Trinseo PLC - Quarter Report: 2018 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2018

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

For the transition period from to

Commission File Number: 001-36473

Trinseo S.A.

(Exact name of registrant as specified in its charter)

Luxembourg

N/A

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1000 Chesterbrook Boulevard

Suite 300

Berwyn, PA 19312

(Address of Principal Executive Offices)

(610) 240-3200

(Registrant’s telephone number)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	◻	

Non-accelerated filer	◻ (Do not check if a smaller reporting company)	Smaller reporting company	◻	Emerging growth company	◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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

As of August 1, 2018, there were 42,599,676 of the registrant’s ordinary shares outstanding.

Table of Contents

TABLE OF CONTENTS


		Page

Part I	Financial Information

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 (Unaudited)	4

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (Unaudited)	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 and 2017 (Unaudited)	6

	Condensed Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2018 and 2017 (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45

Item 4.	Controls and Procedures	45

Part II	Other Information

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

Exhibit Index

Signatures

Table of Contents

Trinseo S.A.

Quarterly Report on Form 10-Q

For the quarterly period ended June 30, 2018

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

Prior to the formation of the Company, our business was wholly owned by The Dow Chemical Company (together with other affiliates, “Dow”). In June 2010, investment funds advised or managed by affiliates of Bain Capital Partners, LP (“Bain Capital”) acquired an ownership interest in our business through an indirect ownership interest in us. During 2016, Bain Capital Everest Manager Holding SCA (“the former Parent”), an affiliate of Bain Capital, divested its entire ownership interest in the Company in a series of secondary offerings to the market.

Definitions of capitalized terms not defined herein appear within our Annual Report on Form 10-K for the year ended December 31, 2017 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018. The Company may distribute cash to shareholders under Luxembourg law via repayments of equity or an allocation of statutory profits. Since the Company began paying dividends, all distributions have been considered repayments of equity under Luxembourg law.

Cautionary Note on Forward-Looking Statements

This Quarterly Report contains forward-looking statements including, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. Forward-looking statements may be identified by the use of words like “expect,” “anticipate,” “intend,” “forecast,” “outlook,” “will,” “may,” “might,” “potential,” “likely,” “target,” “plan,” “contemplate,” “seek,” “attempt,” “should,” “could,” “would” or expressions of similar meaning. Forward-looking statements reflect management’s evaluation of information currently available and are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this Quarterly Report under Part II, Item 1A— “Risk Factors”, our Annual Report filed with the SEC on March 1, 2018 under Part I, Item IA— “Risk Factors”, and elsewhere within this Quarterly Report.

As a result of these or other factors, our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Therefore, we caution you against relying on these forward-looking statements. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge through the Investor Relations section of our website, www.trinseo.com, as soon as reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange Commission. We provide this website and information contained in or connected to it for informational purposes only. That information is not a part of this Quarterly Report.

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

TRINSEO S.A.

Condensed Consolidated Balance Sheets

(In millions, except per share data)

(Unaudited)


		June 30,	December 31,
		2018	2017
Assets
Current assets
Cash and cash equivalents	$	451.4	$	432.8
Accounts receivable, net of allowance for doubtful accounts (June 30, 2018: $5.0; December 31, 2017: $5.6)		763.3		685.5
Inventories		531.7		510.4
Other current assets		28.9		17.5
Total current assets		1,775.3		1,646.2
Investments in unconsolidated affiliates		163.8		152.5
Property, plant and equipment, net of accumulated depreciation (June 30, 2018: $557.9; December 31, 2017: $523.7)		600.4		627.0
Other assets
Goodwill		70.2		72.5
Other intangible assets, net		197.3		207.5
Deferred income tax assets		32.6		35.5
Deferred charges and other assets		35.2		30.8
Total other assets		335.3		346.3
Total assets	$	2,874.8	$	2,772.0
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings and current portion of long-term debt	$	7.0	$	7.0
Accounts payable		448.3		436.8
Income taxes payable		15.8		35.9
Accrued expenses and other current liabilities		146.7		146.9
Total current liabilities		617.8		626.6
Noncurrent liabilities
Long-term debt, net of unamortized deferred financing fees		1,162.6		1,165.0
Deferred income tax liabilities		44.7		49.2
Other noncurrent obligations		247.9		256.4
Total noncurrent liabilities		1,455.2		1,470.6
Commitments and contingencies (Note 11)
Shareholders’ equity
Ordinary shares, $0.01 nominal value, 50,000.0 shares authorized (June 30, 2018: 48.8 shares issued and 43.0 shares outstanding; December 31, 2017: 48.8 shares issued and 43.4 shares outstanding)		0.5		0.5
Additional paid-in-capital		569.1		578.8
Treasury shares, at cost (June 30, 2018: 5.8 shares; December 31, 2017: 5.4 shares)		(333.3)		(286.8)
Retained earnings		713.4		527.9
Accumulated other comprehensive loss		(147.9)		(145.6)
Total shareholders’ equity		801.8		674.8
Total liabilities and shareholders’ equity	$	2,874.8	$	2,772.0

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

Table of Contents

TRINSEO S.A.

Condensed Consolidated Statements of Operations

(In millions, except per share data)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net sales	$	1,236.6	$	1,145.2	$	2,358.1	$	2,249.7
Cost of sales		1,073.9		1,018.7		2,020.2		1,924.2
Gross profit		162.7		126.5		337.9		325.5
Selling, general and administrative expenses		61.7		54.7		126.1		114.3
Equity in earnings of unconsolidated affiliates		33.2		29.9		78.8		49.2
Operating income		134.2		101.7		290.6		260.4
Interest expense, net		10.8		18.7		25.7		36.9
Loss on extinguishment of long-term debt		0.2		—		0.2		—
Other expense (income), net		4.5		4.0		0.8		(2.1)
Income before income taxes		118.7		79.0		263.9		225.6
Provision for income taxes		20.4		18.8		45.3		48.1
Net income	$	98.3	$	60.2	$	218.6	$	177.5
Weighted average shares- basic		43.1		43.9		43.3		44.0
Net income per share- basic	$	2.28	$	1.37	$	5.05	$	4.03
Weighted average shares- diluted		43.8		45.0		44.2		45.2
Net income per share- diluted	$	2.24	$	1.34	$	4.95	$	3.93

Dividends per share	$	0.40	$	0.36	$	0.76	$	0.66

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

Table of Contents

TRINSEO S.A.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income	$	98.3	$	60.2	$	218.6	$	177.5
Other comprehensive income (loss), net of tax:
Cumulative translation adjustments		(16.1)		19.0		(18.2)		23.2
Net gain (loss) on cash flow hedges		11.9		(13.0)		14.7		(17.8)
Pension and other postretirement benefit plans:
Amounts reclassified from accumulated other comprehensive income (loss)		0.6		0.8		1.2		2.2
Total other comprehensive income (loss), net of tax		(3.6)		6.8		(2.3)		7.6
Comprehensive income	$	94.7	$	67.0	$	216.3	$	185.1

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

Table of Contents

TRINSEO S.A.

Condensed Consolidated Statements of Shareholders’ Equity

(In millions, except per share data)

(Unaudited)


	Shares		Shareholders' Equity
	Ordinary Shares Outstanding	Treasury Shares	Ordinary Shares		Additional Paid-In Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balance at December 31, 2017	43.4	5.4	$	0.5	$	578.8	$	(286.8)	$	(145.6)	$	527.9	$	674.8
Net income	—	—		—		—		—		—		218.6		218.6
Other comprehensive loss	—	—		—		—		—		(2.3)		—		(2.3)
Stock-based compensation activity	0.4	(0.4)		—		(9.7)		12.7		—		—		3.0
Purchase of treasury shares	(0.8)	0.8		—		—		(59.2)		—		—		(59.2)
Dividends on ordinary shares ($0.76 per share)	—	—		—		—		—		—		(33.1)		(33.1)
Balance at June 30, 2018	43.0	5.8	$	0.5	$	569.1	$	(333.3)	$	(147.9)	$	713.4	$	801.8
Balance at December 31, 2016	44.3	4.5	$	0.5	$	573.7	$	(217.5)	$	(170.2)	$	261.2	$	447.7
Net income	—	—		—		—		—		—		177.5		177.5
Other comprehensive income	—	—		—		—		—		7.6		—		7.6
Stock-based compensation activity	0.3	(0.3)		—		1.3		11.6		—		—		12.9
Purchase of treasury shares	(0.9)	0.9		—		—		(53.1)		—		—		(53.1)
Dividends on ordinary shares ($0.66 per share)	—	—		—		—		—		—		(29.7)		(29.7)
Balance at June 30, 2017	43.7	5.1	$	0.5	$	575.0	$	(259.0)	$	(162.6)	$	409.0	$	562.9

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

Table of Contents

TRINSEO S.A.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Six Months Ended
	June 30,
	2018		2017
Cash flows from operating activities
Net income	$	218.6	$	177.5
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		64.3		51.0
Amortization of deferred financing fees, issuance discount, and excluded component of hedging instruments		0.9		2.7
Deferred income tax		0.4		8.9
Stock-based compensation expense		8.9		7.7
Earnings of unconsolidated affiliates, net of dividends		(11.3)		4.7
Unrealized net losses (gains) on foreign exchange forward contracts		(7.7)		5.0
Loss on extinguishment of long-term debt		0.2		—
Gain on sale of businesses and other assets		(0.5)		(10.3)
Impairment charges		0.4		—
Changes in assets and liabilities
Accounts receivable		(83.0)		(137.7)
Inventories		(31.0)		(66.8)
Accounts payable and other current liabilities		31.8		(9.8)
Income taxes payable		(20.2)		9.1
Other assets, net		(3.7)		(6.2)
Other liabilities, net		14.3		0.8
Cash provided by operating activities		182.4		36.6
Cash flows from investing activities
Capital expenditures		(59.5)		(74.3)
Proceeds from capital expenditures subsidy		1.0		—
Proceeds from the sale of businesses and other assets		1.8		43.7
Distributions from unconsolidated affiliates		—		0.9
Cash used in investing activities		(56.7)		(29.7)
Cash flows from financing activities
Deferred financing fees		(0.6)		—
Short-term borrowings, net		(0.1)		(0.1)
Purchase of treasury shares		(60.5)		(56.4)
Dividends paid		(31.8)		(26.5)
Proceeds from exercise of option awards		2.3		6.0
Withholding taxes paid on restricted share units		(8.3)		(0.3)
Net proceeds from issuance of 2024 Term Loan B		696.5		—
Repayments of 2024 Term Loan B		(700.0)		—
Repayments of 2021 Term Loan B		—		(2.5)
Cash used in financing activities		(102.5)		(79.8)
Effect of exchange rates on cash		(4.6)		7.7
Net change in cash and cash equivalents		18.6		(65.2)
Cash and cash equivalents—beginning of period		432.8		465.1
Cash and cash equivalents—end of period	$	451.4	$	399.9

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

Table of Contents

TRINSEO S.A.

Notes to Condensed Consolidated Financial Statements

(Dollars in millions, unless otherwise stated)

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) as of and for the periods ended June 30, 2018 and 2017 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 2017 audited consolidated financial statements included within the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018.

The December 31, 2017 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 2017 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications did not have a material impact on the Company’s financial position or results. Refer to Notes 2, 7, and 15 for further information.

NOTE 2—RECENT ACCOUNTING GUIDANCE

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) jointly issued guidance (“Topic 606”) which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”). The core principle of the guidance, which the FASB issued certain clarifying updates for, is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted Topic 606 effective January 1, 2018, electing to apply the modified retrospective approach only to contracts that were not completed as of the date of initial application at the individual contract level, rather than applying the portfolio approach. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with historical accounting standards (“Topic 605”). As a result of our implementation procedures, we have determined that the cumulative effect to retained earnings from initially applying Topic 606 was immaterial and therefore, no adjustment was recorded. Furthermore, based on current contracts with customers, we do not expect the adoption of the new revenue standard to have a material impact to our financial statements on an ongoing basis. Refer to Note 3 for new disclosure requirements in effect as a result of this adoption.

In February 2016, the FASB issued guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize on the consolidated balance sheets lease liabilities and corresponding right-of-use assets for all leases with terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. This new guidance is effective for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. The Company is in the process of assessing the impact on its consolidated financial statements from the adoption of the new guidance. However, as we are the lessee under various real estate, railcar, and other equipment leases, which we currently account for as operating leases, we anticipate an increase in the recognition of right-of-use assets and lease liabilities as a result of this adoption.

In March 2017, the FASB issued guidance that requires employers to present the service cost component of net periodic benefit cost in the same line item within the statements of operations as other employee compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are to be presented outside of any subtotal of operating income. This guidance also requires employers to prospectively only consider the service cost component of net periodic benefit cost for potential capitalization into assets, with all other components of

Table of Contents

net periodic benefit cost being ineligible for capitalization. The Company adopted this guidance effective January 1, 2018 on a retrospective basis. As a result of this adoption, for the three and six months ended June 30, 2017, the Company reclassified net periodic benefit cost of $1.3 million and $2.5 million, respectively, from “Cost of sales” and $0.7 million and $1.5 million, respectively, from “Selling, general and administrative expenses” to “Other expense (income), net” within the condensed consolidated statements of operations. The change related to capitalization guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued significant amendments to its existing hedge accounting guidance. Among other things, this guidance intends to make more financial and nonfinancial hedging strategies eligible for hedge accounting, amend presentation and disclosure requirements, and changes how companies assess effectiveness. Specifically, the guidance eliminates the requirement to separately measure and record ineffectiveness for cash flow and net investment hedges. The Company adopted this guidance effective April 1, 2018. Based upon our hedging portfolio, this adoption did not result in any cumulative-effect adjustments to retained earnings. The amended presentation and disclosure guidance will be applied prospectively. Refer to Note 8 for further information regarding the impacts of this adoption as well as additional disclosures required by this standard.

In February 2018, the FASB issued guidance to address certain stranded income tax effects in accumulated other comprehensive income/loss (“AOCI”) resulting from the enactment of the U.S. “Tax Cuts and Jobs Act” signed into law on December 22, 2017. The amendment provides financial statement preparers with an option to reclassify stranded tax effects within AOCI, resulting from the reduction of the U.S. federal corporate income tax rate, to retained earnings. The amendment also includes disclosure requirements regarding the Company’s accounting policy for releasing income tax effects from AOCI. The amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, and the provisions of the amendment should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. While the Company is still evaluating the provisions of this amendment, should the Company choose to adopt this guidance, it is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 3 — NET SALES

As discussed in Note 2, effective January 1, 2018, the Company adopted accounting guidance, Topic 606, issued by the FASB related to the recognition of revenue from contracts with customers. The Company’s accounting policy and practical expedient elections related to revenue recognition, including those elected as a result of the adoption of Topic 606, are summarized as follows.

Sales are recognized at a point when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services, and when the Company’s related performance obligation is satisfied under the terms of the contract. Standard terms of delivery are included in contracts of sale, order confirmation documents, and invoices. Sales and other taxes that the Company collects concurrent with sales-producing activities are excluded from “Net sales” and included as a component of “Cost of sales” in the condensed consolidated statements of operations. Additionally, freight and any directly related costs of transporting finished products to customers are accounted for as fulfilment costs and are also included within “Cost of sales”. The amount of net sales recognized varies with changes in returns, rebates, cash sales incentives, and other allowances offered to customers based on the Company's experience.

The Company has elected to apply the following practical expedients as allowed under Topic 606:

The incremental costs of obtaining contracts are expensed as incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less, and are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations.

When the period between customer payment and transfer of goods/services is determined to be one year or less at contract inception, the promised amount of consideration under the contract is not adjusted for the effects of a significant financing component.

In consideration of the disclosure requirements regarding the transaction price and expected period of recognition of remaining performance obligations that are unsatisfied as of the end of a reporting period, the Company has elected the following optional exemptions:

The Company will not disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts with an original expected duration of one year or less,

Table of Contents

which applies to the vast majority of the Company’s contracts with customers.

For contracts with customers containing variable consideration (via enforceable minimum volume requirements) and an original expected duration greater than one year, the Company will not disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these contracts with customers, each unit of production generally represents a separate performance obligation, the pricing for which is based on current or forecasted raw material prices, often using formulas that utilize commodity indices. Therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. The variable consideration in these contracts is resolved typically at the issuance of a purchase order or as of the date of revenue recognition.

The following table provides disclosure of net sales to external customers by primary geographical market (based on the location where sales originated), by segment for the three and six months ended June 30, 2018 and 2017, respectively:


	Latex		Synthetic		Performance
Three Months Ended	Binders		Rubber		Plastics		Polystyrene		Feedstocks		Total
June 30, 2018
United States	$	74.8	$	—	$	82.7	$	—	$	2.9	$	160.4
Europe		119.1		155.3		245.2		164.6		55.3		739.5
Asia-Pacific		82.6		—		60.9		121.0		43.9		308.4
Rest of World		4.3		—		24.0		—		—		28.3
Total	$	280.8	$	155.3	$	412.8	$	285.6	$	102.1	$	1,236.6
June 30, 2017(1)
United States	$	78.9	$	—	$	70.9	$	0.5	$	2.7	$	153.0
Europe		128.9		174.0		211.0		143.1		49.4		706.4
Asia-Pacific		79.2		—		35.0		89.9		54.9		259.0
Rest of World		4.5		—		22.3		—		—		26.8
Total	$	291.5	$	174.0	$	339.2	$	233.5	$	107.0	$	1,145.2


	Latex		Synthetic		Performance
Six Months Ended	Binders		Rubber		Plastics		Polystyrene		Feedstocks		Total
June 30, 2018
United States	$	139.1	$	—	$	166.8	$	0.2	$	6.6	$	312.7
Europe		232.6		304.5		494.3		312.6		113.3		1,457.3
Asia-Pacific		156.8		—		108.2		212.4		56.8		534.2
Rest of World		7.6		—		46.3		—		—		53.9
Total	$	536.1	$	304.5	$	815.6	$	525.2	$	176.7	$	2,358.1
June 30, 2017(1)
United States	$	155.0	$	—	$	153.7	$	0.7	$	6.7	$	316.1
Europe		248.3		337.4		410.4		283.0		84.0		1,363.1
Asia-Pacific		168.2		—		67.8		178.0		103.2		517.2
Rest of World		9.0		—		44.3		—		—		53.3
Total	$	580.5	$	337.4	$	676.2	$	461.7	$	193.9	$	2,249.7

(1)

As the Company has adopted Topic 606 utilizing the modified retrospective approach, amounts for the three and six months ended June 30, 2017 above are disclosed as recognized under Topic 605.

For all material contracts with customers, control is transferred and sales are recognized at a point in time when the Company satisfies the performance obligations according to the terms of the contract, and when title and the risk of loss is passed to the customer. Title and risk of loss varies by region and customer and is determined based upon the purchase order received from the customer and the applicable contractual terms or jurisdictional standards. The Company receives cash equal to the invoice price for most product sales, subject to cash sales incentives with certain customers, with payment terms generally ranging from 10 to 90 days (with an approximate weighted average of 50 days as of June 30, 2018), also varying by segment and region.

Table of Contents

Certain of the Company’s contracts with customers contain multiple performance obligations, most commonly due to the sale of multiple distinct products. The transaction price within these contracts is allocated between these separate and distinct products based on their stand-alone selling prices, as defined within the contract. The Company’s products are typically sold at observable stand-alone sales values, which are used to determine the estimated stand-alone selling price. The stand-alone selling prices of the Company’s products are generally based, in part, on the current or forecasted costs of key raw materials, but are often subject to a predetermined lag period for the pass through of these costs. As such, contracts with customers typically include provisions that allow for the changes in stand-alone selling prices to reflect the pass through of changes in raw material costs, often using pricing formulas that utilize commodity indices.

In cases where the Company’s transaction price is considered variable at the point of revenue recognition, the ‘most likely amount’ method is used to estimate the effect of any related uncertainty. In formulating this estimate, the Company considers all historical, current, and forecasted information that is reasonably available to identify a reasonable number of possible consideration amounts. Once the transaction price, including impacts of variable consideration, is estimated, revenue is recognized only to the extent that it is probable that a subsequent change in the estimate would not result in a significant revenue reversal. Furthermore, if the Company is not able to rely on observable stand-alone selling prices, the ‘expected cost plus a margin approach’ is utilized to estimate the stand-alone selling price of each performance obligation, primarily utilizing historical experience. During the three and six months ended June 30, 2018, the impact of recognizing changes in selling prices related to prior periods was immaterial.

NOTE 4—INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company is currently supplemented by one joint venture, Americas Styrenics LLC (“Americas Styrenics”, a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP). Previously, the Company also had a 50% share in Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate”, a polycarbonate, or PC, joint venture with Sumitomo Chemical Company Limited), until the sale of the Company’s investment in the joint venture during the first quarter of 2017 (refer to discussion below for further information). Investments held in unconsolidated affiliates are accounted for by the equity method. The results of Americas Styrenics are included within its own reporting segment. The results of Sumika Styron Polycarbonate were included within the Performance Plastics reporting segment (as recast, due to the segment realignment effective January 1, 2018 discussed further in Note 15) until the Company sold its share of the entity during the first quarter of 2017.

Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their stock are not available. The summarized financial information of the Company’s unconsolidated affiliates is shown below. This table includes summarized financial information for Sumika Styron Polycarbonate through the date of sale in January 2017.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Sales	$	481.5	$	476.9	$	968.1	$	910.8
Gross profit	$	73.0	$	65.2	$	168.2	$	85.8
Net income	$	58.7	$	54.1	$	144.4	$	60.4

Americas Styrenics

As of June 30, 2018 and December 31, 2017, the Company’s investment in Americas Styrenics was $163.8 million and $152.5 million, respectively, which was $40.0 million and $46.4 million less than the Company’s 50% share of the underlying net assets of Americas Styrenics, respectively. This amount represents the difference between the book value of assets contributed to the joint venture at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the joint venture’s assets and certain adjustments to conform with the Company’s accounting policies. This difference is being amortized over a weighted average remaining useful life of the contributed assets of approximately 2.4 years as of June 30, 2018. The Company received dividends from Americas Styrenics of $37.5 million and $67.5 million during the three and six months ended June 30, 2018, respectively, compared to $37.5 million and $45.0 million during the three and six months ended June 30, 2017, respectively.

Sumika Styron Polycarbonate

On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited for total sales proceeds of approximately $42.1 million. As a result, the Company recorded a gain on sale of $9.3 million during the six months ended June 30, 2017, which was included within

Table of Contents

“Other expense (income), net” in the condensed consolidated statements of operations and was allocated entirely to the Performance Plastics segment (as recast under the segment realignment discussed further in Note 15). In addition, the parties entered into a long-term agreement to continue sourcing PC resin from Sumika Styron Polycarbonate to the Company’s Performance Plastics segment.

Due to the sale in January 2017, the Company no longer had an investment in Sumika Styron Polycarbonate as of December 31, 2017. The Company received dividends from Sumika Styron Polycarbonate of zero and $9.8 million during the three and six months ended June 30, 2017 related to the Company’s proportionate share of earnings from the year ended December 31, 2016.

NOTE 5—INVENTORIES

Inventories consisted of the following:


	June 30,		December 31,
	2018		2017
Finished goods	$	265.6	$	250.9
Raw materials and semi-finished goods		232.4		226.7
Supplies		33.7		32.8
Total	$	531.7	$	510.4

NOTE 6—DEBT

Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s debt structure discussed below. The Company was in compliance with all debt related covenants as of June 30, 2018 and December 31, 2017.

As of June 30, 2018 and December 31, 2017, debt consisted of the following:


			June 30, 2018						December 31, 2017
	Interest Rate as of June 30, 2018	Maturity Date	Carrying Amount		Unamortized Deferred Financing Fees(1)		Total Debt, Less Unamortized Deferred Financing Fees		Carrying Amount		Unamortized Deferred Financing Fees(1)		Total Debt, Less Unamortized Deferred Financing Fees
Senior Credit Facility
2022 Revolving Facility(2)	Various	September 2022	$	—	$	—	$	—	$	—	$	—	$	—
2024 Term Loan B(3)	4.094%	September 2024		694.8		(17.6)		677.2		698.3		(18.3)		680.0
2025 Senior Notes	5.375%	September 2025		500.0		(8.9)		491.1		500.0		(9.4)		490.6
Accounts Receivable Securitization Facility(4)	Various	May 2019		—		—		—		—		—		—
Other indebtedness	Various	Various		1.3		—		1.3		1.4		—		1.4
Total debt			$	1,196.1	$	(26.5)	$	1,169.6	$	1,199.7	$	(27.7)	$	1,172.0
Less: current portion								(7.0)						(7.0)
Total long-term debt, net of unamortized deferred financing fees							$	1,162.6					$	1,165.0

(1)

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

(2)

Under the 2022 Revolving Facility, the Company had a capacity of $375.0 million and funds available for borrowing of $360.4 million (net of $14.6 million outstanding letters of credit) as of June 30, 2018. Additionally, the Company is required to pay a quarterly commitment fee in respect of any unused commitments under this facility equal to 0.375% per annum.

(3)

As of June 30, 2018, the 2024 Term Loan B bore an interest rate of LIBOR plus 2.00%, subject to a 0.00%

Table of Contents

LIBOR floor. Refer to the discussion below for further information regarding the 2024 Term Loan B repricing that occurred during the second quarter of 2018. As of June 30, 2018, $7.0 million of the scheduled future payments related to this facility were classified as current debt on the Company’s condensed consolidated balance sheet.

(4)

This facility had a borrowing capacity of $150.0 million as of June 30, 2018. Additionally, as of June 30, 2018, the Company had accounts receivable available to support this facility in excess of its borrowing capacity, based on the pool of eligible accounts receivable. In regard to outstanding borrowings, fixed interest charges are 1.95% plus variable commercial paper rates, while for available, but undrawn commitments, fixed interest charges are 1.0%.

2024 Term Loan B Repricing

On May 22, 2018, Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (together, the “Issuers” or the “Borrowers”), both wholly-owned subsidiaries of the Company, successfully repriced the effective interest rate on the Company’s 2024 Term Loan B from LIBOR plus 2.50% to LIBOR plus 2.00% (subject to a 0.00% LIBOR floor in both instances). All other key terms associated with the 2024 Term Loan B remained consistent with the terms that existed following the September 2017 refinancing of the Senior Credit Facility (refer to the Annual Report for further information).

As a result of this repricing, during the three months ended June 30, 2018, the Company recognized a $0.2 million loss on extinguishment of long-term debt, comprised entirely of the write-off of a portion of the existing unamortized deferred financing fees related to the 2024 Term Loan B.

Fees incurred in connection with the repricing of the 2024 Term Loan B were $1.1 million, of which $0.5 million were expensed and included within “Other expense (income), net” in the condensed consolidated statement of operations for the three and six months ended June 30, 2018. The remaining $0.6 million of fees were capitalized and recorded within “Long-term debt, net of unamortized deferred financing fees” on the condensed consolidated balance sheet, to be amortized along with the remaining $16.4 million of unamortized deferred financing fees related to the 2024 Term Loan B. Capitalized fees related to the 2024 Term Loan B are being amortized over the remainder of the original 7.0 year term of the facility using the effective interest method.

NOTE 7—GOODWILL

The following table shows changes in the carrying amount of goodwill, by segment, from December 31, 2017 to June 30, 2018. Prior period balances in this table have been recast in conjunction with the segment realignment that occurred during the first quarter of 2018. Refer to Note 15 for further information.


	Latex		Synthetic		Performance						Americas
	Binders		Rubber		Plastics		Polystyrene		Feedstocks		Styrenics		Total
Balance at December 31, 2017	$	16.5	$	11.7	$	39.6	$	4.7	$	—	$	—	$	72.5
Foreign currency impact		(0.4)		(0.2)		(1.6)		(0.1)		—		—		(2.3)
Balance at June 30, 2018	$	16.1	$	11.5	$	38.0	$	4.6	$	—	$	—	$	70.2

NOTE 8—DERIVATIVE INSTRUMENTS

The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates and interest rate risk. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts and interest rate swap agreements. The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives are recorded on the condensed consolidated balance sheets at fair value.

As discussed in Note 2, the Company adopted recently issued hedge accounting guidance effective April 1, 2018. The impacts of this adoption are discussed further below.

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

Table of Contents

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 this exposure, the Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment.

As of June 30, 2018, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $654.1 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of June 30, 2018:


	June 30,
Buy / (Sell)	2018
Euro	$	(436.6)
Chinese Yuan	$	(76.2)
Swiss Franc	$	45.8
Taiwan Dollar	$	21.0
Swedish Krona	$	14.9

Open foreign exchange forward contracts as of June 30, 2018 had maturities occurring over a period of two months.

Foreign Exchange Cash Flow Hedges

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

Open foreign exchange cash flow hedges as of June 30, 2018 had maturities occurring over a period of six months, and had a net notional U.S. dollar equivalent of $108.0 million.

Interest Rate Swaps

On September 6, 2017, the Company issued the 2024 Term Loan B, which currently bears an interest rate of LIBOR plus 2.00%, subject to a 0.00% LIBOR floor. In order to reduce the variability in interest payments associated with the Company’s variable rate debt, during the third quarter of 2017, the Company entered into certain interest rate swap agreements to convert a portion of these variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges, and as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.

As of June 30, 2018, the Company had open interest rate swap agreements with a net notional U.S. dollar equivalent of $200.0 million which had an effective date of September 29, 2017 and mature over a period of five years. Under the terms of the swap agreements, the Company is required to pay the counterparties a stream of fixed interest payments at a rate of 1.81%, and in turn, receives variable interest payments based on 1-month LIBOR (2.09% as of June 30, 2018) from the counterparties.

Net Investment Hedge

Through August 31, 2017, the Company had designated a portion (€280 million) of the original principal amount of the Company’s previous €375.0 million Euro Notes as a hedge of the foreign currency exposure of the Issuers’ net investment in certain European subsidiaries. Effective September 1, 2017, the Company de-designated the Euro Notes as a net investment hedge of the Issuers’ net investment in certain European subsidiaries, as the Euro Notes were redeemed on September 7, 2017. Through the date of de-designation, this hedge was deemed to be highly effective, and changes in

Table of Contents

the Euro Notes’ carrying value resulting from fluctuations in the euro exchange rate were recorded as cumulative foreign currency translation loss of $24.1 million within AOCI as of December 31, 2017.

On August 29, 2017, the Issuers executed an indenture pursuant to which they issued the $500.0 million 5.375% 2025 Senior Notes. Subsequently, on September 1, 2017, the Company entered into certain fixed-for-fixed cross currency swaps (“CCS”), swapping USD principal and interest payments on the newly issued 2025 Senior Notes for euro-denominated payments. Under the terms of the CCS, the Company has notionally exchanged $500.0 million at an interest rate of 5.375% for €420 million at a weighted average interest rate of 3.45% for approximately five years.

On September 1, 2017, the Company designated the full notional amount of the CCS (€420 million) as a hedge of the Issuers’ net investment in certain European subsidiaries under the forward method, with all changes in the fair value of the CCS recorded as a component of AOCI, as the CCS were deemed to be highly effective hedges. A cumulative foreign currency translation loss of $38.0 million was recorded within AOCI related to the CCS through March 31, 2018.

Effective April 1, 2018, in conjunction with the adoption of recently issued hedging accounting guidance (see Note 2 for further information), the Company elected as an accounting policy to re-designate the CCS as a net investment hedge (and any future similar hedges) under the spot method. As such, changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due to spot foreign exchange rates) are recorded as cumulative foreign currency translation within OCI, and will remain in AOCI until either the sale or substantially complete liquidation of the subsidiary. As of June 30, 2018, no gains or losses have been reclassified from AOCI into income related to the sale or substantially complete liquidation of the relevant subsidiaries. As an additional accounting policy election to be applied to similar hedges under this new standard, the initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in the fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI. Prior to the adoption of the new hedging accounting guidance on April 1, 2018, no components were excluded from the assessment of effectiveness for any of the Company’s existing net investment hedges.

As of April 1, 2018, the initial excluded component value related to the CCS was $23.6 million, which the Company has elected to amortize as a reduction of “Interest expense, net” in the condensed consolidated statements of operations using the straight-line method over the remaining term of the CCS. Additionally, the accrual of periodic USD and euro-denominated interest receipts and payments under the terms of the CCS will also be recognized within “Interest expense, net” in the condensed consolidated statements of operations.

Table of Contents

Summary of Derivative Instruments

The following tables present the effect of the Company’s derivative instruments, including those not designated for hedge accounting treatment, on the condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017:


	Location and Amount of Gain (Loss) Recognized in Statements of Operations for Derivative Instruments
	Three Months Ended						Three Months Ended
	June 30, 2018						June 30, 2017
	Cost of sales		Interest expense, net		Other expense (income), net		Cost of sales		Interest expense, net		Other expense (income), net
Total amounts of income and expense line items presented in the statements of operations in which the effects of derivative instruments are recorded	$	1,073.9	$	10.8	$	4.5	$	1,018.7	$	18.7	$	4.0

The effects of cash flow hedge instruments:
Foreign exchange cash flow hedges
Amount of gain (loss) reclassified from AOCI into income	$	(2.6)	$	—	$	—	$	1.0	$	—	$	—
Interest rate swaps
Amount of gain (loss) reclassified from AOCI into income	$	—	$	0.1	$	—	$	—	$	—	$	—

The effects of net investment hedge instruments:
Cross currency swaps (CCS)
Amount of gain (loss) excluded from effectiveness testing	$	—	$	3.9	$	—	$	—	$	—	$	—

The effects of derivatives not designated as hedge instruments:
Foreign exchange forward contracts
Amount of gain (loss) recognized in income	$	—	$	—	$	14.1	$	—	$	—	$	(8.8)

Table of Contents


	Location and Amount of Gain (Loss) Recognized in Statements of Operations for Derivative Instruments
	Six Months Ended						Six Months Ended
	June 30, 2018						June 30, 2017
	Cost of sales		Interest expense, net		Other expense (income), net		Cost of sales		Interest expense, net		Other expense (income), net
Total amounts of income and expense line items presented in the statements of operations in which the effects of derivative instruments are recorded	$	2,020.2	$	25.7	$	0.8	$	1,924.2	$	36.9	$	(2.1)

The effects of cash flow hedge instruments:
Foreign exchange cash flow hedges
Amount of gain (loss) reclassified from AOCI into income	$	(6.3)	$	—	$	—	$	3.5	$	—	$	—
Interest rate swaps
Amount of gain (loss) reclassified from AOCI into income	$	—	$	—	$	—	$	—	$	—	$	—

The effects of net investment hedge instruments:
Cross currency swaps (CCS)
Amount of gain (loss) excluded from effectiveness testing	$	—	$	3.9	$	—	$	—	$	—	$	—

The effects of derivatives not designated as hedge instruments:
Foreign exchange forward contracts
Amount of gain (loss) recognized in income	$	—	$	—	$	8.8	$	—	$	—	$	(10.5)

The following table presents the effect of cash flow and net investment hedge accounting on AOCI for the three and six months ended June 30, 2018 and 2017:


	Gain (Loss) Recognized in AOCI on Balance Sheet
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Designated as Cash Flow Hedges
Foreign exchange cash flow hedges	$	10.7	$	(13.0)	$	10.2	$	(17.8)
Interest rate swaps		1.2		—		4.5		—
Total	$	11.9	$	(13.0)	$	14.7	$	(17.8)
Designated as Net Investment Hedges
Euro Notes	$	—	$	(19.7)	$	—	$	(24.7)
Cross currency swaps (CCS)		30.8		—		10.3		—
Total	$	30.8	$	(19.7)	$	10.3	$	(24.7)

The Company recorded gains of $14.1 million and $8.8 million during the three and six months ended June 30, 2018, respectively, and losses of $8.8 million and $10.5 million during the three and six months ended June 30, 2017, respectively, from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges). The gains and losses from these forward contracts offset net foreign exchange transaction losses of $16.1 million and $5.7 million during the three and six months ended June 30, 2018, respectively, and gains of $7.3 million and $7.9 million during the three and six months ended June 30, 2017, respectively, which resulted from the remeasurement of the Company’s foreign currency denominated assets and liabilities. The cash settlements of these foreign exchange forward contracts are included within operating activities in the condensed consolidated statement of cash flows.

The Company expects to reclassify in the next twelve months less than a $0.1 million net loss from AOCI into earnings related to the Company’s outstanding foreign exchange cash flow hedges and interest rate swaps as of June 30, 2018 based on current foreign exchange rates.

Table of Contents

The following tables summarize the gross and net unrealized gains and losses, as well as the balance sheet classification, of outstanding derivatives recorded in the condensed consolidated balance sheets:


	June 30, 2018
	Foreign		Foreign
	Exchange		Exchange		Interest		Cross
Balance Sheet	Forward		Cash Flow		Rate		Currency
Classification	Contracts		Hedges		Swaps		Swaps		Total
Asset Derivatives:
Accounts receivable, net of allowance	$	6.3	$	1.1	$	1.2	$	7.9	$	16.5
Deferred charges and other assets		—		—		6.3		—		6.3
Gross derivative asset position		6.3		1.1		7.5		7.9		22.8
Less: Counterparty netting		(0.9)		—		—		—		(0.9)
Net derivative asset position	$	5.4	$	1.1	$	7.5	$	7.9	$	21.9
Liability Derivatives:
Accounts payable	$	(1.0)	$	(2.3)	$	—	$	—	$	(3.3)
Other noncurrent obligations		—		—		—		(19.2)		(19.2)
Gross derivative liability position		(1.0)		(2.3)		—		(19.2)		(22.5)
Less: Counterparty netting		0.9		—		—		—		0.9
Net derivative liability position	$	(0.1)	$	(2.3)	$	—	$	(19.2)	$	(21.6)
Total net derivative position	$	5.3	$	(1.2)	$	7.5	$	(11.3)	$	0.3


	December 31, 2017
	Foreign		Foreign
	Exchange		Exchange		Interest		Cross
Balance Sheet	Forward		Cash Flow		Rate		Currency
Classification	Contracts		Hedges		Swaps		Swaps		Total
Asset Derivatives:
Accounts receivable, net of allowance	$	0.7	$	—	$	—	$	10.8	$	11.5
Deferred charges and other assets		—		—		3.0		—		3.0
Gross derivative asset position		0.7		—		3.0		10.8		14.5
Less: Counterparty netting		(0.6)		—		—		—		(0.6)
Net derivative asset position	$	0.1	$	—	$	3.0	$	10.8	$	13.9
Liability Derivatives:
Accounts payable	$	(3.1)	$	(11.1)	$	(0.1)	$	—	$	(14.3)
Other noncurrent obligations		—		—		—		(28.3)		(28.3)
Gross derivative liability position		(3.1)		(11.1)		(0.1)		(28.3)		(42.6)
Less: Counterparty netting		0.6		—		—		—		0.6
Net derivative liability position	$	(2.5)	$	(11.1)	$	(0.1)	$	(28.3)	$	(42.0)
Total net derivative position	$	(2.4)	$	(11.1)	$	2.9	$	(17.5)	$	(28.1)

Forward contracts, interest rate swaps, and cross currency swaps are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract. As such, in accordance with the Company’s accounting policy, these derivative instruments are recorded on a net basis by counterparty within the condensed consolidated balance sheets.

Refer to Notes 9 and 17 of the condensed consolidated financial statements for further information regarding the fair value of the Company’s derivative instruments and the related changes in AOCI.

NOTE 9—FAIR VALUE MEASUREMENTS

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.

Table of Contents

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

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

The following table summarizes the basis used to measure certain assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017:


	June 30, 2018
	Quoted Prices in Active Markets for Identical Items		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets (Liabilities) at Fair Value	(Level 1)		(Level 2)		(Level 3)		Total
Foreign exchange forward contracts—Assets	$	—	$	5.4	$	—	$	5.4
Foreign exchange forward contracts—(Liabilities)		—		(0.1)		—		(0.1)
Foreign exchange cash flow hedges—Assets		—		1.1		—		1.1
Foreign exchange cash flow hedges—(Liabilities)		—		(2.3)		—		(2.3)
Interest rate swaps—Assets		—		7.5		—		7.5
Cross currency swaps—Assets		—		7.9		—		7.9
Cross currency swaps—(Liabilities)		—		(19.2)		—		(19.2)
Total fair value	$	—	$	0.3	$	—	$	0.3


	December 31, 2017
	Quoted Prices in Active Markets for Identical Items		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets (Liabilities) at Fair Value	(Level 1)		(Level 2)		(Level 3)		Total
Foreign exchange forward contracts—Assets	$	—	$	0.1	$	—	$	0.1
Foreign exchange forward contracts—(Liabilities)		—		(2.5)		—		(2.5)
Foreign exchange cash flow hedges—(Liabilities)		—		(11.1)		—		(11.1)
Interest rate swaps—Assets		—		3.0		—		3.0
Interest rate swaps—(Liabilities)		—		(0.1)		—		(0.1)
Cross currency swaps—Assets		—		10.8		—		10.8
Cross currency swaps—(Liabilities)		—		(28.3)		—		(28.3)
Total fair value	$	—	$	(28.1)	$	—	$	(28.1)

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

Table of Contents

Fair Value of Debt Instruments

The following table presents the estimated fair value of the Company’s outstanding debt not carried at fair value as of June 30, 2018 and December 31, 2017, respectively:


	As of		As of
	June 30, 2018		December 31, 2017
2025 Senior Notes	$	496.3	$	518.8
2024 Term Loan B		696.5		705.7
Total fair value	$	1,192.8	$	1,224.5

The fair value of the Company’s debt facilities above (each Level 2 securities) is determined using over-the-counter market quotes and benchmark yields received from independent vendors.

There were no other significant financial instruments outstanding as of June 30, 2018 and December 31, 2017.

NOTE 10—PROVISION FOR INCOME TAXES


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Effective income tax rate		17.2	%		23.8	%		17.2	%		21.3	%

Provision for income taxes for the three and six months ended June 30, 2018 were $20.4 million and $45.3 million, each resulting in an effective tax rate of 17.2%. Provision for income taxes for the three and six months ended June 30, 2017 were $18.8 million, resulting in an effective tax rate of 23.8%, and $48.1 million, resulting in an effective tax rate of 21.3%, respectively.

The decrease in the effective tax rate for the three and six months ended June 30, 2018 as compared to the same periods in 2017 was primarily driven by the reduction in the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018, in accordance with the enactment of the Tax Cuts and Jobs Act signed into law on December 22, 2017. The decrease for the six months ended June 30, 2018 that related to the reduction in the U.S. federal corporate tax rate effective in 2018 was partially offset by the $9.3 million gain on sale of the Company’s 50% share in Sumika Styron Polycarbonate during the six months ended June 30, 2017, which was exempt from tax (refer to Note 4 for further information).

NOTE 11—COMMITMENTS AND CONTINGENCIES

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law, existing technologies and other information. Pursuant to the terms of the agreement associated with the Company’s formation, the pre-closing environmental conditions were retained by Dow, and Dow has agreed to indemnify the Company from and against all environmental liabilities incurred or relating to the predecessor periods. No environmental claims have been asserted or threatened against the Company, and the Company is not a potentially responsible party at any Superfund Sites. As of June 30, 2018 and December 31, 2017, the Company had no accrued obligations for environmental remediation and restoration costs.

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

Purchase Commitments

In the normal course of business, the Company has certain raw material purchase contracts where it is required to

Table of Contents

purchase certain minimum volumes at current market prices. These commitments range from 1 to 4 years. In certain raw material purchase contracts, the Company has the right to purchase less than the required minimums and pay a liquidated damages fee, or, in case of a permanent plant shutdown, to terminate the contracts. In such cases, these obligations would be less than the annual commitment as disclosed in the Notes to Consolidated Financial Statements included in the Annual Report.

Litigation Matters

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

NOTE 12—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Defined Benefit Pension Plans
Service cost	$	3.1	$	4.7	$	6.2	$	9.3
Interest cost		1.2		1.1		2.5		2.2
Expected return on plan assets		(0.5)		(0.4)		(1.1)		(0.8)
Amortization of prior service credit		(0.3)		(0.5)		(0.6)		(1.0)
Amortization of net loss		0.9		1.4		1.9		2.8
Net settlement and curtailment loss(1)		—		—		—		0.1
Net periodic benefit cost	$	4.4	$	6.3	$	8.9	$	12.6

(1)

Represents a settlement loss of approximately $0.5 million triggered by benefit payments exceeding the sum of service and interest cost for one of the Company’s pension plans in Switzerland, partially offset by a curtailment gain of approximately $0.4 million related to a reduction in the number of participants in the Company’s pension plan in Japan.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Other Postretirement Plans
Service cost	$	—	$	—	$	0.1	$	0.1
Interest cost		0.1		0.1		0.1		0.1
Amortization of prior service cost		—		—		0.1		0.1
Amortization of net gain		—		—		—		—
Net periodic benefit cost	$	0.1	$	0.1	$	0.3	$	0.3

In accordance with recently issued accounting standards, service cost related to the Company’s defined benefit pension plans and other postretirement plans is included within “Cost of sales” and “Selling, general and administrative expenses” whereas all other components of net periodic benefit cost are included within “Other expense (income), net” in the condensed consolidated statements of operations. Refer to Note 2 for further information.

As of June 30, 2018 and December 31, 2017, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $188.2 million and $188.7 million, respectively.

Table of Contents

The Company made cash contributions and benefit payments to unfunded plans of approximately $1.1 million and $3.1 million during the three and six months ended June 30, 2018, respectively. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately $3.2 million to its defined benefit plans for the remainder of 2018.

NOTE 13—STOCK-BASED COMPENSATION

Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s stock-based compensation programs included in the tables below.

The following table summarizes the Company’s stock-based compensation expense for the three and six months ended June 30, 2018 and 2017, as well as unrecognized compensation cost as of June 30, 2018:


									As of
	Three Months Ended				Six Months Ended				June 30, 2018
	June 30,				June 30,				Unrecognized		Weighted
	2018		2017		2018		2017		Compensation Cost		Average Years
RSUs	$	2.1	$	2.1	$	4.3	$	4.0	$	13.4	2.0
Options		0.6		0.5		3.4		3.2		2.3	1.5
PSUs		0.7		0.3		1.2		0.5		6.0	2.3
Total stock-based compensation expense	$	3.4	$	2.9	$	8.9	$	7.7

The following table summarizes awards granted and the respective weighted average grant date fair value for the six months ended June 30, 2018:


	Six Months Ended
	June 30, 2018
	Awards Granted		Weighted Average Grant Date Fair Value per Award
RSUs		111,228	$	79.94
Options		202,963		22.29
PSUs		50,289		88.51

Option Awards

The following are the weighted average assumptions used within the Black-Scholes pricing model for the Company’s option awards granted during the six months ended June 30, 2018:


	Six Months Ended
	June 30,
	2018
Expected term (in years)	5.50
Expected volatility	32.00	%
Risk-free interest rate	2.71	%
Dividend yield	2.00	%

Since the Company’s equity interests were privately held prior to its initial public offering (“IPO”) in June 2014, there is limited publicly traded history of the Company’s ordinary shares. Until such time that the Company can determine expected volatility based solely on the publicly traded history of its ordinary shares, expected volatility used in the Black-Scholes model for option awards granted is based on a combination of the Company’s historical volatility and similar companies’ stock that are publicly traded. The expected term of option awards represents the period of time that option awards granted are expected to be outstanding. For the option awards granted during the six months ended June 30, 2018, the simplified method was used to calculate the expected term, given the Company’s limited historical exercise data. The risk-free interest rate for the periods within the expected term of option awards is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is estimated based on historical and expected dividend activity.

Table of Contents

Performance Share Units (PSUs)

The following are the weighted average assumptions used within the Monte Carlo valuation model for PSUs granted during the six months ended June 30, 2018:


		Six Months Ended
		June 30,
		2018
Expected term (in years)		3.00
Expected volatility		36.00	%
Risk-free interest rate		2.42	%
Share price	$	81.20

Determining the fair value of PSUs requires considerable judgment, including estimating the expected volatility of the price of the Company’s ordinary shares, the correlation between the Company’s share price and that of its peer companies, and the expected rate of interest. The expected volatility for each grant is determined based on the historical volatility of the Company’s ordinary shares. The expected term of PSUs represents the length of the performance period. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a duration equivalent to the performance period. The share price is the closing price of the Company’s ordinary shares on the grant date.

NOTE 14—ACQUISITIONS AND DIVESTITURES

Acquisition of API Plastics

On July 10, 2017, the Company acquired 100% of the equity interests of API Applicazioni Plastiche Industriali S.p.A (“API Plastics”), a privately held company. The gross purchase price for the acquisition was $90.6 million, inclusive of $8.4 million of cash acquired, yielding a net purchase price of $82.3 million, all of which was paid for during the year ended December 31, 2017 (noting no cash flows during the six months ended June 30, 2017). API Plastics, based in Mussolente, Italy, is a manufacturer of soft-touch polymers and bioplastics, such as thermoplastic elastomers (“TPEs”), whose results are included within our Performance Plastics segment.

The Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. During the six months ended June 30, 2018, there were no changes to the purchase price allocation for the acquisition of API Plastics. Transaction and integration costs related to advisory and professional fees incurred in conjunction with the API Plastics acquisition were $0.2 million and $0.6 million during the three and six months ended June 30, 2018, respectively, compared to $1.1 million during both the three and six months ended June 30, 2017, respectively, and were included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations. Refer to the Annual Report for further information.

NOTE 15—SEGMENTS

Through December 31, 2017, the Company operated under two divisions: Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division included the following reporting segments: Latex Binders, Synthetic Rubber, and Performance Plastics. The Basic Plastics & Feedstocks division included the following reporting segments: Basic Plastics, Feedstocks, and Americas Styrenics.

Effective January 1, 2018, the Company realigned its reporting segments to reflect the new model under which the business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief operating decision maker. Under this new segmentation, the Company will no longer have divisions, but will continue to report operating results for six segments, four of which remain unchanged from the Company’s prior segmentation: Latex Binders, Synthetic Rubber, Feedstocks, and Americas Styrenics. The results of our Polystyrene business, which were previously included within the results of the Basic Plastics segment, are now reported as a stand-alone segment. Performance Plastics, which previously consisted of compounds, blends, and ABS products sold to the automotive market, now includes the remaining portion of the Company’s ABS business, as well as the results of the Company’s SAN and PC businesses. This segmentation change will provide enhanced clarity to investors by concentrating the Company’s more specialized plastics into a single reporting segment, while also reducing complexity as PC and ABS are the primary inputs into the downstream production of the Company’s compounds and blends. The information in the tables below has been retroactively adjusted to reflect the changes in reporting segments.

Table of Contents

The Latex Binders segment produces styrene-butadiene latex, or SB latex, and other latex polymers and binders, primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex binders applications, such as adhesive, building and construction and the technical textile paper market. The Synthetic Rubber segment produces synthetic rubber products used predominantly in high-performance tires, impact modifiers and technical rubber products, such as conveyer belts, hoses, seals and gaskets. The Performance Plastics segment produces highly engineered compounds and blends, and also includes our ABS, SAN, and PC businesses. The Performance Plastics segment, as recast, also included the results of our previously 50%-owned joint venture, Sumika Styron Polycarbonate, until the Company sold its share in the entity in January 2017 (refer to Note 4 for further information). Polystyrene is a stand-alone reporting segment, and includes a variety of general purpose polystyrenes, or GPPS, as well as HIPS, which is polystyrene that has been modified with polybutadiene rubber to increase its impact resistant properties. The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, ABS resins, solution styrene-butadiene rubber, or SSBR, etc. Lastly, the Americas Styrenics segment consists solely of the operations of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America.

Asset and intersegment sales information by reporting segment is not regularly reviewed or included with the Company’s reporting to the chief operating decision maker. Therefore, this information has not been disclosed below.


	Latex		Synthetic		Performance						Americas		Corporate
Three Months Ended	Binders		Rubber		Plastics		Polystyrene		Feedstocks		Styrenics		Unallocated		Total
June 30, 2018
Sales to external customers	$	280.8	$	155.3	$	412.8	$	285.6	$	102.1	$	—	$	—	$	1,236.6
Equity in earnings of unconsolidated affiliates		—		—		—		—		—		33.2		—		33.2
Adjusted EBITDA(1)		36.0		30.6		48.9		13.7		32.4		33.2
Investment in unconsolidated affiliates		—		—		—		—		—		163.8		—		163.8
Depreciation and amortization		6.3		11.3		6.7		2.9		3.0		—		2.1		32.3
June 30, 2017
Sales to external customers	$	291.5	$	174.0	$	339.2	$	233.5	$	107.0	$	—	$	—	$	1,145.2
Equity in earnings of unconsolidated affiliates		—		—		—		—		—		29.9		—		29.9
Adjusted EBITDA(1)		36.1		27.7		48.5		6.8		(1.2)		29.9
Investment in unconsolidated affiliates		—		—		—		—		—		153.1		—		153.1
Depreciation and amortization		5.8		8.7		4.4		2.1		3.1		—		2.2		26.3

Table of Contents


	Latex		Synthetic		Performance						Americas		Corporate
Six Months Ended	Binders		Rubber		Plastics		Polystyrene		Feedstocks		Styrenics		Unallocated		Total
June 30, 2018
Sales to external customers	$	536.1	$	304.5	$	815.6	$	525.2	$	176.7	$	—	$	—	$	2,358.1
Equity in earnings of unconsolidated affiliates		—		—		—		—		—		78.8		—		78.8
Adjusted EBITDA(1)		63.5		56.2		114.3		23.3		73.9		78.8
Investment in unconsolidated affiliates		—		—		—		—		—		163.8		—		163.8
Depreciation and amortization		12.4		22.5		13.0		5.8		6.0		—		4.6		64.3
June 30, 2017
Sales to external customers	$	580.5	$	337.4	$	676.2	$	461.7	$	193.9	$	—	$	—	$	2,249.7
Equity in earnings of unconsolidated affiliates		—		—		0.8		—		—		48.4		—		49.2
Adjusted EBITDA(1)		72.9		74.0		100.5		20.5		40.7		48.4
Investment in unconsolidated affiliates		—		—		—		—		—		153.1		—		153.1
Depreciation and amortization		11.4		17.1		8.4		4.2		5.6		—		4.3		51.0

(1)The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring charges; acquisition related costs and other items. Segment Adjusted EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure that management believes reflects core operating performance by removing the impact of transactions and events that would not be considered a part of core operations. Other companies in the industry may define Segment Adjusted EBITDA differently than the Company, and as a result, it may be difficult to use Segment Adjusted EBITDA, or similarly named financial measures, that other companies may use to compare the performance of those companies to the Company’s segment performance.

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Income before income taxes	$	118.7	$	79.0	$	263.9	$	225.6
Interest expense, net		10.8		18.7		25.7		36.9
Depreciation and amortization		32.3		26.3		64.3		51.0
Corporate Unallocated(2)		24.6		21.6		44.9		49.0
Adjusted EBITDA Addbacks(3)		8.4		2.2		11.2		(5.5)
Segment Adjusted EBITDA	$	194.8	$	147.8	$	410.0	$	357.0

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

(3)Adjusted EBITDA addbacks for the three and six months ended June 30, 2018 and 2017 are as follows:

Table of Contents


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Loss on extinguishment of long-term debt (Note 6)	$	0.2	$	—	$	0.2	$	—
Net gain on disposition of businesses and assets (Note 4)		—		—		(0.5)		(9.9)
Restructuring and other charges (Note 16)		1.2		1.1		1.7		3.3
Acquisition transaction and integration costs (Note 14)		0.2		1.1		0.6		1.1
Other items(a)		6.8		—		9.2		—
Total Adjusted EBITDA Addbacks	$	8.4	$	2.2	$	11.2	$	(5.5)

(a)

Other items for the three and six months ended June 30, 2018 primarily relate to advisory and professional fees incurred in conjunction with the Company’s initiative to transition business services from Dow, including certain administrative services such as accounts payable, logistics, and IT services, as well as fees incurred in conjunction with the Company’s term loan repricing which was completed during the second quarter of 2018.

NOTE 16—RESTRUCTURING

Refer to the Annual Report for further details regarding the Company’s previously announced restructuring activities included in the tables below. Restructuring charges are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations.

The following table provides detail of the Company’s restructuring charges for the three and six months ended June 30, 2018 and 2017:


	Three Months Ended				Six Months Ended				Cumulative
	June 30,				June 30,				Life-to-date
	2018		2017		2018		2017		Charges		Segment
Terneuzen Compounding Restructuring(1)
Asset impairment/accelerated depreciation	$	0.3	$	0.6	$	0.6	$	1.1	$	2.6
Employee termination benefits		0.2		0.2		0.3		0.2		0.8
Contract terminations		—		—		—		0.6		0.6
Decommissioning and other		0.2		—		0.2		—		1.0
Terneuzen Subtotal	$	0.7	$	0.8	$	1.1	$	1.9	$	5.0	Performance Plastics
Livorno Plant Restructuring(2)
Asset impairment/accelerated depreciation	$	0.4	$	—	$	0.4	$	—	$	14.7
Employee termination benefits		—		0.2		—		0.4		5.4
Contract terminations		—		—		—		—		0.3
Decommissioning and other		0.1		0.5		0.4		1.1		3.4
Livorno Subtotal	$	0.5	$	0.7	$	0.8	$	1.5	$	23.8	Latex Binders
Other Restructurings		0.3		0.3		0.4		1.1			Various
Total Restructuring Charges	$	1.5	$	1.8	$	2.3	$	4.5

(1)

In March 2017, the Company announced plans to upgrade its production capability for compounded resins with the construction of a new state-of-the art compounding facility to replace its existing compounding facility in Terneuzen, The Netherlands. The new facility is expected to be operational by the end of 2018, with substantive production at the existing facility expected to cease by December 2018, followed by decommissioning activities in 2019. The Company expects to incur incremental accelerated depreciation charges of approximately $0.5 million through the end of 2018, as well as estimated employee termination benefit charges and decommissioning and other charges of approximately $0.7 million throughout 2019, the majority of which are expected to be paid throughout 2019.

(2)

In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders

Table of Contents

manufacturing facility in Livorno, Italy. Production at the facility ceased in October 2016 and decommissioning activities began in the fourth quarter of 2016. In June 2018, the Company entered into a preliminary agreement to sell the land where the former facility is located, subject to certain activities being completed prior to closing. In conjunction with the execution of this agreement, the Company received approximately $1.3 million of the purchase price as a prepayment, which has been deferred and recorded within “Accrued expenses and other current liabilities” on the condensed consolidated balance sheet as of June 30, 2018. The Company expects to record an immaterial gain on sale when the transaction is completed.

Furthermore, as this sale is considered probable within one year of the balance sheet date, the Company recorded the $12.2 million of land as held-for-sale within “Other current assets”, as well as a deferred tax liability associated with that land of $2.9 million as held-for-sale within “Accrued expenses and other current liabilities”, on the condensed consolidated balance sheet as of June 30, 2018. The Company will continue to incur additional decommissioning costs associated with this plant shutdown through the closing date of the sale, the cost of which will be expensed as incurred.

The following table provides a roll forward of the liability balances associated with the Company’s restructuring activities as of June 30, 2018. Employee termination benefit and contract termination charges are recorded within “Accrued expenses and other current liabilities” in the condensed consolidated balance sheet.


	Balance at						Balance at
	December 31, 2017		Expenses		Deductions(1)		June 30, 2018
Employee termination benefits	$	1.4	$	0.3	$	(0.8)	$	0.9
Contract terminations		0.6		—		—		0.6
Decommissioning and other		—		1.0		(1.0)		—
Total	$	2.0	$	1.3	$	(1.8)	$	1.5

(1)

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

NOTE 17—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of AOCI, net of income taxes, consisted of:


	Cumulative		Pension & Other
	Translation		Postretirement Benefit			Cash Flow
Three Months Ended June 30, 2018 and 2017	Adjustments		Plans, Net			Hedges, Net	Total
Balance as of March 31, 2018	$	(96.6)	$	(44.4)	$	(3.3)	$	(144.3)
Other comprehensive income (loss)		(16.1)		—		9.4		(6.7)
Amounts reclassified from AOCI to net income (1)		—		0.6		2.5		3.1
Balance as of June 30, 2018	$	(112.7)	$	(43.8)	$	8.6	$	(147.9)

Balance as of March 31, 2017	$	(114.8)	$	(62.1)	$	7.5	$	(169.4)
Other comprehensive income (loss)		19.0		—		(12.0)		7.0
Amounts reclassified from AOCI to net income (1)		—		0.8		(1.0)		(0.2)
Balance as of June 30, 2017	$	(95.8)	$	(61.3)	$	(5.5)	$	(162.6)

Table of Contents


	Cumulative		Pension & Other
	Translation		Postretirement Benefit		Cash Flow
Six Months Ended June 30, 2018 and 2017	Adjustments		Plans, Net		Hedges, Net		Total
Balance at December 31, 2017	$	(94.5)	$	(45.0)	$	(6.1)	$	(145.6)
Other comprehensive income (loss)		(18.2)		—		8.4		(9.8)
Amounts reclassified from AOCI to net income (1)		—		1.2		6.3		7.5
Balance at June 30, 2018	$	(112.7)	$	(43.8)	$	8.6	$	(147.9)

Balance as of December 31, 2016	$	(119.0)	$	(63.5)	$	12.3	$	(170.2)
Other comprehensive income (loss)		23.2		—		(14.3)		8.9
Amounts reclassified from AOCI to net income (1)		—		2.2		(3.5)		(1.3)
Balance as of June 30, 2017	$	(95.8)	$	(61.3)	$	(5.5)	$	(162.6)

(1)

The following is a summary of amounts reclassified from AOCI to net income for the three and six months ended June 30, 2018 and 2017, respectively:


	Amount Reclassified from AOCI				Amount Reclassified from AOCI
AOCI Components	Three Months Ended June 30,				Six Months Ended June 30,				Statements of Operations
	2018		2017		2018		2017		Classification
Cash flow hedging items
Foreign exchange cash flow hedges	$	2.6	$	(1.0)	$	6.3	$	(3.5)	Cost of sales
Interest rate swaps		(0.1)		—		—		—	Interest expense, net
Total before tax		2.5		(1.0)		6.3		(3.5)
Tax effect		—		—		—		—	Provision for income taxes
Total, net of tax	$	2.5	$	(1.0)	$	6.3	$	(3.5)

Amortization of pension and other postretirement benefit plan items
Prior service credit	$	(0.2)	$	(0.5)	$	(0.5)	$	(0.9)	(a)
Net actuarial loss		1.0		1.7		2.2		3.3	(a)
Net settlement and curtailment loss		—		—		—		0.6	(a)
Total before tax		0.8		1.2		1.7		3.0
Tax effect		(0.2)		(0.4)		(0.5)		(0.8)	Provision for income taxes
Total, net of tax	$	0.6	$	0.8	$	1.2	$	2.2

(a)

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

NOTE 18—EARNINGS PER SHARE

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

Table of Contents

The following table presents basic EPS and diluted EPS for the three and six months ended June 30, 2018 and 2017, respectively:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions, except per share data)	2018		2017		2018		2017
Earnings:
Net income	$	98.3	$	60.2	$	218.6	$	177.5
Shares:
Weighted average ordinary shares outstanding		43.1		43.9		43.3		44.0
Dilutive effect of RSUs, option awards, and PSUs(1)		0.7		1.1		0.9		1.2
Diluted weighted average ordinary shares outstanding		43.8		45.0		44.2		45.2
Income per share:
Income per share—basic	$	2.28	$	1.37	$	5.05	$	4.03
Income per share—diluted	$	2.24	$	1.34	$	4.95	$	3.93

(1) Refer to Note 13 for discussion of RSUs, option awards, and PSUs granted to certain Company directors and employees. The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share were 0.4 million and 0.2 million for the three and six months ended June 30, 2018, respectively, and 0.3 million and 0.2 million for the three and six months ended June 30, 2017, respectively.

Table of Contents

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

2018 Year-to-Date Highlights

During the three and six months ended June 30, 2018, Trinseo recognized net income of $98.3 million and $218.6 million, respectively, and Adjusted EBITDA of $170.2 million and $365.1 million, respectively. Refer to “Non-GAAP Performance Measures” below for further discussion of our use of non-GAAP measures in evaluating our performance and a reconciliation of these measures. Other highlights for the year are described below.

Term Loan Repricing

During the three months ended June 30, 2018, the Company executed a repricing of its 2024 Term Loan B, thereby reducing the stated interest rate on this facility from LIBOR plus 2.50% to LIBOR plus 2.00% (subject to a 0.00% LIBOR floor in both instances). At current LIBO rates, the Company expects an aggregate cash interest savings from this repricing of $3.5 million annually.

New Segmentation

Through December 31, 2017, the Company operated under six reporting segments: Latex Binders, Synthetic Rubber, Performance Plastics, Basic Plastics, Feedstocks, and Americas Styrenics. Effective January 1, 2018, the Company realigned its reporting segments to reflect the new model under which the business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief operating decision maker.

Under this new segmentation, we will continue to report operating results for six segments, four of which will remain unchanged from the Company’s prior segmentation: Latex Binders, Synthetic Rubber, Feedstocks, and Americas Styrenics. The results of our Polystyrene business, which was previously included within the results of the Basic Plastics segment, is now reported as a stand-alone segment. Performance Plastics, which previously consisted of compounds, blends, and ABS products sold to the automotive market, now includes the remaining portion of our ABS business, as well as the results of our SAN and PC businesses. This segmentation change will provide enhanced clarity to investors by concentrating the Company’s more specialized plastics into a single reporting segment, while also reducing complexity as PC and ABS are the primary inputs into the downstream production of our compounds and blends.

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

SSBR Capacity Expansion and Pilot Plant

During the first quarter of 2018, the Company completed the initial phase of its 50kT SSBR capacity expansion at its Schkopau, Germany facility, and also opened a new SSBR pilot plant at this same facility which will expedite the product development process from lab sample to commercialization by delivering sufficient quantities of new formulations without the need to interrupt production in our industrial lines.

Share Repurchases and Dividends

During the six months ended June 30, 2018, under existing authority from its board of directors, the Company purchased approximately 0.8 million ordinary shares from its shareholders through open market transactions for an aggregate purchase price of $60.5 million. Additionally, during the six months ended June 30, 2018, the Company’s board of directors declared quarterly dividends for an aggregate value of $0.76 per ordinary share, or $33.1 million.

Table of Contents

Results of Operations

Results of Operations for the Three and Six Months Ended June 30, 2018 and 2017

The table below sets forth our historical results of operations, and these results as a percentage of net sales for the periods indicated. As a result of accounting guidance adopted in 2018 related to pension accounting, certain prior period financial information included in the sections below has been recast to conform to the current year presentation. Refer to Note 2 in the condensed consolidated financial statements for further information.

References to portfolio adjustments below represent the impacts of the Company’s acquisition and divestiture activity, including the sale of our joint venture Sumika Styron Polycarbonate and the acquisition of API Plastics, both of which occurred during 2017. Refer to the condensed consolidated financial statements for further information.


	Three Months Ended								Six Months Ended
	June 30,								June 30,
(in millions)	2018		%		2017		%		2018		%		2017		%
Net sales	$	1,236.6	100	%	$	1,145.2	100	%	$	2,358.1	100	%	$	2,249.7	100	%
Cost of sales		1,073.9	87	%		1,018.7	89	%		2,020.2	86	%		1,924.2	86	%
Gross profit		162.7	13	%		126.5	11	%		337.9	14	%		325.5	14	%
Selling, general and administrative expenses		61.7	5	%		54.7	5	%		126.1	5	%		114.3	5	%
Equity in earnings of unconsolidated affiliates		33.2	3	%		29.9	3	%		78.8	3	%		49.2	2	%
Operating income		134.2	11	%		101.7	9	%		290.6	12	%		260.4	11	%
Interest expense, net		10.8	1	%		18.7	2	%		25.7	1	%		36.9	2	%
Loss on extinguishment of long-term debt		0.2	—	%		—	—	%		0.2	—	%		—	—	%
Other expense (income), net		4.5	—	%		4.0	—	%		0.8	—	%		(2.1)	—	%
Income before income taxes		118.7	10	%		79.0	7	%		263.9	11	%		225.6	9	%
Provision for income taxes		20.4	2	%		18.8	2	%		45.3	2	%		48.1	2	%
Net income	$	98.3	8	%	$	60.2	5	%	$	218.6	9	%	$	177.5	7	%

Three Months Ended – June 30, 2018 vs. June 30, 2017

Net Sales

Of the 8% increase, a 3% increase was due to higher sales volume across all segments, with the exception of Feedstocks, and a 7% increase was due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis. Portfolio adjustments, which includes the acquisition of API Plastics during the third quarter of 2017, increased net sales by 1%. These increases were partially offset by a 3% decrease due to the pass through of lower raw material costs, primarily lower butadiene cost which was partially offset by higher styrene cost.

Cost of Sales

Of the 5% increase, a 6% increase was due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis, and a 3% increase was due to higher sales volume, primarily within Performance Plastics and Polystyrene. Portfolio adjustments, which includes the acquisition of API Plastics during the third quarter of 2017, and increased fixed costs contributed to a combined 2% increase in cost of sales. Partially offsetting these increases was a 6% decrease due to lower raw materials costs, primarily related to butadiene.

Gross Profit

The increase was primarily attributable to higher styrene margins and favorable currency impacts. Additionally, gross profit increased from favorable net timing impacts in the current year, in comparison to unfavorable net timing impacts in the prior year. Lower margins outside of the Feedstocks segment, including impacts from raw material costs, were more than offset by higher sales volume across nearly all segments, except Feedstocks. See below for detailed segment discussion.

Table of Contents

Selling, General and Administrative Expenses

The $7.0 million increase is comprised of several factors. The majority of the increase was due to higher advisory and professional fees, which resulted in an approximate $4.0 million increase, primarily related to fees incurred in conjunction with the Company’s recently initiated project to complete the transition of business and technical services from Dow, as well as fees related to certain growth initiatives. An increase of $0.5 million was due to the acquisition of API Plastics, which did not occur until the third quarter of 2017, with an additional increase of $0.5 million from higher stock-based compensation expense. The majority of the remaining increase was due to currency impacts on our euro based expenses, as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis.

Equity in Earnings of Unconsolidated Affiliates

The increase in equity earnings was due to higher equity earnings from Americas Styrenics, which increased from $29.9 million in 2017 to $33.2 million in 2018, primarily due to lower margins in the prior year on second quarter sales of styrene purchased during an extended outage at its St. James, LA facility.

Interest Expense, Net

The decrease was primarily attributable to a reduction in interest rates from the Company’s debt refinancing during the third quarter of 2017.

Loss on Extinguishment of Long-Term Debt

Loss on extinguishment of long-term debt was $0.2 million for the three months ended June 30, 2018, comprised entirely of the write-off of a portion of the existing unamortized deferred financing fees related to the 2024 Term Loan B repricing.

Other Expense (Income), net

Other expense, net for the three months ended June 30, 2018 was $4.5 million, which included net foreign exchange transaction losses for the period of $2.0 million. Net foreign exchange transaction losses included $16.1 million of foreign exchange transaction losses primarily from the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, partially offset by $14.1 million of gains from our foreign exchange forward contracts. Other expense, net for the period also included $1.6 million of expense related to the non-service cost components of net periodic benefit cost and $0.5 million of fees incurred in conjunction with the repricing of the Company’s 2024 Term Loan B during the second quarter of 2018.

Other expense, net for the three months ended June 30, 2017 was $4.0 million, which included net foreign exchange transaction losses for the period of $1.5 million. Net foreign exchange transaction losses included $7.3 million of foreign exchange transaction gains primarily due to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more than offset by $8.8 million of losses from our foreign exchange forward contracts. Other expense, net for the period also included $2.0 million of expense related to the non-service cost components of net periodic benefit cost and other expenses of $0.5 million.

Provision for Income Taxes

Provision for income taxes for the three months ended June 30, 2018 totaled $20.4 million resulting in an effective tax rate of 17.2%. Provision for income taxes for the three months ended June 30, 2017 totaled $18.8 million resulting in an effective tax rate of 23.8%.

The increase in provision for income taxes was primarily driven by the $39.7 million increase in income before income taxes. This increase was partially offset by the impact from the reduction in the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018, in accordance with the enactment of the “Tax Cuts and Jobs Act” signed into law on December 22, 2017.

Table of Contents

Six Months Ended – June 30, 2018 vs. June 30, 2017

Net Sales

Of the 5% increase, 8% of the increase was due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis, and 1% of the increase was related to the acquisition of API Plastics, which did not occur until the third quarter of 2017. These increases were partially offset by a 4% decrease due to the pass through of lower raw material costs, primarily related to butadiene cost, and a 1% decrease due to lower sales volume, with decreases in the Feedstocks, Latex Binders, and Synthetic Rubber segments mostly offset by increases in the Company’s remaining segments.

Cost of Sales

Gross Profit

The increase was due mainly to improved performance in the Feedstocks and Performance Plastics segments, along with favorable currency impacts across all segments, as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis. These increases were partially offset by decreases in the Latex Binders and Synthetic Rubber segments. See below for detailed segment discussion.

Selling, General and Administrative Expenses

The $11.8 million increase is comprised of several offsetting factors. Higher advisory and professional fees resulted in an approximate $6.0 million increase, primarily related to fees incurred in conjunction with the Company’s recently initiated project to complete the transition of business and technical services from Dow, as well as fees related to certain growth initiatives. Additionally, increases of $2.5 million and $1.2 million, respectively, were incurred due to the acquisition of API Plastics, which did not occur until the third quarter of 2017, and higher stock-based compensation expense. Partially offsetting these increases was $2.2 million of lower restructuring charges, noting lower accelerated depreciation and contract termination charges in the current year related to the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands, as well as lower overall decommissioning and employee termination benefit charges related to our decision to cease manufacturing operations at our latex facility in Livorno, Italy (refer to Note 16 in the condensed consolidated financial statements for further information). The majority of the remaining increase was due to currency impacts on our euro based expenses, as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis.

Equity in Earnings of Unconsolidated Affiliates

The increase in equity earnings primarily resulted from higher equity earnings from Americas Styrenics, which increased from $49.2 million in 2017 to $78.8 million in 2018, primarily due to the impact from an extended prior year styrene outage at its St. James, LA facility.

Interest Expense, Net

The decrease was primarily attributable to a reduction in interest rates from the Company’s debt refinancing during the third quarter of 2017.

Loss on Extinguishment of Long-Term Debt

Loss on extinguishment of long-term debt was $0.2 million for the six months ended June 30, 2018, comprised entirely of the write-off of a portion of the existing unamortized deferred financing fees related to the 2024 Term Loan B repricing.

Table of Contents

Other Expense (Income), net

Other expense, net for the six months ended June 30, 2018 was $0.8 million, which included $3.3 million of expense related to the non-service cost components of net periodic benefit cost and $0.5 million of fees incurred in conjunction with the repricing of the Company’s 2024 Term Loan B during the second quarter of 2018. These expenses were partially offset by net foreign exchange transaction gains for the period of $3.1 million. Net foreign exchange transactions gains included $5.7 million of foreign exchange transaction losses primarily from the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more than offset by $8.8 million of gains from our foreign exchange forward contracts.

Other income, net for the six months ended June 30, 2017 was $2.1 million, which included a $9.3 million gain related to the sale of the Company’s 50% share in Sumika Styron Polycarbonate in January 2017 (refer to Note 4 in the condensed consolidated financial statements for further information). Additionally, net foreign exchange transaction losses for the period were $2.6 million, which included $7.9 million of foreign exchange transaction gains primarily due to the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more than offset by $10.5 million of losses from our foreign exchange forward contracts. Other income, net for the period also included $4.0 million of expense related to the non-service cost components of net periodic benefit cost.

Provision for Income Taxes

Provision for income taxes for the six months ended June 30, 2018 totaled $45.3 million resulting in an effective tax rate of 17.2%. Provision for income taxes for the six months ended June 30, 2017 totaled $48.1million resulting in an effective tax rate of 21.3%.

The decrease in provision for income taxes was primarily driven by the impact from the reduction in the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018, in accordance with the enactment of the “Tax Cuts and Jobs Act” signed into law on December 22, 2017. Also included in income before incomes taxes for the six months ended June 30, 2017 was the $9.3 million gain on sale of our 50% share in Sumika Styron Polycarbonate, which was exempt from tax.

Outlook

Overall, the Company expects continued solid performance and cash generation during the third quarter and throughout the remainder of 2018. For the third quarter, profitability is expected to be sequentially lower due to seasonality, a lower level of planned styrene outages resulting in decreasing styrene margins within our Feedstocks segment, and a somewhat softer tire market demand impacting our Synthetic Rubber segment. The Company continues to expect growth in 2019 within its Latex Binders, Synthetic Rubber, and Performance Plastics segments, stable year-over-year performance within its Polystyrene and Americas Styrenics segments, and continued strong performance in its Feedstocks segment, excluding the approximately $20.0 million of favorable unplanned styrene outage impacts experienced in the first half of 2018.

Table of Contents

Selected Segment Information

As discussed above, effective January 1, 2018, the Company realigned its organizational structure to include the following reporting segments: Latex Binders, Synthetic Rubber, Performance Plastics, Polystyrene, Feedstocks, and Americas Styrenics. The following sections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the three and six months ended June 30, 2018 and 2017, which have been recast to reflect the Company’s new organizational structure. Inter-segment sales have been eliminated. Refer to Note 15 in the condensed consolidated financial statements for further information on these changes, as well as for a detailed definition of Adjusted EBITDA and a reconciliation of income before income taxes to segment Adjusted EBITDA.

Latex Binders Segment

Our Latex Binders segment produces SB latex and other latex polymers and binders primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex applications, such as adhesive, building and construction, and the technical textile paper market.


	Three Months Ended								Six Months Ended
	June 30,								June 30,
($ in millions)	2018			2017			% Change		2018			2017			% Change
Net sales	$	280.8		$	291.5		(4)	%	$	536.1		$	580.5		(8)	%
Adjusted EBITDA	$	36.0		$	36.1		(0)	%	$	63.5		$	72.9		(13)	%
Adjusted EBITDA margin		13	%		12	%				12	%		13	%

Three Months Ended – June 30, 2018 vs. June 30, 2017

Of the 4% decrease in net sales, 9% was due to the pass through of lower raw material costs, particularly butadiene. This decrease was partially offset by a 1% increase due to higher sales volume, primarily related to the carpet and adhesives and construction markets, as well as a 4% increase due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis.

Adjusted EBITDA was flat year over year. Higher sales volume and favorable currency impacts, as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis, resulted in a 5% and 3% increase in Adjusted EBITDA, respectively. These increases were offset by unfavorable raw material impacts, including increasing butadiene cost in Asia, which resulted in a 7% decrease due to lower margins.

Six Months Ended – June 30, 2018 vs. June 30, 2017

Of the 8% decrease in net sales, 9% was due to the pass through of lower raw material costs, particularly butadiene, and 4% was due to lower sales volume, mainly to the Europe paper market, on a year-to-date basis. Partially offsetting these decreases was a 5% increase due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis.

Adjusted EBITDA decreased by 13%, including a 12% decrease due to margins, which was primarily attributable to raw material cost dynamics. Additionally, lower sales volume, primarily to the Europe paper market, resulted in a 7% decrease in Adjusted EBITDA. Partially offsetting these decreases was a 2% increase due to fixed cost improvements as well as a 3% increase due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis.

Synthetic Rubber Segment

Our Synthetic Rubber segment produces styrene-butadiene and polybutadiene-based rubber products used predominantly in high-performance tires, impact modifiers and technical rubber products, such as conveyor belts, hoses, seals and gaskets. We have a broad synthetic rubber technology and product portfolio, focusing on specialty products,

Table of Contents

such as SSBR, nickel polybutadiene rubber, or Ni-PBR, and neodymium polybutadiene rubber, or Nd-PBR, while also producing core products, such as emulsion styrene-butadiene rubber, or ESBR.


	Three Months Ended								Six Months Ended
	June 30,								June 30,
($ in millions)	2018			2017			% Change		2018			2017			% Change
Net sales	$	155.3		$	174.0		(11)	%	$	304.5		$	337.4		(10)	%
Adjusted EBITDA	$	30.6		$	27.7		10	%	$	56.2		$	74.0		(24)	%
Adjusted EBITDA margin		20	%		16	%				18	%		22	%

Three Months Ended – June 30, 2018 vs. June 30, 2017

Net sales decreased 11% from the prior year, primarily due to the pass through of lower raw material cost, particularly butadiene, which resulted in a 21% decrease. This decrease was partially offset by a 2% increase due to higher sales volume, specifically higher SSBR and ESBR sales volume, as well as an 8% increase due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis.

Of the 10% increase in Adjusted EBITDA, 3% was due to favorable net timing impacts, partially offset by lower margins across several products, including impacts from higher raw material and utility costs. Currency impacts resulted in a 6% increase, as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis, and lower fixed costs resulted in a 2% increase in Adjusted EBITDA.

Six Months Ended – June 30, 2018 vs. June 30, 2017

Net sales decreased 10% from the prior year, primarily due to the pass through of lower raw material cost, particularly butadiene, which resulted in an 18% decrease. Additionally, 2% of the decrease resulted from lower sales volume, primarily related to ESBR sales volume as export sales opportunities were more favorable in the prior year. These decreases were partially offset by a 10% increase due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis.

The majority of the decrease in Adjusted EBITDA was due to unfavorable raw material timing, primarily resulting from rapidly increasing butadiene prices in the prior year, higher utility cost, and product mix, as well as lower margins on export sales due to very favorable conditions in the prior year, which resulted in a combined $22.9 million, or 31% decrease. Partially offsetting these decreases were a 5% increase due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis, and a 2% increase from higher sales volume, primarily in SSBR.

Performance Plastics Segment

Our Performance Plastics segment consists of compounds and blends, and also includes our ABS, SAN, and PC businesses. We are a producer of highly engineered compounds and blends for various markets including automotive, consumer electronics, medical, electrical and lighting. In July 2017, the Company completed the acquisition of API Plastics, the results of which are reported within the Performance Plastics segment. Additionally, the Performance Plastics segment, as recast, also includes the results of our previously 50%-owned joint venture Sumika Styron Polycarbonate prior to its sale in January 2017. Refer to Notes 4 and 14 in the condensed consolidated financial statements for further information.

Table of Contents


	Three Months Ended								Six Months Ended
	June 30,								June 30,
($ in millions)	2018			2017			% Change		2018			2017			% Change
Net sales	$	412.8		$	339.2		22	%	$	815.6		$	676.2		21	%
Adjusted EBITDA	$	48.9		$	48.5		1	%	$	114.3		$	100.5		14	%
Adjusted EBITDA margin		12	%		14	%				14	%		15	%

Three Months Ended – June 30, 2018 vs. June 30, 2017

Of the 22% increase in net sales, 9% was due to higher sales volume, mainly from the Company’s ABS expansion in China, as well as an 8% increase due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis. Additionally, API Plastics resulted in a 4% increase and the pass through of higher raw material costs resulted in a 1% increase.

Adjusted EBITDA was relatively flat year over year. Higher sales volume, including the impact of the China ABS expansion, as well as the acquisition of API Plastics resulted in a combined 35% increase in Adjusted EBITDA. Currency impacts resulted in a 7% increase, as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis. These impacts were mostly offset by lower margin, including higher fixed costs, as well as an approximate $10.0 million unfavorable impact from significant planned maintenance activities in the current year, which resulted in a combined 42% decrease in Adjusted EBITDA.

Six Months Ended – June 30, 2018 vs. June 30, 2017

Of the 21% increase in net sales, 4% was due to higher sales volume, mainly from the Company’s ABS expansion in China, and 10% was due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis. Additionally, 2% of the increase was due to price increases, mainly from higher polycarbonate prices, as well as the pass through of higher raw material costs to our customers, and 4% of the increase was due to API Plastics.

The overall 14% increase in Adjusted EBITDA was the result of several factors. Higher sales volume, particularly from the Company’s ABS expansion in China, resulted in a 10% increase, and currency impacts resulted in a 9% increase, as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis. Portfolio adjustments resulted in a combined 3% increase in Adjusted EBITDA. Partially offsetting these increases were a 6% decrease from lower margins, primarily due to end market mix, and a 4% decrease from higher fixed costs, primarily due to significant planned maintenance activities in the current year.

Polystyrene Segment

Our product offerings in our Polystyrene segment include a variety of general purpose polystyrenes, or GPPS, and HIPS, which is polystyrene that has been modified with polybutadiene rubber to increase its impact resistant properties. These products provide customers with performance and aesthetics at a low cost across applications, including appliances, packaging, including food packaging and food service disposables, consumer electronics, and building and construction materials.


	Three Months Ended								Six Months Ended
	June 30,								June 30,
($ in millions)	2018			2017			% Change		2018			2017			% Change
Net sales	$	285.6		$	233.5		22	%	$	525.2		$	461.7		14	%
Adjusted EBITDA	$	13.7		$	6.8		101	%	$	23.3		$	20.5		14	%
Adjusted EBITDA margin		5	%		3	%				4	%		4	%

Three Months Ended – June 30, 2018 vs. June 30, 2017

Of the 22% increase in net sales, 10% was due to higher sales volume, particularly in Asia, and 7% was due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis. Additionally, the pass through of higher raw material costs to our customers resulted in a 5% increase in net sales.

Table of Contents

The increase in Adjusted EBITDA was primarily due to higher margins from favorable net timing impacts, which resulted in a 75% increase, as well as higher sales volume, particularly in Asia, which resulted in a 34% increase in Adjusted EBITDA. Currency impacts resulted in a 17% increase, as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis. These increases were partially offset by increased fixed costs, which decreased Adjusted EBITDA by 25%.

Six Months Ended – June 30, 2018 vs. June 30, 2017

Of the 14% increase in net sales, 5% was due to higher sales volume, particularly in Asia, and 8% was due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis.

The 14% increase in Adjusted EBITDA was primarily due to higher sales volume, particularly in Asia, which resulted in an 11% increase, and currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis, which resulted in an 11% increase. Partially offsetting these increases was a 10% decrease due to increased fixed costs.

Feedstocks Segment

The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material in many of the Company’s products, including, but not limited to, polystyrene, SB latex, ABS resins, and SSBR.


	Three Months Ended								Six Months Ended
	June 30,								June 30,
($ in millions)	2018			2017			% Change		2018			2017			% Change
Net sales	$	102.1		$	107.0		(5)	%	$	176.7		$	193.9		(9)	%
Adjusted EBITDA	$	32.4		$	(1.2)		2,800	%	$	73.9		$	40.7		82	%
Adjusted EBITDA margin		32	%		(1)	%				42	%		21	%

Three Months Ended – June 30, 2018 vs. June 30, 2017

Of the 5% decrease in net sales, lower styrene related sales volume resulted in a 22% decrease. This decrease was partially offset by the pass through of higher styrene prices, which resulted in a 12% increase, as well as a 5% increase due to currency impacts as the euro strengthened in comparison to the U.S. dollar on a quarter-to-date basis.

The increase in Adjusted EBITDA was mainly due to higher styrene margins resulting from continued strong demand which is increasing operating rates alongside limited supply additions, as well as favorable net timing impacts.

Six Months Ended – June 30, 2018 vs. June 30, 2017

Of the 9% decrease in net sales, lower styrene related sales volume resulted in a 19% decrease. The pass through of higher styrene prices resulted in a 2% increase, and currency impacts as the euro strengthened in comparison to the U.S. dollar on a year-to-date basis resulted in a 7% increase.

The increase in Adjusted EBITDA was mainly due to higher styrene margins and production volumes, primarily from continued strong demand which is increasing operating rates alongside limited supply additions.

Americas Styrenics Segment

The Americas Styrenics segment consists solely of the equity earnings from of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America. Styrene monomer is a basic building block of plastics and a key input to many of the Company’s products, as well as a key raw material for the production of polystyrene. Major applications for the polystyrene products Americas Styrenics produces include appliances, food packaging, food service disposables, consumer electronics, and building and construction materials.

Table of Contents


	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2018		2017		% Change		2018		2017		% Change
Adjusted EBITDA*	$	33.2	$	29.9	11	%	$	78.8	$	48.4	63	%

*The results of this segment are comprised entirely of earnings from Americas Styrenics, our equity method investment. As such, Adjusted EBITDA related to this segment is included within “Equity in earnings of unconsolidated affiliates” in the consolidated statements of operations.

Three Months Ended – June 30, 2018 vs. June 30, 2017

The increase in Adjusted EBITDA was mainly due to higher styrene margin, including an unfavorable impact in the prior year from lower margin spot sales following a maintenance outage.

Six Months Ended – June 30, 2018 vs. June 30, 2017

The increase in Adjusted EBITDA was mainly due to an extended production outage in the prior year at the Americas Styrenics St. James, LA facility, as well as higher styrene margins in the current year.

Non-GAAP Performance Measures

We present Adjusted EBITDA as a non-GAAP financial performance measure, which we define as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring charges; acquisition related costs and other items. In doing so, we are providing management, investors, and credit rating agencies with an indicator of our ongoing performance and business trends, removing the impact of transactions and events that we would not consider a part of our core operations.

There are limitations to using the financial performance measures such as Adjusted EBITDA. This performance measure is not intended to represent net income or other measures of financial performance. As such, it should not be used as an alternative to net income as an indicator of operating performance. Other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing a reconciliation of this performance measure to our net income, which is determined in accordance with GAAP.

Adjusted EBITDA is calculated as follows for the three and six months ended June 30, 2018 and 2017, respectively:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)	2018		2017		2018		2017
Net income	$	98.3	$	60.2	$	218.6	$	177.5
Interest expense, net		10.8		18.7		25.7		36.9
Provision for income taxes		20.4		18.8		45.3		48.1
Depreciation and amortization		32.3		26.3		64.3		51.0
EBITDA(a)	$	161.8	$	124.0	$	353.9	$	313.5
Loss on extinguishment of long-term debt		0.2		—		0.2		—
Net gain on disposition of businesses and assets(b)		—		—		(0.5)		(9.9)
Restructuring and other charges(c)		1.2		1.1		1.7		3.3
Acquisition transaction and integration costs(d)		0.2		1.1		0.6		1.1
Other items(e)		6.8		—		9.2		—
Adjusted EBITDA	$	170.2	$	126.2	$	365.1	$	308.0

(a)

EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because

Table of Contents

we believe it provides our management as well as our investors and credit agencies with meaningful information regarding the Company’s operational performance. We believe the use of EBITDA as a metric assists our board of directors, management and investors in comparing our operating performance on a consistent basis. Other companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of our EBITDA results to our net income, which is determined in accordance with GAAP.

(b)

Net gain on disposition of businesses and assets during the six months ended June 30, 2017 relates to the sale of our 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited, for which the Company recorded a gain on sale of $9.3 million. Refer to Note 4 in the condensed consolidated financial statements for further information.

(c)

Restructuring and other charges for the periods presented above primarily relate to decommissioning, contract termination, and employee termination benefit charges incurred in connection with the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands as well as the Company’s decision to cease manufacturing activities at our latex binders manufacturing facility in Livorno, Italy. Refer to Note 16 in the condensed consolidated financial statements for further information.

(d)

Acquisition transaction and integration costs for the periods presented above relate to advisory and professional fees incurred in conjunction with the Company’s acquisition of API Plastics. Refer to Note 14 in the condensed consolidated financial statements for further information.

(e)

Other items for the three and six months ended June 30, 2018 primarily relate to advisory and professional fees incurred in conjunction with the Company’s initiative to transition business services from Dow, including certain administrative services such as accounts payable, logistics, and IT services, as well as fees incurred in conjunction with the Company’s 2024 Term Loan B repricing which was completed during the second quarter of 2018.

Liquidity and Capital Resources

Cash Flows

The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2018 and 2017, respectively. We have derived the summarized cash flow information from our unaudited financial statements.


	Six Months Ended
	June 30,
(in millions)	2018		2017
Net cash provided by (used in):
Operating activities	$	182.4	$	36.6
Investing activities		(56.7)		(29.7)
Financing activities		(102.5)		(79.8)
Effect of exchange rates on cash		(4.6)		7.7
Net change in cash and cash equivalents	$	18.6	$	(65.2)

Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2018 totaled $182.4 million, inclusive of $67.5 million in dividends from Americas Styrenics. Net cash used in operating assets and liabilities for the six months ended June 30, 2018 totaled $91.8 million, noting increases in accounts receivable of $83.0 million and inventories of $31.0 million, and decreases in income taxes payable of $20.2 million. This activity was partially offset by an increase in accounts payable and other current liabilities of $31.8 million. Accounts receivable at the end of the second quarter increased relative to the end of 2017 primarily due to the pass through of increased raw material prices to our customers as well as increased sales volume. The increase in inventories was primarily due to increased raw material prices, partially offset by the sale of inventory that had been built in anticipation of planned turnarounds which occurred during the second quarter. The decrease in income taxes payable was a result of payment of certain cash taxes during the

Table of Contents

second quarter in our primary operating jurisdictions. The increase in accounts payable was primarily due to increases in raw material prices as well as timing of vendor payments.

Net cash provided by operating activities during the six months ended June 30, 2017 totaled $36.6 million, inclusive of $45.0 million in dividends from Americas Styrenics, as well as dividends from Sumika Styron Polycarbonate, $8.9 million of which were classified as operating activities, with the remaining $0.9 million classified as investing activities. Refer to Note 4 in the condensed consolidated financial statements for further information. Net cash used in operating assets and liabilities for the six months ended June 30, 2017 totaled $210.6 million, due primarily to increases in accounts receivable of $137.7 million and inventories of $66.8 million, respectively. The increases in accounts receivable and inventories were primarily due to increased raw material prices.

Investing Activities

Net cash used in investing activities during the six months ended June 30, 2018 totaled $56.7 million, primarily resulting from capital expenditures of $59.5 million. This was partially offset by proceeds received of $1.8 million from the sale of businesses and other assets, primarily comprised of $1.3 million received as a prepayment in connection with the Company’s preliminary agreement for the sale of certain land in Livorno, Italy (refer to Note 16 within the condensed consolidated financial statements for further information).

Net cash used in investing activities for the six months ended June 30, 2017 totaled $29.7 million, primarily from capital expenditures of $74.3 million during the period, partially offset by proceeds received of $42.1 million from the sale of the Company’s 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited.

Financing Activities

Net cash used in financing activities during the six months ended June 30, 2018 totaled $102.5 million. This activity was primarily due to $60.5 million of payments related to the repurchase of ordinary shares, $31.8 million of dividends paid, and $3.5 million of net principal payments related to our 2024 Term Loan B during the period. Additionally, net cash used in financing activities included $8.3 million of withholding taxes paid related to the vesting of certain RSUs during the period, partially offset by $2.3 million of proceeds received from the exercise of option awards.

Net cash used in financing activities during the six months ended June 30, 2017 totaled $79.8 million. This activity was primarily due to $56.4 million of payments related to the repurchase of ordinary shares during the period and $26.5 million of dividends paid, as well as $2.5 million of principal payments related to our 2021 Term Loan B. Partially offsetting these uses of cash was $6.0 million of proceeds received from the exercise of option awards.

Free Cash Flow

We use Free Cash Flow as a non-GAAP measure to evaluate and discuss the Company’s liquidity position and results. Free Cash Flow is defined as cash from operating activities, less capital expenditures. We believe that Free Cash Flow provides an indicator of the Company’s ongoing ability to generate cash through core operations, as it excludes the cash impacts of various financing transactions as well as cash flows from business combinations that are not considered organic in nature. We also believe that Free Cash Flow provides management and investors with a useful analytical indicator of our ability to service our indebtedness, pay dividends (when declared), and meet our ongoing cash obligations.

Free Cash Flow is not intended to represent cash flows from operations as defined by GAAP, and therefore, should not be used as an alternative for that measure. Other companies in our industry may define Free Cash Flow differently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the liquidity and cash generation of those companies to our own. We compensate for these limitations by providing a reconciliation to cash provided by operating activities, which is determined in accordance with GAAP.

Table of Contents


	Six Months Ended
	June 30,
(in millions)	2018		2017
Cash provided by operating activities	$	182.4	$	36.6
Capital expenditures		(59.5)		(74.3)
Free Cash Flow	$	122.9	$	(37.7)

Refer to the discussion above for significant impacts to cash provided by operating activities for the six months ended June 30, 2018 and 2017, respectively.

Capital Resources and Liquidity

We require cash principally for day-to-day operations, to finance capital investments and other initiatives, to purchase materials, to service our outstanding indebtedness, and to fund dividend payments to our shareholders. Our sources of liquidity include cash on hand, cash flow from operations, and amounts available under the Senior Credit Facility and the Accounts Receivable Securitization Facility (discussed further below).

As of June 30, 2018 and December 31, 2017, we had $1,196.1 million and $1,199.7 million, respectively, in outstanding indebtedness and $1,157.5 million and $1,019.6 million, respectively, in working capital. In addition, as of June 30, 2018 and December 31, 2017, we had $117.4 million and $128.3 million, respectively, of foreign cash and cash equivalents on our balance sheet, outside of our country of domicile of Luxembourg, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries.

The following table outlines our outstanding indebtedness as of June 30, 2018 and December 31, 2017 and the associated interest expense, including amortization of deferred financing fees and debt discounts. Effective interest rates for the borrowings included in the table below exclude the impact of deferred financing fee amortization, certain other fees charged to interest expense (such as fees for unused commitment fees during the period), and the impacts of derivatives designating as hedging instruments. For definitions of capitalized terms not included herein, refer to our Annual Report.


	As of and for the Six Months Ended						As of and for the Year Ended
	June 30, 2018						December 31, 2017
			Effective						Effective
			Interest		Interest				Interest		Interest
($ in millions)	Balance		Rate		Expense		Balance		Rate		Expense
Senior Credit Facility
2024 Term Loan B	$	694.8	4.2	%	$	15.9	$	698.3	3.9	%	$	9.6
2022 Revolving Facility		—	—			1.4		—	—			1.0
2020 Senior Credit Facility
2021 Term Loan B		—	—			—		—	4.3	%		15.9
2020 Revolving Facility		—	—			—		—	—			2.3
2025 Senior Notes		500.0	5.4	%		10.0		500.0	5.4	%		9.4
2022 Senior Notes
USD Notes		—	—			—		—	6.8	%		14.4
Euro Notes		—	—			—		—	6.4	%		18.8
Accounts Receivable Securitization Facility		—	—			0.8		—	—			2.8
Other indebtedness*		1.3	4.8	%		—		1.4	4.8	%		0.1
Total	$	1,196.1			$	28.1	$	1,199.7			$	74.3

*For the six months ended June 30, 2018, interest expense on “Other indebtedness” totaled less than $0.1 million.

Our Senior Credit Facility includes the 2022 Revolving Facility, which matures in September 2022, and has a borrowing capacity of $375.0 million. As of June 30, 2018, the Company had no outstanding borrowings, and had

Table of Contents

$360.4 million (net of $14.6 million outstanding letters of credit) of funds available for borrowing under the 2022 Revolving Facility. Further, as of June 30, 2018, the Borrowers are required to pay a quarterly commitment fee in respect of any unused commitments under the 2022 Revolving Facility equal to 0.375% per annum.

Also included in our Senior Credit Facility is our 2024 Term Loan B (with original principal of $700.0 million, maturing in September 2024), which requires scheduled quarterly payments in amounts equal to 0.25% of the original principal. During the second quarter of 2018, the Company executed a repricing of its 2024 Term Loan B, thereby reducing the stated interest rate on this facility from LIBOR plus 2.50% to LIBOR plus 2.00% (subject to a 0.00% LIBOR floor in both instances). Additionally, the Company made net principal payments of $3.5 million on the 2024 Term Loan B during the six months ended June 30, 2018, with an additional $7.0 million of scheduled future payments classified as current debt on the Company’s condensed consolidated balance sheet as of June 30, 2018.

Our 2025 Senior Notes, as issued under the Indenture, include $500.0 million aggregate principal amount of 5.375% senior notes that mature on September 1, 2015. Interest on the 2025 Senior Notes is payable semi-annually on May 3 and November 3 of each year, which commenced on May 3, 2018. These notes may be redeemed prior to their maturity at the option of the Company under certain circumstances at specific redemption prices. Refer to our Annual Report for further information.

We also continue to maintain our Accounts Receivable Securitization Facility which matures in May 2019 and contains a borrowing capacity of $150.0 million. As of June 30, 2018, there were no amounts outstanding under this facility, and the Company had accounts receivable available to support this facility in excess of its borrowing capacity, based on the pool of eligible accounts receivable.

The Senior Credit Facility and Indenture contain certain customary affirmative, negative and financial covenants. As of June 30, 2018, the Company was in compliance with all of these debt covenant requirements. Refer to our Annual Report for further information on the details of these covenant requirements.

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

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

Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers” of our 2025 Senior Notes and “Borrowers” under our Senior Credit Facility) are dependent upon the cash generation and receipt of distributions and dividends or other payments from our subsidiaries and joint venture in order to satisfy their debt obligations. There are no known significant restrictions by third parties on the ability of subsidiaries of the Company to disburse or dividend funds to the Issuers and the Borrowers in order to satisfy these obligations. However, as the Company’s subsidiaries are located in a variety of jurisdictions, the Company can give no assurances that its subsidiaries will not face transfer restrictions in the future due to regulatory or other reasons beyond our control.

The Senior Credit Facility and Indenture also limit the ability of the Borrowers and Issuers, respectively, to pay dividends or make other distributions to Trinseo S.A., which could then be used to make distributions to shareholders. During the six months ended June 30, 2018, the Company declared total dividends of $0.76 per ordinary share (totaling $33.1 million), $18.3 million of which remains accrued as of June 30, 2018 and the majority of which will be paid in July 2018. These dividends are well within the available capacity under the terms of the restrictive covenants contained in the Senior Credit Facility and Indenture. Further, significant additional capacity continues to be available under the terms of these covenants to support expected future dividends to shareholders, should the Company continue to declare them.

The Company’s cash flow generation in recent years has been strong, with positive cash flows expected to continue for full year 2018. We believe that funds provided by operations, our existing cash and cash equivalent balances, borrowings available under our 2022 Revolving Facility and our Accounts Receivable Securitization Facility will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current operating conditions. Nevertheless, our ability to generate future cash and to pay our indebtedness and fund other liquidation needs is subject to certain risks described under Part I, Item 1A-“Risk Factors” of our Annual Report. As of June 30, 2018, we

Table of Contents

were in compliance with all the covenants and default provisions under our debt agreements.

Contractual Obligations and Commercial Commitments

Other than the repricing of the Company’s 2024 Term Loan B, which was completed in May 2018 (refer to Note 6 in 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, in the Notes to Consolidated Financial Statements included in our Annual Report, while we discuss our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report. There have been no material revisions to the significant accounting policies or critical accounting policies and estimates as filed in our Annual Report, other than the impacts to our significant accounting policies from the adoption of recent revenue accounting guidance adopted January 1, 2018 and recent hedge accounting guidance adopted April 1, 2018, discussed further within Notes 2, 3, and 8 to the condensed consolidated financial statements.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

We describe the impact of recent accounting pronouncements in Note 2 to our condensed consolidated financial statements, included elsewhere within this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As discussed in “Quantitative and Qualitative Disclosures About Market Risk” within our Annual Report, we are exposed to changes in interest rates and foreign currency exchange rates as well as changes in the prices of certain commodities that we use in production. There have been no material changes in our exposure to market risks from the information provided within our Annual Report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining internal controls designed to provide reasonable assurance that information required to be disclosed by us in our reports that we file or submit under the Exchange Act (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, with the participation of our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2018. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report were effective to provide the reasonable level of assurance described above.

Table of Contents

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As discussed in Note 14 to the condensed consolidated financial statements, in July 2017, the Company completed the acquisition of API Plastics. As permitted by the SEC, management elected to exclude this acquisition from its assessment of the effectiveness of its internal control over financial reporting as of December 31, 2017. As of June 30, 2018, the Company was in the process of finalizing the integration of API Plastics into its internal control system, which was completed in July 2018.

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, 2017. The information presented below provides an update to, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report. 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.

Trinseo Europe GmbH, one of our subsidiaries, received a Request for Information from the European Commission Directorate General for Competition, involving commercial activity for styrene monomer. To the extent the European Commission’s inquiry would lead to findings that the Company’s subsidiary violated the law, the results of this finding could have a material adverse effect on our business, financial condition and results of operations.

On June 6, 2018, Trinseo Europe GmbH, a subsidiary of the Company, received a Request for Information in the form of a letter from the European Commission Directorate General for Competition (the “European Commission”) related to styrene monomer commercial activity in the European Economic Area. The Company is fully cooperating with the European Commissions’ request and has delivered all requested documents responsive to this request.

Notwithstanding the delivery of our response to the European Commission, this matter remains open with the European Commission. As a result, we are unable to make any predictions regarding the ultimate outcome of our response to the European Commission’s request.

Based on its findings, the European Commission may decide to: (i) require further information; (ii) conduct unannounced raids of the Company’s premises; (iii) adopt decisions imposing fines, interim measures to halt immediately any anti-competitive behavior, orders for the Company to cease anti-competitive activities, and/or certain behavioral or structural commitments from the Company; or (iv) take no further action. If Trinseo Europe GmbH is found to have violated one or more laws, it could also be subject to additional actions by local competition authorities. European Commission inquiries or investigations can continue over a long period of time, which can divert the attention of our management from day-to-day operations and impose significant administrative burdens. Any of these

Table of Contents

consequences could damage our reputation and impair our ability to conduct business, which could have a material adverse effect on our business, financial condition and results of operations.

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

(a)Recent sales of unregistered securities

None.

(b)Use of Proceeds from registered securities

None.

(c)Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table contains information regarding purchases of our ordinary shares made during the quarter ended June 30, 2018 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934:


Issuer Purchases of Equity Securities
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate number of shares that may yet be purchased under the plans or programs
April 1 - April 30, 2018	261,581	$	74.20	261,581	935,527	(1)
May 1 - May 31, 2018	209,653	$	74.32	209,653	725,874	(1)
June 1 - June 30, 2018	—	$	—	—	725,874	(1)
Total	471,234	$	74.26	471,234

(1)

The general meeting of our shareholders on June 21, 2017 authorized the Company to sunset the 2016 share repurchase authorization and replace it with a new authorization to repurchase up to 4.0 million ordinary shares at a price per share of not less than $1.00 and not more than $1,000. This authorization ends on June 21, 2020 or on the date of its renewal by a subsequent general meeting of shareholders. On June 22, 2017 the Company announced that the board of directors had authorized the Company to repurchase, subject to market and other conditions, up to 2.0 million shares over the subsequent 18 months under the 2017 share repurchase authorization.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

Table of Contents

EXHIBIT INDEX

Exhibit No.	Description
3.1†	Amended and Restated Articles of Association of Trinseo S.A.

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

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

10.1	Credit Agreement among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., together with Trinseo Holding S.à r.l. and Trinseo Materials S.à r.l., Deutsche Bank AG New York Branch, as administrative agent, collateral agent, L/C issuer and swing line lender, and the guarantors and lenders party thereto from time to time, dated as of September 6, 2017 (incorporated herein by reference to Exhibit 10.1 to the Current Report filed on Form 8-K, File No. 001-36473, filed September 7, 2017)

10.2†	Amendment to the Credit Agreement dated September 6, 2017 among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., together with Trinseo Holding S.à r.l. and Trinseo Materials S.à r.l., Deutsche Bank AG New York Branch, as administrative agent, collateral agent, L/C issuer and swing line lender, and the guarantors and lenders party thereto from time to time, dated as of May 22, 2018

10.3	Form of Cross Currency Rate Swap Transaction Confirmation (incorporated herein by reference to Exhibit 10.2 to the Current Report filed on Form 8-K, File No. 001-36473, filed September 7, 2017)

10.4†	Letter Agreement, dated June 18, 2018, between Trinseo S.A. and Angelo N. Chaclas, defining retirement for purpose of equity awards

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

Table of Contents

101.PRE†

XBRL Taxonomy Extension Presentation Linkbase Document

† Filed herewith.

Table of Contents

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: August 3, 2018

	TRINSEO S.A.

	By:	/s/ Christopher D. Pappas
	Name:	Christopher D. Pappas
	Title:	President, Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Barry J. Niziolek
	Name:	Barry J. Niziolek
	Title:	Executive Vice President, Chief Financial Officer
		(Principal Financial Officer)