# Trinseo PLC (TSEOQ) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Trinseo PLC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1519061/000155837024001604/tse-20231231x10k.htm
Accession: 0001558370-24-001604
Filing date: 2024-02-23
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TSEOQ/
All MD&A years: /company/TSEOQ/mda/
Previous year: /company/TSEOQ/mda/fy2022/ (FY 2022)
Next year: /company/TSEOQ/mda/fy2024/ (FY 2024)

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 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.

2023 Highlights

For the year ended December 31, 2023, we had net loss from continuing operations of $701.3 million, inclusive of a non-cash goodwill impairment charge of $349.0 million and a non-cash after-tax charge related to an increase in valuation allowances on deferred tax assets of $163.7 million in certain subsidiaries, as discussed below, and Adjusted EBITDA of $154.3 million. These impairment charges, equal to the full carrying value of the Engineered Materials reporting unit’s associated goodwill during the second quarter of 2023, do not affect the Company’s cash position and the Company remains encouraged by the businesses’ expected synergies and strategic value as it continues to evolve as a specialty material and sustainable solutions provider. Our year-to-date results were significantly impacted by continued persistent underlying demand weakness experienced across all reporting segments, especially in building & construction and consumer durables applications. However, the impact to our operating performance was mitigated by lower costs, commercial actions and the asset restructuring initiatives that were announced in the fourth quarter of 2022 and the second half of 2023.

Amid these uncertain market conditions, the Company implemented liquidity-focused actions, including reduced capital spending, operating expenses and working capital, generating a $47.4 million year-over-year increase in our cash balance. Further, there are no maintenance covenants on our debt agreements and no significant debt maturing until September 2025. 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. Refer to “Capital Resources and Liquidity” for further information. Highlights for the year are described below.

New Financing Arrangements

On September 8, 2023, the Company entered into $1,077.3 million in term loan borrowings (“2028 Refinance Term Loans”) under a separate senior secured credit facility. The net proceeds from the 2028 Refinance Term Loans were used to repay in full the outstanding principal amount of, and all accrued and unpaid interest on, the senior secured Term Loan B facility maturing in September 2024 (the “2024 Term Loan B”) and redeemed $385.0 million of the Company’s $500.0 million aggregate principal amount of 5.375% Notes due 2025 (the “2025 Senior Notes”). Refer to Note 17 in the consolidated financial statements for further details on these new financing arrangements.

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Asset Optimization and Corporate Restructuring

In response to the challenging macroeconomic conditions noted above, during the second half of 2023, Trinseo approved asset restructuring and corporate restructuring initiatives to improve its economic position and operating flexibility, reduce its exposure to cyclical commodity markets and reduce certain general and administrative costs. These actions consisted of the following:

[[GREPCENT_TABLE]]
[["","\u25cf","Discontinue styrene production at its Terneuzen, the Netherlands plant to both improve profitability and aid in achieving its 2030 sustainability goals,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Closure of manufacturing operations at the Company\u2019s PMMA cast sheets plant in Bronderslev, Denmark,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Closure of manufacturing operations at the Company\u2019s batch polyester tray casting plant in Belen, New Mexico,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Closure of its PMMA extruded sheet production line at its Rho, Italy plant,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Certain other workforce reductions to streamline the Company\u2019s internal general & administrative network."]]
[[/GREPCENT_TABLE]]

Sale of Matamoros, Mexico Manufacturing Facility

In April 2023, the Company entered into an agreement to sell its land, buildings and equipment at its PMMA sheet manufacturing facility in Matamoros, Mexico for a cash consideration of approximately $19.0 million, which was received in May 2023 when the transaction closed. The sale resulted in a pre-tax gain of $14.4 million recognized in the second quarter of 2023. This site was part of the previously-announced asset restructuring plan approved in the fourth quarter of 2022 to consolidate our sheet manufacturing business and optimize our resources.

Bristol Spill

On March 24, 2023, due to equipment failure at the Bristol, Pennsylvania facility, operated by our wholly-owned subsidiary, Altuglas LLC, an accidental release of a latex emulsion product occurred, which ultimately flowed into a local waterway (the “Bristol Spill”). We reported the event and cooperated closely with local, state, and federal authorities on the response activities. Water sampling conducted by the authorities did not detect site-related material in the waterway. The safety of our employees, our communities and our environment are a top priority, and we are committed to operate safely and without disturbance to our community. Refer to Note 20 in our consolidated financial statements for additional information related to this matter.

​

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Results of Operations

Results of Operations for the Years Ended December 31, 2023, 2022, and 2021

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 27, 2023 for explanations of our results of operations for 2022 in comparison to 2021.

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[[/GREPCENT_TABLE]]

2023 vs. 2022

Net Sales

Of the 26% decrease in net sales, 14% was due to lower selling prices resulting mainly from the pass through of lower raw material costs. Lower sales volume resulted in a 13% decrease due to continued customer destocking and underlying persistent market demand weakness stemming from an uncertain economic and geopolitical macroenvironment, particularly in applications supporting building & construction and consumer durables.

Cost of Sales

The 25% decrease in cost of sales was primarily attributable to a 14% decrease in raw material costs and an 11% decrease due to lower sales volumes.

Gross Profit

The decrease in gross profit of 48% was primarily attributable to lower sales volume as discussed above as well as lower margins from weaker market conditions including low demand and available supply. Margins were also pressured by unfavorable impacts from natural gas hedges. See the segment discussion below for further information.

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Selling, General and Administrative Expenses

The $88.5 million, or 22%, decrease in SG&A was primarily due to a decrease of $58.9 million in costs associated with the Company’s strategic initiatives, including the exploration of a potential divestiture of our styrenics business, a $5.6 million decrease in acquisition transaction and integration costs, and a $24.2 million decrease in restructuring costs driven by the asset optimization and corporate restructuring plan approved in the third quarter of 2023 and the asset restructuring plan approved in the fourth quarter of 2022.

Equity in Earnings of Unconsolidated Affiliates

The decrease in equity earnings of $40.1 million was due mainly to lower styrene and polystyrene margins from weaker market conditions.

Impairment and other charges

During the year ended December 31, 2023, the Company recorded a non-cash goodwill impairment charge of $349.0 million related to the Engineered Materials reporting unit, as described within Note 15 in the consolidated financial statements. The Company also recorded impairment charges of $0.5 million and $6.3 million related to the Boehlen styrene monomer assets during the years ended December 31, 2023 and 2022, respectively, as described within Note 19 in the consolidated financial statements.

Interest Expense, Net

The increase in interest expense, net of $75.5 million, or 67%, was primarily attributable to the year-over-year increase in market interest rates on our variable rate debt. Refer to Note 17 in the consolidated financial statements for further information.

(Gain) Loss on Extinguishment of Long-Term Debt

Loss on extinguishment of long-term debt was $6.3 million for the year ended December 31, 2023, which related to the Company’s debt refinancing during the third quarter of 2023. This amount was primarily comprised of the write-off of unamortized deferred financing costs and unamortized original issue discount related to the 2024 Term Loan B as well as the write-off of unamortized deferred financing costs related to the 2025 Senior Notes.

A $0.8 million gain on extinguishment of debt was recorded for the year ended December 31, 2022, in relation to the repurchase of $3.0 million of the 2029 Senior Notes in the open market.

Other Expense (Income), Net

Other income, net for the year ended December 31, 2023 was $17.2 million. Other income, net was comprised of foreign exchange transaction gains of $9.1 million, which included $16.7 million of 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, partially offset by $7.6 million of losses from our foreign exchange forward contracts.

Other income, net for the year ended December 31, 2022 was $7.2 million. Other income, net was comprised of foreign exchange transaction gains of $8.0 million, which included $41.0 million of foreign exchange transaction losses primarily from the remeasurement of our euro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more than offset by $49.0 million of gains from our foreign exchange forward contracts.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes was $68.4 million and $(41.6) million for the years ended December 31, 2023 and 2022, respectively, which resulted in an effective tax rate of (11)% and 9%, respectively. The increase in provision for income taxes in 2023 was primarily due to the increase in valuation allowance adjustments of $163.7 million, predominantly in the United States and Switzerland. This was partially offset by the $163.2 million decrease in

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income from continuing operations before income taxes, as well as the revaluation of the Company’s net deferred tax assets during the second quarter of 2022, which resulted in a one-time deferred tax expense of $15.3 million.

Net Income (Loss) from Discontinued Operations, Net of Income Taxes

There was no net income from discontinued operations, net of income taxes during the year ended December 31, 2023. Net income (loss) from discontinued operations, net of income taxes during the year ended December 31, 2022 was $(2.9) million and was related to the results and sale of our Synthetic Rubber business. Refer to Note 5 in the consolidated financial statements for further information.

Selected Segment Information

The Company’s reportable segments are as follows: Engineered Materials, Latex Binders, Plastics Solutions, 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, 2023, 2022, and 2021. Inter-segment sales have been eliminated. Refer to Note 24 in the consolidated financial statements for a detailed definition of Adjusted EBITDA and a reconciliation of income from continuing operations before income taxes to segment Adjusted EBITDA. Refer to the Company’s Form 10-K filed on February 27, 2023 for explanations of our segment results for 2022 in comparison to 2021.

Engineered Materials Segment

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[[/GREPCENT_TABLE]]

2023 vs. 2022

The 24% decrease in net sales was primarily attributable to lower pricing, primarily from the pass through of lower raw materials and energy costs which contributed to a 14% decrease year-over-year. Lower sales volumes from weak underlying demand and continued customer destocking, primarily in building & construction, consumer electronics, and wellness applications contributed to an 11% decrease year-over-year.

Adjusted EBITDA decreased $66.7 million, or 93%, year-over-year primarily due to lower margins which decreased by $61.1 million or 85% year-over-year, as well as a decrease of $14.3 million, or 20%, due to lower sales volumes as described above. These were partially offset by lower fixed costs of $7.1 million, or 10%, primarily as the result of restructuring activities undertaken in late 2022 and 2023.

​

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Latex Binders Segment

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

2023 vs. 2022

The 25% decrease in net sales was primarily due to a 12% decrease in pricing from the pass through of lower raw material costs, and a 14% decrease due to lower sales volumes across most applications from customer destocking and impacts from geopolitical uncertainty.

The $17.5 million, or 16%, decrease in Adjusted EBITDA was primarily due to a decrease of $40.2 million, or 36%, from lower sales volume. These decreases were partially offset by a $25.9 million, or 23%, increase attributable to higher margins primarily due to pricing initiatives.

Plastics Solutions Segment

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[[/GREPCENT_TABLE]]

2023 vs. 2022

Of the 22% decrease in net sales, 10% was due to lower sales volumes, which were primarily impacted by a decrease in polycarbonate from the announced shutdown of one production line as well as in copolymers in building & construction, industrial, and consumer durables applications from customer destocking and a weaker macroeconomic environment. The volume decrease was partially offset by higher volumes to automotive applications. Also contributing to the overall decrease was a 12% decrease from lower pricing due to the pass through of lower raw material costs.

The $2.0 million, or 2%, decrease in Adjusted EBITDA was primarily due to lower sales volume of $8.6 million, or 9%. These decreases were partially offset by lower fixed costs which contributed a $2.8 million, or 3%, increase in Adjusted EBITDA. Margins also improved 2% versus prior year leading to a $1.5 million increase in Adjusted EBITDA.

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Polystyrene Segment

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[[/GREPCENT_TABLE]]

2023 vs. 2022

Net sales decreased by 32% year-over-year. Lower sales volumes, primarily due to customer destocking and a weak overall demand environment amid falling raw material prices, led to a 16% decrease in net sales from prior year. Also contributing to the overall decrease was a 17% decrease from lower pricing, primarily from the pass through of lower styrene costs.

The $66.0 million, or 66%, decrease in Adjusted EBITDA was due to a decrease of $33.3 million, or 34%, from lower margins and a decrease of $27.5 million, or 28%, due to lower volumes. Weaker demand, including in building & construction and appliance applications, contracted margins and led to lower volumes. Also contributing to the overall decrease was a $5.3 million, or 5%, decrease from higher fixed costs.

Feedstocks Segment

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

2023 vs. 2022

Net sales decreased 33% year-over-year. Lower styrene-related sales volume resulted in a 10% decrease along with a 24% decrease due to lower styrene prices.

The increase of $34.4 million in Adjusted EBITDA was primarily attributed to an increase of $18.0 million, or 24%, from lower fixed costs mainly due to the December 2022 Boehlen, Germany styrene plant closure. Also contributing to the overall increase was a $17.2 million, or 23%, increase from higher styrene margins.

Americas Styrenics Segment

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","\u200b","Percentage Change","\u200b","\u200b"],["($ in millions)","","2023","\u200b","","2022","\u200b","","2021","\u200b","","2023 vs. 2022","\u200b","2022 vs. 2021","\u200b","\u200b"],["Adjusted EBITDA*","\u200b","$","62.1","\u200b","\u200b","$","102.2","\u200b","\u200b","$","92.7","\u200b","\u200b","(39)","%","10","%","\u200b"]]
[[/GREPCENT_TABLE]]

*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.

2023 vs. 2022

The decrease in Adjusted EBITDA was mainly due to lower styrene margins compared to the high levels in the prior year.

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Outlook

We expect a constrained demand environment in 2024 similar to 2023, however, sequential headwinds in the second half of 2024, such as negative net timing impacts, are not expected to repeat and we expect the benefit of our restructuring actions take effect.

Despite the economic environment, the Company maintains access to capital resources through continued focus on liquidity improvement actions. Also, we are seeing the benefit of our announced asset restructuring initiatives and anticipate these actions will result in meaningful cost savings in 2024. We believe these actions will better position us to achieve higher growth, higher margin, and lower volatility as demand normalizes.

Non-GAAP Performance Measures

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

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

Adjusted EBITDA is calculated as follows for the years ended December 31, 2023, 2022, and 2021. For discussion related to 2021 activity, refer to the Company’s Form 10-K filed on February 27, 2023.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because we believe it provides our management as well as our investors and credit agencies with meaningful information regarding the Company\u2019s operational performance. We believe the use of EBITDA as a metric assists our board of directors, management and investors in comparing our operating performance on a consistent basis. Other companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of our EBITDA results to our net income, which is determined in accordance with GAAP."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","Amounts for the year ended December 31, 2023 primarily relate to the sale of the Matamoros, Mexico manufacturing facility. Refer to Note 7 in the consolidated financial statements for further information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(c)","Restructuring and other charges for the years ended December 31, 2023 and 2022 primarily relate to charges incurred in connection with the Company\u2019s various restructuring programs. Refer to Note 7 in the consolidated financial statements for further information regarding restructuring activities."]]
[[/GREPCENT_TABLE]]

Note that the accelerated depreciation charges incurred as part of both the Company’s asset restructuring plan and corporate restructuring program are included within the “Depreciation and amortization” caption above, and therefore are not included as a separate adjustment within this caption.

[[GREPCENT_TABLE]]
[["(d)","Acquisition transaction and integration net costs for the years ended December 31, 2023 and 2022 relate to expenses incurred for the PMMA Acquisition and the Aristech Surfaces Acquisition."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(e)","The acquisition purchase price hedge loss for the year ended December 31, 2021 relates to the change in fair value of the Company\u2019s forward currency hedge arrangement that economically hedged the euro-denominated purchase price of the PMMA business. Refer to Note 18 in the consolidated financial statements for further information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(f)","Asset impairment charges or write-offs for the years ended December 31, 2023 and 2022 relate to the impairment of the Company\u2019s styrene monomer assets in Boehlen, Germany. Refer to Note 19 in the consolidated financial statements for further information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(g)","Amount for the year ended December 31, 2022 relates to the liability recorded in connection with the European Commission request for information, as described in Note 20 in the consolidated financial statements."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(h)","Amount for the year ended December 31, 2022 relates to the goodwill impairment of the PMMA business and Aristech Surfaces reporting units. Refer to Note 15 in the consolidated financial statements for further information."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(i)","Other items for the years ended December 31, 2023 and 2022 primarily relate to fees incurred in conjunction with certain of the Company\u2019s strategic initiatives, including our ERP upgrade project."]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Capital Resources, Indebtedness and Liquidity

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

The 2028 Refinance Credit Agreement requires the Company to comply with customary affirmative, negative and financial covenants, and contains events of default including (i) relating to a change of control or (ii) failure to maintain at least $100.0 million of Liquidity at the end of any calendar month, and (iii) a cross default to the Credit Agreement. If an event of default occurs, the Term Lenders will be entitled to take various actions, including the acceleration of amounts due under the 2028 Refinance Term Loans. Liquidity is defined under the 2028 Refinance Credit Agreement as a combination of cash and cash equivalents held at certain of the Company’s restricted subsidiaries as well as the funds available for borrowing under both the 2026 Revolving Facility and the Accounts Receivable Securitization Facility, subject to certain restrictions outlined in the 2028 Refinance Credit Agreement. As of December 31, 2023, the Company was in compliance with all debt covenant requirements under the 2028 Refinance Credit Agreement and the Credit Agreement.

As of December 31, 2023, the Company had Liquidity of $471.0 million, comprised of $259.1 million of cash and cash equivalents and approximately $211.9 million of funds available for borrowing under both the 2026 Revolving Facility and the Accounts Receivable Securitization Facility, $98.4 million and $113.5 million respectively. As of

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December 31, 2023 and 2022, we had $2,344.6 million and $2,353.7 million, respectively, in outstanding indebtedness and $521.5 million and $701.3 million, respectively, in working capital (calculated as current assets from continuing operations less current liabilities from continuing operations). In addition, as of December 31, 2023 and 2022, we had $161.4 million and $168.7 million, respectively, of foreign cash and cash equivalents on our consolidated balance sheets, outside of our country of domicile, which was Ireland as of December 31, 2023 and 2022, 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 17 in the consolidated financial statements.

The following table outlines our outstanding indebtedness as of December 31, 2023 and 2022 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.

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[[/GREPCENT_TABLE]]

Our Senior Credit Facility includes the 2026 Revolving Facility, which matures in May 2026 and has a borrowing capacity of $375.0 million. The 2026 Revolving Facility contains a springing covenant which applies when 30% or more is drawn from the facility and would require the Company to meet a first lien net leverage ratio not to exceed 3.50x at the end of each financial quarter. As of December 31, 2023 the first lien net leverage ratio (as defined in our secured credit agreement) was 5.43x. As of December 31, 2023, the Company had $98.4 million of funds available for borrowing (net of $14.1 million outstanding letters of credit) under the 2026 Revolving Facility. Further, as of December 31, 2023, the Company is required to pay a quarterly commitment fee in respect of any unused commitments under the 2026 Revolving Facility equal to 0.375% per annum.

On September 8, 2023, the Company entered into a Credit Agreement (the “2028 Refinance Credit Agreement”) which provides for a senior secured term loan facility of $1,077.3 million maturing in May 2028 (the “2028 Refinance Term Loans”). The 2028 Refinance Term Loans bear interest at a rate per annum equal to Term SOFR (as defined in the 2028 Refinance Credit Agreement) plus 8.50%, subject to a 3.00% SOFR floor, and was issued at a 3.0% original issue discount. Further, the 2028 Refinance Term Loans require scheduled quarterly payments, commencing on January 2, 2024, in amounts equal to 0.25% of the original principal amount of the 2028 Refinance Term Loans, with the balance to be paid at maturity.

Also included in our Senior Credit Facility is our 2028 Term Loan B (with original principal of $750.0 million, maturing in May 2028), which requires scheduled quarterly payments in amounts equal to 0.25% of the original principal. The stated interest rate on our 2028 Term Loan B is SOFR plus 2.50% (subject to a 0.00% SOFR floor). The Company fully repaid the 2024 Term Loan B during the year ended December 31, 2023, while making $7.5 million of net principal payments on the 2028 Term Loan B, with an additional $18.3 million of scheduled future payments classified within current debt on the Company’s consolidated balance sheet as of December 31, 2023 related to both the 2028 Refinance Term Loans and the 2028 Term Loan B.

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Our 2025 Senior Notes issued under the indenture executed in 2017 include $115.0 million aggregate principal amount of 5.375% senior notes that mature on September 1, 2025. 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 17 in the consolidated financial statements for further information.

Our 2029 Senior Notes (with original principal of $500.0 million), as issued under the indenture executed in 2021, include $447.0 million aggregate principal amount of 5.125% senior notes that mature on April 1, 2029. Interest on the 2029 Senior Notes is payable semi-annually on February 15 and August 15 of each year, which commenced on August 15, 2021. These Notes may be redeemed prior to their maturity at the option of the Company under certain circumstances at specific redemption prices. Refer to Note 17 in the consolidated financial statements for further information.

We also continue to maintain our Accounts Receivable Securitization Facility, which matures in November 2024 and has an outstanding borrowing capacity of $150.0 million. As of December 31, 2023, there were no amounts outstanding under this facility and the Company had approximately $113.5 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable. Refer to Note 17 in the consolidated financial statements for further information on the facility.

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

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

Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers” of our 2029 Senior Notes and 2025 Senior Notes and “Borrowers” under our Senior Credit Facility) are dependent upon the cash generation and receipt of distributions and dividends or other payments from our subsidiaries and joint venture in order to satisfy their debt obligations. There are no known significant restrictions by third parties on the ability of subsidiaries of the Company to disburse or dividend funds to the Issuers and the Borrowers in order to satisfy these obligations. However, as the Company’s subsidiaries are located in a variety of jurisdictions, the Company can give no assurances that our subsidiaries will not face transfer restrictions in the future due to regulatory or other reasons beyond our control.

The Senior Credit Facility and Indentures also limit the ability of the Borrowers and Issuers, respectively, to pay dividends or make other distributions to Trinseo PLC, which could then be used to make distributions to shareholders. During the year ended December 31, 2023, the Company declared total dividends of $0.17 per ordinary share, or $6.2 million, of which $0.9 million, inclusive of dividend equivalents, remains accrued as of December 31, 2023 and the majority of which was paid in January 2024. These dividends are well within the available capacity under the terms of the restrictive covenants contained in the Senior Credit Facility and Indentures. Further, 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.

Despite the economic environment, the Company maintains access to capital resources through continued focus on liquidity improvement actions. The cash flows provided by operating activities was $148.7 million for the year ended December 31, 2023. Due to the expectation that operating conditions in the beginning of 2024 will be largely similar to 2023, the Company may exceed the first lien net leverage ratio in 2024, which would limit the availability of the 2026 Revolving Facility to 30% of the total capacity. However, we believe funds provided by operations, our existing cash and cash equivalent balances of $259.1 million, coupled with borrowings available under our 2026 Revolving Facility and our Accounts Receivable Securitization Facility totaling a minimum of $211.9 million, which reflects the potential borrowing limit imposed by the aforementioned springing covenant, will be adequate to meet all necessary 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 this challenging macroeconomic environment 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

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herein and under Item 1A – Risk Factors. As of December 31, 2023, we were in compliance with all the covenants and default provisions under our debt agreements. Refer to Note 17 in the consolidated financial statements for further information on the details of the covenant requirements.

We do not have any off-balance sheet financing arrangements that we believe are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Cash Flows

The table below summarizes our primary sources and uses of cash for the years ended December 31, 2023, 2022, and 2021. We have derived the summarized cash flow information from our audited financial statements. Refer to the Company’s Form 10-K filed on February 27, 2023 for discussion related to 2021.

​

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[[/GREPCENT_TABLE]]

Operating Activities

Net cash provided by operating activities from continuing operations during the year ended December 31, 2023 totaled $148.7 million, inclusive of dividends received from Americas Styrenics of $65.0 million. Although operating results continued to be challenged by customer destocking and macroeconomic conditions, which resulted in reduced customer demand and negative earnings, there was a significant increase in cash performance during the year primarily as a result of targeted inventory control actions and cash improvement initiatives. Further, there was an increase in interest payments driven by the 2029 Senior Notes and the 2028 Term Loan B, both of which were outstanding for the full year, as well as the impact of the rising interest rates on our variable rate debt. Tax payments also increased, driven by higher earnings before income taxes in the prior year. Net cash used in operating activities from discontinued operations during the year ended December 31, 2023 was not significant.

Net cash provided by operating activities from continuing operations during the year ended December 31, 2022 totaled $46.4 million, inclusive of dividends received from Americas Styrenics of $95.0 million. Although operating results were challenged by macroeconomic conditions resulting in reduced customer demand, higher raw material and utility costs and negative earnings, there was a slight working capital build during the year. The rapid and significant increase in raw material prices, along with the historically high energy prices led to a significant working capital build in the first half of 2022. This build was largely offset with the working capital release in the second half of the year, primarily attributable to a steep decline in many raw material prices from the historically high prices seen in the second quarter, inventory control actions, and sequentially lower sales. Operating activities also included a one-time payment of $33.8 million related to the settlement of the European Commission request for information as described in Note 20 in the consolidated financial statements. Further, there was an increase in interest payments driven by the 2029 Senior Notes and the 2028 Term Loan B, both of which were outstanding for the full year, as well as the impact of the rising interest rates on our variable rate debt. Tax payments also increased, driven by higher earnings before income taxes in the prior year. Net cash used in operating activities from discontinued operations during the year ended December 31, 2022 totaled $2.9 million.

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Investing Activities

Net cash used in investing activities from continuing operations during the year ended December 31, 2023 totaled $31.7 million, which was primarily attributable to capital expenditures of $69.7 million offset by proceeds from the sale of business and other assets of $38.0 million. The Company has taken proactive measures to reduce and defer capital expenditures during the year as part of our liquidity improvement actions. Net cash used in investing activities from discontinued operations during the year ended December 31, 2023 was not significant.

Capital expenditures for 2024 are expected to be approximately $72.0 million, inclusive of spending for both compliance and maintenance costs, and growth initiatives, including material substitution applications as well as products containing recycled or bio-based materials.

Net cash used in investing activities from continuing operations during the year ended December 31, 2022 totaled $163.2 million, which was primarily attributable to net cash paid for asset or business acquisitions of $22.2 million (see Note 4 in the consolidated financial statements), and capital expenditures of $148.2 million, including cash spent for our ongoing enterprise resource planning system upgrade. Net cash used in investing activities from discontinued operations during the year ended December 31, 2022 totaled $0.8 million.

Financing Activities

Net cash used in financing activities during the year ended December 31, 2023 totaled $66.0 million. This activity was primarily due to $1,055.9 million in debt repayments, $23.4 million in deferred financing fees related to the issuance of the 2028 Refinance Term Loans, $17.9 million of dividends paid, and $10.5 million of net repayments of short-term borrowings. This activity was partially offset by $1,044.9 million in proceeds from the issuance of the 2028 Refinance Term Loans.

Net cash used in financing activities during the year ended December 31, 2022 totaled $233.7 million. This activity was primarily due to $151.9 million of payments related to the repurchase of ordinary shares, $47.5 million of dividend payments, and $17.5 million of net repayments of short-term borrowings. In addition, there was $16.6 million of repurchases and repayments long-term debt during the period, primarily related to our 2024 Term Loan B and 2028 Term Loan B obligations.

​

Free Cash Flow

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

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

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[[/GREPCENT_TABLE]]

Refer to the discussion above for significant impacts to cash provided by operating activities for the years ended December 31, 2023 and 2022. Refer to the Company’s Form 10-K filed on February 27, 2023 for discussion related to 2021.

​

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Contractual Obligations and Commercial Commitments

The Company’s primary contractual obligations and commercial commitments consist of the payments for principal and interest on our outstanding long-term debt, raw material purchases, funding requirements under our pension and other postretirement benefits, lease commitments, and obligations under our SAR SSAs.

The Company has both fixed and variable-rate long-term debt arrangements, which have varying principal and interest payment requirements over their contractual terms. Refer to the table and section above as well as to Note 17 in the consolidated financial statements for more information on our debt arrangements. Additionally, refer to Item 7A—Quantitative and Qualitative Disclosures about Market Risk for discussion of our interest rate and foreign currency risks related to our debt and debt-related hedging arrangements.

The Company has certain raw material purchase contracts where we are required to purchase certain minimum volumes at the then prevailing market prices. As of December 31, 2023, the Company had $1,213.6 million of raw material purchase obligations, of which $531.6 million is due within the next twelve months. These commitments have remaining terms ranging from one to four years. Refer to Note 20 in the consolidated financial statements for more information on raw material purchase commitments. Additionally, refer to Item 1 – Business – Sources and Availability of Raw Materials for further description of the sources of our key raw materials.

The Company has various pension and other postretirement plans. The Company is required to make minimum contributions to certain of our funded pension plans and is also obligated to make benefit payments to employees for the unfunded pension plans and other postretirement plans. As of December 31, 2023, the Company’s estimated future benefit payments through 2033, reflecting expected future service, as appropriate, was $140.5 million, of which $9.9 million is due within the next twelve months. Refer to the section of our Critical Accounting Policies and Estimates entitled “Pension Plans and Postretirement Benefits” for more information on the factors impacting our pension and postretirement costs. Additionally, refer to Note 22 in the consolidated financial statements for more details on these employee benefit plans and the future payments expected to be made for them through 2033.

The Company has operating and finance leases for certain of its plant and warehouse sites, office spaces, rail cars, storage facilities, and equipment. The Company’s leases have remaining terms of one month through twelve years. As of December 31, 2023, the Company’s estimated minimum commitments related to our finance and operating lease obligations was $84.0 million, of which $19.3 million is due within the next twelve months. Refer to Note 21 in the consolidated financial statements for further information on our lease portfolio and future lease obligations.

As described in Item 1— Business— Our Relationship with Dow, the Company is party to SAR SSAs with Dow, which are agreements under which Dow provides certain site services to the Company at Dow-owned locations. Based on our current year known costs and assuming that we continue with the SAR SSAs with similar annualized costs going forward, we estimate our contractual obligations under these agreements to be approximately $89.8 million annually for 2024 through 2028, and a total of $896.7 million thereafter through June 2040. Refer to the aforementioned section of Item 1 for more information regarding these agreements, including details regarding the rights of the Company and Dow to terminate said agreements.

Derivative Instruments

The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates, interest rate risk, and commodity price risk. To manage this risk, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts, interest rate swap agreements, and commodity swap agreements. A summary of these derivative financial instrument programs is described below; however, refer to Note 18 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

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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.

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.

Commodity Cash Flow Hedges & Commodity Economic Hedges

The Company purchases certain commodities, primarily natural gas, to operate facilities and generate heat and steam for various manufacturing processes, which are subject to price volatility. In order to manage the risk of price fluctuations associated with these commodity purchases, as deemed appropriate, the Company may enter into commodity swaps agreements or option contracts. Under these derivative contracts, the Company is effectively converting a portion of our natural gas costs into a fixed rate obligation to mitigate the risk of price fluctuations associated with the underlying commodity purchases. Certain of these commodity swaps are designated as cash flow hedges (“commodity cash flow hedges”), and the remaining commodity swaps are not designated for hedge accounting treatment (“commodity economic hedges”).

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. The Company does not have any outstanding interest rate swap agreements as of December 31, 2023.

Net Investment Hedge

The Company had 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 spot method through the original CCS agreement entered into on September 1, 2017 (“2017 CCS”). 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 accumulated other comprehensive income or loss (“AOCI”), and will remain in AOCI until either the sale or substantially complete liquidation of the subsidiary. Additionally, 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 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. On April 7, 2022, the Company settled its existing 2020 CCS, which was set to mature in November 2022. Upon settlement of the 2020 CCS, the Company realized net cash proceeds of $1.9 million.

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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.

Valuation of Assets and Impairment Considerations

Valuation of Assets

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 and cost approaches (or some combination thereof). Significant inputs include estimated future cash flows, discount rates, royalty rates, growth rates, sales projections, customer retention rates, and terminal values, all of which require significant management judgment. Definite-lived intangible assets, which are primarily comprised of customer relationships, developed technology, tradenames, 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.

During the year ended December 31, 2022, the Company completed the Heathland Acquisition, which closed on January 3, 2022. Refer to Note 4 in the consolidated financial statements for further information on this transaction.

Impairment Considerations

As of December 31, 2023, net property, plant and equipment, net identifiable finite-lived intangible assets, and goodwill totaled $643.7 million, $693.9 million, and $63.8 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

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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.

In connection with 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, and other management considerations, 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. The Company’s assessments of these long-lived asset groups for impairment 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 on the Company’s assessments, for the year ended December 31, 2023, we recorded impairment charges on the Boehlen styrene monomer assets of $0.5 million, which include charges recorded subsequent to March 2020 related to capital expenditures at the facility that we determined to be impaired. The amounts are included within “Impairment and other charges” in the consolidated statements of operations and are all allocated to the Feedstocks segment. Refer to Note 8 for more information.

Through December 31, 2023, 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. The Company had no assets classified as held-for-sale as of December 31, 2023.

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 the carrying value.

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. When supportable, the Company employs the qualitative assessment of goodwill impairment prescribed by Accounting Standards Codification 350. Otherwise, the estimated fair value of a reporting unit is primarily determined using an income approach (under the discounted cash flow method). Key assumptions and estimates used in the goodwill impairment testing include projections of revenues and EBITDA, the estimated weighted average cost of capital (“WACC”), and a projected long-term growth rate, all of which are based on data available at the time of the testing. The WACC is calculated incorporating weighted average returns on debt and equity from similar market participants, and therefore, changes in the market, which are beyond the control of the Company, may have an impact on future calculations of estimated fair value.

As a result of the goodwill impairment testing performed in the fourth quarter of 2022, the PMMA business and Aristech Surfaces carrying value of their net assets exceeded fair value, resulting in an impairment. All other reporting units had fair values that exceeded the carrying value of their net assets, indicating that no impairment of goodwill is warranted. These reporting units, which are included in the Engineered Materials operating segment, were acquired in 2021 as described in Note 4 in the consolidated financial statements. The impairment charges were attributed to the continuation of the challenging macroeconomic environment experienced in 2022, including significantly lower demand for building & construction and wellness applications, which led to lower operating results including slower growth projections, and a prolonged drop in market capitalization, as well as an increase in the WACC. The Company reduced the carrying value of the PMMA business and Aristech Surfaces reporting units through the recognition of a $226.6 million and $70.5 million non-cash goodwill impairment loss, respectively. These losses are recorded within “Impairment and other charges” on the consolidated statement of operations and are allocated to the Engineered Materials segment.

As of January 1, 2023, the Company realigned the Engineered Materials segment reporting structure. The PMMA business and Aristech Surfaces reporting units were combined with the Legacy Engineered Materials reporting unit to

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form the Engineered Materials reporting unit. Impairment assessments on each reporting unit were performed immediately before and after the change in organizational structure where it was concluded there was no goodwill impairment.

During the second quarter 2023, the Company determined that a triggering event had occurred for the Engineered Materials reporting unit indicating it was more likely than not that the fair value of this goodwill was less than the associated carrying value. This determination resulted from the persistence of the challenging operating conditions, customer destocking and underlying demand weakness that contributed to a revised outlook reflecting a further reduction in near-term forecasted operating results, growth projections, as well as an additional decrease in market capitalization. Therefore, the Company performed a goodwill impairment assessment as of June 1, 2023 and recorded a goodwill impairment charge of $349.0 million, reflected within “Impairment and other charges” on the consolidated statement of operations. The Company did not identify any impairment indicators in any of the other reporting units for the year ended December 31, 2023.

As of December 31, 2023, the remaining $63.8 million in total goodwill is allocated to the reportable segments as follows: $44.0 million to Plastics Solutions, $15.4 million to Latex Binders, and $4.4 million to Polystyrene, with no amounts allocated to the Engineered Materials, 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 Market Risk 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 Ireland. All undistributed earnings of foreign subsidiaries and affiliates are expected to be repatriated as of December 31, 2023. 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, 2023, we had net deferred tax assets of $0.8 million, after valuation allowances of $278.3 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.

For the year ended December 31, 2023, management assessed whether there were any changes in facts and circumstances that would result in any changes to the valuation allowance conclusions reached in the prior years. Management believes there is enough negative evidence to determine that it is no longer more likely than not that the net deferred tax assets will be realized in the Company’s Switzerland subsidiary as of December 31, 2023. Among this evidence is the cumulative loss, magnitude of business losses in 2022 and 2023, current adverse economic conditions, restructuring initiatives and higher financial costs. These negative factors combined with no other tax planning strategies identified that could allow the Company to utilize its deferred tax asset, resulted in management’s decision to establish a full valuation allowance against the net deferred tax asset position in December 2023. Management also believes there is enough negative evidence to determine it is no longer more likely than not that the net deferred tax assets in the Company’s US subsidiaries will be realized as of December 31, 2023. Among this evidence is the losses incurred in recent years, projected cumulative loss into 2024, adverse economic conditions, and higher financial costs. These negative factors combined with no other tax planning identified that could allow the Company to utilize its deferred tax asset, resulted in Management’s decision to establish a full valuation allowance against the net deferred tax asset position in December 2023.

As of December 31, 2023, we had deferred tax assets for tax loss carryforward of approximately $146.6 million, $8.9 million of which is subject to expiration in the years between 2024 and 2028. We continue to evaluate our historical

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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 Ireland, 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 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.

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 plans provide 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 discount rates 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.

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. 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 (income), net” in the consolidated statements of operations.

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We determine the expected long-term rate of return on assets by performing an 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. Future actual net periodic benefit cost will depend on the performance of the underlying assets and changes in future discount rates, among other factors.

The weighted average assumptions used to determine pension plan obligations and net periodic benefit costs are provided below:

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Holding all other factors constant, a 0.25% increase (decrease) in the discount rate used to determine net periodic benefit cost would decrease (increase) 2024 pension expense for our non-U.S. plans by approximately $1.0 million and $(1.1) 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 for our non-U.S. plans would decrease (increase) 2024 pension expense by approximately $0.1 million and $(0.1) million, respectively. Holding all other factors constant, a 0.25% increase or decrease in the discount rate, or the long-term rate of return on assets, used to determine net periodic benefit cost for our U.S. plans would change our 2024 pension expense by less than $0.1 million.

Plan assets totaled $106.5 million and $99.5 million as of December 31, 2023 and 2022. As noted above, plan assets are invested primarily in insurance contracts that provide for guaranteed returns. Investments in the pension plan insurance contracts 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. The Company presents certain pension plan assets valued at net asset value per share as a practical expedient outside of the fair value hierarchy.

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.