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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended March 31, 2015

or

 

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

For the transition period from                      to                     

Commission File Number: 001-36473

 

 

Trinseo S.A.

(Exact name of registrant as specified in its charter)

 

 

 

Luxembourg		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1000 Chesterbrook Boulevard

Suite 300

Berwyn, PA 19312

(Address of Principal Executive Offices)

(610) 240-3200

(Registrant’s telephone number)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		x  (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 7, 2015, there were 48,769,567 shares of the registrant’s ordinary shares outstanding.

 

 

 

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EXPLANATORY NOTE

Trinseo Materials Operating S.C.A., a Luxembourg partnership limited by shares (“Trinseo Materials”), and Trinseo Materials Finance, Inc., a Delaware corporation (together with Trinseo Materials, the “Subsidiary Registrants”) are two wholly-owned subsidiaries of Trinseo S.A., a public limited liability company (société anonyme) existing under the laws of Luxembourg (“Trinseo,” and together with its consolidated subsidiaries, the “Company”). The Subsidiary Registrants are the co-issuers of the Company’s 8.750% Senior Secured Notes due 2019 (the “Senior Notes”) and Trinseo is the parent guarantor of the Senior Notes. Trinseo’s registration statement on Form S-1 relating to the initial public offering of its ordinary shares was declared effective by the Securities and Exchange Commission on June 11, 2014. In reliance on Rule 12h-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 3-10 of Regulation S-X, the Subsidiary Registrants are exempt from, and have ceased to file reports under the Exchange Act.

 

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TABLE OF CONTENTS

 

				Page
Part I		Financial Information
Item 1.		Financial Statements			5
		Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (Unaudited)			5
		Condensed Consolidated Statements of Operations for the three ended March 31, 2015 and 2014 (Unaudited)			6
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ended March 31, 2015 and 2014 (Unaudited)			7
		Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2015 and 2014 (Unaudited)			8
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (Unaudited)			9
		Notes to Condensed Consolidated Financial Statements (Unaudited)			10
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			42
Item 4.		Controls and Procedures			42
Part II		Other Information
Item 1.		Legal Proceedings			43
Item 1A.		Risk Factors			43
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3.		Defaults Upon Senior Securities			43
Item 4.		Mine Safety Disclosures			43
Item 5.		Other Information			43
Item 6.		Exhibits			43
Signatures
Exhibit Index

 

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Trinseo S.A.

Quarterly Report on Form 10-Q

For the quarterly period ended March 31, 2015

Unless otherwise indicated or required by context, as used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the term “Trinseo” refers to Trinseo S.A. (NYSE: TSE), a public limited liability company (société anonyme) existing under the laws of Luxembourg, and not its subsidiaries. The terms “Company,” “we,” “us” and “our” refer to Trinseo and its consolidated subsidiaries, taken as a consolidated entity and as required by context, may also include our business as owned by our predecessor, The Dow Chemical Company, for any dates prior to June 17, 2010. The terms “Trinseo Materials Operating S.C.A.” and “Trinseo Materials Finance, Inc.” refer to Trinseo’s indirect subsidiaries, Trinseo Materials Operating S.C.A., a Luxembourg partnership limited by shares incorporated under the laws of Luxembourg, and Trinseo Materials Finance, Inc., a Delaware corporation, and not their subsidiaries. All financial data provided in this Quarterly Report is the financial data of the Company, unless otherwise indicated.

Prior to our formation, our business was wholly owned by The Dow Chemical Company. We refer to our predecessor business as “the Styron business.” On June 17, 2010, investment funds advised or managed by affiliates of Bain Capital Partners, LLC (“Bain Capital”) acquired the Styron business and Dow Europe Holding B.V., which we refer to as “Dow Europe,” or, together with other affiliates of The Dow Chemical Company, “Dow,” retained an ownership interest in the Styron business through an indirect ownership interest in us. We refer to our acquisition by Bain Capital as the “Acquisition.”

In the first quarter of 2015, we completed a rebranding process to change our operating name and legal entities from “Styron” to “Trinseo.” We believe that this new name reflects our breadth as a company with broad global reach and a diverse portfolio of materials and technologies. We believe Trinseo captures our commitment to deliver innovative and sustainable materials that provide value to our customers’ products.

Cautionary Note on Forward-Looking Statements

This Quarterly Report contains forward-looking statements including, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. Forward-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, 2014 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 10, 2015 under Part I, Item 1A — “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 therefore against relying on any of these forward-looking statements. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Where You Can Find Additional Information

Our website is www.trinseo.com. Information contained on our website is not part of this Quarterly Report. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Washington, D.C. 20549. 

 

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PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

TRINSEO S.A.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

 

		March 31,				December 31,
		2015				2014
Assets
Current assets
Cash and cash equivalents		$	218,697			$	220,786
Accounts receivable, net of allowance for doubtful accounts (March 31, 2015—$4,988; December 31, 2014—$6,268)			590,065				601,066
Inventories			390,972				473,861
Deferred income tax assets			8,423				11,786
Other current assets			11,378				15,164
Total current assets			1,219,535				1,322,663
Investments in unconsolidated affiliates			189,364				167,658
Property, plant and equipment, net of accumulated depreciation (March 31, 2015—$315,614; December 31, 2014—$324,383)			505,105				556,697
Other assets
Goodwill			30,540				34,574
Other intangible assets, net			145,326				165,358
Deferred income tax assets—noncurrent			48,220				46,812
Deferred charges and other assets			57,006				62,354
Total other assets			281,092				309,098
Total assets		$	2,195,096			$	2,356,116
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings		$	4,139			$	7,559
Accounts payable			395,031				434,692
Income taxes payable			15,968				9,413
Deferred income tax liabilities			1,930				1,413
Accrued expenses and other current liabilities			84,746				120,928
Total current liabilities			501,814				574,005
Noncurrent liabilities
Long-term debt			1,194,621				1,194,648
Deferred income tax liabilities—noncurrent			29,146				27,311
Other noncurrent obligations			220,607				239,287
Total noncurrent liabilities			1,444,374				1,461,246
Commitments and contingencies (Note 10)
Shareholders’ equity
Common stock, $0.01 nominal value, 50,000,000 shares authorized at March 31, 2015 and December 31, 2014, and 48,770 shares issued and outstanding at March 31, 2015 and December 31, 2014			488				488
Additional paid-in-capital			550,152				547,530
Accumulated deficit			(114,232	)			(151,936	)
Accumulated other comprehensive loss			(187,500	)			(75,217	)
Total shareholders’ equity			248,908				320,865
Total liabilities and shareholders’ equity		$	2,195,096			$	2,356,116

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

 

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TRINSEO S.A.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Net sales		$	1,018,265			$	1,359,132
Cost of sales			915,186				1,260,503
Gross profit			103,079				98,629
Selling, general and administrative expenses			51,775				50,030
Equity in earnings of unconsolidated affiliates			36,707				14,950
Operating income			88,011				63,549
Interest expense, net			28,856				32,818
Other expense, net			3,551				895
Income before income taxes			55,604				29,836
Provision for income taxes			17,900				12,750
Net income		$	37,704			$	17,086
Weighted average shares- basic			48,770				37,270
Net income per share- basic		$	0.77			$	0.46
Weighted average shares- diluted			48,851				37,270
Net income per share- diluted		$	0.77			$	0.46

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

 

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TRINSEO S.A.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, unless otherwise stated)

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Net income		$	37,704			$	17,086
Other comprehensive income (loss), net of tax (tax amounts shown in millions below for the three months ended March 31, 2015 and 2014, respectively):
Cumulative translation adjustments			(114,155	)			(1,425	)
Unrealized gain on foreign exchange cash flow hedges (net of tax of: 2015—$0.1; 2014—$0.0)			1,035				—
Pension and other postretirement benefit plans before reclassifications:
Amounts reclassified from accumulated other comprehensive income:
Amortization of prior service credit (net of tax of: 2015—$(0.1); 2014—$0.0)(1)			(340	)			(214	)
Amortization of net loss (net of tax of: 2015—$0.4; 2014—$0.1) (1)			1,177				458
Total other comprehensive loss, net of tax			(112,283	)			(1,181	)
Comprehensive income (loss)		$	(74,579	)		$	15,905

 

(1)	These other comprehensive income (loss) components are included in the computation of net periodic benefit costs (see Note 11).

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

 

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TRINSEO S.A.

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands)

(Unaudited)

 

		Common Stock								Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total
		Shares				Amount
December 31, 2014			48,770			$	488			$	547,530			$	(75,217	)		$	(151,936	)		$	320,865
Net income			—				—				—				—				37,704				37,704
Other comprehensive loss			—				—				—				(112,283	)			—				(112,283	)
Stock-based compensation			—				—				2,622				—				—				2,622
March 31, 2015			48,770			$	488			$	550,152			$	(187,500	)		$	(114,232	)		$	248,908
December 31, 2013			37,270			$	373			$	339,055			$	88,378			$	(84,604	)		$	343,202
Net income			—				—				—				—				17,086				17,086
Other comprehensive loss			—				—				—				(1,181	)			—				(1,181	)
Stock-based compensation			—				—				2,689				—				—				2,689
March 31, 2014			37,270			$	373			$	341,744			$	87,197			$	(67,518	)		$	361,796

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

 

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TRINSEO S.A.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Cash flows from operating activities
Net income		$	37,704			$	17,086
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization			22,554				23,728
Amortization of deferred financing costs			2,446				2,516
Deferred income tax			3,775				5,458
Stock-based compensation			2,622				2,689
Earnings of unconsolidated affiliates, net of dividends			(21,707	)			(9,950	)
Unrealized net losses on foreign exchange forward contracts			2,815				—
Changes in assets and liabilities
Accounts receivable			(42,091	)			(79,204	)
Inventories			53,722				20,148
Accounts payable and other current liabilities			(11,944	)			18,522
Income taxes payable			7,074				(720	)
Other assets, net			3,892				(2,649	)
Other liabilities, net			(17,948	)			1,193
Cash provided by (used in) operating activities			42,914				(1,183	)
Cash flows from investing activities
Capital expenditures			(27,670	)			(41,141	)
Proceeds from the sale of businesses and other assets			560				—
Payment for working capital adjustment from sale of business			—				(700	)
Distributions from unconsolidated affiliates			—				978
Cash used in investing activities			(27,110	)			(40,863	)
Cash flows from financing activities
Short-term borrowings, net			(9,487	)			(14,837	)
Proceeds from Accounts Receivable Securitization Facility			—				60,971
Repayments of Accounts Receivable Securitization Facility			—				(61,538	)
Cash used in financing activities			(9,487	)			(15,404	)
Effect of exchange rates on cash			(8,406	)			36
Net change in cash and cash equivalents			(2,089	)			(57,414	)
Cash and cash equivalents—beginning of period			220,786				196,503
Cash and cash equivalents—end of period		$	218,697			$	139,089

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

 

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TRINSEO S.A.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) as of and for the periods ended March 31, 2015 and 2014 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 2014 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 10, 2015.

The December 31, 2014 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 2014 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.

Reverse Stock Split and Initial Public Offering

On May 30, 2014, the Company amended its Articles of Association to effect a 1-for-436.69219 reverse stock split of its issued and outstanding common stock (“reverse split”) and to increase its authorized shares to 50.0 billion. All share and per share data have been retroactively adjusted in the accompanying financial statements to give effect to the reverse split.

On June 17, 2014, the Company completed an initial public offering (the “IPO”) of 11,500,000 ordinary shares at a price of $19.00 per share, which included 1,500,000 of shares sold pursuant to the underwriters’ exercise of their over-allotment option. The Company received cash proceeds of $203.2 million from this transaction, net of underwriting discounts.

Company Realignment

Until January 1, 2015, the chief executive officer, who is the Company’s chief operating decision maker, managed the Company’s operations under two divisions, Emulsion Polymers and Plastics, which included the following four reporting segments: Latex, Synthetic Rubber, Styrenics, and Engineered Polymers.

Effective January 1, 2015, the Company was reorganized under two new divisions called Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division now includes the following reporting segments: Synthetic Rubber, Latex, and Performance Plastics. The Basic Plastics & Feedstocks division represents a separate segment for financial reporting purposes. These condensed consolidated financial statements and related notes thereto have been retroactively adjusted to reflect this change in reporting segments. See Note 14 for more information.

NOTE 2—RECENT ACCOUNTING GUIDANCE

In April 2014, the Financial Accounting Standards Board (“FASB”) issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The Company adopted this guidance effective January 1, 2015, and the adoption did not have a significant impact on the Company’s financial position, results of operations, or disclosures.

In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued new guidance which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted under GAAP and retrospective application is permitted, but not required. In April 2015, the FASB proposed to defer the effective date of this new guidance by one year. If the proposal is approved, subject to the FASB’s due process requirement, early adoption would be permitted as of the original effective date, and the standard would be effective for the Company beginning January 1, 2018. The Company is currently assessing the impact of adopting this guidance on its financial statements and results of operations.

 

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In January 2015, the FASB issued guidance to simplify income statement classification by removing the concept of extraordinary items from GAAP. The Company adopted this guidance effective January 1, 2015, and the adoption did not have a significant impact on the Company’s financial position or results of operations.

In April 2015, the FASB issued guidance that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. This new guidance, which is to be applied on a retrospective basis, is effective for public companies for annual and interim periods beginning after December 31, 2015, with early adoption permitted. The Company will adopt this guidance effective January 1, 2016.

NOTE 3—INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company is supplemented by two strategic joint ventures, the results of which are included within the Basic Plastics & Feedstocks reporting segment: Americas Styrenics LLC (“Americas Styrenics”, a polystyrene joint venture with Chevron Phillips Chemical Company LP) and Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate”, a polycarbonate joint venture with Sumitomo Chemical Company, Limited). Investments held in the unconsolidated affiliates are accounted for by the equity method.

As of March 31, 2015 and December 31, 2014, respectively, the Company’s investment in Americas Styrenics was $153.7 million and $133.5 million, which was $104.5 million and $108.4 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 5.5 years as of March 31, 2015. The Company received dividends from Americas Styrenics of $15.0 million and $5.0 million during the three months ended March 31, 2015 and 2014, respectively.

As of March 31, 2015 and December 31, 2014, respectively, the Company’s investment in Sumika Styron Polycarbonate was $35.6 million and $34.1 million, which was $21.0 million and $21.3 million greater than the Company’s 50% share of the underlying net assets of Sumika Styron Polycarbonate. This amount represents the fair value of certain identifiable assets which have not been recorded on the historical financial statements of Sumika Styron Polycarbonate. This difference is being amortized over the remaining useful life of the contributed assets of 10.5 years as of March 31, 2015. The Company received dividends from Sumika Styron Polycarbonate of $1.0 million during the three months ended March 31, 2014, with no dividends received during the three months ended March 31, 2015.

Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their stock are not available. The summarized financial information of the Company’s unconsolidated affiliates is shown below:

 

		Three Months Ended March 31,
		2015				2014
Sales		$	439,570			$	564,132
Gross profit		$	77,670			$	38,008
Net income		$	66,019			$	21,520

 

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NOTE 4—INVENTORIES

Inventories consisted of the following:

 

		March 31,				December 31,
		2015				2014
Finished goods		$	197,762			$	235,949
Raw materials and semi-finished goods			162,647				205,061
Supplies			30,563				32,851
Total		$	390,972			$	473,861

NOTE 5—GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table shows changes in the carrying amount of goodwill by segment from December 31, 2014 to March 31, 2015:

 

		Performance Materials
		Latex				Synthetic Rubber				Performance Plastics				Basic Plastics & Feedstocks				Total
Balance at December 31, 2014		$	13,815			$	9,461			$	3,243			$	8,055			$	34,574
Foreign currency impact			(1,612	)			(1,104	)			(378	)			(940	)			(4,034	)
Balance at March 31, 2015		$	12,203			$	8,357			$	2,865			$	7,115			$	30,540

Other Intangible Assets

The following table provides information regarding the Company’s other intangible assets as of March 31, 2015 and December 31, 2014, respectively:

 

						March 31, 2015												December 31, 2014
		Estimated Useful Life (Years)				Gross Carrying Amount				Accumulated Amortization				Net				Gross Carrying Amount				Accumulated Amortization				Net
Developed technology			15			$	166,823			$	(53,003	)		$	113,820			$	188,854			$	(56,782	)		$	132,072
Manufacturing Capacity Rights			6				20,400				(3,308	)			17,092				23,095				(2,809	)			20,286
Software			5				13,581				(7,078	)			6,503				13,177				(6,441	)			6,736
Software in development			N/A				7,678				—				7,678				6,000				—				6,000
Other			N/A				233				—				233				264				—				264
Total						$	208,715			$	(63,389	)		$	145,326			$	231,390			$	(66,032	)		$	165,358

Amortization expense on other intangible assets totaled $4.5 million and $4.0 million for the three months ended March 31, 2015 and 2014, respectively.

The following table details the Company’s estimated amortization expense for the next five years, excluding any amortization expense related to software currently in development:

 

Estimated Amortization Expense for the Next Five Years
Remainder of 2015		$	13,108
2016			16,918
2017			16,083
2018			15,396
2019			15,151
2020			11,903

 

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NOTE 6—DEBT

Debt consisted of the following:

 

		March 31, 2015				December 31, 2014
Senior Secured Credit Facility
Revolving Facility		$	—			$	—
Senior Notes			1,192,500				1,192,500
Accounts Receivable Securitization Facility			—				—
Other indebtedness			6,260				9,707
Total debt			1,198,760				1,202,207
Less: short-term borrowings			(4,139	)			(7,559	)
Total long-term debt		$	1,194,621			$	1,194,648

Senior Secured Credit Facility

In January 2013, the Company amended its credit agreement (“Senior Secured Credit Facility”) to, among other things, increase the Company’s revolving credit facility (“Revolving Facility”) borrowing capacity from $240.0 million to $300.0 million, decrease the borrowing rate of the Revolving Facility through a decrease in the applicable margin rate from 4.75% to 3.00% as applied to base rate loans (which shall bear interest at a rate per annum equal to the base rate plus the applicable margin (as defined therein)), or 5.75% to 4.00% as applied to LIBO rate loans (which shall bear interest at a rate per annum equal to the LIBO rate plus the applicable margin and the mandatory cost (as defined therein), if applicable), and extend the maturity date to January 2018. Concurrently, the Company repaid its then outstanding term loans under the Senior Secured Credit Facility (the “Term Loans”) of $1,239.0 million using the proceeds from its sale of $1,325.0 million aggregate principal amount of the 8.750% senior secured notes (“Senior Notes”) issued in January 2013 (refer below for further discussion).

This amendment replaced the Company’s total leverage ratio requirement with a first lien net leverage ratio (as defined under the amended agreement) and removed the interest coverage ratio requirement. If the outstanding balance on the Revolving Facility exceeds 25% of the $300.0 million borrowing capacity (excluding undrawn letters of credit up to $10.0 million) at a quarter end, then the Company’s first lien net leverage ratio may not exceed 5.25 to 1.00 for the quarter ending March 31, 2013, 5.00 to 1.00 for the subsequent quarters through December 31, 2013, 4.50 to 1.00 for each of the quarters ending in 2014 and 4.25 to 1.00 for each of the quarters ending in 2015 and thereafter. As of March 31, 2015, the Company was in compliance with all debt covenant requirements under the Senior Secured Credit Facility.

As of March 31, 2015, the Company had no outstanding borrowings, and had $291.2 million (net of $8.8 million outstanding letters of credit) of funds available for borrowings under the Revolving Facility.

Senior Notes

In January 2013, the Company issued $1,325.0 million 8.750% Senior Notes under the indenture. Interest on the Senior Notes is payable semi-annually on February 1^st and August 1^st of each year, which commenced on August 1, 2013. The notes will mature on February 1, 2019, at which time the principal amounts then outstanding will be due and payable. The proceeds from the issuance of the Senior Notes were used to repay all of the Company’s outstanding Term Loans and related refinancing fees and expenses.

The Company may redeem all or part of the Senior Notes at any time prior to August 1, 2015 by paying a call premium, plus accrued and unpaid interest to the redemption date. The Company may redeem all or part of the Senior Notes at any time after August 1, 2015 at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the notes redeemed, to the applicable date of redemption, if redeemed during the twelve-month period beginning on of the year indicated below:

 

12-month period commencing August 1 in Year		Percentage
2015			104.375	%
2016			102.188	%
2017 and thereafter			100.000	%

 

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In addition, at any time prior to August 1, 2015, the Company may redeem up to 35% of the original principal amount of the notes at a redemption price equal to 108.750% of the face amount thereof plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds that the Company raises in certain equity offerings. The Company may also redeem, during any 12-month period commencing from the issue date until August 1, 2015, up to 10% of the original principal amount of the Senior Notes at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

In July 2014, using proceeds from the Company’s IPO (see Note 1), the Company redeemed $132.5 million in aggregate principal amount of the Senior Notes, including a 103% call premium totaling $4.0 million, together with accrued and unpaid interest thereon of $5.2 million. Pursuant to the indenture, the Company may redeem another 10% of the original principal amount of the Senior Notes prior to August 1, 2015.

The Senior Notes rank equally in right of payment with all of the Company’s existing and future senior secured debt and pari passu with the Company and the Guarantors’ (as defined below) indebtedness that is secured by first-priority liens, including the Company’s Senior Secured Credit Facility (as defined above), to the extent of the value of the collateral securing such indebtedness and ranking senior in right of payment to all of the Company’s existing and future subordinated debt. However, claims under the Senior Notes effectively rank behind the claims of holders of debt, including interest, under the Senior Secured Credit Facility in respect of proceeds from any enforcement action with respect to the collateral or in any bankruptcy, insolvency or liquidation proceeding. The Senior Notes are unconditionally guaranteed on a senior secured basis by each of the Company’s existing and future wholly-owned subsidiaries that guarantee the Senior Secured Credit Facility (other than the Company’s subsidiaries in France and Spain) (the “Guarantors”). The note guarantees rank equally in right of payment with all of the Guarantors’ existing and future senior secured debt and senior in right of payment to all of the Guarantors’ existing and future subordinated debt. The notes are structurally subordinated to all of the liabilities of each of the Company’s subsidiaries that do not guarantee the notes.

The indenture contains covenants that, among other things, limit the Company’s ability and the ability of the Company’s restricted subsidiaries to incur additional indebtedness, pay dividends or make other distributions, subject to certain exceptions. If the Senior Notes are assigned an investment grade by the rating agencies and the Company is not in default, certain covenants will be suspended. If the ratings on the Senior Notes decline to below investment grade, the suspended covenants will be reinstated. As of March 31, 2015, the Company was in compliance with all debt covenant requirements under the indenture.

Accounts Receivable Securitization Facility

In May 2013, the Company amended its existing accounts receivable securitization facility (“Accounts Receivable Securitization Facility”) which increased its borrowing capacity from $160.0 million to $200.0 million, extended the maturity date to May 2016 and allows for the expansion of the pool of eligible accounts receivable to include previously excluded U.S. and Netherlands subsidiaries.

The Accounts Receivable Securitization Facility is subject to interest charges against the amount of outstanding borrowings as well as the amount of available, but undrawn borrowings. As a result of the amendment to the Accounts Receivable Securitization Facility, in regards to outstanding borrowings, fixed interest charges decreased from 3.25% plus commercial paper rates to 2.60% plus variable commercial paper rates. In regards to available, but undrawn borrowings, fixed interest charges decreased from 1.50% to 1.40%.

As of March 31, 2015 and December 31, 2014, there were no amounts outstanding under the Accounts Receivable Securitization Facility, with approximately $147.7 million and $136.1 million, respectively, of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.

NOTE 7— DERIVATIVE INSTRUMENTS

Foreign Exchange Forward Contracts

Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our balance sheet against corresponding assets of the same currency such that any changes in liabilities due to fluctuations in exchange rates are offset by changes in their corresponding foreign currency assets. In order to further reduce its exposure, the Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on our assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment. The Company does not hold or enter into financial instruments for trading or speculative purposes.

As of March 31, 2015, the Company had open foreign exchange forward contracts with a net notional U.S. dollar equivalent of $33.8 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of March 31, 2015.

 

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Buy / (Sell)		March 31, 2015
Euro		$	167,979
Chinese Yuan		$	(97,476	)
Swiss Franc		$	40,700
Indonesian Rupiah		$	(37,450	)
British Pound		$	(12,157	)

Foreign Exchange Cash Flow Hedges

In March 2015, the Company entered into forward contracts with the objective of managing the currency risk associated with forecasted U.S. dollar-denominated raw materials purchases by one of its subsidiaries whose functional currency is the euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company will sell a designated amount of euros and buy U.S. dollars at the prevailing market rate to mitigate the risk associated with the fluctuations in the euro-to-U.S. dollar foreign currency exchange rates. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income to the extent effective, and reclassified to cost of goods sold in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.

The foreign exchange cash flow hedges, all of which remained open as of March 31, 2015, have maturities occurring over a period of 18 months, and have a net notional U.S. dollar equivalent of $90.0 million.

Summary of Derivative Instruments

Information regarding changes in the fair value of the Company’s derivative instruments, including those not designated for hedge accounting treatment is as follows:

 

		Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Balance Sheet								Gain (Loss) Recognized in Statement of Operations
		Three Months Ended March 31,																Statement of Operations Classification
		2015				2014				2015				2014
Designated as Cash Flow Hedges
Foreign exchange cash flow hedges		$	1,035			$	—			$	—			$	—			Cost of sales
Total		$	1,035			$	—			$	—			$	—
Not Designated as Hedges
Foreign exchange forward contracts		$	—			$	—			$	(20,962	)		$	—			Other expense, net
Total		$	—			$	—			$	(20,962	)		$	—

The Company recorded losses from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges) of $21.0 million during the three months ended March 31, 2015. These losses offset net foreign exchange transaction gains of $18.0 million during the quarter, which resulted from the remeasurement of the Company’s foreign currency denominated assets and liabilities. The cash settlements of these foreign exchange forward contracts are included within operating activities in the condensed consolidated statement of cash flows.

As of March 31, 2015, none of the foreign exchange cash flow hedges entered into during the quarter had settled. As a result, no amounts have been reclassified out of other comprehensive income (loss). The Company has no ineffectiveness related to its foreign exchange cash flow hedges. Further, the Company expects to reclassify in the next twelve months approximately $0.7 million from other comprehensive income (loss) into earnings related to the Company’s outstanding cash flow hedges as of March 31, 2015 based on current foreign exchange rates.

Forward contracts are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract. As such, in accordance with the Company’s accounting policy, we record these foreign exchange forward contracts on a net basis, by counterparty within the condensed consolidated balance sheet. Net unrealized gains and losses are recorded within “Accounts receivable, net of allowance” and “Accounts payable,” respectively, in the condensed consolidated balance 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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		March 31, 2015
Description		Gross Amounts of Recognized Assets				Gross Amounts of Offset in the Condensed Consolidated Balance Sheet				Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet
Foreign exchange forward contracts		$	1,779			$	(1,779	)		$	—
Foreign exchange cash flow hedges			1,074				—				1,074
Total		$	2,853			$	(1,779	)		$	1,074

 

		March 31, 2015
Description		Gross Amounts of Recognized Liabilities				Gross Amounts of Offset in the Condensed Consolidated Balance Sheet				Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet
Foreign exchange forward contracts		$	9,148			$	(1,779	)		$	7,369
Foreign exchange cash flow hedges			—				—				—
Total		$	9,148			$	(1,779	)		$	7,369

 

		December 31, 2014
Description		Gross Amounts of Recognized Assets				Gross Amounts of Offset in the Condensed Consolidated Balance Sheet				Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet
Foreign exchange forward contracts		$	2,037			$	(1,739	)		$	298
Total		$	2,037			$	(1,739	)		$	298

 

		December 31, 2014
Description		Gross Amounts of Recognized Liabilities				Gross Amounts of Offset in the Condensed Consolidated Balance Sheet				Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet
Foreign exchange forward contracts		$	6,589			$	(1,739	)		$	4,850
Total		$	6,589			$	(1,739	)		$	4,850

Refer to Note 8 of the condensed consolidated financial statements for further information regarding the fair value of the Company’s derivative instruments.

NOTE 8—FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.

Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3—Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

 

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The following table summarizes the basis used to measure certain assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014.

 

		March 31, 2015
Assets (Liabilities) at Fair Value		Quoted Prices in Active Markets for Identical Items (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Foreign exchange forward contracts—Assets		$	—			$	—			$	—			$	—
Foreign exchange forward contracts—(Liabilities)			—				(7,369	)			—				(7,369	)
Foreign exchange cash flow hedges —Assets			—				1,074				—				1,074
Total fair value		$	—			$	(6,295	)		$	—			$	(6,295	)

 

		December 31, 2014
Assets (Liabilities) at Fair Value		Quoted Prices in Active Markets for Identical Items (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Foreign exchange forward contracts—Assets		$	—			$	298			$	—			$	298
Foreign exchange forward contracts—(Liabilities)			—				(4,850	)			—				(4,850	)
Total fair value		$	—			$	(4,552	)		$	—			$	(4,552	)

The Company uses an income approach to value its derivative instruments, utilizing discounted cash flow techniques, considering the terms of the contract and observable market information available as of the reporting date. Significant inputs to the valuation for foreign exchange forward contracts are obtained from broker quotations or from listed or over-the-counter market data, and are classified as Level 2 in the fair value hierarchy.

Fair Value of Debt Instruments

The following table presents the estimated fair value of the Company’s outstanding debt not carried at fair value as of March 31, 2015 and December 31, 2014, respectively:

 

		As of March 31, 2015				As of December 31, 2014
Senior Notes (Level 2)		$	1,253,616			$	1,212,045
Total fair value		$	1,253,616			$	1,212,045

There were no other significant financial instruments outstanding as of March 31, 2015 and December 31, 2014.

NOTE 9—PROVISION FOR INCOME TAXES

 

		Three Months Ended March 31,
		2015				2014
Effective income tax rate			32.2	%			42.7	%

Provision for income taxes for the three months ended March 31, 2015 was $17.9 million, resulting in an effective tax rate of 32.2%. Provision for income taxes for the three months ended March 31, 2014 was $12.8 million, resulting in an effective tax rate of 42.7%.

The effective income tax rate is impacted by losses primarily within our holding companies incorporated in Luxembourg, which do not provide a tax benefit to the Company. For the three months ended March 31, 2015 and 2014 these losses totaled approximately $18.0 million and $23.9 million, respectively. In both periods, these losses were primarily from non-deductible interest and stock-based compensation expenses. Specifically, the decrease in losses is the result of a decrease in non-deductible interest expense within our holding companies incorporated in Luxembourg, primarily attributable to the redemption of $132.5 million in aggregate principal amount of the Senior Notes in July 2014.

 

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NOTE 10—COMMITMENTS AND CONTINGENCIES

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law, existing technologies and other information. At March 31, 2015 and December 31, 2014, the Company had no accrued obligations for environmental remediation and restoration costs. Pursuant to the terms of the Styron sales and purchase agreement, the pre-closing environmental conditions were retained by Dow and the Company has been indemnified by Dow from and against all environmental liabilities incurred or relating to the predecessor periods. There are several properties which the Company now owns on which Dow has been conducting investigation, monitoring, or remediation to address historical contamination. Those properties include Allyn’s Point, Connecticut; Dalton, Georgia; and Livorno, Italy. There are other properties with historical contamination that are owned by Dow that the Company leases for its operations, including its facilities in Midland, Michigan; Schkopau, Germany; Terneuzen, The Netherlands; and Guaruja, Brazil. No environmental claims have been asserted or threatened against the Company, and the Company is not a potentially responsible party at any Superfund Sites.

Inherent uncertainties exist in the Company’s potential environmental liabilities primarily due to unknown conditions, whether future claims may fall outside the scope of the indemnity, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. In connection with the Company’s existing indemnification, the possibility is considered remote that environmental remediation costs will have a material adverse impact on the condensed consolidated financial statements.

Purchase Commitments

In the normal course of business, the Company has certain raw material purchase contracts where it is required to purchase certain minimum volumes at current market prices. These commitments range from 1 to 6 years. In certain raw material purchase contracts, the Company has the right to purchase less than the required minimums and pay a liquidated damages fee, or, in case of a permanent plant shutdown, to terminate the contracts. In such cases, these obligations would be less than the annual commitment as disclosed in the consolidated financial statements included in the 2014 Annual Report.

Litigation Matters

From time to time, the Company may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as product liability, antitrust/competition, past waste disposal practices and release of chemicals into the environment. While it is impossible at this time to determine with certainty the ultimate outcome of these routine claims, the Company does not believe that the ultimate resolution of these claims will have a material adverse effect on the Company’s results of operations, financial condition or cash flow.

Legal costs, including those legal costs expected to be incurred in connection with a loss contingency, are expensed as incurred.

NOTE 11—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

The components of net periodic benefit costs for all significant plans were as follows:

 

		Three Months Ended March 31,
		2015				2014
Defined Benefit Pension Plans
Service cost		$	4,301			$	3,515
Interest cost			1,360				1,933
Expected return on plan assets			(421	)			(621	)
Amortization of prior service credit			(423	)			(256	)
Amortization of net loss			1,381				467
Net periodic benefit cost		$	6,198			$	5,038

 

		Three Months Ended March 31,
		2015				2014
Other Postretirement Plans
Service cost		$	88			$	75
Interest cost			140				78
Amortization of prior service cost			26				26
Amortization of net gain			—				(37	)
Net periodic benefit cost		$	254			$	142

 

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As of March 31, 2015 and December 31, 2014, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $178.5 million and $196.6 million, respectively. The net periodic benefit costs are recognized in the condensed consolidated statement of operations as “Cost of sales” and “Selling, general and administrative expenses.”

The Company made cash contributions of approximately $4.8 million during the three months ended March 31, 2015. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately $12.0 million to its defined benefit plans for the remainder of 2015.

NOTE 12—STOCK-BASED COMPENSATION

Restricted Stock Awards issued by the Parent

On June 17, 2010, Bain Capital Everest Manager Holding SCA (“the Parent”), an affiliate of Bain Capital, authorized the issuance of up to 750,000 shares in time-based and performance-based restricted stock to certain key members of management. Any related compensation associated with these awards is allocated to the Company from the Parent. With the adoption of the Company’s 2014 Omnibus Incentive Plan (see discussion below), no further restricted stock awards will be issued by the Parent on behalf of the Company.

Time-based Restricted Stock Awards

For the three months ended March 31, 2015, there were no grants of time-based restricted stock awards. Total compensation expense for time-based restricted stock awards was $1.1 million and $2.4 million for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, there was $3.9 million of total unrecognized compensation cost related to time-based restricted stock awards, which is expected to be recognized over a weighted-average period of 2.3 years.

Modified Time-based Restricted Stock Awards

For the three months ended March 31, 2015, there were no grants of modified time-based restricted stock awards. Total compensation expense recognized for modified time-based restricted stock awards was $0.9 million for the three months ended March 31, 2015. As of March 31, 2015, there was $8.3 million of total unrecognized compensation cost related to the modified time-based restricted stock awards, which is expected to be recognized over a weighted-average period of 2.3 years.

Management Retention Awards

During the year ended December 31, 2012, the Parent agreed to retention awards with certain officers. These awards generally vest over one to four years, and are payable upon vesting subject to the participant’s continued employment with the Company on the vesting date. Compensation expense related to these retention awards is equivalent to the value of the award, and is being recognized ratably over the applicable service period. Total compensation expense for these retention awards was $0.1 million and $0.2 million for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, there was $0.3 million in unrecognized compensation cost related to these retention awards. This cost is expected to be recognized over a period of 0.8 years.

2014 Omnibus Incentive Plan

In connection with the IPO, the Company’s board of directors approved the Trinseo S.A. 2014 Omnibus Incentive Plan (“2014 Omnibus Plan”), adopted on May 28, 2014, under which the maximum number of shares of common stock that may be delivered upon satisfaction of awards granted under such plan is 4.5 million shares. During the three months ended March 31, 2015, the Board of Directors of the Company approved equity award grants for certain executives and employees, comprised of restricted share units (or RSUs) and options to purchase shares.

The RSUs vest in full on the third anniversary of the date of grant, generally subject to the employee remaining continuously employed by the Company on the vesting date. Upon a termination of employment due to the employee’s death or retirement or a termination of employment by the Company without cause in connection with a restructuring or redundancy or due to the employee’s disability prior to the vesting date, the RSUs will vest in full or in part, depending on the type of termination. Dividends and dividend equivalents will not accumulate on unvested RSUs. Compensation cost for the RSUs is measured at the grant date based on the fair value of the award and is recognized ratably as expense over the three year vesting term.

The option awards, which contain an exercise term of nine years from the date of grant, vest in three equal annual installments beginning on the on the first anniversary of the date of grant, generally subject to the employee remaining continuously employed on the applicable vesting date. Upon a termination of employment due to the employee’s death or retirement or a termination of employment by the Company without cause in connection with a restructuring or redundancy or due to the employee’s disability prior to a vesting date, the options will vest in full or will continue to vest on the original vesting schedule, depending on the type of termination. In the event employment is terminated for cause, all vested and unvested options will be forfeited. Compensation cost for the option awards is measured at the grant date based on the fair value of the award and is recognized as expense over the appropriate service period utilizing graded vesting.

 

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The fair value of RSUs is equal to the fair market value of the Company’s common shares based on the closing price on the date of grant. During the three months ended March 31, 2015, the Company granted 412,538 RSUs at a weighted-average grant date fair value of $18.14 per unit. Total compensation expense recognized for the RSUs was $0.2 million for the three months ended March 31, 2015. As of March 31, 2015, there was $7.3 million of total unrecognized compensation cost related to the RSUs, which is expected to be recognized over a weighted-average period of 2.9 years.

The fair value for option awards is computed using the Black-Scholes pricing model, whose significant inputs and assumptions are determined at the date of grant. Determining the fair value of the option awards requires considerable judgment, including estimating the expected term of stock options and the expected volatility of the Company’s stock price. During the three months ended March 31, 2015, the Company granted 603,702 option awards to purchase common shares at a weighted-average grant date fair value of $7.79 per option award.

Since the Company’s equity interests were privately held prior to the IPO in June 2014, there is limited publicly traded stock history, and as a result the expected volatility used in the Black-Scholes pricing model is based on the historical volatility of similar companies’ stock that are publicly traded as well as the Company’s debt-to-equity ratio. Until such time that the Company has enough publicly traded stock history to determine expected volatility based solely on its stock, estimated volatility of options granted will be based on a combination of our historical volatility and similar companies’ stock that are publicly traded. The expected term of options represents the period of time that options granted are expected to be outstanding. For the grants presented herein, the simplified method was used to calculate the expected term of options, given the Company’s limited historical exercise data. The risk free interest rate for the periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is assumed to be zero based on historical and expected dividend activity.

The following are the weighted-average assumptions used within the Black-Scholes pricing model for grants during the three months ended March 31, 2015:

 

Assumptions		Three Months Ended March 31, 2015
Expected term (in years)			5.50
Expected volatility			45.00	%
Risk-free interest rate			1.65	%
Dividend yield			0.00	%

Total compensation expense for the option awards was $0.2 million for the three months ended March 31, 2015. As of March 31, 2015, there was $4.5 million of total unrecognized compensation cost related to the option awards, which is expected to be recognized over a weighted-average period of 2.9 years.

NOTE 13—RELATED PARTY TRANSACTIONS

In connection with the Acquisition, the Company entered into a ten year initial term advisory agreement with Bain Capital (the “Advisory Agreement”) wherein Bain Capital provides management and consulting services and financial and other advisory services to the Company. The Advisory Agreement terminated upon consummation of the Company’s IPO in June 2014. Bain Capital will continue to provide an immaterial level of ad hoc advisory services for the Company going forward. In conjunction with the above, we paid Bain Capital fees (including out-of-pocket expenses) of $0.1 million and $1.2 million for the three months ended March 31, 2015 and 2014, respectively.

Bain Capital also provided advice pursuant to a 10-year transaction services agreement with fees payable equaling 1% of the transaction value of each financing, acquisition or similar transaction. In connection with the IPO, Bain Capital received $2.2 million of transaction fees, which were recorded within “Additional paid-in-capital” on the condensed consolidated balance sheet as of March 31, 2015 and December 31, 2014. This transaction services agreement also terminated upon consummation of the Company’s IPO in June 2014.

NOTE 14—SEGMENTS

Until January 1, 2015, the chief executive officer, who is the Company’s chief operating decision maker, managed the Company’s operations under two divisions, Emulsion Polymers and Plastics, which included the following four reporting segments: Latex, Synthetic Rubber, Styrenics, and Engineered Polymers.

Effective January 1, 2015, the Company was reorganized under two new divisions called Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division now includes the following reporting segments: Synthetic Rubber, Latex, and Performance Plastics. The Basic Plastics & Feedstocks division represents a separate segment for financial reporting purposes. This new organizational structure better reflects the nature of the Company by grouping together segments with similar strategies, business drivers and operating characteristics.

 

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The information below for the three months ended March 31, 2014 has been retroactively adjusted to reflect this change in reporting segments.

The Latex segment produces SB latex primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex applications. The Synthetic Rubber segment produces synthetic rubber products used predominantly in tires, with additional applications in polymer modification and technical rubber goods, including conveyer and fan belts, hoses, seals and gaskets. The Performance Plastics segment produces highly engineered compounds and blends for automotive end markets, as well as consumer electronics, medical, and lighting, collectively consumer essential markets, or CEM. The Basic Plastics & Feedstocks segment includes styrenic polymers, polycarbonate, or PC, and styrene monomer, and also includes the results of the Company’s two 50%-owned joint ventures, Americas Styrenics and Sumika Styron Polycarbonate.

 

		Performance Materials
Three Months Ended		Latex				Synthetic Rubber				Performance Plastics				Basic Plastics & Feedstocks				Corporate Unallocated				Total
March 31, 2015
Sales to external customers		$	238,256			$	129,404			$	196,944			$	453,661			$	—			$	1,018,265
Equity in earnings of unconsolidated affiliates			—				—				—				36,707				—				36,707
EBITDA(1)			21,459				26,177				25,097				59,012
Investment in unconsolidated affiliates			—				—				—				189,364				—				189,364
Depreciation and amortization			6,370				7,790				1,413				6,230				751				22,554
March 31, 2014
Sales to external customers		$	326,305			$	176,714			$	202,005			$	654,108			$	—			$	1,359,132
Equity in earnings of unconsolidated affiliates			—				—				—				14,950				—				14,950
EBITDA(1)			25,513				43,101				17,349				22,558
Investment in unconsolidated affiliates			—				—				—				164,859				—				164,859
Depreciation and amortization			6,304				7,170				1,243				7,920				1,091				23,728

 

(1)	Reconciliation of EBITDA to net income is as follows:

 

		Three Months Ended March 31,
		2015				2014
Total Segment EBITDA		$	131,745			$	108,521
Corporate unallocated			(24,731	)			(22,139	)
Less: Interest expense, net			28,856				32,818
Less: Provision for income taxes			17,900				12,750
Less: Depreciation and amortization			22,554				23,728
Net income		$	37,704			$	17,086

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

The primary measure of segment operating performance is EBITDA, which is defined as net income (loss) before interest, income taxes, depreciation and amortization. EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure that management believes reflects the Company’s core operating performance. EBITDA is useful for analytical purposes; however, it should not be considered an alternative to the Company’s reported GAAP results, as there are limitations in using such financial measures. Other companies in the industry may define EBITDA differently than the Company, and as a result, it may be difficult to use EBITDA, or similarly-named financial measures, that other companies may use to compare the performance of those companies to the Company’s performance.

Asset and capital expenditure information is not accounted for at the segment level and consequently is not reviewed or included with the Company’s internal management reporting. Therefore, the Company has not disclosed asset and capital expenditure information for each reportable segment.

 

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NOTE 15—DIVESTITURES

EPS Divestiture

In June 2013, the Company’s board of directors approved the sale of its expandable polystyrene (“EPS”) business within the Company’s Basic Plastics & Feedstocks segment, under a sale and purchase agreement which was signed in July 2013. The sale closed on September 30, 2013, subject to a $0.7 million working capital adjustment, which was paid by the Company during the first quarter of 2014 and is reflected within investing activities in the condensed consolidated statement of cash flows the three months ended March 31, 2014.

Further, under the terms of the sale and purchase agreement, should the divested EPS business record EBITDA (as defined therein) greater than zero for fiscal year 2014, the Company would receive an incremental payment of €0.5 million. The EBITDA threshold was met for fiscal year 2014 and the Company received the €0.5 million payment (approximately $0.6 million based upon the applicable foreign exchange rate in the period the payment was received) during the three months ended March 31, 2015, which is reflected within cash flows used in investing activities in the condensed consolidated statement of cash flows for the period.

NOTE 16—RESTRUCTURING

Restructuring in Polycarbonate

During the second quarter of 2014, the Company announced a restructuring within its Basic Plastics & Feedstocks segment to exit the commodity market for polycarbonate in North America and to terminate existing arrangements with Dow regarding manufacturing services for the Company at Dow’s Freeport, Texas facility (the “Freeport facility”). The Company also entered into a new long-term supply contract with a third party to supply polycarbonate in North America. These revised arrangements became operational in the fourth quarter of 2014. In addition, the Company executed revised supply contracts for certain raw materials that were processed at its polycarbonate manufacturing facility in Stade, Germany, which took effect January 1, 2015. These revised agreements are expected to facilitate improvements in future results of operations for the Basic Plastics & Feedstocks segment. Production at the Freeport facility ceased as of September 30, 2014, and decommissioning and demolition began thereafter, with completion in the first quarter of 2015.

The Company recorded certain restructuring charges during the year ended December 31, 2014 primarily relating to the reimbursement of decommissioning and demolition costs incurred by Dow, none of which were incurred during the three months ended March 31, 2014. Of the charges incurred, $4.2 million remained accrued within “Accounts payable” in the condensed consolidated balance sheet as of December 31, 2014. For the three months ended March 31, 2015, the Company recorded the remainder of the expected restructuring charges of $0.5 million related to the reimbursement of decommissioning and demolition costs incurred by Dow. These charges were included in “Selling, general and administrative expenses” in the consolidated statements of operations, and were allocated entirely to the Basic Plastics & Feedstocks segment. There were no remaining amounts accrued in the condensed consolidated balance sheet as of March 31, 2015.

Altona Plant Shutdown

In July 2013, the Company’s board of directors approved the plan to close the Company’s latex manufacturing facility in Altona, Australia. This restructuring plan was a strategic business decision to improve the results of the overall Latex segment. The facility manufactured SB latex used in the carpet and paper markets. Production at the facility ceased in the third quarter of 2013, followed by decommissioning, with demolition throughout most of 2014.

For the year ended December 31, 2014, the Company recorded additional net restructuring charges of approximately $2.8 million, related primarily to incremental employee termination benefit charges, contract termination charges, and decommissioning costs (of which $0.6 million was recorded during the three months ended March 31, 2014). These charges were included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations, and were allocated entirely to the Latex segment. There were no additional restructuring charges recorded related to the Altona plant shutdown during the three months ended March 31, 2015. Of the remaining balances at March 31, 2015 and December 31, 2014, $1.0 million and $1.2 million, respectively, are recorded in “Accrued expenses and other current liabilities” and $0.8 million and $0.9 million, respectively, were recorded in “Other noncurrent liabilities” in the condensed consolidated balance sheet.

The following tables provide a rollforward of the liability balances associated with the Altona plant shutdown for the three months ended March 31, 2015:

 

		Balance at December 31, 2014				Expenses				Deductions(1)				Balance at March 31, 2015
Contract termination charges		$	2,128			$	—			$	(369	)		$	1,759
Total		$	2,128			$	—			$	(369	)		$	1,759

 

(1)	Includes primarily payments made against the existing accrual, as well as immaterial impacts of foreign currency remeasurement.

 

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NOTE 17—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive income (loss), net of income taxes, consisted of:

 

		Currency Translation Adjustment, Net				Employee Benefits, Net				Foreign Exchange Cash Flow Hedges, Net				Total
December 31, 2014		$	(17,755	)		$	(57,462	)		$	—			$	(75,217	)
Other comprehensive income (loss)			(114,155	)			837				1,035				(112,283	)
March 31, 2015		$	(131,910	)		$	(56,625	)		$	1,035			$	(187,500	)
December 31, 2013		$	116,146			$	(27,768	)		$	—			$	88,378
Other comprehensive income (loss)			(1,425	)			244				—				(1,181	)
March 31, 2014		$	114,721			$	(27,524	)		$	—			$	87,197

As noted above, the foreign exchange cash flow hedges were first entered during the three months ended March 31, 2015, with no settled contracts during that period. As such, for the three months ended March 31, 2015, there were no amounts related to the foreign exchange cash flow hedges reclassified into net income (loss) from accumulated other comprehensive income (loss). In future periods, when the underlying hedged transaction occurs, the effective portion of the gain or loss on the derivative will be reclassified from accumulated other comprehensive income (loss) into “Cost of sales” within the condensed consolidated statement of operations.

NOTE 18—EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“basic EPS”) is computed by dividing net income (loss) available to common shareholders by the weighted average number of the Company’s common shares outstanding for the applicable period. Diluted earnings (loss) per share (“diluted EPS”) is calculated using net income (loss) available to common shareholders divided by diluted weighted-average shares of common shares outstanding during each period, which includes unvested RSUs and stock option awards. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

The following table presents EPS and diluted EPS for the three months ended March 31, 2015 and 2014, respectively. These balances have been retroactively adjusted to give effect to the Company’s 1-for-436.69219 reverse stock split declared effective on May 30, 2014, discussed in Note 1.

 

		Three Months Ended March 31,
(in thousands, except per share data)		2015				2014
Earnings (losses):
Net income available to common shareholders		$	37,704			$	17,086
Shares:
Weighted average common shares outstanding			48,770				37,270
Dilutive effect of RSUs and option awards*			81				—
Diluted weighted average shares outstanding			48,851				37,270
Income per share:
Income per share—basic		$	0.77			$	0.46
Income per share—diluted		$	0.77			$	0.46

 

*	Refer to Note 12 for discussion of RSUs and option awards granted in June of 2014 and in the first quarter of 2015 to certain Company directors and employees. No such awards were outstanding during the three months ended March 31, 2014.

NOTE 19—SUBSEQUENT EVENTS

In May 2015, the Company issued $700.0 million equivalent in gross proceeds of senior notes, consisting of $300.0 million of senior notes due May 1, 2022 (the “Dollar Notes”) and €375.0 million of senior notes due May 1, 2022 (the “Euro Notes” and, together with the Dollar Notes, the “Notes”) by its subsidiaries Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (together, the “Issuers”). The Dollar Notes will bear interest at a rate of 6.750% and the Euro Notes will bear interest at a rate of 6.375%. The Issuers will pay interest semi-annually in arrears on the Notes on May 1 and November 1 of each year beginning on November 1, 2015.

 

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Additionally, in May 2015, the Company entered into a new senior secured credit facility to, among other things, issue a $500.0 million term loan facility (the “Term Loans”) bearing an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor. The Term Loans were issued with an original issue discount of 0.25%, and mature November 1, 2021. The new senior secured credit facility includes a revolving credit facility with a borrowing capacity of $325.0 million that matures in May 2020.

The net proceeds from the Notes offering, together with approximately $500.0 million of borrowings under the Term Loans and available cash, will be used to repay all outstanding indebtedness under the Issuers’ 8.750% Senior Secured Notes due 2019 totaling $1,192.5 million, together with a call premium of approximately $69.0 million and accrued and unpaid interest thereon of approximately $30.0 million.

NOTE 20—SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

In connection with the issuance of the Senior Notes by Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers”), this supplemental guarantor financial statement disclosure is included in accordance with Rule 3-10 of Regulation S-X. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, in each case, subject to certain exceptions, by Trinseo S.A. (the “Parent Guarantor”) and by certain subsidiaries (together, the “Guarantor Subsidiaries”).

Each of the Guarantor Subsidiaries is 100 percent owned by the Company. None of the other subsidiaries of the Company, either direct or indirect, guarantee the Senior Notes (together, the “Non-Guarantor Subsidiaries”). The Guarantor Subsidiaries of the Senior Notes, excluding the Parent Guarantor, will be automatically released from those guarantees upon the occurrence of certain customary release provisions.

The following supplemental condensed consolidating financial information is presented to comply with the Company’s requirements under Rule 3-10 of Regulation S-X:

 

•

the Condensed Consolidating Balance Sheets as of March 31, 2015 and December 31, 2014;

 

•

the Condensed Consolidating Statements of Comprehensive Income (Loss) for the three months ended March 31, 2015 and 2014; and

 

•

the Condensed Consolidating Statements of Cash Flows for the three months ended March 31, 2015 and 2014.

The Condensed Consolidating Financial Statements are presented using the equity method of accounting for its investments in 100 percent owned subsidiaries. Under the equity method, the investments in subsidiaries are recorded at cost and adjusted for the share of the subsidiaries cumulative results of operations, capital contributions, distributions and other equity changes. The elimination entries principally eliminate investments in subsidiaries and intercompany balances and transactions. The financial information in this footnote should be read in conjunction with the Condensed Consolidated Financial Statements presented and other notes related thereto contained within this Quarterly Report.

 

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SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands)

 

		March 31, 2015
		Parent Guarantor				Issuers				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Assets
Current assets
Cash and cash equivalents		$	332			$	672			$	146,314			$	71,379			$	—			$	218,697
Accounts receivable, net of allowance			17				71				208,344				381,244				389				590,065
Intercompany receivables			—				466,636				1,322,623				109,510				(1,898,769	)			—
Inventories			—				—				312,440				82,845				(4,313	)			390,972
Deferred income tax assets			—				—				4,811				3,612				—				8,423
Other current assets			—				67				5,879				5,432				—				11,378
Total current assets			349				467,446				2,000,411				654,022				(1,902,693	)			1,219,535
Investments in unconsolidated affiliates			—				—				189,364				—				—				189,364
Property, plant and equipment, net			—				—				381,705				123,400				—				505,105
Other assets
Goodwill			—				—				30,540				—				—				30,540
Other intangible assets, net			—				—				143,555				1,771				—				145,326
Investments in subsidiaries			258,121				1,268,922				531,264				—				(2,058,307	)			—
Intercompany notes receivable— noncurrent			—				1,277,039				13,837				—				(1,290,876	)			—
Deferred income tax assets—noncurrent			—				—				41,465				6,755				—				48,220
Deferred charges and other assets			—				35,241				20,200				752				813				57,006
Total other assets			258,121				2,581,202				780,861				9,278				(3,348,370	)			281,092
Total assets		$	258,470			$	3,048,648			$	3,352,341			$	786,700			$	(5,251,063	)		$	2,195,096
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings		$	—			$	—			$	—			$	4,139			$	—			$	4,139
Accounts payable			—				2,439				335,572				57,020				—				395,031
Intercompany payables			9,489				844,367				488,649				556,217				(1,898,722	)			—
Income taxes payable			—				—				15,168				170				630				15,968
Deferred income tax liabilities			—				—				1,454				476				—				1,930
Accrued expenses and other current liabilities			73				26,862				46,801				11,010				—				84,746
Total current liabilities			9,562				873,668				887,644				629,032				(1,898,092	)			501,814
Noncurrent liabilities
Long-term debt			—				1,192,500				2,121				—				—				1,194,621
Intercompany notes payable—noncurrent			—				—				1,251,314				39,562				(1,290,876	)			—
Deferred income tax liabilities—noncurrent			—				3,175				18,232				7,739				—				29,146
Other noncurrent obligations			—				—				208,523				12,084				—				220,607
Total noncurrent liabilities			—				1,195,675				1,480,190				59,385				(1,290,876	)			1,444,374
Commitments and contingencies (Note 10)
Shareholders’ equity			248,908				979,305				984,507				98,283				(2,062,095	)			248,908
Total liabilities and shareholders’ equity		$	258,470			$	3,048,648			$	3,352,341			$	786,700			$	(5,251,063	)		$	2,195,096

 

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SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands)

 

		December 31, 2014
		Parent Guarantor				Issuers				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Assets
Current assets
Cash and cash equivalents		$	904			$	2,653			$	166,106			$	51,123			$	—			$	220,786
Accounts receivable, net of allowance			—				62				207,465				393,539				—				601,066
Intercompany receivables			55				493,090				1,369,837				101,716				(1,964,698	)			—
Inventories			—				—				381,797				99,709				(7,645	)			473,861
Deferred income tax assets			—				—				5,382				6,404				—				11,786
Other current assets			—				148				6,476				8,540				—				15,164
Total current assets			959				495,953				2,137,063				661,031				(1,972,343	)			1,322,663
Investments in unconsolidated affiliates			—				—				167,658				—				—				167,658
Property, plant and equipment, net			—				—				426,905				129,792				—				556,697
Other assets
Goodwill			—				—				34,574				—				—				34,574
Other intangible assets, net			—				—				164,020				1,338				—				165,358
Investments in subsidiaries			327,100				1,327,675				595,755				—				(2,250,530	)			—
Intercompany notes receivable—noncurrent			—				1,323,401				15,664				—				(1,339,065	)			—
Deferred income tax assets—noncurrent			—				—				43,676				3,136				—				46,812
Deferred charges and other assets			—				36,899				23,398				718				1,339				62,354
Total other assets			327,100				2,687,975				877,087				5,192				(3,588,256	)			309,098
Total assets		$	328,059			$	3,183,928			$	3,608,713			$	796,015			$	(5,560,599	)		$	2,356,116
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings		$	—			$	—			$	—			$	7,559			$	—			$	7,559
Accounts payable			46				2,323				366,882				65,441				—				434,692
Intercompany payables			6,944				888,660				522,930				546,150				(1,964,684	)			—
Income taxes payable			—				—				8,864				549				—				9,413
Deferred income tax liabilities			—				—				1,171				242				—				1,413
Accrued expenses and other current liabilities			204				52,001				55,412				13,311				—				120,928
Total current liabilities			7,194				942,984				955,259				633,252				(1,964,684	)			574,005
Noncurrent liabilities
Long-term debt			—				1,192,500				2,148				—				—				1,194,648
Intercompany notes payable—noncurrent			—				—				1,296,121				42,944				(1,339,065	)			—
Deferred income tax liabilities—noncurrent			—				2,300				16,145				8,866				—				27,311
Other noncurrent obligations			—				—				226,708				12,579				—				239,287
Total noncurrent liabilities			—				1,194,800				1,541,122				64,389				(1,339,065	)			1,461,246
Commitments and contingencies (Note 10)
Shareholders’ equity			320,865				1,046,144				1,112,332				98,374				(2,256,850	)			320,865
Total liabilities and shareholders’ equity		$	328,059			$	3,183,928			$	3,608,713			$	796,015			$	(5,560,599	)		$	2,356,116

 

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SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

 

		Three Months Ended March 31, 2015
		Parent Guarantor				Issuers				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	—			$	936,736			$	271,853			$	(190,324	)		$	1,018,265
Cost of sales			—				156				840,114				268,578				(193,662	)			915,186
Gross profit			—				(156	)			96,622				3,275				3,338				103,079
Selling, general and administrative expenses			3,107				82				43,884				4,702				—				51,775
Equity in earnings of unconsolidated affiliates			—				—				36,707				—				—				36,707
Operating income (loss)			(3,107	)			(238	)			89,445				(1,427	)			3,338				88,011
Interest expense, net			—				28,692				133				31				—				28,856
Intercompany interest expense (income), net			3				(18,847	)			16,239				2,605				—				—
Other expense (income), net			2,476				(2,966	)			(4,054	)			8,092				3				3,551
Equity in loss (earnings) of subsidiaries			(43,290	)			(53,480	)			(36,218	)			—				132,988				—
Income (loss) before income taxes			37,704				46,363				113,345				(12,155	)			(129,653	)			55,604
Provision for (benefit from) income taxes			—				969				16,573				(818	)			1,176				17,900
Net income (loss)		$	37,704			$	45,394			$	96,772			$	(11,337	)		$	(130,829	)		$	37,704
Comprehensive income (loss)		$	(74,579	)		$	(66,889	)		$	(13,012	)		$	(13,836	)		$	93,737			$	(74,579	)

 

		Three Months Ended March 31, 2014
		Parent Guarantor				Issuers				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	—			$	1,227,563			$	347,297			$	(215,728	)		$	1,359,132
Cost of sales			—				157				1,147,077				329,723				(216,454	)			1,260,503
Gross profit			—				(157	)			80,486				17,574				726				98,629
Selling, general and administrative expenses			2,706				685				42,076				4,563				—				50,030
Equity in earnings of unconsolidated affiliates			—				—				14,950				—				—				14,950
Operating income (loss)			(2,706	)			(842	)			53,360				13,011				726				63,549
Interest expense, net			—				31,590				312				916				—				32,818
Intercompany interest expense (income), net			2				(19,831	)			16,647				3,152				30				—
Other expense (income), net			—				(3,088	)			(824	)			4,807				—				895
Equity in loss (earnings) of subsidiaries			(19,794	)			(35,386	)			(27,168	)			—				82,348				—
Income (loss) before income taxes			17,086				25,873				64,393				4,136				(81,652	)			29,836
Provision for income taxes			—				—				9,182				3,316				252				12,750
Net income (loss)		$	17,086			$	25,873			$	55,211			$	820			$	(81,904	)		$	17,086
Comprehensive income (loss)		$	15,905			$	24,692			$	54,636			$	214			$	(79,542	)		$	15,905

 

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SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In thousands)

 

		Three Months Ended March 31, 2015
		Parent Guarantor				Issuers				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities
Cash provided by (used in) operating activities		$	(636	)		$	(36,376	)		$	42,502			$	37,424			$	—			$	42,914
Cash flows from investing activities
Capital expenditures			—				—				(22,689	)			(4,981	)			—				(27,670	)
Proceeds from the sale of businesses and other assets			—				—				560				—				—				560
Intercompany investing activities			—				—				15,691				—				(15,691	)			—
Cash used in investing activities			—				—				(6,438	)			(4,981	)			(15,691	)			(27,110	)
Cash flows from financing activities
Intercompany short-term borrowings, net			65				34,046				(48,986	)			(816	)			15,691				—
Short-term borrowings, net			—				—				(66	)			(9,421	)			—				(9,487	)
Cash provided by (used in) financing activities			65				34,046				(49,052	)			(10,237	)			15,691				(9,487	)
Effect of exchange rates on cash			(1	)			349				(6,804	)			(1,950	)			—				(8,406	)
Net change in cash and cash equivalents			(572	)			(1,981	)			(19,792	)			20,256				—				(2,089	)
Cash and cash equivalents—beginning of period			904				2,653				166,106				51,123				—				220,786
Cash and cash equivalents—end of period		$	332			$	672			$	146,314			$	71,379			$	—			$	218,697

 

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SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In thousands)

 

		Three Months Ended March 31, 2014
		Parent Guarantor				Issuers				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities
Cash provided by (used in) operating activities		$	(15	)		$	(33,173	)		$	14,291			$	17,714			$	—			$	(1,183	)
Cash flows from investing activities
Capital expenditures			—				—				(38,254	)			(2,887	)			—				(41,141	)
Payment for working capital adjustment from sale of business			—				—				(700	)			—				—				(700	)
Distributions from unconsolidated affiliates			—				—				978				—				—				978
Investments in subsidiaries			—				(10,000	)			—				—				10,000				—
Intercompany investing activities			—				—				(76,566	)			—				76,566				—
Cash provided by (used in) investing activities			—				(10,000	)			(114,542	)			(2,887	)			86,566				(40,863	)
Cash flows from financing activities
Intercompany short-term borrowings, net			30				44,908				13,050				5,578				(63,566	)			—
Short-term borrowings, net			—				(2,188	)			(70	)			(12,579	)			—				(14,837	)
Contributions from parent companies			—				—				10,000				—				(10,000	)			—
Proceeds from issuance of intercompany indebtedness			—				—				13,000				—				(13,000	)			—
Proceeds from Accounts Receivable Securitization Facility			—				—				—				60,971				—				60,971
Repayments of Accounts Receivable Securitization Facility			—				—				—				(61,538	)			—				(61,538	)
Cash provided by (used in) financing activities			30				42,720				35,980				(7,568	)			(86,566	)			(15,404	)
Effect of exchange rates on cash			—				2				322				(288	)			—				36
Net change in cash and cash equivalents			15				(451	)			(63,949	)			6,971				—				(57,414	)
Cash and cash equivalents—beginning of period			2				954				154,770				40,777				—				196,503
Cash and cash equivalents—end of period		$	17			$	503			$	90,821			$	47,748			$	—			$	139,089

 

 

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

Overview

We are a leading global materials company engaged in the manufacturing and marketing of synthetic rubber, latex, and plastics, including various specialty and technologically differentiated products. We have leading market positions in many of the markets in which we compete. We believe we have developed these strong market positions due to our technological differentiation, diverse global manufacturing base, long-standing customer relationships, commitment to sustainable solutions and competitive cost positions. We believe that growth in overall consumer spending and construction activity, increased demand in the automotive industry for higher fuel efficiency and lighter-weight materials, and improving living standards in emerging markets will result in growth in the global markets in which we compete. In addition, we believe our increasing business presence in developing regions such as China, Southeast Asia and Eastern Europe further enhances our prospects.

We develop synthetic rubber, latex, and plastics products that are incorporated into a wide range of our customers’ products throughout the world, including tires and other products for automotive applications, carpet and artificial turf backing, coated paper and packaging board, food service packaging, appliances, medical devices, consumer electronics and construction applications, among others. We seek to regularly develop new and improved products and processes, supported by our strong patent portfolio, designed to enhance our customers’ product offerings. We have long-standing relationships with a diverse base of global customers, many of whom are leaders in their markets and rely on us for formulation, technological differentiation, and compounding expertise to find sustainable solutions for their businesses. Many of our products represent only a small portion of a finished product’s production costs, but provide critical functionality to the finished product and are often specifically developed to customer specifications. We believe these product traits result in substantial customer loyalty for our products.

Until January 1, 2015, we operated in four reporting segments: Latex, Synthetic Rubber, Styrenics and Engineered Polymers. Effective January 1, 2015, we reorganized our business under two new divisions called Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division now includes the following reporting segments: Synthetic Rubber, Latex, and Performance Plastics. The Basic Plastics & Feedstocks division represents a separate segment for financial reporting purposes and includes styrenic polymers, polycarbonate, or PC, and styrene monomer. In addition, the Basic Plastics & Feedstocks division includes the results of our two 50%-owned joint ventures, Americas Styrenics LLC, or Americas Styrenics, and Sumika Styron Polycarbonate Limited, or Sumika Styron Polycarbonate. The following chart provides an overview of our new organizational structure.

 

We believe that this new organizational structure better reflects the nature of our Company by grouping together segments with similar strategies, business drivers and operating characteristics. Our two new divisions are of similar size in terms of sales, but have different margin profiles, different strategic focus, different value drivers and different operating requirements. By organizing the Company in this way, we believe that we can manage and operate more effectively in order to accelerate the growth of our Performance Materials division and improve the profitability of our Basic Plastics & Feedstocks division. We also believe that this new organizational structure allows our investors to better understand the drivers of our business.

Prior period financial information included within this Quarterly Report has been recast from its previous presentation to reflect the Company’s new organizational structure.

Our major products include: styrene-butadiene latex, or SB latex, and styrene-acrylate latex, or SA latex, in our Latex segment; solution styrene-butadiene rubber, or SSBR, lithium polybutadiene rubber, or Li-PBR, emulsion styrene-butadiene rubber, or ESBR, and nickel polybutadiene rubber, or Ni-PBR, in our Synthetic Rubber segment; highly engineered compounds and blends products for automotive end markets, as well as consumer electronics, medical, and lighting, which we collectively call consumer essential markets (CEM) in our Performance Plastics segment; and PC, polystyrene, acrylonitrile-butadiene styrene, or ABS, and styrene-acrylonitrile, or SAN, in our Basic Plastics & Feedstocks segment.

 

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2015 Year-to-Date Highlights

Name Change and Rebranding

In the first quarter of 2015, we completed a rebranding process to change our operating name and legal entities from “Styron” to “Trinseo.” We believe that this new name reflects our breadth as a company with broad global reach and a diverse portfolio of materials and technologies. We believe Trinseo captures our commitment to deliver innovative and sustainable materials that provide value to our customers’ products.

Debt Refinancing

In May 2015, the Company issued $700.0 million equivalent in gross proceeds of senior notes, consisting of $300.0 million of senior notes due May 1, 2022 (the “Dollar Notes”) and €375.0 million of senior notes due May 1, 2022 (the “Euro Notes” and, together with the Dollar Notes, the “Notes”) by its subsidiaries Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (together, the “Issuers”). The Dollar Notes will bear interest at a rate of 6.750% and the Euro Notes will bear interest at a rate of 6.375%. The Issuers will pay interest semi-annually in arrears on the Notes on May 1 and November 1 of each year beginning on November 1, 2015.

Additionally, in May 2015, the Company entered into a new senior secured credit facility to, among other things, issue a $500.0 million term loan facility (the “Term Loans”) bearing an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor. The Term Loans were issued with an original issue discount of 0.25%, and mature November 1, 2021. The new senior secured credit facility includes a revolving credit facility with a borrowing capacity of $325.0 million that matures in May 2020.

The net proceeds from the Notes offering, together with approximately $500.0 million of borrowings under the Term Loans and available cash, will be used to repay all outstanding indebtedness under the Issuers’ 8.750% Senior Secured Notes due 2019 totaling $1,192.5 million, together with a call premium of approximately $69.0 million and accrued and unpaid interest thereon of approximately $30.0 million.

This new capital structure is expected to reduce the Company’s annual interest expense by approximately $37.0 million.

Results of Operations

Results of Operations for the Three Ended March 31, 2015 and 2014

The tables below set forth our historical results of operations, and these results as a percentage of net sales for the periods indicated:

 

(in millions)		Three Months Ended March 31,
		2015				2014
Net sales		$	1,018.3			$	1,359.1
Cost of sales			915.2				1,260.5
Gross profit			103.1				98.6
Selling, general and administrative expenses			51.8				50.0
Equity in earnings of unconsolidated affiliates			36.7				15.0
Operating income			88.0				63.6
Interest expense, net			28.9				32.8
Other expense, net			3.5				0.9
Income before income taxes			55.6				29.9
Provision for income taxes			17.9				12.8
Net income		$	37.7			$	17.1

 

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		Three Months Ended March 31,
		2015				2014
Net sales			100.0	%			100.0	%
Cost of sales			89.9	%			92.7	%
Gross profit			10.1	%			7.3	%
Selling, general and administrative expenses			5.1	%			3.7	%
Equity in earnings of unconsolidated affiliates			3.6	%			1.1	%
Operating income			8.6	%			4.7	%
Interest expense, net			2.8	%			2.4	%
Other expense, net			0.3	%			0.1	%
Income before income taxes			5.5	%			2.2	%
Provision for income taxes			1.8	%			0.9	%
Net income			3.7	%			1.3	%

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Net Sales

Net sales for the three months ended March 31, 2015 decreased by $340.8 million, or 25.1%, to $1,018.3 million from $1,359.1 million for the three months ended March 31, 2014. Of the 25.1% decrease, 22.8% was due to lower selling prices primarily due to the pass through of lower butadiene costs to our customers in Latex and Synthetic Rubber and styrene monomer to our customers in Latex and Basic Plastics & Feedstocks. In addition, 6.9% of the decrease was related to an unfavorable currency impact across our segments, as the U.S. dollar strengthened compared to the euro. Partially offsetting these decreases was a 4.5% increase due to higher sales volumes across all of our reporting segments.

Cost of Sales

Cost of sales for the three months ended March 31, 2015 decreased by $345.3 million, or 27.4%, to $915.2 million from $1,260.5 million for the three months ended March 31, 2014. Of the 27.4% decrease, 24.4% was attributable to lower prices for raw materials, primarily butadiene and styrene monomer, while an additional 6.7% of the decrease was due to a favorable currency impact across our segments, as the U.S. dollar strengthened compared to the euro. Partially offsetting these decreases was a 3.6% increase due to higher sales volumes across all of our reporting segments.

Gross Profit

Gross profit for the three months ended March 31, 2015 increased by $4.5 million, or 4.6%, to $103.1 million from $98.6 million for the three months ended March 31, 2014. The increase was primarily attributable to higher sales volumes across all of our reporting segments, which was partially offset by an unfavorable currency impact, as the U.S. dollar strengthened compared to the euro.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, or SG&A, for the three months ended March 31, 2015 remained relatively flat compared to the three months ended March 31, 2015, increasing by $1.8 million, or 3.6%, to $51.8 million from $50.0 million. The increase in SG&A was primarily due to increased costs of $1.3 million related to the process of changing our corporate name from Styron to Trinseo, and increases in other employee benefits. These increases were partially offset by a $1.2 million decrease in fees incurred related to the Advisory Agreement with Bain, which was terminated upon completion of the Company’s IPO in June 2014, and by decreases related to a favorable currency impact across our segments, as the U.S. dollar strengthened compared to the euro.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates for the three months ended March 31, 2015 was $36.7 million compared to equity in earnings of $15.0 million for the three months ended March 31, 2014. Americas Styrenics equity earnings increased to $35.2 million for the three months ended March 31, 2015 from $15.5 million for the three months ended March 31, 2014, driven by higher polystyrene margin from lower raw material prices, and from higher volumes of styrene monomer sold. Sumika Styron Polycarbonate had equity earnings of $1.5 million for the three months ended March 31, 2015 compared to equity losses of $0.5 million for the three months ended March 31, 2014 as market conditions within polycarbonate begin to improve.

 

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Interest Expense, Net

Interest expense, net for the three months ended March 31, 2015 was $28.9 million compared to $32.8 million for the three months ended March 31, 2014. This decrease in interest expense was primarily attributable to the redemption of $132.5 million in aggregate principal amount of the Senior Notes in July 2014.

Other Expense (Income), net

Other expense, net for the three months ended March 31, 2015 was $3.5 million, which consisted primarily of net foreign exchange transaction losses of approximately $3.0 million and other expenses of $0.5 million. During the first quarter of 2015, the Company recorded foreign exchange transaction gains of $18.0 million primarily driven by the remeasurement of our euro denominated payables due to the strengthening of the U.S. dollar against the euro during the quarter. Separately, the Company entered into foreign exchange forward contracts, which recorded related losses of approximately $21.0 million, offsetting the above described gains. See Note 7 in the condensed consolidated financial statements for further details.

Other expense, net in the three months ended March 31, 2014 was $0.9 million, which consisted of foreign exchange transaction losses of approximately $0.4 million and other expense of $0.5 million. The foreign exchange transaction losses were driven primarily by the remeasurement of our net receivables denominated in Chinese renminbi, which weakened against the U.S. dollar during the first quarter of 2014. These losses were partially offset by foreign exchange transaction gains from our Indonesian rupiah and euro net payables to the U.S. dollar.

Provision for Income Taxes

Provision for income taxes for the three months ended March 31, 2015 was $17.9 million, resulting in an effective tax rate of 32.2%. Provision for income taxes for the three months ended March 31, 2014 was $12.8 million, resulting in an effective tax rate of 42.7%.

The increase in provision for income taxes was primarily driven by the $25.7 million, or 86.0%, increase in income before income taxes, from $29.9 million for the three months ended March 31, 2014 to $55.6 million for the three months ended March 31, 2015.

This increase in the provision for income taxes was partially offset by a lower proportion of losses generated within our holding companies incorporated in Luxembourg, which do not provide a tax benefit to the Company. For the three months ended March 31, 2015 and 2014 these losses totaled approximately $18.0 million and $23.9 million, respectively. In both periods, these losses were primarily from non-deductible interest and stock-based compensation expenses. Specifically, the decrease in losses is the result of a decrease in non-deductible interest expense within our holding companies incorporated in Luxembourg, primarily attributable to the redemption of $132.5 million in aggregate principal amount of the Senior Notes in July 2014.

 

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Selected Segment Information

The following tables present net sales and EBITDA by segment and as a percentage of total net sales and net sales by segment, respectively, for the following periods:

 

		Three Months Ended March 31,
(in millions)		2015				2014
Net sales(1)
Latex segment		$	238.3			$	326.3
Synthetic Rubber segment			129.4				176.7
Performance Plastics segment			196.9				202.0
Basic Plastics & Feedstocks segment			453.7				654.1
Corporate unallocated(2)			—				—
Total		$	1,018.3			$	1,359.1
EBITDA(3)
Latex segment		$	21.5			$	25.5
Synthetic Rubber segment			26.2				43.1
Performance Plastics segment			25.1				17.3
Basic Plastics & Feedstocks segment			59.0				22.6
Corporate unallocated(2)			(24.8	)			(22.1	)
Total		$	107.0			$	86.4

 

		Three Months Ended March 31,
		2015				2014
Net sales(1)
Latex segment			23.4	%			24.0	%
Synthetic Rubber segment			12.7	%			13.0	%
Performance Plastics segment			19.3	%			14.9	%
Basic Plastics & Feedstocks segment			44.6	%			48.1	%
Corporate unallocated(2)			—				—
Total			100.0	%			100.0	%
EBITDA(3)
Latex segment			9.0	%			7.8	%
Synthetic Rubber segment			20.2	%			24.4	%
Performance Plastics segment			12.7	%			8.6	%
Basic Plastics & Feedstocks segment			13.0	%			3.5	%
Corporate unallocated(2)			(2.4	)%			(1.6	)%
Total			10.5	%			6.4	%

 

(1)	Inter-segment sales have been eliminated.

(2)	Corporate unallocated includes corporate overhead costs and certain other income and expenses. Percentages for corporate unallocated are based on total sales.

(3)

EBITDA is a non-GAAP financial measure that we refer to in making operating decisions because we believe it provides meaningful supplemental information regarding our operational performance. We present EBITDA because we believe that it is useful for investors to analyze disclosures of our operating results on the same basis as that used by our management. We believe the use of EBITDA as a metric assists our board of directors, management and investors in comparing our operating performance on a consistent basis because it removes the impact of our capital structure (such as interest expense), asset base (such as depreciation and amortization) and tax structure. See a reconciliation of net income (loss) to EBITDA below:

 

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		Three Months Ended March 31,
(in millions)		2015				2014
Net income		$	37.7			$	17.1
Interest expense, net			28.9				32.8
Provision for income taxes			17.9				12.8
Depreciation and amortization			22.5				23.7
EBITDA		$	107.0			$	86.4

There are limitations to using financial measures such as EBITDA. Other companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of our EBITDA results to our net income (loss), which is determined in accordance with GAAP.

Latex Segment

We are a global leader in SB latex, holding a strong market position across the geographies and applications in which we compete, including the #1 position in SB latex in Europe and the #2 position in North America. We produce SB latex primarily for coated paper used in advertising and magazines, packaging board coatings, carpet and artificial turf backings, as well as a number of performance latex applications. For the three months ended March 31, 2015, approximately half of our Latex segment’s net sales were generated in Europe, approximately 25% were generated in the United States and the majority of the remaining sales were generated in Asia.

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Net sales for the three months ended March 31, 2015 decreased by $88.0 million, or 27.0%, to $238.3 million from $326.3 million for the three months ended March 31, 2014. Of the 27.0% decrease in net sales, 24.1% was due lower selling prices primarily due to the pass through of lower butadiene and styrene cost and 5.0% was due to an unfavorable currency impact as the U.S. dollar strengthened compared to the euro. These decreases were slightly offset by a 2.1% increase from higher sales volume.

EBITDA for the three months ended March 31, 2015 decreased by $4.0 million, or 15.7%, to $21.5 million from $25.5 million for the three months ended March 31, 2014. Of this 15.7% decrease, 10.9% was driven by lower margins due to the timing of raw material costs and 6.7% was driven by higher fixed costs. In addition, currency had an unfavorable impact of approximately 3.5% as the U.S. dollar strengthened compared to the euro. Partially offsetting these decreases was a 5.2% increase in sales volume primarily related to increased sales to the Europe and North America paper markets.

Synthetic Rubber Segment

We are a significant producer of styrene-butadiene and polybutadiene-based rubber products and we have a leading European market position in SSBR. While 100% of our sales were generated in Europe for the three months ended March 31, 2015, approximately 15% of these net sales were exported to Asia, 10% to Latin America and 10% to North America.

We have a broad synthetic rubber technology and product portfolio, focusing on specialty products, such as SSBR and Li-PBR, while also producing core products, such as ESBR and Ni-PBR. Our synthetic rubber products are extensively used in tires, with approximately 85% of our net sales from this segment in 2014 attributable to the tire market. We estimate that three quarters of these sales relate to replacement tires. We have strong relationships with many of the top global tire manufacturers and believe we have remained a supplier of choice as a result of our broad rubber portfolio and ability to offer technologically differentiated product and product customization capabilities. Other applications for our synthetic rubber products include polymer modification and technical rubber goods.

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Net sales for the three months ended March 31, 2015 decreased by $47.3 million, or 26.8%, to $129.4 million from $176.7 million for the three months ended March 31, 2014. Of the 26.8% decrease in net sales, 19.6% was due to lower selling prices primarily resulting from the pass through of lower butadiene and styrene costs to customers and 10.6% was due to an unfavorable currency impact as the U.S. dollar strengthened compared to the euro. These decreases were slightly offset by a 3.5% increase from higher sales volume resulting from higher sales of SSBR to tire producers.

 

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EBITDA for the three months ended March 31, 2015 decreased by $16.9 million, or 39.2%, to $26.2 million from $43.1 million for the three months ended March 31, 2014. Of this decrease, 42.6% was driven by lower margins primarily related to the timing of raw material costs and an unfavorable currency impact of approximately 6.6% as the U.S. dollar strengthened compared to the euro. Partially offsetting these decreases was a 2.6% increase due to sales volume driven by higher SSBR sales and a 7.2% increase due to higher fixed costs absorption, driven by a build of inventory in anticipation of a planned outage in the second quarter of 2015.

Performance Plastics Segment

Our Performance Plastics segment produces highly engineered compounds and blends for automotive end markets, as well as consumer electronics, medical, and lighting, which we collectively call consumer essential markets, or CEM. Our strategy in this segment focuses on developing differentiated compounds and blends in line with key industry trends, such as light-weighting and improved aesthetics in automotive, increased recycled material content and a push toward LED lighting in CEM. Our history of innovation has contributed to long-standing relationships with customers who are recognized leaders in their respective end-markets. We have established a strong market presence in the global automotive and electronics sector, targeting both component suppliers and final product manufacturers.

In automotive end applications, we aim to maintain and develop sustainable, long-standing relationships with industry leaders, taking advantage of our production capacity located across Europe, Asia, North America, and Latin America to drive original equipment manufacturer, or OEM, platform design wins. We believe that the strategic locations of these facilities combined with close customer collaboration to develop offerings tailored to their needs offers us a strategic advantage in serving our customers.

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Net sales for the three months ended March 31, 2015 decreased by $5.1 million, or 2.5%, to $196.9 million from $202.0 million for the three months ended March 31, 2014. Of the 2.5% decrease in net sales, 2.5% was due to lower selling prices primarily related to the pass through of lower raw material costs and 5.7% was due to an unfavorable currency impact as the U.S. dollar strengthened compared to the euro. These decreases were partially offset by a 5.6% increase in sales volume, primarily to the consumer electronics market in Asia.

EBITDA for the three months ended March 31, 2015 increased by $7.8 million, or 45.1%, to $25.1 million from $17.3 million for the three months ended March 31, 2014. The EBITDA increase was driven by an increase in sales volume, primarily to the consumer electronics market in Asia, as well as higher margins due to decreasing raw material costs during the quarter, which contributed to 69.6% of the increase. Slightly offsetting this increase was a 7.7% unfavorable currency impact as the U.S. dollar strengthened compared to the euro and a 16.9% decrease due to increased fixed costs.

Basic Plastics & Feedstocks Segment

Our Basic Plastics & Feedstocks segment consists of styrenic polymers, including polystyrene, ABS, and SAN products, as well as PC and styrene monomer, which includes our internal production and sourcing of styrene, a raw material common in SB latex, synthetic rubber and styrenics products. We are a leading producer of polystyrene and mass ABS, or mABS, where we focus our efforts on differentiated applications such as the liners and encasements of appliances and consumer electronics including smartphones and tablets. Within these applications, we have worked collaboratively with customers to develop more advanced grades of plastics such as our high impact polystyrene, or HIPS, and mABS products. These products offer superior properties, such as rigidity, insulation and colorability, and, in some cases, an improved environmental footprint compared to general purpose polystyrene or emulsion ABS. Through this segment we also serve the packaging and construction end-markets, where we have launched a new general purpose polystyrene product for improved performance in foam insulation applications.

PC has high levels of clarity, impact resistance and temperature resistance. PC can be used in its neat form (prior to any compounding or blending) for markets such as construction sheet, optical media and LED lighting. Additionally, PC can be compounded or blended with other polymers, such as ABS, which imparts specific performance attributes tailored to the product’s end-use. A significant portion of our PC is consumed in our Performance Plastics segment for the manufacture of our compounds and blends products. We continue to drive improvements in profitability of PC as a result of savings from our restructuring activities, as well as from improvements in industry supply and demand.

This segment also includes the results of our two 50%-owned joint ventures, Americas Styrenics and Sumika Styron Polycarbonate. We do not anticipate investing for organic growth in this segment in the near term. Rather, our strategy for this segment is focused on operational enhancements, margin improvement, and cash generation.

 

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Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Net sales for the three months ended March 31, 2015 decreased by $200.4 million, or 30.6%, to $453.7 million from $654.1 million for the three months ended March 31, 2014. Of the 30.6% decrease in net sales, 29.2% was driven by decreases in selling prices due to the pass through of lower styrene costs to customers and 7.1% was due to unfavorable currency impact as the U.S. dollar strengthened compared to the euro. These decreases were partially offset by a 5.7% increase in sales volume primarily due to customer restocking in the current year, after a period of destocking in the latter half of 2014.

EBITDA for the three months ended March 31, 2015 increased by $36.4 million, or 161.1%, to $59.0 million from $22.6 million for the three months ended March 31, 2014. The EBITDA increase was due to higher volume, higher margins, improved polycarbonate market conditions and our polycarbonate restructuring efforts, as well as fixed costs savings from our exit of the Freeport, Texas polycarbonate manufacturing agreement. In addition, increased equity earnings from our two joint ventures, primarily Americas Styrenics, contributed to 96.5% of the increase. Increased EBITDA from Americas Styrenics was driven by higher polystyrene margin from lower raw material prices, and from higher volumes of styrene monomer sold. Partially offsetting these increases was a 21.6% unfavorable currency impact as the U.S. dollar strengthened compared to the euro.

Other Important Performance Measures

We believe that the presentation of Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation provides investors with a useful analytical indicator of our performance and of our ability to service our indebtedness.

We define Adjusted EBITDA as income (loss) from continuing operations before interest expense, net; income tax provision; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; advisory fees paid to affiliates of Bain Capital; gains or losses on the dispositions of businesses and assets; restructuring and other non-recurring items. We describe these other costs in more detail below.

We present Adjusted EBITDA excluding inventory revaluation in order to facilitate the comparability of results from period to period by adjusting cost of sales to reflect the cost of raw material during the period, which is often referred to as the replacement cost method of inventory valuation. We believe this measure minimizes the impact of raw material purchase price volatility in evaluating our performance. Our approach to calculating inventory revaluation is intended to represent the difference between the results under the FIFO and the replacement cost methods. However, our calculation could differ from the replacement cost method if the monthly raw material standards are different from the actual raw material prices during the month and production and purchase volumes differ from sales volumes during the month. These factors could have a significant impact on the inventory revaluation calculation.

There are limitations to using financial measures such as Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation. These performance measures are not intended to represent cash flow from operations as defined by GAAP and should not be used as alternatives to net income (loss) as indicators of operating performance or to cash flow as measures of liquidity. Other companies in our industry may define Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation differently than we do. As a result, it may be difficult to use these or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of these performance measures to our net income (loss), which is determined in accordance with GAAP.

Adjusted EBITDA and Adjusted EBITDA excluding inventory revaluation are calculated as follows for the three months ended March 31, 2015 and 2014, respectively:

 

		Three Months Ended March 31,
(in millions)		2015				2014
Net income		$	37.7			$	17.1
Interest expense, net			28.9				32.8
Provision for income taxes			17.9				12.8
Depreciation and amortization			22.5				23.7
EBITDA(a)		$	107.0			$	86.4
Restructuring and other charges (b)			0.5				0.5
Fees paid pursuant to advisory agreement (c)			—				1.2
Other non-recurring items (d)			1.3				—
Adjusted EBITDA		$	108.8			$	88.1
Inventory revaluation			42.1				(5.6	)
Adjusted EBITDA, excluding inventory revaluation (e)		$	150.9			$	82.5

 

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(a)

We refer to EBITDA in making operating decisions because we believe it provides meaningful supplemental information regarding our operational performance. Other companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of our EBITDA results to our net income (loss), which is determined in accordance with GAAP. See “—Selected Segment Information” for further detail.

(b)

Restructuring and other charges for the three months ended March 31, 2015 relate to the polycarbonate restructuring within our Basic Plastics & Feedstocks segment, for the reimbursement of decommissioning and demolition charges to Dow in connection with the shutdown of their Freeport, Texas facility. Restructuring and other charges for the three months ended March 31, 2014 were incurred primarily in connection with the shutdown of our latex manufacturing plant in Altona, Australia. Refer to Note 16 in the condensed consolidated financial statements for further discussion.

(c)	Represents fees paid under the terms of our Advisory Agreement with Bain Capital. Refer to Note 13 in the condensed consolidated financial statements for further discussion.

(d)	Other non-recurring items for the three months ended March 31, 2015 represent costs related to the process of changing our corporate name from Styron to Trinseo.

(e)	See the discussion above this table for a description of Adjusted EBITDA, excluding inventory revaluation.

Liquidity and Capital Resources

Cash Flows

The table below summarizes our primary sources and uses of cash for the three months ended March 31, 2015 and 2014, respectively. We have derived the summarized cash flow information from our unaudited financial statements.

 

		Three Months Ended March 31,
(in millions)		2015				2014
Net cash provided by (used in):
Operating activities		$	42.9			$	(1.2	)
Investing activities			(27.1	)			(40.8	)
Financing activities			(9.5	)			(15.4	)
Effect of exchange rates on cash*			(8.4	)			—
Net change in cash and cash equivalents		$	(2.1	)		$	(57.4	)

 

*	For the three months ended March 31, 2014, the effect of exchange rates on cash was less than $0.1 million.

Operating Activities

Net cash provided by operating activities during the three months ended March 31, 2015 totaled $42.9 million, driven by the overall strong earnings for the quarter. Also impacting cash provided by operating activities for the period was an increase due to $15.0 million in dividends from our 50%-owned joint venture, Americas Styrenics, and a decrease due to a $52.2 million semi-annual interest payment made on the Senior Notes. Net cash used in operating assets and liabilities for the three months ended March 31, 2015 totaled $7.3 million, the most significant components of which were increases in accounts receivable of $42.1 million and decreases in accounts payable and other current and non-current liabilities of $29.9 million, offset by a decrease in inventories of $53.7 million. The increase in accounts receivable is primarily due to timing of customer payments, as net sales remained relatively consistent from the fourth quarter of 2014 to the first quarter of 2015. Accounts payable and other current liabilities decreased mainly due to the timing of payments to vendors and continued decreases in the prices of raw materials. Inventory decreased due to higher volume sold during the first quarter of 2015 when compared to the fourth quarter of 2014, as well as decreases in raw materials prices.

Net cash used in operating activities during the three months ended March 31, 2014 totaled $1.2 million, with net cash used in operating assets and liabilities totaling $42.7 million. The most significant components of the changes in operating assets and liabilities for the three months ended March 31, 2014 of $42.7 million were increases in accounts receivable of $79.2 million, offset by increases in accounts payable and other current liabilities of $18.5 million and decreases in inventories of $20.1 million. The increase in accounts receivable reflects an increase in sales during the first quarter of 2014 when compared to the fourth quarter of 2013, driven by higher sales volume and a favorable impact of currency exchange primarily between U.S. dollar and the euro. Inventory decreased due to higher volume sold during the first quarter of 2014 when compared to the fourth quarter of 2013. Our accounts payable and other current liabilities increased mainly due to the timing of payments.

 

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Investing Activities

Net cash used in investing activities for the three months ended March 31, 2015 totaled $27.1 million consisting primarily of capital expenditures of $27.7 million during the period.

Net cash used in investing activities for the three months ended March 31, 2014 totaled $40.8 million consisting primarily of capital expenditures of $41.1 million, of which approximately $26.1 million (€19.0 million) related to the Company’s acquisition of production capacity rights from JSR at its rubber production facility in Schkopau, Germany.

Financing Activities

Net cash used in financing activities during the three months ended March 31, 2015 totaled $9.5 million. During the period, we had net repayments of short-term borrowings of $9.5 million, which largely consisted of borrowings under our short-term revolving credit facility through our subsidiary in China.

Net cash used in financing activities during the three months ended March 31, 2014 totaled $15.4 million. During the period, we had net repayments of short-term borrowings of $14.8 million, which largely consisted of borrowings under our short-term revolving credit facility through our subsidiary in China. In addition, during the period, we utilized our Accounts Receivable Securitization Facility to fund our working capital requirements. For the three months ended March 31, 2014, we had borrowings from our Accounts Receivable Securitization Facility of $61.0 million and repayments of $61.5 million, resulting in net repayments of $0.5 million due to changes in foreign currency exchange rates, as a portion of our borrowings under the Accounts Receivable Securitization Facility originate in euros.

Indebtedness and Liquidity

The following table outlines our outstanding indebtedness as of March 31, 2015 and December 31, 2014 and the associated interest expense, including amortization of deferred financing fees, and effective interest rates for such borrowings as of March 31, 2015 and December 31, 2014. Note that the effective interest rates below exclude the impact of deferred financing fee amortization.

 

		As of and for the Three Months Ended March 31, 2015												As of and for the Year Ended December 31, 2014
(dollars in millions)		Balance				Effective Interest Rate				Interest Expense				Balance				Effective Interest Rate				Interest Expense
Senior Secured Credit Facility
Revolving Facility			—				—				1.2				—				—				4.7
Senior Notes			1,192.5				8.8	%			27.5				1,192.5				8.8	%			116.2
Accounts Receivable Securitization Facility			—				—				1.0				—				2.7	%			4.3
Other Indebtedness*			6.3				1.5	%			—				9.7				1.1	%			0.1
Total		$	1,198.8							$	29.7			$	1,202.2							$	125.3

 

*	For the three months ended March 31, 2015, interest expense on Other Indebtedness was less than $0.1 million.

Senior Secured Credit Facility

In January 2013, the Company amended its Senior Secured Credit Facility to, among other things, increase its Revolving Facility borrowing capacity from $240.0 million to $300.0 million, decrease the borrowing rate of the Revolving Facility through a decrease in the applicable margin rate from 4.75% to 3.00% as applied to base rate loans (which shall bear interest at a rate per annum equal to the base rate plus the applicable margin (as defined therein)), or 5.75% to 4.00% as applied to LIBO rate loans (which shall bear interest at a rate per annum equal to the LIBO rate plus the applicable margin and the mandatory cost (as defined therein), if applicable), and extend the maturity date to January 2018. Concurrently, the Company repaid its then outstanding Term Loans of $1,239.0 million using the proceeds from its sale of $1,325.0 million aggregate principal amount of the 8.750% Senior Notes issued in January 2013.

This amendment replaced the Company’s total leverage ratio requirement with a first lien net leverage ratio (as defined under the amended agreement) and removed the interest coverage ratio requirement. If the outstanding balance on the Revolving Facility exceeds 25% of the $300.0 million borrowing capacity (excluding undrawn letters of credit up to $10.0 million) at a quarter end, then the Company’s first lien net leverage ratio may not exceed 5.25 to 1.00 for the quarter ending March 31, 2013, 5.00 to 1.00 for the subsequent quarters through December 31, 2013, 4.50 to 1.00 for each of the quarters ending in 2014 and 4.25 to 1.00 for each of the quarters ending in 2015 and thereafter. As of March 31, 2015, the Company was in compliance with all debt covenant requirements under the Senior Secured Credit Facility.

 

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As of March 31, 2015, the Company had no outstanding borrowings, and had $291.2 million (net of $8.8 million outstanding letters of credit) of funds available for borrowings under the Revolving Facility.

Senior Notes

In January 2013, the Company issued $1,325.0 million 8.750% Senior Notes under the indenture. Interest on the Senior Notes is payable semi-annually on February 1^st and August 1^st of each year, which commenced on August 1, 2013. The notes will mature on February 1, 2019, at which time the principal amounts then outstanding will be due and payable. The proceeds from the issuance of the Senior Notes were used to repay all of the Company’s outstanding Term Loans and related refinancing fees and expenses.

The Company may redeem all or part of the Senior Notes at any time prior to August 1, 2015 by paying a call premium, plus accrued and unpaid interest to the redemption date. The Company may redeem all or part of the Senior Notes at any time after August 1, 2015 at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the notes redeemed, to the applicable date of redemption, if redeemed during the twelve-month period beginning on of the year indicated below:

 

12-month period commencing August 1 in Year		Percentage
2015			104.375	%
2016			102.188	%
2017 and thereafter			100.000	%

In addition, at any time prior to August 1, 2015, the Company may redeem up to 35% of the original principal amount of the notes at a redemption price equal to 108.750% of the face amount thereof plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds that the Company raises in certain equity offerings. The Company may also redeem, during any 12-month period commencing from the issue date until August 1, 2015, up to 10% of the original principal amount of the Senior Notes at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

In July 2014, using proceeds from the Company’s IPO, the Company redeemed $132.5 million in aggregate principal amount of the Senior Notes, including a 103% call premium totaling $4.0 million, together with accrued and unpaid interest thereon of $5.2 million. Pursuant to the indenture, the Company may redeem another 10% of the original principal amount of the Senior Notes prior to August 1, 2015.

The Senior Notes rank equally in right of payment with all of the Company’s existing and future senior secured debt and pari passu with the Company and the Guarantors’ (as defined below) indebtedness that is secured by first-priority liens, including the Company’s Senior Secured Credit Facility (as defined above), to the extent of the value of the collateral securing such indebtedness and ranking senior in right of payment to all of the Company’s existing and future subordinated debt. However, claims under the Senior Notes effectively rank behind the claims of holders of debt, including interest, under the Senior Secured Credit Facility in respect of proceeds from any enforcement action with respect to the collateral or in any bankruptcy, insolvency or liquidation proceeding. The Senior Notes are unconditionally guaranteed on a senior secured basis by each of the Company’s existing and future wholly-owned subsidiaries that guarantee the Senior Secured Credit Facility (other than the Company’s subsidiaries in France and Spain) (the “Guarantors”). The note guarantees rank equally in right of payment with all of the Guarantors’ existing and future senior secured debt and senior in right of payment to all of the Guarantors’ existing and future subordinated debt. The notes are structurally subordinated to all of the liabilities of each of the Company’s subsidiaries that do not guarantee the notes.

The indenture contains covenants that, among other things, limit the Company’s ability and the ability of the Company’s restricted subsidiaries to incur additional indebtedness, pay dividends or make other distributions, subject to certain exceptions. If the Senior Notes are assigned an investment grade by the rating agencies and the Company is not in default, certain covenants will be suspended. If the ratings on the Senior Notes decline to below investment grade, the suspended covenants will be reinstated. As of March 31, 2015, the Company was in compliance with all debt covenant requirements under the indenture.

Accounts Receivable Securitization Facility

In May 2013, the Company amended its existing Accounts Receivable Securitization Facility, which increased its borrowing capacity from $160.0 million to $200.0 million, extended the maturity date to May 2016 and allows for the expansion of the pool of eligible accounts receivable to include previously excluded U.S. and Netherlands subsidiaries.

The Accounts Receivable Securitization Facility is subject to interest charges against the amount of outstanding borrowings as well as the amount of available, but undrawn borrowings. As a result of the amendment to our Accounts Receivable Securitization Facility, in regards to outstanding borrowings, fixed interest charges decreased from 3.25% plus commercial paper rates to 2.60% plus variable commercial paper rates. In regards to available, but undrawn borrowings, fixed interest charges decreased from 1.50% to 1.40%.

 

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As of March 31, 2015, there were no amounts outstanding under the Accounts Receivable Securitization Facility, with approximately $147.7 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.

Other Indebtedness

As of March 31, 2015, we had $4.1 million of outstanding borrowings under our short-term revolving credit facility through our subsidiary in China that provides for up to $15.0 million of uncommitted funds available for borrowings, subject to the availability of collateral. The facility is subject to annual renewal.

Our Senior Secured Credit Facility limits our foreign working capital facilities to an aggregate principal amount of $75.0 million and further limits our foreign working capital facilities in certain jurisdictions in Asia, including China, to an aggregate principal amount of $25.0 million, except as otherwise permitted by the Senior Secured Credit Facility.

Capital Resources and Liquidity

Our sources of liquidity include cash on hand, cash flow from operations and amounts available under the Senior Secured Credit Facility and the Accounts Receivable Securitization Facility. We believe, based on our current level of operations, that these sources of liquidity will be sufficient to fund our operations, capital expenditures and debt service for at least the next twelve months.

Our liquidity requirements are significant due to our highly leveraged nature, as well as our working capital requirements. As of March 31, 2015, we had $1,198.8 million in outstanding indebtedness and $717.7 million in working capital. As of December 31, 2014, we had $1,202.2 million in outstanding indebtedness and $748.7 million in working capital. As of March 31, 2015 and December 31, 2014, we had $103.8 million and $94.7 million of foreign cash and cash equivalents on our balance sheet, respectively, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries.

As discussed above, in January 2013, we amended our Senior Secured Credit Facility to increase our Revolving Facility borrowing capacity from $240.0 million to $300.0 million. Also, in May 2013, we amended our Accounts Receivable Securitization Facility to increase our borrowing capacity from $160.0 million to $200.0 million, extend the maturity date to May 2016, and expand the pool of eligible accounts receivable to include previously excluded U.S. and Netherlands subsidiaries. These amendments to our facilities provide for additional liquidity resources for us.

Also noted above, in July 2014, using proceeds from the Company’s IPO, the Company redeemed $132.5 million in aggregate principal amount of the Senior Notes, at a 103% call premium totaling $4.0 million, together with accrued and unpaid interest thereon of $5.2 million.

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

We and our subsidiaries, affiliates or significant direct or indirect shareholders may from time to time seek to retire or purchase our outstanding debt through cash purchases in the open market, privately negotiated transactions, exchange transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

We cannot make assurances that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Senior Secured Credit Facility in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Further, our highly leveraged nature may limit our ability to procure additional financing in the future. As of March 31, 2015 and December 31, 2014, we were in compliance with all the covenants and default provisions under our credit arrangements.

We believe that funds provided by operations, our existing cash and cash equivalent balances, borrowings available under our Revolving Facility and borrowings available under our Accounts Receivable Securitization Facility will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current operating conditions. However, if we were to undertake any significant acquisitions or investments, it may be necessary for us to obtain additional debt or equity financings. We may not be able to obtain such financing on reasonable terms, or at all.

Debt Refinancing

In May 2015, the Company executed the refinancing of its current debt profile through the issuance of $700.0 million equivalent in gross proceeds of senior notes and entering a new senior secured credit facility, which included a $500.0 million term loan facility and a revolving credit facility with a borrowing capacity of $325.0 million.

 

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The net proceeds from the senior notes offering, together with approximately $500.0 million of borrowings under the term loan facility and available cash, will be used to repay all outstanding indebtedness under the Issuers’ 8.750% Senior Secured Notes due 2019 totaling $1,192.5 million, together with a call premium of approximately $69.0 million and accrued and unpaid interest thereon of approximately $30.0 million.

This new capital structure is expected to reduce the Company’s annual interest expense by approximately $37.0 million. See “—2015 Year-to-Date Highlights” for further detail.

Contractual Obligations and Commercial Commitments

Other than the impact of the issuance of our new our senior notes and the new senior secured credit facility which occurred in May 2015 (discussed in Note 19 to the condensed consolidated financial statements), there have been no material revisions outside the ordinary course of business to our contractual obligations as described within “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Commercial Commitments” within our Annual Report.

Critical Accounting Policies and Estimates

Our unaudited interim condensed consolidated financial statements are based on the selection and application of significant accounting policies. The preparation of unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses at the date of and during the reporting period. Actual results could differ from those estimates. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.

We describe our significant accounting policies in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report, while we discuss our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report.

There have been no material revisions to the critical accounting policies as filed in our Annual Report.

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 about Market Risk

As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report, we are exposed to changes in interest rates and foreign currency exchange rates as well as changes in the prices of certain commodities that we use in production. There have been no material changes in our exposure to market risks from the information provided within our Annual Report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining internal controls designed to provide reasonable assurance that information required to be disclosed by us in our reports that we file or submit under the Exchange Act (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, with the participation of our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. 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.

 

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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as product liability, antitrust, competition, waste disposal practices, release of chemicals into the environment and other matters that may arise in the ordinary course of our business. We currently believe that there is no litigation pending that is likely to have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

Our business faces various risks. Certain important factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the risk factors related to our ordinary shares as well those risk factors related to our business and industry which have been previously disclosed in Item 1A. of our Annual Report for the year ended December 31, 2014, for which there have been no material changes. We encourage you to consider these risks, in their entirety, in addition to other information contained in or incorporated by reference into this Quarterly Report and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

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

 

(a)

Recent sales of unregistered securities

None.

 

(b)

Use of Proceeds from registered securities

None.

 

(c)

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

 

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SIGNATURES

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

Date: May 8, 2015

 

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EXHIBIT INDEX

 

Exhibit No.		Description
3.1		Amended and Restated Articles of Association of Trinseo S.A. (incorporated herein by reference to Exhibit 3.1 to the 2014 Annual Report filed on Form 10-K, File No. 001-36473, filed March 10, 2015)
4.1		Form of Specimen Share Certificate of Trinseo S.A. (incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to the Registration Statement filed on Form S-1, File No. 333-194561, filed May 16, 2014)
4.2		Indenture, dated as of January 29, 2013, including Form of 8.750% Senior Secured Notes due 2019, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.1 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013)
4.3		First Supplemental Indenture, dated as of March 12, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.2 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013)
4.4		Second Supplemental Indenture, dated as of May 10, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.3 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013)
4.5		Third Supplemental Indenture, dated as of September 16, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.4 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013)
4.6		Fourth Supplemental Indenture, dated as of December 3, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. (incorporated herein by reference to Exhibit 4.9 to Amendment No. 1 to the Registration Statement filed on Form S-4, File No. 333-191460, filed December 6, 2013)
4.7		Fifth Supplemental Indenture, dated as of July 9, 2014, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named therein and Wilmington Trust, National Association, as trustee. (incorporated herein by reference to Exhibit 4.7 to the quarterly report on Form 10-Q for the quarterly period ended June 30, 2014, File No. 001-36473, filed August 11, 2014)
4.8		Intercreditor and Collateral Agency Agreement, dated as of January 29, 2013, by and among Trinseo Materials Operating S.C.A., the other Grantors party hereto, Deutsche Bank AG New York Branch, Wilmington Trust, National Association and each Additional Collateral Agent from time to time party hereto. (incorporated herein by reference to Exhibit 4.5 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013)
4.9		Registration Rights Agreement, dated as of January 29, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors party hereto and Deutsche Bank Securities Inc. (incorporated herein by reference to Exhibit 4.6 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013)
4.10		Purchase Agreement, dated January 24, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors party hereto and Deutsche Bank Securities Inc. (incorporated herein by reference to Exhibit 4.8 to Amendment No. 1 to the Registration Statement filed on Form S-4, File No. 333-191460, filed December 6, 2013)
4.11		Joinder to Purchase Agreement, dated May 10, 2013, by and among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors party hereto and Deutsche Bank Securities Inc. (incorporated herein by reference to Exhibit 4.7 to the Registration Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013)

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31.1†		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2†		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1††		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2††		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*		INS — XBRL Instance Document
101*		SCH — XBRL Taxonomy Extension Schema Document
101*		CAL — XBRL Taxonomy Extension Calculation Linkbase Document
101*		DEF — XBRL Taxonomy Extension Definition Linkbase Document
101*		LAB — XBRL Taxonomy Extension Label Linkbase Document
101*		PRE — XBRL Taxonomy Extension Presentation Linkbase Document

 

†	Filed herewith.

††	Furnished herewith.

*

Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.