UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
EXCHANGE ACT OF 1934
For the quarterly period ended
or
EXCHANGE ACT OF 1934
For the transition period from to
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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.
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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 | ◻ | ☒ | |||
Non-accelerated filer | ◻ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of October 25, 2024, there were
TABLE OF CONTENTS
2
Trinseo PLC
Quarterly Report on Form 10-Q
For the quarterly period ended September 30, 2024
Unless otherwise indicated or required by context, as used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the term “Trinseo PLC” refers to Trinseo PLC (NYSE: TSE), a public limited company existing under the laws of Ireland, and not its subsidiaries. The terms “Trinseo”, the “Company,” “we,” “us” and “our” refer to Trinseo PLC and its consolidated subsidiaries, taken as a consolidated entity. All financial data provided in this Quarterly Report is the financial data of Trinseo PLC, 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”). The Company may distribute cash to shareholders under Irish law via dividends or distributions made from distributable profits.
Definitions of capitalized terms not defined herein appear within our Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on February 23, 2024.
Cautionary Note on Forward-Looking Statements
This Quarterly Report contains, without limitation, statements concerning plans, objectives, goals, projections, forecasts, 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,” “believe,” “intend,” “forecast,” ”estimate,” “see,” “outlook,” “will,” “may,” “might,” “potential,” “likely,” “target,” “plan,” “contemplate,” “seek,” “attempt,” “should,” “could,” “would,” or expressions of similar meaning. Forward-looking statements reflect management’s evaluation of information currently available and are based on our current expectations and assumptions regarding our business, the economy, our current indebtedness 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 cause future results to differ from those expressed by the forward-looking statements, or otherwise 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 future results to differ from those expressed by the forward-looking statements include, but are not limited to, our ability to successfully implement proposed restructuring initiatives, including the closure of certain plants and product lines, and to successfully generate cost savings through restructuring and cost reduction initiatives; our ability to successfully execute our business and transformation strategy; the timing of, and our ability to complete, a sale of our interest in Americas Styrenics; increased costs or disruption in the supply of raw materials; deterioration of our credit profile limiting our access to commercial credit; increased energy costs; compliance with laws and regulations impacting our business; any disruptions in production at our chemical manufacturing facilities, including those resulting from accidental spills or discharges; conditions in the global economy and capital markets; our current and future levels of indebtedness and our ability to service, repay or refinance our indebtedness; our ability to meet the covenants under our existing indebtedness; our ability to generate cash flows from operations and achieve our forecasted cash flows; and those discussed in our Annual Report filed with the SEC on February 23, 2024 under Part I, Item IA— “Risk Factors,” within this Quarterly Report and in other filings and furnishings made by the Company with the SEC from time to time.
As a result of these or other factors, our actual results, performance or achievements may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Therefore, we caution you against relying on these forward-looking statements. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge through the Investor Relations section of our website, www.trinseo.com, as soon as reasonably practicable after the reports are electronically filed or furnished with the SEC. We provide this website and information contained in or connected to it for informational purposes only. That information is not a part of this Quarterly Report.
3
PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
TRINSEO PLC
Condensed Consolidated Balance Sheets
(In millions, except per share data)
(Unaudited)
September 30, | December 31, | ||||||
| 2024 | 2023 | |||||
Assets |
|
| |||||
Current assets | |||||||
Cash and cash equivalents | $ | | $ | | |||
Accounts receivable, net of allowances (September 30, 2024: $ | | | |||||
Inventories |
| |
| | |||
Other current assets |
| |
| | |||
Total current assets |
| |
| | |||
Investments in unconsolidated affiliate |
| |
| | |||
Property, plant and equipment, net of accumulated depreciation (September 30, 2024: $ |
| | | ||||
Other assets | |||||||
Goodwill |
| |
| | |||
Other intangible assets, net |
| |
| | |||
Right-of-use assets – operating, net | | | |||||
Deferred income tax assets |
| |
| | |||
Deferred charges and other assets |
| |
| | |||
Total other assets |
| |
| | |||
Total assets | $ | | $ | | |||
Liabilities and shareholders’ equity | |||||||
Current liabilities | |||||||
Short-term borrowings and current portion of long-term debt | $ | | $ | | |||
Accounts payable |
| |
| | |||
Current lease liabilities – operating | | | |||||
Income taxes payable |
| |
| | |||
Accrued expenses and other current liabilities |
| |
| | |||
Total current liabilities |
| |
| | |||
Noncurrent liabilities | |||||||
Long-term debt, net of unamortized deferred financing fees |
| |
| | |||
Noncurrent lease liabilities – operating | | | |||||
Deferred income tax liabilities |
| |
| | |||
Other noncurrent obligations |
| |
| | |||
Total noncurrent liabilities |
| |
| | |||
Commitments and contingencies (Note 14) | |||||||
Shareholders’ equity | |||||||
Ordinary shares, $ | | | |||||
Preferred shares, € | |||||||
Deferred ordinary shares, € | — | — | |||||
Additional paid-in-capital |
| |
| | |||
Treasury shares, at cost (September 30, 2024: | ( | ( | |||||
Accumulated deficit |
| ( |
| ( | |||
Accumulated other comprehensive loss |
| ( |
| ( | |||
Total shareholders’ equity |
| ( |
| ( | |||
Total liabilities and shareholders’ equity | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TRINSEO PLC
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, |
| ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
|
| |||||
Net sales |
| $ | |
| $ | |
| $ | |
| $ | | ||
Cost of sales |
| |
| |
| |
| | ||||||
Gross profit |
| |
| |
| |
| | ||||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||||
Equity in earnings of unconsolidated affiliate |
| |
| |
| |
| | ||||||
Impairment and other charges | — | | — | | ||||||||||
Operating loss |
| ( |
| ( |
| ( |
| ( | ||||||
Interest expense, net |
| |
| |
| |
| | ||||||
Loss on extinguishment of long-term debt |
| | | | | |||||||||
Other income, net |
| ( |
| ( | ( | ( | ||||||||
Loss before income taxes |
| ( |
| ( |
| ( |
| ( | ||||||
Provision for (benefit from) income taxes |
| |
| ( |
| |
| ( | ||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Weighted average shares‒basic | | | | | ||||||||||
Net loss per share‒basic: | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Weighted average shares‒diluted |
| |
| |
| |
| | ||||||
Net loss per share‒diluted: | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TRINSEO PLC
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||
Net loss |
| $ | ( | $ | ( |
| $ | ( |
| $ | ( |
| |
Other comprehensive income (loss), net of tax: |
| ||||||||||||
Cumulative translation adjustments | | ( | |
| ( | ||||||||
Net gain (loss) on cash flow hedges (net of tax of $( | | | | ( | |||||||||
Pension and other postretirement benefit plans: | |||||||||||||
Net loss arising during period | ( | — | ( | — | |||||||||
Amounts reclassified from accumulated other comprehensive loss | ( | ( | ( | ( | |||||||||
Total other comprehensive income (loss), net of tax |
| |
| ( |
| |
| ( | |||||
Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
TRINSEO PLC
Condensed Consolidated Statements of Shareholders’ Equity
(In millions, except per share data)
(Unaudited)
| Shares |
| Shareholders' Equity | ||||||||||||||||||||||||
| Ordinary Shares Outstanding |
| Treasury Shares | Deferred Ordinary Shares |
| Ordinary Shares | Deferred Ordinary Shares | Additional |
| Treasury Shares |
| Accumulated Other Comprehensive Loss |
| Accumulated Deficit |
| Total | |||||||||||
Balance at December 31, 2023 |
| | | — | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
Net loss |
| — | — | — | — | — | — | — | — | ( |
| ( | |||||||||||||||
Other comprehensive loss |
| — | — | — | — | — | — | — | ( | — |
| ( | |||||||||||||||
Share-based compensation activity |
| | — | — | — | — | | — | — | — |
| | |||||||||||||||
Dividends on ordinary shares ($ | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Balance at March 31, 2024 |
| | | — | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
Net loss |
| — | — | — | — | — | — | — | — | ( |
| ( | |||||||||||||||
Other comprehensive loss |
| — | — | — | — | — | — | — | — | — |
| — | |||||||||||||||
Share-based compensation activity |
| | — | — | — | — | | — | — | — |
| | |||||||||||||||
Dividends on ordinary shares ($ | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Balance at June 30, 2024 |
| | | — | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
Net loss |
| — | — | — |
| — | — |
| — |
| — |
| — |
| ( |
| ( | ||||||||||
Other comprehensive income |
| — | — | — |
| — | — |
| — |
| — |
| |
| — |
| | ||||||||||
Share-based compensation activity |
| — | — | — |
| — | — |
| |
| — |
| — |
| — |
| | ||||||||||
Dividends on ordinary shares ($ | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Balance at September 30, 2024 |
| | | — | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
7
| Shares |
| Shareholders' Equity | ||||||||||||||||||||||||
| Ordinary Shares Outstanding |
| Treasury Shares | Deferred Ordinary Shares |
| Ordinary Shares | Deferred Ordinary Shares | Additional |
| Treasury Shares |
| Accumulated Other Comprehensive Loss |
| Accumulated Deficit |
| Total | |||||||||||
Balance at December 31, 2022 |
| | | — | $ | | $ | — | $ | | $ | ( | $ | ( | $ | | $ | | |||||||||
Net loss |
| — | — | — | — | — | — | — | — | ( |
| ( | |||||||||||||||
Other comprehensive income |
| — | — | — | — | — | — | — | | — |
| | |||||||||||||||
Share-based compensation activity |
| | — | — | — | — | | — | — | — |
| | |||||||||||||||
Dividends on ordinary shares ($ | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Balance at March 31, 2023 |
| | | — | $ | | $ | — | $ | | $ | ( | $ | ( | $ | | $ | | |||||||||
Net loss |
| — | — | — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||||
Other comprehensive loss |
| — | — | — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||||
Share-based compensation activity |
| — | — | — |
| — |
| — |
| |
| — |
| — |
| — |
| | |||||||||
Dividends on ordinary shares ($ | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Balance at June 30, 2023 |
| | | — | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | | |||||||||
Net loss |
| — | — | — | — | — | — | — | — | ( |
| ( | |||||||||||||||
Other comprehensive loss |
| — | — | — | — | — | — | — | ( | — |
| ( | |||||||||||||||
Share-based compensation activity |
| — | — | — | — | — | | — | — | — |
| | |||||||||||||||
Dividends on ordinary shares ($ | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Balance at September 30, 2023 |
| | | — | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
TRINSEO PLC
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Nine Months Ended | |||||||
September 30, | |||||||
| 2024 |
| 2023 | ||||
Cash flows from operating activities |
|
|
|
|
| ||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities | |||||||
Depreciation and amortization |
| |
| | |||
Amortization of deferred financing fees and issuance discount |
| |
| | |||
Deferred income tax (benefit) |
| |
| ( | |||
Share-based compensation expense |
| |
| | |||
Earnings of unconsolidated affiliate, net of dividends |
| ( |
| | |||
Unrealized net gain on foreign exchange forward contracts |
| ( |
| ( | |||
Unrealized net loss (gain) on commodity economic swap contracts | ( | | |||||
Pension curtailment and settlement gain | ( | ( | |||||
Loss on extinguishment of long-term debt |
| | | ||||
Gain on sale of other assets |
| ( | ( | ||||
Impairment charges or write-offs |
| — | | ||||
Changes in assets and liabilities | |||||||
Accounts receivable |
| |
| | |||
Inventories |
| ( |
| | |||
Accounts payable and other current liabilities |
| |
| ( | |||
Income taxes payable |
| ( |
| | |||
Other assets, net |
| ( |
| | |||
Other liabilities, net |
| ( |
| ( | |||
Cash provided by (used in) operating activities | ( | | |||||
Cash flows from investing activities | |||||||
Capital expenditures |
| ( |
| ( | |||
Proceeds from the sale of other assets |
| |
| | |||
Cash used in investing activities | ( | ( | |||||
Cash flows from financing activities | |||||||
Deferred financing fees |
| ( |
| ( | |||
Short-term borrowings, net |
| ( |
| ( | |||
Dividends paid | ( | ( | |||||
Proceeds from exercise of option awards | — | | |||||
Withholding taxes paid on restricted share units | — | ( | |||||
Acquisition-related contingent consideration payment | ( | ( | |||||
Net proceeds from issuance of 2028 Refinance Term Loans | — | | |||||
Repurchases and repayments of long-term debt | ( | ( | |||||
Proceeds from Accounts Receivable Securitization Facility |
| |
| — | |||
Repayments of Accounts Receivable Securitization Facility |
| ( |
| — | |||
Cash provided by (used in) financing activities |
| |
| ( | |||
Effect of exchange rates on cash |
| ( |
| ( | |||
Net change in cash, cash equivalents, and restricted cash |
| ( |
| | |||
Cash, cash equivalents, and restricted cash—beginning of period |
| |
| | |||
Cash, cash equivalents, and restricted cash—end of period | $ | | $ | | |||
Less: Restricted cash | | — | |||||
Cash and cash equivalents—end of period | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
TRINSEO PLC
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 PLC and its subsidiaries (the “Company”) as of and for the periods ended September 30, 2024 and 2023 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 2023 audited consolidated financial statements included within the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on February 23, 2024. The Company’s condensed consolidated financial statements presented herein reflect the latest estimates and assumptions made by management that affect the reported amounts and related disclosures as of and for the period ended September 30, 2024. However, actual results could differ from these estimates and assumptions.
The December 31, 2023 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 2023 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.
Effective January 1, 2024, the Company’s Feedstocks segment, which included the Company’s production and procurement of styrene monomer outside of North America, was eliminated as a result of the closures of the styrene plants located in Boehlen, Germany and Terneuzen, the Netherlands under an asset restructuring plan. As a result, the Company realigned its reporting segments to reflect the new model under which the business is managed with
NOTE 2—RECENT ACCOUNTING GUIDANCE
As of September 30, 2024, there was no recently issued accounting standards which would have a material effect on the Company’s condensed consolidated financial statements.
10
NOTE 3—NET SALES
Refer to the Annual Report for information on the Company's accounting policies and further background related to its net sales.
The following table provides disclosure of net sales to external customers by primary geographical market (based on the location where sales originated), by segment for the three and nine months ended September 30, 2024 and 2023. Prior period balances in this table have been reclassified to reflect the elimination of the Feedstocks reportable segment effective January 1, 2024. Refer to Note 17 for further information.
Engineered | Latex | Plastics |
| |||||||||||||
Three Months Ended | Materials | Binders | Solutions | Polystyrene | Total |
| ||||||||||
September 30, 2024 | ||||||||||||||||
United States | $ | | $ | | $ | | $ | — | $ | | ||||||
Europe |
| |
| |
| |
| |
| | ||||||
Asia-Pacific |
| |
| |
| |
| |
| | ||||||
Rest of World |
| |
| |
| |
| — |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | ||||||
September 30, 2023 | ||||||||||||||||
United States | $ | | $ | | $ | | $ | — | $ | | ||||||
Europe |
| |
| |
| |
| |
| | ||||||
Asia-Pacific |
| |
| |
| |
| | | |||||||
Rest of World |
| |
| |
| |
| — |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | ||||||
Engineered | Latex | Plastics |
| |||||||||||||
Nine Months Ended | Materials | Binders | Solutions | Polystyrene | Total |
| ||||||||||
September 30, 2024 | ||||||||||||||||
United States | $ | | $ | | $ | | $ | — | $ | | ||||||
Europe |
| |
| |
| |
| |
| | ||||||
Asia-Pacific |
| |
| |
| |
| |
| | ||||||
Rest of World |
| |
| |
| |
| — |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | ||||||
September 30, 2023 | ||||||||||||||||
United States | $ | | $ | | $ | | $ | — | $ | | ||||||
Europe |
| |
| |
| |
| |
| | ||||||
Asia-Pacific |
| |
| |
| |
| | | |||||||
Rest of World |
| |
| |
| |
| — |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | ||||||
11
NOTE 4—RESTRUCTURING ACTIVITIES
Refer to the Annual Report for further details regarding the Company’s previously announced restructuring activities included in the tables below. Restructuring charges are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations.
The following table provides detail of the Company’s restructuring charges for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended | Nine Months Ended | Cumulative | ||||||||||||||||
September 30, | September 30, | Life-to-date | ||||||||||||||||
2024 |
| 2023 | 2024 |
| 2023 | Charges |
| Segment | ||||||||||
2024 Restructuring Plan(1) | ||||||||||||||||||
Engineered Materials | ||||||||||||||||||
Employee termination benefits | $ | | $ | — | $ | | $ | — | $ | | Engineered Materials | |||||||
Latex Binders | ||||||||||||||||||
Employee termination benefits | $ | | $ | — | $ | | $ | — | $ | | Latex Binders | |||||||
Plastics Solutions: | ||||||||||||||||||
Accelerated depreciation | $ | | $ | — | $ | | $ | — | $ | | Plastics Solutions | |||||||
Employee termination benefits | | — | | — | | Plastics Solutions | ||||||||||||
Contract terminations | | — | | — | | Plastics Solutions | ||||||||||||
Polystyrene | ||||||||||||||||||
Employee termination benefits | $ | | $ | — | $ | | $ | — | $ | | Polystyrene | |||||||
Corporate | ||||||||||||||||||
Employee termination benefits | $ | | $ | — | $ | | $ | — | $ | | N/A(4) | |||||||
2024 Restructuring Plan Subtotal | $ | | $ | — | $ | | $ | — | $ | | ||||||||
Asset Optimization and Corporate Restructuring(2) | ||||||||||||||||||
Engineered Materials: | ||||||||||||||||||
Accelerated depreciation | $ | — | $ | | $ | — | $ | | $ | | Engineered Materials | |||||||
Employee termination benefits | — | | — | | | Engineered Materials | ||||||||||||
Decommissioning and other | | | | | | Engineered Materials | ||||||||||||
Plastics Solutions(3): | ||||||||||||||||||
Accelerated depreciation | $ | | $ | — | $ | | $ | — | $ | | Plastics Solutions | |||||||
Employee termination benefits | — | — | ( | — | | Plastics Solutions | ||||||||||||
Contract terminations | — | — | | — | | Plastics Solutions | ||||||||||||
Decommissioning and other | | — | | — | | Plastics Solutions | ||||||||||||
Corporate: | ||||||||||||||||||
Employee termination benefits | $ | | $ | | $ | | $ | | $ | | N/A(4) | |||||||
Asset Optimization and Corporate Restructuring Subtotal | $ | | $ | | $ | | $ | | $ | | ||||||||
| (1) | On September 26, 2024, the Board of Directors of Trinseo PLC (the “Company”) approved a restructuring plan (the “2024 Restructuring Plan”) designed to reduce costs by streamlining commercial and operational activities and to further improve profitability and better position the Company for longer term growth and cash flow generation. The 2024 Restructuring Plan includes: (i) combining the management of its Engineered Materials, Plastics Solutions and Polystyrene businesses, effective October 1, 2024, (ii) a reduction in workforce of supporting functions, and (iii) the exit of virgin polycarbonate production at its Stade, Germany production facility. |
During the three and nine months ended September 30, 2024, the Company incurred employee termination benefits of $
The Company expects to incur incremental accelerated depreciation charges of $
12
| (2) | On August 23, 2023, the Company announced a restructuring plan to optimize its polymethyl methacrylates (“PMMA”) sheet network, primarily in Europe, consolidate manufacturing operations and certain other workforce reductions to streamline its general & administrative network. The Asset Optimization and Corporate Restructuring plan includes closure of certain plants and product lines, including (i) closure of manufacturing operations at the Company’s PMMA cast sheets plant in Bronderslev, Denmark, (ii) closure of manufacturing operations at the Company’s batch polyester tray casting plant in Belen, New Mexico, and (iii) closure of its PMMA extruded sheet production line at its Rho, Italy plant. |
On October 26, 2023, the management team of the Company, with authorization from the Company’s Board of Directors, approved additional actions to discontinue styrene production at the Company’s Terneuzen, the Netherlands plant, decommission the styrene plant assets, as well as related workforce reductions.
During the three and nine months ended September 30, 2024, the Company incurred employee termination benefit charges, net of $
The Company expects to incur decommissioning and other charges of $
| (3) | As of January 2024, the Feedstocks segment was eliminated as a result of the closures of the styrene plants located in Boehlen, Germany and Terneuzen, the Netherlands under an asset restructuring plan. Prior period balances in this table have been reclassified to reflect the elimination of the Feedstocks reportable segment effective January 1, 2024. These charges were previously recognized under Feedstocks segment but have been allocated to Plastics Solutions segment starting January 1, 2024 and onward. |
| (4) | Reflects certain employee termination benefit charges associated with streamlining internal general & administrative network. As these employee termination benefit charges were identified as a corporate-related activity, the charges related to these portions of the 2024 Restructuring Plan and the Asset Optimization plan were not allocated to a specific segment, but rather included within corporate unallocated. |
Three Months Ended | Nine Months Ended | Cumulative | |||||||||||||||
September 30, | September 30, | Life-to-date | |||||||||||||||
2024 |
| 2023 | 2024 |
| 2023 | Charges |
| Segment | |||||||||
Asset Restructuring Plan(1) | |||||||||||||||||
Plastic Solutions(2): | |||||||||||||||||
Accelerated depreciation | $ | — | $ | ( | $ | — | $ | ( | $ | | Plastics Solutions(3) | ||||||
Employee termination benefits | — | — | — | ( | | Plastics Solutions(3) | |||||||||||
Contract terminations | | | | | | Plastics Solutions(3) | |||||||||||
Decommissioning and other | | | | | | Plastics Solutions(3) | |||||||||||
Plastics Solutions: | |||||||||||||||||
Accelerated depreciation | $ | — | $ | — | $ | — | $ | — | $ | | Plastics Solutions | ||||||
Employee termination benefits | — | — | ( | ( | | Plastics Solutions | |||||||||||
Decommissioning and other | — | | — | | | Plastics Solutions | |||||||||||
Engineered Materials: | |||||||||||||||||
Accelerated depreciation | $ | — | $ | — | $ | — | $ | | $ | | Engineered Materials | ||||||
Employee termination benefits | — | | — | | | Engineered Materials | |||||||||||
Decommissioning and other | — | — | — | ( | | Engineered Materials | |||||||||||
Asset Restructuring Plan Subtotal | $ | | $ | ( | $ | | $ | | $ | | |||||||
Transformational Restructuring Program(4) | |||||||||||||||||
Employee termination benefits | $ | — | $ | ( | $ | — | $ | ( | $ | | |||||||
Transformational Restructuring Program Subtotal | $ | — | $ | ( | $ | — | $ | ( | $ | | N/A(5) | ||||||
$ | | $ | | $ | | $ | | ||||||||||
| (1) | In December 2022, the Company announced an asset restructuring plan designed to reduce costs, improve profitability, reduce exposure to cyclical markets and elevated natural gas prices, and address market overcapacity. The asset restructuring plan includes (i) closure of manufacturing operations at the styrene production facility in |
13
| Boehlen, Germany, (ii) closure of one of its production lines at the Stade, Germany polycarbonate plant, and (iii) closure of the PMMA sheet manufacturing site in Matamoros, Mexico. The program is expected to be substantially completed by 2026. |
In connection with this restructuring plan, during the three and nine months ended September 30, 2024, the Company incurred employee termination benefit charges, net of $
During the three and nine months ended September 30, 2023, the Company incurred accelerated depreciation charges of $(
The Company expects to incur incremental contract termination charges of $
| (2) | As of January 2024, the Feedstocks segment was eliminated as a result of the closures of the styrene plants located in Boehlen, Germany and Terneuzen, the Netherlands under an asset restructuring plan. Prior period balances in this table have been reclassified to reflect the elimination of the Feedstocks reportable segment effective January 1, 2024. These charges were previously recognized under Feedstocks segment but have been allocated to Plastics Solutions segment starting January 1, 2024 and onward. |
| (3) | Prior period balances in this table have been reclassified to reflect the elimination of the Feedstocks reportable segment effective January 1, 2024. |
For the three months ended September 30, 2023, Latex Binders was allocated $(
For the nine months ended September 30, 2023, Latex Binders was allocated $(
| (4) | In May 2021, the Company approved a transformational restructuring program associated with the Company’s strategic initiatives. The transformational restructuring program was completed as of December 31, 2023. As this was identified as a corporate-related activity, the charges related to this restructuring program were not allocated to a specific segment, but rather included within corporate unallocated. |
| (5) | Reflects certain employee termination benefit charges associated with streamlining internal general & administrative network. As these employee termination benefit charges were identified as a corporate-related activity, the charges related to this portion of the Corporate Restructuring plan were not allocated to a specific segment, but rather included within corporate unallocated. |
Refer to Note 14 for further information regarding the asset retirement obligation. The following table provides a roll forward of the other liability balances associated with the Company’s restructuring activities as of September 30, 2024. Employee termination benefits and contract termination charges are primarily recorded within “Accrued expenses
14
and other current liabilities” in the condensed consolidated balance sheets.
| Balance at |
|
|
| Balance at |
| |||||||
| December 31, 2023 |
| Expenses |
| Deductions(1) |
| September 30, 2024 |
| |||||
Employee termination benefits | $ | | $ | | $ | ( | $ | | |||||
Contract terminations |
| — |
| |
| ( |
| | |||||
Decommissioning and other | — | | ( | — | |||||||||
Total | $ | | $ | | $ | ( | $ | | |||||
| (1) | Primarily includes payments made against the existing accrual, as well as immaterial impacts of foreign currency remeasurement. |
NOTE 5—IMPAIRMENT AND OTHER CHARGES
Impairment and other charges consisted of the following:
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Asset impairment charges (Note 13) | $ | — | $ | | $ | — | $ | | ||||
Goodwill impairment charges (Note 10) | — | — | — | | ||||||||
Total | $ | — | $ | | $ | — | $ | | ||||
NOTE 6—INCOME TAXES
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| ||||||
Effective income tax rate | ( | % | | % | ( | % | | % | ||||||
Provision for income taxes for the three and nine months ended September 30, 2024 totaled $
The main drivers of the decrease in the effective income tax rate for the three and nine months ended September 30, 2024 compared to the prior year was the geographic mix of earnings and the increase in losses not anticipated to provide a tax benefit, due to the increase in valuation allowances primarily in the United States, Luxembourg, and Switzerland recorded in the fourth quarter of 2023, along with the establishment of a valuation allowance in the amount of $
Effective from 2024, the Organization for Economic Co-operation and Development’s ("OECD") Global Anti-Base Erosion ("GloBE") rules under Pillar Two have been enacted by the European Union and other countries in which the Company operates. The Company does not currently expect the rules to have a material impact on its effective tax rate ending December 31, 2024. The Company will continue to monitor the implementation of Pillar Two by additional jurisdictions and evaluate the potential impact on the consolidated financial statements.
15
NOTE 7—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 from continuing operations because the inclusion of the potential ordinary shares would have an anti-dilutive effect.
The following table presents basic EPS and diluted EPS for the three and nine months ended September 30, 2024 and 2023.
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(in millions, except per share data) |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| ||||
Earnings: | |||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Shares: | |||||||||||||
Weighted average ordinary shares outstanding |
| |
| |
| |
| | |||||
Dilutive effect of RSUs, option awards, and PSUs(1) |
| — |
| — |
| — |
| — | |||||
Diluted weighted average ordinary shares outstanding |
| |
| |
| |
| | |||||
Loss per share: | |||||||||||||
Loss per share‒basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Loss per share‒diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
| (1) | Refer to Note 16 for discussion of RSUs, option awards, and PSUs granted to certain Company directors and employees. As the Company recorded a net loss for the three months and nine months ended September 30, 2024 and September 30, 2023, potential shares related to equity-based awards have been excluded from the calculation of diluted EPS, as doing so would be anti-dilutive. |
NOTE 8—INVENTORIES
Inventories consisted of the following:
September 30, | December 31, | |||||
| 2024 | 2023 | ||||
Finished goods |
| $ | |
| $ | |
Raw materials and semi-finished goods |
| |
| | ||
Supplies |
| |
| | ||
Total | $ | | $ | | ||
NOTE 9—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company maintains an investment in an unconsolidated affiliate, Americas Styrenics LLC (“Americas Styrenics,” a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP), which is accounted for using the equity method. The results of Americas Styrenics are included within its separate reporting segment.
16
Americas Styrenics is a privately held company; therefore, a quoted market price for its equity interests is not available. The summarized financial information of the Company’s unconsolidated affiliate is shown below.
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Sales |
| $ | |
| $ | |
| $ | |
| $ | | |
Gross profit | $ | | $ | | $ | | $ | | |||||
Net income | $ | | $ | | $ | | $ | | |||||
As of September 30, 2024 and December 31, 2023, the Company’s investment in Americas Styrenics was $
NOTE 10—GOODWILL
The following table shows changes in the carrying amount of goodwill, by segment, from December 31, 2023 to September 30, 2024:
Engineered | Latex | Plastics | Americas |
| |||||||||||||||
| Materials |
| Binders |
| Solutions |
| Polystyrene |
| Styrenics |
| Total |
| |||||||
Balance at December 31, 2023 | $ | — | $ | | $ | | $ | | $ | — | $ | | |||||||
Foreign currency impact |
| — | | | — | — |
| | |||||||||||
Balance at September 30, 2024 | $ | — | $ | | $ | | $ | | $ | — | $ | | |||||||
As of September 30, 2024 and December 31, 2023, the reported balance of goodwill included accumulated impairment losses of $
17
NOTE 11—LONG TERM DEBT & AVAILABLE FACILITIES
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s debt structure discussed below. The Company was in compliance with all debt related covenants as of September 30, 2024 and December 31, 2023.
As of September 30, 2024 and December 31, 2023, debt consisted of the following:
September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Interest Rate as of |
| 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 | ||||||||
2029 Senior Notes | April 2029 | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||||
2025 Senior Notes (2) | September 2025 | | ( | | | ( | | ||||||||||||||||
Senior Credit Facility | |||||||||||||||||||||||
2028 Term Loan B | May 2028 | | ( | | | ( | | ||||||||||||||||
2026 Revolving Facility (3) | Various | May 2026 | — | — | — | — | — | — | |||||||||||||||
2028 Refinance Term Loans (2) | May 2028 | | ( | | | ( | | ||||||||||||||||
Accounts Receivable Securitization Facility (4) | Various | January 2028 | | | | | | | |||||||||||||||
Other indebtedness | Various | Various | | — | | | — | | |||||||||||||||
Total debt | $ | | $ | ( | $ | | $ | | $ | ( | $ | | |||||||||||
Less: current portion(5) | ( | ( | |||||||||||||||||||||
Total long-term debt, net of unamortized deferred financing fees | $ | | $ | | |||||||||||||||||||
| (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) | The 2025 Senior Notes were partially repaid on September 8, 2023 using the proceeds of the 2028 Refinance Term Loans. As of September 30, 2024, the remaining principal of the 2025 Senior Notes was classified within “Short-term borrowings and current portion of long-term debt” on the condensed consolidated balance sheets. |
| (3) | As of September 30, 2024, under the 2026 Revolving Facility, the Company had a capacity of $ |
| (4) | As of September 30, 2024, this facility had a borrowing capacity of $ |
| (5) | The current portion of long-term debt as of September 30, 2024 was primarily related to $ |
18
2028 Refinance Term Loans
On September 8, 2023, the Company entered into a Credit Agreement (the “2028 Refinance Credit Agreement”) which provides for a senior secured term loan facility of $
On July 1, 2024, the Company executed the PIK Interest Election on the 2028 Refinance Term Loans, to defer payment of a portion of the quarterly interest margin payable in the amount of $
Accounts Receivable Securitization Facilities
The Company has maintained an accounts receivable securitization facility (the “2010 A/R Facility”) since 2010 for the securitization of trade receivables originated by certain of the Company’s Swiss, German, Dutch and U.S. subsidiaries (the “Sellers”). The 2010 A/R Facility was funded through the sale of commercial paper by a special purpose finance entity, the proceeds of which fund the purchase of trade receivables from the Sellers. Collection accounts related to the trade receivables were pledged to the special purpose entity, which held a first priority perfected security interest in such accounts and, as a result, was not available to the creditors of the Company or its other subsidiaries. The obligations of the Trinseo subsidiaries were also guaranteed by the Company’s subsidiary Trinseo Holding S.à r.l.
On March 28, 2024, the Company amended the 2010 A/R Facility to extend its maturity date to November 2025, as well as other amendments. On July 18, 2024, the Company terminated the 2010 A/R Facility and paid the outstanding facility amount in full. As a result of this termination, the Company recognized a $
On July 18, 2024, the Company entered into a new revolving credit facility (the “2024 A/R Facility”) for the securitization of trade receivables originated by the Sellers. The 2024 A/R Facility is funded by a special purpose finance entity, which purchases the trade receivables from the Sellers. Collection accounts related to the trade receivables were pledged to the special purpose entity, which held a first priority perfected security interest in such accounts and, as a result, was not available to the creditors of the Company or its other subsidiaries. The obligations of the Trinseo subsidiaries are also guaranteed by the Company’s subsidiary Trinseo Holding S.à r.l. The 2024 A/R Facility also has a borrowing limit of $
Fees incurred in connection with the issuance of the Receivables Facility were $
The 2028 Refinance Credit Agreement requires the Company to comply with customary affirmative, negative and financial covenants, and contains events of default including (i) relating to a change of control or (ii) failure to maintain at least $
19
available for borrowing under both the 2026 Revolving Facility and the Accounts Receivable Securitization Facility, subject to certain restrictions outlined in the 2028 Refinance Credit Agreement.
As of September 30, 2024, the Company was in compliance with all debt covenant requirements under the 2028 Refinance Credit Agreement and the Credit Agreement. The Company had Liquidity of $
We believe funds provided by operations, our cash and cash equivalent balances, coupled with borrowings available under our 2026 Revolving Facility and our Accounts Receivable Securitization Facility, will be adequate to meet necessary operating and capital expenditures for at least the next twelve months in the current operating environment.
The Company’s ability to repay the 2025 Senior Notes, which mature in September 2025 is also dependent on several factors, including the company’s ability to achieve its forecast cash flows and its ability to maintain minimum liquidity requirements under its related covenants. If the Company is unable to achieve its forecasts, maintain minimum liquidity covenants, or refinance, it could have a material adverse impact on our access to liquidity, results of operation and financial condition.
NOTE 12—FINANCIAL INSTRUMENTS AND DERIVATIVES
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates, interest rate risk, and commodity price risk, in particular natural gas. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts, interest rate swap agreements, and commodity swap agreements, forward contracts, or options. The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives are recorded on the condensed consolidated balance sheets at fair value.
Foreign Exchange Forward Contracts
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on its balance sheet against corresponding assets of the same currency, such that any changes in liabilities due to fluctuations in exchange rates are offset by changes in their corresponding foreign currency assets. In order to further reduce this exposure, the Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment and as a result, any mark-to-market fluctuations are recognized currently at each reporting date within loss from continuing operations.
As of September 30, 2024, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $
Buy / (Sell) |
| September 30, 2024 | |
Euro | $ | ( | |
South Korean Won | $ | ( | |
New Taiwan Dollar | $ | | |
Swiss Franc | $ | | |
Swedish Krona | $ | | |
Open foreign exchange forward contracts as of September 30, 2024 had maturities occurring over a period of
20
Foreign Exchange Cash Flow Hedges
From time-to-time, the Company also enters into forward contracts, as deemed appropriate, with the objective of managing the currency risk associated with forecasted U.S. dollar-denominated raw materials purchases by
The Company had
Commodity Cash Flow Hedges & Commodity Economic Hedges
The Company purchases certain commodities, primarily natural gas, to operate facilities and generate heat and steam for various manufacturing processes, which purchases are subject to price volatility. In order to manage the risk of price fluctuations associated with these commodity purchases, as deemed appropriate, the Company may enter into commodity swaps, forward contracts, or options. As of September 30, 2024, the Company had open commodity swap agreements, which effectively convert a portion of its natural gas costs into a fixed rate obligation. These commodity derivatives 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 cost of sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.
Open commodity cash flow hedges as of September 30, 2024 had maturities occurring over a period of
The Company may also enter into certain commodity swap agreements to economically hedge the impact of these price fluctuations, which are not designated for hedge accounting treatment. Open commodity economic hedges as of September 30, 2024 had maturities occurring over a period of
Summary of Derivative Instruments
The following table presents the effect of the Company’s derivative instruments, including those not designated for hedge accounting treatment, on the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
Location and Amount of Gain (Loss) Recognized in | ||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||
September 30, 2024 | September 30, 2023 | |||||||||||||||||
| Cost of | Interest expense, net | Other (expense) income, net | Cost of | Interest expense, net | Other (expense) income, net | ||||||||||||
Total amount of income and (expense) line items presented in the statements of operations in which the effects of derivative instruments are recorded | $ | ( | $ | ( | $ | | $ | ( | $ | ( | $ | | ||||||
The effects of cash flow hedge instruments: | ||||||||||||||||||
Commodity cash flow hedges | ||||||||||||||||||
Amount of loss reclassified from AOCI into income | $ | ( | $ | — | $ | — | $ | ( | $ | — | $ | — | ||||||
The effects of derivatives not designated as hedge instruments: | ||||||||||||||||||
Foreign exchange forward contracts | ||||||||||||||||||
Amount of gain (loss) recognized in income | $ | — | $ | — | $ | ( | $ | — | $ | — | $ | | ||||||
Commodity economic hedges | ||||||||||||||||||
Amount of loss recognized in income | $ | ( | $ | — | $ | — | $ | ( | $ | — | $ | — | ||||||
21
Location and Amount of Gain (Loss) Recognized in | ||||||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||
September 30, 2024 | September 30, 2023 | |||||||||||||||||
| Cost of | Interest expense, net | Other (expense) income, net | Cost of | Interest expense, net | Other (expense) income, net | ||||||||||||
Total amount of income and (expense) line items presented in the statements of operations in which the effects of derivative instruments are recorded | $ | ( | $ | ( | $ | | $ | ( | $ | ( | $ | | ||||||
The effects of cash flow hedge instruments: | ||||||||||||||||||
Commodity cash flow hedges | ||||||||||||||||||
Amount of loss reclassified from AOCI into income | $ | ( | $ | — | $ | — | $ | ( | $ | — | $ | — | ||||||
The effects of derivatives not designated as hedge instruments: | ||||||||||||||||||
Foreign exchange forward contracts | ||||||||||||||||||
Amount of gain (loss) recognized in income | $ | — | $ | — | $ | ( | $ | — | $ | — | $ | | ||||||
Commodity economic hedges | ||||||||||||||||||
Amount of loss recognized in income | $ | ( | $ | — | $ | — | $ | ( | $ | — | $ | — | ||||||
The following table presents the effect of cash flow hedge accounting on AOCI for the three and nine months ended September 30, 2024 and 2023:
` | Gain (Loss) Recognized in AOCI on Balance Sheet | |||||||||||
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
Designated as Cash Flow Hedges | ||||||||||||
Commodity cash flow hedges | $ | | $ | | $ | | $ | ( | ||||
Total | $ | | $ | | $ | | $ | ( | ||||
Gain (Loss) Recognized in Other income, net in Statement of Operations | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Settlements and changes in the fair value of forward contracts (not designated as hedges) |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
|
Remeasurement of foreign currency-denominated assets and liabilities | | ( | | | |||||||||
$ | | $ | | $ | | $ | | ||||||
The Company expects to reclassify in the next twelve months an approximate $
22
The following tables summarize the gross and net unrealized gains and losses, as well as the balance sheet classification, of outstanding derivatives recorded in the condensed consolidated balance sheets:
September 30, 2024 | ||||||||||||
Foreign | ||||||||||||
Exchange | Commodity | Commodity | ||||||||||
Balance Sheet | Forward | Economic | Cash Flow | |||||||||
Classification |
| Contracts | Hedges | Hedges | Total | |||||||
Asset Derivatives: | ||||||||||||
$ | | $ | — | $ | — | $ | | |||||
Gross derivative asset position | | — | — | | ||||||||
Less: Counterparty netting | ( | — | — | ( | ||||||||
Net derivative asset position | $ | — | $ | — | $ | — | $ | — | ||||
Liability Derivatives: | ||||||||||||
$ | ( | $ | ( | $ | ( | $ | ( | |||||
Gross derivative liability position | ( | ( | ( | ( | ||||||||
Less: Counterparty netting | | — | — | | ||||||||
Net derivative liability position | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Total net derivative position | $ | ( | $ | ( | $ | ( | $ | ( | ||||
December 31, 2023 |
| ||||||||||||
Foreign |
| ||||||||||||
Exchange | Commodity | Commodity | |||||||||||
Balance Sheet | Forward | Economic | Cash Flow |
| |||||||||
Classification |
| Contracts |
| Hedges |
| Hedges |
| Total |
| ||||
Asset Derivatives: | |||||||||||||
$ | | $ | — | $ | — | $ | | ||||||
Gross derivative asset position | | — | — | | |||||||||
Less: Counterparty netting | ( | — | — | ( | |||||||||
Net derivative asset position | $ | — | $ | — | $ | — | $ | — | |||||
Liability Derivatives: | |||||||||||||
$ | ( | $ | ( | $ | ( | $ | ( | ||||||
— | ( | ( | ( | ||||||||||
Gross derivative liability position | ( | ( | ( | ( | |||||||||
Less: Counterparty netting | | — | — | | |||||||||
Net derivative liability position | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Total net derivative position | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Forward contracts, interest rate swaps, commodity forward contracts, swaps, or options, 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 13 and 18 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 13—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.
23
Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The following table summarizes the basis used to measure certain assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023:
September 30, 2024 |
| ||||||||||||
Quoted Prices in | Significant | Significant |
| ||||||||||
Assets (Liabilities) at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
$ | — | $ | ( | $ | — | $ | ( | ||||||
— | ( | — | ( | ||||||||||
— | ( | — | ( | ||||||||||
Total fair value | $ | — | $ | ( | $ | — | $ | ( | |||||
December 31, 2023 |
| ||||||||||||
Quoted Prices in | Significant | Significant |
| ||||||||||
Liabilities at Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
$ | — | $ | ( | $ | — | $ | ( | ||||||
— | ( | — | ( | ||||||||||
— | ( | — | ( | ||||||||||
Total fair value | $ | — | $ | ( | $ | — | $ | ( | |||||
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.
Nonrecurring Fair Value Measurements
The Company measured certain financial assets at fair value on a nonrecurring basis during the year ended December 31, 2023, which were still held as of September 30, 2024. These financial assets represent the Company’s styrene monomer assets in Boehlen, Germany, which it continued to operate until the fourth quarter of 2022 when the Company decided to close this plant in connection with the asset restructuring plan. Refer to Note 4 for further information. These assets were measured at fair value using underlying fixed asset records in conjunction with the use of industry experience and available market data, which are classified as Level 3 significant unobservable inputs in the fair value hierarchy. As of September 30, 2024 and December 31, 2023, the value of the Boehlen styrene monomer assets are recorded at $
There were
24
Fair Value of Debt Instruments
The following table presents the estimated fair value of the Company’s outstanding debt not carried at fair value as of September 30, 2024 and December 31, 2023:
| As of | As of |
| ||||
| September 30, 2024 |
| December 31, 2023 |
| |||
2029 Senior Notes | $ | | $ | | |||
2025 Senior Notes | | | |||||
2028 Term Loan B | | | |||||
2028 Refinance Term Loans | | | |||||
Total fair value | $ | | $ | | |||
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. The fair value amount presented reflect the Company’s carrying value of debt, net of original issuance discount.
There were no other significant financial instruments outstanding as of September 30, 2024 and December 31, 2023.
NOTE 14—COMMITMENTS AND CONTINGENCIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law, existing technologies and other information. Pursuant to the terms of the agreement associated with the Company’s formation, the pre-closing environmental liabilities were retained by Dow, and Dow agreed, subject to temporal, monetary, and other limitations to indemnify the Company from and against environmental liabilities incurred or relating to the predecessor periods. Other than certain immaterial environmental liabilities assumed as part of the PMMA Acquisition and the Aristech Surfaces Acquisition,
On March 24, 2023, due to equipment failure at the Bristol, Pennsylvania facility, operated by our wholly-owned subsidiary, Altuglas LLC, an accidental release of a latex emulsion product occurred, which ultimately flowed into a local waterway (the “Bristol Spill”). We reported the event and cooperated closely with local, state, and federal authorities on the response activities. Water sampling conducted by the authorities did not detect site-related material in the waterway. See “Litigation Matters” below for information on environmental proceedings related to this incident. In the event of one or more adverse determinations related to this matter, it is possible that the ultimate liability resulting from this matter and the impact on the Company’s results of operations could be material.
Inherent uncertainties exist in the Company’s potential environmental liabilities primarily due to unknown conditions, whether future claims may fall outside the scope of the indemnity, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. In connection with the Company’s existing indemnification, the possibility is considered remote that environmental remediation costs will have a material adverse impact on the condensed consolidated financial statements over the next 12 months.
Purchase Commitments
In the normal course of business, the Company has certain raw material purchase contracts where it is required to purchase certain minimum volumes at current market prices. These commitments range from to
25
Asset Retirement Obligations
The Company has built certain manufacturing facilities on leased land and is required to remove these facilities at the end of the corresponding contract term. Legal obligations for these demolition and decommissioning activities exist in connection with the retirement of these assets triggered upon closure of the facilities. In instances when the Company plans to continue operations at these facilities indefinitely, and therefore, a reasonable estimate of fair value cannot be determined, an asset retirement obligation is not recognized.
In connection with the Asset Restructuring Plan as described within Note 4, the Company concluded the Boehlen, Germany site no longer had an indeterminate life. Accordingly, during the fourth quarter of 2022, the Company recorded the fair value of an asset retirement obligation and a corresponding asset retirement cost, which was capitalized as part of the carrying amount of the related long-lived assets and depreciated over the asset’s shortened useful life. The asset retirement cost was fully depreciated as of September 30, 2024.
Change in asset retirement obligation | |||
Balance at December 31, 2023 | $ | | |
Obligations incurred and adjustments to estimated obligations | — | ||
Settlements | ( | ||
Accretion expense | | ||
Currency translation adjustment | | ||
Balance at September 30, 2024 | $ | | |
Accretion expense is included within “Selling, general and administrative expenses” in the condensed consolidated statement of operations. The current portion of the asset retirement obligation is recorded within “Accrued expenses and other current liabilities” and the long-term portion is recorded within “Other noncurrent obligations” in the condensed consolidated balance sheets. As of September 30, 2024 and December 31, 2023, the current portion was $
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.
Legal Proceedings related to the Bristol Spill
| (a) | Timothy McGraw, Emily Cohen & Danielle Byrd v. Altuglas LLC and Trinseo LLC (United States District Court for the Eastern District of Pennsylvania) |
On March 29, 2023, a putative class action complaint was filed which seeks to certify a class that could potentially include all persons and entities that reside in the area served by the Baxter Drinking Water Treatment Plant. The plaintiffs allege claims of breach of duty of care based on negligence as a result of the Bristol Spill, as well as other causes of action, and seek compensatory damages, restitution, or refund of damages, including actual, statutory, and punitive damages, as well as injunctive relief. On May 12, 2023, the Company filed notice to remove the case from Pennsylvania state court to United States District Court for the Eastern District of Pennsylvania, with immediate effect. On May 19, 2023, the Company also filed a motion to dismiss with the U.S. district court, on the grounds that the alleged harms do not fall within the parameters of the relevant public and private nuisance or negligence laws. On June 2, 2023, plaintiffs objected to federal jurisdiction and asked the court to remand the action to state court. On August 23, 2023, plaintiffs filed a voluntary dismissal of the federal complaint, which was granted on August 29, 2023. The parties signed a settlement agreement in December 2023, and on January 2, 2024, plaintiffs refiled their claim in the Court of Common Pleas of Philadelphia County and simultaneously submitted an unopposed motion for an order to preliminarily approve a class settlement. On March 15, 2024, an Order Preliminarily Approving Settlement was entered by the Court of Common Pleas, which
26
provides for preliminary approval of the negotiated settlement, subject to a final approval hearing, defines members of the settlement class and appoints a settlement administrator to send notice to settlement class members. In the fourth quarter of 2023, the Company established an accrual for the estimated resolution of the class action complaint. Pursuant to the terms of the settlement agreement, $
| (b) | Environmental Proceedings |
On March 25, 2023, the Company received a Notice of Federal Interest from the United States Coast Guard (“USCG”), identifying the Company as a “potentially responsible party” (“PRP”) related to the Bristol Spill. The Company also received a Notice of Federal Assumption and an Administrative Order, dated April 20, 2023 from the USCG, identifying the Company as a PRP related to the Bristol Spill. The USCG notices and order do not designate specific fines or penalties against the Company. In October 2023, the Pennsylvania Department of Environmental Protection (PADEP) notified the Company of its intent to impose penalties related to a Notice of Violation dated April 26, 2023 alleging water violations associated with the Spill. Discussions between the Company and PADEP are ongoing. In December 2023, the Company established an accrual for the estimated resolution of this matter, and such loss is not expected to be material to our business.
It is not possible at this time for the Company to estimate its ultimate liability pursuant to these matters or other potential administrative or criminal actions related to the Bristol Spill, whether a material loss to our business is probable or remote, or estimate a potential range of loss, if any.
Synthos Matter
On November 21, 2022, the Company received formal notice from the German Arbitration Institute that Synthos had initiated an arbitration dispute on October 14, 2022 against Trinseo and its following subsidiaries: Trinseo Deutschland GmbH, Trinseo Belgium BV, Trinseo Europe GmbH, and Trinseo Export GmbH, related to Synthos’ purchase of Trinseo’s Rubber Business in 2021.
Synthos and Trinseo are parties to an asset purchase agreement (“APA”) dated May 21, 2021, whereby Trinseo transferred its Rubber Business to Synthos, pending regulatory approval and other administrative pre-closing conditions, for an enterprise value of approximately $
The Company believes it has valid and prevailing defenses to Synthos’ claims and intends to vigorously defend itself against all allegations.
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NOTE 15—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for all significant plans were as follows:
Three Months Ended | Three Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
Non-U.S. Defined Benefit Pension Plans | U.S. Defined Benefit Pension | |||||||||||
2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Net periodic benefit cost | ||||||||||||
Service cost | $ | | $ | |
| $ | | $ | | |||
| |
| |
| |
| | |||||
| ( |
| ( |
| ( |
| ( | |||||
| — |
| ( |
| — |
| — | |||||
| ( |
| ( |
| — |
| — | |||||
Settlement and curtailment (gain) loss |
| ( |
| |
| ( |
| — | ||||
Net periodic benefit cost | $ | | $ | | $ | ( | $ | | ||||
Nine Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
Non-U.S. Defined Benefit Pension Plans | U.S. Defined Benefit Pension | |||||||||||
2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Net periodic benefit cost | ||||||||||||
Service cost | $ | | $ | |
| $ | | $ | | |||
| |
| |
| |
| | |||||
| ( |
| ( |
| ( |
| ( | |||||
| ( |
| ( |
| — |
| — | |||||
| ( |
| ( |
| — |
| — | |||||
Settlement and curtailment (gain) loss | ( | | ( | — | ||||||||
Net periodic benefit cost | $ | | $ | | $ | | $ | | ||||
The Company had less than $
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. As of September 30, 2024 and December 31, 2023, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $
The Company made cash contributions and benefit payments to unfunded plans of approximately $
28
NOTE 16—SHARE-BASED COMPENSATION
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s share-based compensation programs included in the tables below.
The following table summarizes the Company’s share-based compensation expense for the three months and nine months ended September 30, 2024 and 2023, as well as unrecognized compensation cost as of September 30, 2024:
As of | ||||||||||||||||||
Three Months Ended | Nine Months Ended | September 30, 2024 | ||||||||||||||||
September 30, | September 30, | Unrecognized | Weighted | |||||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| Compensation Cost |
| Average Years | |||||||
RSUs | $ | | $ | | $ | | $ | | $ | | ||||||||
Options | | | | | | |||||||||||||
PSUs | | | | | | |||||||||||||
Restricted Cash Units ("RCUs") | | — | | — | | (1) | ||||||||||||
Total share-based compensation expense | $ | | $ | | $ | | $ | | ||||||||||
| (1) | Unrecognized Compensation Cost related to RCU awards as of September 30, 2024 is calculated using the stock price, subject to certain minimum and maximum amounts, as of September 30, 2024. |
The following table summarizes awards granted and the respective weighted average grant date fair value for the nine months ended September 30, 2024:
Nine Months Ended | |||||||
September 30, 2024 | |||||||
Awards Granted | Weighted Average Grant Date Fair Value per Award | ||||||
RSUs | | $ | | ||||
Options | | | |||||
PSUs | | | |||||
RCUs | | | |||||
Option Awards
The following are the weighted average assumptions used within the Black-Scholes pricing model for the Company’s option awards granted during the nine months ended September 30, 2024:
Nine Months Ended | |||
| September 30, 2024 | ||
Expected term (in years) |
| ||
Expected volatility |
| | % |
Risk-free interest rate |
| | % |
Dividend yield | | % |
The expected volatility assumption is determined based on the historical volatility of the Company’s publicly traded ordinary shares. The expected term of option awards represents the period of time that option awards granted are expected to be outstanding. For the option awards granted during the nine months ended September 30, 2024, 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.
29
Performance Share Units (PSUs)
The following are the weighted average assumptions used within the Monte Carlo valuation model for PSUs granted during the nine months ended September 30, 2024:
Nine Months Ended | |||
September 30, 2024 | |||
Expected term (in years) | |||
Expected volatility |
| | % |
Risk-free interest rate |
| | % |
Share price | $ | |
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.
Restricted Cash Units (RCUs)
In the nine months ending September 30, 2024,
NOTE 17—SEGMENTS AND GEOGRAPHIC INFORMATION
Effective January 1, 2024, the Company realigned its reporting segments to reflect the new model under which the business is managed, and results are reviewed by the chief executive officer, the Company’s chief operating decision maker. Following this change, the Company is operating under
The Company’s Feedstocks segment, which included the Company’s production and procurement of styrene monomer outside of North America, was eliminated as a result of the closures of the styrene plants located in Boehlen, Germany and Terneuzen, the Netherlands under an asset restructuring plan. Styrene monomer is a key raw material in many of the Company’s products, including polystyrene, styrene-butadiene latex (“SB latex”), and acrylonitrile-butadiene-styrene (“ABS”) resins. The Company no longer produces styrene monomer, but instead purchases all styrene monomer from third parties and from its equity method investment, Americas Styrenics, at arm’s length prices. Therefore, the information in the tables below has been adjusted to show the historical results of the Feedstocks segment within the segments that consumed styrene monomer in their end products, Latex Binders, Plastics Solutions and Polystyrene.
The Engineered Materials segment includes the Company’s compounds and blends products sold into higher growth and value applications, such as consumer electronics and medical, as well as soft thermoplastic elastomers (“TPEs”) products which are sold into markets such as footwear and automotive, as well as, PMMA and activated methyl methacrylates (“MMA”) products, which are sold into a variety of applications including automotive, building & construction, medical, consumer electronics, and wellness, among others. The Latex Binders segment produces SB latex
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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 Plastics Solutions segment contains the results of the ABS, styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses, as well as compounds and blends for automotive and other applications. The Plastics Solutions segment also includes the results of Heathland, which was acquired in the first quarter of 2022. The Polystyrene segment includes a variety of general purpose polystyrenes (“GPPS”) and polystyrene that has been modified with polybutadiene rubber to increase its impact resistant properties (“HIPS”). Lastly, the Americas Styrenics segment consists solely of the operations of the Company’s
The following table provides disclosure of the Company’s segment Adjusted EBITDA, which is used to measure segment operating performance and is defined below, for the three and nine months ended September 30, 2024 and 2023. Asset and intersegment sales information by reporting segment are not regularly reviewed or included with the Company’s reporting to the chief operating decision maker. Therefore, this information has not been disclosed below. Refer to Note 3 for the Company’s net sales to external customers by segment for the three and nine months ended September 30, 2024 and 2023.
Engineered | Latex | Plastics | Americas | Total Segment |
| ||||||||||||||
Three Months Ended (1) | Materials | Binders | Solutions | Polystyrene | Styrenics | Adjusted EBITDA |
| ||||||||||||
September 30, 2024 |
| $ | | $ | | $ | | $ | | $ | |
| $ | | |||||
September 30, 2023 | $ | | $ | | $ | | $ | ( | $ | | $ | | |||||||
Engineered | Latex | Plastics | Americas | Total Segment |
| ||||||||||||||
Nine Months Ended (1) | Materials | Binders | Solutions | Polystyrene | Styrenics | Adjusted EBITDA |
| ||||||||||||
September 30, 2024 |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | | $ | | ||
September 30, 2023 | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
(1) | The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring charges; acquisition related costs and benefits and other items. Segment Adjusted EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure that management believes reflects core operating performance by removing the impact of transactions and events that would not be considered a part of core operations. Other companies in the industry may define segment Adjusted EBITDA differently than the Company, and as a result, it may be difficult to use segment Adjusted EBITDA, or similarly named financial measures, that other companies may use to compare the performance of those companies to the Company’s segment performance. |
The reconciliation of income (loss) from continuing operations before income taxes to segment Adjusted EBITDA is as follows:
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Loss before income taxes | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Interest expense, net |
| |
| |
| |
| | |||||
Depreciation and Amortization(2) |
| |
| | |
| | ||||||
Corporate Unallocated(3) | | | | | |||||||||
Adjusted EBITDA Addbacks(4) |
| |
| |
| |
| | |||||
Segment Adjusted EBITDA | $ | | $ | | $ | | $ | | |||||
(2) | During the three and nine months ended September 30, 2023, a $ |
31
during decommissioning.
(3) | Corporate unallocated includes corporate overhead costs and certain other income and expenses. |
(4) | Adjusted EBITDA addbacks for the three and nine months ended September 30, 2024 and 2023 are as follows: |
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2024 |
| 2023 |
| 2024 |
| 2023 |
| ||||||
Net gain on disposition of businesses and assets (a) | $ | — | $ | ( | $ | ( | $ | ( | |||||
Restructuring and other charges (Note 4) | | | | | |||||||||
Asset impairment charges or write-offs (Note 13) | — | | — | | |||||||||
Goodwill impairment charges (Note 10) | — | — | — | | |||||||||
Other items (b) | | | | | |||||||||
Total Adjusted EBITDA Addbacks | $ | | $ | | $ | | $ | | |||||
| (a) | In June 2024, the Company entered into an agreement to sell certain European emission certifications the Company no longer intends to utilize for a cash consideration of approximately $ |
In April 2023, the Company entered into an agreement to sell its land, buildings and equipment in Matamoros, Mexico for a cash consideration of approximately $
| (b) | Other items for the three and nine months ended September 30, 2024 and 2023 primarily relate to costs incurred in conjunction with certain of the Company’s strategic initiatives. Other items for the three and nine months ended September 30, 2023 also relate to our transition to a new enterprise resource planning system. |
NOTE 18—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of AOCI, net of income taxes, consisted of:
| Cumulative |
| Pension & Other |
| |||||||||
Translation | Postretirement Benefit | Cash Flow | |||||||||||
Three Months Ended September 30, 2024 and 2023 |
| Adjustments |
| Plans, Net |
| Hedges, Net |
| Total |
| ||||
Balance as of June 30, 2024 | $ | ( | $ | | $ | | $ | ( | |||||
Other comprehensive income (loss) |
| | ( |
| |
| | ||||||
Amounts reclassified from AOCI to net income(1) | — | ( | | | |||||||||
Balance as of September 30, 2024 | $ | ( | $ | | $ | | $ | ( | |||||
Balance as of June 30, 2023 | $ | ( | $ | | $ | ( | $ | ( | |||||
Other comprehensive loss |
| ( |
| — |
| ( |
| ( | |||||
Amounts reclassified from AOCI to net income(1) | — | ( | | | |||||||||
Balance as of September 30, 2023 | $ | ( | $ | | $ | ( | $ | ( | |||||
32
| Cumulative |
| Pension & Other |
| |||||||||
Translation | Postretirement Benefit | Cash Flow | |||||||||||
Nine Months Ended September 30, 2024 and 2023 | Adjustments |
| Plans, Net |
| Hedges, Net |
| Total | ||||||
Balance at December 31, 2023 | $ | ( | $ | | $ | ( | $ | ( | |||||
Other comprehensive income (loss) |
| |
| ( |
| |
| | |||||
Amounts reclassified from AOCI to net income(1) | — | ( | | | |||||||||
Balance as of September 30, 2024 | $ | ( | $ | | $ | | $ | ( | |||||
Balance at December 31, 2022 | $ | ( | $ | | $ | ( | $ | ( | |||||
Other comprehensive loss |
| ( |
| — |
| ( |
| ( | |||||
Amounts reclassified from AOCI to net income(1) | — | ( | | | |||||||||
Balance as of September 30, 2023 | $ | ( | $ | | $ | ( | $ | ( | |||||
| (1) | The following is a summary of amounts reclassified from AOCI to net income (loss) for the three and nine months ended September 30, 2024 and 2023: |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | Statements of Operations | |||||||||||||
AOCI Components |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| Classification | |||||
Cash flow hedging items | |||||||||||||||
Commodity cash flow hedges | $ | | $ | | $ | | $ | | Cost of sales | ||||||
Total before tax | | | | | |||||||||||
Tax effect | ( | ( | ( | ( | Provision for (benefit from) income taxes | ||||||||||
Total, net of tax | $ | | $ | | $ | | $ | | |||||||
Amortization of pension and other postretirement benefit plan items | |||||||||||||||
$ | ( | $ | ( | $ | ( | $ | ( | (a) | |||||||
( | ( | ( | ( | (a) | |||||||||||
Net curtailment and settlement gain | ( | ( | ( | ( | (a) | ||||||||||
Total before tax | ( | ( | ( | ( | |||||||||||
Tax effect | | | | | Provision for (benefit from) income taxes | ||||||||||
Total, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||||
| (a) | These AOCI components are included in the computation of net periodic benefit costs (see Note 15). |
33
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2024 Year-to-Date Highlights
During the three and nine months ended September 30, 2024, Trinseo recognized net loss of $87.3 million and $230.6 million, respectively, and Adjusted EBITDA of $66.1 million and $177.9 million, respectively. Adjusted EBITDA for the quarter and year-to-date 2024 improved versus 2023 for all reporting segments except Americas Styrenics due to previously announced restructuring initiatives, improved product mix, and moderating input costs despite continued weak demand in many of our end markets. The Company continues to have access to capital resources through the refinancings of our debt structure, including the 2024 A/R Facility. Refer to the “Capital Resources and Liquidity” section below for further information.
Refer to the discussion below for further information and refer to “Non-GAAP Performance Measures” for 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.
2024 Restructuring Plan
On September 26, 2024, the Board of Directors approved the 2024 Restructuring Plan which was designed to further reduce costs by streamlining commercial and operational activities and to improve profitability and better position the Company for longer term growth and cash flow generation. These actions consist of the following:
| ● | Combination of the management of the Company’s Engineered Materials, Plastics Solutions and Polystyrene businesses |
| ● | Certain other workforce reductions to streamline the Company’s internal general & administrative network. |
| ● | Closure of virgin polycarbonate production at the Company’s Stade, Germany production facility. |
The company estimates that the 2024 Restructuring Plan initiatives will deliver approximately $45.0 million to $50.0 million of annualized profitability improvement beginning in 2026.
Changes to the Accounts Receivable Securitization Facilities
The Company has maintained an accounts receivable securitization facility since 2010 (the “2010 A/R Facility”) for the securitization of trade receivables originated by certain of the Company’s Swiss, German, Dutch and U.S. subsidiaries. On March 28, 2024, the Company amended the 2010 A/R Facility to extend the maturity date to November 2025, in addition to other amendments. On July 18, 2024, the Company terminated the 2010 A/R Facility and paid the outstanding facility amount in full. As a result of this termination, the Company recognized a $0.6 million non-cash loss on extinguishment of debt in the three and nine months ended September 30, 2024, comprised entirely of the write-off of unamortized deferred financing costs, with an additional $75.0 million of available capacity.
On July 18, 2024, the Company entered into a revolving credit facility (the “2024 A/R Facility”), which has a borrowing limit of $150.0 million and matures in January 2028 with an optional one-year extension. Borrowings under the 2024 A/R Facility incurs interest at a rate per annum equal to Adjusted Term SOFR or EURIBOR (each as defined in the 2024 A/R Facility credit agreement, subject to a 1.00% floor), depending on the borrowing currency, plus a margin of 4.75% and the Company incurs interest on a minimum of $75.0 million of advances, irrespective of actual amounts outstanding. The 2024 A/R Facility contains standard representations, warranties and covenants, as well as standard events of default, including those relating to cross-default to the Company’s other material indebtedness. As of September 30, 2024, $75.0 million of borrowing was outstanding on the facility.
Exploration for Divestiture of Americas Styrenics
In March 2024, the Company announced it commenced a sale process for the Company’s interest in Americas Styrenics, via the initiation of an ownership exit provision in the joint venture agreement. Trinseo and Chevron Phillips Chemical Company LP, co-owners of Americas Styrenics, have decided to pursue a joint sale process, which is, in the ordinary course, expected to lead to a definitive agreement in first half of 2025.
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Results of Operations
Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
(in millions) |
| 2024 |
| % | 2023 |
| % | 2024 |
| % | 2023 |
| % | |||||||||||
Net sales | $ | 867.7 |
| 100 | % | $ | 879.0 |
| 100 | % | $ | 2,691.7 |
| 100 | % | $ | 2,837.9 |
| 100 | % | ||||
Cost of sales |
| 787.1 | 91 | % |
| 847.7 | 96 | % |
| 2,482.1 | 92 | % |
| 2,715.9 | 96 | % | ||||||||
Gross profit |
| 80.6 | 9 | % |
| 31.3 | 4 | % |
| 209.6 | 8 | % |
| 122.0 | 4 | % | ||||||||
Selling, general and administrative expenses |
| 97.0 | 11 | % |
| 66.6 | 8 | % |
| 237.2 | 9 | % |
| 205.1 | 7 | % | ||||||||
Equity in earnings of unconsolidated affiliate |
| 4.0 | — | % |
| 19.0 | 2 | % |
| 25.8 | 1 | % |
| 49.2 | 2 | % | ||||||||
Impairment and other charges | — | — | % | 0.1 | — | % | — | — | % | 349.5 | 12 | % | ||||||||||||
Operating loss |
| (12.4) | (2) | % |
| (16.4) | (2) | % |
| (1.8) | — | % |
| (383.4) | (13) | % | ||||||||
Interest expense, net |
| 72.3 | 8 | % |
| 46.6 | 5 | % |
| 200.0 | 7 | % |
| 125.1 | 4 | % | ||||||||
Loss on extinguishment of long-term debt | 0.6 | — | % | 6.3 | 1 | % | 0.6 | — | % | 6.3 | — | % | ||||||||||||
Other income, net |
| (1.4) | — | % |
| (13.2) | (2) | % |
| (0.9) | — | % |
| (19.0) | (1) | % | ||||||||
Loss before income taxes |
| (83.9) | (10) | % |
| (56.1) | (6) | % |
| (201.5) | (7) | % |
| (495.8) | (16) | % | ||||||||
Provision for (benefit from) income taxes |
| 3.4 | — | % |
| (17.7) | (2) | % |
| 29.1 | 1 | % |
| (59.5) | (2) | % | ||||||||
Net loss | $ | (87.3) | (10) | % | $ | (38.4) | (4) | % | $ | (230.6) | (8) | % | $ | (436.3) | (14) | % | ||||||||
Three Months Ended – September 30, 2024 vs. September 30, 2023
Net Sales
Net sales decreased 1% year-over-year. An 8% decrease in net sales was primarily driven by intentionally reducing volumes in low-margin businesses, particularly in Polystyrene and Latex Binders, in order to optimize plant operations and sales mix. These volume decreases were partially offset by an 7% increase in pricing across all segments.
Cost of Sales
The 7% decrease in cost of sales was primarily attributable to a 9% decrease from lower sales volumes, mainly in the aforementioned low-margin businesses, a 2% decrease from lower utilities, and a 2% decrease from lower fixed costs. This was partially offset by a 6% increase in raw materials costs.
Gross Profit
The $49.3 million increase in gross profit was primarily due to higher pricing across all segments and prior year unfavorable impacts from natural gas hedges. See the segment discussion below for further information.
Selling, General and Administrative Expenses (SG&A)
The $30.4 million, or 46%, increase in SG&A was primarily due to a $14.7 million increase in restructuring costs, principally caused by the recently announced 2024 Restructuring Plan, partially offset by a $6.5 million decrease in costs associated with the Company’s enterprise resource planning system upgrade, which was paused during 2023. In the prior period, the Company experienced benefits from a $12.9 million change in cost estimate related to the Boehlen, Germany Asset Retirement Obligation due to efficiencies realized during decommissioning as well as $9.2 million of pre-tax gains on sales of various assets.
Equity in Earnings of Unconsolidated Affiliate
The decrease in equity earnings from Americas Styrenics of $15.0 million was due to an unplanned outage at its styrene production facility and lower styrene margins.
35
Impairment and Other Charges
During the three months ended September 30, 2023, the Company recorded impairment charges of $0.1 million related to our Boehlen styrene monomer assets, as described within Note 13 in the condensed consolidated financial statements.
Interest Expense, Net
The increase in interest expense, net of $25.7 million, or 55%, was primarily attributable to the year-over-year increase in market interest rates on our variable rate debt, specifically related to the 2028 Refinance Loans compared to the 2024 Term Loan B. Refer to Note 11 in the condensed consolidated financial statements for further information.
The increase is also partially related to the executed payment in kind election (“PIK Interest Election”) on the 2028 Refinance Term Loans, to defer payment of a portion of the quarterly interest margin payable through capitalization to principal payments due at maturity. Under the terms of the 2028 Refinance Credit Agreement, through September 8, 2025, the Company may execute quarterly, at its discretion, the PIK Interest Election to defer a portion of interest margin payable and the converted principal is subject to an additional 1.00% margin, which resulted in an increase of $5.2 million during the three months ended September 30, 2024. Refer to Note 11 in the condensed consolidated financial statements for further information.
Other Income, Net
Other income, net for the three months ended September 30, 2024 was $1.4 million, which was primarily driven by net foreign exchange transaction gains of $2.5 million, related to our balance sheet hedging program, and $0.2 million of income related to the non-service cost components of net periodic benefit cost.
Other income, net for the three months ended September 30, 2023 was $13.2 million, which was primarily driven by a gain of $9.3 million related to the sale of certain European emission certifications the Company no longer intends to utilize, net foreign exchange transaction gains of $4.5 million related to our balance sheet hedging program, and a $0.6 million gain related to the non-service cost components of net periodic benefit cost.
Provision for (Benefit from) Income Taxes
Provision for income taxes for the three months ended September 30, 2024 totaled $3.4 million, resulting in an effective tax rate of (4.1)%. Benefit from income taxes for the three months ended September 30, 2023 totaled $17.7 million, resulting in an effective tax rate of 31.6%.
The increase in provision for income taxes for the three months ended September 30, 2024 is primarily driven by the geographic mix of earnings and the increase in losses in the United States, Luxembourg, Switzerland and China not anticipated to provide a tax benefit.
Nine Months Ended – September 30, 2024 vs. September 30, 2023
Net Sales
Net sales decreased 5% year-over-year from lower sales volumes primarily due to an intentional optimization of plant operations and sales mix through volume reductions in low-margin businesses, particularly in Polystyrene and Latex Binders.
Cost of Sales
The 9% decrease in cost of sales was primarily attributable to a 4% decrease from lower sales volumes, mainly in the aforementioned low-margin businesses, a 3% decrease from lower utilities, and a 2% decrease related to an inventory revaluation.
Gross Profit
The $87.6 million increase in gross profit was primarily due to prior year unfavorable impacts from natural gas hedges and lower plant utilization in the prior year. See the segment discussion below for further information.
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Selling, General and Administrative Expenses (SG&A)
The $32.1 million, or 16%, increase in SG&A was primarily due to the current period increase in restructuring costs of $22.9 million principally caused by the recently announced 2024 Restructuring Plan, partially offset by lower spend associated with the Company’s enterprise resource planning system upgrade of $7.0 million and lower costs of strategic initiatives of $1.4 million.
In addition, the increase in SG&A over prior year was also driven by higher net pre-tax gains on asset sales of $18.4 million recognized in the prior nine months ended compared to the current period. In the prior nine months ended, the Company recognized benefits from a $14.4 million pre-tax gain on asset sale in Matamoros, Mexico. During the nine months ended September 30, 2024, the Company recorded pre-tax gain on sales of $3.6 million related to its land, buildings and equipment in Bronderslev, Denmark and Belen, New Mexico.
Equity in Earnings of Unconsolidated Affiliate
The decrease in equity earnings from Americas Styrenics of $23.4 million was due to a planned turnaround in the first quarter and an unplanned outage in the third quarter at its styrene production facility, along with lower styrene and polystyrene margins.
Impairment and Other Charges
During the nine months ended September 30, 2023, the Company recorded a non-cash goodwill impairment charge of $349.0 million related to the Engineered Materials reporting unit. Additionally, the Company recorded impairment charges of $0.5 million related to our Boehlen styrene monomer assets, as described within Note 13 in the condensed consolidated financial statements.
Interest Expense, Net
The increase in interest expense, net of $74.9 million, or 60%, was primarily attributable to the year-over-year increase in market interest rates on our variable rate debt, specifically related to the 2028 Refinance Loans compared to the 2024 Term Loan B. Refer to Note 11 in the condensed consolidated financial statements for further information.
The increase is also partially related to the executed PIK Interest Election resulting in the aforementioned $5.2 million increase during the nine months ended September 30, 2024. Refer to Note 11 in the condensed consolidated financial statements for further information.
Other Income, Net
Other income, net for the nine months ended September 30, 2024 was $0.9 million, which was primarily driven by a gain of $3.5 million related to the sale of certain European emission certifications the Company no longer intends to utilize and net foreign exchange transaction gains of $1.6 million, related to our balance sheet hedging program. These gains were partially offset by $1.9 million of expense related to the non-service cost components of net periodic benefit cost.
Other income, net for the nine months ended September 30, 2023 was $19.0 million, which was primarily driven by a gain related to the sale of certain European emission certifications the Company no longer intends to utilize, foreign exchange transaction gains of $10.6 million and a $0.6 million gain related to the non-service cost components of net periodic benefit cost.
Provision for (Benefit from) Income Taxes
Provision for income taxes for the nine months ended September 30, 2024 totaled $29.1 million, resulting in an effective tax rate of (14.4)%. Benefit from income taxes for the nine months ended September 30, 2023 totaled $59.5 million, resulting in an effective tax rate of 12.0%.
The increase in provision for income taxes for the nine months ended September 30, 2024 is primarily driven by the geographic mix of earnings and the increase in losses in the United States, Luxembourg, Switzerland and China not anticipated to provide a tax benefit, as well as a decrease in losses from continuing operations before income taxes.
37
Outlook
Fourth quarter Adjusted EBITDA is expected to be sequentially lower compared to third quarter 2024 due to year-end seasonality, but still higher than the first quarter 2024 and prior year due to the benefits from restructuring initiatives. Fourth quarter free cash flow is also expected to turn positive due to typical seasonal working capital improvements. The Company continues to implement profitability improvements, including the recently announced organizational realignment and the shutdown of virgin polycarbonate production in Stade, Germany, amid a continued weak demand environment.
The Company has access to capital resources and continues to focus on cash management and liquidity improvement actions to manage the continued impact of the challenging macroeconomic environment and higher interest costs on our business operations for the foreseeable future. The profitability improvement factors noted above, coupled with certain cash preservation initiatives that have been undertaken, such as closely managing working capital and a focus on required capital expenditures, will allow us to maintain adequate liquidity to position the Company to deliver improved results.
Selected Segment Information
The following sections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the three and nine months ended September 30, 2024 and 2023. Inter-segment sales have been eliminated. Refer to Note 17 in the condensed consolidated financial statements for further information on our segments, as well as for a detailed definition of Adjusted EBITDA and a reconciliation of income from continuing operations before income taxes to segment Adjusted EBITDA. Prior period segment amounts herein have been recast in conjunction with the Company’s segment realignment that occurred during the first quarter of 2024, as described in Note 17 of the condensed consolidated financial statements.
Engineered Materials Segment
Our Engineered Materials segment consists of rigid thermoplastic compounds and blends products sold into high growth and high value applications in markets such as consumer electronics and medical, as well as soft thermoplastic elastomers (“TPEs”) products which are sold into markets such as footwear and automotive. The Engineered Materials segment also includes polymethyl methacrylates (“PMMA”) and activated methyl methacrylates (“MMA”) products, which are sold into a variety of applications including automotive, building & construction, medical, consumer electronics, and wellness, among others.
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
($ in millions) |
| 2024 |
| 2023 |
| % Change | 2024 |
| 2023 | % Change | |||||||||||||
Net sales | $ | 207.5 |
| $ | 186.0 |
| 12 | % | $ | 626.8 |
| $ | 598.4 |
| 5 | % | |||||||
Adjusted EBITDA | $ | 25.0 | $ | 4.8 | 421 | % | $ | 54.5 | $ | 4.9 |
| 1,012 | % | ||||||||||
Adjusted EBITDA margin |
| 12 | % |
| 3 | % |
| 9 | % |
| 1 | % | |||||||||||
Three Months Ended – September 30, 2024 vs. September 30, 2023
The 12% increase in net sales was primarily attributable to a 6% increase due to higher sales volumes of Rigid Compounds for consumer electronics and medical applications. This was further increased by a 6% increase from higher price due to favorable product mix and higher MMA market prices.
Adjusted EBITDA increased $20.2 million, of which $6.5 million was due to higher sales volumes and $14.8 million was due to higher margins, resulting from lower natural gas hedge losses and more normalized MMA market dynamics.
Nine Months Ended – September 30, 2024 vs. September 30, 2023
The 5% increase in net sales was primarily attributable to an 8% increase due to higher sales volumes from PMMA Resins, Rigid Compounds, and MMA. This was partially offset by a 4% decrease due to lower pricing from raw material pass-through.
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The $49.6 million increase in Adjusted EBITDA was primarily due to an increase of $24.5 million from higher sales volumes from PMMA Resins, Rigid Compounds, and MMA. Lower fixed costs from manufacturing cost under absorption in the prior year also resulted in a $7.2 million increase, and an increase of $18.6 million due to a favorable net timing variance.
Latex Binders Segment
Our Latex Binders segment produces styrene-butadiene latex (“SB latex”) and other latex polymers and binders primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a broad range of performance latex binders products, including SB latex, styrene-acrylate latex (“SA latex”), and vinylidene chloride latex for coatings, adhesives, sealants, and elastomers (“CASE”) applications.
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
($ in millions) |
| 2024 |
| 2023 |
| % Change | 2024 |
| 2023 | % Change | |||||||||||||
Net sales | $ | 241.9 |
| $ | 223.7 |
| 8 | % | $ | 735.8 |
| $ | 727.5 |
| 1 | % | |||||||
Adjusted EBITDA | $ | 25.6 | $ | 18.4 | 39 | % | $ | 76.9 | $ | 65.9 |
| 17 | % | ||||||||||
Adjusted EBITDA margin |
| 11 | % |
| 8 | % |
| 10 | % |
| 9 | % | |||||||||||
Three Months Ended – September 30, 2024 vs. September 30, 2023
The 8% increase in net sales was primarily attributable to a 12% increase due to higher prices from the pass-through of higher raw material costs. This was partially offset by a 4% impact from lower sales volumes, primarily in paper and carpet applications in Asia and Europe.
The $7.2 million, or 39%, increase in Adjusted EBITDA was primarily due to a $8.2 million, or 45%, higher margins from the exit of styrene production in Terneuzen as well as a favorable net timing variance. This was partially offset by a decrease of $1.0 million, or 5%, attributable to higher fixed costs.
Nine Months Ended – September 30, 2024 vs. September 30, 2023
The 1% increase in net sales was primarily due to a 3% increase from higher price from the pass-through of higher raw material costs, and a 2% impact from lower sales volumes in carpet applications.
The $11.0 million, or 17%, increase in Adjusted EBITDA was primarily due to a $11.6 million, or 18%, higher margins from the exit of styrene production in Terneuzen as well as pricing actions in Europe and North America.
Plastics Solutions Segment
Our Plastics Solutions segment consists of a variety of compounds and blends, the majority of which are for automotive applications. The segment also includes our ABS, styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses.
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
($ in millions) |
| 2024 |
| 2023 |
| % Change | 2024 |
| 2023 | % Change | |||||||||||||
Net sales | $ | 267.7 |
| $ | 259.0 |
| 3 | % | $ | 796.1 |
| $ | 840.9 |
| (5) | % | |||||||
Adjusted EBITDA | $ | 27.7 | $ | 16.9 | 64 | % | $ | 66.7 | $ | 65.1 |
| 2 | % | ||||||||||
Adjusted EBITDA margin |
| 10 | % |
| 7 | % |
| 8 | % |
| 8 | % | |||||||||||
Three Months Ended – September 30, 2024 vs. September 30, 2023
Net sales increased by 3% year-over-year, primarily due to a 4% increase from higher price and a 1% decrease from lower sales volumes.
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The $10.8 million, or 64%, increase in Adjusted EBITDA was primarily due to a $4.6 million increase, or 27%, from higher margins due to the exit of styrene production in Terneuzen and a $6.3 million increase, or 37%, from lower fixed costs primarily due to higher fixed cost absorption related to building inventory ahead of the Stade, Germany virgin polycarbonate closure.
Nine Months Ended – September 30, 2024 vs. September 30, 2023
Net sales decreased by 5% year-over-year, primarily due to a 4% decrease from lower sales volumes in polycarbonate. In addition, lower pricing led to a 2% decrease due to weaker market conditions in ABS.
The $1.6 million, or 2%, increase in Adjusted EBITDA was primarily due to a $7.9 million, or 12%, reduction in fixed costs as well as higher margins contributing an increase of $2.7 million, or 4%. These increases were partially offset by a $9.0 million, or 14%, decrease due to lower sales volumes.
Polystyrene Segment
Our product offerings in our Polystyrene segment include a variety of general purpose polystyrenes (“GPPS”) and polystyrene that has been modified with polybutadiene rubber to increase its impact resistant properties (“HIPS”). These products provide customers with performance and aesthetics at a low cost across applications, including appliances, packaging, including food packaging and food service disposables, consumer electronics, and building and construction materials.
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
($ in millions) |
| 2024 |
| 2023 |
| % Change | 2024 |
| 2023 | % Change | |||||||||||||
Net sales | $ | 150.6 |
| $ | 210.3 |
| (28) | % | $ | 533.0 |
| $ | 671.1 |
| (21) | % | |||||||
Adjusted EBITDA | $ | 4.1 | $ | (0.7) | 686 | % | $ | 23.3 | $ | 9.9 |
| 135 | % | ||||||||||
Adjusted EBITDA margin |
| 3 | % |
| (0) | % |
| 4 | % |
| 1 | % | |||||||||||
Three Months Ended – September 30, 2024 vs. September 30, 2023
Net sales decreased by 28% year-over-year primarily due to a 35% decrease in sales volumes as the result of an intentional reduction of low-margin sales to optimize sales mix as well as lower styrene-related sales following the closure of the styrene production facility in Terneuzen, the Netherlands in 2023. Partially offsetting this was a 7% increase from higher pricing from the pass-through of higher styrene costs.
The $4.8 million increase in Adjusted EBITDA was primarily due to a $6.6 million increase due to higher margins and a $4.0 million increase attributable to lower fixed costs, both attributable to the exit of styrene production in Terneuzen, partially offset by a $5.8 million decrease due to lower sales volumes.
Nine Months Ended – September 30, 2024 vs. September 30, 2023
Net sales decreased by 21% year-over-year. Lower sales volumes due to weaker market conditions in Europe, an intentional reduction of low-margin sales to optimize sales mix, and lower styrene-related sales from the closure of the styrene production facility in Terneuzen led to a 24% decrease in net sales from the prior year. Offsetting this was a 4% increase from higher pricing due to the pass-through of higher styrene costs.
The $13.4 million, or 135%, increase in Adjusted EBITDA was primarily due to an increase of $16.1 million, or 162%, due to higher margins and an increase of $9.7 million from lower fixed costs primarily related to the closure of the styrene production facility in Terneuzen. This was partially offset by a decrease of $12.6 million, or 126%, due to lower sales volume.
Americas Styrenics Segment
This segment consists solely of the equity earnings from our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America. Styrene monomer is a basic building block of plastics and a key input to many of the Company’s products, as well as a key raw material for the production of polystyrene. Major applications for the polystyrene products Americas Styrenics produces include appliances, food packaging, food service disposables, consumer electronics, and building and construction materials.
40
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
($ in millions) |
| 2024 |
| 2023 |
| % Change | 2024 |
| 2023 | % Change | |||||||||||||
Adjusted EBITDA* | $ | 4.0 | $ | 19.0 | (79) | % | $ | 25.8 | $ | 49.1 |
| (47) | % | ||||||||||
*The results of this segment are comprised entirely of earnings from Americas Styrenics, our equity method investment. As such, Adjusted EBITDA related to this segment is included within “Equity in earnings of unconsolidated affiliates” in the condensed consolidated statements of operations.
Three Months Ended – September 30, 2024 vs. September 30, 2023
The decrease in Adjusted EBITDA was mainly due to an unplanned outage at its styrene production facility and lower styrene margins in the current year.
Nine Months Ended – September 30, 2024 vs. September 30, 2023
The decrease in Adjusted EBITDA was mainly due to a planned turnaround in the first quarter and an unplanned outage in the third quarter at its styrene production facility.
Non-GAAP Performance Measures
We present Adjusted EBITDA as a non-GAAP financial performance measure, which we define as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring charges; acquisition related costs, certain strategic initiatives and other items. In doing so, we are providing management, investors, and credit rating agencies with an indicator of our ongoing performance and business trends, removing the impact of transactions and events that we would not consider a part of our core operations.
There are limitations to using the financial performance measures such as Adjusted EBITDA. This performance measure is not intended to represent net income or other measures of financial performance. As such, it should not be used as an alternative to net income as an indicator of operating performance. Other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing a reconciliation of this performance measure to our net income, which is determined in accordance with GAAP.
Adjusted EBITDA is calculated as follows for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, |
| ||||||||||||
(in millions) |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Net loss | $ | (87.3) |
| $ | (38.4) |
| $ | (230.6) |
| $ | (436.3) | |||
Interest expense, net |
| 72.3 |
| 46.6 |
| 200.0 |
| 125.1 | ||||||
Provision for (benefit from) income taxes |
| 3.4 |
| (17.7) |
| 29.1 |
| (59.5) | ||||||
Depreciation and amortization |
| 48.3 |
| 38.2 |
| 139.9 |
| 146.7 | ||||||
EBITDA(a) | $ | 36.7 | $ | 28.7 | $ | 138.4 | $ | (224.0) | ||||||
Net gain on disposition of businesses and assets(b) |
| — |
| (9.3) | (7.1) | (25.6) | ||||||||
Restructuring and other charges(c) |
| 28.5 |
| 13.8 | 41.9 | 19.0 | ||||||||
Asset impairment charges or write-offs(d) | — | 0.5 | — | 2.1 | ||||||||||
Goodwill impairment charges(e) | — | — | — | 349.0 | ||||||||||
Other items(f) |
| 0.9 |
| 7.2 | 4.7 | 13.5 | ||||||||
Adjusted EBITDA | $ | 66.1 | $ | 40.9 | $ | 177.9 | $ | 134.0 | ||||||
| (a) | EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because we believe it provides our management as well as our investors and credit agencies with meaningful information regarding the Company’s operational performance. We believe the use of EBITDA as a metric assists our board of |
41
| 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) | Amounts for the three and nine months ended September 30, 2024 primarily relate to the sale of the Belen, New Mexico and Bronderslev, Denmark manufacturing facilities. Refer to Note 4 in the condensed consolidated financial statements for further information. |
| (c) | Amounts for the three and nine months ended September 30, 2024 and 2023 primarily relate to charges incurred in connection with the Company’s various restructuring programs. Refer to Note 4 in the condensed consolidated financial statements for further information. |
| (d) | Amounts for the three and nine months ended September 30, 2023 primarily relate to the impairment of the Company’s styrene monomer assets in Boehlen, Germany, as described within Note 12 in the condensed consolidated financial statements. |
| (e) | Amounts for the nine months ended September 30, 2023 relate to the goodwill impairment of the Engineered Materials reporting unit. |
| (f) | Other items for the three and nine months ended September 30, 2024 and 2023 primarily relate to fees incurred in conjunction with certain of the Company’s strategic initiatives, including the potential divestiture of our styrenics business and our transition to a new enterprise resource planning system. |
Liquidity and Capital Resources
Cash Flows
The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2024 and 2023. We have derived the summarized cash flow information from our unaudited financial statements.
Nine Months Ended | |||||||
September 30, | |||||||
(in millions) |
| 2024 |
| 2023 |
| ||
Net cash provided by (used in): |
| ||||||
Operating activities | $ | (99.3) | $ | 131.2 | |||
Investing activities | (33.9) | (11.1) | |||||
Financing activities |
| 40.7 | (48.2) | ||||
Effect of exchange rates on cash |
| (1.0) | (5.0) | ||||
Net change in cash, cash equivalents, and restricted cash | $ | (93.5) | $ | 66.9 | |||
Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2024 totaled $99.3 million, which included a $5.7 million decrease in working capital and $15.0 million of dividends received from Americas Styrenics. Cash provided by operations during the quarter was $8.8 million, a sequential improvement of $50.7 million compared to second quarter 2024 as a result of targeted working capital and other actions, including deferring interest payments through the PIK Interest Election.
Net cash provided by operating activities during the nine months ended September 30, 2023 totaled $131.2 million, which included $55.0 million of dividends received from Americas Styrenics.
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2024 totaled $33.9 million, which was primarily attributable to capital expenditures of $42.1 million offset by proceeds from the sale of business and other assets of $8.2 million.
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Net cash used in investing activities during the nine months ended September 30, 2023 totaled $11.1 million, which was primarily attributable to capital expenditures of $49.1 million offset by proceeds from the sale of business and other assets of $38.0 million.
Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2024 totaled $40.7 million. During the nine months the Company drew $438.2 million in proceeds from the A/R Facility, and repaid $363.2 million, principally related to funding working capital through the quarter This activity was partially offset by $13.7 million in debt repayments, $1.3 million of dividends paid, and $14.0 million of net repayments of short-term borrowings.
Net cash used in financing activities during the nine months ended September 30, 2023 totaled $48.2 million. This activity was primarily due to $1,054.0 million in debt repayments, $9.5 million in deferred financing fees related to the issuance of the 2028 Refinance Term Loans, $17.6 million of dividends paid, and $8.9 million of net repayments of short-term borrowings. This activity was partially offset by $1,044.9 million in proceeds from the issuance of the 2028 Refinance Term Loans.
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 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 from continuing operations, which is determined in accordance with GAAP.
Nine Months Ended | |||||||
September 30, | |||||||
(in millions) |
| 2024 |
| 2023 |
| ||
Cash provided by (used in) operating activities | $ | (99.3) | $ | 131.2 | |||
Capital expenditures | (42.1) | (49.1) | |||||
Free Cash Flow | $ | (141.4) | $ | 82.1 | |||
Refer to the discussion above for significant impacts to cash provided by (used in) operating activities for the nine months ended September 30, 2024 and 2023.
Capital Resources and Liquidity
We require cash principally for day-to-day operations, to finance capital investments and other initiatives, to purchase materials, to service our outstanding indebtedness, and to fund the return of capital to shareholders via dividend payments and ordinary share repurchases, when deemed appropriate. Our sources of liquidity include cash on hand, cash flow from operations from continuing operations, and amounts available under the Senior Credit Facility and the Accounts Receivable Securitization Facility (discussed further below).
The 2028 Refinance Credit Agreement requires the Company to comply with customary affirmative, negative and financial covenants, and contains events of default including (i) relating to a change of control or (ii) failure to maintain at least $100.0 million of Liquidity at the end of any calendar month, and (iii) a cross default to the Credit Agreement. If an event of default occurs, the Term Lenders will be entitled to take various actions, including the acceleration of amounts due under the 2028 Refinance Term Loans. Liquidity is defined under the 2028 Refinance Credit Agreement as
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a combination of cash and cash equivalents held at certain of the Company’s restricted subsidiaries as well as the funds available for borrowing under both the 2026 Revolving Facility and the Accounts Receivable Securitization Facility, subject to certain restrictions outlined in the 2028 Refinance Credit Agreement. As of September 30, 2024, the Company was in compliance with all debt covenant requirements under the 2028 Refinance Credit Agreement and the Credit Agreement.
As of September 30, 2024, the Company had Liquidity of $340.3 million, comprised of $163.1 million of cash and cash equivalents and approximately $177.2 million of funds available for borrowing under both the 2026 Revolving Facility and the Accounts Receivable Securitization Facility, $102.2 million and $75.0 million respectively. At September 30, 2024 and December 31, 2023, we had $2,438.0 million and $2,344.6 million, respectively, in outstanding indebtedness and $305.5 million and $521.5 million, respectively, in working capital. In addition, as of September 30, 2024 and December 31, 2023, we had $95.1 million and $161.4 million, respectively, of foreign cash and cash equivalents on our balance sheet, outside of Ireland, our country of domicile, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries.
The following table outlines our outstanding indebtedness as of September 30, 2024 and December 31, 2023 and the associated interest expense, including amortization of deferred financing fees and debt discounts. Effective interest rates for the borrowings included in the table below exclude the impact of deferred financing fee amortization, certain other fees charged to interest expense (such as fees for unused commitment fees during the period), and the impacts of derivatives designated as hedging instruments. For definitions of capitalized terms not included herein, refer to our Annual Report on Form 10-K (“Annual Report”).
As of and for the Nine Months Ended | As of and for the Year Ended |
| |||||||||||||||
September 30, 2024 | December 31, 2023 |
| |||||||||||||||
Effective | Effective |
| |||||||||||||||
Interest | Interest | Interest | Interest |
| |||||||||||||
($ in millions) |
| Balance |
| Rate |
| Expense |
| Balance | Rate |
| Expense |
| |||||
2029 Senior Notes | $ | 447.0 | 5.1 | % | $ | 18.6 | $ | 447.0 | 5.1 | % | $ | 24.8 | |||||
2025 Senior Notes | 115.0 | 5.3 | % | 4.9 | 115.0 | 5.4 | % | 21.4 | |||||||||
Senior Credit Facility | |||||||||||||||||
2024 Term Loan B | — | — | % | — | — | — | % | 34.1 | |||||||||
2028 Term Loan B | 723.7 | 8.1 | % | 47.3 | 728.9 | 8.2 | % | 59.9 | |||||||||
2026 Revolving Facility | — | — | % | 2.0 | — | — | % | 2.3 | |||||||||
2028 Refinance Term Loans | 1,069.8 | 14.5 | % | 125.4 | 1,046.5 | 13.8 | % | 50.4 | |||||||||
Accounts Receivable Securitization Facility |
| 75.0 | 8.2 | % |
| 4.0 |
| — | — | % |
| 1.3 | |||||
Other indebtedness |
| 7.5 | 4.2 | % |
| 0.3 |
| 7.2 | 6.5 | % |
| 0.4 | |||||
Total | $ | 2,438.0 | $ | 202.5 | $ | 2,344.6 | $ | 194.6 | |||||||||
As of September 30, 2024, our Senior Credit Facility included the 2026 Revolving Facility, which is scheduled to mature in May 2026 and had a borrowing capacity of $375.0 million and $20.3 million outstanding letters of credit. The 2026 Revolving Facility contains a springing covenant which, if not met, limits our borrowing to 30% of the maximum available capacity under the 2026 Revolving Facility. This covenant requires the Company to meet a first lien net leverage ratio (as defined in our secured credit agreement) not to exceed 3.50x at the end of each financial quarter. As of September 30, 2024, the first lien net leverage ratio was 6.46x, and as such, the Company had $102.2 million of funds available for borrowing (net of $10.3 million outstanding letters of credit as defined in the secured credit agreement). Further, as of September 30, 2024, the Company is required to pay a quarterly commitment fee in respect of any unused commitments under the 2026 Revolving Facility equal to 0.375% per annum.
Also included in our Senior Credit Facility is our 2028 Term Loan B (with original principal of $750.0 million, maturing in May 2028), which requires scheduled quarterly payments in amounts equal to 0.25% of the original principal. The stated interest rate on our 2028 Term Loan B is SOFR plus 2.50% (subject to a 0.00% SOFR floor).
As of September 30, 2024, our 2028 Refinance Term Loans (with original principal of $1,077.3 million, maturing in May 2028), issued under the 2028 Refinance Credit Agreement, have a stated interest rate plus 8.50% (subject to a 3.00% SOFR floor), and were issued at a 3.0% original issue discount. Under the terms of the 2028 Refinance Credit
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Agreement, through September 8, 2025, the Company may execute quarterly, at its discretion, the PIK Interest Election to defer a portion of interest margin payable and the converted principal is subject to an additional 1.00% margin. On July 1, 2024, the Company executed the PIK Interest Election on the 2028 Refinance Term Loans, to defer payment of a portion of the quarterly interest margin payable in the amount of $11.5 million, thereby capitalizing $14.2 million to principal payments due at maturity. As of September 30, 2024, the Company accrued for the PIK Interest Election that was executed on October 1, 2024 on the 2028 Refinance Term Loans, to defer payment of a portion of the quarterly interest margin payable in the amount of $10.5 million, thereby capitalizing $13.0 million to principal payments due at maturity.
During the nine months ended September 30, 2024, the Company made $8.1 million and $5.6 million of net principal payments related to the 2028 Refinance Term Loans and the 2028 Term Loan B, respectively, and as of September 30, 2024, the Company’s has an additional $18.3 million of scheduled future payments classified within current debt on consolidated balance sheet related to both the 2028 Refinance Term Loans and the 2028 Term Loan B.
As of September 30, 2024, our 2025 Senior Notes, as issued under the Indenture executed in 2017, include $115.0 million aggregate principal amount of 5.375% senior notes that mature on September 1, 2025 and are classified within “Short-term borrowings and current portion of long-term debt” on the condensed consolidated balance sheets. These Notes may be redeemed prior to their maturity at the option of the Company under certain circumstances at specific redemption prices.
As of September 30, 2024, our 2029 Senior Notes, as issued under the Indenture executed in 2021, include $500.0 million aggregate principal amount of 5.125% senior notes that mature on April 1, 2029. Interest on the 2029 Senior Notes is payable semi-annually on February 15 and August 15 of each year, which commenced on August 15, 2021. These Notes may be redeemed prior to their maturity at the option of the Company under certain circumstances at specific redemption prices.
We also continue to maintain an accounts receivable securitization facility. On March 28, 2024, the Company extended the maturity date of the 2010 A/R Facility to November 2025 and then on July 18, 2028 the Company terminated the 2010 A/R Facility and replaced it with a new 2024 A/R Facility. The new 2024 A/R Facility borrowing limit is $150.0 million and bears interest at a rate per annum equal to Adjusted Term SOFR or EURIBOR (each as defined in the 2024 A/R Facility credit agreement, subject to a 1.00% floor), depending on the borrowing currency, plus a margin of 4.75%, and the Company incurs interest on a minimum of $75.0 million of advances, irrespective of actual amounts outstanding. The 2024 A/R Facility contains standard representations, warranties and covenants, as well as standard events of default, including those relating to cross-default to the Company’s other material indebtedness. The 2024 A/R Facility contains standard representations, warranties and covenants, as well as standard events of default, including those relating to cross-default to the Company’s other material indebtedness. The Company may terminate the 2024 A/R Facility at any time, subject to a 1.00% call premium prior to January 2027. There is no minimum liquidity covenant associated with the 2024 A/R Facility.
As of September 30, 2024, the 2024 A/R Facility had a borrowing capacity of $150.0 million and $75.0 million outstanding under the facility. As of September 30, 2024 the Company had $150.0 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable, and had $75.0 million of additional funds available for borrowing. During the nine months ended September 30, 2024, the Company drew $438.2 million and repaid $363.2 million from both facilities. Refer to Note 11 in the consolidated financial statements for further information on the facility.
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 2029 Senior Notes and 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
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debt obligations. There are no known significant restrictions by third parties on the ability of subsidiaries of the Company to disburse or dividend funds to the Issuers and the Borrowers in order to satisfy these obligations. However, as the Company’s subsidiaries are located in a variety of jurisdictions, the Company can give no assurances that our subsidiaries will not face transfer restrictions in the future due to regulatory or other reasons beyond our control.
The Senior Credit Facility and Indentures also limit the ability of the Borrowers and Issuers, respectively, to pay dividends or make other distributions to Trinseo PLC, which could then be used to make distributions to shareholders. During the nine months ended September 30, 2024, the Company declared dividends of $0.01 per ordinary share, totaling $0.3 million, all of which was accrued as of September 30, 2024 and was paid in October 2024. These dividends are well within the available capacity under the terms of the restrictive covenants contained in the Senior Credit Facility and Indentures. Further, 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.
We believe funds provided by operations, our cash and cash equivalent balances, coupled with borrowings available under our 2026 Revolving Facility and our accounts receivable securitization facility, will be adequate to meet necessary operating and capital expenditures for at least the next twelve months in the current operating environment.
The Company’s ability to meet our liquidity needs and to repay the 2025 Senior Notes, which mature in September 2025, is also dependent on several factors, including the company’s ability to achieve its forecast cash flows and its ability to maintain minimum liquidity requirements under its related covenants. If the Company is unable to achieve its forecasts, maintain minimum liquidity covenants, or refinance, it could have a material adverse impact on our access to liquidity, results of operation and financial condition.
Our ability to generate cash from operations to pay our indebtedness and meet other liquidity needs is subject to certain risks described herein and under Part I, Item 1A – Risk Factors of our Annual Report, as well as risk factors included in Part II, Item 1A herein. As of September 30, 2024, we were in compliance with all the covenants and default provisions under our debt agreements. Refer to our Annual Report for further information on the details of the covenant requirements.
Contractual Obligations and Commercial Commitments
There have been no material revisions outside the ordinary course of business to our contractual obligations as described within “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Commercial Commitments” within our Annual Report.
Critical Accounting Policies and Estimates
Our unaudited interim condensed consolidated financial statements are based on the selection and application of significant accounting policies. The preparation of unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses at the date of and during the reporting period. Actual results could differ from those estimates. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.
We describe our significant accounting policies in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report, while we discuss our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report. There have been no material revisions to the significant accounting policies or critical accounting policies and estimates as filed in our Annual Report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note 2 of our condensed consolidated financial statements, included elsewhere within this Quarterly Report.
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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 September 30, 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report were effective to provide the reasonable level of assurance described above.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as product liability, antitrust, competition, waste disposal practices, release of chemicals into the environment and other matters that may arise in the ordinary course of our business. 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. For information regarding new matters and material developments in legal proceedings during the quarter ended September 30, 2024, see “Litigation Matters” in Note 14 to our condensed consolidated financial statements.
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 below, 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.
Risks Related to Our Operations
We are subject to risks associated with our strategy to transform to a specialty materials and sustainable solutions provider.
We have taken steps toward executing on our strategy to transform the Company to a specialty materials and sustainable solutions provider, including the PMMA Acquisition, Aristech Surfaces Acquisition and the sale of our synthetic rubber business. We continue to explore strategic alternatives related to our styrenics business, which may include the marketing of individual assets and regional businesses, which divestiture remains an important part of our
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transformation strategy. We plan to continue to prioritize investments in higher growth, higher margin and lower earnings volatility areas such as Engineered Materials and CASE applications, products containing recycled materials, and to deemphasize the more volatile, lower growth assets in our portfolio.
The implementation of our transformation strategy has resulted in, and may continue to result in, changes to our business, operations, capital allocation, operational and organizational structure, increased demands on management, and could result in short-term and one-time costs, including higher than expected restructuring costs, loss of revenue, and other negative impacts on our business. We cannot guarantee that the execution of this strategy, including the steps taken to date, will lead to higher growth, higher margins and lower earnings volatility. We also cannot be certain that we will be successful in identifying opportunities for divestiture of all or a portion of our styrenics business or identifying investments in assets we believe best fit our portfolio transformation, whether such opportunities will be available at a price and at terms acceptable to us, or at all, or whether we will face difficulties due to timing or funding availability. Implementation of this transformation may take longer than anticipated, and once implemented, we may not realize, in full or in part, the anticipated benefits or such benefits may be realized more slowly than anticipated. The failure to realize benefits, which may be due to our inability to execute, delays in implementation, global or local economic conditions, accessibility to capital markets, inflation, high interest rates, competition, and the other risks described herein, could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
We may be unable to achieve cost savings and other benefits from our restructuring activities and cost reduction initiatives.
Since 2022 we have announced certain restructuring programs associated with our strategic transformation, adoption of cost reduction actions designed to improve profitability.
In December 2022, we announced approval of an asset restructuring plan designed to reduce costs, improve profitability, and reduce exposure to cyclical markets and elevated natural gas prices, which includes (i) closure of manufacturing operations at our styrene production facility in Boehlen, Germany, (ii) closure of one of our production lines at our Stade, Germany polycarbonate plant, (iii) closure of our PMMA sheet manufacturing site in Matamoros, Mexico and (iv) reduction of SB latex capacity at our Hamina, Finland plant. In August 2023 we announced a restructuring plan designed to optimize our PMMA sheet network, primarily in Europe, and consolidate manufacturing operations, which included closure of certain plants and product lines, including (i) closure of manufacturing operations at our PMMA cast sheets plant in Bronderslev, Denmark, (ii) closure of manufacturing operations at our batch polyester tray casting plant in Belen, New Mexico, and (iii) closure of our PMMA extruded sheet production line at our Rho, Italy plant. The plan also included certain other workforce reductions, including elimination of certain executive positions, to streamline the Company’s internal general & administrative network. We also closed our Terneuzen, the Netherlands styrene plant in November 2023, and in October 2024 we announced our decision to exit virgin polycarbonate manufacturing at our Stade, Germany facility along with the combination of management of our Engineered Materials, Plastics Solutions and Polystyrene business and reduction in workforce of supporting functions. Following these plant and product line closures, our downstream styrene and polycarbonate needs will be purchased from external suppliers.
We believe these actions will reduce production risk, reduce ongoing capital expenditures and turnaround costs, as well as lower our carbon footprint. We believe these actions will not only increase our profitability and cash generation but will also enable us to continue investing in transformation projects such as recycling and material substitution innovations, which offer significant growth potential even in the current market environment.
Our efforts to achieve these improvements and efficiencies may not be successful or generate expected cost savings, and we may incur greater costs than currently anticipated to implement and achieve these initiatives, which could have an adverse impact on our financial condition or results of operations. We cannot guarantee that these initiatives will successfully generate the expected cost savings or will not require additional expenditures beyond our initial estimates. The actual timing and costs of this asset restructuring may differ from our expectations and estimates, and such differences may be material.
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Volatility in the cost of raw materials, disruption in the supply of raw materials, may adversely affect our financial condition and results of operations or cause our financial results to differ materially from our forecasts.
Our results of operations can be directly affected, positively and negatively, by volatility in the cost of our raw materials, which are subject to global supply and demand and other factors beyond our control. Our principal raw materials (butadiene, BPA, MMA, and styrene) together represent approximately 31% of our total cost of goods sold. Crude oil prices also impact our raw material and energy costs. Generally, higher crude oil prices lead to higher costs of natural gas and raw materials, although some raw materials are impacted less than others. Volatility in the cost of energy or raw materials makes it more challenging to manage pricing and pass the increases on to our customers in a timely manner. We believe that rapid changes in pricing also can affect the volume our customers consume. As a result, our gross profit and margins could also be adversely affected and our financial results may differ materially from our forecasts.
We have supply agreements with Dow for butadiene, and MMA, which are critical raw materials to our business. These raw materials and other less critical materials amount to approximately 21% of our total raw materials acquired in 2023, based on aggregate purchase price. The remainder is purchased via other third-party suppliers on a global basis. As these and other third-party supply agreements expire, we may be unable to renegotiate or renew these contracts, or obtain new long-term supply agreements on terms comparable to us, or at all, which may significantly impact our operations. See Item 1 of our Form 10-K – Business- Sources and Availability of Raw Materials.
If the availability of any of our principal raw materials is limited, we may be unable to produce some of our products in the quantities demanded by our customers, which could have an adverse effect on plant utilization and our sales of products requiring such raw materials. Suppliers may have temporary limitations preventing them from meeting our requirements, and we may not be able to obtain substitute alternative suppliers in a timely manner.
Increased energy costs, shipping costs and supply constraints, including as a result of ongoing global conflicts, could adversely impact our results of operations.
We use natural gas and electricity to operate our facilities and generate heat and steam for our various manufacturing processes, and these operations can be directly affected by volatility in the cost and availability of energy, which is often subject to factors outside of our control. The ongoing war between Russia and Ukraine has impacted global energy markets, particularly in Europe, leading to high volatility and increased prices for natural gas and other energy supplies. Reductions in the supply of natural gas from Russia to Europe led to supply shortages in Europe which may continue for the foreseeable future. Continued natural gas supply shortages, or a shutdown of natural gas supply from Russia, could lead to additional price increases, energy supply rationing, or temporary reduction in operations or closure of our European manufacturing plants, which could have a material adverse impact on our business or results of operations.
In the past we have entered into certain commodity swap agreements to protect against fluctuations in energy prices, including natural gas, some of which have generated losses when prices stabilized. We may continue to enter into commodity swaps, forward contracts, or options from time to time. Our hedges against energy price volatility could adversely impact our results of operations.
Global conflicts may also impact our shipping and transportation costs, and delay shipments of our products to our customers or shipments of raw materials to our manufacturing sites. The impact of the ongoing Israel-Hamas war and the threat of a broader conflict in the Middle East may disrupt shipping lanes in the Red Sea and elsewhere, delay shipments in the region, and raise prices for shipping regionally as well as globally, which could have a material adverse impact on our results of operations. A potential broader conflict could augment these negative impacts.
Deterioration of our credit profile could limit our access to commercial credit.
Maintaining our credit profile is important to our cost and availability of capital, including our access to commercial credit. Third parties determine our credit profile based on a number of factors, including our credit ratings set by independent credit rating agencies, earnings and financial strength, as well as our strategies, operations, and execution of announced actions. Changes to our credit profile could materially impact our credit capacity or restrict our ability to access commercial credit.
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Chemical manufacturing is inherently hazardous and production at our manufacturing facilities could be disrupted for a variety of reasons. Disruptions could expose us to significant losses or liabilities.
There are hazards and risks of disruption inherent in chemical manufacturing and the related storage and transportation of raw materials, products and wastes which exist in our operations and the operations of other occupants with whom we share manufacturing sites. These potential risks of disruption include, but are not necessarily limited to:
| ● | pipeline and storage tank leaks and ruptures; |
| ● | explosions and fires; |
| ● | inclement or extreme weather and natural disasters, which may be aggravated by climate change; |
| ● | disease outbreaks, epidemics or pandemics, and government responses thereto, which may impact our employees or those of our suppliers or transportation providers; |
| ● | terrorist attacks; |
| ● | cyber-attacks; |
| ● | failure of mechanical systems, computer systems, process safety and pollution control equipment; |
| ● | failures or delays in properly implementing new technologies and processes; |
| ● | chemical spills and other discharge or releases of toxic or hazardous substances or gases into the ground, air or water; and |
| ● | exposure to toxic chemicals. |
These hazards could expose employees, customers, the community and others to toxic chemicals and other hazards, contaminate the environment, damage property, result in personal injury or death, lead to an interruption or suspension of operations, damage our reputation and adversely affect the productivity and profitability of a particular manufacturing facility or us as a whole, and result in the need for remediation, governmental enforcement, regulatory shutdowns, the imposition of government fines and penalties, and claims brought by governmental entities or third parties. Legal claims and regulatory actions could subject us to both civil and criminal penalties, which could affect our product sales, reputation and profitability. Liabilities associated with the investigation and cleanup of hazardous substances, as well as personal injury, property damage or environmental damages arising from the release of, or exposure to, such hazardous substances, may be imposed in many situations without regard to violations of laws or regulations or other fault. These liabilities may be material and can be difficult to identify or quantify.
In March 2023, due to an equipment failure at the Bristol, Pennsylvania facility, operated by our wholly-owned subsidiary, Altuglas LLC, an accidental release of latex emulsion product occurred, which ultimately flowed into a local waterway (the “Bristol Spill”). We reported the event and cooperated closely with local, state, and federal authorities. The Company has been named, and continues to defend against, claims related to the Bristol Spill. See Item 3 of our Form 10-K – Legal Proceedings.
We are dependent upon the continued safe and reliable operation of our production facilities to minimize risks associated with our manufacturing processes, but we cannot completely eliminate the risk of accidental contamination, discharge or injury resulting from these materials. We have been in the past, and may be in the future, subject to claims relating to exposure to hazardous materials, and have had, from time to time in the past, incidents that have temporarily shut down or otherwise disrupted our manufacturing, causing production delays and resulting in liability for workplace injuries, environmental remediation, regulatory penalties or other claims. Systems in place to manage environmental, health and safety compliance, and our emergency response and crisis management plans may not address or foresee all potential risks or causes of disruption, or sufficiently address the impacts of such incidents on our employees, customers or the communities in which our plants reside. We cannot assure you that we will not experience these types of incidents in the future or that these incidents will not result in production delays or otherwise have a material adverse effect on our business, reputation, financial condition or results of operations.
If disruptions occur, alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production. Each of these scenarios could negatively affect our business and financial performance. If one of our key manufacturing facilities is unable to produce our products for an extended period of time, our sales may be reduced by the shortfall caused by the disruption and we may not be able to meet our customers’ needs, which could cause them to seek other suppliers. Furthermore, to the extent a production disruption occurs at a manufacturing facility that has been operating at or near full capacity, the resulting shortage of our product could be particularly harmful because production at the manufacturing facility may not be able to reach levels achieved prior to the disruption. Our insurance policies may not fully insure against all potential causes of disruption due
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to limitations and exclusions in those policies. Therefore, incidents that significantly disrupt our operations may expose us to significant losses and/or liabilities.
If we are unable to execute on our capital projects or growth plans within their expected budget and timelines, or if the market conditions assumed in our projections deteriorate, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Capital projects and other growth investments may have lengthy deadlines during which market conditions may deteriorate between the capital expenditure’s approval date and the conclusion of the project, negatively impacting projected returns. Cost-saving measures, capital allocation priorities and elevated borrowing costs may impact our decision whether to undertake or delay the start of certain capital projects in the near future. Delays or cost increases related to capital and other spending programs involving engineering, procurement and construction of facilities or manufacturing lines or the development of new technologies could materially adversely affect our ability to achieve forecasted operating results. Project delays or budget overages may arise as a result of unpredictable events, which may be beyond our control, including, but not limited to:
| ● | denial of or delay in receiving requisite regulatory approvals, licenses and/or permits; |
| ● | unanticipated increases in the cost of construction materials, labor, or utilities; |
| ● | disruptions in transportation of components or construction materials; |
| ● | adverse weather conditions or natural disasters, equipment malfunctions, explosions, fires or spills affecting our facilities, or those of vendors or suppliers; |
| ● | disease outbreaks, epidemics or pandemics, and government responses thereto; |
| ● | shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages; or |
| ● | non-performance by, or disputes with, vendors, partners, suppliers, contractors or subcontractors. |
Furthermore, presumed demand for the technologies or products provided by the manufacturing facilities or lines being constructed or the technologies being developed may deteriorate during the project period. If we were unable to stay within a project’s overall timeline or budget, or if market conditions change, it could materially and adversely affect our business, financial condition, results of operations and cash flows.
If we are not able to continue the technological innovation and successful commercial introduction of new products, our customers may turn to other producers to meet their requirements.
Our industry and the end markets into which we sell our products experience periodic technological changes and ongoing product improvements. Our customers may introduce new generations of their own products or require new technological and increased performance specifications that would require us to develop customized products. Our future growth will depend on our ability to predict and react to changes in key end markets, and to successfully develop, manufacture and market products in such changing end markets. We need to continue to identify, develop and market innovative products on a timely basis to replace existing products in order to maintain our profit margins and our competitive position. We may not be successful in developing new products and technology that successfully compete with these materials, and our customers may not accept any of our new products. We have made and may continue to make investments in certain markets we believe have high growth potential. If these or other investments like it are unsuccessful, or if we otherwise fail to keep pace with evolving technological innovations or fail to modify our products in response to our customers’ needs, then our business, financial condition and results of operations could be adversely affected as a result of reduced sales of our products.
Risks Related to Acquisitions and Dispositions
We may not be successful in the proposed divestiture of our styrenics businesses.
We continue to explore strategic alternatives related to our styrenics business. In 2024 we announced the commencement of the sale process for our interest in Americas Styrenics pursuant to an ownership exit provision in the joint venture agreement, for which we expect to generate a definitive agreement in the first half of 2025. While the divestiture of our styrenics businesses remains a key part of our transformation strategy, we cannot estimate whether economic conditions and capital markets will sufficiently improve to allow us to successfully complete a sale of all or a portion of our styrenics business, locate an adequate buyer or buyers, or negotiate terms of a sale acceptable to the
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Company. We also cannot be certain whether we will successfully complete the sale of our interest in Americas Styrenics in the expected timeline, or that it the process will generate a satisfactory sale price.
A successful divestiture depends on various factors, including our ability to effectively transfer liabilities, contracts, facilities and employees to any purchaser, revise our legal entity structure, negotiate continued equity ownership, identify and separate intellectual property, reduce fixed costs previously associated with the divested assets or business, and collect the proceeds from any sale. Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impacts from the loss of revenue associated with the divested business, as well as significant write-offs, including those related to long-lived assets, including goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition. All of these efforts require varying levels of management resources, which may divert our attention from other business operations.
We may fail to realize the anticipated benefits of acquisitions or such benefits may take longer to realize than expected, and we may encounter difficulty integrating these businesses into our operations. We may also be required to incur impairment and other charges, which would adversely affect our operating results.
Our ability to realize the anticipated benefits of acquisitions will depend on our ability to successfully integrate the underlying businesses into ours. The Company has devoted significant attention and resources integrating the operations, systems, processes and procedures of the acquired businesses, and we expect to continue to do so. If we fail to effectively integrate, we could lose or diminish the expected benefits of these acquisitions. Further, this integration may not result in the realization of the cost and revenue synergies and benefits that we expected at the time of the acquisitions, nor can we give assurances that these benefits will be achieved when expected or at all.
We also face risks that we fail to meet our financial and strategic goals, due to, among other things, inability to grow the acquired business, achieve expected margins and grow relationships with customers. We may also be adversely affected by other economic, business, and/or competitive factors which did not exist at the time of closing. Such conditions could materially adversely impact our business and results of operations.
We may engage in other future strategic disposition or acquisitions of certain assets and/or businesses that could affect our business, results of operations, financial condition and liquidity.
We may selectively pursue collaboration agreements, joint ventures or complimentary acquisitions which inherently involves a number of risks and presents financial, managerial and operational challenges, including, but not limited to:
| ● | potential disruption of our ongoing business and the distraction of our management; |
| ● | difficulty retaining key employees or with integration of personnel and financial and other systems; |
| ● | difficulty maintaining relationships with customers; |
| ● | hiring additional management and other critical personnel; |
| ● | generating expected cost savings and synergies from the acquisition; and |
| ● | increasing the scope, geographic diversity and complexity of our operations. |
Also, the presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition may have a material adverse effect on our business or financial results. Our acquisition and joint venture strategy may not be successfully received by customers or other stakeholders, and we may not realize any anticipated benefits from these other acquisitions or joint ventures.
We may also opportunistically pursue dispositions of certain other assets and/or businesses, which may involve material amounts of assets or lines of business, and adversely affect our results of operations, financial condition and liquidity. If any such dispositions were to occur, under the terms of our senior secured credit agreement (the “Credit Agreement”) governing our senior secured financing facility of up to $1,075.0 million (the “Senior Credit Facility”), the credit agreement (the “2028 Refinance Credit Agreement”) governing our senior secured term loan facility of $1,077.3 million maturing in May 2028 (the “2028 Refinance Credit Facility”), and the indentures (the “Indentures”) governing our 5.375% senior notes due 2025 (the “2025 Senior Notes”), and our 5.125% senior notes due 2029 (the “2029 Senior Notes”), we may be required to apply the proceeds of the sale to repay any borrowings under our Senior Credit Facility, 2028 Refinance Credit Facility, and our 2025 Senior Notes or our 2029 Senior Notes. Dispositions may also involve
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continued financial involvement in the divested business, such as through continuing equity ownership, transition service agreements, supply agreements, guarantees, indemnities or other current or contingent financial obligations.
Joint ventures may not operate according to their business plans if we or our partners fail to fulfill our or their obligations, or differences in views among our joint venture partners result in delayed decisions, which may adversely affect our results of operations and may force us to dedicate additional resources to these joint ventures.
For the year ended December 31, 2023, we received dividends of $65.0 million from our Americas Styrenics joint venture. In 2024 we announced the commencement of the sale process for our interest in Americas Styrenics, pursuant to an ownership exit provision in the joint venture agreement. We may enter into additional joint ventures in the future. The nature of a joint venture requires us to share control with unaffiliated third parties. If joint venture partners do not fulfill their obligations, the affected joint venture may not be able to operate according to its business plan. In that case, our results of operations may be adversely affected and we may be required to increase the level of our commitment to the joint venture. Differences in views among joint venture participants and our inability to unilaterally implement sales and production strategies or determine cash distributions from joint ventures may significantly impact short-term and longer-term financial results, financial condition and the value of our ordinary shares.
Risks Related to Regulation and Compliance
We are subject to customs, international trade, export control, and antitrust laws that could require us to modify our current business practices and incur increased costs.
We are subject to numerous regulations, including customs and international trade laws, export/import control laws, and associated regulations. These laws and regulations limit the countries in which we can do business; the persons or entities with whom we can do business; the products which we can buy or sell; and the terms under which we can do business, including anti-dumping restrictions. In addition, we are subject to antitrust laws and zoning and occupancy laws that regulate manufacturers generally and/or govern the importation, promotion and sale of our products, the operation of factories and warehouse facilities and our relationship with our customers, suppliers and competitors. If any of these laws or regulations were to change or were violated by our management, employees, suppliers, buying agents or trading companies, the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our products and hurt our business and negatively impact results of operations. In addition, in some areas we benefit from certain trade protections, including anti-dumping protection and the EU’s Authorized Economic Operator program, which provides expedited customs treatment for materials crossing national borders. If we were to lose these protections, our results of operations could be adversely affected.
Global trade conflicts and the imposition of tariffs may have a material adverse impact on our business and results of operations.
Various governments have adopted new approaches to their trade policies seeking to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and implement new tariff schedules. For example, the U.S. and China maintain certain trade policies and tariffs on imported products, which have resulted in shifting trade flows and increased costs for raw materials and finished goods. Uncertainty over global tariffs has and may continue to delay purchasing decisions by our customers as they assess the impact of such trade policies on their business. Further changes in trade policy, trade restrictions, tariffs, or other governmental action has the potential to adversely impact demand for our products or our customers’ products, and our costs, including prices of raw materials, which in turn could adversely impact our business, financial condition and results of operations.
We could be subject to changes in the global and local tax regulatory environments in the jurisdictions in which we operate, which could adversely impact our results of operations.
We are subject to income taxes in Ireland, the United States, and numerous other foreign jurisdictions where our subsidiaries are organized. Due to economic and political conditions, tax rates in these jurisdictions may change significantly. Our effective tax rate in the future can be impacted by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws or their
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interpretations, and other administrative or judicial rulings. Our tax returns are subject to examination by local tax authorities and other governmental bodies. We regularly assess the probability of an adverse outcome resulting from these examinations when determining our provision for income taxes. There is an inherent uncertainty to the outcome of these examinations. If it is determined that the taxes we owe are in excess of amounts previously accrued, our operating results and cash flows could be adversely affected.
Multi-jurisdictional changes enacted in response to the action items provided by the Organization for Economic Co-operation and Development (OECD), including the OECD's Global Anti-Base Erosion ("GloBE”) rules under Pillar Two, which will introduce a global minimum corporate tax rate set at 15% on multinational enterprises, increases tax uncertainty and may impact the Company’s effective tax rate and provision for income taxes. Given the unpredictability of possible further changes and the potential interdependency of global tax laws and regulations, it is difficult to predict the cumulative effect of such tax laws and regulations on Company’s results of operations.
Regulatory and statutory changes, including those related to climate change and sustainability, applicable to our raw materials and products or our customers’ products, or changes to consumer preferences or public perception, could require material expenditures, changes in our operations and could adversely affect our financial condition and results of operations.
Changes in environmental, health and safety regulations in jurisdictions where we manufacture and sell our products could lead to a decrease in demand for our products. In addition to changes in regulations, customers, investors and other stakeholders are increasingly focusing on environmental issues and disclosures, including climate change, energy and water use, greenhouse gas emissions and other sustainability concerns. Change in public sentiment may result in changing demands for our products or could cause changes in the market dynamics of our existing products, impacting pricing, or cause us to incur additional costs to make changes to our operations to comply with such demand changes. Compliance with new regulations could increase the costs incurred to manufacture our products, or costs incurred by our customers to use our products and otherwise limit the use of these products and lead to decreased demand which would have an adverse effect on our business and results of operations. Our inability to meet investor, industry or stakeholder sustainability goals could materially impact our financial condition and results of operations.
Materials such as acrylonitrile, ethylbenzene, styrene, butadiene, bisphenol-A (“BPA”), methyl methacrylate (“MMA”), UV-stabilizers, and halogenated flame retardant and others are used in the manufacturing of our products and have come under scrutiny due to potentially significant or perceived health and safety concerns. In addition, per- and polyfluoroalkyl substances (“PFAS”), chemicals used in products which require anti-dripping, temperature, chemicals, or fire resistance properties, are under heightened governmental and regulatory scrutiny in the U.S., Europe and other countries for potential contamination of soil, air and water, specifically in drinking water. The hazard classification of our products, or materials in our products, could change due to new data or toxicology studies, which may make sales of such products difficult to certain customers or in certain markets if we are unable to manufacture products without such classified materials. Heightened regulatory scrutiny, consumer protection actions or customer disapproval of these types of materials could lead to regulatory action or declining sales, and could adversely affect our results of operations and financial condition.
Moreover, bans on single-use plastic, restrictions on microplastics and similar regulatory actions to reduce plastic waste and influence consumer preferences for sustainable and recyclable materials may reduce the demand for some of our products over time. New or proposed legislation addressing the global challenge of plastic waste may place responsibility on producers and sellers to include recycled content in their products. This legislation may impact our sales and place more importance on our initiatives to further develop technologies for recycled products.
Additionally, these regulatory regimes currently require significant compliance expenditures and future regulatory changes applicable to our raw materials and products or our customers’ products, could require significant additional expenditures or changes in our operations. Governmental inquiries or lawsuits involving these chemicals could lead us to incur liability for damages or other costs, lead to civil proceedings, the imposition of fines and penalties, or other remedies, and potentially add costs or restrictions to our manufacturing operations in the future.
Our products are also used in a variety of end-uses that have specific regulatory requirements such as those relating to products that have contact with food or medical device end-uses. Our customers or distributors may not follow our policies and advice regarding the safe use and application of our products, which may unknowingly expose us to third-party claims. We and many of the applications for the products in the end markets in which we sell our products
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are regulated by various national and local rules, laws and regulations, such as the U.S. Toxic Substances Control Act and the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals regulations. An increasing number of countries continue to adopt similar requirements, which could require significant compliance expenditures or changes to our sales and marketing strategies and operations. Changes to existing regulations could result in additional compliance costs, seizures, confiscations, recall or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. Changes in environmental and safety laws and regulations banning or restricting the use of these residual materials in our products, or our customers’ products, could adversely affect our results of operations and financial condition. Failure to appropriately manage safety, human health, product liability and environmental risks associated with our products, product life cycles and production processes could adversely impact employees, communities, stakeholders, our reputation and the results of our operations.
Compliance with extensive and evolving environmental, health and safety laws may require substantial expenditures.
We use large quantities of hazardous substances, generate hazardous wastes and emit wastewater and air pollutants in our manufacturing operations. Consequently, our operations are subject to extensive environmental, health and safety laws and regulations at both the national and local level in multiple jurisdictions. Many of these laws and regulations have become more stringent over time and the costs of compliance with these requirements may continue to increase, including costs associated with any capital investments for pollution control facilities. In addition, our production facilities and operations require operating permits, licenses or other approvals that may be subject to periodic renewal and, in circumstances of noncompliance, may be subject to revocation. The necessary licenses, permits or other approvals may not be issued or continue in effect, and any issued licenses, permits or approvals may contain more stringent limitations that restrict our operations or that require further expenditures to meet the permit requirements.
This continuing focus on climate change in jurisdictions in which we operate has and will continue to result in new environmental regulations that may require us to incur additional costs in complying with new regulatory and customer requirements, which may adversely impact our operations and financial condition. Compliance with more stringent environmental requirements would likely increase our costs of transportation and storage of raw materials and finished products, as well as the costs of storage and disposal of wastes. Additionally, we may incur substantial costs, including penalties, fines, damages, criminal or civil sanctions and remediation costs for the failure to comply with these laws or permit requirements.
We may be subject to losses due to liabilities or lawsuits related to contaminated land we own or operate or arising out of environmental damage or personal injuries associated with exposure to chemicals or the release of chemicals.
Under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar statutes outside the U.S., the current or former owner or operator of a property contaminated by hazardous substance releases is subject to strict, unlimited, joint, several and retroactive liability for the investigation and remediation of the property, and also may be liable for natural resource damages associated with the releases. In addition to potential statutory liability, we also face the risk that individuals could seek damages for personal injury due to exposure to chemicals at our facilities, chemicals which have been released from our facilities, chemicals otherwise owned or controlled by us, or chemicals which allegedly migrated from products containing our materials. For example, we face class action claims and regulatory action by various government agencies related to the Bristol Spill, which are ongoing. See Item 3 of our Form 10-K – Legal Proceedings. We may be subject to claims with respect to workplace exposure, workers’ compensation and other health and safety matters. Legal claims and regulatory actions could subject us to both civil and criminal penalties, which could affect our reputation as well as our results of operations, financial condition, and liquidity.
There are several properties which we own on which Dow has been conducting remediation to address historical contamination, while there are other properties with historical contamination that are owned by Dow that we lease for our operations. While we did not assume the liabilities associated with these properties in the U.S., because CERCLA and similar laws can impose liability for contamination on the current owner or operator of a property, even if it did not create the contamination, there is a possibility that a governmental authority or private party could seek to include us in an action or claim for remediation or damages, even though the contamination may have occurred prior to our ownership or occupancy. While Dow has agreed to indemnify us for liability for releases of hazardous materials that occurred prior
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to our separation from Dow, the indemnity is subject to monetary and temporal limitations. The period for new claims at these sites has expired. Sites acquired after the Dow Separation are subject to a different limitations period, or may not be subject to any indemnification. We cannot be certain that Dow will fully honor the indemnity or that the indemnity will be sufficient to satisfy all claims that we may incur. Any active remedial projects on our properties which were part of the Dow Separation are being performed by Dow pursuant to its indemnification obligations. In addition, we face the risk that future claims might fall partially or fully outside of the scope of the indemnity, particularly if there is a release of hazardous materials that occurs in the future or at any time after our separation from Dow or if the condition requiring remediation is attributable to a combination of events or operations occurring prior to and after our separation from Dow. The Company believes it has set adequate reserves for all remediation projects it is currently undertaking.
Risks Related to Our Indebtedness
Our current and future level of indebtedness of our subsidiaries could adversely affect our financial condition.
As of December 31, 2023, our indebtedness totaled approximately $2.3 billion. Additionally, as of December 31, 2023, we had $98.4 million (net of $24.1 million outstanding letters of credit) of funds available for borrowing under our senior secured credit agreement (the “Credit Agreement”) governing our senior secured financing facility of up to $1,075.0 million (the “Senior Credit Facility”), as well as $113.5 million of funds available for borrowing under our accounts receivable securitization facility.
Our current level of indebtedness, as well as future borrowings or other indebtedness, could have significant consequences for our business, including but not limited to:
| ● | increasing our vulnerability to economic downturns and adverse industry, competitive, or market conditions; |
| ● | requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund capital expenditures and future business opportunities and returning cash to our shareholders in the form of dividends or share repurchases; |
| ● | limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions, and general corporate or other purposes; |
| ● | compromising our flexibility to capitalize on business opportunities or other strategic acquisitions, and to react to competitive pressures, as compared to our competitors, or forcing us to make nonstrategic divestitures; |
| ● | placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt at more favorable interest rates; and |
| ● | increasing our cost of borrowing. |
Although the terms of our Credit Agreement, the credit agreement (the “2028 Refinance Credit Agreement”) governing our senior secured term loan facility of $1,077.3 million maturing in May 2028 (the “2028 Refinance Credit Facility”), and the indentures (the “Indentures”) governing our 5.375% senior notes due 2025 (the “2025 Senior Notes”), and our 5.125% senior notes due 2029 (the “2029 Senior Notes”) contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. Also, we are not prevented from incurring obligations that do not constitute “indebtedness” as defined in the related agreements such as operating leases and trade payables. If new debt is added to our subsidiaries’ current debt levels, the risks related to indebtedness that we now face could intensify.
In addition, a substantial portion of our subsidiaries’ current indebtedness is secured by substantially all of our assets, which may make it more difficult to secure additional borrowings at reasonable costs. If we default or declare bankruptcy, after these obligations are met, there may not be sufficient funds or assets to satisfy our subordinate interests, including those of our shareholders.
For more information regarding our indebtedness, see Item 2 above – Management’s Discussion and Analysis of Financial Conditions and Results of Operations- Capital Resources, Indebtedness and Liquidity.
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The terms of our subsidiaries’ indebtedness may restrict our current and future operations, particularly our ability to respond to change or to take certain actions.
Our credit, debt and refinance agreements contain a number of covenants imposing certain restrictions on our subsidiaries’ businesses. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of business opportunities. These agreements restrict, among other things, our subsidiaries’ ability to:
| ● | sell or assign assets; |
| ● | incur additional indebtedness; |
| ● | pay dividends to Trinseo PLC; |
| ● | make investments or acquisitions; |
| ● | incur liens; |
| ● | repurchase or redeem capital shares; |
| ● | engage in mergers or consolidations; |
| ● | materially alter the business they conduct; |
| ● | engage in transactions with affiliates; and |
| ● | consolidate, merge or transfer all or substantially all of their assets. |
Our Senior Credit Facility contains a springing covenant which, if not met, limits our borrowing to 30% of the maximum available capacity under the revolver. We have not been in compliance with this financial covenant since March 31, 2023 and access to our revolving credit facility has been limited to 30% of the total capacity of the revolver. We are also required to meet a minimum liquidity test under our 2028 Refinance Credit Agreement. The ability of our subsidiaries to comply with the covenants, financial ratios and tests contained in the Credit Agreement, the 2028 Refinance Credit Agreement and the Indentures, to pay interest on indebtedness, fund working capital, and make anticipated capital expenditures depends on our future performance, which is subject to general economic conditions and other factors, some of which are beyond our control. There can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available under our Senior Credit Facility to fund liquidity needs in an amount sufficient to enable them to service their indebtedness. Furthermore, if we need additional capital for general corporate purposes, to repay or refinance existing indebtedness, or to execute on an expansion strategy, there can be no assurance that additional capital or refinancing opportunities will be available on satisfactory terms or at all.
A failure to repay amounts owed under the Senior Credit Facility, 2028 Refinance Credit Facility, our 2029 Senior Notes or 2025 Senior Notes at maturity would result in a default. In addition, a breach of any of the covenants in the Credit Agreement, 2028 Refinance Credit Agreement or Indentures, or our inability to comply with the required financial ratios, tests or limits could result in a default. If a default occurs, lenders may refuse to lend us additional funds and the lenders or noteholders could declare all of the debt and any accrued interest and fees immediately due and payable. A default under one of our subsidiaries’ debt agreements may trigger a cross-default under our other debt agreements. For more information regarding our indebtedness, please see Item 2 above – Management’s Discussion and Analysis of Financial Conditions and Results of Operations- Capital Resources, Indebtedness and Liquidity.
Risks Related to Litigation
We are party to certain legal proceedings, and may be subject to additional litigation, arbitration or legal proceedings in the future.
From time to time, we may be involved in litigation, arbitration or other legal proceedings relating to claims arising out of our operations, business, including but not limited to disputes over prior transactions or service or maintenance costs at sites we do not own. The results of any current or future legal proceedings cannot be predicted with certainty and, regardless of the outcome, we may incur significant costs and experience a diversion of management resources as a result of such proceedings. The results of any such proceedings could have a material adverse impact on our business, financial condition, cash flows and results of operations.
The Company records accruals for legal matters which are both probable and reasonably estimable, and the Company believes that it has adequately accrued for ongoing legal matters as appropriate. Litigation and arbitration are inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in such matters, unfavorable resolutions could occur that are in excess of amounts accrued or which could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
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Risks Related to Our Relationship with Dow
Dow provides significant operating and other services, and certain raw materials used in the production of our products, under agreements that are important to our business. The failure of Dow to perform its obligations, or the termination of these agreements, could adversely affect our operations.
Prior to the Dow Separation, we were operated by Dow, which has provided and continues to provide services under certain agreements that are important to our business. We are a party to (i) SAR SSAs,; (ii) supply and sales agreements; and (iii) the AR MOD5 Agreement. Under the terms of the above agreements, either party is also permitted to terminate the applicable agreement in a variety of situations, including in the event of the other party’s uncured material breach, insolvency, change of control or cessation of operations. Should Dow fail to provide these services or raw materials, or should any of the above agreements be terminated, we would be forced to obtain these services and raw materials from third parties or provide them ourselves. Additionally, if Dow terminates agreements pursuant to which we are obligated to provide certain services, we may lose the fees received by us under these agreements. The failure of Dow to perform its obligations under, or our inability to renegotiate, renew or replace any of these contracts, particularly without an alternative source of raw materials, could adversely affect our operations. Depending on market conditions at the time of any such termination, we may not be able to enter into substitute arrangements in a timely manner. For more information regarding our relationship with Dow, please see Item 1 of our Form 10-K – Business - Our Relationship with Dow.
We are party to certain license agreements with Dow relating to intellectual property that is essential to our business. Because of this relationship, we may have limited ability to expand our use of certain intellectual property beyond the field of the license or to police infringement that may be harmful to our business.
In connection with the Dow Separation, we acquired ownership of, or in some cases, a worldwide right and license to use, certain patents, patent applications and other intellectual property of Dow that were used by Dow to operate our business segments or held by Dow primarily for the benefit of our business segments, prior to the Dow Separation. Generally, we acquired ownership of the intellectual property that was primarily used in our business segments and acquired a license to a more limited set of intellectual property that had broader application within Dow beyond our core business segments. Our license from Dow is perpetual, irrevocable, fully paid, and royalty-free. Furthermore, our license from Dow is exclusive within our business segments for certain patents and patent applications that were used by Dow primarily prior to our separation, subject to licenses previously granted by Dow, and to certain retained rights of Dow, including Dow’s retained right to use patents and patent applications outside of our business segments and for internal consumption by Dow. Our license from Dow relates to polymeric compositions, manufacturing processes and end applications for the polymeric compositions; and is limited to use in defined areas corresponding to our current business segments excluding certain products and end-use application technology retained by Dow. Our ability to develop, manufacture or sell products and technology outside of these defined areas may be impeded by the intellectual property rights that have been retained by Dow, which could adversely affect our business, financial condition and results of operations. Additionally, infringement on these intellectual property rights could also impact our business and competitive position. We may not be able to enforce our rights, and Dow may be unwilling to enforce its rights, with respect to this intellectual property that has been licensed by Dow.
Risks Related to Our Intellectual Property
Our business relies on intellectual property and other proprietary information and our failure to adequately protect or effectively enforce our rights could harm our competitive advantages with respect to the manufacturing of some of our products.
Our success depends to a significant degree upon our ability to protect, preserve and enforce our intellectual property rights, including patents, trademarks, licenses, trade secrets and other proprietary information of our business. However, we may be unable to prevent third parties from using our intellectual property and other proprietary information without our authorization or independently developing intellectual property and other proprietary information that is similar to or competes with ours. Any inability by us to effectively prevent the unauthorized use of our intellectual property and other proprietary information by others could reduce or eliminate any competitive advantage we have developed, cause us to lose sales or otherwise harm our business or goodwill. If it becomes necessary for us to initiate litigation to protect our proprietary rights, any proceedings could be burdensome and costly, and we may not prevail.
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We may be unable to determine when third parties are using our intellectual property rights without our authorization, particularly our manufacturing processes. In addition, we cannot be certain that any intellectual property rights that we have licensed to third parties are being used only as authorized by the applicable license agreement. The undetected, unremedied, or unauthorized use of our intellectual property rights or the legitimate development or acquisition of intellectual property that is similar to or competes with ours by third parties could reduce or eliminate the competitive advantage we have as a result of our intellectual property, adversely affecting our financial condition and results of operations.
If we fail to adequately protect our intellectual property and other proprietary information, including our processes, apparatuses, technology, trade secrets, trade names and proprietary manufacturing know how, methods and compounds, through obtaining patent protection, securing trademark registrations and securing our trade secrets through the use of confidentiality agreements of appropriate scope and other means, our competitive advantages over other producers could be materially adversely affected. If we determine to take legal action to protect, defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of our resources and our management’s attention. We may not prevail in any such suits or proceedings. A failure to protect, defend or enforce our intellectual property rights could have an adverse effect on our financial condition and results of operations.
Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.
Many of our competitors have a substantial amount of intellectual property that we must continually strive to avoid infringing as we improve our own business processes and develop new products and applications. Although it is our policy and intention not to infringe valid patents of which we are aware, we cannot provide assurances that our processes and products and other activities do not and will not infringe issued patents (whether present or future) or other intellectual property rights belonging to others. There nonetheless could be third-party patents that cover our products, processes or technologies, and it is possible that we could be liable for infringement of such patents and could be required to take remedial or curative actions to continue our manufacturing and sales activities with respect to one or more products that are found to be infringing. We may also be subject to indemnity claims by our business partners arising out of claims of their alleged infringement of the patents, trademarks and other intellectual property rights of third parties in connection with their use of our products. Intellectual property litigation often is expensive and time-consuming, regardless of the merits of any claim, and our involvement in such litigation could divert our management’s attention from operating our business. If we were to discover that any of our processes, technologies or products infringe on the valid intellectual property rights of others, we may not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to modify our processes or technologies or re-engineer our products in a manner that is successful in avoiding infringement. Moreover, if we are sued for infringement and lose, we could be required to pay substantial damages and/or be enjoined from using or selling the infringing products or technology. Any of the foregoing could cause us to incur significant costs and prevent us from selling our products and could have an adverse effect on our financial condition and results of operations.
Risks Related to Data Security
Data security breaches could compromise sensitive information related to our business or the private information of our employees, vendors, and customers, which could adversely affect our business and our reputation.
Cyber-attacks or data security breaches could compromise confidential, private, business critical information or cause a failure in our computer or operating systems that may disrupt our operations. We have valuable information assets, including intellectual property, trade secrets and other sensitive, business critical information. We continue to face risk of attack from outside our organization (including cyberattacks by criminal groups, state-sponsored actors or social-activist (hacktivist) organizations) using sophisticated technical and non-technical methodologies such as social engineering and phishing attacks. Cyber threats are constantly evolving, becoming more sophisticated and being made by groups and individuals with a wide range of expertise and motives, and this increases the difficulty of detecting and successfully defending against them. We also face risks from internal threats to information security, such as from negligent or dishonest employees or consultants. A successful cyber-attack or other breach of security could result in the loss of critical business information and/or could negatively impact operations, which could have a negative impact on our financial results. Furthermore, in addition to using our own systems and infrastructure, we use information systems and infrastructure operated by third-party service providers. If our third-party service providers experience an
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information security breach, depending on the nature of the breach, it could compromise confidential, business critical information or cause a disruption in our operations. In addition, the loss or disclosure of sensitive or private information about our employees, vendors, or customers as a result of such a breach may result in violations of various data privacy regulations and expose us to litigation, fines and other penalties. Therefore, any such disruptions to our operations or violations of data privacy laws could negatively impact our reputation and results of operations.
Risks Related to our Information Systems
The implementation of a new enterprise resource planning system could cause disruption to our operations.
We are currently in the process of a multi-year transition to a new enterprise resource planning (“ERP”) system, which will replace most of our core financial systems, and which is expected to occur in phases over the next several years. This project was paused in 2023 as a cost control measure, and may not restart in 2024. If the implementation of the ERP system does not restart, or not proceed as expected, or does not operate as intended, could negatively impact the effectiveness of our internal control over financial reporting. Any of these types of disruptions could have a negative effect on our business, operating results, and financial condition. In addition, the eventual implementing of a new ERP system may require significant resources and refinement to fully realize the expected benefits of the system.
Risks Related to Our Ordinary Shares
Irish law differs from the laws in effect in the U.S. and may afford less protection to holders of our securities than companies formed in the U.S.
It may not be possible to enforce court judgments obtained in the U.S. against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. There is no treaty between Ireland and the U.S. providing for the reciprocal enforcement of foreign judgments. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.
As an Irish company, Trinseo is governed by the Irish Companies Acts, which differ in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our shares may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the U.S.
Provisions of our articles of association and Irish law could delay or prevent a takeover of us by a third party.
Our articles of association could delay, defer or prevent a third-party from acquiring us, despite the possible benefit to our shareholders. For example, our articles of association impose advance notice requirements for shareholder proposals and nominations of directors to be considered at shareholder meetings, and our articles also require supermajority approval from shareholders to amend or repeal our articles of association.
In addition, several mandatory provisions of Irish law could prevent or delay an acquisition of Trinseo. For example, Irish law does not permit shareholders of an Irish public limited company to take action by written consent with less than unanimous consent. We are also subject to provisions of Irish law relating to mandatory bids, voluntary bids, requirements to make a cash offer and minimum price requirements, as well as rules requiring the disclosure of interests in our ordinary shares in certain circumstances.
These provisions may discourage potential takeover attempts, discourage bids for our ordinary shares at a premium over the market price, and may negatively impact the voting and other rights of our shareholders. These provisions could also discourage proxy contests and make it more difficult for our shareholders to elect directors other than those nominated by our board of directors.
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Any attempts to take us over will be subject to Irish Takeover Rules and subject to review by the Irish Takeover Panel.
We are subject to the Irish Takeover Rules, under which our board of directors will not be permitted to take any action which might frustrate an offer for our ordinary shares once it has received an approach which may lead to an offer or has reason to believe an offer is imminent.
As an Irish public limited company, certain capital structure decisions regarding the Company will require the approval of shareholders, which may limit the Company’s flexibility to manage its capital structure.
Irish law provides that a board of directors may allot shares (or rights to subscribe for or convertible into shares) only with the prior authorization of shareholders, for a maximum period of five years, as specified in the articles of association or relevant shareholder resolution. At our 2022 annual general meeting, shareholders authorized the allotment of up to 33% of the nominal value of the Company’s issued ordinary share capital as of March 31, 2022 for a period of 18 months. Approval from the Company’s shareholders, by ordinary resolution, being a resolution passed by a simple majority of votes cast, on or prior to expiration, will be required to renew this authorization. Our ability to issue equity without this authorization could be limited which could adversely affect our securities holders.
Irish law also generally provides shareholders with preemptive rights when new shares are issued for cash; however, it is possible for the Company’s articles of association, or shareholders in general meeting, to exclude preemptive rights. At our 2022 annual general meeting, shareholders authorized the exclusion of preemptive rights for a period of 18 months for (i) the issuance of shares for cash in connection with any rights issue; and (ii) the issuance of shares for cash not to exceed 5% of our issued ordinary share capital as of March 31, 2022 (with an additional 5% provided the company uses it for an acquisition or specified capital investment). Renewal of this exclusion requires approval by Company’s shareholders, by special resolution, being a resolution passed by not less than 75% of votes cast, on or prior to expiration. Should this exclusion not be approved, our ability to issue equity could be limited which could adversely affect our securities holders.
General Risks
Conditions in the global economy and capital markets may adversely affect our results of operations, financial condition and cash flows.
Our products are sold in markets that are sensitive to changes in general economic conditions, such as sales of automotive and construction products. Downturns in general economic conditions, or in regional markets such as in Europe or the U.S., can cause fluctuations in demand for our products, product prices, volumes and margins.
Rising inflation and interest rates, recessions, turbulence in the credit markets, fluctuating commodity prices, volatile exchange rates, social and political instability and other challenges affecting the global economy can affect us and our customers. Instability and uncertainty in financial and commodity markets throughout the world may cause, among other things, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations and pricing volatility of others, volatile energy and raw material costs, geopolitical issues and failure and the potential failure of major financial institutions. Adverse events affecting the health of the economy, including recessionary conditions, inflation, rising interest rates, sovereign debt and economic crises, natural disasters, refugee crises, disease epidemics or pandemics, political unrest, terrorism, protectionism, tariffs, and war or the threat of war, could have a negative impact on the health of the global economy. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions or on the stability of global markets. For example, current macroeconomic and political instability caused by rising interest rates, inflation, geopolitical tensions, ongoing conflicts between Russia and Ukraine as well as Israel and Hamas could adversely impact global markets and our results of operations. In addition, the COVID-19 pandemic created significant worldwide social and economic volatility, leading to supply chain disruptions, increased transportation costs, and other negative consequences, and a similar disease outbreak or pandemic could negatively impact the economies in the countries in which we operate and adversely impact our business, liquidity, financial condition and results of operations. During any period of uncertainty or heightened market volatility, consumer confidence may decline which could lead to a decline in demand for our products or a shift to lower-margin products, which could adversely affect sales of our products and profitability, result in impairments of certain of our assets, and could negatively impact our business, liquidity, financial condition and results of operations.
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Deterioration in the financial and credit market heightens the risk of customer bankruptcies and delay in payment. We are unable to predict the duration of the current economic conditions or their effects on financial markets, our business and results of operations. In addition, we have experienced, and expect to continue to experience, increased capital costs due to increases in global interest rates. If our access to capital were to become significantly constrained, or if costs of capital increased significantly due to increased interest rates, lowered credit ratings, prevailing industry conditions, the volatility of the capital markets or other factors, or if economic conditions were to further deteriorate, then our financial condition, our results of operations, and cash flows could be adversely affected.
Adjustments to customer inventory management practices (“destocking”) can adversely affect the demand for our products when customers prefer to reduce their levels of inventory regarding the products we supply. Generally destocking cycles are followed by a period of inventory restocking. Increased working capital requirements associated with restocking periods could adversely impact our short term cash flows and liquidity. Alternatively, if we face an extended period of customer destocking, or if destocking is not followed by a corresponding period of restocking, it could adversely affect our revenues, financial condition and results of operations.
As a global business, we are exposed to local business risks in different countries, which could have a material adverse effect on our financial condition or results of operations.
We have significant operations worldwide, including manufacturing facilities, R&D facilities, sales personnel and customer support operations. Our international operations are subject to risks inherent in doing business in foreign countries, including, but not necessarily limited to:
| ● | new and different legal and regulatory requirements in local jurisdictions, or changes to rules and regulations with minimal advance notice; |
| ● | uncertainties regarding interpretation and enforcement of laws and regulations; |
| ● | variation in political and economic policy of the local governments and social conditions; |
| ● | tariffs, export duties, or import quotas; |
| ● | domestic and foreign customs and tariffs or other trade barriers; |
| ● | restrictive labor and employment laws; |
| ● | potential staffing difficulties and labor disputes; |
| ● | managing and obtaining support and distribution for local operations; |
| ● | increased costs of transportation or shipping; |
| ● | credit risk and financial conditions of local customers and distributors; |
| ● | potential difficulties in protecting intellectual property; |
| ● | risk of nationalization of private enterprises by foreign governments; |
| ● | potential imposition of restrictions on investments; |
| ● | potentially adverse tax consequences, including imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries; |
| ● | legal restrictions on doing business in or with certain nations, certain parties and/or certain products; |
| ● | foreign currency exchange restrictions and fluctuations; and |
| ● | local economic, political and social conditions, including the possibility of hyperinflationary conditions and political instability. |
We may not be successful in developing and implementing policies and strategies to address the foregoing factors in a timely and effective manner at each location where we do business. Consequently, the occurrence of one or more of the foregoing factors could have a material adverse effect on our international operations or upon our financial condition and results of operations.
Our operations in developing markets could expose us to political, economic and regulatory risks that are greater than those we may face in established markets. For example, we operate in some nations that have experienced significant levels of governmental corruption. Any failure by us to ensure that our employees and agents comply with applicable laws and regulations in foreign jurisdictions could result in substantial civil and criminal penalties or restrictions on our ability to conduct business in certain foreign jurisdictions or reputational damage, and our results of operations and financial condition could be materially and adversely affected.
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We face competitive risks related to excess supply capacity.
Our products generally compete based on quality, reliability, customer specification, as well as our customer service and length and depth of our customer relationships. Certain Trinseo products compete primarily on price and therefore may face greater competition where comparable products are readily available. Excess supply capacity in the markets where we operate may create negative pricing pressure on these products. Our competitors in certain markets, primarily in Asia, have added or may add significant production capacity, which additional supply could negatively impact our sales, pricing and margins in those regions where new capacity is added or excess supply is made available. Our inability to compete in these markets could have a material effect on our financial condition and results of operations.
Fluctuations in currency exchange rates may significantly impact our results of operations and may significantly affect the comparability of our results between financial periods.
Our operations are conducted by subsidiaries in many countries. The results of the operations and the financial position of these subsidiaries are reported in the relevant foreign currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements. The main currency to which we are exposed is the euro, as approximately 53% of our net sales were generated in Europe in 2023. To a lesser degree, we are also exposed to other currencies, including, among others, the Chinese yuan, South Korean won, Swiss franc, and New Taiwan dollar. The exchange rates between these currencies and the U.S. dollar have fluctuated significantly in recent years and may continue to do so in the future. A depreciation of these currencies against the U.S. dollar, in particular the euro, will decrease the U.S. dollar equivalent of the amounts derived from these operations reported in our consolidated financial statements and an appreciation of these currencies will result in a corresponding increase in such amounts. Because some of our raw material costs are procured in U.S. dollars rather than on these currencies, depreciation of these currencies may have an adverse effect on our profit margins or our reported results of operations. Conversely, to the extent that we are required to pay for goods or services in foreign currencies, the appreciation of such currencies against the U.S. dollar will tend to negatively impact our results of operations. In addition, currency fluctuations may affect the comparability of our results of operations between financial periods.
We incur currency translation risk whenever we enter into either a purchase or sale transaction using a currency other than the local currency of the transacting entity. From time to time, we enter into foreign exchange forward contracts to hedge fluctuations associated with certain monetary assets and liabilities, primarily accounts receivable, accounts payable and certain intercompany obligations. However, attempts to hedge against foreign currency fluctuation risk may not be able to effectively limit our exposure to intermediate or long-term movements in currency exchange rates, which could adversely impact our financial condition or results of operations. Given the volatility of exchange rates, there can be no assurance that we will be able to effectively manage our currency translation risks or that any volatility in currency exchange rates will not have a material adverse effect on our financial condition or 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 |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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EXHIBIT INDEX
Exhibit No. | Description |
3.1 | |
4.1 | |
4.2 | |
31.1† | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2† | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1† | |
32.2† | |
101.INS† | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH† | XBRL Taxonomy Extension Schema Document |
101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF† | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB† | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document |
104† | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
† Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: November 7, 2024
TRINSEO PLC | ||
By: | /s/ Frank Bozich | |
Name: | Frank Bozich | |
Title: | President, Chief Executive Officer | |
(Principal Executive Officer) | ||
By: | /s/ David Stasse | |
Name: | David Stasse | |
Title: | Executive Vice President, Chief Financial Officer | |
(Principal Financial Officer) | ||