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As filed with the Securities and Exchange Commission on June 27, 2011

No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Trinseo S.A.

(Exact name of registrant as specified in its charter)

 

 

 

Luxembourg   2821   N/A
(State or other jurisdiction of incorporation
or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer Identification No.)

1000 Chesterbrook Boulevard

Suite 300

Berwyn, PA 19312

(610) 240-3200

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Curtis S. Shaw

Executive Vice President & General Counsel

1000 Chesterbrook Boulevard

Suite 300

Berwyn, PA 19312

(610) 240-3200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Joshua N. Korff

Christopher A. Kitchen

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

 

Barbara L. Becker

Andrew L. Fabens

Gibson, Dunn & Crutcher LLP

200 Park Avenue

New York, New York 10166

(212) 351-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 
Title of Each Class of
Securities to be Registered
  Proposed Maximum Aggregate
Offering Price(1)(2)
  Amount of
Registration Fee(2)

Ordinary shares, par value $0.01 per ordinary share

  $400,000,000   $46,440
 
 
(1) Includes ordinary shares that the underwriters may purchase pursuant to the option to purchase additional shares.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell nor is it soliciting an offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

 

Subject to Completion, Dated June 27, 2011

PROSPECTUS

 

 

 

 

LOGO

Trinseo S.A.

 

                                  Ordinary Shares

 

This is the initial public offering of ordinary shares of Trinseo S.A., a public limited liability company (société anonyme) existing under the laws of the Grand Duchy of Luxembourg. We are offering             ordinary shares to be sold in this offering, and the selling shareholder identified in this prospectus is offering an additional             ordinary shares. We will not receive any proceeds from the sale of the ordinary shares to be offered by the selling shareholder.

Prior to this offering, there has been no public market for our ordinary shares. It is currently estimated that the initial public offering price per ordinary share will be between $             and $            . We plan to file an application to list our ordinary shares on             under the symbol “TSE”.

Investing in our ordinary shares involves risks. See “Risk Factors” beginning on page 20 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

     Per Share        Total  

Public offering price

   $                      $                

Underwriting discounts and commissions

   $           $     

Proceeds, before expenses, to Trinseo

   $           $     

Proceeds, before expenses, to the selling shareholder

   $           $     

The underwriters have a 30-day option to purchase up to              additional ordinary shares from                      at the initial public offering price, less underwriting discounts and commissions to cover over-allotments, if any.

The underwriters expect to deliver the ordinary shares against payment in New York, New York on or about                     , 2011.

 

Deutsche Bank Securities   Goldman, Sachs & Co.   Citi   Barclays Capital
BofA Merrill Lynch   HSBC   Morgan Stanley   Jefferies

 

 

 

BMO Capital Markets   Mizuho Securities                    SMBC Nikko

 

The date of this prospectus is                     , 2011.


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-i-

MARKET AND INDUSTRY DATA

We obtained the market, industry and competitive position data throughout this prospectus from our own internal estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. We believe our internal company estimates and research are reliable and the definitions of our market and industry are appropriate. However, neither such research nor these definitions have been verified by any independent source. While we are not aware of any misstatements regarding our market, industry or competitive position data presented or relied on herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus. References in this prospectus to our “leading” market positions and similar disclosures are measured based upon production capacity, which our management believes to be the most reliable measure of our market position.

TRADEMARKS AND TRADE NAMES

This prospectus includes our trademarks such as TRINSEOTM, LOMAXTM, TYRILTM, PULSETM, EMERGETM, MAGNUM™, STYRONTM, STYRON A-TECHTM, FOUNDATIONSTM, CALIBRETM, SCONAPORTM and EVERESTTM, which are protected under applicable intellectual property laws and are the property of Trinseo S.A. or its subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.


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PROSPECTUS SUMMARY

The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus and the financial statements. Some of the statements in this prospectus constitute forward-looking statements. See “Forward-Looking Statements.”

Except where the context otherwise requires or where otherwise indicated, the terms “Trinseo,” “we,” “us,” “our,” “our Company” and “our business” refer to Trinseo S.A. together with its consolidated subsidiaries, taken as a combined entity.

Prior to our formation, our business was wholly owned by The Dow Chemical Company (“Dow”). On June 17, 2010, we were acquired by investment funds advised or managed by Bain Capital Partners, LLC (collectively, “Bain Capital”). We refer to our acquisition by Bain Capital as the “Acquisition.”

Aggregated 2010 financial information presents the combined results of operations of our predecessor, the Styron business, for the period from January 1, 2010 through June 16, 2010, together with our results of operations for the period from June 17, 2010 through December 31, 2010. Aggregated financial information is for illustrative and informational purposes only and may not be indicative of what our results of operations would have been had the Acquisition occurred on January 1, 2010.

Our Company

We are a leading global materials company engaged in the manufacture and marketing of specialty and customized emulsion polymers and plastics. We believe that we have the leading market position in many of the markets in which we compete and that we have developed these strong market positions due to our technological differentiation, diverse global manufacturing base, long-standing customer relationships, and advantaged cost positions. We compete in growing global market segments driven by long-term trends, including improving living standards in emerging markets and increasing environmental awareness leading to increased demand for higher fuel efficiency and lighter-weight materials. In addition, we believe our increasing revenue in developing high-growth regions such as China, Southeast Asia and Eastern Europe and improving industry dynamics further enhance our prospects. We expect these trends to drive greater demand for our products and stronger earnings growth going forward.

We develop customized products for global, diversified end markets including coated paper and packaging board, carpet and artificial turf backing, automotive applications including tires, food service packaging, appliances, consumer electronics and construction applications, among others. We have long-standing relationships with a diverse base of global customers, many of whom are leaders in their markets and rely on us for formulation, customization, and compounding expertise. Certain of our customized products typically represent a low portion of finished product production costs, but impart critical functionality contributing to substantial customer loyalty. We operate under four segments: SB Latex, Synthetic Rubber, Styrenics and Engineered Polymers. Our major products include styrene-butadiene latex (“SB latex”), styrene-acrylate latex (“SA latex”), solution styrene-butadiene rubber (“SSBR”), lithium polybutadiene rubber (“Li-PBR”), emulsion styrene-butadiene rubber (“ESBR”), nickel polybutadiene rubber (“Ni-PBR”), polystyrene, expandable polystyrene (“EPS”), acrylonitrile-butadiene-styrene (“ABS”), styrene-acrylonitrile (“SAN”), ignition resistant polystyrene, polycarbonate resins (“PC”), compounds and blends, and polypropylene compounds.

 

 

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For the year ended December 31, 2010, we generated $5.0 billion in aggregated net sales and $56.7 million in aggregated net income. The following charts show our net sales and EBITDA by product as well as net sales by geography during the year ended December 31, 2010:

LOGO

We are a global business with a diverse revenue mix by geography and significant operations around the world. Our operations in Europe and the Middle East, Asia Pacific (which includes Asia as well as Australia and New Zealand), North America, and Latin America (including Mexico), generated approximately 56%, 24%, 15%, and 5%, respectively, of our 2010 aggregated net sales. Our production facilities include 36 manufacturing plants (which include a total of 86 production units) at 29 sites in 16 countries, inclusive of joint ventures and contract manufacturers, allowing us to serve our customers on a global basis. Our manufacturing locations include sites in high-growth emerging markets such as China, Indonesia and Brazil where we have increasing revenue growth. Additionally, we operate a number of R&D facilities globally, including mini plants, development centers and pilot coaters, and we believe these to be critical to our global presence and innovation capabilities.

The table below illustrates each geographical region’s net sales to external customers for the years ended December 31, 2010, 2009 and 2008, respectively.

 

     North
America
     Europe/
Middle East
     Asia
Pacific
     Latin
America
 

2010 net sales (in millions)1

   $ 765       $ 2,786       $ 1,184       $ 232   

2009 net sales (in millions)

   $ 460       $ 1,882       $ 858       $ 250   

2008 net sales (in millions)

   $ 771       $ 2,972       $ 1,148       $ 294   

 

1 

Full year 2010 net sales is shown on an aggregated basis.

Prior to our formation, our business was wholly owned by Dow. On June 17, 2010, we were acquired by investment funds advised or managed by Bain Capital Partners, LLC, with Dow investing $48.8 million for an approximately 7.5% interest in our parent company. We are a holding company controlled by Bain Capital and have a relatively short operating history as a stand-alone company. We and our joint ventures maintain a strategic relationship with Dow through shared infrastructure and integration on 17 shared manufacturing sites, which contributes to our production scale and allows for the more efficient use of our assets.

 

 

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Segment Overview

We operate four segments under two principal business units. Our Emulsion Polymers business unit includes an SB Latex segment and a Synthetic Rubber segment. Our Plastics business unit includes a Styrenics segment and an Engineered Polymers segment. The table below illustrates each segment’s aggregated net sales to external customers for the year ended December 31, 2010, as well as each segment’s major products and end-use markets.

 

   

Emulsion Polymers

 

Plastics

   

SB Latex

 

Synthetic Rubber

 

Styrenics

 

Engineered

Polymers

Net sales (in millions)            
Three months ended:        

March 31, 2011

  $     431   $   183   $    613   $    311

March 31, 2010

  $     327   $   126   $    402   $    217

Net sales (in millions)

Year ended:

     

December 31, 20101

  $ 1,499   $   520   $ 1,906   $ 1,042

December 31,
2009

  $1,027   $   336   $1,353   $    734

December 31,
2008

  $1,711   $   427   $2,052   $    992

Major products

 

• Styrene-butadiene latex (“SB latex”)

 

• Solution styrene-butadiene rubber (“SSBR”)

 

• Polystyrene

 

• Polycarbonate resins (“PC”)

 

• Styrene-acrylate latex (“SA latex”)

 

• Lithium polybutadiene rubber (“Li-PBR”)

 

• Expandable polystyrene (“EPS”)

 

• Compounds and blends

   

• Emulsion styrene-butadiene rubber (“ESBR”)

 

• Acrylonitrile-butadiene-styrene (“ABS”)

 

• Polypropylene compounds

   

• Nickel polybutadiene rubber (“Ni-PBR”)

 

• Styrene-acrylonitrile (“SAN”)

 

• Ignition resistant polystyrene

 

Major end-use
market

 

• Coated paper and packaging board

 

• Carpet and artificial turf backings

 

• Tape saturation

 

• Cement modification

 

• Building products

 

• Performance tires

 

• Standard tires

 

• Polymer modification

 

• Technical rubber goods

 

• Appliances

 

• Construction/sheet

 

• Packaging

 

• Automotive

 

• Consumer electronics

 

• Consumer goods

 

• Automotive

 

• Consumer electronics

 

• Construction/sheet

 

• Packaging

 

• Others (including consumer goods, appliances and electrical and lighting)

 

1 

Full year 2010 net sales is shown on an aggregated basis.

 

 

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SB Latex Segment

We are a global leader in SB latex, holding a strong market position across the geographies and applications in which we participate, including leading market positions in North America, Europe and Asia. We produce SB latex primarily for coated paper used in advertising and magazines, packaging board coatings, carpet and artificial turf backings, as well as a number of performance latex applications.

We believe our development and formulation capabilities contribute to our leading position. Further, we believe our growth prospects in SB latex are enhanced by our leading position in China, which we believe will contribute a significant portion of global growth in the paper and board market segment over the next decade. In 2010, we began delivery to one of the largest paper mills in China, and in 2011, we believe we have been active in substantially all significant new paper mill startups in China. We recently announced a major expansion of our Zhangjiagang, China latex capacity that we expect to come on-line in 2012. We believe our growth prospects are also supported by an attractive industry landscape characterized by the recent trends of industry capacity reduction and consolidation, such as the exit of The Lubrizol Corporation from the SB latex market and the business combinations of the BASF Group and Ciba Holding AG, Omnova Solutions and Eliokem, and Yule Catto & Co plc and PolymerLatex GmbH.

Synthetic Rubber Segment

We are a significant producer of styrene-butadiene and polybutadiene-based rubber products and we have the leading European merchant market position in SSBR. We have very broad synthetic rubber technology and product portfolios in the industry, focusing on specialty products, such as SSBR and Li-PBR, while also producing core products, such as ESBR and Ni-PBR. Our Synthetic Rubber products are extensively used in tires, with additional applications including polymer modification and technical rubber goods. We have strong relationships with most of the top global tire manufacturers and believe we have remained a supplier of choice as a result of our broad rubber portfolio and product customization capabilities.

Our most advanced rubber technology, SSBR, is a critical material for tires with low rolling resistance and high wet-grip, which leads to increased fuel efficiency and traction (“high performance tires”). We believe our growth prospects are enhanced by increasing demand for these high performance tires, resulting from European Union regulatory reforms that are aimed at improving fuel efficiency and reducing CO2 emissions. Our management estimates that through 2014, demand for SSBR, will grow substantially faster than global GDP. Our expectation is that global increases in fuel efficiency standards will drive additional demand growth for our SSBR technology. We recently announced a 50 metric kilotons (“kMT”) capacity expansion at our Schkopau, Germany facility that we expect to come on-line in 2012.

Styrenics Segment

Our Styrenics segment includes polystyrene, ABS, SAN, and EPS products, as well as our internal production and sourcing of styrene monomer, a raw material common in SB latex, synthetic rubber and styrenics products. We are a leading producer of polystyrene and mass ABS (“mABS”). We focus our marketing efforts on applications such as appliances and consumer electronics. Within these applications, we have worked collaboratively with customers to develop more advanced grades of plastics such as our high impact polystyrene (“HIPS”) and mABS products. These products offer superior properties, such as rigidity, insulation and

 

 

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colorability, and, in some cases, an improved environmental footprint versus general purpose polystyrene or emulsion ABS. The Styrenics segment also serves the packaging and construction end-use markets.

We believe our growth prospects in Styrenics are enhanced by recent trends of industry capacity reduction and consolidation, such as the formation of the announced Styrolution joint venture combining certain INEOS and BASF assets and the prior acquisition of INEOSNova by INEOS. We believe our growth prospects are further enhanced by our established manufacturing footprint in high economic growth regions such as China and Latin America and our focus on attractive end markets where improving living standards drive demand for appliances and consumer electronics.

Engineered Polymers Segment

We are a leading producer of engineered polymers. Our products are predominantly used in automotive, consumer electronics, and construction and sheet end markets, where we believe there will be a strong market recovery. We are focused on differentiated products, which we produce in our compounds and blends manufacturing facilities located across Europe, Asia, North America and Brazil. We believe that the strategic locations of these facilities combined with close customer collaboration offers us a strategic advantage in serving our customers. We believe approximately 45% of our PC products and approximately 70% of our compounds and blends products are differentiated, based on their physical properties, performance, or aesthetic advantages. Our history of innovation has contributed to long-standing relationships with customers who are recognized leaders in their respective end markets. We have established a strong market presence in the global automotive and electronics sector, targeting both component suppliers and final product manufacturers. Our Engineered Polymers segment also compounds and blends our PC and mABS plastics into differentiated products within these sectors.

Our Competitive Strengths

We believe we have a number of competitive strengths that differentiate us from our competitors, including:

Leading Market Positions in Attractive Segments and End Markets

We believe that we have leading positions across the markets in which we compete, including SB latex, synthetic rubber, and mABS products, and top three positions in polystyrene and our Engineered Polymers products. We attribute our strong market positions to our technological differentiation, diverse global manufacturing base, long-standing customer relationships, and advantaged cost positions.

Our products serve applications that are affected by enduring trends such as improving living standards and increased environmental awareness. For example, our SB Latex products impart high gloss properties to coated paper that is increasingly used in advertising and magazines in emerging markets; our Synthetic Rubber products help to improve fuel efficiency; and our Styrenics and Engineered Polymer products help reduce the weight of vehicles by substituting lighter plastic materials for heavier ones, resulting in improved fuel efficiency.

 

 

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Technological Advantage and Product Innovation

Most of our materials are critical inputs that significantly impact the functionality, cost to produce and quality of our customers’ products. Many of our products are differentiated by their performance, reliability, customization and value, which are critical factors in our customers’ selection and retention of materials suppliers. For example, our SB Latex products are critically important to coated paper applications in paper mills that typically have high fixed costs. We believe our technology offers customers a reduced risk of expensive shut-downs, as well as the potential to reduce ongoing total materials costs when SB Latex replaces higher cost paper pulp. In addition, our advanced SSBR technology reduces rolling resistance resulting in better fuel efficiency and lower CO2 emissions while at the same time improving the tire’s wet-grip, a measure of braking effectiveness and traction. We believe these are key performance attributes sought by the final customer and also important in meeting European CO2 emissions legislation, which we expect to become a global standard. We have a strong track record of continued product innovation, consistently launching improved grades and new products as well as customizing materials for many of our customers. In 2010, we launched more than 24 new plastics products and a new SSBR grade, designated SLR4602, which has been very well received commercially.

Diverse Global Reach with Extensive Presence in Emerging Markets

Our production facilities include 36 manufacturing plants (which include a total of 86 production units) at 29 sites in 16 countries, inclusive of joint ventures and contract manufacturers. We believe our diverse locations provide us with a competitive advantage in meeting and anticipating the needs of our global and local customers in both well-established and growing markets. We have a strong and growing presence in Asia where we believe we will become the preferred supplier of custom formulated latex products for new paper mills. For example, in 2010, we began delivery to one of the largest paper mills in China, and in 2011, we believe we have been active in substantially all significant new paper mill startups in China.

Long-Standing, Collaborative Customer Relationships

We have long-standing relationships with a diverse base of customers, many of which are well known industry leaders in their respective markets. We have had relationships with many of our customers for 20 years or more, helping them to develop and commercialize multiple generations of their products. No single customer accounted for more than 6% of our aggregated net sales in 2010. We believe we have developed strong relationships through our highly collaborative process, whereby we work with our customers to develop products that meet our customers’ critical needs. As part of this process, we test our products at customer sites and work with them to optimize and customize our product offerings. As a result of our close collaboration, we have historically achieved a high success rate of retaining customers.

Advantaged Cost Positions and Attractive Feedstock Sourcing

We believe that our global scale, highly efficient operations and site integration with Dow have provided us with an advantaged cost position within our industry. We believe our plants compare favorably across key operational benchmarks, including quality tracking, maintenance costs, and employee productivity. We have an attractive mix of long-term raw material contracts with suppliers and the flexibility to procure raw materials on the open market.

 

 

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Experienced Management Team

Our executive leadership team has an average industry experience of over 25 years, including leadership positions within our business units, and significant public chemical company leadership experience.

Our Growth Strategy

We intend to enhance our position as a leading global materials company engaged in the manufacture and marketing of specialty and customized emulsion polymers and plastics. The key elements of our growth strategy include:

Continue Product Innovation and Technological Differentiation

We intend to continue to address our customers’ critical materials needs by utilizing our technological expertise and leading development capabilities, to create specialty grades, new products and customized formulations. We believe our technological differentiation positions us to participate in the most attractive, highest growth areas of the markets in which we compete, such as advanced SSBR within Synthetic Rubber, a segment of the market that is expected to grow substantially faster than global GDP through 2014. Our global scale in SB latex allows us to cost-effectively support two pilot coaters where we collaborate with our customers in the development of next generation formulations and leverage regional innovations across our global product platform. We also expect to continue to shift our product mix towards more differentiated products, which offer higher-margin potential, improving the profitability of our business across our portfolio.

Strategic Investments in the Most Attractive Segments of the Market

We plan to make strategic capital investments in what we believe are the most attractive market segments to extend our leadership in these segments, and to meet growing demand. In December, 2010 we announced the addition of a new SSBR production line, expected to come on-line in 2012, which will expand our facility in Schkopau, Germany, as well as an expansion of our latex production capacity in Zhangjiagang, China, also expected to come on-line in 2012.

Expand and Deepen Our Presence in Emerging Markets

We believe emerging markets such as China, Southeast Asia, Eastern Europe and Latin America represent significant, rapidly growing opportunities. Improving living standards in these emerging markets are creating strong demand for our end products, including coated paper and packaging board, carpet and artificial turf backing, automotive applications including tires, packaging, appliances, consumer electronics and construction applications. We expect to capitalize on growing demand for our products in emerging markets and expand our share of local demand by deepening our customer base and local capabilities in these geographies.

Pursue Strategic Acquisitions to Extend Leadership

We intend to opportunistically pursue acquisitions and joint ventures that have attractive risk-adjusted returns to extend our leadership into what we believe are the most attractive market segments and in emerging economies. We believe that a long-term trend toward consolidation in our markets will continue, which given our scale and geographic reach, will create opportunities for our business.

 

 

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Capitalize on New Independence

We intend to capitalize on opportunities presented by our new status as an independent, stand-alone entity. Our executive leadership team is incentivized through performance-based compensation to focus on operational improvements and to enhance our strategic positioning relative to our competitors. We believe we can optimize the business as a result of the recent carve-out from Dow and have launched a corporate-wide initiative to reduce our costs and increase our competitiveness. We also intend to capitalize on improved strategic flexibility to make changes to re-position the businesses, including moving our product mix towards higher-margin, differentiated products and focusing on value-based pricing.

Recent Developments

On February 2, 2011, we amended our credit agreement with Deutsche Bank AG New York Branch, in its capacity as administrative agent for the lenders (as amended, the “Senior Secured Credit Facility”). The Senior Secured Credit Facility provides for term loans in the aggregate principal amount of $1.6 billion and a revolving facility in the aggregate principal amount of $240.0 million (the “Revolving Facility”). In connection with the amendment, we borrowed an aggregate principal amount of $1.4 billion under the term loan provisions of the Senior Secured Credit Facility (the “Term Loan”), the proceeds of which were used to repay the existing term loan and related accrued interest, repay a $75.0 million seller note that was issued by Dow (the “Seller Note”) at the time of the Acquisition and related accrued interest, pay debt issuance costs, make a distribution to the stockholders of our parent and sole shareholder, Bain Capital Everest Manager Holding SCA (“Parent”), and provide funds for general corporate purposes. We refer to these transactions as the “Refinancing Transactions.”

Our History and Structure

Prior to our formation, our business was wholly owned by Dow. On June 17, 2010, we were acquired by investment funds advised or managed by Bain Capital, with Dow investing $48.8 million for an approximately 7.5% interest in Parent.

Following completion of this offering, Parent will own approximately     % of the Company’s outstanding ordinary shares, or     % if the underwriters’ option to purchase additional shares is fully exercised. As a result, because Bain Capital will own approximately     % of the outstanding ordinary shares of Parent, Bain Capital will be able to have a significant influence on fundamental and significant corporate matters and transactions. See “Risk Factors—Risks Related to Our Ordinary Shares and This Offering—Control by Bain Capital could adversely affect our other shareholders.”

On April 13, 2011, we publicly announced plans to change our company name from Styron to Trinseo. Most of our subsidiaries currently use the company name Styron and will be renamed Trinseo in the coming months.

 

 

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The following chart summarizes our corporate ownership structure prior to the consummation of this offering.

LOGO

Risks Associated with Our Company

Investing in our ordinary shares involves a significant degree of risk. See “Risk Factors” beginning on page 20 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares. These risks include, among others:

 

   

our operating results and financial condition may be adversely affected by global economic conditions;

 

   

increases in raw material prices and disruptions in the availability of raw materials may adversely affect our financial condition and results of operations;

 

   

our substantial indebtedness could adversely affect our financial condition and our ability to operate our business;

 

   

material weaknesses in our internal controls over financial reporting;

 

   

changes in laws and regulations applicable to our business; and

 

   

the significant operating and other services and certain raw materials provided to us under agreements with Dow.

 

 

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Corporate Information

Our global operating center is located at 1000 Chesterbrook Boulevard, Suite 300, Berwyn, Pennsylvania 19312, and our telephone number at this address is (610) 240-3200. Our website address is www.trinseo.com. The information on our website is not, and shall not be deemed to be, a part of this prospectus.

 

 

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THE OFFERING

Ordinary shares offered:

 

By us

             shares

 

By the selling shareholder

             shares

 

Total

             shares

 

Option to purchase additional shares

             and              have granted the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of              and              additional shares, respectively.

 

Ordinary shares to be outstanding after this offering

             shares (or              if the underwriters exercise their option to purchase additional shares in full)

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $             million, assuming the ordinary shares are offered at $            per ordinary share, the midpoint of the price range set forth on the cover of this prospectus.

 

  We will not receive any proceeds from the sale of ordinary shares by the selling shareholder.

 

  We intend to use the net proceeds from the sale of ordinary shares by us in this offering for repayment of approximately $             of indebtedness outstanding under our Term Loan described in “Description of Certain Indebtedness” and to pay fees and expenses incurred in connection with this offering, including payments to affiliates of Bain Capital. We will use any remaining net proceeds from this offering for general corporate purposes. See “Use of Proceeds.”

 

Dividend policy

We currently expect to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and therefore we do not currently anticipate paying any cash dividends in the foreseeable future. Our ability to pay dividends on our ordinary shares is limited by our existing credit agreement, and may be further restricted by the terms of any of our future debt or preferred securities. See “Dividend Policy.”

 

Lock-ups

We, our directors, executive officers, all of our existing shareholders, option holders and Parent, have agreed with

 

 

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the underwriters, subject to certain exceptions, not to sell, transfer or dispose of any of our shares or similar securities for 180 days after the date of this prospectus. See “Underwriting.”

 

             symbol

TSE

 

Risk Factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.

The number of shares to be issued and outstanding after this offering is based on              shares issued and outstanding as of             , 2011 and:

 

   

includes              shares of restricted shares held by our management; and

 

   

excludes              shares of ordinary shares reserved for future issuance under our share-based compensation plans.

Except as otherwise indicated, all information in this prospectus:

 

   

assumes an initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover page of this prospectus; and

 

   

assumes no exercise of the underwriters’ option to purchase additional shares.

 

 

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Summary Combined and Consolidated Historical and Pro Forma Financial Information

As a result of the Acquisition, we applied acquisition accounting whereby the purchase price paid was allocated to the acquired assets and liabilities at fair value. The financial reporting periods presented are as follows:

 

   

The three month period ended March 31, 2011 reflects consolidated results of operations of Trinseo, which includes the effects of acquisition accounting and the Refinancing Transactions. The pro forma results of operations for the three month period ended March 31, 2011 are adjusted to reflect the pro forma effects of certain transactions as described in “Unaudited pro forma condensed combined and consolidated financial information”.

 

   

The year ended December 31, 2010 reflects the combined pro forma results of operations of the Styron business for the period from January 1, 2010 through June 16, 2010 and Trinseo from June 17, 2010 through December 31, 2010, as adjusted for the pro forma effects of certain transactions as described in “Unaudited Pro Forma Condensed Combined and Consolidated Financial Information.”

 

   

The period from June 17, 2010 through December 31, 2010 (“Successor” period) reflects the consolidated results of operations of Trinseo, which includes the effects of acquisition accounting.

 

   

The three month period ended March 31, 2010 and the period from January 1, 2010 through June 16, 2010 and the years ended December 31, 2009 and 2008 (“Predecessor” periods) reflect the combined results of operations of the Styron business.

The following table sets forth summary combined and consolidated historical and pro forma financial data and other information of Trinseo S.A. The historical results of operations and cash flow data for the three month period ended March 31, 2011 and the historical balance sheet data as of March 31, 2011 presented below were derived from our Successor unaudited financial statements and the related notes thereto included elsewhere in this prospectus. The historical results of operations data and cash flow data for the period from June 17, 2010 through December 31, 2010 and the historical balance sheet data as of December 31, 2010 presented below were derived from our Successor audited financial statements and the related notes thereto included elsewhere in this prospectus. The historical financial data for the three month period ended March 31, 2010 have been derived from the Predecessor unaudited financial statements and the related notes thereto for the Styron business included elsewhere in this prospectus. The historical financial data for the period from January 1, 2010 through June 16, 2010 and the years ended December 31, 2009 and 2008 have been derived from the Predecessor audited financial statements and the related notes thereto for the Styron business included elsewhere in this prospectus.

Our historical financial data and that of the Styron business are not necessarily indicative of our future performance, nor does such data reflect what our financial position and results of operations would have been had we operated as an independent publicly traded company during the periods shown.

The unaudited pro forma financial data presented below were derived from our unaudited financial statements for the three month period ended March 31, 2011 and related notes thereto, and our audited financial statements for the period from June 17, 2010 through December 31, 2010 and the related notes thereto and the audited financial statements of the Styron business for the period from January 1 through June 16, 2010 and the related notes thereto, each of

 

 

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which are included elsewhere in this prospectus. Our unaudited pro forma statements of operations data are presented for the three month period ended March 31, 2011 and the year ended December 31, 2010 assuming:

 

   

the Acquisition was completed on January 1, 2010;

 

   

the Refinancing Transactions were completed on January 1, 2010; and

 

   

the supply and sales agreements between us and Dow entered into in connection with the Acquisition were in place as of January 1, 2010.

The unaudited pro forma balance sheet data are presented assuming the offering was completed on March 31, 2011.

The unaudited pro forma information set forth below is based upon available information and assumptions that we believe are reasonable. The unaudited pro forma information is for illustrative and informational purposes only and is not intended to represent or be indicative of what our financial condition or results of operations would have been had the above transactions occurred on the dates indicated. The unaudited pro forma information also should not be considered representative of our future financial condition or results of operations.

You should read the information contained in this table in conjunction with “Selected Historical Financial Information,” “Unaudited Pro Forma Condensed Combined and Consolidated Financial Information,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical audited financial statements and the related notes included elsewhere in this prospectus.

 

 

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    Predecessor           Successor           Pro Forma  
    Year Ended
December 31,
    January 1
through
June 16,
    Three Months
Ended

March 31,
          June 17
through
December 31,
    Three Months
Ended

March 31,
          Year Ended
December 31,
    Three Months
Ended

March 31,
 
        2008             2009         2010     2010           2010     2011           2010(1)     2011(1)  
(in millions, except
per share data)
                                                           
   

Statement of Operations Data:

                       

Net sales(2)

  $ 5,184.6      $ 3,450.1      $ 2,090.1      $ 1,071.6          $ 2,876.9      $ 1,537.6          $ 5,096.4      $ 1,537.6   

Cost of sales(2)

    4,928.4        3,148.8        1,895.9        949.4            2,661.7        1,367.8            4,684.1        1,357.3   
                                                                       

Gross profit

    256.2        301.3        194.2        122.2            215.2        169.8            412.3        180.3   

Selling, general and administrative expenses

    175.6        142.5        64.6        35.3            124.6        84.3            189.2        84.3   

Acquisition-related expenses

                                    56.5                            

Equity in earnings (losses) of unconsolidated affiliates

    (3.6     (5.6     4.5        (3.1         12.6        4.5            17.1        4.5   

Goodwill impairment losses(3)

    31.1                                                            

Restructuring(4)

    42.0                                                            
                                                                       

Operating income

    3.9        153.2        134.1        83.8            46.7        90.0            240.2        100.5   

Interest (income) expense, net(5)

                                    47.9        26.3            97.4        27.0   

Loss on extinguishment of long-term debt(6)

                                           (55.7                  

Other (income) expense

    0.3        (0.6     7.6        0.2            (2.3     5.4            5.3        5.4   
                                                                       

Income before taxes

    3.6        153.8        126.5        83.6            1.1        2.6            137.5        68.1   

Provision for income taxes(7)

    131.0        90.0        53.0        34.9            17.9        11.9            66.8        27.0   
                                                                       

Net income (loss)

  $ (127.4   $ 63.8      $ 73.5      $ 48.7            $(16.8   $ (9.3       $ 70.7      $ 41.1   
                                                                       

Net loss per share, basic and diluted

              $ (0.23   $ (0.15        
                                   

Weighted average shares outstanding, basic and diluted

                71.7        64.3           
                                   

Other Financial Data:

                       

Cash flows from:

                       

Operating activities

  $ 240.6      $ 157.6      $ (352.6   $ (189.9       $ 2.6      $ (14.2        

Investing activities

    (192.5     (25.0     (1.4     (1.4         (1,423.9     (6.2        

Financing activities

    (48.1     (132.6     417.5        191.3            1,567.4        3.5           

Depreciation and amortization

    84.9        99.1        48.4        26.3            61.1        28.5          $ 108.0      $ 18.0   

Capital expenditures(8)

    123.5        25.0        1.4        1.4            7.8        6.9            9.2        6.9   

EBITDA(9)

    88.5        252.9        174.9        109.9            110.1        57.4            342.9        113.1   

Adjusted EBITDA(10)

    287.4        233.0                  110.7            403.8        166.4   

 

 

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     Predecessor           Successor  
     December 31,                 March 31, 2011  
     2008     2009           December 31, 2010     Actual     Pro Forma  

Balance Sheet Data:

                

Cash and cash equivalents

   $      $          $ 148.1      $ 134.0     

Working capital(11)

     156.0        232.4            749.4        867.5     

Total assets

     1,746.0        1,691.3            2,676.4        2,855.6     

Debt

                       1,053.6        1,558.0     

Total liabilities

     774.6        716.5            1,949.9        2,531.1     

Total shareholder’s equity and net parent investment

     971.4        974.8            726.5        324.5     

 

(1) Adjusted to reflect the effects of the Acquisition, the Refinancing Transactions and the agreements with Dow entered into in connection with the Acquisition, each as described in “Unaudited Pro Forma Condensed Combined and Consolidated Statement of Operations.”
(2) Net sales and cost of sales increase or decrease based on fluctuations in raw material prices. Consistent with industry practice and as permitted under agreements with many of our customers, raw material price changes are passed through to customers by means of corresponding sales price changes. In 2009, raw material prices decreased approximately 23.8% from 2008, leading to a related decrease in selling prices. Prior to June 17, 2010, all inventory sales and purchases between the Predecessor and the Dow business units are recorded at Dow’s internal manufacturing cost. See “Unaudited Pro Forma Condensed Combined and Consolidated Statement of Operations.”
(3) Goodwill impairment charges of $31.1 million in 2008 relate to an impairment within our Engineered Polymers segment.
(4) Restructuring charges of $42.0 million in 2008 relate to impairment of long-lived assets and related severance charges.
(5) In the Predecessor periods, interest expense was not allocated to the Styron business, as no debt was allocated.
(6) Loss on extinguishment of debt relates to the February 2, 2011 amendment of our Senior Secured Credit Facility.
(7) In 2009 and 2008 the effective tax rate was negatively impacted due to increases in valuation allowances, and specifically for 2008, the impact of the statutory rate on U.S. earnings relative to losses in lower taxing jurisdictions.
(8) We had $123.5 million in capital expenditures for the year ended December 31, 2008 related primarily to investments in our SSBR production line in Schkopau, Germany.
(9) We present EBITDA in this prospectus to provide investors with a supplemental measure of our operating performance. EBITDA is a non-GAAP financial measure. We define EBITDA as net income (loss) before interest, taxes and depreciation and amortization. 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 because it removes the impact of our capital structure (such as interest expense), asset base (such as depreciation and amortization) and tax structure. The use of EBITDA has limitations and you should not consider this performance measure in isolation from or as an alternative to measures presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) such as net income (loss).

 

 

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(10) Consistent with our Senior Secured Credit Facility, we define Adjusted EBITDA as income (loss) from continuing operations before interest expense, net; income tax provision; depreciation and amortization expense; asset impairment charges; advisory fees paid to affiliates of Bain Capital; other non-cash charges and certain other charges that management does not believe are reflective of our core operating performance. We believe that the presentation of Adjusted EBITDA provides investors with a useful analytical indicator of our performance. In addition, certain covenants of our Senior Secured Credit Facility incorporate Adjusted EBITDA, including a requirement that we maintain a ratio of consolidated total net debt (as defined) to Adjusted EBITDA of 4.5 to 1, which decreases by 0.25 annually until March 31, 2015, after which the required ratio will be 3.5 to 1. If we fail to comply with these covenants an event of default under the Senior Secured Credit Facility would occur, which, absent a waiver or an amendment from the lenders could result in the termination of commitments and acceleration of all outstanding borrowings under the Senior Secured Credit Facility. See “Description of Certain Indebtedness—Senior Secured Credit Facility.” Adjusted EBITDA is not intended to represent cash flow from operations as defined by U.S. GAAP and should not be used as an alternative to net income as an indicator of operating performance or to cash flow as a measure of liquidity. Because not all companies use identical calculations, these presentations of Adjusted EBITDA may not be comparable to other similarly-titled measures used by other companies. Adjusted EBITDA is calculated as follows:

 

    Predecessor           Successor           Pro Forma  
    Year Ended
December 31,
    January 1
through
June 16,
    Three months
Ended
March 31,
          June 17
through
December 31,
    Three months
Ended
March 31,
          Year Ended
December 31,
    Three month
period Ended
March 31,
 
        2008             2009         2010     2010           2010     2011           2010     2011  
(in millions)                                                            
   

Net income (loss)

  $ (127.4   $ 63.8      $ 73.5      $ 48.7        $ (16.8   $ (9.3     $ 70.7      $ 41.1   

Interest expense, net

                                  47.9        26.3          97.4        27.0   

Provision for income taxes

    131.0        90.0        53.0        34.9          17.9        11.9          66.8        27.0   

Depreciation and amortization

    84.9        99.1        48.4        26.3          61.1        28.5          108.0        18.0   
                                                                   

EBITDA

    88.5        252.9        174.9        109.9          110.1        57.4          342.9        113.1   

Impact of sales agreements with Dow(a)(b)

    34.1        19.5                   

Impact of supply agreement with Dow(a)(c)

    (186.3     (102.0                

Dow corporate and other allocations(d)

    105.5        32.9                    (6.8  

Plant closures and other operational items(e)

    200.5        13.8                    28.8     

Goodwill impairment

    31.1                               

Acquisition, transition and other items(f)

                          24.8          30.9        24.8   

Fees paid pursuant to advisory agreement(g)

                          1.3          3.7        1.3   

Equity in (earnings) losses of unconsolidated subsidiaries(h)

    10.8        13.7                2.7          (9.3     2.7   

Stock compensation and other employee costs(i)

    3.2        2.2                17.8          21.6        17.8   

Unrealized foreign currency
gains(j)

                          6.7          (8.0     6.7   
                                                 

Adjusted EBITDA

  $ 287.4      $ 233.0              $ 110.7        $ 403.8      $ 166.4   
                                                 

 

 

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(a) The impact of these agreements is included in the pro forma net income for 2010. See “Unaudited Pro Forma Condensed Combined and Consolidated Statement of Operations.”
(b) Represents the impact of the various sales agreements with Dow for certain by-products that were recorded as internal transfers of inventory for periods prior to the Acquisition and are recorded as sales to third parties in periods after the Acquisition.
(c) Represents the impact of the various raw material supply agreements entered into between Dow and Styron based upon the market pricing in effect during the years ended December 31, 2009 and 2008.
(d) For periods prior to the Acquisition, utilities and site services at Styron/Dow shared sites, indirect costs such as supply chain and administrative costs and other corporate costs were allocated or charged to Styron using activity based costing or other allocation methodologies. Represents adjustment to the historical amounts based on our estimate of the go-forward stand-alone costs to run the business.
(e) The following table provides detail of the plant closures and other operational items:

 

     Predecessor           Successor           Pro Forma  
     Year Ended December 31,           Three Months
Ended
March 31, 2011
          Year Ended
December 31, 2010
     Three Months
Ended
March 31, 2011
 
         2008              2009                     

Plant turnaround costs(i)

   $       $ 7.6        $          $ 14.2       $   

Guaruja net EBITDA(ii)

     5.9         (2.7                  5.0           

Plant closures(iii)

     126.1         4.3                               

Rohm and Haas distribution agreement(iv)

     5.6         4.6                     2.3           

Dissolution of Dow Reichold specialty latex joint venture(v)

     20.9                                       

2008 restructuring and asset impairment(vi)

     42.0                                       

Loss due to fire(vii)

                                 7.3           
                                                

Total plant closures and other operational items

   $ 200.5       $ 13.8        $          $ 28.8       $   
                                                

 

  (i) Represents costs incurred associated with the shut-down of two of our manufacturing facilities during the second quarter of 2010 and one manufacturing facility during the third quarter of 2009 to perform planned major repairs, maintenance and modifications, which were expensed in the Predecessor period and which we will capitalize going forward.
  (ii) Represents net EBITDA impact related to the sale of our Guaruja plant in Cubatao, Brazil sold in 2010.
  (iii) Represents the impact from closing or idling manufacturing facilities in 2008 and 2009. The adjustment reflects the fixed costs savings, net of increased variable costs for previously manufactured raw materials now purchased from Dow at market rates subsequent to the facility closures.
  (iv) Represents estimated income earned by us related to a distribution agreement entered into during the third quarter of 2010 on certain Rohm and Haas products as if the agreement had been in place as of the beginning of 2008.
  (v) During the second quarter of 2008, our former joint venture Dow Reichold Specialty Latex (“DRSL”) was dissolved and products historically sold at cost to the joint venture will be sold to a third party at market prices. Represents the impact to earnings as if the joint venture was dissolved as of the beginning of 2008.
  (vi) Represents a $28.0 million impairment of long-lived assets related to the shutdown of manufacturing facilities in 2008 and $14.0 million of severance for the separation of employees as a result of the facility closures.
  (vii) Represents loss due to a fire that occurred prior to the Acquisition. Losses incurred were above the related indemnification payment received from Dow.
(f) Represents external legal and consultant costs related to the evaluation of strategic initiatives, the Refinancing Transactions, our initial assembly of a finance team and implementation of financial controls as a stand-alone entity and Dow separation planning subsequent to the Acquisition.
(g) Represents fees paid under the terms of the Advisory Agreement (the “Advisory Agreement”) with Bain Capital and Portfolio Company Advisors Limited (together, the “Advisors”). See “Certain Relationships and Related Party Transactions.”
(h) Represents removal of equity in (earnings) losses of unconsolidated subsidiaries and inclusion of cash dividends received during the historical period, of $7.2 million, $8.1 million, $7.8 million and $7.2 million in 2008, 2009, 2010 and the three months ended March 31, 2011, respectively.

 

 

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(i) For the three months ended March 31, 2011, represents stock based compensation of $14.6 million and pension and postretirement costs in excess of cash contributions during the period of $3.2 million. For 2010, represents stock based compensation of $15.6 million and pension and postretirement costs in excess of cash contributions during the period of $6.0 million.
(j) Represents unrealized foreign currency gains on intercompany indebtedness.

 

(11) Working capital is defined as current assets minus current liabilities.

 

 

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RISK FACTORS

This offering and an investment in our ordinary shares involve a significant degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase our ordinary shares. If any of the following risks actually occurs, our business, financial condition, results of operations, cash flow and prospects could be materially and adversely affected. As a result, the trading price of our ordinary shares could decline and you could lose all or part of your investment in our ordinary shares.

Risks Related to Our Business

Conditions in the global economy and capital markets may adversely affect the Company’s results of operations, financial condition and cash flows.

Our products are sold in markets that are sensitive to changes in general economic conditions, such as sales of automotive and construction products. Downturns in general economic conditions can cause fluctuations in demand for our products, product prices, volumes and margins. A decline in the demand for our products or a shift to lower-margin products due to deteriorating economic conditions could adversely affect sales of our products and our profitability and could also result in impairments of certain of our assets.

Our business and operating results were severely affected by the recent global recession. In the recession’s aftermath, we continue to be impacted by turbulence in the credit markets, dislocations in the housing and commercial real estate markets, fluctuating commodity prices, volatile exchange rates and other challenges currently affecting the global economy and our customers. While there appears to be an uneven, slow global economic rebound underway, there can be no assurance that this trend will continue. If the economic rebound deteriorates, our results of operations, financial condition and cash flows could be materially adversely affected.

Any increase in the cost or disruption in the availability of the raw materials utilized for our products may adversely affect our financial condition and results of operations.

Our results of operations are directly affected by the cost of our raw materials. Our principal raw materials (benzene, ethylene, butadiene, bisphenol A (“BPA”) and styrene) together represented approximately $3 billion or 65% of our total cost of goods sold in 2010. As a result of the significant portion of our cost of goods sold represented by these raw materials, our gross profit and margins could be adversely affected by changes in the cost of these raw materials if we are unable to pass the increases on to our customers. In addition, if the availability of any of these raw materials is limited, we may be unable to produce some of our products in the quantities demanded by our customers, which could have an adverse effect on plant utilization and our sales of products requiring such raw materials.

Our manufacturing processes use certain raw materials to produce our products, primarily styrene, benzene, ethylene, butadiene and BPA. In addition to purchasing styrene through long-term contracts and short-term contracts, we use ethylene and benzene to produce styrene, which is used in combination with butadiene to produce our latex and rubber products. We also use styrene to produce polystyrene and along with rubber and acrylonitirile to produce ABS and SAN. Along with BPA which we use to produce our polycarbonate, ABS is used to formulate our blended PC/ABS plastics. We have entered into long-term supply agreements with Dow, which provides approximately 45% to 50% of our raw materials (based on aggregate purchase price),

 

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and other third-party suppliers to supply our raw material needs globally. As these contracts expire, we may be unable to renew these contracts or obtain new long term supply agreements on terms favorable to us, which may significantly impact our operations.

In addition, many of our long-term contracts contain provisions that allow our suppliers to limit the amount of raw materials shipped to us below the contracted amount in certain circumstances. If we are required to obtain alternate sources for raw materials because Dow or any other supplier is unwilling or unable to perform under raw material supply agreements or if a supplier terminates its agreements with us, we may not be able to obtain these raw materials from alternative suppliers in a timely manner or be able to enter into long-term supply agreements on terms as favorable to us.

The North American market is structurally short of butadiene and has relied on imports of crude C4 (unpurified butadiene) and/or butadiene to balance demand. Historically, the European market has been better balanced and provided exports to North America. Currently, Dow is our major supplier of butadiene in the United States and Europe. The quantity of butadiene available in any one region is dependent on the raw material inputs and operating rates of the ethylene crackers. Raw material inputs to the crackers (either ethane or naphtha) depend on the flexibility of the cracker to use various feeds and the economics of the available raw materials. Suppliers may not be able to meet our butadiene requirements, and we may not be able to obtain substitute supplies of butadiene from alternative suppliers in a timely manner or on favorable terms. A lack of availability of raw materials could have an adverse effect on our financial condition and results of operations.

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under the Senior Secured Credit Facility.

We have substantial indebtedness. Our indebtedness consists principally of our Senior Secured Credit Facility, including the Term Loan and Revolving Facility. As of March 31, 2011, we had $1,396.5 million outstanding under our Term Loan and $75.0 million outstanding under our Revolving Facility. As of March 31, 2011, after giving effect to this offering and the use of proceeds therefrom, our total indebtedness would have been $                 million. See “Description of Certain Indebtedness.” In addition, we can incur up to $             of additional indebtedness under the Senior Secured Credit Facility.

As a result of our substantial indebtedness:

 

   

our ability to obtain additional financing for working capital, capital expenditures, debt service requirements or other general corporate purposes may be impaired;

 

   

we must use a substantial portion of our cash flow to pay principal of and interest on our indebtedness which will reduce the funds available to us for other purposes;

 

   

we are vulnerable to economic downturns and adverse industry conditions;

 

   

our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised;

 

   

our ability to borrow additional funds may be limited;

 

   

we may be unable to refinance our indebtedness, the majority of which becomes due in August 2017, on satisfactory terms, or at all; and

 

   

we may be exposed to greater interest rate risk because the interest rates on our Senior Secured Credit Facility will vary.

 

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In particular, the Senior Secured Credit Facility contains a number of covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of business opportunities and require that we maintain a certain Adjusted EBITDA level. These covenants restrict, among other things, our ability to:

 

   

sell assets;

 

   

incur additional indebtedness;

 

   

pay dividends;

 

   

make investments or acquisitions;

 

   

create liens;

 

   

repurchase or redeem capital stock;

 

   

engage in mergers or consolidations;

 

   

engage in transactions with affiliates; and

 

   

consolidate, merge or transfer all or substantially all of our assets.

The ability for us to comply with the covenants and financial ratios and tests contained in the Senior Secured Credit Facility, to pay principal of and interest on indebtedness, fund working capital, and make anticipated capital expenditures depends on our future performance, which is subject to general economic conditions and other factors, some of which are beyond our control. There can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available under the Senior Secured Credit Facility to fund liquidity needs in an amount sufficient to enable us to service indebtedness. Furthermore, if we decide to undertake additional investments in existing or new facilities, this will likely require additional capital, and there can be no assurance that this capital will be available on satisfactory terms or at all.

A failure to repay amounts owed under the Senior Secured Credit Facility at maturity would result in a default. In addition, a breach of any of the covenants in the Senior Secured Credit Facility or our inability to comply with the required financial ratios or limits could result in a default. If a default occurs, our lenders could refuse to lend us additional funds and/or declare all of our debt and any accrued interest and fees immediately due and payable. A default under one of our debt agreements may trigger a cross-default under our other debt agreements. If any of our indebtedness is accelerated, we cannot assure you that we would have sufficient assets to repay all of our obligations. Our failure to repay our obligations could, among other things, materially adversely affect the market value of the securities offered hereby.

Despite our current levels of indebtedness, we may incur substantially more debt, which could further exacerbate the risks associated with our substantial indebtedness.

Although the Senior Secured Credit Facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. As of March 31, 2011, after giving effect to this offering and the use of proceeds therefrom, $             was available for borrowing under the Senior Secured Credit Facility. Also, we are not prevented from incurring obligations that do not constitute “indebtedness” as defined in the Senior Secured Credit Facility, such as operating leases and trade payables. If new debt is added to our current debt levels, the risks related to our substantial indebtedness that we now face could intensify.

 

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We have material weaknesses in our internal controls over financial reporting. If one or more material weaknesses persist or if we fail to establish and maintain effective internal controls over financial reporting in the future, our ability to both timely and accurately report our financial results could be adversely affected.

Prior to the completion of this offering, we have been a private company since the Acquisition in June 2010, with limited corporate finance and accounting personnel and other supervisory resources to adequately execute our period-end financial closing processes. This lack of adequate resources contributed to an extended financial closing process during the third and fourth quarters of 2010 as well as an insufficient review and approval of certain information used to prepare our third quarter and year-end financial statements.

As a result of these circumstances, our independent registered public accounting firm, in connection with their audit, identified several adjustments related to certain aspects of our period-end financial closing process. In addition, several other adjustments were identified by management after the closing process while we prepared the year-end financial statements which highlighted several control deficiencies. In consideration of these findings, we have concluded that these control deficiencies constitute material weaknesses in our internal controls over financial reporting. A material weakness is a control deficiency, or a combination of control deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Specifically these material weaknesses contributed to multiple audit adjustments and the following individual material weaknesses as of December 31, 2010:

 

   

inadequate internal staffing and skills; and

 

   

inadequate controls of the quarter-end closing processes, including: failure to record entries in the appropriate legal entities in a timely fashion; failure to appropriately analyze certain manufacturing costs, capitalize manufacturing variances at period end, and reconcile certain related accounts; and failure to record certain expenditures in the appropriate period.

In response, we have begun the process of evaluating our internal controls over financial reporting, although we are in the early phases of our review and may not complete our review until after this offering is completed.

We have taken several remedial actions to address these material weaknesses, including:

 

   

hiring a finance team, including a corporate controller, North America controller and director of external reporting, as well as 44 full-time finance staff since December 31, 2010, and we continue to monitor and improve our staffing levels;

 

   

formalizing a period-end financial closing process; and

 

   

formalizing several accounting and financial reporting processes to ensure consistency and reliability of reported results.

We cannot predict the outcome of our remediation at this time. During the course of the remediation, we may identify additional control deficiencies, which could give rise to deficiencies and other material weaknesses in addition to the material weaknesses previously identified. Each of the material weaknesses described above could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected. We cannot

 

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assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses described above or avoid potential future material weaknesses.

In addition, we are currently operating under a transition services agreement with Dow which includes, among other services, financial accounting services we are required to assume during 2011. We are currently in the process of planning for the transition of these responsibilities to us by identifying and documenting these activities and hiring and training personnel to perform these activities. We will also need to implement certain information technology (“IT”) systems, implement additional financial and management controls, reporting systems and procedures, and hire additional accounting and finance resources. It is possible that we will be unable to successfully perform all necessary activities to timely and accurately report financial results in future periods, resulting in additional deficiencies and/or material weaknesses in financial reporting.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting until our annual report on Form 20-F for the year ending December 31, 2012. Once it is required to do so, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the effectiveness of our internal controls over financial reporting.

Regulatory and statutory changes applicable to our raw materials and products and our customers’ products could require material expenditures, changes in our operations and adversely affect our financial condition and results of operations.

Changes in environmental, health and safety regulations, in jurisdictions where we manufacture and sell our products, could lead to a decrease in demand for our products. In addition to changes in regulations, health and safety concerns could increase the costs incurred by our customers to use our products and otherwise limit the use of these products, which could lead to decreased demand for these products. Such a decrease in demand likely would have an adverse effect on our business and results of operation. Materials such as styrene, butadiene, acrylonitrile, ethylbenzene, BPA and halogenated flame retardant are used in the manufacturing of our products and have come under increased regulatory scrutiny due to potentially significant or perceived health and safety concerns. For example, on June 10, 2011, the U.S. National Toxicology Program (“NTP”), which is part of the Health and Human Services Administration, issued its 2011 Report on Carcinogens, and reclassified styrene as “reasonably anticipated to be a carcinogen”. The NTP is not a regulatory body, so there would only be a direct impact on commerce if a regulatory agency such as OSHA were to require additional warnings or labels—which is not anticipated. Although the concentrations of styrene monomer to which our employees could be exposed are orders of magnitude lower than the levels set by OSHA and other regulatory bodies, and end-use applications would typically present an even lower potential exposure, there is a risk that customers could move away from styrenics products due to the reclassification. Styrene and butadiene are considered residual materials that could potentially migrate out of the product. Occupational limits are also being considered for ethylbenzene and acrylonitrile, two raw materials used extensively in our operations. BPA is a monomer that we use in the production of polycarbonate, which is considered an endocrine disruptor. BPA is receiving high visibility in the media, has subjected others to class action litigation and has resulted in customer and consumer deselection of materials particularly in food contact applications such as baby bottles, sippy cups, toys and water bottles as well as legislative initiatives banning its use. We do not sell into the markets where BPA has been banned, but additional regulation of residual levels of BPA in appliances, medical devices and other products could arise in the future which could significantly impact our plastics business. A

 

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halogenated flame retardant under scrutiny in the European Union is HBCD, which may be banned by the Registration, Evaluation and Authorization of Chemicals (“REACH”) in the year 2015, unless authorization for use is not petitioned and granted. In that event, a substitute chemistry would be required to replace HBCD.

Our products are also used in a variety of end-uses that have specific regulatory requirements such as those relating to products that have contact with food or medical end-uses. We and many of the applications for the products in the end-use markets in which we sell our products are regulated by various national and local rules, laws and regulations. For example, changes in regulations banning or restricting the use of these residual materials in our products, or our customers’ products, could adversely affect our results of operations and adversely affect our financial condition. Failure to appropriately manage safety, human health, product liability and environmental risks associated with our products, product life cycles and production processes could adversely impact employees, communities, stakeholders, the Company’s reputation and the results of its operations.

We, our products and many of the applications for our products in the end-use markets in which we sell our products are regulated by various national and local rules, laws and regulations. Changes in any of these areas could result in additional compliance costs, seizures, confiscations, recall or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. For example, changes in environmental and safety laws and regulations restricting the use of a particular chemical could cause a decline in sales to producers of that product.

Dow provides significant operating and other services, and certain raw materials used in the production of our products, under agreements that are important to our business. The failure of Dow to perform their obligations, or the termination of these agreements, could adversely affect our operations.

Prior to June 17, 2010, we were operated by Dow. Dow continues to provide services under certain agreements that are important to our business. We are a party to:

 

   

a transition services agreement pursuant to which Dow provides us with certain customer service, financial services, and human resource services;

 

   

an outsourcing service agreement pursuant to which Dow provides certain administrative and business services to us for the operation of the Company beyond the one year of transition services;

 

   

supply and sales agreements pursuant to which Dow, among other things, provides us with raw materials, including ethylene, benzene, butadiene and BPA;

 

   

a contract manufacturing agreement pursuant to which Dow operates and maintains one of its Freeport, Texas facilities to produce PC products for us; and

 

   

an operating services agreement pursuant to which Dow will operate and maintain certain of our facilities at Rheinmuenster, Germany as well as employ and provide almost all of the staff for this facility.

Under the terms of the above agreements, either party is permitted to terminate the applicable agreement in a variety of situations. Should Dow fail to provide these services or raw materials, or should any of the above agreements be terminated, we would be forced to obtain these services and raw materials from third parties or provide them ourselves. Additionally, if Dow terminates agreements pursuant to which we are obligated to provide certain services, we may lose the fees received by us under these agreements. From time to time, as part of our

 

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ongoing business operations, we discuss potential changes in the terms of our various agreements with Dow based upon changes in market conditions or other factors. Any agreed changes to any of these contractual arrangements are not binding until the execution of formal documentation. The failure of Dow to perform its obligations under, or the termination of, any of these contracts could adversely affect our operations and, depending on market conditions at the time of any such termination, we may not be able to enter into substitute arrangements in a timely manner, or on terms as favorable to us.

Under certain of these agreements, we are required to indemnify Dow in certain circumstances, including for loss and damages resulting from Dow’s negligence in performing their obligations, subject to certain limitations.

Compliance with extensive environmental, health and safety laws may require material expenditures.

We use large quantities of hazardous substances and generate hazardous wastes in our manufacturing operations. Consequently, our operations are subject to extensive environmental, health and safety laws and regulations at both the national and local level in multiple jurisdictions. Many of these laws and regulations have become more stringent over time and the costs of compliance with these requirements may increase, including costs associated with any capital investments for pollution control facilities. For example, in the United States, the U.S. Environmental Protection Agency (“EPA”) has moved forward on requirements for new air emission regulations covering greenhouse gas emissions which have not yet been sanctioned by Congress, new emission standards for industrial boilers, and established more stringent ambient air quality standards, which may subject us to significant additional capital expenditures and operating expenses in the future. In addition, our production facilities require operating permits that are subject to periodic renewal and, in circumstances of noncompliance, may be subject to revocation. The necessary permits may not be issued or continue in effect, and any issued permits may contain more stringent limitations on our operations.

Compliance with more stringent environmental requirements would likely increase our costs of transportation and storage of raw materials and finished products, as well as the costs of storage and disposal of wastes. Additionally, we may incur substantial costs, including penalties, fines, damages, criminal or civil sanctions and remediation costs, or experience interruptions in our operations for failure to comply with these laws or permit requirements.

We may be subject to losses due to lawsuits arising out of environmental damage or personal injuries associated with exposure to chemicals or the release of chemicals.

We face the risk that individuals could seek damages for personal injury due to exposure to chemicals at our facilities, chemicals which have been released from our facilities, chemicals otherwise owned or controlled by us, or chemicals which allegedly migrated from products containing our materials. Legal claims and regulatory actions could subject us to both civil and criminal penalties, which could affect our product sales, reputation and profitability. We may be subject to claims with respect to workplace exposure, workers’ compensation and other health and safety matters. There are several properties which we now own on which Dow has been conducting remediation to address historical contamination. Those properties include Allyn’s Point, Connecticut, Dalton, Georgia, Livorno, Italy and Guaruja, Brazil. There are other properties with historical contamination that are owned by Dow that we lease for our operations, including our facility in Midland, Michigan. While we did not assume the liabilities associated with these properties in the U.S., because certain environmental laws can impose

 

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liability for contamination on the current owner or operator of a property, even if it did not create the contamination, there is a possibility that a governmental authority or private party could seek to include us in an action or claim for remediation or damages, even though the contamination may have occurred prior to our ownership or occupancy. While Dow has agreed to indemnify us for liability for releases of hazardous materials that occurred prior to our separation from Dow, the indemnity is subject to limitations, and we cannot be certain that Dow will fully honor the indemnity or that the indemnity will be sufficient to satisfy all claims that we may incur. In addition, we face the risk that future claims might fall outside of the scope of the indemnity, particularly if we experience a release of hazardous materials that occurs in the future or at any time after the closing of the Acquisition.

The environmental liabilities at a particular site could increase as a result of, among other things, changes in laws and regulations, modifications to the site’s investigation and remediation plans, unanticipated construction problems, identification of additional areas or quantities of contamination, increases in labor, equipment and technology costs, significant changes in the financial condition of Dow or other responsible parties and the outcome of any related legal and administrative proceedings to which we may become a party. Any increase in liability may be outside the scope of the indemnity provided by Dow, resulting in increased costs payable by us. It is not possible for us to reasonably estimate the amount and timing of all future expenditures related to environmental or other contingent matters. Accruals for environmental matters are recorded by the Company when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies, and in 2010 no such reserve was recorded.

Our business involves risk of exposure to product liability claims.

Even though we are generally a material supplier rather than a manufacturer of finished goods, the development, manufacture and sales of specialty emulsion polymers and plastics by us involve inherent risk of exposure to product liability claims, product recalls and related adverse publicity. While we attempt to protect ourselves from such claims and exposures in our adherence to standards and specifications and contractual negotiations, there can be no assurance that our efforts in this regard will ultimately protect us from any such claims. A consumer may attempt to seek contribution from us due to a product liability claim brought against them by a consumer, or a consumer may bring a product liability claim directly against us. A product liability claim or judgment against us could result in substantial and unexpected expenditures, affect consumer or customer confidence in our products, and divert management’s attention from other responsibilities. A successful product liability claim or series of claims against us in excess of our insurance coverage payments, for which we are not otherwise indemnified, could have a material adverse effect on our financial condition or results of operations.

Our end-use markets are highly competitive, and we may lose market share to other producers of styrene-based chemical products or to producers of other products that can be substituted for our products.

Our industry is highly competitive and we face significant competition from large international producers, as well as from smaller regional competitors. Our most significant competitors include BASF, Nippon Zeon, LG Chemicals and Bayer. Competition is based on a number of factors, such as price, product quality and service. Our competitors may improve their competitive position in our core end-use markets by successfully introducing new products, improving their manufacturing processes or expanding their capacity or manufacturing facilities. Some of our competitors’ financial, technological and other resources

 

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may be greater than our resources and such competitors may be better able to withstand changes in market condition. Our competitors may be able to respond more quickly than we can to new or emerging technologies or changes in customer requirements. If we are unable to keep pace with our competitors’ product and manufacturing process innovations, our financial condition and results of operations could be materially adversely affected. Some of our competitors may be able to drive down prices for our products if their costs are lower than our costs.

Competition between styrene-based chemical products and other products within the end-use markets in which we compete is intense. In addition, in certain instances, vinyl based systems have emerged as competitive products, particularly in the carpet backing market, where we have recently lost market share to these products. Increased competition from existing or newly developed products may reduce demand for our products in the future and our customers may decide on alternate sources to meet their requirements.

In addition, consolidation of our competitors or customers may result in reduced demand for our products or make it more difficult for us to compete with our competitors. If we are unable to successfully compete with other producers of styrene-based chemical products or if other products can be successfully substituted for our products, our sales may decline.

Our business is subject to seasonality that may affect our quarterly operating results and impact the market price of our ordinary shares.

Seasonal changes and weather conditions typically affect the construction and building materials end-use market. In particular, sales volumes for construction and building materials generally rise in the warmer months and generally decline during the colder months of fall and winter. Abnormally cold or wet seasons may cause reduced purchases from our construction and building materials customers. However, because seasonal weather patterns are difficult to predict, we cannot accurately estimate fluctuations in our quarterly construction and building sales in any given year. If construction and building sales results cause our operating results to fall below the periodic expectations of financial analysts or investors, the market price of our ordinary shares may decline.

The hazards associated with chemical manufacturing could result in incidents that disrupt our operations or expose us to significant losses or liabilities.

The hazards associated with chemical manufacturing and the related storage and transportation of raw materials, products and wastes exist in our operations and the operations of other occupants with whom we share manufacturing sites. These potential risks include, but are not necessarily limited to:

 

   

pipeline and storage tank leaks and ruptures;

 

   

explosions and fires;

 

   

inclement weather and natural disasters;

 

   

terrorist attacks;

 

   

failure of mechanical, process safety and pollution control equipment;

 

   

chemical spills and other discharges or releases of toxic or hazardous substances or gases; and

 

   

exposure to toxic chemicals.

These hazards could expose employees, customers, the community and others to toxic chemicals and other hazards, contaminate the environment, damage property, result in personal

 

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injury or death, lead to an interruption or suspension of operations, damage our reputation and adversely effect the productivity and profitability of a particular manufacturing facility or the Company as a whole, and result in the need for remediation, governmental enforcement, regulatory shutdowns, the imposition of government fines and penalties and claims brought by governmental entities or third parties. Legal claims and regulatory actions could subject us to both civil and criminal penalties, which could affect our product sales, reputation and profitability. We have comprehensive environmental, health and safety compliance and management systems to prevent potential risks and emergency response and crisis management plans in place to mitigate potential risks. Also, although we maintain property, business interruption, comprehensive general liability, environmental impairment liability and other insurance of the types and in the amounts that we believe are customary for the industry, we may not be fully insured against all potential hazards incidental to our business due to limitations and exclusions in our policies. While the hazards associated with chemical manufacturing have not resulted in incidents that have significantly disrupted our operations or exposed us to significant losses or liabilities since the Acquisition, there can be no assurances we will not suffer such losses in the future.

Any increase in the cost of natural gas or electricity may adversely affect our results of operations.

We use natural gas and electricity to operate our facilities and generate heat and steam for our various manufacturing processes. Natural gas prices have experienced significant volatility in the past several years. Wide fluctuations in natural gas prices may result from relatively minor changes in supply and demand, market uncertainty, and other factors, both domestic and foreign, that are beyond our control. In addition, natural gas is often a substitute for petroleum-based energy supplies and natural gas prices are positively correlated with petroleum prices. Future increases in the price of petroleum (resulting from increased demand, political instability or other factors) may result in significant additional increases in the price of natural gas. In addition, electricity prices are generally affected by increases in the price of petroleum. Any increase in the cost of natural gas or electricity could have a material adverse impact on our financial condition and results of operations.

We are subject to customs, international trade, export control, antitrust, zoning and occupancy and labor and employment laws that could require us to modify our current business practices and incur increased costs.

We are subject to numerous regulations, including customs and international trade laws, export/import control laws, and associated regulations. These laws and regulations limit the countries in which we can do business; the persons or entities with whom we can do business; the products which we can buy or sell; and the terms under which we can do business, including anti-dumping restrictions. In addition, we are subject to antitrust laws and zoning and occupancy laws that regulate manufacturers generally and/or govern the importation, promotion and sale of our products, the operation of factories and warehouse facilities and our relationship with our customers, suppliers and competitors. If any of these laws or regulations were to change or were violated by our management, employees, suppliers, buying agents or trading companies, the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our products and hurt our business and negatively impact results of operations. In addition, in some areas we benefit from certain trade protections, including anti-dumping protection and the European Union’s Authorized Economic Operator program, which provides expedited customs treatment for materials crossing national borders. If we were to lose these protections, our results of operations could be adversely affected.

 

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In addition, changes in statutory minimum wage laws and other laws relating to employee benefits could cause us to incur additional wage and benefits costs, which could negatively impact our profitability.

Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effects on our operations. We may be required to make significant expenditures or modify our business practices to comply with existing or future laws and regulations, which may increase our costs and materially limit our ability to operate our business.

We are dependent on the continued service of key executives, the loss of any of whom could adversely affect our business.

Our performance is substantially dependent on the performance of our senior management team, including Christopher D. Pappas, our President and Chief Executive Officer, and Richard J. Diemer, Jr., our Executive Vice President and Chief Financial Officer. We have entered into agreements with each member of our senior management team that restrict their ability to compete with us should they decide to leave our Company. Even though we have entered into these agreements, we cannot be sure that any member of our senior management team will remain with us, or that they will not seek to compete with us in the future. The loss of members of our senior management team could impair our ability to execute our business plan and growth strategy, cause us to lose customers and reduce revenue, or lead to employee morale problems and/or the loss of key employees.

Fluctuations in currency exchange rates may significantly impact our results of operations and may significantly affect the comparability of our results between financial periods.

Our operations are conducted by subsidiaries in many countries. The results of the operations and the financial position of these subsidiaries are reported in the relevant foreign currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements. The main currencies to which we are exposed are the Euro, the British pound, Chinese renminbi, Indian rupee, Korean won, Brazilian real and Swedish krona. The exchange rates between these currencies and the U.S. dollar in recent years have fluctuated significantly and may continue to do so in the future. A depreciation of these currencies against the U.S. dollar will decrease the U.S. dollar equivalent of the amounts derived from these operations reported in our consolidated financial statements and an appreciation of these currencies will result in a corresponding increase in such amounts. Because many of our raw material costs are determined with respect to the U.S. dollar rather than these currencies, depreciation of these currencies may have an adverse effect on our profit margins or our reported results of operations. Conversely, to the extent that we are required to pay for goods or services in foreign currencies, the appreciation of such currencies against the U.S. dollar will tend to negatively impact our results of operations. In addition, currency fluctuations may affect the comparability of our results of operations between financial periods.

We incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the local currency of the transacting entity. Given the volatility of exchange rates, there can be no assurance that we will be able to effectively manage our currency transaction risks or that any volatility in currency exchange rates will not have a material adverse effect on our financial condition or results of operations.

 

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We generally do not have long-term contracts with our customers, and the loss of customers could adversely affect our sales and profitability.

With some exceptions, our business is based primarily upon individual sales orders with our customers. As such, our customers could cease buying our products from us at any time, for any reason, with little or no recourse. If multiple customers elected not to purchase products from us, our business prospects, financial condition and results of operations could be adversely affected.

If we are not able to continue the technological innovation and successful commercial introduction of new products, our customers may turn to other producers to meet their requirements.

Our industry and the end-use markets into which we sell our products experience periodic technological change and ongoing product improvements.

In addition, our customers may introduce new generations of their own products or require new technological and increased performance specifications that would require us to develop customized products. Innovation or other changes in our customers’ product performance requirements may also adversely affect the demand for our products. Our future growth will depend on our ability to gauge the direction of the commercial and technological progress in all key end-use markets, and upon our ability to successfully develop, manufacture and market products in such changing end-use markets. We need to continue to identify, develop and market innovative products on a timely basis to replace existing products in order to maintain our profit margins and our competitive position. We may not be successful in developing new products and technology that successfully compete with such materials, and our customers may not accept any of our new products. If we fail to keep pace with evolving technological innovations or fail to modify our products in response to our customers’ needs, then our business, financial condition and results of operations could be adversely affected as a result of reduced sales of our products.

Our business relies on intellectual property and other proprietary information and our failure to protect our rights could harm our competitive advantages with respect to the manufacturing of some of our products.

Our success depends to a significant degree upon our ability to protect and preserve our intellectual property and other proprietary information of our business. However, we may be unable to prevent third parties from using our intellectual property and other proprietary information without our authorization or independently developing intellectual property and other proprietary information that is similar to ours, particularly in those countries where the laws do not protect proprietary rights to the same degree as in the United States. The unauthorized use of our intellectual property and other proprietary information by others could reduce or eliminate any competitive advantage we have developed, cause us to lose sales or otherwise harm our business. If it becomes necessary for us to litigate to protect our proprietary rights, any proceedings could be burdensome and costly, and we may not prevail. In connection with the Acquisition, patents, copyrights and trade secrets of Dow that were used by Dow to operate the Styron business segments prior to the Acquisition were either assigned to us or licensed to us on a worldwide basis, subject to exclusive licenses granted by Dow prior to the Acquisition. Our license from Dow is exclusive within the Styron business segments for certain patents and patent applications that were used by Dow primarily in those Styron business segments prior to the Acquisition and is exclusive with respect to certain patents used for the production of specified foams that have a specified density, subject to licenses previously granted by Dow, to any current

 

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and future requirements of the U.S. Federal Trade Commission and to certain retained rights of Dow, including the right to use patents and other intellectual property that we acquired from Dow in the Acquisition outside the Styron business segments and for styrene acrylate latexes sold outside of specified markets and for internal consumption by Dow. Our license from Dow is limited to use in defined areas corresponding to our current business segments excluding certain products and end-use application technology retained by Dow. Our ability to develop, manufacture or sell products and technology outside of these defined areas may be impeded by the intellectual property rights that have been retained by Dow, which may limit our ability to develop new products and enter new markets.

Any patents we own that are exclusively licensed to us that have been or will be issued in the future, may not provide us with any competitive advantage and may be challenged by third parties. Our competitors also may attempt to design around our patents or copy or otherwise obtain and use our intellectual property and other proprietary information. Moreover, our competitors may already hold or have applied for patents in the United States or abroad that, if enforced following their issuance, could possibly limit our ability to manufacture or sell one or more of our products in the jurisdictions in which such patents are issued. In general, competitors or other parties may, from time to time, assert issued patents or other intellectual property rights against us. If we are legally determined, at some future date, to infringe or violate the intellectual property rights of another party, we may have to pay damages, stop the infringing use, or attempt to obtain a license of such intellectual property from the owner of such intellectual property. With respect to our pending patent applications, we may not be successful in securing patents for the patent claims we are pursuing. Our failure to secure these patents may limit our ability to protect inventions that these applications were intended to cover. In addition, as our patents expire in the coming years, we may face increased competition with consequent erosion of profit margins.

It is our policy to enter into confidentiality agreements with our employees and third parties to protect our unpatented proprietary manufacturing know how, continuing technological innovation and other trade secrets, but our confidentiality agreements could be breached and may not prevent our manufacturing know how and other trade secrets from being misappropriated by others. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and manufacturing know how. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. In addition, others may obtain knowledge of our trade secrets through independent development or other access by legal means.

We have registered and applied for registration of certain service marks and trademarks, and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. The applicable governmental authorities may not approve our pending applications. A failure to obtain trademark registrations in the United States and in other countries could limit our ability to protect and enforce our trademarks and impede our marketing efforts in those jurisdictions. Moreover, third parties may seek to oppose our applications or otherwise challenge the resulting registrations. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands.

We may be unable to determine when third parties are using our intellectual property rights without our authorization. In addition, we cannot be certain that any intellectual property rights that we have licensed to third parties are being used only as authorized by the applicable license

 

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agreement. The undetected or unremedied, unauthorized use of our intellectual property rights or the legitimate development or acquisition of intellectual property related to our industry by third parties could reduce or eliminate any competitive advantage we have as a result of our intellectual property, adversely affecting our financial condition and results of operations.

If we fail to adequately protect our intellectual property and other proprietary information, including our processes, apparatuses, technology, trade secrets, trade names and proprietary manufacturing know how, methods and compounds, through obtaining patent protection and securing trademark registrations and confidentiality agreements of appropriate scope, our competitive advantages over other producers could be materially adversely affected. If we must take legal action to protect, defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of our resources and our management’s attention. We may not prevail in any such suits or proceedings. A failure to protect, defend or enforce our intellectual property rights could have an adverse effect on our financial condition and results of operations.

In connection with the Acquisition, we acquired ownership of, or in some cases, a worldwide right and license to use, certain patents, patent applications and other intellectual property of Dow that were used by Dow to operate the Styron business segments prior to the Acquisition. Generally, we acquired ownership of the intellectual property that was primarily used in the Styron business segments and acquired a license to a more limited set of intellectual property that had broader application within Dow beyond the Styron business segments. Our license from Dow is perpetual, irrevocable, fully paid-up, and royalty-free. Furthermore, our license from Dow is exclusive within the Styron business segments for certain patents and patent applications that were used by Dow primarily in those Styron business segments prior to the Acquisition, subject to licenses previously granted by Dow, to any current and future requirements of the U.S. Federal Trade Commission and to certain retained rights of Dow, including the right to use patents and patent applications outside the Styron business segments and for internal consumption by Dow. Our license from Dow relates to polymeric compositions, manufacturing processes and end applications for the polymeric compositions; and is limited to use in defined areas corresponding to our current business segments excluding certain products and end-use application technology retained by Dow. Our ability to develop, manufacture or sell products and technology outside of these defined areas may be impeded by the intellectual property rights that have been retained by Dow, which could adversely affect our business, financial condition and results of operations. Additionally, we may not be able to enforce, and Dow may be unwilling to enforce, this intellectual property that has been retained by Dow where infringement could also impact our business and competitive position.

Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.

We continually seek to improve our business processes and develop new products and applications. Many of our competitors have a substantial amount of intellectual property that we must continually monitor to avoid infringement. Although it is our policy and intention not to infringe valid patents, we cannot provide assurances that our processes and products do not and will not infringe issued patents (whether present or future) or other intellectual property rights belonging to others, either in the United States or abroad. From time to time, and where permitted by applicable law, we oppose patent applications that we consider overbroad or otherwise invalid in order to help ensure that we have the necessary freedom to operate fully in our various business lines without the risk of being sued for patent infringement. If, however, patents are subsequently issued on any such applications by other parties, or if patents belonging to others already exist that cover our products, processes or technologies, it is

 

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possible that we could be liable for infringement of such patents and we could be required to take remedial or curative actions to continue our manufacturing and sales activities with respect to one or more products that are found to be infringing. We may also be subject to indemnity claims by our licensees arising out of claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by such licensees in connection with their use of our products. Intellectual property litigation often is expensive and time-consuming, regardless of the merits of any claim, and our involvement in such litigation could divert our management’s attention from operating our business. If we were to discover that any of our processes, technologies or products infringe the valid intellectual property rights of others, we might determine to obtain licenses from the owners of such rights or to re-engineer our products in order to avoid infringement. We may not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer our products in a manner that is successful in avoiding infringement. Moreover, if we are sued for infringement and lose, we could be required to pay substantial damages and/or be enjoined from using or selling the infringing products or technology. Any of the foregoing could cause us to incur significant costs and prevent us from selling our products.

It may be difficult for a third party to acquire us, which could discourage or prevent a change of control or merger.

After the completion of this offering, Bain Capital and related persons and entities will own approximately         % of the voting power of our ordinary shares (or approximately         % if the underwriters exercise their option to purchase additional shares in full). For as long as Bain Capital and affiliates own a majority of our ordinary shares, a takeover of our company will require their approval. In addition, provisions in our organizational documents may discourage, delay or prevent a merger or other change in control that a shareholder may consider favorable, which could limit the price investors might be willing to pay in the future for our ordinary shares, decreasing the value of your shares.

The labor and employment laws in many jurisdictions in which we operate are more restrictive than in the United States. Our relationship with our employees could deteriorate, which could have an adverse effect on our operations.

As a manufacturing company, we rely on our employees and good relations with our employees to produce our products and maintain our production processes and productivity. Approximately 83% of our employees are employed outside of the United States. In certain of those countries, such as the member states of the European Union, labor and employment laws are more restrictive than in the United States. In many jurisdictions, the laws grant significant job protection to employees, which subject us to employment arrangements that are very similar to collective bargaining agreements. In addition, 17% of our employees within the United States are members of a union and subject to a collective bargaining agreement.

We are required to consult with and seek the consent or advice of the unions or works’ councils that represent our employees for certain of our activities. This requirement could have a significant impact on our flexibility in managing costs and responding to market changes. Furthermore, there can be no assurance that we will be able to negotiate labor agreements with our unionized employees in the future on satisfactory terms. If those employees were to engage in a strike, work stoppage or other slowdown, or if any of our other employees were to become unionized, we could experience a significant disruption of our operations or higher ongoing labor costs, which could have a material adverse effect on our financial condition and results of operations.

 

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As a global business, we are exposed to local business risks in different countries, which could have a material adverse effect on our financial condition or results of operations.

We have significant operations in foreign countries, including manufacturing facilities, research and development facilities, sales personnel and customer support operations. Currently, we operate, or others operate on our behalf, 36 manufacturing plants (which include a total of 86 production units) at 29 sites around the world, including in Australia, Brazil, Colombia, Germany, Greece, the Netherlands, Belgium, Italy, Finland, Sweden, China, South Korea, Indonesia, Japan and Taiwan, in addition to our operations in the

United States. Our offshore operations are subject to risks inherent in doing business in foreign countries, including, but not necessarily limited to:

 

   

new and different legal and regulatory requirements in local jurisdictions;

 

   

export duties or import quotas;

 

   

domestic and foreign customs and tariffs or other trade barriers;

 

   

potential staffing difficulties and labor disputes;

 

   

managing and obtaining support and distribution for local operations;

 

   

increased costs of transportation or shipping;

 

   

credit risk and financial conditions of local customers and distributors;

 

   

potential difficulties in protecting intellectual property;

 

   

risk of nationalization of private enterprises by foreign governments;

 

   

potential imposition of restrictions on investments;

 

   

potentially adverse tax consequences, including imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries;

 

   

legal restrictions on doing business in or with certain nations, certain parties and/or certain products;

 

   

foreign currency exchange restrictions and fluctuations; and

 

   

local economic, political and social conditions, including the possibility of hyperinflationary conditions and political instability.

We may not be successful in developing and implementing policies and strategies to address the foregoing factors in a timely and effective manner at each location where we do business. Consequently, the occurrence of one or more of the foregoing factors could have a material adverse effect on our international operations or upon our financial condition and results of operations.

Our operations in developing markets could expose us to political, economic and regulatory risks that are greater than those we may face in established markets. Further, our international operations require us to comply with a number of United States and international regulations. For example, we must comply with the Foreign Corrupt Practices Act (“FCPA”), which prohibits companies or their agents and employees from providing anything of value to a foreign official or agent thereof for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. We operate in some nations that have experienced significant levels of governmental corruption. Although we implement policies and procedures designed to assure compliance with all applicable laws, rules and regulations, our employees,

 

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agents and contractors, including companies to which we outsource business operations, may take actions in violation of our policies and legal requirements. Such violations, even if prohibited by our policies and procedures, could have an adverse effect on our business and reputation. Any failure by us to ensure that our employees and agents comply with the FCPA and applicable laws and regulations in foreign jurisdictions could result in substantial civil and criminal penalties or restrictions on our ability to conduct business in certain foreign jurisdictions, and our results of operations and financial condition could be materially and adversely affected.

Risks Related to Investment in a Luxembourg Company

We are a Luxembourg public limited liability company (“société anonyme”) and it may be difficult for you to obtain or enforce judgments against us or our executive officers and directors in the United States.

We are organized under the laws of the Grand Duchy of Luxembourg. Most of our assets are located outside the United States. Furthermore, some of our directors and officers named in this prospectus reside outside the United States and most of their assets are located outside the United States. As a result, investors may find it difficult to effect service of process within the United States upon us or these persons or to enforce outside the United States judgments obtained against us or these persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these persons. Luxembourg law, furthermore, does not recognize a shareholder’s right to bring a derivative action on behalf of the Company.

As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and the Grand Duchy of Luxembourg, courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court. The enforceability in Luxembourg courts of judgments entered by U.S. courts will depend upon the conditions set forth in the Luxembourg procedural code, which may include the following:

 

   

the judgment of the U.S. court is enforceable (exécutoire) in the United States;

 

   

the U.S. court had full jurisdiction over the subject matter leading to the judgment (that is, its jurisdiction was in compliance both with Luxembourg private international law rules and with the applicable domestic U.S. federal or state jurisdictional rules);

 

   

the U.S. court has applied to the dispute the substantive law which would have been applied by Luxembourg courts;

 

   

the judgment was granted following proceedings where the counterparty had the opportunity to appear, and if it appeared, to present a defense;

 

   

the U.S. court has acted in accordance with its own procedural laws; and

 

   

the judgment of the U.S. court does not contravene Luxembourg international public policy.

Our articles of association provide that directors and officers, past and present, are entitled to indemnification from us to the fullest extent permitted by Luxembourg law against liability and all expenses reasonably incurred or paid by him in connection with any losses or liabilities,

 

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claim, action, suit or proceeding in which he is involved by virtue of his being or having been a director or officer and against amounts paid or incurred by him in the settlement thereof, subject to limited exceptions. Under our articles of association, to the extent allowed by law, the rights and obligations among us and any of our current or former directors and officers will be governed exclusively by the laws of Luxembourg and subject to the jurisdiction of the Luxembourg courts, unless such rights or obligations do not relate to or arise out of their capacities as directors or officers. Although there is doubt as to whether U.S. courts would enforce such a provision in an action brought in the United States under U.S. securities laws, such provision could make enforcing judgments obtained outside Luxembourg more difficult to enforce against our assets in Luxembourg or in jurisdictions that would apply Luxembourg law.

Our shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.

Our corporate affairs are governed by our articles of association which will be effective prior to the completion of this offering, and by the laws governing public limited liability companies organized under the laws of the Grand Duchy of Luxembourg. The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States. Luxembourg law and regulations in respect of corporate governance matters might not be as protective of minority shareholders as state corporation laws in the United States. Therefore, our shareholders may have more difficulty in protecting their interests in connection with actions taken by our directors and officers or our principal shareholders than they would as shareholders of a corporation incorporated in the United States. See “Comparison of Shareholder Rights” for a discussion of differences between Luxembourg and Delaware corporate law.

You may not be able to participate in equity offerings, and you may not receive any value for rights that we may grant.

Pursuant to Luxembourg law on commercial companies, dated August 10, 1915, as amended from time to time (the “Luxembourg Corporate Law”), existing shareholders are generally entitled to pre-emptive subscription rights in the event of capital increases and issues of shares against cash contributions. However, prior to the completion of this offering, our articles of association will provide that pre-emptive subscription rights can be limited, waived or cancelled until                     , 2016 and the general meeting of our shareholders may renew, expand or amend such authorization. “Description of Share Capital—Pre-emptive Rights.”

Risks Related to Our Ordinary Shares and this Offering

Control by Bain Capital could adversely affect our other shareholders.

When this offering is completed, Bain Capital will beneficially own approximately     % of Parent’s ordinary shares (based on the number of ordinary shares outstanding as of                     , 2011), and Parent, in turn, will own approximately         % of our ordinary shares, assuming no exercise of the underwriters’ option to purchase additional ordinary shares. In addition, we expect that, pursuant to the terms of a shareholder agreement, Bain Capital will be able to elect their designees to serve as members of our board of directors. These shareholder designees are expected to represent             of the             members of our board of directors immediately after this offering. Bain Capital will have a continuing ability to control our board of directors and to exercise significant influence over our affairs for the foreseeable future, including controlling the election of directors and significant corporate transactions, such as a merger or other sale of our Company or our assets.

 

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In addition, because we are a foreign private issuer, we will not be subject to the independence requirements of the              that require that our board of directors be comprised of a majority of independent directors, that we have a compensation committee comprised solely of independent directors and that we have a nominating and governance committee comprised solely of independent directors.

This concentrated control by Bain Capital will limit the ability of other shareholders to influence corporate matters and, as a result, we may take actions that our other shareholders do not view as beneficial. For example, this concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could cause the market price of our ordinary shares to decline or prevent our shareholders from realizing a premium over the market price for their ordinary shares.

There has been no prior public market for our ordinary shares, and an active trading market may not develop or be sustained.

Prior to this offering, there has been no public market for our ordinary shares. We cannot predict the extent to which a trading market for our ordinary shares will develop or how liquid that market might become. An active trading market for our ordinary shares may never develop or may not be sustained, which could adversely affect your ability to sell your ordinary shares and the market price of your ordinary shares. Also, if you purchase ordinary shares in this offering, you will pay a price that was not established in public trading markets. The initial public offering price for the ordinary shares will be determined by negotiations between us, the selling shareholder and the underwriters and does not purport to be indicative of prices at which our ordinary shares will trade upon completion of this offering. Consequently, you may not be able to sell your ordinary shares above the initial public offering price and may suffer a loss on your investment.

The market price of our ordinary shares may be volatile and may trade at prices below the initial public offering price.

The stock market in general, and the market for equities of newly-public companies in particular, have been highly volatile. As a result, the market price of our ordinary shares is likely to be similarly volatile, and investors in our ordinary shares may experience a decrease, which could be substantial, in the value of their ordinary shares, including decreases unrelated to our operating performance or prospects, or a complete loss of their investment. The price of our ordinary shares could be subject to wide fluctuations in response to a number of factors, including those listed elsewhere in this “Risk Factors” section and others such as:

 

   

variations in our operating performance and the performance of our competitors;

 

   

actual or anticipated fluctuations in our quarterly or annual operating results;

 

   

changes in our revenues or earnings estimates or recommendations by securities analysts;

 

   

publication of research reports by securities analysts about us or our competitors or our industry;

 

   

our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;

 

   

additions or departures of key personnel;

 

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strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

   

announcement of technological innovations by us or our competitors;

 

   

the passage of legislation, changes in interpretations of laws or other regulatory events or developments affecting us;

 

   

speculation in the press or investment community;

 

   

changes in accounting principles;

 

   

the expiration of contractual lock-up arrangements with our executive officers, directors and shareholders;

 

   

terrorist acts, acts of war or periods of widespread civil unrest;

 

   

changes in general market and economic conditions;

 

   

changes or trends in our industry;

 

   

investors’ perception of our prospects; and

 

   

adverse resolution of any new or pending litigation against us.

In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle or defend litigation.

A total of             or     % of our total outstanding ordinary shares after the offering are restricted from immediate resale, but may be sold on a stock exchange in the near future. The large number of ordinary shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our ordinary shares.

The market price of our ordinary shares could decline as a result of sales of a large number of our ordinary shares in the market after this offering, and the perception that these sales could occur may also depress the market price of our ordinary shares. We will have             ordinary shares outstanding after this offering, assuming no exercise of our outstanding options or warrants. Of these shares,             ordinary shares sold in this offering will be freely tradable in the United States, except for any ordinary shares purchased by our “affiliates” as defined in Rule 144 under the Securities Act.

The holders of             outstanding ordinary shares have agreed with the underwriters, subject to a number of exceptions, not to dispose of or hedge any of their ordinary shares during the 180-day period beginning on the date of this prospectus, except with the prior written consent of the representatives of the underwriters in this offering. After the expiration of the 180-day restricted period, these ordinary shares, may be sold in the public market in the United States, subject to prior registration in the United States, if required, or reliance upon an exemption from U.S. registration, including, in the case of ordinary shares held by affiliates, compliance with the volume restrictions of Rule 144. We expect             ordinary shares to be subject to contractual transfer restrictions pursuant to the Investor Subscription and Shareholder Agreement with Dow Europe Holding B.V. (“Dow Europe”) and funds associated with Bain Capital (the “Shareholder Agreement”) (see “Certain Relationships and Related Party Transactions—Shareholder Agreement”).

 

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Number of shares and % of
total outstanding

  

Date available for sale into public markets

            , or %

   Immediately after this offering.

            , or %

   180 days after the date of this prospectus due to contractual obligations and lock-up agreements between the holders of these shares and the underwriters. However, the representatives of the underwriters can waive the provisions of these lock-up agreements and allow these shareholders to sell their ordinary shares at any time, provided applicable holding periods under Rule 144 have expired.

Upon completion of this offering, the holders of             ordinary shares, or     % of our outstanding ordinary shares as of                     , 2011, will be entitled, under contracts providing for registration rights, to require us to register our ordinary shares owned by them with the SEC. Upon effectiveness of any registration statement, subject to lock-up agreements with the representatives of the underwriters, those ordinary shares will be available for immediate resale in the United States in the open market.

Sales of our ordinary shares as restrictions expire or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales, or the perception that such sales could occur, also could cause the market price for our ordinary shares to fall and make it more difficult for you to sell our ordinary shares.

Purchasers in this offering will immediately experience substantial dilution in net tangible book value of their ordinary shares.

The initial public offering price of our ordinary shares in this offering is considerably more than the net tangible book value per ordinary share. Purchasers in this offering will suffer immediate dilution of $             per ordinary share of pro forma net tangible book value, based on the sale of ordinary shares to be sold in this offering at an assumed initial public offering price of $             per ordinary share (the mid-point of the price range set forth on the cover of this preliminary prospectus). See “Dilution.”

After the completion of this offering, we do not expect to declare any dividends in the foreseeable future. Accordingly, investors may only realize future gains on their investments if the price of their ordinary shares increases, which may never occur.

After the completion of this offering, we do not anticipate making any cash or other distributions on our ordinary shares in the foreseeable future. The payment of cash distributions on ordinary shares is restricted under the terms of our Senior Secured Credit Facility. In addition, because we are a holding company, our ability to make any distributions on ordinary shares may be limited by restrictions on our ability to obtain sufficient funds from subsidiaries, including restrictions under the terms of our Senior Secured Credit Facility. Furthermore, under the laws of Luxembourg, we are able to make distributions only to the extent that we have profits available and distributable reserves. We anticipate that we will retain all of our available funds for use in the operation and development of our business. Accordingly, investors may only realize future gains on their investments if the price of their ordinary shares increases, which may never occur. Investors seeking cash or other distributions should not purchase our ordinary shares. See “Dividend Policy.”

 

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If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our ordinary shares or if our operating results do not meet their expectations, the price of our ordinary shares could decline.

The market price of our ordinary shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the market price of our ordinary shares or its trading volume to decline. Moreover, if one or more of the analysts who cover our Company downgrade our ordinary shares or if our operating results or prospects do not meet their expectations, the market price of our ordinary shares could decline.

Future equity issuances may dilute the holdings of ordinary shareholders and could materially affect the market price of our ordinary shares.

We may in the future decide to offer additional equity to raise capital or for other purposes. Any such additional offering could reduce the proportionate ownership and voting interests of holders of our ordinary shares, as well as our earnings per ordinary share and net asset value per ordinary share. Future sales of substantial amounts of our ordinary shares in the public market, whether by us or by our existing shareholders, or the perception that sales could occur, may adversely affect the market price of our shares, which could decline significantly.

We will incur increased costs as a result of becoming a public company.

As a public company, we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act of 2002 and the Dodd Frank Wall Street Reform and Consumer Protection Act and related rules implemented by the SEC and the                     . The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our ordinary shares, fines, sanctions and other regulatory action and potentially civil litigation.

Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 will require significant expenditures and effort by management, and if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, the market price of our ordinary shares could be adversely affected.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and related rules and regulations and beginning with our Annual Report on Form 20-F for the year ending December 31, 2012, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal controls over financial reporting. The rules governing the standards that must be met for management to assess our internal controls over

 

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financial reporting are complex and require significant documentation, testing and possible remediation. We are currently in the process of reviewing, documenting and testing our internal controls over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal controls over financial reporting. In addition, in connection with the attestation process by our independent registered public accounting firm, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. If we cannot favorably assess the effectiveness of our internal controls over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, investors could lose confidence in our financial information and the market price of our ordinary shares could decline. See “Risk Factors—Risks Related to Our Business—We have material weaknesses in our internal controls over financial reporting. If one or more material weaknesses persist or if we fail to establish and maintain effective internal controls over financial reporting in the future, our ability to both timely and accurately report our financial results could be adversely affected.”

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of our common shares.

The             listing rules requires listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, while we intend to comply with these requirements within the permitted phase-in periods, we are permitted to follow home country practice in lieu of the above requirements. Luxembourg law, the law of our home country, does not require that a majority of our board consist of independent directors or the implementation of a nominating and corporate governance committee, and our board may thus in the future not include, or include fewer, independent directors than would be required if we were subject to the             listing rules, or they may decide that it is in the Company’s interests not to have a compensation committee or nominating and corporate governance committee, or have such committees governed by practices that would not comply with             listing rules. Since a majority of our board of directors may not consist of independent directors if we decide to rely on the foreign private issuer exemption to the             listing rules, our board’s approach may, therefore, be different from that of a board with a majority of independent directors, and as a result, the management oversight of our Company could, in the future, be more limited than if we were subject to the             listing rules.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, or strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including but not limited to:

 

   

conditions in the global economy and capital markets;

 

   

increased costs or disruption in the availability of the raw material utilized for our products;

 

   

our substantial level of indebtedness;

 

   

our continued beneficial relationship with Dow;

 

   

loss of market share to other producers of styrene-based chemical products or to producers of other products that can be substituted for our products;

 

   

hazards associated with chemical manufacturing;

 

   

seasonality of our business;

 

   

inability to continue technological innovation and successful introduction of new products;

 

   

compliance with environmental, health and safety laws;

 

   

losses due to lawsuits arising out of environmental damage or potential injuries associated with exposure to chemicals;

 

   

changes in laws and regulations applicable to our business;

 

   

our inability to protect our trademarks or other intellectual property rights;

 

   

our dependence upon key executive management;

 

   

system security risk issues that could disrupt our internal operations or information technology services;

 

   

fluctuations in energy costs;

 

   

fluctuations in currency exchange rates;

 

   

our separation agreements with Dow;

 

   

a loss of customers; and

 

   

local business risks in different countries in which we operate.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our

 

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assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

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USE OF PROCEEDS

We estimate based upon an assumed initial public offering price of $             per ordinary share, the midpoint of the range set forth on the cover of this prospectus, that we will receive net proceeds from the offering of approximately $             million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of our ordinary shares by the selling shareholder, including any ordinary shares sold by the selling shareholder in connection with the exercise of the underwriters’ option to purchase additional ordinary shares.

We intend to use the net proceeds from this offering:

 

   

to pay fees and expenses incurred in connection with this offering, including $             in advisory and transaction fees to affiliates of Bain Capital (see “Certain Relationships and Related Party Transactions—Bain Capital Advisory Agreement and Transaction Services Agreement”);

 

   

to repay approximately $             of indebtedness outstanding under our Term Loan (see “Description of Certain Indebtedness”); and

 

   

the remainder for general corporate purposes.

A $1.00 increase or decrease in the assumed initial public offering price of $             per ordinary share would increase or decrease the net proceeds we receive from this offering by approximately $             million, assuming the number of ordinary shares offered by us, as set forth on the cover of this prospectus, remains the same.

Under the Term Loan, we borrowed an aggregate principal amount of $1.4 billion, a portion of which was used to repay the existing term loan and related accrued interest and the Seller Note and related accrued interest. The Term Loan matures on August 2, 2017. The borrowing rate is equal to LIBOR (subject to floors of 1.75% for the Revolving Facility and 1.5% for the Term Loan) or the U.S. prime lending rate (subject to a floor of 2.5%), plus respective applicable margin rates. The applicable margin rates are determined by the leverage ratio in effect on the first day of each interest period.

Certain of the underwriters or their affiliates currently hold balances under our Senior Secured Credit Facility. As a result, based on amounts outstanding as of                     , 2011, and assuming the above repayments, the following underwriters and their respective affiliates would receive net proceeds from this offering as follows:                      See “Underwriting.”

 

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DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness, and therefore we do not anticipate paying any cash dividends in the foreseeable future. The payment of cash distributions on ordinary shares is restricted under the terms of our Senior Secured Credit Facility. Additionally, because we are a holding company, our ability to pay dividends on our ordinary shares is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our indebtedness. See “Description of Certain Indebtedness.” Any future determination to pay dividends will be at the discretion of our board of directors, subject to compliance with covenants in current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our board of directors deems relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2011, on:

 

   

an actual basis; and

 

   

on a pro forma as adjusted basis to give effect to the offering and the use of proceeds hereof.

You should read the following table in conjunction with the sections entitled “Use of Proceeds,” “Selected Historical Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of March 31, 2011  
     Actual      Pro
Forma(1)
 
     (in millions)  

Cash and cash equivalents

   $ 134.0       $     
                 
     
     

Secured debt, including current portion:

     

Accounts receivable securitization

     87.4      

Revolving Facility(2)

     75.0      

Term Loan, net of discount(2)

     1,395.6      
                 

Total indebtedness, including current portion

     1,558.0      
                 

Shareholder’s equity:

     

Ordinary shares

     0.6      

Additional paid-in capital

     201.1      

Accumulated deficit

     (26.1)      

Accumulated other comprehensive income

     148.9      
                 

Total shareholder’s equity

     324.5      
                 

Total capitalization

   $ 1,882.5       $                
                 

 

(1) A $1.00 increase or decrease in the assumed initial public offering price of $             per ordinary share, the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the net proceeds from this offering available to us and correspondingly increase or decrease the amount of additional paid-in capital, total shareholder’s equity and total capitalization by approximately $             million, assuming the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. See “Use of Proceeds.”
(2) Our Term Loan and Revolving Facility are collateralized by a security interest in substantially all the assets of Trinseo and certain subsidiary guarantors.

 

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DILUTION

Our net tangible book value as of                     , 2011, before giving effect to the sale of              ordinary shares offered in this offering, was approximately $            , or approximately $             per ordinary share. Net tangible book value per share represents the amount of our total tangible assets less the amount of our total liabilities, divided by the number of ordinary shares outstanding at                     , 2011, prior to the sale of              ordinary shares offered in this offering. Dilution in net tangible book value per ordinary share represents the difference between the amount per ordinary share paid by investors in this offering and the pro forma net tangible book value per ordinary share outstanding immediately after this offering.

After giving effect to the sale of              ordinary shares in this offering, based upon an assumed initial public offering price of $             per ordinary share, the              midpoint of the range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering, our pro forma net tangible book value as of                     , 2011 would have been approximately $             million, or $             per ordinary share. This represents an immediate increase in net tangible book value of $             per ordinary share, to existing shareholders and immediate dilution of $             per share to new investors purchasing ordinary shares in this offering at the initial public offering price.

The following table illustrates this dilution in net tangible book value per ordinary share to new investors:

 

Assumed initial public offering price per ordinary share

   $                

Net tangible book value per ordinary share as of                     , 2011

   $     

Increase in pro forma net tangible book value per ordinary share attributable to this offering

   $     

Pro forma net tangible book value per ordinary share as of                     , 2011 (after giving effect to this offering)

   $     

Dilution per ordinary share to new investors(1)

   $     

 

(1) Dilution is determined by subtracting pro forma net tangible book value per ordinary share after giving effect to the offering from the initial public offering price paid by a new investor.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per ordinary share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) our pro forma net tangible book value by $             million, or $             per ordinary share, and the dilution in net tangible book value per share to investors in this offering by $             per ordinary share, assuming that the number of ordinary shares offered by us, as set forth on the cover of this prospectus, remains the same. The as adjusted information is illustrative only and, following the completion of this offering, will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

 

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The following table summarizes, as of                     , 2011, on a pro forma basis, the number of ordinary shares purchased from us, the aggregate cash consideration paid to us and the average price per ordinary share paid to us by existing shareholders and to be paid by new investors purchasing ordinary shares from us in this offering. The table assumes an initial public offering price of $             per ordinary share, the midpoint of the range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percentage     Amount      Percentage    

Existing shareholders

               $                             $                

New investors

            
                                          

Total

               $                  $     
                                          

A $1.00 increase (decrease) in the assumed initial public offering price of $             per ordinary share would increase (decrease) the total consideration paid by investors participating in this offering by $             million, or increase (decrease) the percent of total consideration paid by investors participating in this offering by     %, assuming that the number of ordinary shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters’ option to purchase additional ordinary shares, no exercise of any outstanding options and no sale of ordinary shares by the selling shareholder. The sale of              ordinary shares to be sold by the selling shareholder in this offering will reduce the number of shares held by existing shareholders to             , or     % of the total shares outstanding, and will increase the number of shares held by investors participating in this offering to             , or     % of the total shares outstanding. In addition, if the underwriters’ option to purchase additional shares is exercised in full, the number of ordinary shares held by existing shareholders will be further reduced to             , or     % of the total number of ordinary shares to be outstanding upon the closing of this offering, and the number of ordinary shares held by investors participating in this offering will be further increased to              ordinary shares or     % of the total number of ordinary shares to be outstanding upon the closing of this offering.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED AND

CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma condensed combined and consolidated financial information for the three months ended March 31, 2011 and for the year ended December 31, 2010 presented below were derived from our unaudited financial statements for the three month period ended March 31, 2011, our audited financial statements for the period from June 17, 2010 through December 31, 2010 and the related notes thereto and the audited financial statements for the Styron business for the period from January 1, 2010 through June 16, 2010 and the related notes thereto, each of which are included elsewhere in this prospectus.

On June 17, 2010, we consummated the Acquisition and acquired 100% of the former Styron business from Dow for approximately $1.5 billion plus transaction expenses. The purchase price paid was allocated to the acquired assets and liabilities at fair value. The Acquisition was funded with an $800.0 million term loan, $35.0 million in borrowings under our Revolving Facility, the $75.0 million Seller Note and $650.0 million in contributed capital.

Our unaudited pro forma condensed combined and consolidated statements of operations are presented for the three months ended March 31, 2011 and for the year ended December 31, 2010 assuming:

 

   

the Acquisition was completed on January 1, 2010;

 

   

the Refinancing Transactions were completed on January 1, 2010;

 

   

the supply and sales agreements between us and Dow entered into in connection with the Acquisition were in place as of January 1, 2010; and

 

   

the offering was completed on January 1, 2010.

As the Acquisition and Refinancing Transactions are reflected in the Company’s historical balance sheet at March 31, 2011, pro forma adjustments related to the Acquisition and Refinancing Transactions are only reflected in the pro forma condensed combined and consolidated statements of operations. The unaudited pro forma condensed consolidated balance sheet assumes that the offering was completed on March 31, 2011.

Dow had historically provided various services to the Styron business, including cash management, site services, utilities and facilities management, information technology, finance/accounting, tax, legal, human resources, site services, data processing, security, payroll, employee benefit administration, insurance administration and telecommunications. The cost of these services were allocated to the Predecessor in the combined financial statements using either activity based costing (“ABC”) or activity based management charges (“ABMC”). We believe these allocations are a reasonable reflection of costs the Company would have incurred on a stand-alone basis. See Notes B and S to our historical financial statements for information regarding the historical allocations for the period from January 1, 2010 through June 16, 2010.

The unaudited pro forma information set forth below is based upon available information and assumptions that we believe are reasonable. The unaudited pro forma information is for illustrative and informational purposes only and is not intended to represent or be indicative of what our financial condition or results of operations would have been had the above transactions occurred on the dates indicated. The unaudited pro forma information also should not be considered representative of our future financial condition or results of operations.

You should read the information contained in this table in conjunction with “Selected Historical Financial Information,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical audited financial statements and the related notes thereto included elsewhere in this prospectus.

 

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TRINSEO S. A.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

March 31, 2011

(in millions)

 

     Historical   Adjustments
for
Offering(a)
   Pro Forma 
As Adjusted

Assets:

             

Current assets:

             

Cash and cash equivalents

     $ 134.0       $          $    

Accounts receivable, net

       998.5           

Inventories

       600.7           

Deferred income tax assets

       7.7           
                               

Total current assets

       1,740.9               
                               

Investment in nonconsolidated affiliates

       124.7           

Property, plant and equipment, net

       591.1           

Other assets:

             

Goodwill

       38.6           

Other intangible assets, net

       207.3           

Deferred income tax assets

       93.6           

Deferred charges and other assets — noncurrent

       59.4           
                               

Total other assets

       398.9               
                               

Total assets

     $ 2,855.6       $      —        $    
                               

Liabilities and Equity:

             

Current liabilities:

             

Short-term borrowings and current portion of long-term debt

     $ 101.4       $          $    

Accounts payable:

       600.4           

Income taxes payable

       26.1           

Deferred income tax liabilities

       9.0           

Other current liabilities

       136.5           
                               

Total current liabilities

       873.4               
                               

Noncurrent liabilities:

             

Long-term debt

       1,456.6           

Other noncurrent obligations

       134.7           

Deferred income tax liabilities — noncurrent

       66.4           
                               

Total noncurrent liabilities

       1,657.7               
                               

Commitments and contingencies:

             

Shareholder’s Equity:

             

Common stock

       0.6           

Additional paid-in-capital

       201.1           

Accumulated deficit

       (26.1 )         

Accumulated other comprehensive income

       148.9           
                               

Total shareholder’s equity

       324.5               
                               

Total liabilities and shareholder’s equity

     $ 2,855.6       $        $    
                               

 

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The Offering

 

  (a) The assumed proceeds to our Company from this offering and the estimated use of such proceeds is as follows (in millions):

 

     December 31,
2010
           March 31,
2011
 

Gross receipts from this offering

   $                  $          

Underwriting discount, commissions and offering expenses

         
                     

Net proceeds to the Company

         

Repayment of a portion of our Term Loan

         

Fees payable to Bain Capital

         
                     

General corporate purposes

   $             $     
                     

 

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TRINSEO S. A.

UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2011

(in millions, except per share data)

 

    Successor        Adjustments
for
Acquisition
      Adjustments
for
Financing
      Pro
Forma
  Adjustments
for Offering
      Pro Forma
As  Adjusted
    Historical
March 31, 2011
                 

Net sales

    $ 1,537.6             $           $           $ 1,537.6       $             $    

Cost of sales

      1,367.8               (10.5 )       (b )                   1,357.3              
                                                                                 

Gross profit

      169.8               10.5                         180.3              

Selling, general and administrative expenses

      84.3                                       84.3              

Acquisition-related expenses

                                                         

Equity in earnings of nonconsolidated affiliates

      4.5                                       4.5              
                                                                                 

Operating income

      90.0               10.5                         100.5              
                                                                                 

Interest (income) expense

      26.3                           0.7         (d )       27.0             (f )    

Loss on extinguishment of long-term debt

      55.7                           (55.7 )       (e )                        

Other expense

      5.4                                       5.4              
                                                                                 

Income before taxes

      2.6               10.5             55.0             68.1              
                                                                                 

Provision for income taxes

      11.9               3.1         (g )       12.0         (g )       27.0             (g )    
                                                                                 

Net income (loss)

    $ (9.3 )           $ 7.4           $ 43.0           $ 41.1       $             $    
                                                                                 
 

Net loss per
share, basic and diluted

    $ (0.15 )                                       $    
                                                         

Weighted-average common shares outstanding,
basic and
diluted

      64.3                                        
                                                   

 

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TRINSEO S. A.

UNAUDITED PRO FORMA CONDENSED COMBINED AND

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

(in millions, except per share data)

 

    Successor           Predecessor     Acquisition           Financing           Pro
Forma
    Offering           Pro
Forma As
Adjusted
 
    June 17, 2010
through
December 31,
2010
          January 1,
2010
through
June 16,
2010
                 

Net sales

  $ 2,876.9          $ 2,090.1      $ 129.4        (a   $        $ 5,096.4      $                 $                

Cost of sales

    2,661.7            1,895.9        126.5        (b              4,684.1         
                                                                 

Gross profit

    215.2            194.2        2.9                   412.3         

Selling, general and administrative expenses

    124.6            64.6                          189.2         

Acquisition-related expenses

    56.5                   (56.5     (c                      

Equity in earnings of unconsolidated affiliates

    12.6            4.5                          17.1         
                                                                 

Operating income

    46.7            134.1        59.4                   240.2         

Interest expense, net

    47.9                            49.5        (d     97.4          (f  

Other income (expense)

    2.3            (7.6                       (5.3      
                                                                 

Income (loss) before taxes

    1.1            126.5        59.4          (49.5       137.5         

Provision (benefit) for income taxes

    17.9            53.0        3.9        (g     (8.0     (g     66.8          (g  
                                                                 

Net income (loss)

  $ (16.8       $ 73.5      $ 55.5        $ (41.5     $ 70.7      $           $     
                                                                 

Net loss per share, basic and diluted

  $ (0.23                       $     
                                       

Weighted-average common shares outstanding, basic and diluted

    71.7                         
                             

 

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TRINSEO S. A.

NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS

The Acquisition

The following adjustments account for the pro forma effects of our acquisition accounting and changes related to certain contractual agreements entered into in connection with the Acquisition.

 

  (a) For periods prior to the Acquisition, certain Styron by-products transferred to Dow were recorded as internal transfers of inventory. These transactions have been adjusted from January 1, 2010 to be reflected as a sale to Dow based upon the contractual prices in effect as from June 17, 2010 consistent with the sales agreements entered into between Trinseo and Dow in connection with the Acquisition.

 

  (b) Represents the net adjustment to cost of sales resulting from the application of acquisition accounting and changes related to certain contractual agreements (in millions):

 

     Year Ended
December 31,
2010
    Three Months
Ended
March 31,
2011
 

Cost of sales impact for sales agreements with Dow(1)

   $ 116.5      $   

Cost of sales impact for Dow supply agreements(2)

     49.5          

Total decrease in depreciation and amortization(3)

     (1.5     (10.5

Impact to cost of sales for inventory step-up related to the Acquisition(4)

     (38.0       
                

Increase to cost of sales

   $ 126.5      $ (10.5
                

 

(1) As discussed in adjustment (a) above, transactions between Dow and Styron for certain Styron by-products were recorded as internal inventory transfers during the pre-Acquisition period. Pre-Acquisition cost of sales have been adjusted from January 1, 2010 to reflect these transactions using contractual prices in effect with Dow as from June 17, 2010 as these sales represent third party transactions subsequent to the Acquisition.
(2) Prior to the Acquisition, raw materials sourced through Dow were recorded at Dow’s internal manufacturing cost. As a result, adjustments to cost of sales were made to reflect market pricing in effect as from June 17, 2010 consistent with the raw material supply agreements entered into with Dow in connection with the Acquisition.
(3) Represents a reduction in depreciation and amortization resulting from the application of acquisition accounting to tangible and identifiable intangible assets, excluding impact of foreign currency.

Assumed allocation of excess purchase price to fair value of property, plant and equipment and identifiable intangible assets (in millions):

 

     Fair Value      Estimated
Useful
Life
     December 31, 2010
Estimated Annual
Depreciation and
Amortization
     March 31, 2011
Estimated Annual
Depreciation and
Amortization
 

Property, plant and equipment

   $ 594.6         Various       $ 95.3       $ 14.8   

Technology

     190.0         15 Years         12.7         3.2   

Less: aggregated historical depreciation & amortization

           (109.5      (28.5
                       
         $ (1.5    $ (10.5
                       

 

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(4) Inventories were adjusted to their fair values as part of acquisition accounting. The adjustment removes the non-recurring expense related to the excess of the fair values of the inventories, all of which were sold in 2010, over their cost.

 

  (c) Represents the adjustment to remove acquisition-related expenses related to the acquisition of the Styron business.

The Refinancing Transactions

 

  (d) Represents the pro forma adjustments to interest expense applicable to the Refinancing Transactions, as follows (in millions):

 

     Year Ended
December 31,

2010
    Three Months
Ended
March 31,
2011
 

Borrowings under Term Loan(1)

   $ 83.8      $ 20.8   

Estimated Revolving Facility borrowings(2)

     4.2        1.6   

Amortization of debt issuance costs(3)

     6.0        1.5   
                

Total pro forma interest expense

     94.0        23.9   

Less: historical interest expense

     (44.5     (23.2
                
   $ 49.5      $ 0.7   
                

 

(1) Reflects pro forma interest expense based on $1.4 billion of borrowings under the Term Loan at our minimum LIBOR rate of 1.50% plus an applicable margin of 4.50% on the date of the Refinancing Transactions and amortization of $0.6 million in original issue discount associated with the Term Loan and $0.3 million in fees paid to lenders. A 0.125% increase or decrease in the interest rate on the Term Loan would increase or decrease our annual interest expense by $1.8 million.
(2) Reflects pro forma interest expense on average assumed Revolving Facility borrowings of $35.0 million (from January 1, 2010 to June 16, 2010) and actual borrowings subsequent to June 16, 2010 based on the prime rate of 3.25% and the applicable margin of 4.75% plus a commitment fee on the unused borrowings at 0.75%.
(3) Reflects the non-cash amortization of $20.1 million of debt issuance costs related to the Term Loan (including $1.4 million related to the original term loan) and $16.3 million of debt issuance costs related to the Revolving Facility over the term of the respective facility.

 

  (e) Represents pro forma adjustment to remove the loss on extinguishment of debt related to refinancing of debt.

The Offering

 

  (f) Represents the adjustments to interest expense applicable to this offering assuming a portion of our Term Loan is repaid with anticipated proceeds (in millions):

 

     Year Ended
December 31,

2010
     Three Months
Ended
March 31,
2011
 

Assumed amount of Term Loan repayment(1)

   $                    $                

Effective interest rate for the period(2)

     
                 

Pro forma adjustment to interest expense

   $         $   
                 

 

(1) Assumes a reduction in principal amount of $                 million of our Term Loan as if the repayment occurred January 1, 2010 after considering the pro forma effects of the Refinancing Transactions.
(2) Reflects the pro forma effective interest rate on our Term Loan, including amortization of debt issuance costs.

 

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Tax Impact of the Transactions

 

  (g) Represents pro forma adjustments to the tax provision as a result of the Styron Acquisition, the Refinancing Transactions and the offering (in millions)

 

Three Months Ended March 31, 2011

   Pro Forma
Adjustment
    Weighted
Average
Statutory
Income tax
Rate
    Year Ended
December 31,
2010
    Three Months
Ended March 31,
2011
 

The Acquisition:

        

Pro forma adjustment (b), depreciation and amortization

   $ (10.5     29.7 %(1)      $ 3.1   
              

The Refinancing Transactions:

        

Pro forma adjustment (c), interest adjustment

     0.7        16.2 %(5)        (0.1
        

Pro forma adjustment (e), debt extinguishment

     (55.7     21.7 %(4)        12.1   
              

Pro forma adjustment to tax provision

         $ 12.0   
              
The Offering:                         

Pro forma adjustment (f), offering

        
              

Pro forma adjustment to income tax provision

         $   
              

Year Ended December 31, 2010

                        

The Acquisition:

        

Pro forma adjustment (a), sales

   $ 129.4        21.7 %(2)    $ 28.1     

Pro forma adjustment (b), cost of sales

     128.0        22.3 %(3)      (28.5  

Pro forma adjustment (b), depreciation and amortization

     (1.5     29.7 %(1)      0.4     

Pro forma adjustment (c), deductible portion of acquisition-related expense

     (10.6     37.0 %(4)      3.9     
              

Pro forma adjustment to income tax provision

       $ 3.9     
              

The Refinancing Transactions:

        

Pro forma adjustment (c), interest adjustment

     49.5        16.2 %(5)    $ (8.0  
              

The Offering:

        

Pro forma adjustment (f), offering

        
              

Pro forma adjustment to income tax provision

       $     
              

 

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  (1) Reflects our weighted average statutory tax rate consisting primarily of the following jurisdictions and related rates:

 

Jurisdiction

   Statutory
Rate
 

United States

     37.0

Netherlands

     25.5

Germany

     30.0

 

  (2) Reflects our weighted average statutory tax rate consisting primarily of the following jurisdictions and related rates:

 

Jurisdiction

   Statutory
Rate
 

United States

     37.0

Switzerland

     8.5

Germany

     30.0

Hong Kong

     16.5

 

  (3) Reflects our weighted average statutory tax rate consisting primarily of the following jurisdictions and related rates:

 

Jurisdiction

   Statutory
Rate
 

United States

     37.0

Switzerland

     8.5

Germany

     30.0

Hong Kong

     16.5

 

  (4) Reflects our weighted average statutory tax rate impacted primarily by our United States statutory rate of 37% decreased by various other jurisdictions with income tax rates lower than the United States or in jurisdictions where there was no associated tax benefit.

 

  (5) Reflects our weighted average statutory tax rate consisting primarily of the following jurisdictions and related rates:

 

Jurisdiction

   Statutory
Rate
 

United States

     37.0

Switzerland

     8.5

Luxembourg(i)

     0

 

  (i) Statutory rate presented is the result of allocated pre-tax losses to this jurisdiction for which we are not expecting any future income tax benefits.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

As a result of the Acquisition, we applied acquisition accounting whereby the purchase price paid was allocated to the acquired assets and liabilities at fair value. The financial reporting periods presented are as follows:

 

   

The Successor periods reflect the consolidated results of operations of Trinseo, which includes the effects of acquisition accounting and the Refinancing Transaction for the three month period ended March 31, 2011 and the effects of acquisition accounting for the period ended December 31, 2010.

 

   

Solely for purposes of the selected historical financial information in this section, the Predecessor period refers to the period from January 1, 2010 through June 16, 2010 and the years ended December 31, 2009, 2008 and 2007 and reflects the combined results of operations of the Styron business.

The following table sets forth selected historical financial data and other information of Trinseo. The historical results of operations data and cash flow data for the three month period ended March 31, 2011 and the historical balance sheet data as of March 31, 2011 presented below were derived from our Successor unaudited financial statements and related notes thereto included elsewhere in this prospectus. The historical results of operations data and cash flow data for the period from June 17, 2010 to December 31, 2010 and the historical balance sheet data as of December 31, 2010 presented below were derived from our Successor audited financial statements and the related notes thereto included elsewhere in this prospectus. The historical financial data for the three month period ended March 31, 2010 have been derived from the unaudited Predecessor financial statements and the related notes thereto for the Styron business included elsewhere in this prospectus. The historical financial data for the period from January 1, 2010 through June 16, 2010 and the years ended December 31, 2009 and 2008 have been derived from the Predecessor audited financial statements and the related notes thereto for the Styron business included elsewhere in this prospectus. The historical financial data for the year ended December 31, 2007 have been derived from the Predecessor financial statements for the Styron business that are not included in this prospectus.

We began operations on June 17, 2010 with the Acquisition of the Styron business from Dow as described in this prospectus.

In 2009, in contemplation of a possible spin-off of the acquired assets and liabilities, Dow began preparing carve-out financial statements for the years ended December 31, 2008 and 2007. However, Dow did not create any financial statements for the acquired assets or liabilities for the year ended December 31, 2006. Because of the length of time that has passed, and the ensuing changes to the structure, composition and operation of the relevant business units, as well as to the Dow staff that would be familiar with these businesses, the 2006 financial statements of the Styron business cannot be prepared with a reasonable degree of accuracy without unreasonable effort or expense. Furthermore, we believe that the omission of 2006 selected financial data would not have a material impact on a reader’s understanding of our financial results and condition. As a result, we have not included financial information related to the year ended December 31, 2006 of the Predecessor in the following selected historical financial data.

Our historical financial data and that of the Styron business are not necessarily indicative of our future performance, nor does such data reflect what our financial position and results of operations would have been had we operated as an independent publicly traded company during the periods shown.

 

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You should read the information contained in this table in conjunction with “Summary Combined and Consolidated Historical and Pro Forma Financial Information,” “Unaudited Pro Forma Condensed Combined and Consolidated Financial Information,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical audited financial statements and the related notes thereto included elsewhere in this prospectus.

 

     Predecessor           Successor  
     Year Ended December 31,     January 1
through
June 16,
    Three Months
Ended

March 31,
          June 17
through
December 31,
    Three Months
Ended

March 31,
 
(in millions, except per
share data)
   2007      2008     2009     2010     2010           2010(1)     2011  

Statement of Operations Data:

                   

Net sales(2)

   $ 5,158.0       $ 5,184.6      $ 3,450.1      $ 2,090.1      $ 1,071.6          $ 2,876.9      $ 1,537.6   

Cost of sales(2)

     4,727.0         4,928.4        3,148.8        1,895.9        949.4            2,661.7       
1,367.8
  
                                                             

Gross profit

     431.0         256.2        301.3        194.2        122.2            215.2       
169.8
  

Selling, general and administrative expenses

     188.0         175.6        142.5        64.6        35.3            124.6        84.3   

Acquisition-related expenses

                                             56.5          

Equity in earnings (losses) of unconsolidated affiliates

     9.0         (3.6     (5.6     4.5        (3.1         12.6        4.5   

Goodwill impairment
losses(3)

             31.1                                          

Restructuring(4)

     42.0         42.0                                          
                                                             

Operating income

     210.0         3.9        153.2        134.1        83.8            46.7       
90.0
  

Interest expense, net(5)

                                             47.9        26.3   

Loss on extinguishment of
debt

                                                    (55.7

Other income (expense)

     2.0         (0.3     0.6        (7.6     (0.2         2.3        (5.4
                                                             

Income (loss) before taxes

     212.0         3.6        153.8        126.5        83.6            1.1       
2.6
  

Provision for income taxes

     111.0         131.0        90.0        53.0        34.9            17.9     

 

11.9

  

                                                             

Net income (loss)

   $ 101.0       $ (127.4   $ 63.8      $ 73.5      $ 48.7          $ (16.8   $ (9.3
                                                             

Net loss per share, basic and diluted

                  $ (0.23   $ (0.15
                               

Weighted average shares outstanding, basic and diluted

                    71.7        64.3   
                               

 

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    Predecessor           Successor  
    As of and for the Year Ended
December 31,
    January 1
through
June 16,
    Three Months
Ended

March 31,
          June 17
through
December 31,
    Three Months
Ended

March 31,
 
    2007     2008     2009     2010     2010           2010(1)     2011(1)  
(in millions)                                                

Other Financial Data:

                 

Cash flows from:

                 

Operating activities

  $ 192.0      $ 240.6      $ 157.6      $ (352.6   $ (189.9       $ 2.6      $ (14.2

Investing activities

    (41.0     (192.5     (25.0     (1.4     (1.4         (1,423.9     (6.2

Financing activities

    (151.0     (48.1     (132.6     417.5        191.3            1,567.4        3.5   

Depreciation and amortization

    82.0        84.9        99.1        48.4        26.3            61.1        28.5   

Capital expenditures

    42.0        123.5        25.0        1.4        1.4            7.8        6.9   

EBITDA(6)

    294.0        88.5        252.9        174.9        109.9            110.1        57.4   

Balance Sheet Data:

                 

Cash and cash equivalents

  $      $      $              $ 148.1      $ 134.0   

Working capital(7)

    444.0        156.0        232.4                749.4       
867.5
  

Total assets

    2,028.0        1,746.0        1,691.3                2,676.4        2,855.6   

Debt

                                 1,053.6        1,558.0   

Total liabilities

    847.0        774.6        716.5                1,949.9        2,531.1   

Total shareholder’s equity and net Parent investment

    1,181.0        971.4        974.8                726.5        324.5   

 

(1) On June 17, 2010, we acquired 100% of the former Styron business from Dow through Styron S.à r.l., a wholly owned subsidiary, for approximately $1.5 billion plus transaction expenses. The purchase price paid was allocated to the acquired assets and liabilities at fair value. Prior to June 17, 2010, our business was wholly-owned by Dow.
(2) Net sales and cost of sales increase or decrease based on fluctuations in raw material prices. Consistent with industry practice and as permitted under agreements with many of our customers, raw material price changes are passed through to customers by means of corresponding price changes. In 2009, raw material prices decreased approximately 23.8% from 2008, leading to a related decrease in selling prices. Prior to June 17, 2010, all inventory sales between the Predecessor and Dow business units are recorded at Dow’s internal manufacturing cost. See “Unaudited Pro Forma Condensed Combined and Consolidated Financial Information.”
(3) Goodwill impairment charges of $31.1 million in 2008 relate to an impairment within our Engineered Polymers segment.
(4) Restructuring charges of $42.0 million in 2008 relate to impairment of long-lived assets and related severance charges. In 2007, the $42.0 million restructuring charge related to an other-than-temporary impairment of an investment in DRSL.
(5) In the Predecessor periods, interest expense was not allocated to the Styron business as no debt was allocated.

 

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(6) We present EBITDA in this prospectus to provide investors with a supplemental measure of our operating performance. EBITDA is a non-GAAP financial measure. We define EBITDA as net income (loss) before interest, taxes, depreciation and amortization. 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 because it removes the impact of our capital structure (such as interest expense), asset base (such as depreciation and amortization) and tax structure. The use of EBITDA has limitations and you should not consider this performance measure in isolation from or as an alternative to measures presented in accordance with U.S. GAAP such as net income (loss). EBITDA is calculated as follows:

 

     Predecessor           Successor  
     As of December 31,     January 1
through

June 16,
     Three months
Ended
March 31,
          June 17
through
December 31,
    Three Months
Ended
March 31,
 
(in millions)    2007      2008     2009     2010      2010           2010     2011  

Net income (loss)

   $ 101.0       $ (127.4   $ 63.8      $ 73.5       $ 48.7          $ (16.8   $ (9.3

Interest expense, net

                                              47.9        26.3   

Income tax provision

     111.0         131.0        90.0        53.0         34.9            17.9        11.9   

Depreciation and amortization

     82.0         84.9        99.1        48.4         26.3            61.1        28.5   
                                                                  

EBITDA

   $ 294.0       $ 88.5      $ 252.9      $ 174.9       $ 109.9          $ 110.1      $ 57.4   
                                                                  

 

(7) Working capital is defined as current assets minus current liabilities.

 

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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 “Selected Historical Financial Information” and the financial statements and the related notes thereto included elsewhere in this prospectus. 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. 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 in this prospectus, particularly in the section entitled “Risk Factors.”

Overview

We are a leading global materials company engaged in the manufacture and marketing of specialty and customized emulsion polymers and plastics. We believe that we have the leading market position in many of the markets in which we compete and that we have developed these strong market positions due to our technological differentiation, diverse global manufacturing base, long-standing customer relationships, and advantaged cost positions. We compete in growing global market segments driven by long-term trends, including improving living standards in emerging markets, improving fuel efficiency, and the increasing demand for light-weight materials. In addition, we believe our increasing revenue growth in high growth regions such as China and Eastern Europe further enhances our prospects. We consider these business characteristics to be important contributors to our performance. For the three month period ended March 31, 2011, we generated $1.5 billion in net sales and a net loss of $9.3 million. For the year ended 2010, we generated $5.0 billion in aggregated net sales and $56.7 million in aggregated net income.

Prior to our formation, our business was wholly owned by Dow. In June 2010, we were acquired by Bain Capital. In connection with the Acquisition, we entered into a number of agreements with Dow relating to the provision of certain products, site services and other operational arrangements. See Note S in the notes to the 2010 financial statements and Note T to the March 31, 2011 financial statements.

Industry Trends

We believe demand for our products is strongly correlated to growth in our customers’ end markets. Demand contracted in many of our end markets, including automotive applications, packaging, consumer electronics and construction applications, during the 2008-2009 economic crisis. However, we believe global economic activity is restarting, driving strong demand recovery in these segments.

In addition to the general economic recovery, we believe long-term growth in our markets is supported by secular trends, such as improving living standards in emerging markets, improving fuel efficiency, and the increasing demand for light-weight materials. We believe we are well-positioned to take advantage of these trends. For example, improving living standards are driving demand for coated paper in emerging markets, particularly in China. We have a leading SB latex position in China, and have recently announced a capacity expansion in

 

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Zhangjiagang, China. In addition, in synthetic rubber, increasing fuel efficiency regulation is driving demand for SSBR, a key material for high performance tires. We have the leading European market position in advanced SSBR, and have recently announced a capacity expansion at our Schkopau, Germany facility.

In addition to demand growth driven by economic recovery and secular trends, we believe our business will continue to benefit from improving market dynamics. Over the past few years, companies have rationalized higher-cost capacity in many of our key product lines and there have been a number of consolidating activities, both in emulsion polymers and in plastics. We believe that our markets will continue to experience a long-term trend towards consolidation which will create opportunities for our business given our scale and geographic reach.

Basis of Presentation

On March 2, 2010, Bain Capital and STY Acquisition Corp. (“STY Acquisition”), entered into a sale and purchase agreement setting forth the terms of the Acquisition (the “Purchase Agreement”) with Dow, Styron LLC and Styron Holding B.V. (together with Styron LLC, the “Styron Holdcos”) pursuant to which STY Acquisition agreed to acquire 100% of the outstanding equity interests of the Styron Holdcos. STY Acquisition subsequently (but prior to the completion of the Acquisition) assigned its rights and obligations under the Purchase Agreement to Styron S.à r.l., our indirect wholly-owned subsidiary. The consideration for the Styron Holdcos was approximately $1,509.4 million, including customary adjustments for working capital, employee liabilities and certain other amounts. These amounts included a $75.0 million Seller Note which is discussed further in Note J in the notes to the audited December 31, 2010 financial statements. Subsequent to the closing of the Acquisition, we paid approximately $55.8 million in closing date working capital adjustments. As part of the Acquisition, Styron S.à r.l. incurred $56.5 million in transaction costs, which have been recorded in the consolidated statement of operations as acquisition-related expense in the Successor period ended December 31, 2010.

The combined financial statements for the 2010 Predecessor periods ended March 31, 2010 and June 16, 2010 and for the years ended December 31, 2009 and 2008 have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Dow and may not be comparable to the consolidated financial statements for the Successor periods ended March 31, 2011 and December 31, 2010.

For discussions on the results of operations, we have aggregated the Successor’s results of operations for the period from June 17, 2010 through December 31, 2010 with the Predecessor’s results of operations for the period from January 1, 2010 through June 16, 2010. We refer to the aggregated period as “2010” in this section. Although this presentation is not in accordance with U.S. GAAP, under which these two periods would not be aggregated, we believe the aggregation of the 2010 periods of Predecessor and Successor provides a more meaningful comparison to the 2009 period.

Acquisition Accounting

We allocated the purchase price paid to acquire the Styron business to the acquired assets and liabilities assumed based on their respective fair value as of the acquisition date. The application of acquisition accounting resulted in an increase in amortization and depreciation expense relating to our acquired intangible assets, property, plant and equipment and leasehold interests. In addition to the increase in the net carrying value of property, plant and equipment, we revised the remaining depreciable lives of property, plant and equipment to reflect the estimated remaining useful lives for purposes of calculating periodic depreciation expense. We

 

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adjusted the carrying values of the joint ventures to reflect their fair values at the date of purchase. We also adjusted the value of inventory to its fair value, increasing the costs recognized upon the sale of this acquired inventory. The excess of the purchase price over the fair value of assets and liabilities was assigned to goodwill, which is not amortized for accounting purposes but is subject to testing for impairment at least annually. See Note C in the notes to the audited December 31, 2010 financial statements included elsewhere in this prospectus for further discussion on the Acquisition.

Factors Affecting Our Operating Results

The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.

Net Sales

We generate revenue from the sale of our products across all major geographic areas. Our net sales include total sales less estimates for returns and price allowances. Price allowances include discounts for prompt payment as well as volume-based incentives.

Our overall net sales is generally impacted by the following factors:

 

   

fluctuations in overall economic activity within the geographic markets in which we operate;

 

   

underlying growth in one or more of our core end markets, either worldwide or in particular geographies in which we operate;

 

   

the type of products used within existing customer applications, or the development of new applications requiring products similar to ours;

 

   

the “mix” of products sold, including the proportion of new or improved products and their pricing relative to existing products;

 

   

changes in product sales prices (including volume discounts and cash discounts for prompt payment);

 

   

fluctuations in raw material input costs and our ability to pass those on to customers, including the effects of a generally 30 to 90 day delay in changes to our product prices in our SB Latex and Synthetic Rubber segments following changes to the relevant raw material prices;

 

   

changes in the level of competition faced by our products, including the launch of new products by competitors;

 

   

our ability to successfully develop and launch new products and applications; and

 

   

fluctuations in foreign exchange rates.

While the factors described above impact net sales in each of our operating segments, the impact of these factors on our operating segments can differ, as described below. For more information about risks relating to our business, see “Risk Factors—Risks Related to Our Business.”

 

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Cost of Sales

Our cost of sales consists principally of the following:

 

   

Production Materials Costs.     Although we purchase much of the materials used in production on a global lowest-cost basis, our production materials costs are affected by global and local market conditions.

 

   

Employee Costs.    These employee costs include the salary costs and benefit charges for employees involved in our manufacturing operations. These costs generally increase on an aggregate basis as production volumes increase, and may decline as a percent of net sales as a result of economies of scale associated with higher production volumes.

 

   

Sustaining Engineering Activity Costs.    These costs relate to modifications of existing products for use by new customers in familiar applications.

 

   

Depreciation and Amortization Expense.    Property, plant, equipment and intangible assets are stated at cost and depreciated on a straight-line basis over their estimated useful lives. Property, plant and equipment, including leasehold interests, and intangible assets acquired through the Acquisition were recorded at fair value on the acquisition date, resulting in a new cost basis for accounting purposes.

 

   

Other.    Our remaining cost of sales consists of:

 

   

customer-related development costs;

 

   

freight costs;

 

   

warehousing expenses;

 

   

purchasing costs;

 

   

costs associated with closing or idling of production facilities; and

 

   

other general manufacturing expenses, such as expenses for utilities and energy consumption.

The main factors that influence our cost of sales as a percent of net sales include:

 

   

changes in the price of raw materials;

 

   

production volumes; and

 

   

the implementation of cost control measures aimed at improving productivity, including reduction of fixed production costs, refinements in inventory management and the coordination of purchasing within each subsidiary and at the business level.

Selling, General and Administrative

Our selling, general and administrative, or “SG&A,” expense consists of all expenditures incurred in connection with the sales and marketing of our products, as well as administrative overhead costs, including:

 

   

salary and benefit costs for sales personnel and administrative staff, including share-based compensation expense. Expenses relating to our sales personnel generally increase or decrease principally with changes in sales volume due to the need to increase or decrease sales personnel to meet changes in demand. Expenses relating to administrative personnel generally do not increase or decrease directly with changes in sales volume;

 

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other administrative expense, including expenses related to logistics, information systems and legal and accounting services;

 

   

general advertising expense;

 

   

research and development expenses; and

 

   

other selling expenses, such as expenses incurred in connection with travel and communications.

Changes in SG&A expense as a percent of net sales have historically been impacted by a number of factors, including:

 

   

changes in sales volume, as higher volumes enable us to spread the fixed portion of our administrative expense over higher sales;

 

   

changes in the mix of products we sell, as some products may require more customer support and sales effort than others;

 

   

changes in our customer base, as new customers may require different levels of sales and marketing attention;

 

   

new product launches in existing and new markets, as these launches typically involve a more intense sales activity before they are integrated into customer applications; and

 

   

customer credit issues requiring increases to the allowance for doubtful accounts.

Interest Expense, Net

Interest expense, net consists primarily of interest expense on institutional borrowings and other financing obligations and changes in fair value of interest rate derivative instruments. Interest expense, net also includes the amortization of debt issuance costs and debt discount associated with our Senior Secured Credit Facility offset by interest income primarily associated with cash-on-hand.

Provision for Income Taxes

We and our subsidiaries are subject to income tax in the various jurisdictions in which we operate. While the extent of our future tax liability is uncertain, the impact of acquisition accounting for the Acquisition and for future acquisitions, changes to the debt and equity capitalization of our subsidiaries, and the realignment of the functions performed and risks assumed by the various subsidiaries are among the factors that will determine the future book and taxable income of the respective subsidiary and Trinseo as a whole.

For the Predecessor periods, the Styron business did not file separate tax returns in the majority of its jurisdictions as it was included in the tax returns of Dow entities within the respective tax jurisdictions. The income tax provision for the Predecessor periods was calculated using a separate return basis as if Styron was a separate taxpayer.

 

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Table of Contents

Results of Operations

Results of Operations for the Three Months Ended March 31, 2011 and March 31, 2010

The tables below set forth our historical results of operations and as a percent of net sales for the periods indicated. Due to the Acquisition, the financial data for the Successor period are not comparable to that of the Predecessor period presented in the accompanying table. Prior to the Acquisition, our combined financial statements were prepared on a carve-out basis from Dow. The carve-out combined financial statements include allocations of certain Dow corporate costs. In the Successor period we no longer incur these charges, but do incur certain expenses as a stand-alone company for the same functions, including for certain support services provided by Dow under transition services agreements. See Note T in the notes to the March 31, 2011 financial statements. The allocations in Predecessor periods were based upon various assumptions and estimates and actual results may differ from these allocations, assumptions and estimates. Accordingly, the carve-out combined financial statements should not be relied upon as being representative of our financial position, results of operations or cash flows had we operated on a standalone basis (in millions):

 

     Predecessor           Successor  
     Three Months
Ended March 31,
2010
          Three Months
Ended March 31,
2011
 

Net Sales

   $ 1,071.6          $ 1,537.6   

Cost of sales

     949.4            1,367.8   
                        

Gross profit

     122.2            169.8   

Selling, general and administrative expenses

     35.3            84.3   

Equity in (losses) earnings of unconsolidated affiliates

     (3.1         4.5   
                        

Operating income

     83.8            90.0   
                        

Interest (income) expense

                26.3   

Loss on extinguishment of long-term debt

                55.7   

Other expense

     0.2            5.4   
                        

Income before taxes

     83.6            2.6   
                        

Provision for income taxes

     34.9            11.9   
                        

Net income (loss)

   $ 48.7          $ (9.3
                        
 

Net Sales

     100.0         100.0

Cost of sales

     88.6         89.0
                    

Gross profit

     11.4         11.0

Selling, general and administrative expenses

     3.3         5.5

Equity in (losses) earnings of unconsolidated affiliates

     (0.3 )%          0.3
                    

Operating income

     7.8         5.9
                    

Interest expense

     0.0         1.7

Loss on extinguishment of long-term debt

     0.0         3.6