Trinseo S.A.

In February 2016, the FASB issued guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize on the consolidated balance sheets lease liabilities and corresponding right-of-use (“ROU”) assets for all leases with terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using a modified retrospective transition, applying the new standard to all leases existing at the date of initial application. The Company adopted the standard effective January 1, 2019, and as a result, the Company recorded ROU assets and lease liabilities of $73.0 million and $72.4 million, respectively, on the condensed consolidated balance sheet as of January 1, 2019. The Company’s adoption of this standard did not result in a cumulative effect adjustment being recorded to opening retained earnings as of January 1, 2019 and did not have a material impact on the Company’s condensed consolidated statements of operations or cash flows. Refer to Note 18 for new disclosure requirements in effect as a result of this adoption.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date to determine the appropriate discount rate by multiple asset classes, pursuant to the aforementioned portfolio approach methodology. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight‐line basis over the expected lease term.

On May 2, 2019, the Company announced that it has signed a definitive agreement with Dow to acquire its latex binders production assets in Rheinmünster, Germany, which will provide Trinseo with manufacturing assets capable of producing applications for the adhesives and construction markets. The transaction is expected to close in the second half of 2019, following European Union regulatory approval and customary closing conditions. This transaction will not require any upfront cash outlay from Trinseo; however, Trinseo expects to assume approximately €40.0 million in pension liabilities for transferred employees in exchange for the assets described above.

As discussed above, generally weaker economic conditions, including continued weak automotive and tire markets and the weak economic environment in China, impacted the first quarter 2019 results versus the prior year. We have seen signs of improved demand across some of our markets and the Company expects a modest improvement in second quarter profitability in comparison to the first quarter. Results for full year 2019 will be influenced by the timing and magnitude of a market recovery. Amid these market conditions, the Company has initiated a number of working capital and cost initiatives to improve our operating results, and remains focused on cash generation and cost management.

The Company’s cash flow generation in recent years has been strong, with positive cash flows expected to continue for full year 2019. During the three months ended March 31, 2019, under existing authority from our board of directors, the Company purchased approximately 0.7 million ordinary shares from our shareholders through open market transactions for an aggregate purchase price of $37.4 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, while also providing the Company the ability to return capital to our shareholders via dividend payments and share repurchases. Nevertheless, our ability to generate future cash and to pay our indebtedness and fund other liquidation needs is subject to certain risks described under Part I, Item 1A-“Risk Factors” of our Annual Report. As of March 31, 2019, we were in compliance with all the covenants and default provisions under our debt agreements. Refer to our Annual Report for further information on the details of the covenant requirements.