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Trinseo(TSE) - 2019 Q2 - Quarterly Report
TrinseoTrinseo(US:TSE)2019-08-09 15:15

Part I Financial Information Financial Statements Unaudited H1 2019 financials show decreased net income and equity, impacted by new lease accounting standards Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $534.9 | $452.3 | | Total current assets | $1,638.5 | $1,631.3 | | Total assets | $2,804.2 | $2,726.8 | | Liabilities & Equity | | | | Total current liabilities | $579.1 | $537.0 | | Long-term debt, net | $1,160.5 | $1,160.8 | | Total liabilities | $2,059.1 | $1,958.1 | | Total shareholders' equity | $745.1 | $768.7 | - The company adopted a new lease accounting standard in 2019, resulting in the recognition of $70.8 million in operating Right-of-Use assets and corresponding current ($15.5 million) and noncurrent ($55.6 million) lease liabilities, which were not present on the 2018 balance sheet1732 Condensed Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $951.8 | $1,236.6 | $1,964.9 | $2,358.1 | | Gross profit | $86.2 | $162.7 | $183.7 | $337.9 | | Operating income | $55.1 | $134.2 | $115.9 | $290.6 | | Net income | $28.0 | $98.3 | $63.8 | $218.6 | | Net income per share- diluted | $0.68 | $2.24 | $1.54 | $4.95 | Condensed Consolidated Statements of Comprehensive Income (Loss) - Comprehensive income was $25.9 million for Q2 2019, down from $94.7 million in Q2 2018. For the first six months, comprehensive income was $60.5 million in 2019, a significant decrease from $216.3 million in the same period of 201823 Condensed Consolidated Statements of Shareholders' Equity - Total shareholders' equity decreased from $768.7 million at the end of 2018 to $745.1 million as of June 30, 2019. The decrease was driven by the purchase of treasury shares ($55.7 million) and payment of dividends ($32.9 million), which offset the net income of $63.8 million for the six-month period25 Condensed Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in millions) | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Cash provided by operating activities | $234.0 | $182.4 | | Cash used in investing activities | ($46.9) | ($56.7) | | Cash used in financing activities | ($101.9) | ($102.5) | | Net change in cash | $83.6 | $18.6 | - Key financing activities in the first six months of 2019 included the purchase of treasury shares for $59.1 million and dividend payments of $33.8 million29 Notes to Condensed Consolidated Financial Statements - The company adopted the new lease accounting standard (Topic 842) on January 1, 2019, recognizing Right-of-Use assets of $73.0 million and lease liabilities of $72.4 million on the balance sheet32 - The company's investment in its unconsolidated affiliate, Americas Styrenics, was $199.1 million as of June 30, 2019. The company received dividends of $52.5 million from this joint venture in the first six months of 20193942 - As of June 30, 2019, total debt was approximately $1.19 billion, primarily consisting of the 2024 Term Loan B ($687.8 million) and 2025 Senior Notes ($500.0 million). The company was in compliance with all debt covenants45 - The company uses derivative instruments, including foreign exchange forward contracts, interest rate swaps, and cross currency swaps, to manage risks from foreign exchange rates and interest rates. These are not held for speculative purposes50 - In June 2018, a subsidiary received a Request for Information from the European Commission regarding styrene monomer commercial activity. The company is cooperating fully, but the ultimate outcome and potential losses, which could be material, are currently unpredictable8283 Management's Discussion and Analysis of Financial Condition and Results of Operations H1 2019 results show significant declines in net income and sales due to market weakness, prompting strategic reviews - On May 2, 2019, the company agreed to acquire Dow's latex binders production assets in Rheinmünster, Germany. The transaction involves no upfront cash but includes the assumption of approximately €40.0 million in pension liabilities122 - The company is operating in a difficult business environment, and the timing of macroeconomic improvement remains uncertain. Management is focused on working capital initiatives and a strategic review of its business portfolio to improve performance149 Results of Operations Q2 2019 vs Q2 2018 Performance (in millions) | Metric | Q2 2019 | Q2 2018 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net sales | $951.8 | $1,236.6 | ($284.8) | (23%) | | Gross profit | $86.2 | $162.7 | ($76.5) | (47%) | | Net income | $28.0 | $98.3 | ($70.3) | (72%) | - The 23% decrease in Q2 2019 net sales was driven by: - 11% from lower selling prices due to pass-through of lower raw material costs. - 9% from lower sales volume across all segments. - 3% from unfavorable currency impacts (weakening euro)125127 - The 47% decrease in Q2 2019 gross profit was primarily due to margin compression in the Feedstocks, Performance Plastics, Latex Binders, and Synthetic Rubber segments, impacted by weaker market performance in automotive, graphical paper, and tires129 - The 17% decrease in H1 2019 net sales was primarily due to 13% from lower selling prices and 3% from unfavorable currency impacts138 Selected Segment Information Segment Adjusted EBITDA (in millions) | Segment | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Latex Binders | $20.6 | $36.0 | $38.1 | $63.5 | | Synthetic Rubber | $12.9 | $30.6 | $21.7 | $56.2 | | Performance Plastics | $34.2 | $48.9 | $69.9 | $114.3 | | Polystyrene | $16.2 | $13.7 | $32.9 | $23.3 | | Feedstocks | ($0.6) | $32.4 | $16.6 | $73.9 | | Americas Styrenics | $40.3 | $33.2 | $72.5 | $78.8 | - Latex Binders: Adjusted EBITDA fell 43% in Q2 2019 due to lower margins from raw material dynamics, competitive pressure, and lower volumes in graphical paper and carpet markets155 - Synthetic Rubber: Adjusted EBITDA dropped 58% in Q2 2019, driven by a 27% decrease from lower sales volume (SSBR and ESBR) and a 21% decrease from lower margins160 - Performance Plastics: Adjusted EBITDA decreased 30% in Q2 2019, primarily due to a 42% negative impact from lower margins in ABS and PC, stemming from market weakness and increased PC supply166 - Feedstocks: Adjusted EBITDA plummeted 102% in Q2 2019, becoming negative, mainly due to lower margins from weaker market conditions and lower production from an outage at the Boehlen, Germany facility178 Liquidity and Capital Resources Cash Flow Summary (in millions) | Metric | H1 2019 | H1 2018 | | :--- | :--- | :--- | | Cash from operating activities | $234.0 | $182.4 | | Capital expenditures | ($47.6) | ($59.5) | | Free Cash Flow | $186.4 | $122.9 | - As of June 30, 2019, the company had total outstanding indebtedness of $1,191.9 million and working capital of $1,059.4 million205 - The company had $360.9 million of available borrowing capacity under its $375.0 million 2022 Revolving Facility as of June 30, 2019209 - During H1 2019, the company repurchased 1.2 million ordinary shares for $59.1 million and declared dividends of $0.80 per share, totaling $32.9 million217218 Critical Accounting Policies and Estimates - There have been no material revisions to the company's critical accounting policies and estimates, other than the impacts from the adoption of the new lease accounting guidance on January 1, 2019222 Quantitative and Qualitative Disclosures about Market Risk Market risk exposures, including interest rates and foreign currency, remain materially unchanged from 2018 - There have been no material changes in the company's exposure to market risks since the 2018 Annual Report227 Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2019, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019228 - No changes occurred during the quarter ended June 30, 2019, that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting229 Part II Other Information Legal Proceedings The company believes no pending legal claims will have a material adverse effect, consistent with European Commission inquiry - The company does not believe that any currently pending litigation will have a material adverse effect on its business231 Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2018 Annual Report - No material changes have been made to the risk factors disclosed in the 2018 Annual Report232 Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2019, the company repurchased 500,000 ordinary shares at an average price of $43.49 under authorized programs Issuer Purchases of Equity Securities (Q2 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2019 | 210,000 | $47.15 | | May 2019 | 219,847 | $41.30 | | June 2019 | 70,153 | $39.41 | | Total | 500,000 | $43.49 | - On June 19, 2019, shareholders authorized a new share repurchase program for up to 4.0 million ordinary shares over the next eighteen months, replacing the previous 2017 authorization241 Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None237 Mine Safety Disclosures This item is not applicable to the company - Not applicable238 Other Information The company reported no other information for this item - None239 Exhibits This section references the Exhibit Index, listing all documents filed as part of the Form 10-Q - The report includes an Exhibit Index listing all filed documents240