TRINSEO S.A., 10-K filed on 2/28/2020
Annual Report
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Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Feb. 24, 2020
Jun. 30, 2019
Cover [Abstract]        
Document Type   10-K    
Document Annual Report   true    
Document Period End Date   Dec. 31, 2019    
Document Transition Report   false    
Entity File Number   001-36473    
Entity Registrant Name   Trinseo S.A.    
Entity Incorporation, State or Country Code   N4    
Entity Tax Identification Number 00-0000000      
Entity Address, Address Line One   1000 Chesterbrook Boulevard, Suite 300    
Entity Address, Address Line Two   Berwyn    
Entity Address, City or Town   Berwyn, PA 19312    
Entity Address, State or Province   PA    
Entity Address, Postal Zip Code   19312    
City Area Code   610    
Local Phone Number   240-3200    
Title of 12(b) Security   Ordinary Shares, par value $0.01 per share    
Trading Symbol   tse    
Security Exchange Name   NYSE    
Entity Well-known Seasoned Issuer   Yes    
Entity Voluntary Filers   No    
Entity Current Reporting Status   Yes    
Entity Interactive Data Current   Yes    
Entity Filer Category   Large Accelerated Filer    
Entity Small Business   false    
Entity Emerging Growth Company   false    
Entity Shell Company   false    
Entity Public Float       $ 1,691,486,980
Entity Common Stock, Shares Outstanding     38,320,508  
Document Fiscal Year Focus   2019    
Document Fiscal Period Focus   FY    
Entity Central Index Key   0001519061    
Current Fiscal Year End Date   --12-31    
Amendment Flag   false    
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Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 456.2 $ 452.3
Accounts receivable, net of allowance 570.8 648.1
Inventories 438.2 510.4
Other current assets 25.9 20.5
Total current assets 1,491.1 1,631.3
Investments in unconsolidated affiliates 188.1 179.1
Property, plant and equipment, net 625.8 592.1
Other assets    
Goodwill 67.7 69.0
Other intangible assets, net 191.5 191.1
Right of use assets - operating 71.4  
Deferred income tax assets 67.5 26.7
Deferred charges and other assets 55.7 37.5
Total other assets 453.8 324.3
Total assets 2,758.8 2,726.8
Current liabilities    
Short-term borrowings and current portion of long-term debt 11.1 7.0
Accounts payable 343.0 354.2
Current lease liabilities - operating 14.1  
Income taxes payable 5.0 16.0
Accrued expenses and other current liabilities 154.4 159.8
Total current liabilities 527.6 537.0
Noncurrent liabilities    
Long-term debt, net of unamortized deferred financing fees 1,162.6 1,160.8
Noncurrent lease liabilities - operating 58.0  
Deferred income tax liabilities 41.5 45.4
Other noncurrent obligations 300.2 214.9
Total noncurrent liabilities 1,562.3 1,421.1
Commitments and contingencies (Note 15)
Shareholders' equity    
Ordinary shares, $0.01 nominal value, 50,000.0 shares authorized (December 31, 2019: 48.8 shares issued and 39.0 shares outstanding; December 31, 2018: 48.8 shares issued and 41.6 shares outstanding) 0.5 0.5
Additional paid-in-capital 574.7 575.4
Treasury shares, at cost (December 31, 2019: 9.8 shares; December 31, 2018: 7.2 shares) (524.9) (418.1)
Retained earnings 781.0 753.2
Accumulated other comprehensive loss (162.4) (142.3)
Total shareholders' equity 668.9 768.7
Total liabilities and shareholders' equity $ 2,758.8 $ 2,726.8
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Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Condensed Consolidated Balance Sheets    
Ordinary shares, nominal value $ 0.01 $ 0.01
Ordinary shares, shares authorized 50,000,000,000.0 50,000,000,000.0
Ordinary shares, shares issued 48,800,000 48,800,000
Ordinary shares, shares outstanding 39,000,000.0 41,600,000
Treasury stock, shares 9,800,000 7,200,000
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Condensed Consolidated Statements of Operations - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Condensed Consolidated Statements of Operations      
Net sales $ 3,775.8 $ 4,622.8 $ 4,448.1
Cost of sales 3,446.9 4,094.0 3,807.8
Gross profit 328.9 528.8 640.3
Selling, general and administrative expenses 300.0 258.5 239.0
Equity in earnings of unconsolidated affiliates 119.0 144.1 123.7
Operating income 147.9 414.4 525.0
Interest expense, net 39.3 46.4 70.1
Loss on extinguishment of long-term debt   0.2 65.3
Other expense (income), net 4.0 3.5 (21.5)
Income before income taxes 104.6 364.3 411.1
Provision for income taxes 12.6 71.8 82.8
Net income $ 92.0 $ 292.5 $ 328.3
Weighted average shares- basic 40.3 42.8 43.8
Net income per share- basic $ 2.28 $ 6.83 $ 7.49
Weighted average shares- diluted 40.7 43.7 45.0
Net income per share- diluted $ 2.26 $ 6.70 $ 7.30
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Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Condensed Consolidated Statements of Comprehensive Income (Loss)      
Net income $ 92.0 $ 292.5 $ 328.3
Other comprehensive income (loss), net of tax      
Cumulative translation adjustments 5.1 (17.3) 24.5
Net gain on cash flow hedges post adoption (8.3) 15.0  
Net gain (loss) on cash flow hedges prior to adoption     (18.4)
Pension and other postretirement benefit plans:      
Prior service credit arising during period (net of tax of $0, $0.2, and $0)   0.7  
Net gain (loss) arising during period (net of tax of: $(8.9), $0.3, and $10.8) (19.0) 1.8 31.8
Amounts reclassified from accumulated other comprehensive income (loss) 2.1 3.1 (13.3)
Total other comprehensive income (loss), net of tax (20.1) 3.3 24.6
Comprehensive income $ 71.9 $ 295.8 $ 352.9
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Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Condensed Consolidated Statements of Comprehensive Income (Loss)      
Prior service credit arising during period, tax $ 0.0 $ 0.2 $ 0.0
Net loss arising during period, tax (benefit) expense $ (8.9) $ 0.3 $ 10.8
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Condensed Consolidated Statements of Shareholders' Equity - USD ($)
shares in Millions, $ in Millions
Ordinary Shares
Additional Paid-In Capital
Treasury Shares
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Total
Balance at beginning of period at Dec. 31, 2016 $ 0.5 $ 573.7 $ (217.5) $ (170.2) $ 261.2 $ 447.7
Balance at beginning of period, shares at Dec. 31, 2016 44.3   4.5      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income         328.3 328.3
Other comprehensive income (loss)       24.6   24.6
Stock-based compensation   5.1 $ 17.5     22.6
Stock-based compensation, shares 0.5   (0.5)      
Purchase of treasury shares     $ (86.8)     (86.8)
Purchase of treasury shares, shares (1.4)   1.4      
Dividends on ordinary shares         (61.6) (61.6)
Balance at end of period at Dec. 31, 2017 $ 0.5 578.8 $ (286.8) (145.6) 527.9 674.8
Balance at end of period, shares at Dec. 31, 2017 43.4   5.4      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income         292.5 292.5
Other comprehensive income (loss)       3.3   3.3
Stock-based compensation   (3.4) $ 13.7     10.3
Stock-based compensation, shares 0.4   (0.4)      
Purchase of treasury shares     $ (145.0)     (145.0)
Purchase of treasury shares, shares (2.2)   2.2      
Dividends on ordinary shares         (67.2) (67.2)
Balance at end of period at Dec. 31, 2018 $ 0.5 575.4 $ (418.1) (142.3) 753.2 $ 768.7
Balance at end of period, shares at Dec. 31, 2018 41.6   7.2     41.6
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income         92.0 $ 92.0
Other comprehensive income (loss)       (20.1)   (20.1)
Stock-based compensation   (0.7) $ 9.6     8.9
Stock-based compensation, shares 0.2   (0.2)      
Purchase of treasury shares     $ (116.4)     (116.4)
Purchase of treasury shares, shares (2.8)   2.8      
Dividends on ordinary shares         (64.2) (64.2)
Balance at end of period at Dec. 31, 2019 $ 0.5 $ 574.7 $ (524.9) $ (162.4) $ 781.0 $ 668.9
Balance at end of period, shares at Dec. 31, 2019 39.0   9.8     39.0
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Condensed Consolidated Statements of Shareholders' Equity (Parenthetical)) - $ / shares
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Condensed Consolidated Statement of Stockholders' Equity      
Dividends on ordinary shares $ 1.60 $ 1.56 $ 1.38
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Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities      
Net income $ 92.0 $ 292.5 $ 328.3
Adjustments to reconcile net income to net cash provided by operating activities      
Depreciation and amortization 136.0 130.2 110.6
Amortization of deferred financing fees, issuance discount, and excluded component of hedging instruments (0.5) 0.6 5.1
Deferred income tax (37.4) 5.3 14.8
Share-based compensation expense 13.5 15.8 13.8
Earnings of unconsolidated affiliates, net of dividends (9.0) (26.6) 5.3
Unrealized net (gain) loss on foreign exchange forward contracts 3.0 (0.9) 2.6
Loss on extinguishment of long-term debt   0.2 65.3
Gain on sale of businesses and other assets (0.7) (1.0) (10.5)
Impairment charges 0.2 1.9 4.3
Gain on bargain purchase (4.7)    
Pension curtailment and settlement (gain) loss 0.8 0.6 (21.6)
Changes in assets and liabilities      
Accounts receivable 66.6 21.2 (51.8)
Inventories 70.7 (16.0) (80.2)
Accounts payable and other current liabilities (1.7) (43.8) 9.3
Income taxes payable (10.9) (19.7) 9.9
Other assets, net (0.2) (4.4) (4.5)
Other liabilities, net 4.8 10.6 (9.4)
Cash provided by operating activities 322.5 366.5 391.3
Cash flows from investing activities      
Capital expenditures (110.1) (121.4) (147.4)
Net cash received (paid) for asset and business acquisitions, net of cash acquired 0.1   (82.3)
Proceeds from capital expenditures subsidy   1.0  
Proceeds from the sale of businesses and other assets 0.7 1.7 46.2
Distributions from unconsolidated affiliates     0.9
Cash used in investing activities (109.3) (118.7) (182.6)
Cash flows from financing activities      
Deferred financing fees   (0.6) (21.5)
Short term borrowings, net (10.6) (0.3) (0.3)
Purchase of treasury shares (119.7) (142.9) (88.9)
Dividends paid (65.7) (66.0) (58.0)
Proceeds from exercise of option awards 0.9 2.8 9.3
Withholding taxes paid on restricted share units (4.6) (8.2) (0.3)
Prepayment penalty on long-term debt     (53.0)
Cash used in financing activities (206.7) (222.2) (253.0)
Effect of exchange rates on cash (1.4) (6.1) 12.0
Net change in cash, cash equivalents and restricted cash 5.1 19.5 (32.3)
Cash, cash equivalents and restricted cash, beginning of period 452.3 432.8 465.1
Cash, cash equivalents and restricted cash, end of period 457.4 452.3 $ 432.8
Restricted cash $ (1.2) $ (0.0)  
Restricted Cash and Cash Equivalents, Current, Asset, Statement of Financial Position [Extensible List] Other Assets, Current Other Assets, Current Other Assets, Current
Cash and cash equivalents, end of period $ 456.2 $ 452.3 $ 432.8
Supplemental disclosure of cash flow information      
Cash paid for income taxes, net of refunds 66.3 85.2 75.0
Cash paid for interest, net of amounts capitalized 39.7 50.7 63.3
Accrual for property, plant and equipment 17.2 10.2 15.6
2020 Senior Credit Facility      
Adjustments to reconcile net income to net cash provided by operating activities      
Loss on extinguishment of long-term debt     0.8
2021 Term Loan B      
Cash flows from financing activities      
Repayments of Term Loans     (492.5)
2024 Term Loan B      
Adjustments to reconcile net income to net cash provided by operating activities      
Loss on extinguishment of long-term debt   0.2  
Cash flows from financing activities      
Net proceeds from issuance of Term Loan B   696.5 700.0
Repayments of Term Loans $ (7.0) $ (703.5) (1.8)
2025 Senior Notes      
Cash flows from financing activities      
Net proceeds from issuance of Senior Notes     500.0
2022 Senior Notes      
Adjustments to reconcile net income to net cash provided by operating activities      
Loss on extinguishment of long-term debt     64.5
Cash flows from financing activities      
Repayments of Senior Notes     $ (746.0)
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Organization and Business Activities
12 Months Ended
Dec. 31, 2019
Basis of Presentation  
Organization and Business Activities

NOTE 1—ORGANIZATION AND BUSINESS ACTIVITIES

Organization

On June 3, 2010, Bain Capital Everest Manager Holding SCA, an affiliate of Bain Capital (which is referred to as “the former Parent”), was formed through investment funds advised or managed by Bain Capital. Dow Europe Holding B.V. (together with The Dow Chemical Company, “Dow”) retained an indirect ownership interest in the former Parent. Trinseo S.A. (“Trinseo,” and together with its subsidiaries, the “Company”) was also formed on June 3, 2010, incorporated under the existing laws of the Grand Duchy of Luxembourg. At that time, all ordinary shares of Trinseo were owned by the former Parent. On June 17, 2010, Trinseo acquired 100% of the former Styron business from Dow (the “Acquisition”), at which time the Company commenced operations. During the year ended December 31, 2016, the former Parent sold 37,269,567 ordinary shares of the Company in a series of secondary offerings to the market. As such, the former Parent no longer holds an ownership interest in the Company.

Business Activities

The Company is a leading global materials company engaged in the manufacturing and marketing of synthetic rubber, latex binders, and plastics, including various specialty and technologically differentiated products. The Company develops synthetic rubber, latex binders, and plastics products that are incorporated into a wide range of products throughout the world, including tires and other products for automotive applications, carpet and artificial turf backing, coated paper and packaging board, food packaging, appliances, medical devices, consumer electronics and construction applications, among others.

The Company’s operations are located in Europe, North America, and Asia Pacific, supplemented by Americas Styrenics, a styrenics joint venture with Chevron Phillips Chemical Company LP. Refer to Note 5 for further information regarding the Company’s investment in Americas Styrenics.

The Company has significant manufacturing and production operations around the world, which allow service to its global customer base. As of December 31, 2019, the Company’s production facilities included 32 manufacturing plants (which included a total of 77 production units) at 24 sites across 12 countries, including its joint venture. Additionally, as of December 31, 2019, the Company operated 10 research and development (“R&D”) facilities globally, including mini plants, development centers, and pilot coaters.

The Company’s Chief Executive Officer, who is the chief operating decision maker, manages the Company’s operations under six segments, Latex Binders, Synthetic Rubber, Performance Plastics, Polystyrene, Feedstocks, and Americas Styrenics.

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Basis of Presentation and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Basis of Presentation  
Basis of Presentation and Summary of Significant Accounting Policies

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements of the Company contain the accounts of all entities that are controlled and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. A VIE is defined as a legal entity that has equity investors that do not have sufficient equity at risk for the entity to support its activities without additional subordinated financial support or, as a group, the holders of the equity at risk lack (i) the power to direct the entity’s activities or (ii) the obligation to absorb the expected losses or the right to receive the expected residual returns of the entity. A VIE is required to be consolidated by a company if that company is the primary beneficiary. Refer to Note 11 for further discussion of the Company’s Accounts Receivable Securitization Facility, which qualifies as a VIE and is consolidated within the Company’s financial statements.

All intercompany balances and transactions are eliminated. Joint ventures over which the Company has the ability to exercise significant influence that are not consolidated are accounted for by the equity method.

Use of Estimates in Financial Statement Preparation

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from these estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and accounts receivable. The Company uses major financial institutions with high credit ratings to engage in transactions involving cash equivalents. The Company minimizes credit risk in its receivables by selling products to a diversified portfolio of customers in a variety of markets located throughout the world.

The Company performs ongoing evaluations of its customers’ credit and generally does not require collateral. The Company maintains an allowance for doubtful accounts for losses resulting from the inability of specific customers to meet their financial obligations, representing its best estimate of probable credit losses in existing trade accounts receivable. A specific reserve for doubtful receivables is recorded against the amount due from these customers. For all other customers, the Company recognizes reserves for doubtful receivables based on historical experience.

Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued and other current liabilities, approximate fair value due to their generally short maturities.

The estimated fair values of the Company’s 2024 Term Loan B and 2025 Senior Notes and, when outstanding, borrowings under its 2022 Revolving Facility and Accounts Receivable Securitization Facility (all of which are defined in Note 11) are determined using Level 2 inputs within the fair value hierarchy. The carrying amounts of borrowings under the 2022 Revolving Facility and Accounts Receivable Securitization Facility approximate fair value as these borrowings bear interest based on prevailing variable market rates.

At times, the Company manages its exposure to changes in foreign currency exchange rates, where possible, by entering into foreign exchange forward contracts. Additionally, the Company manages its exposure to variability in interest payments associated with its variable rate debt by entering into interest rate swap agreements. When outstanding, all derivatives, whether designated in hedging relationships or not, are required to be recorded on the consolidated balance sheets at fair value. The fair value of the derivatives is determined from sources independent of the Company, including the financial institutions which are party to the derivative instruments. The fair value of derivatives also considers the credit default risk of the parties involved.

If the derivative is not designated for hedge accounting treatment, changes in the fair value of the underlying instrument and settlements are recognized in earnings. If the derivative is designated as a fair value hedge, changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative will be recorded in accumulated other comprehensive income or loss (“AOCI”) and will be recognized in the consolidated statements of operations when the hedged item affects earnings or it becomes probable that the forecasted transaction will not occur. If the derivative is designated as a net investment hedge, to the extent it is deemed to be effective, the change in the fair value of the derivative will be recorded within the cumulative translation adjustment account as a component of AOCI and the resulting gains or losses will be recognized in the consolidated statements of operations when the hedged net investment is either sold or substantially liquidated.

As of December 31, 2019 and 2018, the Company had certain foreign exchange forward contracts outstanding that were not designated for hedge accounting treatment and certain foreign exchange forward contracts and interest rate swap agreements that were designated as cash flow hedges. As of December 31, 2019 and 2018, the Company also had certain fixed-for-fixed cross currency swaps (“CCS”) outstanding, which swap U.S. dollar principal and interest payments on the Company’s 2025 Senior Notes for euro-denominated payments. The Company’s CCS have been

designated as a hedge of its net investment in certain European subsidiaries. The CCS were initially designated as a hedge effective September 1, 2017 and were subsequently re-designated as a net investment hedge in conjunction with the Company’s adoption of new hedge accounting guidance effective April 1, 2018.

Forward contracts, interest rate swaps, and cross currency swaps are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract. The Company records these derivative instruments on a net basis, by counterparty within the consolidated balance sheets.

The Company presents the cash receipts and payments from hedging activities in the same category as the cash flows from the items subject to hedging relationships. As the items subject to economic hedging relationships are the Company’s operating assets and liabilities, the related cash flows are classified within operating activities in the consolidated statements of cash flows.

Refer to Notes 12 and 13 for further information on the Company’s derivative instruments and their fair value measurements.

Foreign Currency Translation

For the majority of the Company’s subsidiaries, the local currency has been identified as the functional currency. For remaining subsidiaries, the U.S. dollar has been identified as the functional currency due to the significant influence of the U.S. dollar on their operations. Gains and losses resulting from the translation of various functional currencies into U.S. dollars are recorded within the cumulative translation adjustment account as a component of AOCI in the consolidated balance sheets. The Company translates asset and liability balances at exchange rates in effect at the end of the period and income and expense transactions at the average exchange rates in effect during the period. Gains and losses resulting from foreign currency transactions are recorded within “Other expense (income), net” in the consolidated statements of operations.

For the years ended December 31, 2019 and 2018, the Company recognized net foreign exchange transaction losses of $6.2 million and $15.8 million, respectively, while for the year ended December 31, 2017, the Company recognized a net foreign exchange transaction gain of $20.6 million. These amounts exclude the impacts of foreign exchange forward contracts discussed above.

Environmental Matters

Accruals for environmental matters are recorded when it is considered probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information become available. Accruals for environmental liabilities are recorded within “Other noncurrent obligations” in the consolidated balance sheets at undiscounted amounts. As of December 31, 2019 and 2018, there were no accruals for environmental liabilities recorded.

Environmental costs are capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction or normal operation of a long-lived asset. Any costs related to environmental contamination treatment and clean-ups are charged to expense. Estimated future incremental operations, maintenance, and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.

Cash and Cash Equivalents

Cash and cash equivalents generally include time deposits or highly liquid investments with original maturities of three months or less and no material liquidity fee or redemption gate restrictions.

Inventories

Inventories are stated at the lower of cost or net realizable value (“NRV”), with cost being determined on the first-in, first-out (“FIFO”) method. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal, and transportation. The Company periodically reviews its inventory for excess or obsolete inventory, and will write-down the excess or obsolete inventory value to its NRV, if applicable.

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation and less impairment, if applicable, and are depreciated over their estimated useful lives using the straight-line method.

Expenditures for maintenance and repairs are recorded in the consolidated statements of operations as incurred. Expenditures that significantly increase asset value, extend useful asset lives or adapt property to a new or different use are capitalized. These expenditures include planned major maintenance activity, or turnaround activities, that increase the Company’s manufacturing plants’ output and improve production efficiency as compared to pre-turnaround operations. As of December 31, 2019 and 2018, $23.1 million and $15.1 million, respectively, of the Company’s net costs related to turnaround activities were capitalized within “Deferred charges and other assets” in the consolidated balance sheets, and are being amortized over the period until the next scheduled turnaround.

The Company periodically evaluates actual experience to determine whether events and circumstances have occurred that may warrant revision of the estimated useful lives of property, plant and equipment. Engineering and other costs directly related to the construction of property, plant and equipment are capitalized as construction in progress until construction is complete and such property, plant and equipment is ready and available to perform its specifically assigned function. The Company also capitalizes interest as a component of the cost of capital assets constructed for its own use. Upon retirement or other disposal, the asset cost and related accumulated depreciation are removed from the accounts and the net amount, less any proceeds, is charged or credited to income.

Impairment and Disposal of Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. When undiscounted future cash flows are not expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value based on a discounted cash flow analysis utilizing market participant assumptions.

Long-lived assets to be disposed of by sale are classified as held-for-sale and are reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of in a manner other than by sale are classified as held-and-used until they are disposed. Refer to Note 20 for information on the Company’s assets classified as held-for-sale as of December 31, 2019.

Goodwill and Other Intangible Assets

The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. The Company utilizes a market approach and an income approach (under the discounted cash flow method) to calculate the fair value of its reporting units. When supportable, the Company employs the qualitative assessment of goodwill impairment prescribed by Accounting Standards Codification (“ASC”) 350. The annual impairment assessment is completed using a measurement date of October 1. No goodwill impairment losses were recorded in the years ended December 31, 2019, 2018, and 2017.

Finite-lived intangible assets, such as developed technology, customer relationships, manufacturing capacity rights, and computer software for internal use are amortized on a straight-line basis over their estimated useful life and are reviewed for impairment or obsolescence if events or changes in circumstances indicate that their carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows. No intangible asset impairment losses were recorded in the years ended December 31, 2019, 2018, and 2017.

Acquired developed technology is recorded at fair value upon acquisition and is amortized using the straight-line method over the estimated useful life ranging from 9 years to 15 years. The Company determines amortization periods for developed technology based on its assessment of various factors impacting estimated useful lives and timing and extent of estimated cash flows of the acquired assets. This includes estimates of expected period of future economic benefit and competitive advantage related to existing processes and procedures at the date of acquisition. Significant changes to any of these factors may result in a reduction in the useful life of these assets.

Customer relationships are recorded at fair value upon acquisition and are amortized using the straight-line method over the estimated useful life of 19 years. The Company determines amortization periods for customer relationships based on its assessment of various factors impacting estimated useful lives and timing and extent of estimated cash flows of the acquired assets. This includes estimates of expected period of future economic benefit and customer retention rates. Significant changes to any of these factors may result in a reduction in the useful life of these assets.

Investments in Unconsolidated Affiliates

Investments in unconsolidated affiliates in which the Company has the ability to exercise significant influence (generally, 20% to 50%-owned companies) are accounted for using the equity method. Investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. An impairment loss is recorded whenever a decline in fair value of an investment in an unconsolidated affiliate below its carrying amount is determined to be other-than-temporary.

The Company uses the cumulative earnings approach for presenting distributions received from equity method investees in the consolidated statements of cash flows.

Deferred Financing Fees

Capitalized fees and costs incurred in connection with the Company’s recognized debt liabilities are presented in the consolidated balance sheets as a direct reduction from the carrying value of those debt liabilities, consistent with debt discounts. Deferred financing fees related to the Company’s revolving debt facilities are included within “Deferred charges and other assets” in the consolidated balance sheets.

Deferred financing fees on the Company’s term loan and senior note financing arrangements are amortized using the effective interest method over the term of the respective agreement. Deferred financing fees on the Company’s revolving facilities and the Accounts Receivable Securitization Facility are amortized using the straight-line method over the term of the respective facility. Amortization of deferred financing fees is recorded in “Interest expense, net” within the consolidated statements of operations.

Restricted Cash and Cash Equivalents

Restrictions on the Company’s cash and cash equivalents are primarily related to customs requirements. As of December 31, 2019 and 2018, the Company had restricted cash and cash equivalents of $1.2 million and $0.0 million, respectively, included within “Other current assets” in the consolidated balance sheets.

Sales

Sales are recognized at a point when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services when the Company’s related performance obligation is satisfied under the terms of the contract. Standard terms of delivery are included in contracts of sale, order confirmation documents, and invoices. Sales and other taxes that the Company collects concurrent with sales-producing activities are excluded from “Net sales” and included as a component of “Cost of sales” in the consolidated statements of operations. Additionally, freight and any directly related costs of transporting finished products to customers are accounted for as fulfilment costs and are also included within “Cost of sales.”

The amount of net sales recognized varies with changes in returns, rebates, cash sales incentives, and other allowances offered to customers based on the Company's experience. For arrangements where the period between customer payment and transfer of goods/services is determined to be one year or less at contract inception, the Company applies the practical expedient exception available under ASC 606 and does not adjust the promised amount of consideration under the contract for the effects of a significant financing component. Additionally, the Company’s incremental costs of obtaining contracts are expensed as incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less, and are included within “Selling, general and administrative expenses” in the consolidated statements of operations, pursuant to the practical expedient in ASC 606.

Cost of Sales

The Company classifies the costs of manufacturing and distributing its products as cost of sales. Manufacturing costs include raw materials, utilities, packaging, employee salary and benefits and fixed manufacturing costs associated with production. Fixed manufacturing costs include such items as plant site operating costs and overhead, production planning, depreciation and amortization, repairs and maintenance, environmental, and engineering costs. Distribution costs include shipping and handling costs. Freight and any directly related costs of transporting finished products to customers are also included within cost of sales. As discussed above, inventory costs are recorded within cost of sales utilizing the FIFO method.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses are generally charged to expense as incurred. SG&A expenses are the cost of services performed by the marketing and sales functions (including sales managers, field sellers, marketing research, marketing communications and promotion and advertising materials) and by administrative functions (including product management, R&D, business management, customer invoicing, human resources, information technology, legal and finance services, such as accounting and tax). Salary and benefit costs, including share-based compensation, for these sales personnel and administrative staff are included within SG&A expenses. R&D expenses include the cost of services performed by the R&D function, including technical service and development, process research including pilot plant operations, and product development. The Company also includes restructuring charges within SG&A expenses.

Total R&D costs included in SG&A expenses were $54.6 million, $56.0 million, and $54.3 million for the years ended December 31, 2019, 2018, and 2017, respectively.

The Company expenses promotional and advertising costs as incurred to SG&A expenses. Total promotional and advertising expenses were $1.8 million, $1.6 million, and $1.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Restructuring charges included within SG&A expenses were $18.6 million, $9.3 million, and $8.0 million for the years ended December 31, 2019, 2018, and 2017, respectively. Refer to Note 20 for further information.

Pension and Postretirement Benefits Plans

The Company has several defined benefit plans, under which participants earn a retirement benefit based upon a formula set forth in the plan. The Company also provides certain health care and life insurance benefits to retired employees in the United States. The U.S.-based plan provides health care benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits.

Accounting for defined benefit pension plans and other postretirement benefit plans, and any curtailments and settlements thereof, requires various assumptions, including, but not limited to, discount rates, expected rates of return on plan assets and future compensation growth rates. The Company evaluates these assumptions at least once each year, or as facts and circumstances dictate, and makes changes as conditions warrant.

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

Income Taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when

changes are enacted. For each tax jurisdiction in which the Company operates, deferred tax assets and liabilities are offset against one another and are presented as a single noncurrent amount within the consolidated balance sheets.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision is made for income taxes on unremitted earnings of subsidiaries and affiliates, unless such earnings are deemed to be indefinitely invested.

The Company recognizes the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. Interest accrued related to unrecognized tax and income tax related penalties are included in the provision for income taxes. The current portion of uncertain income taxes positions is recorded in “Income taxes payable,” while the long-term portion is recorded in “Other noncurrent obligations” in the consolidated balance sheets.

Share-based Compensation

Refer to Note 17 for detailed discussion regarding the Company’s share-based compensation award programs. In connection with the Company’s initial public offering (“IPO”), the Company’s board of directors approved the 2014 Omnibus Plan. Since that time, certain equity grants have been awarded, comprised of restricted share units (“RSUs”), options to purchase shares (“option awards”), and performance share units (“PSUs”). Share-based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest. The Company’s policy election is to recognize forfeitures as incurred, rather than estimating forfeitures in advance.

Compensation costs for the RSUs are measured at the grant date based on the fair value of the award and are recognized ratably as expense over the applicable vesting term. The fair value of RSUs is equal to the fair market value of the Company’s ordinary shares based on the closing price on the date of grant. Dividend equivalents accumulate on RSUs during the vesting period, are payable in cash, and do not accrue interest. Award holders have no right to receive the dividend equivalents unless and until the associated RSUs vest.

Compensation costs for the option awards are measured at the grant date based on the fair value of the award and is recognized as expense over the appropriate service period utilizing graded vesting. The fair value for option awards is computed using the Black-Scholes pricing model, which uses inputs and assumptions determined as of the date of grant.

Compensation costs for the PSUs are measured at the grant date based on the fair value of the award, which is computed using a Monte Carlo valuation model, and is recognized ratably as expense over the applicable vesting term. Dividend equivalents accumulate on PSUs during the vesting period, are payable in cash, and do not accrue interest. Award holders have no right to receive the dividend equivalents unless and until the associated PSUs vest.

Treasury Shares

The Company may, from time to time, repurchase its ordinary shares at prevailing market rates. Share repurchases are recorded at cost in “Treasury shares” within shareholders’ equity in the consolidated balance sheets. It is the Company’s policy that, as RSUs, PSUs, and option awards vest or are exercised, ordinary shares will be issued from the existing pool of treasury shares on a first-in-first-out basis. Refer to Note 17 for details of vesting for RSUs and PSUs as well as the exercises of option awards.

Recent Accounting Guidance

In February 2016, the FASB issued guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize on the consolidated balance sheets lease liabilities and corresponding right-of-use assets (“ROU”) for all leases with terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The new guidance must be adopted using a modified retrospective transition, applying the new standard to all leases existing at the date of initial application. The Company adopted the standard effective January 1, 2019, and as a result, the Company recorded ROU assets and lease liabilities of $73.0 million and $72.4 million, respectively, on the consolidated balance sheet as of January 1, 2019. The Company’s adoption of this standard did not result in a cumulative

effect adjustment being recorded to opening retained earnings as of January 1, 2019 and did not have a material impact on the Company’s consolidated statements of operations or cash flows. Refer to Note 23 for new disclosure requirements in effect as a result of this adoption.

In August 2018, the FASB issued guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension plans or other postretirement plans. Under the guidance, the Company is required to disclose reasons for significant gains and losses related to changes in the benefit obligation for the period. The Company adopted this guidance during the fourth quarter of 2019 on a retrospective basis, which did not result in material impact on its consolidated financial statements. Refer to Note 16 for new disclosure requirements in effect as a result of this adoption.

In August 2018, the FASB issued guidance which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This standard update is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company will adopt the new guidance prospectively to eligible costs incurred on or after the date first applied. The Company does not anticipate that adoption of this guidance will have a material impact on its consolidated financial statements, barring significant future cloud computing transactions.

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes. The amended guidance includes removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. This guidance is effective for public business entities for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the timing and impacts of adopting this guidance on its consolidated financial statements.

v3.19.3.a.u2
Net Sales
12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Net Sales

NOTE 3—NET SALES

The following table provides disclosure of net sales to external customers by primary geographical market (based on the location where the sales originated), by segment for the years ended December 31, 2019, 2018, and 2017.

Latex

Synthetic

Performance

 

Year Ended

Binders

Rubber

Plastics

Polystyrene

Feedstocks

Total

 

December 31, 2019

United States

$

263.7

$

$

305.9

$

$

10.7

$

580.3

Europe

 

388.5

 

441.3

 

735.9

 

448.8

 

148.8

 

2,163.3

Asia-Pacific

 

239.3

 

 

238.2

 

360.6

 

96.6

 

934.7

Rest of World

 

11.3

 

 

86.2

 

 

 

97.5

Total

$

902.8

$

441.3

$

1,366.2

$

809.4

$

256.1

$

3,775.8

December 31, 2018

United States

$

288.2

$

$

326.4

$

0.2

$

12.5

$

627.3

Europe

 

459.4

 

572.5

 

931.2

 

607.8

 

211.7

 

2,782.6

Asia-Pacific

 

306.6

 

 

226.2

 

409.1

 

162.4

1,104.3

Rest of World

 

14.8

 

93.8

 

 

 

108.6

Total

$

1,069.0

$

572.5

$

1,577.6

$

1,017.1

$

386.6

$

4,622.8

December 31, 2017

United States

$

290.9

$

$

297.4

$

1.0

$

13.4

$

602.7

Europe

 

468.5

 

582.8

 

866.3

 

571.7

 

199.6

 

2,688.9

Asia-Pacific

 

320.6

 

 

167.4

 

368.7

 

194.7

 

1,051.4

Rest of World

 

17.1

 

 

88.0

 

 

 

105.1

Total

$

1,097.1

$

582.8

$

1,419.1

$

941.4

$

407.7

$

4,448.1

For all material contracts with customers, control is transferred and sales are recognized at a point in time when the Company satisfies the performance obligations according to the terms of the contract, and when title and the risk of loss is passed to the customer. Title and risk of loss varies by region and customer and is determined based upon the purchase order received from the customer and the applicable contractual terms or jurisdictional standards. The

Company receives cash equal to the invoice price for most product sales, subject to cash sales incentives with certain customers, with payment terms generally ranging from 10 to 90 days (with an approximate weighted-average of 58 days as of December 31, 2019), also varying by segment and region.

Certain of the Company’s contracts with customers contain multiple performance obligations, most commonly due to the sale of multiple distinct products. The transaction price within these contracts is allocated between these separate and distinct products based on their stand-alone selling prices, as defined within the contract. The Company’s products are typically sold at observable stand-alone sales values, which are used to determine the estimated stand-alone selling price. The stand-alone selling prices of the Company’s products are generally based, in part, on the current or forecasted costs of key raw materials, but are often subject to a predetermined lag period for the pass through of these costs. As such, contracts with customers typically include provisions that allow for the changes in stand-alone selling prices to reflect the pass through of changes in raw material costs, often using pricing formulas that utilize commodity indices.

In cases where the Company’s transaction price is considered variable at the point of revenue recognition, the ‘most likely amount’ method is used to estimate the effect of any related uncertainty. In formulating this estimate, the Company considers all historical, current, and forecasted information that is reasonably available to identify a reasonable number of possible consideration amounts. Once the transaction price, including impacts of variable consideration, is estimated, revenue is recognized only to the extent that it is probable that a subsequent change in the estimate would not result in a significant revenue reversal. Furthermore, if the Company is not able to rely on observable stand-alone selling prices, the ‘expected cost plus a margin approach’ is utilized to estimate the stand-alone selling price of each performance obligation, primarily utilizing historical experience. During the year ended December 31, 2019, the impact of recognizing changes in selling prices related to prior periods was immaterial.

v3.19.3.a.u2
Acquisitions and Divestitures
12 Months Ended
Dec. 31, 2019
Acquisitions and Divestitures  
Acquisitions and Divestitures

NOTE 4—ACQUISITIONS AND DIVESTITURES

Acquisition of API Plastics

In July 2017, the Company acquired 100% of the equity interest of API Applicazioni Plastiche Industriali S.p.A (“API Plastics”) a privately held company that manufactures soft-touch polymers and bioplastics, such as thermoplastic elastomers (“TPEs”). The gross purchase price for the acquisition was $90.6 million, inclusive of $8.4 million of cash acquired, yielding a net purchase price of $82.3 million, which was paid for in the year ended December 31, 2017. Of the total consideration for the transaction, the Company allocated $28.3 million to goodwill, based on the expected future cash flows of the acquired business. The Company finalized the purchase price allocation for API Plastics during the third quarter of 2018, which is described in further detail in its Form 10-K filed on February 28, 2019.

Acquisition of Latex Binders Assets in Germany

On October 1, 2019, the Company completed the acquisition from Dow of its latex binder production facilities and related infrastructure in Rheinmünster, Germany. The transaction includes full ownership and operational control of latex production facilities, site infrastructure, and service contracts, as well as certain employees transferring from Dow to Trinseo. This acquisition provides Trinseo with manufacturing assets supporting its strategy to grow its Latex Binders business in applications serving the coatings, adhesives, specialty paper, and sealants markets. The transaction, which is being accounted for as a business combination, did not require any upfront cash outlay from Trinseo. The Company assumed net liabilities of $2.0 million as well as employees transferred in connection with the acquisition, as detailed in the table below. In exchange for the net liabilities assumed, Trinseo received net cash of $6.7 million.

The Company allocated the purchase price of the acquisition, which was represented by the value of the pension liabilities assumed net of cash and net assets received in connection with the transaction, to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. There was an excess in the aggregate fair value of the identifiable net assets acquired over the purchase price, which was recorded as a bargain purchase gain of $4.7 million during the fourth quarter of 2019. There were no intangible assets identified in conjunction with this acquisition.

The Company calculated the fair value of the assets acquired and certain liabilities assumed using the market, cost, and income approaches (or a combination thereof). Fair values of assets and certain liabilities were determined based on Level 3 inputs including comparable asset sale information, discount rates, anticipated useful lives and depreciation

curves, and estimated future cash flows. The fair value of pension liabilities assumed was determined in accordance with ASC 715 using key inputs including, but not limited to, discount rates, expected rates of return on plan assets, and future compensation growth rates. The various inputs used in the asset and pension valuations require management judgment.

The purchase price allocation is based upon preliminary information and is subject to change if additional information about the facts and circumstances that existed at the acquisition date become available. Additional information is being gathered to finalize these preliminary measurements, particularly with respect to property, plant and equipment, inventory, deferred income taxes and pension liabilities. Further adjustments may be necessary as a result of the Company’s ongoing assessment of additional information related to the fair value of assets acquired and liabilities assumed, including the bargain purchase gain, during the measurement period.

The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:

October 1,

    

2019

Inventories

$

3.9

Property, plant, and equipment

48.2

Right-of-use-assets - operating

0.3

Total fair value of assets acquired

52.4

Accrued expenses and other current liabilities

(0.6)

Noncurrent lease liabilities - operating

(0.3)

Deferred income tax liabilities

(2.0)

Other noncurrent obligations(1)

(51.5)

Total fair value of liabilities assumed

$

(54.4)

Net liabilities assumed

$

(2.0)

Net cash received

$

6.7

Bargain purchase gain(2)

$

4.7

(1)Relates primarily to pension liabilities of $44.5 million and unfavorable leasehold interest of $7.0 million. The unfavorable leasehold interest is being amortized over its estimated remaining useful life of 18 years.
(2)The bargain purchase gain is included within “Other expense (income), net” in the consolidated statement of operations for the year ended December 31, 2019.

During the year ended December 31, 2019, $2.2 million of expense was incurred related to jurisdictional asset transfer taxes expected to be paid in conjunction with this acquisition, which were included within “Other expense (income), net” in the consolidated statement of operations. Furthermore, during the year ended December 31, 2019, transaction and integration costs related to advisory and professional fees incurred in conjunction with the acquisition were $1.6 million, and are included within “Selling, general and administrative expenses” in the consolidated statement of operations. Pro forma results of operations information have not been presented as the effect of the acquisition is not material. The operating results of the acquisition are included within the Company’s consolidated statement of operations since the acquisition date of October 1, 2019 and were not material for the year ended December 31, 2019.

Divestiture of Brazil Business

During the second quarter of 2016, the Company signed a definitive agreement to sell Trinseo do Brasil Comercio de Produtos Quimicos Ltda. (“Trinseo Brazil”), its primary operating entity in Brazil which included both a latex binders and PC & Compounding business. Under the agreement of sale, which closed on October 1, 2016, Trinseo Brazil was sold to a single counterparty, for a selling price that is subject to certain contingent consideration payments, which could be paid by the buyer over a five-year period subsequent to the closing date, based on the results of the Trinseo Brazil latex binders business during that time. During the year ended December 31, 2017, the Company received $1.7 million in proceeds from the sale of these businesses. During the years ended December 31, 2019 and 2018, the Company recognized $0.7 million and $1.0 million, respectively, of consideration earned for the performance of the transferred

latex binders business, of which $0.7 million and $0.5 million, respectively, was received in cash.

v3.19.3.a.u2
Investments in Unconsolidated Affiliates
12 Months Ended
Dec. 31, 2019
Investments in Unconsolidated Affiliates  
Investments in Unconsolidated Affiliates

NOTE 5—INVESTMENTS IN UNCONSOLIDATED AFFILIATES

During the year ended December 31, 2019, the Company had one joint venture: Americas Styrenics, a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP. Previously, the Company also had a 50% share in Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate,” a PC joint venture with Sumitomo Chemical Company Limited), until the sale of the Company’s investment in the joint venture during the first quarter of 2017, as discussed further below. Investments held in unconsolidated affiliates are accounted for by the equity method. The results of Americas Styrenics are included within its own reporting segment. The results of Sumika Styron Polycarbonate were included within the Performance Plastics segment prior to the sale of this investment.

Equity in earnings from unconsolidated affiliates was $119.0 million, $144.1 million, and $123.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their equity interests are not available. The summarized financial information of the Company’s unconsolidated affiliates is shown below. This table includes summarized financial information for Sumika Styron Polycarbonate through the date of sale in January 2017.

December 31,

 

2019

2018

 

Current assets

    

$

326.6

    

$

373.4

Noncurrent assets

 

247.7

 

236.2

Total assets

$

574.3

$

609.6

Current liabilities

$

158.8

$

167.2

Noncurrent liabilities

 

18.5

 

17.4

Total liabilities

$

177.3

$

184.6

Year Ended

 

December 31, 

 

    

2019

    

2018

    

2017

 

Sales

$

1,486.1

    

$

1,825.7

$

1,798.1

Gross profit

$

243.2

$

310.2

$

244.3

Net income

$

192.5

$

260.2

$

196.3

There were no sales to unconsolidated affiliates for the year ended December 31, 2019 and 2018. Sales to unconsolidated affiliates for the year ended December 31, 2017 were $3.6 million. Purchases from unconsolidated affiliates were $81.9 million, $91.5 million, and $78.8 million for the years ended December 31, 2019, 2018, and 2017, respectively.

As of December 31, 2019 and 2018, respectively, $0.1 million and $0.1 million due from unconsolidated affiliates was included in “Accounts receivable, net of allowance” and $6.3 million and $5.4 million due to unconsolidated affiliates was included in “Accounts payable” in the consolidated balance sheets.

Americas Styrenics

As of December 31, 2019 and 2018, respectively, the Company’s investment in Americas Styrenics was $188.1 million and $179.1 million, which was $10.3 million, and $33.3 million less than the Company’s 50% share of Americas Styrenics’ underlying net assets. These amounts represent the difference between the book value of assets contributed to the joint venture at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the joint venture’s assets and certain adjustments to conform with the Company’s accounting policies. This difference is being amortized over a weighted-average remaining useful life of the contributed assets of approximately 1.5 years as of December 31, 2019. The Company received dividends from Americas Styrenics of $110.0 million, $117.5 million, and $120.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Sumika Styron Polycarbonate

On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited for total sales proceeds of $42.1 million. As a result, the Company recorded a gain on sale of $9.3 million during the year ended December 31, 2017, which was included within “Other expense (income), net” in the consolidated statement of operations and was allocated entirely to the Performance Plastics segment. In addition, the parties have entered into a long-term agreement to continue sourcing PC resin from Sumika Styron Polycarbonate to the Company’s Performance Plastics segment.

Due to the sale in January 2017, the Company no longer had an investment in Sumika Styron Polycarbonate as of December 31, 2017. The Company received dividends from Sumika Styron Polycarbonate of $9.8 million for the year ended December 31, 2017.

v3.19.3.a.u2
Accounts Receivable
12 Months Ended
Dec. 31, 2019
Accounts Receivable [Abstract]  
Accounts Receivable

NOTE 6—ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

December 31,

 

2019

2018

 

Trade receivables

    

$

455.0

    

$

535.4

Non-income tax receivables

 

63.4

 

74.6

Other receivables

 

57.7

 

44.2

Less: allowance for doubtful accounts

 

(5.3)

 

(6.1)

Total

$

570.8

$

648.1

For the years ended December 31, 2019, 2018, and 2017, the Company recognized bad debt expense (benefit) of $(0.7) million, $0.6 million, and $1.5 million, respectively.

v3.19.3.a.u2
Inventories
12 Months Ended
Dec. 31, 2019
Inventories  
Inventories

NOTE 7—INVENTORIES

Inventories consisted of the following:

December 31,

    

2019

2018

Finished goods

    

$

210.8

    

$

269.8

Raw materials and semi-finished goods

 

190.1

 

205.8

Supplies

 

37.3

 

34.8

Total

$

438.2

$

510.4

v3.19.3.a.u2
Property, Plant and Equipment
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment

NOTE 8—PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

Estimated Useful

December 31,

 

Lives (Years)

2019

2018

 

Land

    

N/A

    

$

53.0

    

$

26.0

Land and waterway improvements

 

1 - 20

 

26.9

 

18.4

Buildings

 

10 - 50

 

110.7

 

97.0

Machinery and equipment

 

3 - 10

 

955.5

 

912.9

Leasehold interests

 

9 - 40

 

41.6

 

40.9

Other property

 

1 - 20

 

47.4

 

34.8

(1)

Construction in process

N/A

 

56.4

 

52.7

Property, plant and equipment

 

1,291.5

 

1,182.7

Less: accumulated depreciation

 

(665.7)

 

(590.6)

Property, plant and equipment, net

$

625.8

$

592.1

(1)This prior year amount has been reclassified within the table to conform to the current year presentation.

Year Ended

 

December 31,

 

2019

2018

2017

 

Depreciation expense

    

$

96.9

    

$

95.7

    

$

77.9

Capitalized interest

$

3.0

$

3.6

$

5.0

v3.19.3.a.u2
Goodwill
12 Months Ended
Dec. 31, 2019
Goodwill.  
Goodwill and Intangible Assets

NOTE 9—GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table shows the annual changes in the carrying amount of goodwill, by segment, from December 31, 2017 through December 31, 2019:

Latex

Synthetic

Performance

Americas

 

    

Binders

    

Rubber

    

Plastics

    

Polystyrene

    

Feedstocks

    

Styrenics

    

Total

 

Balance at December 31, 2017

    

$

16.5

$

11.7

$

39.6

$

4.7

$

$

$

72.5

Foreign currency impact

 

(0.6)

(0.4)

(2.3)

(0.2)

(3.5)

Balance at December 31, 2018

$

15.9

$

11.3

$

37.3

$

4.5

$

$

$

69.0

Foreign currency impact

 

(0.3)

(0.3)

(0.6)

(0.1)

 

(1.3)

Balance at December 31, 2019

$

15.6

$

11.0

$

36.7

$

4.4

$

$

$

67.7

Goodwill impairment testing is performed annually as of October 1. In 2019, the Company performed its annual impairment test for goodwill and determined that the estimated fair value of each reporting unit was in excess of the carrying value indicating that none of the Company’s goodwill was impaired. The Company concluded there were no goodwill impairments or triggering events for the years ended December 31, 2019, 2018, and 2017.

 

Other Intangible Assets

The following table provides information regarding the Company’s other intangible assets as of December 31, 2019 and 2018:

December 31, 2019

December 31, 2018

 

Estimated Useful

Gross Carrying

Accumulated

Gross Carrying

Accumulated

 

   

Life (Years)

   

Amount

   

Amortization

   

Net

   

Amount

   

Amortization

   

Net

 

Developed technology

9 - 15

$

188.6

$

(117.2)

$

71.4

$

192.3

$

(105.6)

$

86.7

Customer Relationships

 

19

 

13.8

 

(1.8)

 

12.0

 

14.1

 

(1.1)

 

13.0

Manufacturing Capacity Rights

 

6

 

22.1

 

(20.0)

 

2.1

 

21.8

 

(16.8)

 

5.0

Software

 

5 - 10

 

119.2

 

(50.0)

 

69.2

 

101.9

 

(35.3)

 

66.6

Software in development

 

N/A

 

34.7

 

 

34.7

 

17.2

 

 

17.2

Other

 

3

 

4.3

 

(2.2)

 

2.1

 

3.9

 

(1.3)

 

2.6

Total

$

382.7

$

(191.2)

$

191.5

$

351.2

$

(160.1)

$

191.1

Amortization expense related to finite-lived intangible assets totaled $33.0 million, $29.7 million, and $27.0 million, for the years ended December 31, 2019, 2018, and 2017, respectively.

The following table details the Company’s estimated amortization expense for the next five years, excluding any amortization expense related to software currently in development:

Estimated Amortization Expense for the Next Five Years

 

2020

2021

2022

2023

2024

 

$

30.6

    

$

26.6

    

$

25.7

    

$

25.3

    

$

24.9

v3.19.3.a.u2
Accounts Payable
12 Months Ended
Dec. 31, 2019
Payables and Accruals [Abstract]  
Accounts Payable

NOTE 10—ACCOUNTS PAYABLE

Accounts payable consisted of the following:

December 31,

 

2019

2018

 

Trade payables

    

$

304.6

    

$

319.9

Other payables

 

38.4

 

34.3

Total

$

343.0

$

354.2

v3.19.3.a.u2
Debt
12 Months Ended
Dec. 31, 2019
Debt  
Debt

NOTE 11—DEBT

Refer to discussion below for details and definitions of the Company’s debt facilities. The Company was in compliance with all debt related covenants as of December 31, 2019 and 2018.

December 31, 2019

   

Interest Rate as of
December 31, 2019

   

Maturity Date

   

Carrying Amount

   

Unamortized Deferred Financing Fees(1)

    

Total Debt, Less Unamortized Deferred Financing Fees

   

Senior Credit Facility

2024 Term Loan B

3.799%

September 2024

$

684.3

$

(13.7)

$

670.6

2022 Revolving Facility(2)

Various

September 2022

2025 Senior Notes

5.375%

September 2025

500.0

(7.3)

492.7

Accounts Receivable Securitization Facility(3)

Various

September 2021

Other indebtedness

Various

Various

10.4

10.4

Total debt

$

1,194.7

$

(21.0)

$

1,173.7

Less: current portion(4)

(11.1)

Total long-term debt, net of unamortized deferred financing fees

$

1,162.6

December 31, 2018

Interest Rate as of December 31, 2018

    

Maturity
Date

    

Carrying
Amount

    

Unamortized Deferred
Financing Fees
(1)

    

Total Debt, Less
Unamortized
Deferred
Financing Fees

    

Senior Credit Facility

    

2024 Term Loan B

4.522%

September 2024

$

691.3

$

(16.2)

$

675.1

2022 Revolving Facility(2)

Various

September 2022

2025 Senior Notes

5.375%

September 2025

500.0

(8.4)

491.6

Accounts Receivable Securitization Facility(3)

Various

September 2021

 

Other indebtedness

Various

Various

 

1.1

1.1

Total debt

$

1,192.4

$

(24.6)

$

1,167.8

Less: current portion

 

(7.0)

Total long-term debt, net of unamortized deferred financing fees

$

1,160.8

(1)This caption does not include unamortized deferred financing fees of $2.6 million and $3.6 million as of December 31, 2019 and 2018, respectively, related to the Company’s revolving facilities, which are included within “Deferred charges and other assets” on the consolidated balance sheets.
(2)The Company had $361.0 million (net of $14.0 million outstanding letters of credit) of funds available for borrowing under this facility as of December 31, 2019. Additionally, the Company is required to pay a quarterly commitment fee in respect of any unused commitments under this facility equal to 0.375% per annum.
(3)As of December 31, 2019, the Company had $137.6 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable. In regard to outstanding borrowings, fixed interest charges are 1.95% plus variable commercial paper rates, while for available, but undrawn commitments, fixed charges are 1.00%.
(4)As of December 31, 2019 and 2018, the current portion of long-term debt is primarily related to $7.0 million of scheduled future principal payments on the 2024 Term Loan B.

Total interest expense, net recognized during the years ended December 31, 2019, 2018, and 2017, was $39.3 million, $46.4 million, and $70.1 million, respectively, of which $4.7 million, $4.5 million, and $5.1 million,

respectively, represented amortization of deferred financing fees and debt discounts. Total accrued interest on outstanding debt as of December 31, 2019 and 2018 was $4.4 million, excluding the impact of the CCS (see Note 12). Accrued interest is recorded within “Accrued expenses and other current liabilities” on the consolidated balance sheets.

 

2020 Senior Credit Facility

On May 5, 2015, Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (together, the “Issuers” or the “Borrowers”), both wholly-owned subsidiaries of the Company, entered into a senior secured credit agreement, which provided senior secured financing of up to $825.0 million (the “2020 Senior Credit Facility”). The 2020 Senior Credit Facility provided for senior secured financing consisting of a (i) $325.0 million revolving credit facility, with a $25.0 million swingline subfacility and a $35.0 million letter of credit subfacility (the “2020 Revolving Facility”) maturing in May 2020 and (ii) $500.0 million senior secured term loan B facility maturing in November 2021 (the “2021 Term Loan B”).

In September 2017, upon completion of the refinancing transactions discussed below, the Company terminated the 2020 Senior Credit Facility. Prior to this termination, the Company had no outstanding borrowings under the 2020 Revolving Facility and had $490.0 million outstanding under the 2021 Term Loan B, excluding the unamortized original issue discount. As a result of this termination, the Company recognized a $0.8 million loss on extinguishment of long-term debt during the year ended December 31, 2017, comprised entirely of the write-off of a portion of the existing unamortized deferred financing fees and unamortized original issue discount related to the 2021 Term Loan B. The remaining unamortized deferred financing fees and unamortized original issue discount for both the 2020 Revolving Facility and 2021 Term Loan B remain capitalized and are being amortized along with new deferred financing fees over the life of the new facilities, as discussed in further detail below.

Senior Credit Facility

On September 6, 2017, the Issuers entered into a new senior secured credit agreement (the “Credit Agreement”), which provides senior secured financing of up to $1,075.0 million (the “Senior Credit Facility”). The Senior Credit Facility provides for senior secured financing consisting of a (i) $375.0 million revolving credit facility, with a $25.0 million swingline subfacility and a $35.0 million letter of credit subfacility maturing in September 2022 (the “2022 Revolving Facility”) and a (ii) $700.0 million senior secured term loan B facility maturing in September 2024 (the “2024 Term Loan B”). Amounts under the 2022 Revolving Facility are available in U.S. dollars and euros.

Fees incurred in connection with the issuance of the 2024 Term Loan B were $12.3 million. A portion of the 2024 Term Loan B met the criteria for modification accounting; thus, $1.2 million of these fees were expensed and included within “Other expense (income), net” in the consolidated statement of operations. The remaining $11.1 million of fees were capitalized and recorded within “Long-term debt, net of unamortized deferred financing fees” on the consolidated balance sheets. The capitalized fees are being amortized along with the remaining $8.1 million of unamortized deferred financing fees from the 2021 Term Loan B (defined above) over the seven-year term of the 2024 Term Loan B using the effective interest method.

Fees incurred in connection with the issuance of the 2022 Revolving Facility were $0.8 million, which were capitalized and recorded within “Deferred charges and other assets” on the consolidated balance sheets, and are being amortized along with the remaining $4.0 million of unamortized deferred financing fees from the 2020 Revolving Facility over the five-year term of the 2022 Revolving Facility using the straight-line method.

As of December 31, 2019, the 2024 Term Loan B bears an interest rate of the London Interbank Offered Rate (“LIBOR”) plus 2.00%, subject to a 0.00% LIBOR floor, which has been the effective rate since May 22, 2018, when the Issuers repriced the interest rate from the initial rate of LIBOR plus 2.50%, subject to a 0.00% LIBOR floor. The repricing did not affect any of the other terms of the 2024 Term Loan B; however, as a result of the repricing, the Company recognized a $0.2 million loss on extinguishment of long-term debt during the year ended December 31, 2018, comprised entirely of the write-off of a portion of the existing unamortized deferred financing fees related to the 2024 Term Loan B. Fees incurred in connection with the repricing were $1.1 million, of which $0.5 million were expensed and included within “Other expense (income), net” in the consolidated statement of operations during the year ended December 31, 2018 and the remaining $0.6 million were capitalized and recorded within “Long-term debt, net of unamortized deferred financing fees” on the consolidated balance sheets. The capitalized fees associated with the

repricing are being amortized along with the remaining unamortized deferred financing fees related to the 2024 Term Loan B over its original seven-year term.

The 2024 Term Loan B requires scheduled quarterly payments in amounts equal to 0.25% of the original principal amount of the 2024 Term Loan B, with the balance to be paid at maturity. As of December 31, 2019 and 2018, $7.0 million of the scheduled future payments related to this facility were classified as current debt on the Company’s consolidated balance sheets.

Loans under the 2022 Revolving Facility, at the Borrowers’ option, may be maintained as (a) LIBOR loans, which bear interest at a rate per annum equal to LIBOR plus the applicable margin (as defined in the Credit Agreement), if applicable, or (b) base rate loans which bear interest at a rate per annum equal to the base rate plus the applicable margin (as defined in the Credit Agreement).

The Senior Credit Facility is collateralized by a security interest in substantially all of the assets of the Borrowers, and the guarantors thereunder, including Trinseo Materials S.à r.l., certain Luxembourg subsidiaries and certain foreign subsidiaries organized in the United States, The Netherlands, Hong Kong, Singapore, Ireland, Germany, and Switzerland.

The Senior Credit Facility requires the Borrowers and their restricted subsidiaries to comply with customary affirmative, negative, and financial covenants, including limitations on their abilities to incur liens; make certain loans and investments; incur additional debt (including guarantees or other contingent obligations); merge, consolidate liquidate or dissolve; transfer or sell assets; pay dividends and other distributions to shareholders or make certain other restricted payments; enter into transactions with affiliates; restrict any restricted subsidiary from paying dividends or making other distributions or agree to certain negative pledge clauses; materially alter the business they conduct; prepay certain other indebtedness; amend certain material documents; and change their fiscal year.

The 2022 Revolving Facility contains a financial covenant that requires compliance with a springing first lien net leverage ratio test. If the outstanding balance under the 2022 Revolving Facility exceeds 30% of the $375.0 million borrowing capacity (excluding undrawn letters of credit up to $10.0 million and cash collateralized letters of credit) at a quarter end, then the Borrowers’ first lien net leverage ratio may not exceed 2.00 to 1.00.

2022 Senior Notes

On May 5, 2015, the Issuers executed an indenture pursuant to which they issued $300.0 million aggregate principal amount of 6.750% senior notes due May 1, 2022 (the “USD Notes”) and €375.0 million aggregate principal amount of 6.375% senior notes due May 1, 2022 (the “Euro Notes,” and together with the USD Notes, the “2022 Senior Notes”).

On September 7, 2017, using the net proceeds from the issuance of the 2024 Term Loan B discussed above, together with the net proceeds from the issuance of the 2025 Senior Notes (defined and discussed below), and available cash, the Company redeemed all outstanding borrowings under the 2022 Senior Notes, totaling $746.0 million in USD-equivalent principal, together with a total combined call premium of $53.0 million (with a redemption price of approximately 106.572% on the USD Notes and a redemption price of approximately 107.459% on the Euro Notes), and accrued and unpaid interest thereon of $17.0 million.

As a result of this redemption, the Company recorded a loss on extinguishment of long-term debt of $64.5 million during the year ended December 31, 2017, which was comprised of the $53.0 million call premium and the write-off of $11.5 million of unamortized deferred financing fees related to the 2022 Senior Notes.

2025 Senior Notes

On August 29, 2017, the Issuers executed an indenture (the “Indenture”) pursuant to which they issued $500.0 million aggregate principal amount of 5.375% senior notes due 2025 (the “2025 Senior Notes”) in a 144A private transaction exempt from the registration requirements of the Securities Act of 1933, as amended. Interest on the 2025 Senior Notes is payable semi-annually on May 3 and November 3 of each year, commencing on May 3, 2018. The 2025 Senior Notes mature on September 1, 2025.

Fees and expenses incurred in connection with the issuance of the 2025 Senior Notes in 2017 were $9.7 million, which were capitalized and recorded within “Long-term debt, net of unamortized deferred financing fees” on the

consolidated balance sheets, and are being amortized over the eight-year term of the 2025 Senior Notes using the effective interest method.

At any time prior to September 1, 2020, the Issuers may redeem the 2025 Senior Notes in whole or in part, at their option, at a redemption price equal to 100% of the principal amount of such notes plus the relevant applicable premium as of, and accrued and unpaid interest to, but not including, the redemption date. At any time and from time to time after September 1, 2020, the Issuers may redeem the 2025 Senior Notes, in whole or in part, at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the notes redeemed to, but not including, the redemption date:

12-month period commencing September 1 in Year 

Percentage

2020

 

102.688

%  

2021

 

101.792

%  

2022

100.896

%  

2023 and thereafter

 

100.000

%  

At any time prior to September 1, 2020, the Issuers may redeem up to 40% of the aggregate principal amount of the 2025 Senior Notes at a redemption price equal to 105.375%, plus accrued and unpaid interest to, but not including, the redemption date, with the aggregate gross proceeds from certain equity offerings.

The 2025 Senior Notes are the Issuers’ senior unsecured obligations and rank equally in right of payment with all of the Issuers’ existing and future indebtedness that is not expressly subordinated in right of payment thereto. The 2025 Senior Notes will be senior in right of payment to any future indebtedness that is expressly subordinated in right of payment thereto and effectively junior to (a) the Issuers’ existing and future secured indebtedness, including the Company’s Accounts Receivable Securitization Facility (defined below) and the Issuers’ Senior Credit Facility, to the extent of the value of the collateral securing such indebtedness and (b) all existing and future liabilities of the Issuers’ non-guarantor subsidiaries.

The Indenture contains customary covenants that, among other things, limit the Issuers’ and certain of their subsidiaries’ ability to incur additional indebtedness and guarantee indebtedness; pay dividends on, redeem or repurchase capital shares; make investments; prepay certain indebtedness; create liens; enter into transactions with the Issuers’ affiliates; designate the Issuers’ subsidiaries as Unrestricted Subsidiaries (as defined in the Indenture); and consolidate, merge, or transfer all or substantially all of the Issuers’ assets. The covenants are subject to a number of exceptions and qualifications. Certain of these covenants will be suspended during any period of time that (1) the 2025 Senior Notes have investment grade ratings (as defined in the Indenture) and (2) no default has occurred and is continuing under the Indenture. In the event that the 2025 Senior Notes are downgraded to below an investment grade rating, the Issuers and certain subsidiaries will again be subject to the suspended covenants with respect to future events.

Accounts Receivable Securitization Facility

In 2010, Styron Receivable Funding Ltd. (“SRF”), a VIE in which the Company is the primary beneficiary, executed an agreement for an accounts receivable securitization facility (the “Accounts Receivable Securitization Facility”). As of December 31, 2019, the Accounts Receivable Securitization Facility permits borrowings by two of the Company’s subsidiaries, Trinseo Europe GmbH (“TE”) and Trinseo Export GmbH (“Trinseo Export”), up to a total of $150.0 million and matures in September 2021.

Under the Accounts Receivable Securitization Facility, TE and Trinseo Export sell their accounts receivable to SRF. In turn, SRF may utilize these receivables as collateral to borrow from commercial paper conduits in exchange for cash. The Company has agreed to continue servicing the receivables for SRF. If utilized as collateral by SRF, the conduits have a first priority perfected security interest in such receivables and, as a result, the receivables will not be available to the creditors of the Company or its other subsidiaries.

v3.19.3.a.u2
Derivative Instruments
12 Months Ended
Dec. 31, 2019
Derivative Instruments [Abstract]  
Derivative Instruments

NOTE 12—DERIVATIVE INSTRUMENTS

The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates and interest rate risk. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts and interest rate swap agreements. The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives are recorded in the consolidated balance sheets at fair value. Refer to Note 13 for fair value disclosures related to these instruments.

Foreign Exchange Forward Contracts

Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on its balance sheet against corresponding assets of the same currency, such that any changes in liabilities due to fluctuations in exchange rates are offset by changes in their corresponding foreign currency assets. In order to further reduce this exposure, the Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment.

As of December 31, 2019, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $500.3 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of December 31, 2019:

December 31, 

Buy / (Sell) 

    

2019

Euro

$

(346.4)

Chinese Yuan

$

(48.3)

Swiss Franc

$

35.4

Indonesian Rupiah

$

(18.5)

Korean Won

$

(12.2)

Open foreign exchange forward contracts as of December 31, 2019 have maturities occurring over a period of two months.

Foreign Exchange Cash Flow Hedges

The Company also enters into forward contracts with the objective of managing the currency risk associated with forecasted U.S. dollar-denominated raw materials purchases by one of its subsidiaries whose functional currency is the euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company buys a designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the fluctuations in the euro-to-U.S. dollar foreign currency exchange rate. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to cost of sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.

Open foreign exchange cash flow hedges as of December 31, 2019 have maturities occurring over a period of 12 months and had a net notional U.S. dollar equivalent of $84.0 million.

Interest Rate Swaps

On September 6, 2017, the Company issued the 2024 Term Loan B, which currently bears an interest rate of the London Interbank Offered Rate (“LIBOR”) plus 2.00%, subject to a 0.00% LIBOR floor. In order to reduce the variability in interest payments associated with the Company’s variable rate debt, during 2017 the Company entered into certain interest rate swap agreements to convert a portion of these variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges, and as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.

As of December 31, 2019, the Company had open interest rate swap agreements with a net notional U.S. dollar equivalent of $200.0 million, which had an effective date of September 29, 2017 and mature in September 2022. Under the terms of the swap agreements, the Company is required to pay the counterparties a stream of fixed interest payments at a rate of 1.81%, and in turn, receives variable interest payments based on one-month LIBOR (1.80% as of December 31, 2019) from the counterparties.

Net Investment Hedge

Through August 31, 2017, the Company had designated a portion (€280.0 million) of the original principal amount of the Company’s previous €375.0 million Euro Notes as a hedge of the foreign currency exposure of the Issuers’ net investment in certain European subsidiaries. Effective September 1, 2017, the Company de-designated the Euro Notes as a net investment hedge of the Issuers’ net investment in certain European subsidiaries, as the Euro Notes were redeemed on September 7, 2017 (refer to Note 11 for further information). Through the date of de-designation, this hedge was deemed to be highly effective, and changes in the Euro Notes’ carrying value resulting from fluctuations in the euro exchange rate were recorded as a cumulative foreign currency translation loss of $24.1 million within AOCI as of December 31, 2017.

On August 29, 2017, the Issuers executed an indenture pursuant to which they issued the $500.0 million 5.375% 2025 Senior Notes. Subsequently, on September 1, 2017, the Company entered into certain fixed-for-fixed cross currency swaps (“CCS”), swapping USD principal and interest payments on its 2025 Senior Notes for euro-denominated payments. Under the terms of the CCS, the Company has notionally exchanged $500.0 million at an interest rate of 5.375% for €420.0 million at a weighted average interest rate of 3.45% for approximately five years.

On September 1, 2017, the Company designated the full notional amount of the CCS (€420.0 million) as a hedge of its net investment in certain European subsidiaries under the forward method, with all changes in the fair value of the CCS recorded as a component of AOCI, as the CCS were deemed to be highly effective hedges. A cumulative foreign currency translation loss of $38.0 million was recorded within AOCI related to the CCS through March 31, 2018.

Effective April 1, 2018, in conjunction with the adoption of new hedge accounting guidance, the Company elected as an accounting policy to re-designate the CCS as a net investment hedge (and any future similar hedges) under the spot method. As such, changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due to spot foreign exchange rates) are recorded as cumulative foreign currency translation within OCI, and will remain in AOCI until either the sale or substantially complete liquidation of the subsidiary. As of December 31, 2019, no gains or losses have been reclassified from AOCI into income related to the sale or substantially complete liquidation of the relevant subsidiaries. As an additional accounting policy election applied to similar hedges under this new standard, the initial value of any component excluded from the assessment of effectiveness is recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in the fair value of the excluded component and amounts recognized in income under that systematic and rational method is recognized in AOCI. Prior to April 1, 2018, no components were excluded from the assessment of effectiveness for any of the Company’s existing net investment hedges.

As of April 1, 2018, the initial excluded component value related to the CCS was $23.6 million, which the Company elected to amortize as a reduction of “Interest expense, net” in the consolidated statements of operations using the straight-line method over the remaining term of the CCS. Additionally, the accrual of periodic USD and euro-denominated interest receipts and payments under the terms of the CCS are being recognized within “Interest expense, net” in the consolidated statements of operations.

On February 26, 2020, the Company settled its existing CCS and replaced it with a new CCS arrangement that carried substantially the same terms (the “2020 CCS”) as the existing CCS. Upon settlement of the existing CCS, the Company realized net cash proceeds of $51.6 million. Under the 2020 CCS, the Company notionally exchanged $500.0 million at an interest rate of 5.375% for €459.3 million at a weighted average interest rate of 3.672% for approximately 2.7 years, with a final maturity of November 3, 2022. The cash flows under the 2020 CCS are aligned with the Company’s principal and interest obligations on its 5.375% 2025 Senior Notes. The 2020 CCS was executed at an exchange rate of 1.09 USD per euro. The Company does not expect to record any significant gains or losses within the consolidated statements of operations as a result of the above settlement.

Summary of Derivative Instruments

The following table presen