adopted this guidance effective January 1, 2017, and the adoption did notto have a material impact to the Company’sour financial position or resultsstatements on an ongoing basis. Refer to Note 3 for new disclosure requirements in effect as a result of operations.this adoption.
In February 2016, the FASB issued guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize on the consolidated balance sheets lease liabilities and corresponding right-of-use assets for all leases with terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. This new guidance is effective for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. The Company is in the process of assessing the impact on its consolidated financial 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 periodic benefit cost are to be presented outside of any subtotal of operating income. This presentation amendment is relevantguidance also requires employers to prospectively only consider the service cost component of net periodic benefit cost for potential capitalization into assets, with all other components of net periodic
9
benefit cost being ineligible for capitalization. The Company and will be appliedadopted this guidance effective January 1, 2018 on a retrospective basis. As a result of this adoption, for the three months ended March 31, 2017, the Company reclassified net periodic benefit cost of $1.2 million from “Cost of sales” and $0.8 million from “Selling, general and administrative expenses” to “Other income, net” within the condensed consolidated statements of operations. The change related to capitalization guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued significant amendments to its existing hedge accounting guidance. Among other things, this guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting, amend presentation and disclosure requirements, and change how companies assess effectiveness. This guidance is effectiverequired for fiscal yearspublic companies for annual and interim periods beginning after December 15, 2017, and2018, with early adoption is permitted. The Company will adopt this guidance effective April 1, 2018, and is currently assessingin the process of evaluating the ongoing impact to the Company’s consolidated financial statements.
In February 2018, the FASB issued guidance to address certain stranded income tax effects in accumulated other comprehensive income/loss (“AOCI”) resulting from the enactment of the U.S. “Tax Cuts and Jobs Act” signed into law on December 22, 2017. The amendment provides financial statement preparers with an option to reclassify stranded tax effects within AOCI, resulting from the reduction of the U.S. federal corporate income tax rate, to retained earnings. The amendment also includes disclosure requirements regarding the Company’s accounting policy for releasing income tax effects from AOCI. The amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, and the provisions of the amendment should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. While the Company is still evaluating the provisions of this amendment, should the Company choose to adopt this guidance, it is not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 3 — NET SALES
As discussed in Note 2, effective January 1, 2018, the Company adopted accounting guidance, Topic 606, issued by the FASB related to the recognition of revenue from contracts with customers. The Company’s accounting policy and practical expedient elections related to revenue recognition, including those elected as a result of the adoption of Topic 606, are summarized as follows.
Sales are recognized at a point when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services, and when the Company’s related performance obligation is satisfied under the terms of the contract. Standard terms of delivery are included in contracts of sale, order confirmation documents, and invoices. Sales and other taxes that the Company collects concurrent with sales-producing activities are excluded from “Net sales” and included as a component of “Cost of sales” in the condensed consolidated statements of operations. Additionally, freight and any directly related costs of transporting finished products to customers are accounted for as fulfilment costs and are also included within “Cost of sales”. The amount of net sales recognized varies with changes in returns, rebates, cash sales incentives, and other allowances offered to customers based on the Company's experience.
The Company has elected to apply the following practical expedients as allowed under Topic 606:
· | The incremental costs of obtaining contracts are expensed as incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less, and are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations. |
· | When the period between customer payment and transfer of goods/services is determined to be one year or less at contract inception, the promised amount of consideration under the contract is not adjusted for the effects of a significant financing component. |
· | In consideration of the disclosure requirements regarding the transaction price and expected period of recognition of remaining performance obligations that are unsatisfied as of the end of a reporting period, the Company has elected the following optional exemptions: |
o | The Company will not disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts with an original expected duration of one year or less, which applies to the vast majority of the Company’s contracts with customers. |
10
o | For contracts with customers containing variable consideration (via enforceable minimum volume requirements) and an original expected duration greater than one year, the Company will not disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these contracts with customers, each unit of production generally represents a separate performance obligation, the pricing for which is based on current or forecasted raw material prices, often using formulas that utilize commodity indices. Therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. The variable consideration in these contracts is resolved typically at the issuance of a purchase order or as of the date of revenue recognition. |
The following table provides disclosure of net sales to external customers by primary geographical market (based on the location where sales originated), by segment for the three months ended March 31, 2018 and 2017, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||||||||||||||
|
| March 31, 2018 |
| ||||||||||||||||
|
| Latex |
| Synthetic |
| Performance |
|
|
|
|
|
|
|
| |||||
|
| Binders |
| Rubber |
| Plastics |
| Polystyrene |
| Feedstocks |
| Total |
| ||||||
United States |
| $ | 64.3 |
| $ | — |
| $ | 84.1 |
| $ | 0.2 |
| $ | 3.7 |
| $ | 152.3 |
|
Europe |
|
| 113.3 |
|
| 149.2 |
|
| 249.2 |
|
| 148.2 |
|
| 57.9 |
|
| 717.8 |
|
Asia-Pacific |
|
| 74.3 |
|
| — |
|
| 47.3 |
|
| 91.2 |
|
| 13.0 |
|
| 225.8 |
|
Rest of World |
|
| 3.4 |
|
| — |
|
| 22.3 |
|
| — |
|
| — |
|
| 25.7 |
|
Total |
| $ | 255.3 |
| $ | 149.2 |
| $ | 402.9 |
| $ | 239.6 |
| $ | 74.6 |
| $ | 1,121.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||||||||||||||
|
| March 31, 2017(1) |
| ||||||||||||||||
|
| Latex |
| Synthetic |
| Performance |
|
|
|
|
|
|
|
| |||||
|
| Binders |
| Rubber |
| Plastics |
| Polystyrene |
| Feedstocks |
| Total |
| ||||||
United States |
| $ | 76.0 |
| $ | — |
| $ | 82.8 |
| $ | 0.2 |
| $ | 3.8 |
| $ | 162.8 |
|
Europe |
|
| 119.5 |
|
| 163.4 |
|
| 199.4 |
|
| 140.1 |
|
| 34.7 |
|
| 657.1 |
|
Asia-Pacific |
|
| 89.0 |
|
| — |
|
| 32.7 |
|
| 88.1 |
|
| 48.4 |
|
| 258.2 |
|
Rest of World |
|
| 4.4 |
|
| — |
|
| 22.0 |
|
| — |
|
| — |
|
| 26.4 |
|
Total |
| $ | 288.9 |
| $ | 163.4 |
| $ | 336.9 |
| $ | 228.4 |
| $ | 86.9 |
| $ | 1,104.5 |
|
(1) | As the Company has adopted Topic 606 utilizing the modified retrospective approach, amounts for the three months ended March 31, 2017 above are disclosed as recognized under Topic 605. |
For all material contracts with customers, control is transferred and sales are recognized at a point in time, when the Company satisfies the performance obligations according to the terms of the contract, and when title and the risk of loss is passed to the customer. Title and risk of loss varies by region and customer and is determined based upon the purchase order received from the customer and the applicable contractual terms or jurisdictional standards. The Company receives cash equal to the invoice price for most product sales, subject to cash sales incentives with certain customers, with payment terms generally ranging from 10 to 90 days (with an approximate weighted average of 50 days as of March 31, 2018), also varying by segment and region.
Certain of the Company’s contracts with customers contain multiple performance obligations, most commonly due to the sale of multiple distinct products. The transaction price within these contracts is allocated between these separate and distinct products based on their stand-alone selling prices, as defined within the contract. The Company’s products are typically sold at observable stand-alone sales values, which are used to determine the estimated stand-alone selling price. The stand-alone selling prices of the Company’s products are generally based, in part, on the current or forecasted costs of key raw materials, but are often subject to a predetermined lag period for the pass through of these costs. As such, contracts with customers typically include provisions that allow for the changes in stand-alone selling prices to reflect the pass through of changes in raw material costs, often using pricing formulas that utilize commodity indices.
In cases where the Company’s transaction price is considered variable at the point of revenue recognition, the ‘most likely amount’ method is used to estimate the effect of any related uncertainty. In formulating this estimate, the
11
Company considers all historical, current, and forecasted information that is reasonably available to identify a reasonable number of possible consideration amounts. Once the transaction price, including impacts of variable consideration, is estimated, revenue is recognized only to the extent that it is probable that a subsequent change in the estimate would not result in a significant revenue reversal. Furthermore, if the Company is not able to rely on observable stand-alone selling prices, the ‘expected cost plus a margin approach’ is utilized to estimate the stand-alone selling price of each performance obligation, primarily utilizing historical experience. During the three months ended March 31, 2018, the impact of adopting this guidance on its results of operations.recognizing changes in selling prices related to prior periods was immaterial.
NOTE 3—4—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
During the six months ended June 30, 2017, theThe Company had twois currently supplemented by one joint venturesventure, A: Americasmericas Styrenics LLC (“Americas Styrenics”, a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP) and. Previously, the Company also had a 50% share in Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate”, a polycarbonate, or PC, joint venture with Sumitomo Chemical Company Limited), until the sale of the Company’s investment in the joint venture during the first quarter of 2017 (refer to discussion below for further information). 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 thesegment. The results of Sumika Styron Polycarbonate were included within the BasicPerformance Plastics reporting segment (as recast due to the segment realignment effective January 1, 2018 discussed further in Note 15) 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.
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| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
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| June 30, |
| June 30, |
|
| March 31, |
| ||||||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Sales |
| $ | 476,882 |
| $ | 405,351 |
| $ | 910,828 |
| $ | 781,603 |
|
| $ | 486.6 |
| $ | 433.9 |
|
Gross profit |
| $ | 65,170 |
| $ | 87,867 |
| $ | 85,758 |
| $ | 156,271 |
|
| $ | 95.2 |
| $ | 20.6 |
|
Net income |
| $ | 54,121 |
| $ | 71,015 |
| $ | 60,449 |
| $ | 123,812 |
|
| $ | 85.7 |
| $ | 6.3 |
|
Americas Styrenics
As of June 30, 2017March 31, 2018 and December 31, 2016,2017, respectively, the Company’s investment in Americas Styrenics was $153.1$168.1 million and $149.7$152.5 million, which was $52.3$43.8 million and $71.2$46.4 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 3.32.6 years as of June 30, 2017.March 31, 2018. The Company received dividends from Americas Styrenics of $37.5
10
$30.0 million and $45.0$7.5 million during the three and six months ended June 30,March 31, 2018 and 2017, respectively, compared to $30.0 million and $60.0 million during the three and six months ended June 30, 2016, respectively.
Sumika Styron Polycarbonate
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited for total sales proceeds of approximately $42.1 million. As a result, the Company recorded a gain on sale of $9.3 million during the sixthree months ended June 30,March 31, 2017, which was included within “Other expense (income),income, net” in the condensed consolidated statement of operations and was allocated entirely to the BasicPerformance Plastics segment.segment (as recast under the segment realignment discussed further in Note 15). In addition, the parties have entered into a long-term agreement to continue sourcing polycarbonatePC 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 hashad an investment in Sumika Styron Polycarbonate as of June 30,December 31, 2017. The Company received dividends from Sumika Styron Polycarbonate of zero and $9.8 million during the three and six months ended June 30,March 31, 2017 respectively, compared to zero and $6.2 million during the three and six months ended June 30, 2016, respectively. The dividend received during the six months ended June 30, 2017 from Sumika Styron Polycarbonate related to the Company’s proportionate share of earnings forfrom the year ended December 31, 2016.
12
NOTE 4—5—INVENTORIES
Inventories consisted of the following:
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|
|
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Finished goods |
| $ | 242,824 |
| $ | 187,577 |
|
| $ | 285.6 |
| $ | 250.9 |
|
Raw materials and semi-finished goods |
|
| 199,324 |
|
| 168,804 |
|
|
| 265.1 |
|
| 226.7 |
|
Supplies |
| 31,788 |
|
| 28,964 |
|
|
| 37.6 |
|
| 32.8 |
| |
Total |
| $ | 473,936 |
| $ | 385,345 |
|
| $ | 588.3 |
| $ | 510.4 |
|
NOTE 5—6—DEBT
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s debt structure discussed below. The Company was in compliance with all debt related covenants as of June 30, 2017March 31, 2018 and December 31, 2016.
11
2017.
As of June 30, 2017March 31, 2018 and December 31, 2016,2017, debt consisted of the following:
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| ||
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| June 30, 2017 |
| December 31, 2016 |
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|
| March 31, 2018 |
| December 31, 2017 |
| ||||||||||||||||||||||||||||
|
| Interest Rate as of June 30, 2017 |
| Maturity |
| Carrying |
| Unamortized |
| Total Debt, |
| Carrying |
| Unamortized |
| Total Debt, |
|
| Interest Rate as of March 31, 2018 |
| Maturity |
| Carrying |
| Unamortized |
| Total Debt, |
| Carrying |
| Unamortized |
| Total Debt, |
| ||||||||||||
Senior Credit Facility |
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|
|
2020 Revolving Facility(2) |
| Various |
| May 2020 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| |||||||||||||||||||||||
2021 Term Loan B(3) |
| 4.476% |
| November 2021 |
|
| 489,136 |
|
| (8,292) |
|
| 480,844 |
|
| 491,545 |
|
| (9,159) |
|
| 482,386 |
| |||||||||||||||||||||||
2022 Senior Notes |
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|
|
|
|
|
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| |||||||||||||||||||||||
USD Notes |
| 6.750% |
| May 2022 |
|
| 300,000 |
|
| (5,277) |
|
| 294,723 |
|
| 300,000 |
|
| (5,726) |
|
| 294,274 |
| |||||||||||||||||||||||
Euro Notes |
| 6.375% |
| May 2022 |
|
| 427,301 |
|
| (6,590) |
|
| 420,711 |
|
| 394,275 |
|
| (7,157) |
|
| 387,118 |
| |||||||||||||||||||||||
2022 Revolving Facility(2) |
| Various |
| September 2022 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| |||||||||||||||||||||||
2024 Term Loan B(3) |
| 4.377% |
| September 2024 |
|
| 696.5 |
|
| (17.8) |
|
| 678.7 |
|
| 698.3 |
|
| (18.3) |
|
| 680.0 |
| |||||||||||||||||||||||
2025 Senior Notes |
| 5.375% |
| September 2025 |
|
| 500.0 |
|
| (9.1) |
|
| 490.9 |
|
| 500.0 |
|
| (9.4) |
|
| 490.6 |
| |||||||||||||||||||||||
Accounts Receivable Securitization Facility(4) |
| Various |
| May 2019 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| Various |
| May 2019 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Other indebtedness |
| Various |
| Various |
|
| 1,566 |
|
| — |
|
| 1,566 |
|
| 1,591 |
|
| — |
|
| 1,591 |
|
| Various |
| Various |
|
| 1.4 |
|
| — |
|
| 1.4 |
|
| 1.4 |
|
| — |
|
| 1.4 |
|
Total debt |
|
|
|
|
| $ | 1,218,003 |
| $ | (20,159) |
| $ | 1,197,844 |
| $ | 1,187,411 |
| $ | (22,042) |
| $ | 1,165,369 |
|
|
|
|
|
| $ | 1,197.9 |
| $ | (26.9) |
| $ | 1,171.0 |
| $ | 1,199.7 |
| $ | (27.7) |
| $ | 1,172.0 |
|
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
| (5,000) |
|
|
|
|
|
|
|
| (5,000) |
|
|
|
|
|
|
|
|
|
|
|
|
| (7.0) |
|
|
|
|
|
|
|
| (7.0) |
|
Total long-term debt, net of unamortized deferred financing fees |
|
|
|
|
|
|
|
|
|
|
| $ | 1,192,844 |
|
|
|
|
|
|
| $ | 1,160,369 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,164.0 |
|
|
|
|
|
|
| $ | 1,165.0 |
|
(1) | This caption does not include deferred financing fees related to the Company’s revolving facilities, which are included within “Deferred charges and other assets” on the condensed consolidated balance sheets. |
(2) |
|
(3) |
|
(4) | This facility |
.
13
NOTE 7—GOODWILL
The following table shows changes in the carrying amount of goodwill, by segment, from December 31, 2017 to March 31, 2018. Prior period balances in this table have been recast in conjunction with the segment realignment that occurred during the first quarter of 2018. Refer to Note 15 for further information.
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|
| Latex |
| Synthetic |
| Performance |
|
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|
|
| Americas |
|
|
|
| ||||||
|
| Binders |
| Rubber |
| Plastics |
| Polystyrene |
| Feedstocks |
| Styrenics |
| Total |
| |||||||
Balance at December 31, 2017 |
| $ | 16.5 |
| $ | 11.7 |
| $ | 39.6 |
| $ | 4.7 |
| $ | — |
| $ | — |
| $ | 72.5 |
|
Foreign currency impact |
|
| 0.4 |
|
| 0.3 |
|
| 0.9 |
|
| 0.1 |
|
| — |
|
| — |
|
| 1.7 |
|
Balance at March 31, 2018 |
| $ | 16.9 |
| $ | 12.0 |
| $ | 40.5 |
| $ | 4.8 |
| $ | — |
| $ | — |
| $ | 74.2 |
|
NOTE 6—8—DERIVATIVE INSTRUMENTS
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates.rates and interest rate risk. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts.contracts and interest rate swap agreements. The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives are recorded on the condensed consolidated balance sheets at fair value. Refer to Note 9 for fair value disclosures related to these instruments.
Foreign Exchange Forward Contracts
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our balance sheet against corresponding assets of the same currency such that any changes in liabilities due to fluctuations in exchange rates are offset by changes in their corresponding foreign currency assets. In order to further reduce itsthis 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, 2017,March 31, 2018, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $302.1$334.7 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of June 30, 2017.March 31, 2018:
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|
| June 30, |
|
| March 31, |
| ||
Buy / (Sell) |
| 2017 |
|
| 2018 |
| ||
Euro |
| $ | (146,217) |
|
| $ | (129.4) |
|
Chinese Yuan |
| $ | (74,647) |
|
| $ | (78.2) |
|
Swiss Franc |
| $ | 54.6 |
| ||||
Taiwan Dollar |
| $ | 14.4 |
| ||||
Indonesian Rupiah |
| $ | (33,617) |
|
| $ | (14.0) |
|
Swiss Franc |
| $ | 18,686 |
| ||||
Japanese Yen |
| $ | (7,706) |
|
Open foreign exchange forward contracts as of March 31, 2018 had maturities occurring over a period of two months.
Foreign Exchange Cash Flow Hedges
The Company also enters into forward contracts with the objective of managing the currency risk associated with forecasted U.S. dollar-denominated raw materials purchases by 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/loss (“AOCI”)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, 2017 haveMarch 31, 2018 had maturities occurring over a period of 18nine months, and havehad a net notional U.S. dollar equivalent of $255.0$162.0 million.
14
Interest Rate Swaps
On September 6, 2017, the Company issued the 2024 Term Loan B, which bears an interest rate of LIBOR plus 2.50%, subject to a 0.00% LIBOR floor. In order to reduce the variability in interest payments associated with the Company’s variable rate debt, during the third quarter of 2017, the Company entered into certain interest rate swap agreements to convert a portion of these variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges, and as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.
As of March 31, 2018, the Company had open interest rate swap agreements with a net notional U.S. dollar equivalent of $200.0 million which had an effective date of September 29, 2017 and mature over a period of five years. Under the terms of the swap agreements, the Company is required to pay the counterparties a stream of fixed interest payments at a rate of 1.81%, and in turn, receives variable interest payments based on 1-month LIBOR (1.88% as of March 31, 2018) from the counterparties.
Net Investment Hedge
The Company’s outstanding debt includes €375.0 million of Euro Notes (refer to Note 5 for details). As of June 30,Through August 31, 2017, the Company hashad designated a portion (€280 million) of the original principal amount of thesethe Company’s previous €375.0 million Euro Notesas a hedge of the foreign currency exposure of the Issuers’ net investment in certain European subsidiaries. AsEffective September 1, 2017, the Company de-designated the Euro Notes as a net investment hedge of the Issuers’ net investment in certain European subsidiaries, as the Euro Notes were redeemed on September 7, 2017. Through the date of de-designation, this debthedge was deemed to be a highly effective, hedge,and changes in the Euro Notes’ carrying value resulting from fluctuations in the euro exchange rate were recorded as cumulative foreign currency translation loss of $10.2$24.1 million within AOCI as of June 30,December 31, 2017.
On August 29, 2017, the Issuers executed an indenture pursuant to which they issued the $500.0 million 5.375% 2025 Senior Notes. Subsequently, on September 1, 2017, the Company entered into certain fixed-for-fixed cross currency swaps (“CCS”), swapping USD principal and interest payments on the newly issued 2025 Senior Notes for euro-denominated payments. Under the terms of the CCS, the Company has notionally exchanged $500.0 million at an interest rate of 5.375% for €420 million at a weighted average interest rate of 3.45% for approximately five years.
Effective September 1, 2017, the Company designated the full notional amount of the CCS (€420 million) as a hedge of the Issuers’ net investment in certain European subsidiaries. As the CCS were deemed to be highly effective hedges, changes in the fair value of the CCS were recorded as cumulative foreign currency translation loss of $38.0 million within AOCI as of March 31, 2018.
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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|
| 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 March 31, |
| Statement of Operations | ||||||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Classification |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| Classification | ||||||||
Designated as Cash Flow Hedges |
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | (12,966) |
| $ | 6,029 |
| $ | 1,009 |
| $ | (735) |
| Cost of sales |
| $ | (0.5) |
| $ | (4.8) |
| $ | (3.7) |
| $ | 2.5 |
| Cost of sales |
Interest rate swaps |
|
| 3.3 |
|
| — |
|
| (0.1) |
|
| — |
| Interest expense, net | ||||||||||||||
Total |
| $ | (12,966) |
| $ | 6,029 |
| $ | 1,009 |
| $ | (735) |
|
|
| $ | 2.8 |
| $ | (4.8) |
| $ | (3.8) |
| $ | 2.5 |
|
|
Net Investment Hedges |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
| $ | (19,670) |
| $ | 3,798 |
| $ | — |
| $ | — |
| Other expense (income), net |
| $ | — |
| $ | (5.0) |
| $ | — |
| $ | — |
|
|
Cross-currency swaps (CCS) |
|
| (20.4) |
|
| — |
|
| — |
|
| — |
|
| ||||||||||||||
Total |
| $ | (19,670) |
| $ | 3,798 |
| $ | — |
| $ | — |
|
|
| $ | (20.4) |
| $ | (5.0) |
| $ | — |
| $ | — |
|
|
Not Designated as Cash Flow Hedges |
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
| $ | — |
| $ | — |
| $ | (8,835) |
| $ | (2,138) |
| Other expense (income), net |
| $ | — |
| $ | — |
| $ | (5.3) |
| $ | (1.7) |
| Other income, net |
Total |
| $ | — |
| $ | — |
| $ | (8,835) |
| $ | (2,138) |
|
|
| $ | — |
| $ | — |
| $ | (5.3) |
| $ | (1.7) |
|
|
The Company recorded losses of $5.3 million and $1.7 million during the three months ended March 31, 2018 and
1315
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| Gain (Loss) Recognized in |
| Gain (Loss) Recognized in |
|
| ||||||||
|
| AOCI on Balance Sheet |
| Statement of Operations |
|
| ||||||||
|
| Six Months Ended June 30, |
| Statement of Operations | ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Classification | ||||
Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | (17,776) |
| $ | (1,396) |
| $ | 3,460 |
| $ | 370 |
| Cost of sales |
Total |
| $ | (17,776) |
| $ | (1,396) |
| $ | 3,460 |
| $ | 370 |
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
| $ | (24,660) |
| $ | (2,487) |
| $ | — |
| $ | — |
| Other expense (income), net |
Total |
| $ | (24,660) |
| $ | (2,487) |
| $ | — |
| $ | — |
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
| $ | — |
| $ | — |
| $ | (10,510) |
| $ | 995 |
| Other expense (income), net |
Total |
| $ | — |
| $ | — |
| $ | (10,510) |
| $ | 995 |
|
|
The Company recorded losses of $8.8 million and $10.5 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, 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$10.4 million and $7.9$0.6 million during the three and six months ended June 30,March 31, 2018 and 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, 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, 2017,March 31, 2018, the Company hashad no ineffectiveness related to its foreign exchange cash flow hedges.derivatives designated as hedging instruments. Further, the Company expects to reclassify in the next twelve months an approximate $4.7$11.5 million net loss from AOCI into earnings related to the Company’s outstanding foreign exchange cash flow hedges and interest rate swaps as of June 30, 2017March 31, 2018 based on current foreign exchange rates.
The following table summarizes the net unrealized gains and losses and balance sheet classification of outstanding derivatives recorded in the condensed consolidated balance sheets:
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| June 30, 2017 |
| December 31, 2016 |
|
| March 31, 2018 |
| December 31, 2017 |
| ||||||||||||||||||||||||||||||||||||||||
|
| Foreign |
| Foreign |
|
|
| Foreign |
| Foreign |
|
|
|
| Foreign |
| Foreign |
|
|
|
|
|
|
| Foreign |
| Foreign |
|
|
|
|
|
|
| ||||||||||||||||
|
| Forward |
| Cash Flow |
|
|
| Forward |
| Cash Flow |
|
|
|
| Exchange |
| Exchange |
| Interest |
| Cross- |
|
|
|
| Exchange |
| Exchange |
| Interest |
| Cross- |
|
|
|
| ||||||||||||||
Balance Sheet Classification |
| Contracts |
| Hedges |
| Total |
| Contracts |
| Hedges |
| Total |
| |||||||||||||||||||||||||||||||||||||
Balance Sheet |
| Forward |
| Cash Flow |
| Rate |
| Currency |
|
|
| Forward |
| Cash Flow |
| Rate |
| Currency |
|
|
| |||||||||||||||||||||||||||||
Classification |
| Contracts |
| Hedges |
| Swaps |
| Swaps |
| Total |
| Contracts |
| Hedges |
| Swaps |
| Swaps |
| Total |
| |||||||||||||||||||||||||||||
Asset Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance |
| $ | 514 |
| $ | — |
| $ | 514 |
| $ | 1,664 |
| $ | 11,018 |
| $ | 12,682 |
|
| $ | 0.3 |
| $ | — |
| $ | 0.6 |
| $ | 10.4 |
| $ | 11.3 |
| $ | 0.1 |
| $ | — |
| $ | — |
| $ | 10.8 |
| $ | 10.9 |
|
Deferred charges and other assets |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| 5.6 |
|
| — |
|
| 5.6 |
|
| — |
|
| — |
|
| 3.0 |
|
| — |
|
| 3.0 |
|
Total asset derivatives |
| $ | 514 |
| $ | — |
| $ | 514 |
| $ | 1,664 |
| $ | 11,018 |
| $ | 12,682 |
|
| $ | 0.3 |
| $ | — |
| $ | 6.2 |
| $ | 10.4 |
| $ | 16.9 |
| $ | 0.1 |
| $ | — |
| $ | 3.0 |
| $ | 10.8 |
| $ | 13.9 |
|
Liability Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 4,830 |
| $ | 4,745 |
| $ | 9,575 |
| $ | 511 |
| $ | — |
| $ | 511 |
|
| $ | 2.8 |
| $ | 12.1 |
| $ | — |
| $ | — |
| $ | 14.9 |
| $ | 2.5 |
| $ | 11.1 |
| $ | 0.1 |
| $ | — |
| $ | 13.7 |
|
Other noncurrent obligations |
|
| — |
|
| 2,069 |
|
| 2,069 |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| 48.3 |
|
| 48.3 |
|
| — |
|
| — |
|
| — |
|
| 28.3 |
|
| 28.3 |
|
Total liability derivatives |
| $ | 4,830 |
| $ | 6,814 |
| $ | 11,644 |
| $ | 511 |
| $ | — |
| $ | 511 |
|
| $ | 2.8 |
| $ | 12.1 |
| $ | — |
| $ | 48.3 |
| $ | 63.2 |
| $ | 2.5 |
| $ | 11.1 |
| $ | 0.1 |
| $ | 28.3 |
| $ | 42.0 |
|
14
Forward contracts, interest rate swaps, and cross currency swaps are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract. As such, in accordance with the Company’s accounting policy, we record these foreign exchange forward contractsderivative instruments are recorded on a net basis by counterparty within the condensed consolidated balance sheet.sheets. Information regarding the gross amounts of the Company’s derivative instruments and the amounts offset in the condensed consolidated balance sheets is as follows:
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|
|
|
|
|
|
|
|
|
|
|
| Gross Amounts |
| Gross Amounts |
| Net Amounts |
| |||
|
| Recognized in the |
| Offset in the |
| Presented in the |
| |||
|
| Balance Sheet |
| Balance Sheet |
| Balance Sheet |
| |||
Balance at June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
Derivative assets |
| $ | 1,289 |
| $ | (775) |
| $ | 514 |
|
Derivative liabilities |
|
| 12,419 |
|
| (775) |
|
| 11,644 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
Derivative assets |
| $ | 23,401 |
| $ | (10,719) |
| $ | 12,682 |
|
Derivative liabilities |
|
| 11,230 |
|
| (10,719) |
|
| 511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Amounts |
| Gross Amounts |
| Net Amounts |
| |||
|
| Recognized in the |
| Offset in the |
| Presented in the |
| |||
|
| Balance Sheet |
| Balance Sheet |
| Balance Sheet |
| |||
Balance at March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
Derivative assets - Current |
| $ | 11.4 |
| $ | (0.1) |
| $ | 11.3 |
|
Derivative assets - Non-Current |
|
| 5.6 |
|
| — |
|
| 5.6 |
|
Derivative liabilities - Current |
|
| 15.0 |
|
| (0.1) |
|
| 14.9 |
|
Derivative liabilities - Non-Current |
|
| 48.3 |
|
| — |
|
| 48.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
Derivative assets - Current |
| $ | 11.5 |
| $ | (0.6) |
| $ | 10.9 |
|
Derivative assets - Non-Current |
|
| 3.0 |
|
| — |
|
| 3.0 |
|
Derivative liabilities - Current |
|
| 14.3 |
|
| (0.6) |
|
| 13.7 |
|
Derivative liabilities - Non-Current |
|
| 28.3 |
|
| — |
|
| 28.3 |
|
Refer to Notes 79 and 1417 of the condensed consolidated financial statements for further information regarding the fair value of the Company’s derivative instruments and the related changes in AOCI.
16
NOTE 7—9—FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.
Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The following table summarizes the basis used to measure certain assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheets as of June 30, 2017March 31, 2018 and December 31, 2016.2017:
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
| June 30, 2017 |
|
| March 31, 2018 |
| ||||||||||||||||||||
|
| Quoted Prices in Active Markets for Identical Items |
| Significant Other Observable Inputs |
| Significant Unobservable Inputs |
|
|
|
|
| Quoted Prices in Active Markets for Identical Items |
| Significant Other Observable Inputs |
| Significant Unobservable Inputs |
|
|
|
| ||||||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||||||
Foreign exchange forward contracts—Assets |
| $ | — |
| $ | 514 |
| $ | — |
| $ | 514 |
|
| $ | — |
| $ | 0.3 |
| $ | — |
| $ | 0.3 |
|
Foreign exchange forward contracts—(Liabilities) |
|
| — |
|
| (4,830) |
|
| — |
|
| (4,830) |
|
|
| — |
|
| (2.8) |
|
| — |
|
| (2.8) |
|
Foreign exchange cash flow hedges—(Liabilities) |
|
| — |
|
| (6,814) |
|
| — |
|
| (6,814) |
|
|
| — |
|
| (12.1) |
|
| — |
|
| (12.1) |
|
Interest rate swaps—Assets |
|
| — |
|
| 6.2 |
|
| — |
|
| 6.2 |
| |||||||||||||
Cross-currency swaps—Assets |
|
| — |
|
| 10.4 |
|
| — |
|
| 10.4 |
| |||||||||||||
Cross-currency swaps—(Liabilities) |
|
| — |
|
| (48.3) |
|
| — |
|
| (48.3) |
| |||||||||||||
Total fair value |
| $ | — |
| $ | (11,130) |
| $ | — |
| $ | (11,130) |
|
| $ | — |
| $ | (46.3) |
| $ | — |
| $ | (46.3) |
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
|
| December 31, 2017 |
| ||||||||||||||||||||
|
| Quoted Prices in Active Markets for Identical Items |
| Significant Other Observable Inputs |
| Significant Unobservable Inputs |
|
|
|
|
| Quoted Prices in Active Markets for Identical Items |
| Significant Other Observable Inputs |
| Significant Unobservable Inputs |
|
|
|
| ||||||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||||||
Foreign exchange forward contracts—Assets |
| $ | — |
| $ | 1,664 |
| $ | — |
| $ | 1,664 |
|
| $ | — |
| $ | 0.1 |
| $ | — |
| $ | 0.1 |
|
Foreign exchange forward contracts—(Liabilities) |
|
| — |
|
| (511) |
|
| — |
|
| (511) |
|
|
| — |
|
| (2.5) |
|
| — |
|
| (2.5) |
|
Foreign exchange cash flow hedges—Assets |
|
| — |
|
| 11,018 |
|
| — |
|
| 11,018 |
| |||||||||||||
Foreign exchange cash flow hedges—(Liabilities) |
|
| — |
|
| (11.1) |
|
| — |
|
| (11.1) |
| |||||||||||||
Interest rate swaps—Assets |
|
| — |
|
| 3.0 |
|
| — |
|
| 3.0 |
| |||||||||||||
Interest rate swaps—(Liabilities) |
|
| — |
|
| (0.1) |
|
| — |
|
| (0.1) |
| |||||||||||||
Cross-currency swaps—Assets |
|
| — |
|
| 10.8 |
|
| — |
|
| 10.8 |
| |||||||||||||
Cross-currency swaps—(Liabilities) |
|
| — |
|
| (28.3) |
|
| — |
|
| (28.3) |
| |||||||||||||
Total fair value |
| $ | — |
| $ | 12,171 |
| $ | — |
| $ | 12,171 |
|
| $ | — |
| $ | (28.1) |
| $ | — |
| $ | (28.1) |
|
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.date, such as interest rate yield curves and currency spot and forward rates. Significant inputs to the valuation for foreign exchange forward contracts and foreign exchange cash flow hedgesthese derivative instruments are obtained from broker quotations or from listed or over-the-counter market data, and are classified as Level 2 in the fair value hierarchy.
17
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, 2017March 31, 2018 and December 31, 2016,2017, respectively:
|
|
|
|
|
|
|
|
|
| As of |
| As of |
| ||
|
| June 30, 2017 |
| December 31, 2016 |
| ||
2022 Senior Notes |
|
|
|
|
|
|
|
USD Notes |
| $ | 318,750 |
| $ | 315,000 |
|
Euro Notes |
|
| 456,187 |
|
| 424,437 |
|
2021 Term Loan B |
|
| 494,596 |
|
| 498,041 |
|
Total fair value |
| $ | 1,269,533 |
| $ | 1,237,478 |
|
|
|
|
|
|
|
|
|
|
| As of |
| As of |
| ||
|
| March 31, 2018 |
| December 31, 2017 |
| ||
2025 Senior Notes |
| $ | 495.2 |
| $ | 518.8 |
|
2024 Term Loan B |
|
| 701.7 |
|
| 705.7 |
|
Total fair value |
| $ | 1,196.9 |
| $ | 1,224.5 |
|
The fair value of the Company’s Term Loan B, USD Notes, and Euro Notesdebt facilities above (each Level 2 securities) is determined using over-the-counter market quotes and benchmark yields received from independent vendors.
There were no other significant financial instruments outstanding as of June 30, 2017March 31, 2018 and December 31, 2016.2017.
NOTE 8—10—PROVISION FOR INCOME TAXES
|
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|
|
|
|
|
|
|
| Three Months Ended |
|
| ||||
|
| March 31, |
|
| ||||
|
| 2018 |
| 2017 |
|
| ||
Effective income tax rate |
|
| 17.1 | % |
| 20.0 | % |
|
Provision for income taxes for the three months ended March 31, 2018 totaled $24.9 million, resulting in an effective tax rate of 17.1%. Provision for income taxes for the three months ended March 31, 2017 totaled $29.3 million, resulting in an effective tax rate of 20.0%.
The decrease in the effective tax rate for the three months ended March 31, 2018 as compared to the same period in 2017 was primarily driven by the reduction in the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018, in accordance with the enactment of the Tax Cuts and Jobs Act signed into law on December 22, 2017. The decrease related to the reduction in the U.S. federal corporate tax rate effective in 2018 was partially offset by the $9.3 million gain on sale of the Company’s 50% share in Sumika Styron Polycarbonate during the three months ended March 31, 2017, which was exempt from tax (refer to Note 4 for further information).
NOTE 11—COMMITMENTS AND CONTINGENCIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law, existing technologies and other information. Pursuant to the terms of the agreement associated with the Company’s formation, the pre-closing environmental conditions were retained by Dow and Dow has agreed to indemnify the Company from and against all environmental liabilities incurred or relating to the predecessor periods. No environmental claims have been asserted or threatened against the Company, and the Company is not a potentially responsible party at any Superfund Sites. As of June 30, 2017March 31, 2018 and December 31, 2016,2017, 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 54 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
18
would be less than the annual commitment as disclosed in the consolidated financial statementsNotes to Consolidated Financial Statements included in the Annual Report.
Litigation Matters
From time to time, the Company may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as product liability, antitrust/competition, past waste disposal practices and release of chemicals into the environment. While it is impossible at this time to determine with certainty the ultimate outcome of these routine claims, the Company does not believe that the ultimate resolution of these claims will have a material adverse effect on the Company’s results of operations, financial condition or cash flow. Legal costs, including those legal costs expected to be incurred in connection with a loss contingency, are expensed as incurred.
NOTE 9—12—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for all significant plans were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||||
|
| June 30, |
| June 30, |
|
| March 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Defined Benefit Pension Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 4,707 |
| $ | 4,211 |
| $ | 9,291 |
| $ | 8,282 |
|
| $ | 3.1 |
| $ | 4.6 |
|
Interest cost |
|
| 1,111 |
|
| 1,408 |
|
| 2,192 |
|
| 2,768 |
|
|
| 1.3 |
|
| 1.1 |
|
Expected return on plan assets |
|
| (423) |
|
| (499) |
|
| (835) |
|
| (982) |
|
|
| (0.6) |
|
| (0.4) |
|
Amortization of prior service credit |
|
| (482) |
|
| (493) |
|
| (953) |
|
| (971) |
|
|
| (0.3) |
|
| (0.5) |
|
Amortization of net loss |
|
| 1,395 |
|
| 1,073 |
|
| 2,753 |
|
| 2,111 |
|
|
| 1.0 |
|
| 1.4 |
|
Net settlement and curtailment loss(1) |
|
| — |
|
| — |
|
| 129 |
|
| — |
|
|
| — |
|
| 0.1 |
|
Net periodic benefit cost |
| $ | 6,308 |
| $ | 5,700 |
| $ | 12,577 |
| $ | 11,208 |
|
| $ | 4.5 |
| $ | 6.3 |
|
(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. |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Other Postretirement Plans |
|
|
|
|
|
|
|
Service cost |
| $ | — |
| $ | 0.1 |
|
Interest cost |
|
| 0.1 |
|
| 0.1 |
|
Amortization of prior service cost |
|
| — |
|
| — |
|
Amortization of net gain |
|
| — |
|
| — |
|
Net periodic benefit cost |
| $ | 0.1 |
| $ | 0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Other Postretirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 54 |
| $ | 65 |
| $ | 108 |
| $ | 128 |
|
Interest cost |
|
| 63 |
|
| 129 |
|
| 126 |
|
| 250 |
|
Amortization of prior service cost |
|
| 25 |
|
| 26 |
|
| 51 |
|
| 52 |
|
Amortization of net gain |
|
| (10) |
|
| (43) |
|
| (21) |
|
| (86) |
|
Net periodic benefit cost |
| $ | 132 |
| $ | 177 |
| $ | 264 |
| $ | 344 |
|
In accordance with recently issued accounting standards, service cost related to the Company’s defined benefit pension plans and other postretirement plans is included within “Cost of sales” and “Selling, general and administrative expenses” whereas all other components of net periodic benefit cost are included within “Other income, net” in the condensed consolidated statements of operations. Refer to Note 2 for further information.
As of June 30, 2017March 31, 2018 and December 31, 2016,2017, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $211.7$195.2 million and $195.8$188.7 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 $5.0 million and $10.2$2.0 million during the three and six months ended June 30, 2017, respectively.March 31, 2018. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately $5.5$4.5 million to its defined benefit plans for the remainder of 2017.2018.
1719
NOTE 10—13—STOCK-BASED COMPENSATION
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s stock-based compensation programs included in the tables below.
The following table summarizes the Company’s stock-based compensation expense for the three and six months ended June 30,March 31, 2018 and 2017, and 2016 as well as unrecognized compensation cost as of June 30, 2017:March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| As of |
|
|
|
|
|
|
|
| As of |
| |||||||
|
| Three Months Ended |
| Six Months Ended |
| June 30, 2017 |
|
| Three Months Ended |
| March 31, 2018 |
| ||||||||||||||||||
|
| June 30, |
| June 30, |
| Unrecognized |
| Weighted |
|
| March 31, |
| Unrecognized |
| Weighted |
| ||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Compensation Cost |
| Average Years |
|
| 2018 |
| 2017 |
| Compensation Cost |
| Average Years |
| ||||||||
RSUs |
| $ | 2,135 |
| $ | 1,355 |
| $ | 4,008 |
| $ | 2,349 |
| $ | 12,854 |
| 2.0 |
|
| $ | 2.2 |
| $ | 1.9 |
| $ | 14.9 |
| 2.2 |
|
Options |
|
| 502 |
|
| 763 |
|
| 3,207 |
|
| 4,135 |
|
| 2,094 |
| 1.5 |
|
|
| 2.8 |
|
| 2.6 |
|
| 2.9 |
| 1.6 |
|
PSUs |
|
| 321 |
|
| — |
|
| 472 |
|
| — |
|
| 3,386 |
| 2.6 |
|
|
| 0.5 |
|
| 0.2 |
|
| 6.7 |
| 2.5 |
|
Restricted Stock Awards issued by Former Parent |
|
| — |
|
| 1,104 |
|
| — |
|
| 2,332 |
|
| — |
| — |
| ||||||||||||
Total Stock-based Compensation Expense |
| $ | 2,958 |
| $ | 3,222 |
| $ | 7,687 |
| $ | 8,816 |
|
|
|
|
|
| ||||||||||||
Total stock-based compensation expense |
| $ | 5.5 |
| $ | 4.7 |
|
|
|
|
|
|
The following table summarizes awards granted and the respective weighted-averageweighted average grant date fair value for the sixthree months ended June 30, 2017:March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||
|
| June 30, 2017 |
|
| March 31, 2018 |
| ||||||||
|
| Awards Granted |
| Weighted Average Grant Date Fair Value per Award |
|
| Awards Granted |
| Weighted Average Grant Date Fair Value per Award |
| ||||
RSUs |
|
| 110,117 |
| $ | 70.87 |
|
|
| 97,676 |
| $ | 81.20 |
|
Options |
|
| 191,565 |
|
| 20.61 |
|
|
| 202,963 |
|
| 22.29 |
|
PSUs |
|
| 50,937 |
|
| 75.74 |
|
|
| 50,289 |
|
| 88.51 |
|
Option Awards
The following are the weighted-averageweighted average assumptions used within the Black-Scholes pricing model for the Company’s option awards granted during the sixthree months ended June 30, 2017:March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years) |
| 5.50 |
|
Expected volatility |
|
| % |
Risk-free interest rate |
|
| % |
Dividend yield |
| 2.00 | % |
Since the Company’s equity interests were privately held prior to its initial public offering (“IPO”) in June 2014, there is limited publicly available tradingtraded history of the Company’s ordinary shares. Until such time that the Company can determine expected volatility based solely on the publicly traded history of its ordinary shares, expected volatility used in the Black-Scholes model for option awards granted is based on a combination of the Company’s historical volatility and similar companies’ stock that are publicly traded. The expected term of option awards represents the period of time that option awards granted are expected to be outstanding. For the option awards granted during the sixthree months ended June 30, 2017,March 31, 2018, the simplified method was used to calculate the expected term, given the Company’s limited historical exercise data. The risk-free interest rate for the periods within the expected term of option awards is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is estimated based on historical and expected dividend activity.
1820
Performance Share Units (PSUs)
The Companyfollowing are the weighted average assumptions used within the Monte Carlo valuation model for PSUs granted PSUs for the first time during the sixthree months ended June 30, 2017.March 31, 2018:
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| March 31, |
|
|
|
|
| 2018 |
|
|
Expected term (in years) |
|
| 3.00 |
|
|
Expected volatility |
|
| 36.00 | % |
|
Risk-free interest rate |
|
| 2.42 | % |
|
Stock price |
| $ | 81.20 |
|
|
Determining the fair value of PSUs requires considerable judgment, including estimating the expected volatility of the price of the Company’s ordinary shares, the correlation between the Company’s stock price and that of its peer companies, and the expected rate of interest. The PSUs, which are granted to executives, cliff vestexpected volatility for each grant is determined based on the third anniversaryhistorical volatility of the dateCompany’s ordinary shares. The expected term of grant, generally subject toPSUs represents the executive remaining continuously employed by the Company through the vesting date and achieving certain performance conditions. The number of the PSUs that vest upon completion of the service period can range from 0 to 200 percent of the original grant, subject to certain limitations, contingent upon the Company’s total shareholder return (“TSR”) during the performance period relative to a pre-defined set of industry peer companies. Upon a termination of employment due to the executive’s death or retirement, or termination in connection with a change in control or other factors prior to the vesting date, the PSUs will vest in full or in part, depending on the type of termination and the achievementlength of the performance conditions. Dividend equivalents will accumulateperiod. The risk-free interest rate is based on PSUs during the vesting period, will be paidU.S. Treasury yield curve in cash upon vesting, and do not accrue interest. When PSUs vest,effect at the time of grant for a duration equivalent to the performance period. The stock price is the closing price of the Company’s ordinary shares will be issued fromon the existing pool of treasury shares. The fair value for PSU awards is computed using a Monte Carlo valuation model.grant date.
NOTE 11—14—ACQUISITIONS AND DIVESTITURES
Acquisition of API Plastics
On July 10, 2017, the Company acquired 100% of the equity interests of API Applicazioni Plastiche Industriali S.p.A, or API Plastics, a privately held company. The gross purchase price for the acquisition was $90.6 million, inclusive of $8.4 million of cash acquired, yielding a net purchase price of $82.3 million, all of which was paid for during the year ended December 31, 2017 (noting no cash flows during the three months ended March 31, 2017). API Plastics, based in Mussolente, Italy, is a manufacturer of soft-touch polymers and bioplastics, such as thermoplastic elastomers (“TPEs”), whose results are included within our Performance Plastics segment.
The Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. During the secondfirst quarter of 2016,2018, there were no changes to the Company signed a definitive agreement to sell Trinseo do Brasil Comercio de Produtos Quimicos Ltda. (“Trinseo Brazil”), its primary operating entity in Brazil, including both a latex binders and automotive business. The sale closed on October 1, 2016.
Aspurchase price allocation for the acquisition of API Plastics. However, further adjustments may be necessary as a result of this agreement,the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed, including goodwill, during the measurement period. During the three and six months ended June 30, 2016,March 31, 2018, transaction and integration costs related to advisory and professional fees incurred in conjunction with the Company recorded impairment charges for the estimated loss on sale of approximately $12.9API Plastics acquisition were $0.3 million, and were included within “Other expense (income), net”“Selling, general and administrative expenses” 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 millionRefer to the Annual Report for further information.
NOTE 15—SEGMENTS
Through December 31, 2017, the Company operated under two divisions: Performance Materials and Basic Plastics segment,& Feedstocks. The Performance Materials division included the following reporting segments: Latex Binders, segment,Synthetic Rubber, and Corporate, respectively. DuringPerformance Plastics. The Basic Plastics & Feedstocks division included 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.following reporting segments: Basic Plastics, Feedstocks, and Americas Styrenics.
NOTE 12—SEGMENTS
Effective OctoberJanuary 1, 2016,2018, the Company realigned its reporting segments to reflect the new model under which the business is nowwill be managed and results arewill be reviewed by the chief executive officer, who is the Company’s chief operating decision maker. This change inUnder this new segmentation, the Company will no longer have divisions, but will continue to report operating results for six segments, was made to provide increased clarity and understanding around the indicatorsfour of profitability and cash flow of the Company. The previous Basic Plastics & Feedstocks segment was split into three new segments: Basic Plastics, which includes polystyrene, copolymers, and polycarbonate; Feedstocks, which representsremain unchanged from the Company’s styrene monomer business;prior segmentation: Latex Binders, Synthetic Rubber, Feedstocks, 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,Styrenics. The results of our Polystyrene business, which was previously included inwithin the results of the Basic Plastics & Feedstocks, issegment, are now included inreported as a stand-alone segment. Performance Plastics. Finally, the Latex segment was renamed to Latex Binders. In conjunction with the segment realignment, the Company also changed its primary measurePlastics, which previously consisted of segment operating performance from EBITDA to Adjusted EBITDA. Refercompounds, blends, and ABS products sold to the discussion below for further information about Adjusted EBITDA.
automotive market, now includes the remaining portion of the Company’s ABS business, as well as the results of the Company’s SAN and PC businesses. This segmentation change will provide enhanced clarity to investors by concentrating the Company’s more specialized plastics into a single reporting segment, while also reducing complexity as PC and ABS are the primary inputs into the downstream production of the Company’s compounds and blends. The information in the tables below has been retroactively adjusted to reflect the changes in reporting segments and segment operating performance.segments.
21
The Latex Binders segment produces styrene-butadiene latex, or SB latex, and other latex polymers and binders, primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex binders applications, such as adhesive, building and construction and the technical textile paper market. The Synthetic Rubber segment produces synthetic rubber products used predominantly in high-performance tires, impact modifiers and technical rubber products, such as conveyer belts, hoses, seals and gaskets. The Performance Plastics segment produces highly engineered compounds and blends, and some specializedalso includes our ABS, grades for automotive end markets, as well as consumer electronics, medical, electricalSAN, and lighting, collectively consumer essential markets, or CEM.PC businesses. The BasicPerformance 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 segmentrecast, 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 34 for further information). Polystyrene is a stand-alone reporting segment, and includes a variety of general purpose polystyrenes, or GPPS, as well as HIPS, which is polystyrene that has been modified with polybutadiene rubber to increase its impact resistant properties. The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, ABS resins, solution styrene-butadiene rubber, or SSBR, etc. Lastly, the Americas Styrenics segment consists solely of the
19
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 by reporting segment is not regularly reviewed or included with the Company’s reporting to the chief operating decision maker. Therefore, the Companythis information has not been disclosed this information for each reportable segment.below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Materials |
| Basic Plastics & Feedstocks |
|
|
|
|
|
|
| ||||||||||||||
|
| Latex |
| Synthetic |
| Performance |
| Basic |
|
|
| Americas |
| Corporate |
|
|
|
| |||||||
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 |
| $ | 232,471 |
| $ | 111,391 |
| $ | 183,891 |
| $ | 363,325 |
| $ | 78,616 |
| $ | — |
| $ | — |
| $ | 969,694 |
|
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 |
|
| — |
|
| — |
|
| — |
|
| 35,842 |
|
| — |
|
| 154,472 |
|
| — |
|
| 190,314 |
|
Depreciation and amortization |
|
| 5,881 |
|
| 8,892 |
|
| 1,589 |
|
| 3,941 |
|
| 2,760 |
|
| — |
|
| 1,790 |
|
| 24,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Performance Materials |
| Basic Plastics & Feedstocks |
|
|
|
|
|
|
|
| Latex |
| Synthetic |
| Performance |
|
|
|
|
| Americas |
| Corporate |
|
|
|
| |||||||||||||||||||||
|
| Latex |
| Synthetic |
| Performance |
| Basic |
|
|
| Americas |
| Corporate |
|
|
|
| ||||||||||||||||||||||||||||||||
Six Months Ended |
| Binders |
| Rubber |
| Plastics |
| Plastics |
| Feedstocks |
| Styrenics |
| Unallocated |
| Total |
| |||||||||||||||||||||||||||||||||
June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Three Months Ended |
| Binders |
| Rubber |
| Plastics |
| Polystyrene |
| Feedstocks |
| Styrenics |
| Unallocated |
| Total |
| |||||||||||||||||||||||||||||||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Sales to external customers |
| $ | 580,461 |
| $ | 337,371 |
| $ | 374,724 |
| $ | 763,210 |
| $ | 193,923 |
| $ | — |
| $ | — |
| $ | 2,249,689 |
|
| $ | 255.3 |
| $ | 149.2 |
| $ | 402.9 |
| $ | 239.6 |
| $ | 74.6 |
| $ | — |
| $ | — |
| $ | 1,121.6 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 810 |
|
| — |
|
| 48,412 |
|
| — |
|
| 49,222 |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 45.5 |
|
| — |
|
| 45.5 |
|
Adjusted EBITDA(1) |
|
| 72,885 |
|
| 73,959 |
|
| 50,364 |
|
| 70,629 |
|
| 40,745 |
|
| 48,412 |
|
|
|
|
|
|
|
|
| 27.5 |
|
| 25.5 |
|
| 65.5 |
|
| 9.6 |
|
| 41.5 |
|
| 45.5 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 153,077 |
|
| — |
|
| 153,077 |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 168.1 |
|
| — |
|
| 168.1 |
|
Depreciation and amortization |
|
| 11,424 |
|
| 17,067 |
|
| 4,844 |
|
| 7,820 |
|
| 5,568 |
|
| — |
|
| 4,321 |
|
| 51,044 |
|
|
| 6.1 |
|
| 11.2 |
|
| 6.4 |
|
| 2.9 |
|
| 3.0 |
|
| — |
|
| 2.3 |
|
| 31.9 |
|
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
March 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Sales to external customers |
| $ | 441,952 |
| $ | 213,588 |
| $ | 352,520 |
| $ | 705,954 |
| $ | 149,764 |
| $ | — |
| $ | — |
| $ | 1,863,778 |
|
| $ | 288.9 |
| $ | 163.4 |
| $ | 336.9 |
| $ | 228.4 |
| $ | 86.9 |
| $ | — |
| $ | — |
| $ | 1,104.5 |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 3,019 |
|
| — |
|
| 70,609 |
|
| — |
|
| 73,628 |
|
|
| — |
|
| — |
|
| 0.8 |
|
| — |
|
| — |
|
| 18.5 |
|
| — |
|
| 19.3 |
|
Adjusted EBITDA(1) |
|
| 40,228 |
|
| 53,295 |
|
| 73,558 |
|
| 80,917 |
|
| 53,358 |
|
| 70,609 |
|
|
|
|
|
|
|
|
| 36.8 |
|
| 46.3 |
|
| 52.2 |
|
| 13.6 |
|
| 41.9 |
|
| 18.5 |
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
| — |
|
| — |
|
| — |
|
| 35,842 |
|
| — |
|
| 154,472 |
|
| — |
|
| 190,314 |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 160.6 |
|
| — |
|
| 160.6 |
|
Depreciation and amortization |
|
| 12,161 |
|
| 16,935 |
|
| 3,133 |
|
| 7,525 |
|
| 5,626 |
|
| — |
|
| 2,593 |
|
| 47,973 |
|
|
| 5.7 |
|
| 8.4 |
|
| 4.0 |
|
| 2.0 |
|
| 2.5 |
|
| — |
|
| 2.1 |
|
| 24.7 |
|
(1)The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring;restructuring charges; acquisition related costs and other items. Segment Adjusted EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure that management believes reflects core operating performance by removing the impact of transactions and events that would not be considered a part of core operations. Adjusted EBITDA is useful for analytical purposes; however, it should not be considered an alternative to the Company’s reported GAAP results, as there are limitations in using such financial measures. Other companies in the industry may define Segment Adjusted EBITDA differently than the Company, and as a result, it may be difficult to use Segment Adjusted EBITDA, or similarly named financial measures, that other companies may use to compare the performance of those companies to the Company’s segment performance.
2022
The reconciliation of income before income taxes to Segment Adjusted EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||||
|
| June 30, |
| June 30, |
|
| March 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Income before income taxes |
| $ | 78,959 |
| $ | 124,404 |
| $ | 225,553 |
| $ | 223,051 |
|
| $ | 145.2 |
| $ | 146.6 |
|
Interest expense, net |
|
| 18,719 |
|
| 18,814 |
|
| 36,919 |
|
| 37,710 |
|
|
| 14.9 |
|
| 18.2 |
|
Depreciation and amortization |
|
| 26,324 |
|
| 24,853 |
|
| 51,044 |
|
| 47,973 |
|
|
| 31.9 |
|
| 24.7 |
|
Corporate Unallocated(2) |
|
| 21,559 |
|
| 21,153 |
|
| 49,024 |
|
| 46,370 |
|
|
| 20.1 |
|
| 27.6 |
|
Adjusted EBITDA Addbacks(3) |
|
| 2,231 |
|
| 14,299 |
|
| (5,546) |
|
| 16,861 |
|
|
| 3.0 |
|
| (7.8) |
|
Segment Adjusted EBITDA |
| $ | 147,792 |
| $ | 203,523 |
| $ | 356,994 |
| $ | 371,965 |
|
| $ | 215.1 |
| $ | 209.3 |
|
(2)Corporate unallocated includes corporate overhead costs and certain other income and expenses.
(3)Adjusted EBITDA addbacks for the three and six months ended June 30,March 31, 2018 and 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 |
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Net gain on disposition of businesses and assets (Note 4) |
| $ | (0.5) |
| $ | (9.9) |
|
Restructuring and other charges (Note 16) |
|
| 0.5 |
|
| 2.1 |
|
Acquisition transaction and integration costs (Note 14) |
|
| 0.3 |
|
| — |
|
Other items(a) |
|
| 2.7 |
|
| — |
|
Total Adjusted EBITDA Addbacks |
| $ | 3.0 |
| $ | (7.8) |
|
(a) |
|
. |
|
|
21
NOTE 13—16—RESTRUCTURING
Refer to the Annual Report for further 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 are included within “Selling, general and administrative expenses” in the condensed consolidated statementstatements of operations.
The following table provides detail of the Company’s restructuring charges for the three and six months ended June 30, 2017March 31, 2018 and 2016:2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| Cumulative |
|
|
|
| Three Months Ended |
| Cumulative |
|
|
| ||||||||||||||
|
| June 30, |
| June 30, |
| Life-to-date |
|
|
|
| March 31, |
| Life-to-date |
|
|
| ||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Charges |
| Segment |
|
| 2018 |
| 2017 |
| Charges |
| Segment |
| ||||||||
Terneuzen Compounding Restructuring(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment/accelerated depreciation |
| $ | 574 |
| $ | — |
| $ | 1,131 |
| $ | — |
| $ | 1,131 |
|
|
|
| $ | 0.3 |
| $ | 0.6 |
| $ | 2.3 |
|
|
|
Employee termination benefits |
|
| 156 |
|
| — |
|
| 156 |
|
| — |
|
| 156 |
|
|
|
|
| 0.1 |
|
| — |
|
| 0.7 |
|
|
|
Contract terminations |
|
| — |
|
| — |
|
| 590 |
|
| — |
|
| 590 |
|
|
|
|
| — |
|
| 0.6 |
|
| 0.6 |
|
|
|
Decommissioning and other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 626 |
|
|
|
|
| — |
|
| — |
|
| 0.8 |
|
|
|
Terneuzen Subtotal |
| $ | 730 |
| $ | — |
| $ | 1,877 |
| $ | — |
| $ | 2,503 |
| Performance Plastics |
|
| $ | 0.4 |
| $ | 1.2 |
| $ | 4.4 |
| Performance Plastics |
|
Livorno Plant Restructuring(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment/accelerated depreciation |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 14,345 |
|
|
|
| $ | — |
| $ | — |
| $ | 14.3 |
|
|
|
Employee termination benefits |
|
| 206 |
|
| — |
|
| 358 |
|
| — |
|
| 4,990 |
|
|
|
|
| — |
|
| 0.2 |
|
| 5.4 |
|
|
|
Contract terminations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 269 |
|
|
|
|
| — |
|
| — |
|
| 0.3 |
|
|
|
Decommissioning and other |
|
| 479 |
|
| — |
|
| 1,063 |
|
| — |
|
| 1,740 |
|
|
|
|
| 0.3 |
|
| 0.6 |
|
| 3.3 |
|
|
|
Livorno Subtotal |
| $ | 685 |
| $ | — |
| $ | 1,421 |
| $ | — |
| $ | 21,344 |
| Latex Binders |
|
| $ | 0.3 |
| $ | 0.8 |
| $ | 23.3 |
| Latex Binders |
|
Other Restructurings |
|
| 349 |
|
| 1,101 |
|
| 1,164 |
|
| 2,233 |
|
|
|
| Various |
|
|
| 0.1 |
|
| 0.7 |
|
|
|
| Various |
|
Total Restructuring Charges |
| $ | 1,764 |
| $ | 1,101 |
| $ | 4,462 |
| $ | 2,233 |
|
|
|
|
|
|
| $ | 0.8 |
| $ | 2.7 |
|
|
|
|
|
|
(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 |
23
facility in Terneuzen, The Netherlands. The new facility is expected to be operational by the end of 2018, with substantive production at the existing facility expected to cease by December 2018, followed by decommissioning activities in 2019. The Company expects to incur incremental accelerated depreciation charges of |
(2) | In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders manufacturing facility in Livorno, Italy. Production at the facility ceased in October 2016, followed by decommissioning activities which began in the fourth quarter of 2016. The Company |
The following table provides a rollforward of the liability balances associated with the Company’s restructuring activities as of June 30, 2017.March 31, 2018. Employee termination benefit and contract termination charges are recorded within “Accrued expenses and other current liabilities” in the condensed consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
|
|
|
|
|
|
| Balance at |
|
| Balance at |
|
|
|
|
|
|
| Balance at |
| ||||
|
| December 31, 2016 |
| Expenses |
| Deductions(1) |
| June 30, 2017 |
|
| December 31, 2017 |
| Expenses |
| Deductions(1) |
| March 31, 2018 |
| ||||||||
Employee termination benefits |
| $ | 5,021 |
| $ | 2,102 |
| $ | (5,563) |
| $ | 1,560 |
|
| $ | 1.4 |
| $ | 0.1 |
| $ | (0.6) |
| $ | 0.9 |
|
Contract terminations |
|
| 269 |
|
| 590 |
|
| (127) |
|
| 732 |
|
|
| 0.6 |
|
| — |
|
| — |
|
| 0.6 |
|
Decommissioning and other |
|
| — |
|
| 1,360 |
|
| (1,360) |
|
| — |
|
|
| — |
|
| 0.4 |
|
| (0.4) |
|
| — |
|
Total |
| $ | 5,290 |
| $ | 4,052 |
| $ | (7,050) |
| $ | 2,292 |
|
| $ | 2.0 |
| $ | 0.5 |
| $ | (1.0) |
| $ | 1.5 |
|
(1) | Includes primarily payments made against the existing accrual, as well as immaterial impacts of foreign currency remeasurement. |
.
22
NOTE 14—17—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of AOCI, net of income taxes, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative |
| Pension & Other |
|
| Foreign Exchange |
|
|
|
| ||
|
| Translation |
| Postretirement Benefit |
|
| Cash Flow |
|
|
|
| ||
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) |
|
Other comprehensive income (loss) |
|
| (11,005) |
|
| — |
|
| 5,294 |
|
| (5,711) |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 539 |
|
| 735 |
|
| 1,274 |
|
Balance as of June 30, 2016 |
| $ | (106,702) |
| $ | (45,887) |
| $ | 4,173 |
| $ | (148,416) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative |
| Pension & Other |
| Foreign Exchange |
|
|
|
|
| Cumulative |
| Pension & Other |
|
|
|
|
|
| ||||||
|
| Translation |
| Postretirement Benefit |
| Cash Flow |
|
|
|
|
| Translation |
| Postretirement Benefit |
| Cash Flow |
|
|
|
| ||||||
Six Months Ended June 30, 2017 and 2016 |
| Adjustments |
| Plans, Net |
| Hedges, Net |
| Total |
| |||||||||||||||||
Three Months Ended March 31, 2018 and 2017 |
| Adjustments |
| Plans, Net |
| Hedges, Net |
| Total |
| |||||||||||||||||
Balance at December 31, 2017 |
| $ | (94.5) |
| $ | (45.0) |
| $ | (6.1) |
| $ | (145.6) |
| |||||||||||||
Other comprehensive income (loss) |
|
| (2.1) |
|
| — |
|
| (1.0) |
|
| (3.1) |
| |||||||||||||
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 0.6 |
|
| 3.8 |
|
| 4.4 |
| |||||||||||||
Balance at March 31, 2018 |
| $ | (96.6) |
| $ | (44.4) |
| $ | (3.3) |
| $ | (144.3) |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance as of December 31, 2016 |
| $ | (118,922) |
| $ | (63,504) |
| $ | 12,272 |
| $ | (170,154) |
|
| $ | (119.0) |
| $ | (63.5) |
| $ | 12.3 |
| $ | (170.2) |
|
Other comprehensive income (loss) |
|
| 23,175 |
|
| — |
|
| (14,316) |
|
| 8,859 |
|
|
| 4.2 |
|
| — |
|
| (2.3) |
|
| 1.9 |
|
Amounts reclassified from AOCI to net income (1) |
|
| — |
|
| 2,172 |
|
| (3,460) |
|
| (1,288) |
|
|
| — |
|
| 1.4 |
|
| (2.5) |
|
| (1.1) |
|
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) |
| |||||||||||||
Balance as of March 31, 2017 |
| $ | (114.8) |
| $ | (62.1) |
| $ | 7.5 |
| $ | (169.4) |
|
(1) | The following is a summary of amounts reclassified from AOCI to net income for the three |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount Reclassified from AOCI |
| Amount Reclassified from AOCI |
|
|
| ||||||||
AOCI Components |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| Statement of Operations |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Classification |
| ||||
Cash flow hedging items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | (1,009) |
| $ | 735 |
| $ | (3,460) |
| $ | (370) |
| Cost of sales |
|
Total before tax |
|
| (1,009) |
|
| 735 |
|
| (3,460) |
|
| (370) |
|
|
|
Tax effect |
|
| — |
|
| — |
|
| — |
|
| — |
| Provision for income taxes |
|
Total, net of tax |
| $ | (1,009) |
| $ | 735 |
| $ | (3,460) |
| $ | (370) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement benefit plan items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
| $ | (456) |
| $ | (467) |
| $ | (902) |
| $ | (920) |
| (a) |
|
Net actuarial loss |
|
| 1,613 |
|
| 1,265 |
|
| 3,189 |
|
| 2,519 |
| (a) |
|
Net settlement and curtailment loss |
|
| — |
|
| — |
|
| 648 |
|
| — |
| (a) |
|
Total before tax |
|
| 1,157 |
|
| 798 |
|
| 2,935 |
|
| 1,599 |
|
|
|
Tax effect |
|
| (361) |
|
| (259) |
|
| (763) |
|
| (520) |
| Provision for income taxes |
|
Total, net of tax |
| $ | 796 |
| $ | 539 |
| $ | 2,172 |
| $ | 1,079 |
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
| Amount Reclassified from AOCI |
|
|
| ||||
AOCI Components |
| Three Months Ended March 31, |
| Statement of Operations |
| ||||
|
| 2018 |
| 2017 |
| Classification |
| ||
Cash flow hedging items |
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
| $ | 3.7 |
| $ | (2.5) |
| Cost of sales |
|
Interest rate swaps |
|
| 0.1 |
|
| — |
| Interest expense, net |
|
Total before tax |
|
| 3.8 |
|
| (2.5) |
|
|
|
Tax effect |
|
| — |
|
| — |
| Provision for income taxes |
|
Total, net of tax |
| $ | 3.8 |
| $ | (2.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement benefit plan items |
|
|
|
|
|
|
|
|
|
Prior service credit |
| $ | (0.2) |
| $ | (0.4) |
| (a) |
|
Net actuarial loss |
|
| 1.1 |
|
| 1.6 |
| (a) |
|
Net settlement and curtailment loss |
|
| — |
|
| 0.6 |
| (a) |
|
Total before tax |
|
| 0.9 |
|
| 1.8 |
|
|
|
Tax effect |
|
| (0.3) |
|
| (0.4) |
| Provision for income taxes |
|
Total, net of tax |
| $ | 0.6 |
| $ | 1.4 |
|
|
|
(a) | These AOCI components are included in the computation of net periodic benefit costs (see Note |
23
.
NOTE 15—18—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-averageweighted average ordinary shares outstanding during each period, which includes unvested RSUs, option awards, and PSUs. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential ordinary shares would have an anti-dilutive effect.
The following table presents basic EPS and diluted EPS for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, respectively.
respectively:
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(in thousands, except per share data) |
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Earnings: |
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Net income |
| $ | 60,159 |
| $ | 95,804 |
| $ | 177,453 |
| $ | 172,551 |
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| $ | 120.3 |
| $ | 117.3 |
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Shares: |
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Weighted-average ordinary shares outstanding |
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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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Dilutive effect of RSUs, option awards, and PSUs |
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| 1,093 |
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| 905 |
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| 1,186 |
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| 751 |
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Diluted weighted-average ordinary shares outstanding |
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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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Weighted average ordinary shares outstanding |
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| 43.4 |
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| 44.1 |
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Dilutive effect of RSUs, option awards, and PSUs* |
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| 1.0 |
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| 1.2 |
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Diluted weighted average ordinary shares outstanding |
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| 44.4 |
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| 45.3 |
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Income per share: |
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Income per share—basic |
| $ | 1.37 |
| $ | 2.04 |
| $ | 4.03 |
| $ | 3.61 |
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| $ | 2.77 |
| $ | 2.66 |
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Income per share—diluted |
| $ | 1.34 |
| $ | 2.00 |
| $ | 3.93 |
| $ | 3.55 |
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| $ | 2.71 |
| $ | 2.59 |
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* Refer to Note 1013 for discussion of RSUs, option awards, and PSUs granted to certain Company directors and employees. The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the three months ended March 31, 2018 and 2017 were 0.30.2 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.
2425
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
20172018 Year-to-Date Highlights
In the secondfirst quarter of 2017,2018, Trinseo recognized record net income of $60.2$120.3 million and Adjusted EBITDA of $126.2 million. On a year-to-date basis, we recognized net income of $177.5 million and Adjusted EBITDA of $308.0$195.0 million. Refer to “Non-GAAP Performance Measures” below for further discussion of our use of non-GAAP measures in evaluating our performance and a reconciliation of these measures. Other highlights for the year are described below.
AcquisitionNew Segmentation
Through December 31, 2017, the Company operated under six reporting segments: Latex Binders, Synthetic Rubber, Performance Plastics, Basic Plastics, Feedstocks, and Americas Styrenics. Effective January 1, 2018, the Company realigned its reporting segments to reflect the new model under which the business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief operating decision maker.
Under this new segmentation, we will continue to report operating results for six segments, four of APIwhich will remain unchanged from the Company’s prior segmentation: Latex Binders, Synthetic Rubber, Feedstocks, and Americas Styrenics. The results of our Polystyrene business, which was previously included within the results of the Basic Plastics segment, is now reported as a stand-alone segment. Performance Plastics, which previously consisted of compounds, blends, and ABS products sold to the automotive market, now includes the remaining portion of our ABS business, as well as the results of our SAN and PC businesses. This segmentation change will provide enhanced clarity to investors by concentrating the Company’s more specialized plastics into a single reporting segment, while also reducing complexity as PC and ABS are the primary inputs into the downstream production of our compounds and blends.
On July 10, 2017,Prior period financial information included within this Quarterly Report has been recast from its previous presentation to reflect the Company’s new organizational structure.
SSBR Capacity Expansion and Pilot Plant
During the first quarter of 2018, 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, 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 saleinitial phase of its 50% share50kT SSBR capacity expansion at its Schkopau, Germany facility, and also opened a new SSBR pilot plant at this same facility which will expedite the product development process from lab sample to commercialization by delivering sufficient quantities of new formulations without the need to interrupt production 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 Performance Plastics segment.our industrial lines.
Share Repurchases and Dividends
In June 2017, the Company’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 board of directors authorized the repurchase of up to two million shares of the Company’s ordinary shares.
During the sixthree months ended June 30, 2017,March 31, 2018, under existing authority from its board of directors, the Company purchased 894,604306,613 ordinary shares from its shareholders through a combination of open market transactions for an aggregate purchase price of $56.4$23.8 million. Additionally, during the sixthree months ended June 30, 2017,March 31, 2018, the Company’s board of directors declared quarterly dividends for an aggregate value of $0.66$0.36 per ordinary share, or $29.7 million, $16.5 million of which remained accrued as of June 30, 2017.$15.8 million.
2526
Results of Operations
Results of Operations for the Three and Six Months Ended June 30,March 31, 2018 and 2017 and 2016
The table below sets forth our historical results of operations, and these results as a percentage of net sales for the periods indicated:
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(in millions) |
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Net sales |
| $ | 1,145.2 |
| 100 | % |
| $ | 969.7 |
| 100 | % |
| $ | 2,249.7 |
| 100 | % |
| $ | 1,863.8 |
| 100 | % |
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Cost of sales |
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| 1,020.0 |
| 89 | % |
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| 800.0 |
| 83 | % |
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| 1,926.7 |
| 86 | % |
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| 1,554.4 |
| 83 | % |
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Gross profit |
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| 125.2 |
| 11 | % |
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| 169.7 |
| 18 | % |
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| 323.0 |
| 14 | % |
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| 309.4 |
| 17 | % |
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Selling, general and administrative expenses |
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| 55.4 |
| 5 | % |
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| 52.2 |
| 5 | % |
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| 115.8 |
| 5 | % |
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| 106.7 |
| 6 | % |
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Equity in earnings of unconsolidated affiliates |
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| 29.9 |
| 3 | % |
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| 38.6 |
| 4 | % |
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| 49.2 |
| 2 | % |
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| 73.6 |
| 4 | % |
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Operating income |
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| 99.7 |
| 9 | % |
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| 156.1 |
| 16 | % |
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| 256.4 |
| 12 | % |
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| 276.3 |
| 15 | % |
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Interest expense, net |
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| 18.7 |
| 2 | % |
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| 18.8 |
| 2 | % |
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| 36.9 |
| 2 | % |
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| 37.7 |
| 2 | % |
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Other expense (income), net |
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| 2.0 |
| 0 | % |
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| 12.9 |
| 1 | % |
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| (6.1) |
| (0) | % |
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| 15.5 |
| 1 | % |
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Income before income taxes |
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| 79.0 |
| 7 | % |
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| 124.4 |
| 13 | % |
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| 225.6 |
| 10 | % |
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| 223.1 |
| 12 | % |
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Provision for income taxes |
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| 18.8 |
| 2 | % |
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| 28.6 |
| 3 | % |
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| 48.1 |
| 2 | % |
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| 50.5 |
| 3 | % |
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Net income |
| $ | 60.2 |
| 5 | % |
| $ | 95.8 |
| 10 | % |
| $ | 177.5 |
| 8 | % |
| $ | 172.6 |
| 9 | % |
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Three Months Ended - June 30, 2017 vs. June 30, 2016
Net Sales
Of the 18% increase, 21% was due to higher selling prices primarily from the pass throughindicated. As a result 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 decreases in Latex Binders and Basic Plastics sales volume. Offsetting these increases in net sales was a 2% decreaserecently adopted accounting guidance related to pension accounting, certain prior period financial information included in the priorsections below has been recast to conform to current 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, 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 a 2% decrease due to the prior year divestiture of our business in Brazil. In addition, a decrease of 3% was due to a favorable currency impact across our segments, as the euro weakened 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.presentation. Refer to Notes 16 and 13, respectively,Note 2 in the condensed consolidated financial statements for further information.
26
Equity in Earningsthe Company’s acquisition and divestiture activity, including the sale of Unconsolidated Affiliates
Equity 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 styrene purchased during the first quarter maintenance-related outage at the St. James, LA, facility in a decreasing price environment. Additionally, equity earnings fromour joint venture Sumika Styron Polycarbonate decreased from $0.9 million in 2016 to zero in 2017, asand the Company completed the saleacquisition 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 ventureAPI Plastics, both of which occurred during the three months ended June 30, 2017. Refer to Note 3 in the condensed consolidated financial statements for further information.
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(in millions) |
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| 2018 |
| % |
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| 2017 |
| % |
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Net sales |
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| $ | 1,121.6 |
| 100 | % |
| $ | 1,104.5 |
| 100 | % |
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Cost of sales |
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| 946.4 |
| 84 | % |
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| 905.5 |
| 82 | % |
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Gross profit |
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| 175.2 |
| 16 | % |
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| 199.0 |
| 18 | % |
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Selling, general and administrative expenses |
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| 64.4 |
| 6 | % |
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| 59.6 |
| 5 | % |
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Equity in earnings of unconsolidated affiliates |
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| 45.5 |
| 4 | % |
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| 19.3 |
| 2 | % |
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Operating income |
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| 156.3 |
| 14 | % |
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| 158.7 |
| 15 | % |
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Interest expense, net |
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| 14.9 |
| 1 | % |
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| 18.2 |
| 2 | % |
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Other income, net |
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| (3.8) |
| — | % |
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| (6.1) |
| (1) | % |
|
Income before income taxes |
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| 145.2 |
| 13 | % |
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| 146.6 |
| 14 | % |
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Provision for income taxes |
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| 24.9 |
| 2 | % |
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| 29.3 |
| 3 | % |
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Net income |
|
| $ | 120.3 |
| 11 | % |
| $ | 117.3 |
| 11 | % |
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Interest Expense, Net
The slight decrease in interest expense was primarily attributable to lower deferred financing fee amortization recorded into interest expense from our Accounts Receivable Securitization Facility.
Other Expense (Income), net
Other expense, net for the three months ended June 30, 2017 was $2.0 million, which consisted primarily of net foreign exchange transaction losses of approximately $1.5 million and other expenses of $0.5 million. Included in these net losses of $1.5 million were foreign exchange transactions gains of $7.3 million, primarily due to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more than offset by losses of $8.8 million from our foreign exchange forward contracts.
Other expense, net for the three months ended June 30, 2016 was $12.9 million, which includes an impairment charge for the estimated loss on sale of our latex and automotive businesses in Brazil of approximately $12.9 million, as well as other expenses of $0.2 million. Refer to Note 11 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 transactions gains of $2.3 million, primarily due to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, partially offset by losses of $2.1 million 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.
SixThree Months Ended - June 30,– March 31, 2018 vs. March 31, 2017 vs. June 30, 2016
Net Sales
Of the 21%2% 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%10% 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,impacts as the euro weakenedstrengthened in comparison to the U.S. dollar.dollar on a quarter-to-date basis. This increase was offset by a 5% decrease due to lower sales volume, primarily in the Latex Binders, Feedstocks, and Synthetic Rubber segments (discussed further below), as well as a 5% decrease due to the pass through of lower raw material costs, primarily related to styrene monomer and butadiene.
Cost of Sales
Of the 24%5% increase, 28% was attributable to higher prices for raw materials, primarily butadiene and styrene monomer. This10% of the increase was partially offset bydue to currency impacts as the euro strengthened in comparison to the U.S. dollar on a 2%quarter-to-date basis, and 1% of the increase was related to the acquisition of API Plastics. Partially offsetting these increases was a 4% decrease due to lower sales volume, primarily in the Latex Binders, Feedstocks, and Synthetic Rubber segments, as well as a 4% decrease due to lower raw materials costs, primarily related to styrene monomer and butadiene.
Gross Profit
The decrease was primarily attributable to raw material timing impacts, which provided a net favorable impact in the prior year divestiturein comparison to a net unfavorable impact in the current year, as well as lower sales volume and margins particularly within the Latex Binders and Synthetic Rubber segments (discussed further below).
Selling, General and Administrative Expenses
The $4.8 million year-over-year increase is comprised of ourseveral offsetting factors. Higher advisory and professional fees resulted in an approximate $2.0 million increase, primarily related to fees incurred in conjunction with the Company’s recently initiated project to complete the transition of business in Braziland technical services from Dow, as well as fees related to certain growth initiatives. Additionally, increases of $2.0 million and $0.8 million, respectively, were noted due to the acquisition of API Plastics, which did not occur until the third quarter of 2017, and higher stock-based
27
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 bycompensation expense. Partially offsetting these increases were 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 $2.2which decreased by $1.9 million, of this increase, primarily related tonoting lower accelerated depreciation and contract termination charges in the Company’s decision to cease manufacturing activities at our latex facility in Livorno, Italy, as well as chargescurrent year 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 initiativesNetherlands, as well as transactionlower overall decommissioning 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 majority of the six months ended June 30, 2017. Refer to Note 3 in the condensed consolidated financial statements for further information.
Interest Expense, Net
The decrease in interest expense was primarily 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 primarily includes a $9.3 million gainemployee termination benefit charges related to the sale of the Company’s 50% shareour decision to cease manufacturing operations at our latex facility in Sumika Styron Polycarbonate in January 2017Livorno, Italy (refer to Note 316 in the condensed consolidated financial statements for further information). Additionally,
Equity in Earnings of Unconsolidated Affiliates
The increase in equity earnings primarily resulted from higher equity earnings from Americas Styrenics, which increased from $18.5 million in 2017 to $45.5 million in 2018, primarily due to the impact from an extended prior year styrene outage at its St. James, LA facility.
Interest Expense, Net
The decrease was primarily attributable to a reduction in interest rates from the Company’s debt refinancing during the third quarter of 2017.
Other Income, net
Other income, net for the three months ended March 31, 2018 was $3.8 million, which primarily includes net foreign exchange transaction lossesgains for the period were $2.6 million, whichof $5.1 million. Net foreign exchange transactions gains included $7.9$10.4 million of foreign exchange transaction gains primarily due to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more than offset by $10.5$5.3 million of losses from our foreign exchange forward contracts. Additionally, $1.7 million of expense is included within “Other income, net” for all of the non-service cost components of net periodic benefit cost.
Other expense,income, net for the sixthree months ended June 30, 2016March 31, 2017 was $15.5$6.1 million, which includes an impairment charge forprimarily due to a $9.3 million gain related to the estimated loss on sale of our latex and automotive businessesthe Company’s 50% share in Brazil of approximately $12.9 million, as well as other expenses of $1.0 million. ReferSumika Styron Polycarbonate in January 2017 (refer to Note 114 in the condensed consolidated financial statements for further information. Adding to these losses were netinformation). Net foreign exchange transaction losses of $1.6 million. Included in these net losses of $1.6for the period were $1.1 million, werewhich included $0.6 million of foreign exchange transactions losses of $2.6 million,gains primarily due 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, partiallymore than offset by gains$1.7 million of $1.0 millionlosses from our foreign exchange forward contracts.
28
expense is included within “Other income, net” for all of the non-service cost components of net periodic benefit cost.
Provision for Income Taxes
Provision for income taxes for the sixthree months ended June 30, 2017March 31, 2018 totaled $48.1$24.9 million, resulting in an effective tax rate of 21.3%17.1%. Provision for income taxes for the sixthree months ended June 30, 2016March 31, 2017 totaled $50.5$29.3 million, resulting in an effective tax rate of 22.6%20.0%.
The decrease in provision for income taxes for the three months ended March 31, 2018 as compared to the same period in 2017 was primarily duedriven by the reduction in the U.S. federal corporate tax rate from 35% to a lower amount21%, effective January 1, 2018, in accordance with the enactment of the Tax Cuts and Jobs Act signed into law on December 22, 2017.
Included in income before income taxes subject to tax. Included in the $225.6 million income before incomeincomes taxes for the sixthree months ended June 30,March 31, 2017 iswas 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 was an in impairment charge of $12.9 million for the estimated loss on sale of Trinseo Brazil, which did not provide a tax benefit to the Company.
2017 Outlook
WeOverall, we expect continued strong fundamental business performance overacross our portfolio during the second quarter and through the remainder of 2017. However, due2018. Styrene margins have remained healthy to recent sharp volatilitystart the second quarter and business fundamentals remain solid which should lead to robust profitability in the pricesfirst half of our key raw materials,the year. In addition, we continue to expect our resultsstrong cash generation for the second half of 2017 to be impacted by unfavorable raw material timing, net of favorable price lag. We continue to make strong progressyear and remain focused on the right balance of growth initiatives within our Performance Materials segments, including our recently completed acquisition of API Plastics,and returning cash 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 shares.shareholders.
2928
Selected Segment Information
Effective OctoberAs discussed above, effective January 1, 2016,2018, the Company realigned its organizational structure to include the following 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:segments: Latex Binders, Synthetic Rubber, Performance Plastics, Basic Plastics,Polystyrene, Feedstocks, and Americas Styrenics. In conjunction with this segment realignment, the Company changed its primary measure of segment operating performance to Adjusted EBITDA. Refer to the Annual Report for a description of our segments, including a detailed overview, products and end uses, and competition and customers.
The following sections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, which have been recast to reflect the above changes.Company’s new organizational structure. Inter-segment sales have been eliminated. Refer to Note 1215 in the condensed consolidated financial statements for further information on these changes, as well as for a detailed definition of Adjusted EBITDA and a reconciliation of income before income taxes to segment Adjusted EBITDA.
References to portfolio adjustments below represent the impacts of the Company’s acquisition and divestiture activity, including the sale of our joint venture Sumika Styron Polycarbonate and the acquisition of API Plastics, both of which occurred during 2017. Refer to the condensed consolidated financial statements for further information.
Latex Binders Segment
Our Latex Binders segment produces SB latex and other latex polymers and binders primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex applications,such as adhesive, building and construction, and the technical textile paper market.
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($ in millions) |
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| 2018 |
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| 2017 |
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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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| $ | 255.3 |
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| $ | 288.9 |
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| (12) | % | |
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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| $ | 27.5 |
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| $ | 36.8 |
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| (25) | % | |
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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| 11 | % |
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| 13 | % |
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Three Months Ended - June 30,– March 31, 2018 vs. March 31, 2017 vs. June 30, 2016
Of the 25% increase12% decrease in net sales, 36%9% 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, fromparticularly to the paper and carpet markets in North America paper customer destocking and a declining market. Additionally, 4%Europe, and 9% of the decrease was due to the prior year divestiturepass through of our business in Brazil and 2% of the decrease waslower raw material costs. These decreases were partially offset by a 6% increase due to an unfavorable currency impactimpacts as the euro weakenedstrengthened in comparison to the U.S. dollar.dollar on a quarter-to-date basis.
The increase in Adjusted EBITDA wasdecreased by 25% primarily due to margin improvements of $17.7 million, an 82% increase,lower sales volume, including impacts related to paper production unit closures and coated paper market declines, 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%20% decrease. Additionally, lower margins due mainly to raw material dynamics resulted in a 16% decrease in Adjusted EBITDA.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 31% These decreases were partially offset by a 6% 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 Brazilfixed cost improvements, as well as a 2% decrease4% increase due to an unfavorable currency impactimpacts as the euro weakenedstrengthened 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 indollar on a 3% decrease in Adjusted EBITDA.
30
quarter-to-date basis.
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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| % Change |
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| 2016 |
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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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| 22 | % |
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| 25 | % |
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29
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| 2017 |
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| % Change |
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Net sales |
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| $ | 149.2 |
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| $ | 163.4 |
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| (9) | % |
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Adjusted EBITDA |
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| $ | 25.5 |
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| $ | 46.3 |
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| (45) | % |
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Adjusted EBITDA margin |
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| 17 | % |
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| 28 | % |
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Three Months Ended - June 30,– March 31, 2018 vs. March 31, 2017 vs. June 30, 2016
OfNet sales decreased 9% from the 56% increase in net sales, 53% wasprior year, primarily due to higher selling prices, primarily resulting from the pass through of higherlower raw material cost, particularly butadiene, and styrene costs to customers.which resulted in a 15% decrease. Additionally, 8%6% of the increase was due to highernet sales decrease resulted from lower sales volume, which was a result of higher customer demand for SSBR dueprimarily related to the growing performance tire market,ESBR sales volume as well as higherexport sales of Ni-PBR, noting decreased productionopportunities were favorable in the prior year to allow for Nd-PBR trials.year. These increasesdecreases were partially offset by a 4% decrease13% increase due to an unfavorable currency impactimpacts as the euro weakenedstrengthened in comparison to the U.S. dollar.dollar on a quarter-to-date basis.
The majority of 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 higherrapidly increasing 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 productionprices in the prior year, as well as lower margins on export sales due to allow for Nd-PBR trials. These increases werevery favorable conditions in the prior year, which resulted in a combined $19.2 million, or 42% decrease, in the current period. An overall decrease in sales volume, particularly lower ESBR sales volume, partially offset by record SSBR sales volume, resulted in a 4% decrease due to an unfavorable currency impact6% decrease. Currency impacts resulted in a 3% increase as the euro weakenedstrengthened 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 wasdollar on a 10% decrease due to higher production costs.quarter-to-date basis.
Performance Plastics Segment
Our Performance Plastics segment consists of compounds and blends, and some specializedalso includes our ABS, grades.SAN, and PC businesses. We are a producer of highly engineered compounds and blends for automotive endvarious markets as well asincluding automotive, 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
OfAPI Plastics, 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, allresults of which are used as inputs in a variety of end use markets. The Basicreported within the Performance Plastics segment. Additionally, the Performance Plastics segment, as recast, also includedincludes the results of our previously 50%-owned joint venture Sumika Styron Polycarbonate prior to its sale in January 2017. Refer to Note 3Notes 4 and 14 in the condensed consolidated financial statements for further information.
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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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($ in millions) |
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| 2018 |
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| 2017 |
|
| % Change |
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| ||||||||||||||||||||||||||||
Net sales |
|
| $ | 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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| $ | 402.9 |
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| $ | 336.9 |
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| 20 | % |
| |
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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| $ | 65.5 |
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| $ | 52.2 |
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| 25 | % |
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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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| 16 | % |
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| 15 | % |
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|
Three Months Ended - June 30,– March 31, 2018 vs. March 31, 2017 vs. June 30, 2016
Of the 5%20% increase in net sales, 11%12% of the increase was due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis, and 3% of the increase was due to higher selling prices due topolycarbonate pricing as well as the pass through of higher styreneraw material costs to our customers. ThisAdditionally, the Company’s acquisition of API Plastics resulted in a 4% increase in net sales.
The overall 25% increase in Adjusted EBITDA was partially offset bythe result of several factors. Higher margins, primarily from polycarbonate due to very tight market conditions, resulted in a 3%6% increase, and portfolio adjustments resulted in a net 2% increase for the period. Additionally, improved fixed costs resulted in an 8% increase, while currency impacts resulted in a 12% increase, as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis. Partially offsetting these increases was a 2% decrease due to slightly lower sales volume, primarily relatedvolume.
Polystyrene Segment
Our product offerings in our Polystyrene segment include a variety of general purpose polystyrenes, or GPPS, and HIPS, which is polystyrene that has been modified with polybutadiene rubber to lower polystyrene sales volume in Asia, as we have increased our focus on higher margin business, as well as lowerincrease its impact resistant properties.
3230
external polycarbonateThese products provide customers with performance and aesthetics at a low cost across applications, including appliances, packaging, including food packaging and food service disposables, consumer electronics, and building and construction materials.
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| March 31, |
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| |||||
($ in millions) |
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| 2018 |
|
| 2017 |
|
| % Change |
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| ||
Net sales |
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| $ | 239.6 |
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| $ | 228.4 |
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| 5 | % |
|
Adjusted EBITDA |
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| $ | 9.6 |
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| $ | 13.6 |
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| (29) | % |
|
Adjusted EBITDA margin |
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| 4 | % |
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| 6 | % |
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Three Months Ended – March 31, 2018 vs. March 31, 2017
Of the 5% increase in net sales, volume10% of the increase was due to higher internal utilization. Additionally, an unfavorable currency impact resulted in a 2% decreaseimpacts as the euro weakenedstrengthened in comparison to the U.S. dollar.dollar on a quarter-to-date basis. This increase was partially offset by a 4% decrease in net sales due to the pass through of lower raw material costs to our customers, as well as a 1% decrease due to lower sales volume, particularly related to sales in Europe.
The 29% decrease in Adjusted EBITDA decreased 26%,was primarily due to net unfavorable raw material timing, resultingnoting a net favorable timing impact in lowerthe prior year due to increasing raw material costs. This unfavorable raw material timing, which was partially offset by higher margins which contributed to a 15% decrease, while lower sales volume contributed to 7% of the decrease. The sale of Sumika Styron Polycarbonatein Europe in the current year, resulted in a 2% decrease30% decrease. Additionally, increased fixed costs resulted 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 wasa 3% decrease. These decreases were partially offset by a 7% decrease4% increase 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% decreaseimpacts as the euro weakenedstrengthened 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 focusdollar 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.quarter-to-date basis.
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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(in millions) |
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| % Change |
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| % Change |
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($ in millions) |
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| 2018 |
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| 2017 |
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| % Change |
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| ||||||||||||||||||||||||||||
Net sales |
|
| $ | 107.0 |
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| $ | 78.6 |
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| 36 | % |
| $ | 193.9 |
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| $ | 149.8 |
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| 29 | % |
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| $ | 74.6 |
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| $ | 86.9 |
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| (14) | % |
| |
Adjusted EBITDA |
|
| $ | (1.2) |
|
| $ | 32.5 |
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| (104) | % |
| $ | 40.7 |
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| $ | 53.4 |
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| (24) | % |
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| $ | 41.5 |
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| $ | 41.9 |
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| (1) | % |
| |
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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| 56 | % |
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| 48 | % |
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|
Three Months Ended - June 30,– March 31, 2018 vs. March 31, 2017 vs. June 30, 2016
Of the 36% increase14% decrease in net sales, 16% was due to higher selling prices, primarily due tolower styrene related sales volume resulted in a 15% decrease, and the pass through of higher styrenelower raw material costs to customers, as well asresulted in a 22%10% decrease. These decreases were partially offset by a 10% increase due to higher styrene-related sales volume. Partially offsetting these increases was a 2% decrease as a result of an unfavorable currency impactimpacts as the euro weakenedstrengthened in comparison to the U.S. dollar.dollar on a quarter-to-date basis.
The decrease in Adjusted EBITDA was due to a 98% decreaseflat year over year, as a result of lowerhigher styrene margins, including unfavorableproduction volume in the current year offset favorable 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
Ofin 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.prior year.
Americas Styrenics Segment
The Americas Styrenics segment consists solely of the operationsequity earnings from of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America. Styrene monomer is a basic building
33
block of plastics and a key input to many of the Company’s products, as well as a key raw material for the production of polystyrene. Major applications for the polystyrene products Americas Styrenics produces include appliances, food packaging, food service disposables, consumer electronics, and building and construction materials.
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(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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| ||||
Adjusted EBITDA* |
|
| $ | 29.9 |
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| $ | 37.7 |
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| (21) | % |
| $ | 48.4 |
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| $ | 70.6 |
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| (31) | % |
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31
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| |||||
($ in millions) |
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| 2018 |
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| 2017 |
|
| % Change |
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| ||
Adjusted EBITDA* |
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|
| $ | 45.5 |
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| $ | 18.5 |
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| 146 | % |
|
*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,– March 31, 2018 vs. March 31, 2017 vs. June 30, 2016
The decreaseincrease in Adjusted EBITDA was primarilymainly due to lower margins on second quarter sales of styrene purchased duringan extended production outage in the first quarter maintenance-related outageprior year 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 itsAmericas Styrenics St. James, LA facility, which was extendedas well as higher styrene spot sales margins in order to complete repairs on critical equipment. The facility came back online at full production in early April 2017. Asthe current year, including impacts from 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.stronger export market.
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;restructuring charges; acquisition related costs and other items. In doing so, we are providing management, investors, and credit rating agencies with an indicator of our ongoing performance and business trends, 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,March 31, 2018 and 2017, and 2016, respectively:
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| June 30, |
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| March 31, |
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(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
| ||||||
Net income |
| $ | 60.2 |
| $ | 95.8 |
| $ | 177.5 |
| $ | 172.6 |
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| $ | 120.3 |
| $ | 117.3 |
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Interest expense, net |
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| 18.7 |
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| 18.8 |
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| 36.9 |
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| 37.7 |
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| 14.9 |
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| 18.2 |
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Provision for income taxes |
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| 18.8 |
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| 28.6 |
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| 48.1 |
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| 50.5 |
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| 24.9 |
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| 29.3 |
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Depreciation and amortization |
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| 26.3 |
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| 24.9 |
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| 51.0 |
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| 47.9 |
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| 31.9 |
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| 24.7 |
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EBITDA(a) |
| $ | 124.0 |
| $ | 168.1 |
| $ | 313.5 |
| $ | 308.7 |
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| $ | 192.0 |
| $ | 189.5 |
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Net loss (gain) on disposition of businesses and assets(b) |
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| — |
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| 12.9 |
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| (9.9) |
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| 12.9 |
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Net gain on disposition of businesses and assets(b) |
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| (0.5) |
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| (9.9) |
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Restructuring and other charges(c) |
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| 1.1 |
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| 1.1 |
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| 3.3 |
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| 1.8 |
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| 0.5 |
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| 2.1 |
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Acquisition transaction and integration costs(d) |
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| 1.1 |
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| — |
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| 1.1 |
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| — |
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| 0.3 |
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| — |
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Other items(e) |
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| — |
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| 0.3 |
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| — |
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| 2.2 |
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| 2.7 |
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| — |
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Adjusted EBITDA |
| $ | 126.2 |
| $ | 182.4 |
| $ | 308.0 |
| $ | 325.6 |
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| $ | 195.0 |
| $ | 181.7 |
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(a) | EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because we believe it provides our management as well as our investors and credit agencies with meaningful information regarding the Company’s operational performance. We believe the use of EBITDA as a metric assists our board of directors, management and investors in comparing our operating performance on a consistent basis. Other companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of our EBITDA results to our net income, which is determined in accordance with GAAP. |
32
(b) | Net gain on disposition of businesses and assets during the |
(c) | Restructuring and other charges for the three |
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 are included within the “Depreciation and amortization” caption above, and therefore are not included as a separate adjustment within this caption.
(d) | Acquisition transaction and integration costs for the three |
35
(e) | Other items for the three |
Liquidity and Capital Resources
Cash Flows
The table below summarizes our primary sources and uses of cash for the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, respectively. We have derived the summarized cash flow information from our unaudited financial statements.
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(in millions) |
| 2017 |
| 2016 |
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| 2017 |
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Net cash provided by (used in): |
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Operating activities |
| $ | 36.6 |
| $ | 179.7 |
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| $ | 40.8 |
| $ | (25.7) |
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Investing activities |
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| (29.7) |
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| (48.2) |
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| (30.1) |
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| 6.9 |
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Financing activities |
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| (79.8) |
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| (97.0) |
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| (48.0) |
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| (38.0) |
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Effect of exchange rates on cash |
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| 7.7 |
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| (0.5) |
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| 3.4 |
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| 1.8 |
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Net change in cash and cash equivalents |
| $ | (65.2) |
| $ | 34.0 |
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| $ | (33.9) |
| $ | (55.0) |
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Operating Activities
Net cash provided by operating activities during the sixthree months ended June 30, 2017March 31, 2018 totaled $36.6$40.8 million, inclusive of $45.0$30.0 million in dividends from Americas Styrenics. Net cash used in operating assets and liabilities for the three months ended March 31, 2018 totaled $104.6 million, noting increases in accounts receivable of $32.7 million and inventories of $70.3 million. Accounts receivable at the end of the first quarter increased relative to the end of 2017 primarily due to the pass through of increased raw material prices to our customers as well as increased sales volume. The increase in inventories was primarily due to an increase in forecasted sales volume as well as inventory build in anticipation of planned turnarounds during the second quarter.
Net cash used in operating activities during the three months ended March 31, 2017 totaled $25.7 million, inclusive of $7.5 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$0.8 million classified as investing activities. Refer to Note 34 in the condensed consolidated financial statements for further information. Net cash used in operating assets and liabilities for the sixthree months ended June 30,March 31, 2017 totaled $210.6$172.5 million, due primarily tonoting increases in accounts receivable of $137.7$133.3 million and inventories of $66.8$91.6 million, respectively. The increasesoffset by an increase in accounts receivablepayable 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, due primarily to earnings for the period. Also impacting cash flows from operating activities for the period was $60.0 million in dividends from Americas Styrenics. Net cash used in operating assets andother current liabilities for the six months ended June 30, 2016 totaled $68.0 million, due primarily to increases in accounts receivable of $53.0 million and inventories of $16.7 million, respectively.$49.9 million. The increase in accounts receivable was primarily due to higher net sales (due to increased raw material prices) and lower collections, due to timing, during the secondfirst quarter of 2016,2017 compared to the fourth quarter of 2015,2016. The increase in inventories was primarily due primarily to increasingincreases in raw material prices. The increase in accounts payable and other current liabilities was due to increases in raw material prices as well as volume increases. The increase in inventory was primarily due to increasing raw material prices.timing of vendor payments.
33
Investing Activities
Net cash used in investing activities forduring the sixthree months ended June 30, 2017March 31, 2018 totaled $29.7$30.1 million, primarily resulting from capital expenditures of $74.3 million$30.6 million.
Net cash provided by investing activities during the period, partially offset bythree months ended March 31, 2017 totaled $6.9 million, primarily from proceeds received of $42.1 million fromrelated to the sale of the Company’s 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited.
Net cash used in investing activities for the six months ended June 30, 2016 totaled $48.2 million, primarily fromLimited, offset by capital expenditures of $53.2$36.0 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.period.
Financing Activities
Net cash used in financing activities during the sixthree months ended June 30, 2017March 31, 2018 totaled $79.8$48.0 million. This activity was primarily due to $56.4$23.8 million of payments related to the repurchase of ordinary shares, $16.2 million of dividends paid, and $1.8 million of principal payments related to our 2024 Term Loan B during the period. Additionally, net cash used in financing activities included $8.0 million of withholding taxes paid related to the vesting of certain RSUs during the period, partially offset by $1.9 million of proceeds received from the exercise of option awards.
Net cash used in financing activities during the three months ended March 31, 2017 totaled $38.0 million. This activity was primarily due to $26.6 million of payments related to the repurchase of ordinary shares during the period and $26.5
36
$13.3 million of dividends paid, as well as $2.5$1.3 million of principal payments related to our 2021 Term Loan B. Partially offsetting these uses of cash was $6.0$3.4 million of proceeds received from the exercise of option awards.
Net cash used in financing activities during the six months ended June 30, 2016 totaled $97.0 million. This activity was primarily due to $94.4 million of payments related to the repurchase of ordinary shares during the period as well as $2.5 million of principal payments related to our 2021 Term Loan B.
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 our industry may define Free Cash Flow differently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the liquidity and cash generation of those companies to our own. We compensate for these limitations by providing a reconciliation to cash provided by operating activities, which 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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| Six Months Ended |
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| Three Months Ended |
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| June 30, |
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| March 31, |
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(in millions) |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
| ||||
Cash provided by operating activities |
| $ | 36.6 |
| $ | 179.7 |
| |||||||
Cash provided by (used in) operating activities |
| $ | 40.8 |
| $ | (25.7) |
| |||||||
Capital expenditures |
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| (74.3) |
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| (53.2) |
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| (30.6) |
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| (36.0) |
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Free Cash Flow |
| $ | (37.7) |
| $ | 126.5 |
|
| $ | 10.2 |
| $ | (61.7) |
|
Refer to the discussion above for significant impacts to cash provided by (used in) operating activities for the sixthree months ended June 30,March 31, 2018 and 2017, and 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 dividend payments to our 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.Facility (discussed further below).
As of June 30, 2017March 31, 2018 and December 31, 2016,2017, we had $1,218.0$1,197.9 million and $1,187.4$1,199.7 million, respectively, in
34
outstanding indebtedness and $1,051.1$1,101.2 million and $890.7$1,019.6 million, respectively, in working capital. In addition, as of June 30, 2017March 31, 2018 and December 31, 2016,2017, we had $91.5$121.0 million and $88.8$128.3 million, respectively, of foreign cash and cash equivalents on our balance sheet, respectively,outside of our country of domicile of Luxembourg, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries.
Refer to our Annual Report for a detailed description of the Company’s debt structure, borrowing rates, and expected future payment obligations.
37
subsidiaries.
The following table outlines our outstanding indebtedness as of June 30, 2017March 31, 2018 and December 31, 20162017 and the associated interest expense, including amortization of deferred financing fees and effectivedebt discounts. Effective interest rates for suchthe borrowings as of June 30, 2017 and December 31, 2016. Note thatincluded in the effective interest ratestable below exclude the impact of deferred financing fee amortization.amortization and certain other fees charged to interest expense (such as fees for unused commitment fees during the period). For definitions of capitalized terms not included herein, refer to the Annual Report.
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| As of and for the Six Months Ended |
| As of and for the Year Ended |
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| As of and for the Three Months Ended |
| As of and for the Year Ended |
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| June 30, 2017 |
| December 31, 2016 |
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| March 31, 2018 |
| December 31, 2017 |
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| Effective |
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| Effective |
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| Effective |
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| Effective |
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| Interest |
| Interest |
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| Interest |
| Interest |
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| Interest |
| Interest |
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| Interest |
| Interest |
| ||||||||
(dollars in millions) |
| Balance |
| Rate |
| Expense |
| Balance |
| Rate |
| Expense |
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($ in millions) |
| Balance |
| Rate |
| Expense |
| Balance |
| Rate |
| Expense |
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Senior Credit Facility |
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2024 Term Loan B |
| $ | 696.5 |
| 4.2 | % | $ | 7.9 |
| $ | 698.3 |
| 3.9 | % | $ | 9.6 |
| |||||||||||||||||
2022 Revolving Facility |
|
| — |
| — |
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| 0.7 |
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| — |
| — |
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| 1.0 |
| |||||||||||||||||
2020 Senior Credit Facility |
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| |||||||||||||||||
2021 Term Loan B |
| $ | 489.1 |
| 4.3 | % | $ | 11.5 |
| $ | 491.5 |
| 4.3 | % | $ | 23.3 |
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|
| — |
| — |
|
| — |
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| — |
| 4.3 | % |
| 15.9 |
|
2020 Revolving Facility |
|
| — |
| — |
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| 1.7 |
|
| — |
| — |
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| 3.3 |
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| — |
| — |
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| — |
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| — |
| — |
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| 2.3 |
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2025 Senior Notes |
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| 500.0 |
| 5.4 | % |
| 7.0 |
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| 500.0 |
| 5.4 | % |
| 9.4 |
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2022 Senior Notes |
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USD Notes |
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| 300.0 |
| 6.8 | % |
| 10.6 |
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| 300.0 |
| 6.8 | % |
| 21.1 |
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| — |
| — |
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| — |
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| — |
| 6.8 | % |
| 14.4 |
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Euro Notes |
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| 427.3 |
| 6.4 | % |
| 13.5 |
|
| 394.3 |
| 6.4 | % |
| 27.4 |
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| — |
| — |
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| — |
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| — |
| 6.4 | % |
| 18.8 |
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Accounts Receivable Securitization Facility |
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| — |
| — |
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| 1.4 |
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| — |
| — |
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| 3.3 |
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| — |
| — |
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| 0.4 |
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| — |
| — |
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| 2.8 |
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Other indebtedness* |
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| 1.6 |
| 4.8 | % |
| — |
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| 1.6 |
| 4.8 | % |
| 0.1 |
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| 1.4 |
| 4.8 | % |
| — |
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| 1.4 |
| 4.8 | % |
| 0.1 |
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Total |
| $ | 1,218.0 |
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| $ | 38.7 |
| $ | 1,187.4 |
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| $ | 78.5 |
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| $ | 1,197.9 |
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| $ | 16.0 |
| $ | 1,199.7 |
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| $ | 74.3 |
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*For the sixthree months ended June 30, 2017,March 31, 2018, interest expense on “Other indebtedness” totaled less than $0.1 million.
Our Senior Credit Facility includes the 20202022 Revolving Facility, which matures in May 2020,September 2022, and has a borrowing capacity of $325.0$375.0 million. As of June 30, 2017,March 31, 2018, the Company had no outstanding borrowings, and had $308.1$359.9 million (net of $16.9$15.1 million outstanding letters of credit) of funds available for borrowing under the 20202022 Revolving Facility. Further, as of June 30, 2017,March 31, 2018, the Borrowers are required to pay a quarterly commitment fee in respect of any unused commitments under the 20202022 Revolving Facility equal to 0.375% per annum.
We also continue to maintainAlso included in our Accounts Receivable SecuritizationSenior Credit Facility set to mature in May 2019, under whichis our borrowing capacity is $200.0 million. As of June 30, 2017, there were no amounts outstanding under the Accounts Receivable Securitization Facility, with approximately $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 20212024 Term Loan B (maturing(with original principal of $700.0 million, maturing in November 2021)September 2024), which requires scheduled quarterly payments in amounts equal to 0.25% of the original principal. During the quarter ended March 31, 2018, the Company made principal and our 2022payments of $1.8 million on the 2024 Term Loan B, with an additional $7.0 million of scheduled future payments classified as current debt on the Company’s condensed consolidated balance sheet as of March 31, 2018.
Our 2025 Senior Notes, (maturingas issued under the Indenture, include $500.0 million aggregate principal amount of 5.375% senior notes that mature on September 1, 2015. Interest on the 2025 Senior Notes is payable semi-annually on May 3 and November 3 of each year, commencing on May 3, 2018. These notes may be redeemed prior to their maturity at the option of the Company under certain circumstances at specific redemption prices. Refer to the Annual Report for further information.
We also continue to maintain our Accounts Receivable Securitization Facility which matures in May 2022), whose U.S. dollar equivalent2019 and contains a borrowing capacity of $150.0 million. As of March 31, 2018, there were no amounts outstanding amount asunder this facility, and the Company had accounts receivable available to support this facility in excess of June 30, 2017 totaled $727.3 million.its borrowing capacity, based on the pool of eligible accounts receivable.
35
The Senior Credit Facility and Indenture contain certain customary affirmative, negative and financial covenants. As of June 30, 2017,March 31, 2018, 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.
We and our subsidiaries, affiliates or significant shareholders may from time to time seek to retire or purchase our outstanding debt through cash purchases in the open market, privately negotiated transactions, exchange transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers” of our 20222025 Senior Notes and “Borrowers” under our Senior Credit Facility) are dependent upon the cash generation and receipt of distributions and dividends or other payments from our subsidiaries and joint venture in order to satisfy their debt obligations. There are no known significant restrictions by third parties on the ability of subsidiaries of the Company to disburse or dividend funds to the Issuers and the Borrowers in order to satisfy these obligations. However, as the Company’s subsidiaries are located in a variety of jurisdictions, the Company can give no assurances that its subsidiaries will not
38
face transfer restrictions in the future due to regulatory or other reasons beyond our control.
The Company’s cash flow generation in recent years has been strong, with positive cash flows 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.
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. In April 2017,During the three months ended March 31, 2018, the Company paid a dividend of $0.30 per ordinary share (totaling $13.7 million), with an additional dividend to shareholdersdeclared total dividends of $0.36 per ordinary share declared in June 2017 (to(totaling $15.8 million), all of which remains accrued as of March 31, 2018 and the majority of which will be paid in July 2017).April 2018. These dividends are well within the available capacity under the terms of the restrictive covenants contained in the Senior Credit Facility and Indenture. Further, significant additional capacity continues to be available under the terms of these covenants to support expected future dividends to shareholders, should the Company continue to declare them.
The Company’s cash flow generation in recent years has been strong, with positive cash flows expected to continue for full year 2018. We believe that funds provided by operations, our existing cash and cash equivalent balances, borrowings available under our 20202022 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. Nevertheless, our ability to generate future cash and to pay our indebtedness and fund other liquidation needs is subject to certain risks described under “Part I, Item 1A-“Risk Factors” of our Annual Report. As of March 31, 2018, we were in compliance with all the covenants and default provisions under our debt agreements.
Contractual Obligations and Commercial Commitments
There have been no material revisions outside the ordinary course of business to our contractual obligations as described within “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Commercial Commitments” within our Annual Report.
Critical Accounting Policies and Estimates
Our unaudited interim condensed consolidated financial statements are based on the selection and application of significant accounting policies. The preparation of unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses at the date of and during the reporting period. Actual results could differ from those estimates. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.
We describe our significant accounting policies in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, ofin the Notes to Consolidated Financial Statements included in our Annual Report, while we discuss our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report.
There have been no material revisions to the significant accounting policies or critical accounting policies and estimates as filed in our Annual Report.Report, other than the impacts to our
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significant accounting policies from the adoption of recent revenue accounting guidance effective January 1, 2018, discussed further within Notes 2 and 3 to the condensed consolidated financial statements.
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 Qualitative Disclosures aboutAbout Market Risk
As discussed in “Management’s Discussion“Quantitative and Analysis of Financial Condition and Results of Operations”Qualitative Disclosures About Market Risk” within our Annual Report, we are exposed to changes in interest rates and foreign currency exchange rates as well as changes in the prices of certain commodities that we use in production. There have been no material changes in our
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exposure to market risks from the information provided within our Annual Report, except to our risks related to changes in the prices of certain commodities that we use in the production of our products.Report.
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, 2017.March 31, 2018. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report were effective to provide the reasonable level of assurance described above.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2017March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As discussed in Note 14 to the condensed consolidated financial statements, in July 2017, the Company completed the acquisition of API Plastics. As permitted by the SEC, management elected to exclude this acquisition from its assessment of the effectiveness of its internal control over financial reporting as of December 31, 2017. The Company is in the process of integrating API Plastics into its internal control over financial reporting structure and expects to complete this integration by June 2018.
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.
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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, 2016,2017, for which there have been no material changes. We encourage you to consider these risks, in their entirety, in addition to other information contained in or incorporated by reference into this Quarterly Report and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)Recent sales of unregistered securities
None.
(b)Use of Proceeds from registered securities
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, 2017March 31, 2018 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:
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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 number 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, 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) | ||||||||||
January 1 - January 31, 2018 |
| 89,972 |
| $ | 77.23 |
| 89,972 |
| 1,420,116 | (1) | ||||||||||
February 1 - February 28, 2018 |
| 61,884 |
| $ | 77.60 |
| 61,884 |
| 1,358,232 | (1) | ||||||||||
March 1 - March 31, 2018 |
| 161,124 |
| $ | 77.54 |
| 161,124 |
| 1,197,108 | (1) | ||||||||||
Total |
| 467,399 |
| $ | 63.69 |
| 467,399 |
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| 312,980 |
| $ | 77.46 |
| 312,980 |
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(1) |
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| 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, 2017 the Company announced that the board of directors had authorized the Company to repurchase, subject to market and other conditions, up to 2.0 million shares over the subsequent 18 months under the 2017 share repurchase authorization. |
Item 3. Defaults Upon Senior Securities
None.
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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, 2017
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Exhibit No. | Description |
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4.1 | |
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4.2 | |
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10.3† | |
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| Employment Agreement between Trinseo Europe GmbH and Alice Heezen, dated March 26, 2018 |
10.5† | Form of |
10.6† | Form of Non-Statutory Stock Option Award Agreement for Executives |
10.7† | Form of Performance Award Stock Unit Agreement for Executives |
10.8† | |
10.9† | Form of Non-Statutory Stock Option Award Agreement for Employees |
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31.1† | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2† | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1† | |
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32.2† | |
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101.INS† | XBRL Instance Document |
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101.SCH† | XBRL Taxonomy Extension Schema Document |
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101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF† | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB† | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document |
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† Filed herewith.
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: May 3, 2018
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) | ||