Trinseo PLC TSEOQ US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with Item 6 — “Selected Financial Data” and the audited consolidated financial statements and the accompanying notes thereto, included elsewhere within this Annual Report. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management and are made as of the date of this Annual Report. See “Cautionary Note Regarding Forward-Looking Statements.” Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere within this Annual Report, particularly in Item 1A—“Risk Factors.” Definitions of capitalized terms not defined herein appear in the notes to our consolidated financial statements.

2020 Highlights

For the year ended December 31, 2020, we had net income of $7.9 million and Adjusted EBITDA of $299.5 million. Our year-to-date results were significantly impacted by the negative effects of the COVID-19 pandemic as well as unfavorable net raw material timing, while our fourth quarter results reflected a strong recovery in demand, most notably in automotive, construction, and appliance applications. This demand recovery included continued strength in packaging, protective sheeting, and consumer electronics, which had been more resilient through the pandemic. 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.

Proposed Acquisition of the Arkema Business

On December 14, 2020, the Company entered into a binding offer to acquire the Arkema business, inclusive of its PMMA and MMA businesses, for a purchase price of €1.137 billion (approximately $1.36 billion). PMMA is a transparent and rigid plastic with a wide range of end uses, and complements Trinseo’s existing offerings across several end markets including automotive, building & construction, medical and consumer electronics. The Arkema business has established brand names such as Plexiglas® in the Americas, Altuglas®, Solarkote® and Oroglas®, and a number of niche applications. The transaction is expected to close in mid-2021 subject to customary closing conditions and regulatory approvals, including prior consultations with certain of Arkema’s works councils. The Company expects to fund the acquisition with up to $250.0 million of existing cash with the remainder from new debt financing. In connection with the agreement with Arkema, the Company entered into a debt commitment letter on December 14, 2020, pursuant to which we will obtain financing for the transaction consisting of a $400.0 million senior secured credit facility, a $350.0 million secured bridge facility, and a $450.0 million unsecured bridge facility. Additionally, on December 15, 2020, the Company entered into a forward currency hedge arrangement for €950.0 million to economically hedge the euro-denominated purchase price.

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Exploration of Potential Divestiture of Synthetic Rubber Business

In December 2020, the Company announced that we are exploring the potential divestiture of our Synthetic Rubber business. While we are evaluating the best strategy to pursue for our Synthetic Rubber business, we continue to believe that this business remains a valuable asset with potential for growth in the global tire market.

New Segmentation

Effective October 1, 2020, the Company realigned our reporting segments to reflect the new model under which the business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief operating decision maker. Following this change, the Company is reporting operating results for seven segments, five of which remain unchanged from the Company’s previous segmentation: Latex Binders, Synthetic Rubber, Feedstocks, Polystyrene, and Americas Styrenics. The Company’s Performance Plastics segment, which included a variety of compounds and blends as well as the results of the ABS, SAN, TPE, and PC businesses, was reorganized into two standalone reporting segments, Engineered Materials and Base Plastics. The new 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 the Company’s TPE products which are sold into a variety of applications including footwear and automotive. The new Base Plastics segment contains the results of the remaining businesses, including the ABS, SAN, and PC businesses, as well as compounds and blends for automotive and other applications. This segmentation change will provide enhanced clarity to investors by placing the results of the Company’s products sold into engineered materials applications into a single reporting segment, which aligns with the Company’s strategy to focus our efforts and investments in these applications, as they tend to be less cyclical and offer significantly higher growth and margin potential.

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

COVID-19 Pandemic

The Company noted adverse market and industry conditions beginning to emerge in mid-March 2020 stemming from the COVID-19 pandemic, which created an environment with historically-low demand, mainly in our Base Plastics and Synthetic Rubber segments, resulting from reduced sales to automotive and tire applications. To mitigate the impacts of the adverse conditions caused by COVID-19, our management took cost management and liquidity-focused actions to reduce and control operating costs and capital expenditures, to manage working capital, and to reduce our utility costs. As a result of these actions, the Company achieved strong cash generation and year-end liquidity. During the second half of the year, the Company observed significant demand recovery in many of our end markets, such as automotive, construction, and appliances.

Through the fourth quarter, the Company has continued operations at all of our manufacturing locations and has not experienced any material disruptions in our supply chain, which has allowed us to continue meeting customer demand. Our procurement and supply chain teams continue to update contingency plans in the event of a significant disruption or shutdown so that future customer demand can continue to be met with timeliness and quality. The Company has been actively responding to this situation to adjust our business operations, and will continue to monitor developments and take action as needed.

Impairment of Boehlen styrene monomer and Schkopau PBR Assets

In 2020, the Company continued our strategy to focus efforts and increase investments in certain product offerings serving the following applications, which are less cyclical and offer significantly higher growth and margin potential: CASE applications within the Latex Binders segment; and engineered materials applications, including consumer electronics, medical, and TPE applications. As a result of continuing this strategy and other management considerations, in March 2020, the Company initiated a consultation process with the Economic Council and Works Councils of Trinseo Deutschland regarding the disposition of our styrene monomer assets in Boehlen, Germany and our polybutadiene rubber (“PBR,” specifically Ni-PBR and Nd-PBR) assets in Schkopau, Germany. Based on the Company’s evaluation of these assets, we determined that their full carrying value was not recoverable and, as a result, we recorded an impairment charge on the assets of approximately $38.3 million in March 2020. This impairment charge is recorded within “Impairment charges” on the consolidated statements of operations for the year ended December 31, 2020. In May 2020,

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the Company made the determination to mothball our PBR production assets in Schkopau, Germany, which was completed in December 2020. The impacts of this decision and the resulting measures taken by the Company are not material to our financial statements. In October 2020, the Company entered into certain long-term raw material supply agreements for use in our Boehlen styrene monomer facility. As a result of the more favorable cost position and operational flexibility achieved from these agreements, management has made the decision to continue operations at this facility.

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Results of Operations

Results of Operations for the Years Ended December 31, 2020, 2019, and 2018

The table below sets forth our historical results of operations, and these results as a percentage of net sales for the periods indicated. Refer to the Company’s Form 10-K filed on February 28, 2020 for explanations of our results of operations for 2019 in comparison to 2018.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​

​ ​ December 31, ​

Impairment charges ​ ​ 39.1 ​ 1 % ​ ​ — ​ — % ​ ​ 1.5 ​ — %

Other expense, net ​ 1.8 ​ — % ​ 4.0 ​ — % ​ 3.7 ​ — %

Provision for income taxes ​ 37.8 ​ 1 % ​ 12.6 ​ — % ​ 71.8 ​ 2 %

2020 vs. 2019

Net Sales

Of the 20% decrease in net sales, 14% was due to lower selling prices resulting mainly from the pass through of lower raw material costs. An additional 6% decrease was due to lower sales volume, primarily within the Base Plastics, Feedstocks, and Synthetic Rubber segments, and mainly due to the impacts related to the COVID-19 pandemic.

Cost of Sales

Of the 21% decrease in cost of sales, 16% was due to lower raw material costs, primarily from styrene and butadiene, as well as a 5% decrease due to lower sales volume primarily from the Base Plastics, Feedstocks, and Synthetic Rubber segments.

Gross Profit

The decrease in gross profit of 4% was primarily to lower sales volumes related to COVID-19 as well as an unfavorable net raw material timing impact in comparison to the prior year. See the segment discussion below for further information.

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Selling, General and Administrative Expenses

The $47.6 million, or 16%, decrease in selling, general, and administrative expenses was due to several factors. Lower advisory and professional fees, mainly related to the Company’s transition of business and technical services from Dow, which was largely completed in the first quarter of 2020, resulted in a $28.2 million decrease. Also contributing to the decrease were various management actions taken to control operating costs in response to COVID-19, including a $10.2 million decrease in travel-related expenses, as well as a decrease in restructuring costs of $8.2 million, primarily related to the Company's corporate restructuring program, which was initiated in the fourth quarter of 2019. Partially offsetting these decreases was an increase in acquisition costs of $7.5 million, which was principally attributable to the costs incurred in 2020 related to the proposed acquisition of the Arkema business.

Equity in Earnings of Unconsolidated Affiliates

The decrease in equity earnings of $52.0 million was due to lower equity earnings from Americas Styrenics, mainly attributable to lower styrene margins and volume-related impacts from COVID-19 in the current year.

Impairment Charges

During the year ended December 31, 2020, the Company recorded combined impairment charges of $39.1 million on our Boehlen styrene monomer assets and Schkopau PBR assets. Refer to Note 13 for further information.

Interest Expense, Net

The $4.3 million, or 11%, increase in interest expense, net was primarily attributable to a $7.4 million reduction in interest benefit recorded as a result of the Company’s entry into a new CCS arrangement in February 2020. This was partially offset by the net decrease in interest expense of $2.6 million attributable to lower interest rates during 2020 as compared to 2019.

Other Expense, Net

Other expense, net for the year ended December 31, 2020 was $1.8 million, which included $6.2 million of expense related to the non-service cost components of net periodic benefit cost. Partially offsetting these expenses were net foreign exchange transaction gains for the period of $4.9 million. Net foreign transaction gains included $23.9 million of net foreign exchange transaction gains primarily from the remeasurement of our euro-denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period. The net foreign transaction gains were partially offset by $19.0 million of losses from our foreign exchange forward contracts, including a $7.3 million gain recognized in income from the change in fair value of the forward currency hedge arrangement on the euro-denominated purchase price on the proposed acquisition of the Arkema business, more than offset by losses recorded on other foreign exchange forward contracts. Other expense, net also included $0.5 million of net other miscellaneous expenses during the period.

Other expense, net for the year ended December 31, 2019 was $4.0 million, which included $6.4 million of expense related to the non-service cost components of net periodic benefit cost. Partially offsetting these expenses was a net gain of $2.5 million recorded in conjunction with our acquisition of latex binders production assets and related site infrastructure in Rheinmünster, Germany, consisting of a bargain purchase gain of $4.7 million offset by expense of $2.2 million for certain jurisdictional asset transfer taxes incurred related to the acquisition. Refer to Note 4 of the consolidated financial statements for more information. Further offsetting these expenses were net foreign exchange transaction gains for the period of $1.8 million. Net foreign transaction gains included $8.0 million of gains from our foreign exchange forward contracts, which were partially offset by $6.2 million of foreign exchange transaction losses primarily from the remeasurement of our euro-denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period. Other expense, net also included $1.9 million of net other miscellaneous expenses during the period.

Provision for Income Taxes

Provision for income taxes was $37.8 million and $12.6 million for the years ended December 31, 2020 and 2019, which resulted in an effective tax rate of 83% and 12%, respectively. The increase in the provision for income taxes was

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primarily driven by the one-time deferred tax benefit of $65.0 million recorded in the prior year as a result of changes in the Swiss federal and cantonal tax rules. This prior year one-time benefit was partially offset by a $25.3 million valuation allowance for the portion of the cantonal deferred tax asset that more likely than not will expire before utilization. Refer to Note 14 in the consolidated financial statements for further information. Excluding this one-time net benefit of $39.7 million in the prior year, the provision for income taxes decreased $14.5 million, due primarily to the decrease in income before income taxes.

Selected Segment Information

The Company’s reportable segments are as follows: Latex Binders, Synthetic Rubber, Engineered Materials, Base Plastics, Polystyrene, Feedstocks, and Americas Styrenics. Refer to Item 1—Business for a description of our segments, including a detailed overview, products and end uses, and competition and customers.

The following sections present net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the years ended December 31, 2020, 2019, and 2018. Intersegment sales have been eliminated. Refer to Note 19 in the consolidated financial statements for a detailed definition of Adjusted EBITDA and a reconciliation of income before income taxes to segment Adjusted EBITDA. Refer to the Company’s Form 10-K filed on February 28, 2020 for explanations of our segment results for 2019 in comparison to 2018 for our unchanged segments from 2019, including Latex Binders, Synthetic Rubber, Polystyrene, Feedstocks, and Americas Styrenics. Explanations of our segment results for 2019 in comparison to 2018 in Engineered Materials and Base Plastics, which changed in 2020 as a result of our change in segmentation effective October 1, 2020, as described in Item 1—Business, are described below.

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Latex Binders Segment

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ Percentage Change ​ ​

Adjusted EBITDA ​ $ 80.4 ​ ​ $ 80.8 ​ ​ $ 110.4 ​ ​ (0) % (27) % ​

Adjusted EBITDA margin ​ 10 % ​ 9 % ​ 10 % ​ ​ ​ ​ ​ ​

2020 vs. 2019

Of the 15% decrease in net sales, 15%, or nearly all of the decrease, was due to lower pricing from the pass through of lower raw material costs.

Adjusted EBITDA decreased by $0.4 million compared to the prior year, primarily due to a decrease of $6.4 million, or 8%, from a negative net timing variance as well as a decrease of $2.0 million, or 2%, from lower volume and a decrease of $1.9 million, or 2%, due to higher fixed costs. These decreases were partially offset by an increase of $6.7 million, or 8%, mainly due to improved portfolio and product mix, as well as commercial excellence actions, and an increase of $4.2 million, or 5%, attributable to lower freight and utility costs.

Synthetic Rubber Segment

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ Percentage Change ​ ​

Adjusted EBITDA ​ $ 1.7 ​ ​ $ 40.7 ​ ​ $ 77.0 ​ ​ (96) % (47) % ​

Adjusted EBITDA margin ​ 1 % ​ 9 % ​ 13 % ​ ​ ​ ​ ​ ​

2020 vs. 2019

Of the 28% decrease in net sales, 16% was due to lower pricing from the pass through of lower raw material costs, mainly from styrene and butadiene. An additional decrease of 13% was attributable to lower sales volume from weaker demand in the global tire market due to COVID-19.

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Adjusted EBITDA decreased by $39.0 million, or 96%, compared to the prior year. Lower sales volume, particularly in SSBR and mainly from COVID-19 impacts, resulted in a $26.9 million, or 66%, decrease, and lower margins resulted in an $8.4 million, or 21%, decrease primarily due to unfavorable net raw material timing impacts and lower margins on ESBR sales. Additionally, higher fixed costs, mainly due to a lower level of fixed cost absorption, resulted in a decrease of $2.4 million, or 6%, decrease.

Engineered Materials Segment

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ Percentage Change ​ ​

Adjusted EBITDA margin ​ 18 % ​ 15 % ​ 7 % ​ ​ ​ ​ ​ ​

2020 vs. 2019

The 7% decrease in net sales was attributable to a 4% decrease in sales volume, due to COVID-19 impacts, as well as a 3% decrease in pricing from the pass through of lower raw material costs.

Adjusted EBITDA increased by $3.3 million, or 10%, compared to the prior year. This increase was primarily due to a $4.5 million, or 14%, increase in margins, primarily due to commercial excellence pricing actions. Also contributing to the increase was an $0.8 million, or 3%, increase due to lower fixed costs. These effects were partially offset by a decrease of $3.2 million, or 10%, from lower sales volume.

2019 vs. 2018

Net sales were relatively consistent between 2018 and 2019, attributable to a 4% decrease in prices, almost entirely offset by a 4% increase in sales volume, mainly to consumer electronics applications in Asia.

Adjusted EBITDA increased by $17.7 million, or 128%, compared to the prior year. This increase was primarily due to a $18.3 million, or 132%, increase in margins as raw material costs, such as PC, declined considerably during the period. Also contributing to the increase was a $1.7 million, or 12%, increase in sales volume. These increases were partially offset by a decrease of $2.4 million, or 17%, from higher fixed costs due to the Company’s growth investments and lower fixed cost absorption in 2019.

Base Plastics Segment

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ Percentage Change ​ ​

Adjusted EBITDA margin ​ 12 % ​ 9 % ​ 13 % ​ ​ ​ ​ ​ ​

2020 vs. 2019

Of the 21% decrease in net sales, 12% was due to lower sales volume, primarily related to lower sales to automotive applications from COVID-19 impacts, and 10% was due to lower pricing from the pass through of lower raw material costs.

Adjusted EBITDA increased by $7.6 million, or 7%, compared to the prior year. This increase was due to a $31.8 million, or 31%, increase in margins as a result of favorable pricing actions and tighter market conditions in the second

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half of the year. An additional $10.4 million, or 10%, increase was due to lower fixed costs. These effects were partially offset by lower sales volume of $33.7 million, or 33%.

2019 vs. 2018

The 15% decrease in net sales was primarily attributable to a 12% decline in pricing from the pass through of lower raw material costs, such as styrene, as well as a 3% decrease due to currency impacts.

Adjusted EBITDA decreased by $71.5 million, or 41%, compared to the prior year. Lower margins, mainly related to PC, resulted in a $62.3 million, or 36%, decrease, due primarily to general market weakness including impacts from an increase in supply in the PC market. Also contributing to the decrease was a $10.2 million, or 6%, decrease due to higher fixed costs from growth investments, including the ramping up of the new ABS facility in China, as well as lower fixed cost absorption in the current year.

Polystyrene Segment

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ Percentage Change ​ ​

Adjusted EBITDA margin ​ 12 % ​ 7 % ​ 3 % ​ ​ ​ ​ ​ ​

2020 vs. 2019

Of the 14% decrease in net sales, 19% was due to lower pricing from the pass through of lower styrene costs to our customers. This was partially offset by an increase of 4% due to increased sales volume.

Adjusted EBITDA increased by $26.3 million, or 48%, compared to the prior year. Higher margins, primarily from pricing initiatives and tighter market conditions, resulted in a $20.9 million, or 38%, increase. Also contributing to the increase was a $6.3 million, or 12%, increase in sales volume.

Feedstocks Segment

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ Percentage Change ​ ​

Adjusted EBITDA ​ $ 5.6 ​ ​ $ 7.0 ​ ​ $ 107.1 ​ ​ (20) % (93) % ​

Adjusted EBITDA margin ​ 4 % ​ 3 % ​ 28 % ​ ​ ​ ​ ​ ​

2020 vs. 2019

Of the 47% decrease in net sales, 24% was due to lower styrene-related sales volume and 23% was due to lower pricing from the pass through of lower styrene prices.

Adjusted EBITDA decreased by $1.4 million, or 20%, compared to the prior year. Lower margins resulted in a $6.3 million, or 90%, decrease, due to unfavorable net timing and portfolio mix. An additional 27% decrease was attributable to currency impacts and miscellaneous expense in the segment. These decreases were partially offset by lower fixed costs driven by the Company’s overall cost reduction initiatives, which resulted in an 84% increase.

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Americas Styrenics Segment

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ Percentage Change ​ ​

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

2020 vs. 2019

The 44% decrease in Adjusted EBITDA was mainly due to lower styrene margins in North America, volume-related impacts from COVID-19, and the impact from the planned turnaround at its St. James, Louisiana styrene facility in the first quarter of 2020.

Outlook

As discussed above in “2020 Highlights,” despite the adverse impacts of the COVID-19 pandemic on our business and the end markets in which we operate during the first half of 2020, market conditions improved in the second half of the year. The Company’s Adjusted EBITDA in the fourth quarter of 2020 was our highest quarterly result in more than two years and we have observed continued market recovery thus far in the first quarter of 2021. In December 2020, the Company announced the proposed acquisition of the Arkema business as the first step in our transformation into an advanced specialty and sustainable solutions provider. This transaction is expected to close in mid-2021. In addition, we will continue to pursue additional growth and business optimization activities, which, in combination with our business excellence initiatives and the full realization of the corporate restructuring initiated in late 2019, we expect to result in higher year-over-year profitability in 2021.

Non-GAAP Performance Measures

We present Adjusted EBITDA as a non-GAAP financial performance measure, which we define as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring charges; acquisition related costs and benefits, 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 accounting principles generally accepted in the United States of America (“GAAP”).

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Adjusted EBITDA is calculated as follows for the years ended December 31, 2020, 2019, and 2018. For discussion related to 2018 activity, refer to the Company’s Form 10-K filed on February 28, 2020.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​

​ ​ December 31,

Provision for income taxes ​ 37.8 ​ 12.6 ​ 71.8 ​

Loss on extinguishment of long-term debt ​ ​ — ​ ​ — ​ 0.2 ​

Net gain on disposition of businesses and assets ​ ​ (0.4) ​ ​ (0.7) ​ (1.0) ​

Restructuring and other charges(b) ​ ​ 9.9 ​ ​ 18.1 ​ 8.2 ​

Acquisition transaction and integration net costs(c) ​ ​ 9.1 ​ ​ (0.9) ​ ​ 0.6 ​

Acquisition purchase price hedge gain(d) ​ ​ (7.3) ​ ​ — ​ ​ — ​

Asset impairment charges or write-offs(e) ​ ​ 39.1 ​ ​ — ​ ​ 1.5 ​

Note that the accelerated depreciation charges incurred as part of both the Company’s corporate restructuring program and the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands are included within the “Depreciation and amortization” caption above, and therefore are not included as a separate adjustment within this caption.

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Liquidity and Capital Resources

Cash Flows

The table below summarizes our primary sources and uses of cash for the years ended December 31, 2020, 2019, and 2018. We have derived the summarized cash flow information from our audited financial statements. Refer to the Company’s Form 10-K filed on February 28, 2020 for discussion related to 2018.

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended

​ ​ December 31,

Net cash provided by (used in): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Effect of exchange rates on cash ​ 4.4 ​ (1.4) ​ (6.1) ​

Operating Activities

Net cash provided by operating activities during the year ended December 31, 2020 totaled $255.4 million. Net

cash provided by operating assets and liabilities for the year ended December 31, 2020 totaled $106.2 million, which was driven by the Company’s liquidity-focused actions during the year, including reduced operating expenses and working capital management. As a result of these initiatives as well as the impact of lower raw material prices and sales volumes, inventories decreased $69.8 million and accounts receivable decreased $57.4 million. Also contributing to the increase was a $6.0 million increase in income taxes payable, related to the Company’s higher provision for income taxes for the year ended December 31, 2020. These impacts were partially offset by the decrease in other liabilities of $16.9 million and the increase in other assets of $12.2 million.

Net cash provided by operating activities during the year ended December 31, 2019 totaled $322.5 million, inclusive of $110.0 million in dividends from Americas Styrenics. Net cash provided by operating assets and liabilities for the year ended December 31, 2019 totaled $129.3 million, noting decreases in inventories of $70.7 million and accounts receivable of $66.6 million. This activity was partially offset by a decrease in income taxes payable of $10.9 million. The decrease in inventories was primarily due to lower days sales in inventory as well as decreased raw material prices. Accounts receivable at the end of 2019 decreased relative to the end of 2018 primarily due to decreased raw material prices as well as lower volumes. The decrease in income taxes payable was primarily due to the overall reduction in earnings before income taxes.

Investing Activities

Net cash used in investing activities during the year ended December 31, 2020 totaled $24.2 million, primarily resulting from capital expenditures of $82.3 million as well as cash paid for a cost method investment of $5.5 million. This activity was partially offset by proceeds from the settlement of hedging instruments of $51.6 million and proceeds of $11.9 million from the sale of our former latex binders manufacturing facility in Livorno, Italy.

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Net cash used in investing activities during the year ended December 31, 2019 totaled $109.3 million, primarily resulting from capital expenditures of $110.1 million.

Financing Activities

Net cash used in financing activities during the year ended December 31, 2020 totaled $104.3 million. This activity was primarily due to $61.8 million of dividends paid, $25.0 million of payments related to the repurchase of ordinary shares, $12.6 million net repayments of short-term borrowings, and $6.9 million of net principal payments related to our 2024 Term Loan B during the period. Additionally, net cash used in financing activities included $0.6 million of withholding taxes paid related to the vesting of certain Restricted Share Units (“RSUs”) during the period, partially offset by $2.6 million of proceeds received from the exercise of option awards.

Net cash used in financing activities during the year ended December 31, 2019 totaled $206.7 million. This activity was primarily due to $119.7 million of payments related to the repurchase of ordinary shares, $65.7 million of dividends paid, $7.0 million of net principal payments related to our 2024 Term Loan B during the period, and $10.6 million net repayments of short-term borrowings. Additionally, net cash used in financing activities included $4.6 million of withholding taxes paid related to the vesting of certain RSUs during the period, partially offset by $0.9 million of proceeds received from the exercise of option awards.

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Free Cash Flow

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

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​

​ ​ December 31, ​

Cash provided by operating activities ​ $ 255.4 ​ $ 322.5 ​ $ 366.5 ​

Capital expenditures ​ ​ (82.3) ​ ​ (110.1) ​ ​ (121.4) ​

Refer to the discussion above for significant impacts to cash provided by operating activities for the years ended December 31, 2020 and 2019. Refer to the Company’s Form 10-K filed on February 28, 2020 for discussion related to 2018.

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Capital Resources, Indebtedness and Liquidity

We require cash principally for day-to-day operations, including the purchase of raw materials for production, to finance capital investments and other initiatives, 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, and amounts available under the Senior Credit Facility and the Accounts Receivable Securitization Facility (discussed further below).

As of December 31, 2020 and 2019, we had $1,188.0 million and $1,194.7 million, respectively, in outstanding indebtedness and $983.8 million and $963.5 million, respectively, in working capital. In addition, as of December 31, 2020 and 2019, we had $172.8 million and $153.5 million, respectively, of foreign cash and cash equivalents on our

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consolidated balance sheets, outside of our country of domicile of Luxembourg, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries. For a detailed description of the Company’s debt structure, borrowing rates, and expected future payment obligations, refer to Note 11 in the consolidated financial statements.

The following table outlines our outstanding indebtedness as of December 31, 2020 and 2019 and the associated interest expense, including amortization of deferred financing fees and issuance 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.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of and for the Year Ended ​ As of and for the Year Ended

​ ​ ​ ​ Effective ​ ​ ​ ​ ​ Effective ​ ​

​ ​ ​ ​ Interest ​ Interest ​ ​ ​ Interest ​ Interest

($ in millions) Balance Rate Expense Balance ​ Rate Expense

Senior Credit Facility ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

2022 Revolving Facility ​ ​ — ​ — % ​ 3.7 ​ ​ — ​ — ​ ​ 3.2 ​

Accounts Receivable Securitization Facility ​ — ​ — ​ 1.5 ​ — ​ — ​ 1.5 ​

Our Senior Credit Facility includes the 2022 Revolving Facility, which matures in September 2022 and has a borrowing capacity of $375.0 million. On April 3, 2020, the Company drew down $100.0 million from the 2022 Revolving Facility, which we repaid on July 24, 2020. As of December 31, 2020, the Company had no outstanding borrowings and had $360.0 million (net of $15.0 million outstanding letters of credit) of funds available for borrowing under this facility. Further, as of December 31, 2020, the Company is required to pay a quarterly commitment fee in respect of any unused commitments under the 2022 Revolving Facility equal to 0.375% per annum. The 2022 Revolving Facility contains a springing covenant which applies when 30% ($112.5 million) or more is drawn from the facility, and would require the Company to meet a first lien net leverage ratio not to exceed 2.0x at the end of each financial quarter. As of December 31, 2020, the first lien net leverage ratio (as defined in our secured credit agreement) was 0.4x.

Also included in our Senior Credit Facility is our 2024 Term Loan B, which had original principal of $700.0 million, maturing in September 2024, requires scheduled quarterly payments in amounts equal to 0.25% of the original principal. The stated interest rate on our 2024 Term Loan B is LIBOR plus 2.00% (subject to a 0.00% LIBOR floor). During the year ended December 31, 2020, the Company made net payments of $6.9 million on the 2024 Term Loan B, with an additional $7.0 million of scheduled future payments classified as current debt on the consolidated balance sheet as of December 31, 2020.

Our 2025 Senior Notes issued under the Indenture include $500.0 million aggregate principal amount of 5.375% senior notes that mature on September 1, 2025. Interest on the 2025 Senior Notes is payable semi-annually on May 3 and November 3 of each year. These notes may be redeemed prior to their maturity at the option of the Company under certain circumstances at specific redemption prices. Refer to Note 11 in the consolidated financial statements for further information.

We also continue to maintain our Accounts Receivable Securitization Facility, which matures in September 2021 and has an outstanding borrowing capacity of $150.0 million. As of December 31, 2020, there were no amounts outstanding under this facility and the Company had approximately $135.2 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.

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.

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

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

The Senior Credit Facility and Indenture also limit the ability of the Borrowers and Issuers, respectively, to pay dividends or make other distributions to Trinseo S.A., which could then be used to make distributions to shareholders. During the year ended December 31, 2020, the Company declared total dividends of $1.28 per ordinary share, or $49.7 million, of which $4.3 million, inclusive of dividend equivalents, remains accrued as of December 31, 2020 and the majority of which was paid in January 2021. These dividends are well within the available capacity under the terms of the restrictive covenants contained in the Senior Credit Facility and Indenture. Further, significant additional capacity continues to be available under the terms of these covenants to support expected future dividends to shareholders, should the Company continue to declare them.

The Company’s cash flow generation in recent years has been strong, and the Company generated positive cash flows during the year ended December 31, 2020 despite the challenges presented by extremely weak economic conditions due to COVID-19. During the year ended December 31, 2020, under authority from our board of directors, the Company purchased approximately 0.8 million ordinary shares from our shareholders through open market transactions for an aggregate purchase price of $25.0 million. We believe that funds provided by operations, our existing cash, cash equivalent, and restricted cash balances, borrowings available under our 2022 Revolving Facility and our Accounts Receivable Securitization Facility will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current operating conditions.

Further, we also believe that our financial resources will allow us to manage the anticipated impact of the COVID-19 pandemic on our business operations for the foreseeable future, which could include lower demand, reductions in revenue or delays in payments from customers and other third parties. 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 Item 1A—Risk Factors. As of December 31, 2020, we were in compliance with all the covenants and default provisions under our debt agreements. Refer to Note 11 in the consolidated financial statements for further information on the details of the covenant requirements.

Derivative Instruments

The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates and interest rate risk. To manage this risk, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts and interest rate swap agreements. A summary of these derivative financial instrument programs is described below; however, refer to Note 12 of the consolidated financial statements for further information. The Company does not hold or enter into financial instruments for trading or speculative purposes.

Foreign Exchange Forward Contracts

Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. Our principal strategy in managing exposure to changes in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our consolidated balance sheets 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 our exposure, the Company uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on our assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment.

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Foreign Exchange Cash Flow Hedges

The Company also enters into forward contracts with the objective of managing the currency risk associated with forecasted U.S. dollar-denominated raw materials purchases by one of our subsidiaries whose functional currency is the euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company buys a designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the fluctuations in the euro-to-U.S. dollar foreign currency exchange rate.

Interest Rate Swaps

The Company enters into interest rate swap agreements to manage our exposure to variability in interest payments associated with the Company’s variable rate debt. Under these interest rate swap agreements, which are designated as cash flow hedges, the Company is effectively converting a portion of our variable rate borrowings into a fixed rate obligation to mitigate the risk of variability in interest rates.

Net Investment Hedge

The Company has certain fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and interest payments on our 2025 Senior Notes for euro-denominated payments, which were designated as a hedge of the Company’s net investment in certain European subsidiaries under the forward method through March 31, 2018 through the original CCS agreement entered into on September 1, 2017 (“2017 CCS”). As such, changes in their fair value, to the extent effective, were recorded within the cumulative translation adjustment account as a component of accumulated other comprehensive income or loss (“AOCI”) through March 31, 2018.

Effective April 1, 2018, in conjunction with the adoption of previously issued hedging accounting guidance, the Company elected as an accounting policy to re-designate the 2017 CCS as a net investment hedge (and any future similar hedges) under the spot method. As such, changes in the fair value of the 2017 CCS that were included in the assessment of effectiveness (changes due to spot foreign exchange rates) were recorded as cumulative foreign currency translation within AOCI, and will remain in AOCI until either the sale or substantially complete liquidation of the subsidiary. As an additional accounting policy election applied to similar hedges under this standard, the initial value of any component excluded from the assessment of effectiveness is recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in the fair value of the excluded component and amounts recognized in income under that systematic and rational method is recognized in AOCI. The Company has elected to amortize the initial excluded component value as a reduction of “Interest expense, net” in the consolidated statements of operations using the straight-line method over the remaining term of the 2017 CCS. Additionally, the Company recognizes the accrual of periodic USD and euro-denominated interest receipts and payments under the terms of CCS arrangements, including the 2017 CCS, within “Interest expense, net” in the consolidated statements of operations.

On February 26, 2020, the Company settled our 2017 CCS and replaced it with a new CCS arrangement (the “2020 CCS”) that carried substantially the same terms as the 2017 CCS and also is designated as a net investment hedge under the spot method. Upon settlement of the 2017 CCS, the Company realized net cash proceeds of $51.6 million. The remaining $13.8 million unamortized balance of the initial excluded component related to the 2017 CCS at the time of settlement is no longer being amortized following the settlement and will remain in AOCI until either the sale or substantially complete liquidation of the relevant subsidiaries.

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Contractual Obligations and Commercial Commitments

The following table reflects our contractual obligations as of December 31, 2020. Amounts we pay in future periods may vary from those reflected in the table:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Payments due by year ​

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As discussed in the aforementioned section of Item 1, the Company has transitioned substantially all of the services covered under the SAR MOSA that were previously provided by Dow as of December 31, 2020. Based on this transition, we have no minimum remaining obligation under the SAR MOSA as of December 31, 2020.

Additionally, utilizing current year known costs and assuming that we continue with the SAR SSAs, we estimate our contractual obligations under these agreements to be approximately $161.7 million annually for 2021 through 2025, and a total of $2,177.8 million thereafter through June 2039.

Refer to Note 18 in the consolidated financial statements for further information.

Critical Accounting Policies and Estimates

Our discussion and analysis of results of operations and financial condition are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported. We base these estimates and judgments on historical experiences and assumptions believed to be reasonable under the circumstances. Actual results could vary from our estimates under different conditions. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 2 in the consolidated financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. The following critical accounting policies reflect our most significant estimates and assumptions used in the preparation of the consolidated financial statements.

Pension Plans and Postretirement Benefits

We have various company-sponsored retirement plans covering substantially all employees. We also provide certain health care and life insurance benefits to retired employees in the United States. The U.S.-based plan provides health care benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits. We recognize the underfunded or overfunded status of a defined benefit pension or postretirement plan as an asset or liability in our consolidated balance sheets and recognize changes in the funded status in the year in which the changes occur through AOCI, which is a component of shareholders’ equity.

A settlement is a transaction that is an irrevocable action that relieves the employer (or the plan) of primary responsibility for a pension or postretirement benefit obligation, and that eliminates significant risks related to the obligation and the assets used to effect the settlement. The Company does not record settlement gains or losses during interim periods when the cost of all settlements in a year is less than or equal to the sum of the service cost and interest cost components of net periodic benefit cost for the plan in that year.

Pension benefits associated with these plans are generally based on each participant’s years of service, compensation, and age at retirement or termination. The discount rate is an important element of expense and liability measurement. We evaluate our assumptions at least once each year, or as facts and circumstances dictate, and make changes as conditions warrant.

We determine the discount rate used to measure plan liabilities as of the December 31 measurement date for the pension and postretirement benefit plans. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. We set our rate to reflect the yield of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits. Using this methodology, we determined weighted average discount rates of 0.75% and 3.11% for pension and postretirement benefits, respectively, to be appropriate as of December 31, 2020.

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We use a full yield curve approach in the estimation of the future service and interest cost components of net periodic benefit cost for our defined benefit pension and other postretirement benefit plans by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The weighted average discount rates that we used to measure service cost for pension and postretirement plans during 2020 were 1.05% and 3.61%, respectively. The weighted average discount rates that we used to measure interest cost for pension and postretirement plans during 2020 were 0.80% and 3.08%, respectively.

Service cost related to our 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, net” in the consolidated statements of operations.

We determine the expected long-term rate of return on assets by performing a detailed analysis of historical and expected returns based on the underlying assets, which generally are insurance contracts. We also consider our historical experience with the pension fund asset performance. The expected return of each asset class is derived from a forecasted future return confirmed by current and historical experience. The weighted average long-term rate of return assumptions used for determining net periodic benefit cost were 0.85% and 1.57% for 2020 and 2019, respectively. Future actual net periodic benefit cost will depend on the performance of the underlying assets and changes in future discount rates, among other factors.

Holding all other factors constant, a 0.25% increase (decrease) in the discount rate used to determine net periodic benefit cost would decrease (increase) 2021 pension expense by approximately $2.5 million and $(2.4) million, respectively. Holding all other factors constant, a 0.25% increase (decrease) in the long-term rate of return on assets used to determine net periodic benefit cost would decrease (increase) 2021 pension expense by approximately $0.1 million and $(0.1) million, respectively.

As noted above, plan assets are invested primarily in insurance contracts that provide for guaranteed returns. As of December 31, 2020 and 2019, plan assets totaled $160.9 million and $151.8 million, respectively. Investments in the pension plan insurance are valued utilizing unobservable inputs, which are contractually determined based on returns, fees, and the present value of the future cash flows, or cash surrender values, of the contracts, and are classified as Level 3 investments.

Business Combinations and Asset Impairments

Business Combinations

Acquisitions that qualify as a business combination are accounted for using the purchase accounting method. Amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair value as of the date of acquisition. Goodwill is recorded as the difference between the fair value of the acquired assets and liabilities assumed (net assets acquired) and the purchase price. Goodwill is not amortized, but is reviewed for impairment annually as of October 1, or when events or changes in the business environment indicate that the carrying value of a reporting unit may exceed its fair value. Refer to the discussion below for further information on asset impairments.

Under the purchase accounting method, the Company completes valuation procedures for an acquisition, often with the assistance of third-party valuation specialists, to determine the fair value of the assets acquired and liabilities assumed. These valuation procedures require management to make assumptions and apply significant judgment to estimate the fair value of the assets acquired and liabilities assumed. If the estimates or assumptions used should significantly change, the resulting differences could materially affect the fair value of net assets.

Specifically, the calculation of the fair value of tangible assets, including property, plant and equipment, typically utilize the cost approach, which computes the cost to replace the asset, less accrued depreciation resulting from physical deterioration and functional and external obsolescence. The calculation of the fair value of identified intangible assets is determined using cash flow models following the income approach. Significant inputs include estimated future cash flows, discount rates, royalty rates, growth rates, sales projections, retention rates, and terminal values, all of which require significant management judgment. Definite-lived intangible assets, which are primarily comprised of developed technology, customer relationships, manufacturing capacity rights, and software, are amortized over their estimated useful lives using the straight-line method and are assessed for impairment whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable.

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Asset Impairments

As of December 31, 2020, net property, plant and equipment, net identifiable finite-lived intangible assets, and goodwill totaled $601.4 million, $182.8 million, and $74.2 million, respectively. Management makes estimates and assumptions in preparing the consolidated financial statements for which actual results will emerge over long periods of time. This includes the recoverability of long-lived assets employed in the business. These estimates and assumptions are closely monitored by management and periodically adjusted as circumstances warrant. For instance, expected asset lives may be shortened or impairment may be recorded based on a change in the expected use of the asset or performance of the related asset group.

We evaluate long-lived assets and identifiable finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset grouping may not be recoverable. In the event the carrying value of the asset exceeds its undiscounted future cash flows and the carrying value is not considered recoverable, impairment may exist. An impairment loss, if any, is measured as the excess of the asset’s carrying value over its fair value, generally based on a discounted future cash flow method, independent appraisals, etc.

As a result of continuing our strategy to focus efforts and increase investments in certain product offerings serving specific applications that are less cyclical and offer significantly higher growth and margin potential, in March of 2020, the Company initiated a consultation process with the Economic Council and Works Councils of Trinseo Deutschland regarding the disposition of our styrene monomer assets in Boehlen, Germany and our PBR assets in Schkopau, Germany. Based on the Company’s evaluation of these asset groups, we determined that the long-lived assets at both locations should be assessed for impairment. These assessments indicated that the carrying values of the asset groups at each location were not recoverable when compared to the expected undiscounted future cash flows from the operation and potential disposition of these assets. The fair value of the depreciable assets at each location was determined through an analysis of the underlying fixed asset records in conjunction with the use of industry experience and available market data. Based upon the Company’s assessments, for the year ended December 31, 2020, we recorded impairment charges on the Boehlen styrene monomer assets and the Schkopau PBR assets of $10.3 million and $28.0 million, respectively, which are allocated to the Feedstocks segment and Synthetic Rubber segment, respectively. The amounts are included within “Impairment charges” in the consolidated statements of operations.

Through December 31, 2020, we have continued to assess the recoverability of certain assets, and concluded there are no additional significant events or circumstances identified by management that would indicate these assets are not recoverable. However, the current environment is subject to changing market conditions and requires significant management judgment to identify the potential impact to our assessment. If we are not able to achieve certain actions or our future operating results do not meet our expectations, it is possible that impairment charges may need to be recorded on one or more of our operating facilities.

Long-lived assets to be disposed of by sale are classified as held-for-sale and are reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of in a manner other than by sale are classified as held-and-used until they are disposed. As of December 31, 2020, the Company had no assets classified as held-for-sale. As of December 31, 2019, the Company’s land in Livorno, Italy, on which we formerly had a latex binders manufacturing facility, and the associated net deferred tax liability related to that land were classified as held-for-sale and recorded at values of $11.8 million within “Other current assets” and $2.8 million within “Accrued expenses and other current liabilities,” respectively. The land was sold in January 2020, as described in further detail within Note 20 in the consolidated financial statements.

As noted above, our goodwill impairment testing is performed annually as of October 1 at a reporting unit level. We perform more frequent impairment tests when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. As of our annual assessment date of October 1, 2020, each of our reporting units had fair values that exceeded the carrying value of their net assets, indicating that no impairment of goodwill is warranted.

A goodwill impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The estimated fair value of a reporting unit is determined using a market approach and an income approach (under the discounted cash flow method). When supportable, the Company employs the qualitative assessment of goodwill impairment prescribed by Accounting Standards Codification 350. As of December 31, 2020, our $74.2 million in total goodwill is allocated to our reportable segments as follows:

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$17.1 million to Latex Binders, $12.1 million to Synthetic Rubber, $16.0 million to Engineered Materials, $24.2 to Base Plastics, and $4.8 million to Polystyrene, with no amounts allocated to the Feedstocks or Americas Styrenics segments.

Factors which could result in future impairment charges, among others, include changes in worldwide economic conditions, changes in technology, changes in competitive conditions and customer preferences, and fluctuations in foreign currency exchange rates. These factors are discussed in Item 7A—Quantitative and Qualitative Disclosures about MarketRisk and Item 1A— Risk Factors included in this Annual Report.

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted rates. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date.

Deferred taxes are provided on the outside basis differences and unremitted earnings of subsidiaries outside of Luxembourg. All undistributed earnings of foreign subsidiaries and affiliates are expected to be repatriated as of December 31, 2020. Based on the evaluation of available evidence, both positive and negative, we recognize future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered to be more likely than not.

As of December 31, 2020, we had deferred tax assets of $106.7 million, after valuation allowances of $220.5 million. In evaluating the ability to realize the deferred tax assets, we rely on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results.

Swiss federal and cantonal tax reform was enacted on August 6, 2019 and October 25, 2019, respectively, and includes measures such as, the elimination of certain preferential tax regimes and implementation of new tax rates at both the federal and cantonal levels. It also includes transitional relief measures which may provide for future tax deductions. As a result of both the federal and cantonal law changes, the Company recorded a $65.0 million one-time deferred tax benefit for the year ended December 31, 2019, of which $61.6 million was related to cantonal tax law changes. We believe it is more likely than not that a portion of the $61.6 million deferred tax benefit recorded as a result of these cantonal tax law changes will not be realized during the utilization period provided by the legislation, spanning 2025 through 2029. This is based on our estimate of future taxable income in Switzerland, which was determined using management’s judgment and assumptions about various factors, such as: historical experience and results, cyclicality of the business, implications of COVID-19, and future industry and macroeconomic conditions and trends during the aforementioned utilization period. As a result, we recorded a $25.3 million valuation allowance as of December 31, 2019. As of December 31, 2020, due to foreign exchange translation, the total valuation allowance recorded is $28.1 million.

As of December 31, 2020, we had deferred tax assets for tax loss carryforward of approximately $774.8 million, $39.7 million of which is subject to expiration in the years between 2021 and 2025. We continue to evaluate our historical and projected operating results for several legal entities for which we maintain valuation allowances on net deferred tax assets.

We are subject to income taxes in Luxembourg, the United States and numerous foreign jurisdictions, and are subject to audit within these jurisdictions. Therefore, in the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. The tax provision includes amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued. Since significant judgment is required to assess the future tax consequences of events that have been recognized in our financial statements or tax returns, the ultimate resolution of these events could result in adjustments to our financial statements and such adjustments could be material. Therefore, we consider such estimates to be critical in preparation of our financial statements.

The financial statement effect of an uncertain income tax position is recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Accruals are recorded for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the

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contingency can be reasonably estimated. Uncertain income tax positions have been recorded in “Other noncurrent obligations” in the consolidated balance sheets for the periods presented.

Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. The valuation allowance is based on our estimates of future taxable income and the period over which we expect the deferred tax assets to be recovered. Our estimate of future taxable income is based on management’s judgment and assumptions about various factors including historical experience and results, cyclicality of the business, and future industry and macroeconomic conditions and trends. Changes in these assumptions in future periods may require we adjust our valuation allowance, which could materially impact our financial position and results of operations.

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 the consolidated financial statements, included elsewhere within this Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through fixed and variable rate debt instruments and denominate our transactions in a variety of foreign currencies. We are also exposed to changes in the prices of certain commodities that we use in production. Changes in these rates and commodity prices may have an impact on future cash flows and earnings. We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not enter into financial instruments for trading or speculative purposes.

By using derivative instruments, we are subject to credit and market risk. The fair market value of the derivative instruments is determined by using valuation models whose inputs are derived using market observable inputs, including interest rate yield curves, as well as foreign exchange and commodity spot and forward rates, and reflects the asset or liability position as of the end of each reporting period. When the fair value of a derivative contract is positive, the counterparty owes us, thus creating a receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterparties to our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with various major financial institutions of investment grade credit rating.

Our exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market conditions on earnings or cash flows.

Interest Rate Risk

Given the Company’s debt structure, we have certain exposure to changes in interest rates. Refer to Note 11 in the consolidated financial statements for further information regarding the Company’s debt facilities.

The Company’s 2024 Term Loan B bears an interest rate of LIBOR plus 2.00% (subject to a 0.00% LIBOR floor) as of December 31, 2020. In order to reduce the variability in interest payments associated with our variable rate debt, the Company has entered into interest rate swap agreements that convert a portion of these variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges, and as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective and reclassified to interest expense in the period during which the transaction effects earnings or it becomes probable that the forecasted transaction will not occur.

Based on weighted average outstanding borrowings under the 2024 Term Loan B for the year ended December 31, 2020, an increase in 100 basis points in LIBOR would have resulted in approximately $8.3 million of additional interest expense for the period, inclusive of the impact of the interest rate swap agreements discussed above.

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Loans under the 2022 Revolving Facility, at the Borrowers’ option, may be maintained as (a) LIBOR loans, which bear interest at a rate per annum equal to LIBOR plus the applicable margin (as defined in the Credit Agreement), if applicable, or (b) base rate loans which shall bear interest at a rate per annum equal to the base rate plus the applicable margin (as defined in the Credit Agreement). As of December 31, 2020, the Borrowers are required to pay a quarterly commitment fee in respect of any unused commitments under the 2022 Revolving Facility equal to 0.375% per annum. On April 3, 2020, we drew down $100.0 million from the 2022 Revolving Facility, which we repaid on July 24, 2020. As of December 31, 2020, we had no variable rate debt issued under our 2022 Revolving Facility. During the year ended December 31, 2020, the Company incurred less than $1.0 million of interest expense associated with the $100.0 million variable rate debt that was drawn down and subsequently repaid under the 2022 Revolving Facility.

Our Accounts Receivable Securitization Facility is subject to interest charges on both the amount of outstanding borrowings as well as the amount of available, but undrawn commitments under the facility. As of December 31, 2020, fixed interest charges on outstanding borrowings for this facility are 1.95% plus variable commercial paper rates which vary by month and by currency, as outstanding balances can be denominated in euros and U.S. dollars, and fixed interest charges on available, but undrawn commitments for this facility are 1.00%. As of and throughout the year ended December 31, 2020, we had no variable rate debt issued under our Accounts Receivable Securitization Facility, and as such we incurred no variable rate interest related to this facility during the period.

Foreign Currency Risks

The Company’s ongoing business operations expose us to foreign currency risks, including fluctuating foreign exchange rates. Our primary foreign currency exposure is the euro-to-U.S. dollar exchange rate, noting that approximately 57% of our net sales were generated in Europe for the year ended December 31, 2020. To a lesser degree, we are also exposed to the exchange rates between the U.S. dollar and other currencies, including the Chinese yuan, Swiss franc, and Indonesian rupiah. To manage these risks, the Company periodically enters into derivative financial instruments such as foreign exchange forward contracts.

Certain subsidiaries have monetary assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. Our principal strategy in managing exposure to changes in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our consolidated balance sheets 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 our exposure, we use foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on our monetary assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment.

The Company also enters into forward contracts with the objective of managing the currency risk associated with forecasted U.S. dollar-denominated raw materials purchases by one of our subsidiaries whose functional currency is the euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company buys a designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the fluctuations in the euro-to-U.S. dollar foreign currency exchange rate. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to cost of sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur. For 2021, the Company has hedged approximately 40% of our exposure to the euro at a rate of 1.20. Inclusive of these hedges, a 1% change in the euro will impact our annual profitability by approximately $2.0 million on a pre-tax basis.

We have legal entities consolidated in our financial statements that have functional currencies other than the U.S. dollar, our reporting currency. As a result of currencies fluctuating against the U.S. dollar, currency translation gains and losses are recorded in other comprehensive income, primarily as a result of the remeasurement of our euro functional legal entities as of December 31, 2020 and 2019.

Commodity Price Risk

We purchase certain raw materials such as benzene, ethylene, butadiene, BPA, and styrene primarily under short- and long-term supply contracts. The pricing terms for these raw material purchases are generally determined based on commodity indices and prevailing market conditions within the relevant geography. The selling prices of our products

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are generally based, in part, on the current or forecasted costs of our key raw materials, but are often subject to a predetermined lag period for the pass through of these costs. As such, during periods of significant raw material price volatility, the Company may experience material volatility in earnings and cash flows due to the lag in passing through raw material costs, primarily for benzene, ethylene, butadiene, and styrene. Assuming no changes in sales price, volume or mix, a hypothetical 10% change in the market price of our raw materials would have impacted cost of sales by approximately $191.0 million for the year ended December 31, 2020.

We mitigate the risk of volatility in commodity prices where possible by passing changes in raw material costs through to our customers by adjusting our prices or including provisions in our contracts that allow us to adjust prices in such a circumstance or by including pricing formulas which utilize commodity indices. Nevertheless, we may be subject to the timing differences described above for the pass through of these costs. In addition, even when raw material costs may be passed on to our customers, during periods of high raw material price volatility, customers without minimum purchase requirements with us may choose to delay purchases of our materials or, in some cases, substitute purchases of our materials with less costly products. We do not currently enter into derivative financial instruments to manage our commodity price risk relating to our raw material contracts.

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary data required by Regulation S-X are included in Item 15- Exhibits, Financial Statements Schedules contained in Part IV of this Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining disclosure controls and procedures 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, including 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 December 31, 2020. 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 Annual Report were effective to provide the reasonable level of assurance described above.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2020 based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of December 31, 2020, the Company’s internal control over financial reporting is effective.

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The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Part III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item 10 is incorporated herein by reference from the sections captioned “Election of Directors,” “Corporate Governance,” “Stock Ownership Information,” and “Delinquent Section 16(a) Reports” of the Company’s definitive proxy statement for the 2021 annual general meeting of shareholders to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the “2021 Proxy Statement”).

Code of Ethics

The Company has adopted a Code of Business Conduct applicable to all of our directors, officers and employees, and a Code of Ethics for Senior Financial Employees applicable to our principal executive, financial and accounting officers, and all persons performing similar functions. A copy of each of those Codes is available on the Company’s corporate website at www.trinseo.com under Investor Relations—Corporate Governance—Ethics and Compliance. If we make any substantive amendments to these Codes, or grant any waivers, including any implicit waivers from the provisions of these Codes, we will make a disclosure on our website or in a report on Form 8-K. Our Code of Business of Conduct is supported by a number of support policies which are specifically referenced in the Code, and most of which are also available on our corporate website. Our website and the information contained on that site, or accessible through that site, are not a part of, and are not incorporated by reference into, this Annual Report.

Item 11. Executive Compensation

The information required by this Item 11 will be contained in our 2021 Proxy Statement and is incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this Item 12 will be contained in our 2021 Proxy Statement and is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 will be contained in our 2021 Proxy Statement and is incorporated by reference herein.

Item 14. Principal Accounting Fees and Services

The information required by this Item 14 will be contained in our 2021 Proxy Statement and is incorporated by reference herein.

​

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Part IV

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this report:

1. Financial statements:

​

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-5

​ ​

​ ​

Americas Styrenics LLC

Audited Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm F-59

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-60

​

​

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2. Exhibits: The exhibits to this report are listed in the exhibit index below.

EXHIBIT INDEX

​

Exhibit No. ​ Description

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

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​

Exhibit No. ​ Description

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

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​

Exhibit No. ​ Description

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

10.26* † ​ Form of Restricted Stock Unit Agreement for Directors

​ ​ ​

10.27* † ​ Form of Restricted Stock Unit Award Agreement

​ ​ ​

10.28* † ​ Form of Non-statutory Stock Option Award Agreement

​ ​ ​

10.29* † ​ Form of Performance Award Stock Unit Agreement

​ ​ ​

​ ​ ​

​ ​ ​

21.1 † ​ Subsidiaries of Trinseo S.A.

​ ​ ​

​ ​ ​

​ ​ ​

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​

Exhibit No. ​ Description

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

101.INS † ​ iXBRL Instance Document

​ ​ ​

101.SCH † ​ iXBRL Taxonomy Extension Schema Document

​ ​ ​

101.CAL † ​ iXBRL Taxonomy Extension Calculation Linkbase Document

​ ​ ​

101.DEF † ​ iXBRL Taxonomy Extension Definition Linkbase Document

​ ​ ​

101.LAB † ​ iXBRL Extension Label Linkbase Document

​ ​ ​

101.PRE † ​ iXBRL Taxonomy Extension Presentation Linkbase Document

​ ​ ​

​

* Compensatory plan or arrangement.

§§ Certain portions of this exhibit were redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause us competitive harm if publicly disclosed. We agree to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission on its request; provided, however that the Company may request confidential treatment of this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

§§§ Certain schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Trinseo S.A. hereby agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.

​

† Filed herewith.

​

Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 22, 2021

TRINSEO S.A.

​ ​ ​

​ By: /s/ Frank Bozich

​ Name: Frank Bozich

​ Title: President and Chief Executive Officer(Principal Executive Officer)

​

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Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature Title Date

​ ​

Frank Bozich ​ (Principal Executive Officer) ​

​ ​ ​ ​ ​

David Stasse ​ (Principal Financial Officer) ​

​ ​ ​ ​ ​

Bernard M. Skeete ​ (Principal Accounting Officer) ​

​ ​

/s/ Joseph Alvarado ​ Director ​ February 22, 2021

Joseph Alvarado ​ ​ ​ ​

​/s/ Jeffrey J. CoteJeffrey J. Cote​ ​ ​Director ​ ​February 22, 2021

/s/ Pierre-Marie De Leener ​ Director ​ February 22, 2021

Pierre-Marie De Leener ​ ​

​ ​

/s/ Jeanmarie Desmond ​ Director ​ February 22, 2021

Jeanmarie Desmond ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Matthew T. Farrell ​ Director ​ February 22, 2021

Matthew T. Farrell ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ K’Lynne Johnson ​ Director ​ February 22, 2021

K’Lynne Johnson ​ ​

​ ​

/s/ Sandra Beach Lin ​ Director ​ February 22, 2021

Sandra Beach Lin​ ​ ​​ ​

/s/ Philip R. Martens ​ Director ​ February 22, 2021

Philip R. Martens​/s/ Donald T. Misheff ​ ​​Director ​ ​​February 22, 2021

Donald T. Misheff ​ ​ ​ ​

​/s/ Henri SteinmetzHenri Steinmetz​ ​ ​Director ​ ​February 22, 2021

/s/ Mark Tomkins ​ Director ​ February 22, 2021

Mark Tomkins ​ ​

​

​

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

​

Audited Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-5

​Americas Styrenics LLC*

Audited Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm F-59

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-60

​

​

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Report of Independent Registered Public Accounting Firm

​

To the Board of Directors and Shareholders of Trinseo S.A.

​

Opinions on the Financial Statements and Internal Control over Financial Reporting

​

We have audited the accompanying consolidated balance sheets of Trinseo S.A. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

​

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

​

We did not audit the financial statements of Americas Styrenics LLC, a 50% equity investment of Trinseo S.A., which is reflected in the consolidated financial statements of Trinseo S.A. as an equity method investment of $240.1 million and $188.1 million as of December 31, 2020 and 2019, respectively, and income from equity investment of $67.0 million, $119.0 million and $144.1 million for the years ended December 31, 2020, 2019 and 2018 respectively. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Americas Styrenics LLC, is based solely on the report of the other auditors.

​

Change in Accounting Principle

​

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

​

Basis for Opinions

​

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

​

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used

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and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions.

​

Definition and Limitations of Internal Control over Financial Reporting

​

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

​

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

​

Critical Audit Matters

​

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

​

Valuation of Deferred Tax Asset Associated with 2019 Swiss Cantonal Tax Reform

​

As described in Notes 2 and 14 to the consolidated financial statements, the Company is subject to income taxes in Luxembourg, the United States and numerous other foreign jurisdictions. Management records valuation allowances to reduce deferred tax assets when it is more-likely-than-not that a tax benefit will not be realized. As of December 31, 2020, management recorded a $67.5 million deferred tax asset related to the enactment of 2019 Swiss Cantonal Tax Reform. This deferred tax asset was offset by a $28.1 million valuation allowance for the portion of the deferred tax asset that more-likely-than-not, will not be realized during the utilization period provided by the legislation, spanning 2025 through 2029. The valuation of the deferred tax asset associated with 2019 Swiss Cantonal Tax Reform is based on management’s estimate of future taxable income in Switzerland, which was determined using management’s judgment and assumptions about various factors, such as: historical experience and results, cyclicality of the business, implications of COVID-19, and future industry and macroeconomic conditions and trends possible during the aforementioned utilization period.

​

The principal considerations for our determination that performing procedures relating to the valuation of the deferred tax asset associated with 2019 Swiss Cantonal Tax Reform is a critical audit matter are (i) the significant judgment by management when applying the more-likely-than-not recognition criteria to the Company’s deferred tax assets, including a high degree of estimation uncertainty relative to the estimate of future taxable income in Switzerland over the utilization period; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating

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audit evidence relating to management’s estimate of future taxable income in Switzerland over the utilization period and judgments and assumptions about factors relating to historical experience and results, cyclicality of the business, implications of COVID-19, and future industry and macroeconomic conditions and trends possible during the aforementioned utilization period; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

​

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of deferred tax assets, including controls over the determination of future taxable income for the deferred tax asset associated with 2019 Swiss Cantonal Tax Reform. These procedures also included, among others, (i) evaluating management’s assessment of the realizability of deferred tax assets relating to 2019 Swiss Cantonal Tax Reform, (ii) evaluating management's estimate of future taxable income and management's application of income tax law, and (iii) testing the completeness and accuracy of underlying data used in management’s estimate. Evaluating management’s estimate of future taxable income involved evaluating whether the assumptions and factors related to historical experience and results, cyclicality of the business, implications of COVID-19, and future industry and macroeconomic conditions and trends possible during the aforementioned utilization period were reasonable considering the historical and current financial information relevant to the Swiss entity, the consistency with external market and industry data, and whether these assumptions and factors were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the reasonableness of management’s assessment of the realizability of the deferred tax asset relating to 2019 Swiss Cantonal Tax Reform and application of relevant tax laws.

​

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 22, 2021

​

We have served as the Company’s auditor since 2010.

​

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TRINSEO S.A.

Consolidated Balance Sheets

(In millions, except per share data)

​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31, ​

Assets ​ ​ ​ ​ ​ ​

Current assets ​ ​ ​ ​ ​ ​ ​

Cash and cash equivalents ​ $ 588.7 ​ $ 456.2 ​

Accounts receivable, net of allowance ​ 529.2 ​ ​ 570.8 ​

Other current assets ​ 15.1 ​ 25.9 ​

Investments in unconsolidated affiliates ​ 240.1 ​ 188.1 ​

Property, plant and equipment, net ​ 601.4 ​ ​ 625.8 ​

Other assets ​ ​ ​ ​ ​ ​ ​

Other intangible assets, net ​ 182.8 ​ 191.5 ​

Right-of-use assets - operating, net ​ ​ 78.3 ​ ​ 71.4 ​

Deferred income tax assets ​ 90.2 ​ 67.5 ​

Deferred charges and other assets ​ 61.1 ​ 55.7 ​

Liabilities and shareholders’ equity ​ ​ ​ ​ ​ ​ ​

Current liabilities ​ ​ ​ ​ ​ ​ ​

Short-term borrowings and current portion of long-term debt ​ $ 12.3 ​ $ 11.1 ​

Current lease liabilities - operating ​ ​ 15.8 ​ ​ 14.1 ​

Income taxes payable ​ 10.0 ​ 5.0 ​

Accrued expenses and other current liabilities ​ 139.8 ​ 154.4 ​

Total current liabilities ​ 533.3 ​ 527.6 ​

Noncurrent liabilities ​ ​ ​ ​ ​ ​ ​

Long-term debt, net of unamortized deferred financing fees ​ 1,158.7 ​ 1,162.6 ​

Noncurrent lease liabilities - operating ​ ​ 65.7 ​ ​ 58.0 ​

Deferred income tax liabilities ​ 60.7 ​ 41.5 ​

Other noncurrent obligations ​ 436.5 ​ 300.2 ​

Commitments and contingencies (Note 15) ​ ​ ​ ​ ​ ​ ​

Shareholders’ equity ​ ​ ​ ​ ​ ​ ​

Additional paid-in-capital ​ 579.6 ​ 574.7 ​

Accumulated other comprehensive loss ​ (186.1) ​ (162.4) ​

Total shareholders’ equity ​ 590.3 ​ 668.9 ​

Total liabilities and shareholders’ equity ​ $ 2,845.2 ​ $ 2,758.8 ​

​

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