TRINSEO S.A., 10-K filed on 2/28/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 25, 2019
Jun. 30, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Entity Registrant Name Trinseo S.A.    
Entity Central Index Key 0001519061    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Shell Company false    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Ex Transition Period false    
Entity Common Stock, Shares Outstanding   41,289,829  
Entity Public Float     $ 3,038,601,050
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Current assets    
Cash and cash equivalents $ 452.3 $ 432.8
Accounts receivable, net of allowance 648.1 685.5
Inventories 510.4 510.4
Other current assets 20.5 17.5
Total current assets 1,631.3 1,646.2
Investments in unconsolidated affiliates 179.1 152.5
Property, plant and equipment, net 592.1 627.0
Other assets    
Goodwill 69.0 72.5
Other intangible assets, net 191.1 207.5
Deferred income tax assets 26.7 35.5
Deferred charges and other assets 37.5 30.8
Total other assets 324.3 346.3
Total assets 2,726.8 2,772.0
Current liabilities    
Short-term borrowings and current portion of long-term debt 7.0 7.0
Accounts payable 354.2 436.8
Income taxes payable 16.0 35.9
Accrued expenses and other current liabilities 159.8 146.9
Total current liabilities 537.0 626.6
Noncurrent liabilities    
Long-term debt, net of unamortized deferred financing fees 1,160.8 1,165.0
Deferred income tax liabilities 45.4 49.2
Other noncurrent obligations 214.9 256.4
Total noncurrent liabilities 1,421.1 1,470.6
Commitments and contingencies (Note 15)
Shareholders' equity    
Ordinary shares, $0.01 nominal value, 50,000.0 shares authorized (December 31, 2018: 48.8 shares issued and 41.6 shares outstanding; December 31, 2017: 48.8 shares issued and 43.4 shares outstanding) 0.5 0.5
Additional paid-in-capital 575.4 578.8
Treasury shares, at cost (December 31, 2018: 7.2 shares; December 31, 2017: 5.4 shares) (418.1) (286.8)
Retained earnings 753.2 527.9
Accumulated other comprehensive loss (142.3) (145.6)
Total shareholders' equity 768.7 674.8
Total liabilities and shareholders' equity $ 2,726.8 $ 2,772.0
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Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Consolidated Balance Sheets    
Ordinary shares, nominal value $ 0.01 $ 0.01
Ordinary shares, shares authorized 50,000,000,000 50,000,000,000
Ordinary shares, shares issued 48,800,000 48,800,000
Ordinary shares, shares outstanding 41,600,000 43,400,000
Treasury stock, shares 7,200,000 5,400,000
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Millions, $ in Millions
3 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statements of Operations                      
Net sales $ 1,065.0 $ 1,199.7 $ 1,236.6 $ 1,121.6         $ 4,622.8 $ 4,448.1 $ 3,716.6
Cost of sales                 4,094.0 3,807.8 3,124.4
Gross profit 59.3 131.6 162.7 175.2 $ 166.3 $ 148.5 $ 126.5 $ 199.0 528.8 640.3 592.2
Selling, general and administrative expenses                 258.5 239.0 238.7
Equity in earnings of unconsolidated affiliates 30.8 34.5 33.2 45.5 30.7 43.8 29.9 19.3 144.1 123.7 144.7
Operating income 17.7 106.1 134.2 156.3 137.3 127.3 101.7 158.7 414.4 525.0 498.2
Interest expense, net                 46.4 70.1 75.0
Loss on extinguishment of long-term debt           65.3     0.2 65.3  
Other expense (income), net                 3.5 (21.5) 17.9
Income before income taxes 6.4 93.9 118.7 145.2 144.0 41.5 79.0 146.6 364.3 411.1 405.3
Provision for income taxes                 71.8 82.8 87.0
Net income $ (0.9) $ 74.7 $ 98.3 $ 120.3 $ 117.6 $ 33.2 $ 60.2 $ 117.3 $ 292.5 $ 328.3 $ 318.3
Weighted average shares- basic                 42.8 43.8 46.5
Net income (loss) per share- basic $ (0.02) $ 1.75 $ 2.28 $ 2.77 $ 2.69 $ 0.76 $ 1.37 $ 2.66 $ 6.83 $ 7.49 $ 6.84
Weighted average shares- diluted                 43.7 45.0 47.5
Net income (loss) per share- diluted $ (0.02) $ 1.72 $ 2.24 $ 2.71 $ 2.63 $ 0.74 $ 1.34 $ 2.59 $ 6.70 $ 7.30 $ 6.70
Dividends on ordinary shares                 $ 1.56 $ 1.38 $ 0.9
v3.10.0.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statements of Comprehensive Income (Loss)      
Net income $ 292.5 $ 328.3 $ 318.3
Other comprehensive income (loss), net of tax      
Cumulative translation adjustments (17.3) 24.5 (9.8)
Net gain (loss) on cash flow hedges 15.0 (18.4) 6.7
Pension and other postretirement benefit plans:      
Prior service credit arising during period (net of tax of $0.2, $0, and $0) 0.7    
Net gain (loss) arising during period (net of tax of: $0.3, $10.8, and $(7.3)) 1.8 31.8 (20.6)
Amounts reclassified from accumulated other comprehensive income (loss) 3.1 (13.3) 3.3
Total other comprehensive income (loss), net of tax 3.3 24.6 (20.4)
Comprehensive income $ 295.8 $ 352.9 $ 297.9
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Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statements of Comprehensive Income (Loss)      
Prior service credit arising during period, tax $ 0.2 $ 0.0 $ 0.0
Net loss arising during period, tax (benefit) expense $ 0.3 $ 10.8 $ (7.3)
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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, 2015 $ 0.5 $ 556.6   $ (149.8) $ (15.6) $ 391.7
Balance at beginning of period, shares at Dec. 31, 2015 48.8          
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income         318.3 318.3
Other comprehensive loss       (20.4)   (20.4)
Stock-based compensation   16.2 $ 1.0     17.2
Purchase of treasury shares     $ (218.5)     (218.5)
Purchase of treasury shares, shares (4.5)   4.5      
Dividends on ordinary shares         (40.6) (40.6)
Balance at end of period at Dec. 31, 2016 $ 0.5 573.7 $ (217.5) (170.2) 261.2 447.7
Balance at end of period, shares at Dec. 31, 2016 44.3   4.5      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Adoption of new accounting standard   0.9     (0.9)  
Net income         328.3 328.3
Other comprehensive 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     43.4
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income         292.5 $ 292.5
Other comprehensive 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
v3.10.0.1
Consolidate Statements of Shareholders' Equity (Parenthetical)) - $ / shares
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statement of Stockholders' Equity      
Dividends on ordinary shares $ 1.56 $ 1.38 $ 0.9
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities      
Net income $ 292.5 $ 328.3 $ 318.3
Adjustments to reconcile net income to net cash provided by operating activities      
Depreciation and amortization 130.2 110.6 96.4
Amortization of deferred financing fees, issuance discount, and excluded component of hedging instruments 0.6 5.1 5.8
Deferred income tax 5.3 14.8 16.1
Stock-based compensation expense 15.8 13.8 17.1
Earnings of unconsolidated affiliates, net of dividends (26.6) 5.3 (13.4)
Unrealized net (gain) loss on foreign exchange forward contracts (0.9) 2.6 3.2
Loss on extinguishment of long-term debt 0.2 65.3  
(Gain) loss on sale of businesses and other assets (1.0) (10.5) 14.9
Impairment charges 1.9 4.3 15.1
Pension curtailment and settlement (gain) loss 0.6 (21.6)  
Changes in assets and liabilities      
Accounts receivable 21.2 (51.8) (96.4)
Inventories (16.0) (80.2) (51.0)
Accounts payable and other current liabilities (43.8) 9.3 57.1
Income taxes payable (19.7) 9.9 3.8
Other assets, net (4.4) (4.5) 5.4
Other liabilities, net 10.6 (9.4) 11.3
Cash provided by operating activities 366.5 391.3 403.7
Cash flows from investing activities      
Capital expenditures (121.4) (147.4) (123.9)
Cash paid to acquire a business, net of cash acquired   (82.3)  
Proceeds from capital expenditures subsidy 1.0    
Proceeds from the sale of businesses and other assets 1.7 46.2 2.0
Distributions from unconsolidated affiliates   0.9 4.8
Other investing cash outflows     (0.2)
Cash used in investing activities (118.7) (182.6) (117.3)
Cash flows from financing activities      
Deferred financing fees (0.6) (21.5)  
Short term borrowings, net (0.3) (0.3) (0.3)
Purchase of treasury shares (142.9) (88.9) (215.1)
Dividends paid (66.0) (58.0) (27.3)
Proceeds from exercise of option awards 2.8 9.3 0.2
Withholding taxes paid on restricted share units (8.2) (0.3) (0.1)
Prepayment penalty on long-term debt   (53.0)  
Cash used in financing activities (222.2) (253.0) (247.6)
Effect of exchange rates on cash (6.1) 12.0 (5.0)
Net change in cash and cash equivalents 19.5 (32.3) 33.8
Cash and cash equivalents, beginning of period 432.8 465.1 431.3
Cash and cash equivalents, end of period 452.3 432.8 465.1
Supplemental disclosure of cash flow information      
Cash paid for income taxes, net of refunds 85.2 75.0 66.6
Cash paid for interest, net of amounts capitalized 50.7 63.3 69.4
Accrual for property, plant and equipment 10.2 15.6 35.6
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) $ (5.0)
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 $ (703.5) (1.8)  
2025 Senior Notes      
Cash flows from financing activities      
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)  
v3.10.0.1
Organization and Business Activities
12 Months Ended
Dec. 31, 2018
Basis of Presentation and Summary of Significant Accounting Policies  
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, 2018, the Company’s production facilities included 30 manufacturing plants (which included a total of 75 production units) at 23 sites across 12 countries, including its joint venture. Additionally, as of December 31, 2018, 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. These segments were realigned effective January 1, 2018 from the Company’s prior segmentation. Refer to Note 19 for further information regarding the Company’s segments.

v3.10.0.1
Basis of Presentation and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Basis of Presentation and Summary of Significant Accounting Policies  
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, 2018 and 2017 and for each of the three years in the period ended December 31, 2018 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.

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications did not have a material impact on the Company’s financial position, results of operations, or cash flows. Refer to the discussion below under “Recent Accounting Guidance” as well as to Notes 9 and 19 for further information.

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, 2018 and 2017, 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, 2018 and 2017, 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 the new hedge accounting guidance effective April 1, 2018, as described below in the section “Recent Accounting Guidance.”

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, 2018 and 2016, the Company recognized net foreign exchange transaction losses of $15.8 million and $5.5 million, respectively, while for the year ended December 31, 2017, the Company recognized net foreign exchange transaction gains 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, 2018 and 2017, 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, 2018 and 2017, $15.1 million and $11.6 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. 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. The Company also capitalizes interest as a component of the cost of capital assets constructed for its own use.

 

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, 2018.

 

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 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, 2018, 2017, and 2016.

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, 2018, 2017, and 2016.

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.

 

Sales

As described below in the section “Recent Accounting Guidance,” effective January 1, 2018, the Company adopted accounting guidance on the recognition of revenue from contracts with customers, which impacted the Company’s accounting policies related to its recognition of sales and certain other revenues.

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.

 

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 $56.0 million, $54.3 million, and $50.1 million for the years ended December 31, 2018, 2017, and 2016, respectively.

The Company expenses promotional and advertising costs as incurred to SG&A expenses. Total promotional and advertising expenses were $1.6 million, $1.5 million, and $3.0 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Restructuring charges included within SG&A expenses were $9.3 million, $8.0 million, and $23.9 million for the years ended December 31, 2018, 2017, and 2016, 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. Prior to the divestiture of its latex binders and polycarbonate (“PC”) & compounding businesses in Brazil in 2016, as described in Note 4, the Company also provided health care and life insurance benefits to retired employees in Brazil. 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 May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) jointly issued guidance (“Topic 606”) which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”). The core principle of the guidance, which the FASB issued certain clarifying updates for, is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted Topic 606 effective January 1, 2018, electing to apply the modified retrospective approach only to contracts that were not completed as of the date of initial application at the individual contract level, rather than applying the portfolio approach. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with historical accounting standards (“Topic 605”). As a result of the Company’s implementation procedures, the Company has determined that the cumulative effect to retained earnings from initially applying Topic 606 was immaterial and therefore, no adjustment was recorded. Furthermore, based on current contracts with customers, the Company does not expect the adoption of the new revenue standard to have a material impact to its financial statements on an ongoing basis. Refer to Note 3 for disclosure requirements in effect as a result of this adoption.

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 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. Although early adoption is permitted, the Company will adopt this new guidance on the effective date for public companies of January 1, 2019. The Company has completed its risk assessment and scoping procedures for the adoption of this guidance through a number of procedures, including conducting surveys with relevant stakeholders in the business, evaluating its known lease population and data constraints, and is in the process of assessing new disclosure requirements and completing the implementation of a third-party software solution to facilitate compliance with accounting and reporting requirements. The Company continues to review existing agreements for potential lease arrangements and to enhance and update business processes and controls related to the new guidance for leases. Collectively, these activities are expected to facilitate the Company's ability to meet the new accounting and disclosure requirements upon adoption in the first quarter of 2019.

The new lease guidance requires a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial adoption. The Company has elected to apply the transition requirements at the January 1, 2019, effective date rather than at the beginning of the earliest comparative period presented. This approach allows for a cumulative effect adjustment in the period of adoption, and prior periods will not be restated. In addition, the Company has elected the package of practical expedients permitted under the transition guidance, which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As an accounting policy election, the Company, as a lessee, will account for non-lease and lease components in a contract as a single lease component for all asset classes. Additionally, the Company has not elected to exclude short term leases (term of 12 months or less) from its balance sheet presentation. While its evaluation is still being finalized, the Company estimates an increase of lease-related assets and liabilities ranging from $70.0 million to $100.0 million in the consolidated balance sheets as of January 1, 2019. The impact to the Company's consolidated statements of operations and consolidated statements of cash flows is not expected to be material.

In March 2017, the FASB issued guidance that requires employers to present the service cost component of net periodic benefit cost in the same statement of operations line item as other employee compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are to be presented outside of any subtotal of operating income. The Company adopted this guidance effective January 1, 2018 on a retrospective basis. As a result of this adoption, the Company reclassified $13.7 million of net periodic benefit income for the year ended December 31, 2017 and $7.4 million of net periodic benefit cost for the year ended December 31, 2016 from “Cost of sales” and “Selling, general and administrative expenses,” collectively, to “Other expense (income), net” within the consolidated statements of operations.

In August 2017, the FASB issued significant amendments to existing hedge accounting guidance. Among other things, this guidance intends to make more financial and nonfinancial hedging strategies eligible for hedge accounting, amends presentation and disclosure requirements, and changes how companies assess effectiveness. Specifically, the guidance eliminates the requirement to separately measure and record ineffectiveness for cash flow and net investment hedges. The Company adopted this guidance effective April 1, 2018. Based upon the Company’s hedging portfolio, this adoption did not result in any cumulative-effect adjustments to retained earnings. The amended presentation and disclosure guidance will be applied prospectively. Refer to Note 12 for further information regarding the impacts of this adoption as well as additional disclosures required by this standard.

In February 2018, the FASB issued guidance to address certain stranded income tax effects in AOCI resulting from the enactment of the U.S. “Tax Cuts and Jobs Act” signed into law on December 22, 2017. The amendment provides financial statement preparers with an option to reclassify stranded tax effects within AOCI, resulting from the reduction of the U.S. federal corporate income tax rate, to retained earnings. The Company adopted this guidance effective October 1, 2018, applying the available accounting policy election to reclassify the stranded tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings in the period of adoption. As a result, the Company recorded a one-time reclassification of less than $0.1 million of stranded tax amounts from “Accumulated other comprehensive loss” to “Retained earnings” in the consolidated balance sheet as of December 31, 2018.

In August 2018, the FASB issued guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension plans or other postretirement plans. This amendment is effective for public companies for fiscal years ending after December 15, 2020. Early adoption is permitted, and the provisions of the amendment should be applied on a retrospective basis to all periods presented. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

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. Entities may choose to adopt the new guidance either retrospectively or prospectively to eligible costs incurred on or after the date first applied. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

v3.10.0.1
Net Sales
12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Net Sales

NOTE 3—NET SALES

As discussed in Note 2, effective January 1, 2018, the Company adopted accounting guidance, Topic 606, issued by the FASB related to the recognition of revenue from contracts with customers. The Company’s accounting policy and practical expedient elections related to revenue recognition, including those elected as a result of the adoption of Topic 606, are summarized as follows.

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, and 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. 

The Company has elected to apply the following practical expedients as allowed under Topic 606:

·

The 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.

·

When the period between customer payment and transfer of goods/services is determined to be one year or less at contract inception, the promised amount of consideration under the contract is not adjusted for the effects of a significant financing component.

·

In consideration of the disclosure requirements regarding the transaction price and expected period of recognition of remaining performance obligations that are unsatisfied as of the end of a reporting period, the Company has elected the following optional exemptions:

o

The Company will not disclose the aggregate amount of the transactions price allocated to remaining performance obligations for its contracts with an original expected duration of one year or less, which applies to the vast majority of the Company’s contracts with customers.

o

For contracts with customers containing variable consideration (via enforceable minimum volume requirements) and an original expected duration greater than one year, the Company will not disclose the transaction prices allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these contracts with customers, each unit of production generally represents a separate performance obligation, the pricing for which is based on current or forecasted raw material prices, often using formulas that utilize commodity indices. Therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. The variable consideration in these contracts is resolved typically at the issuance of a purchases order or as of the date of revenue recognition.

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, 2018, 2017, and 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Latex

 

Synthetic

 

Performance

 

 

 

 

 

 

 

 

Year Ended

 

Binders

 

Rubber

 

Plastics

 

Polystyrene

 

Feedstocks

 

Total

 

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(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

December 31, 2016(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

263.6

 

$

 —

 

$

262.5

 

$

1.3

 

$

11.0

 

$

538.4

 

Europe

 

 

388.3

 

 

450.7

 

 

731.5

 

 

490.4

 

 

168.6

 

 

2,229.5

 

Asia-Pacific

 

 

229.5

 

 

 —

 

 

131.0

 

 

336.4

 

 

114.9

 

 

811.8

 

Rest of World

 

 

43.9

 

 

 —

 

 

93.0

 

 

 —

 

 

 —

 

 

136.9

 

Total

 

$

925.3

 

$

450.7

 

$

1,218.0

 

$

828.1

 

$

294.5

 

$

3,716.6

 


(1) As the Company has adopted Topic 606 utilizing the modified retrospective approach, amounts for the years ended December  31,  2017  and 2016 above are disclosed as recognized under Topic 605.

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 56 days as of December 31, 2018), 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, 2018, the impact of recognizing changes in selling prices related to prior periods was immaterial.

v3.10.0.1
Acquisitions and Divestitures
12 Months Ended
Dec. 31, 2018
Acquisitions and Divestitures  
Acquisitions and Divestitures

NOTE 4—ACQUISITIONS AND DIVESTITURES

The Acquisition

The Company accounted for the Acquisition (as discussed in Note 1) under the purchase method of accounting, whereby the purchase price paid, net of working capital adjustments, was allocated to the acquired assets and liabilities at fair value.

As part of the Acquisition, the Company has been indemnified for various tax matters, including income tax and value add taxes, as well as legal liabilities which have been incurred prior to the Acquisition. Conversely, certain tax matters which the Company has benefitted from are subject to reimbursement by Trinseo to Dow. These amounts have been estimated and provisional amounts have been recorded based on the information known during the measurement period; however, these amounts remain subject to change based on the completion of the Company’s annual statutory filings, tax authority review as well as a final resolution with Dow on amounts due to and due from the Company. Management believes the Company’s estimates and assumptions are reasonable under the circumstances; however, settlement negotiations or changes in estimates around pre-acquisition indemnifications could result in a material impact on the consolidated financial statements.

Acquisition of API Plastics

On July 10, 2017, the Company acquired 100% of the equity interest of API Applicazioni Plastiche Industriali S.p.A (“API Plastics”) a privately held company. 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, all of which was paid for in the year ended December 31, 2017. API Plastics, based in Mussolente, Italy, is a manufacturer of soft-touch polymers and bioplastics, such as thermoplastic elastomers (“TPEs”). TPEs can be molded over rigid plastics such as acrylonitrile-butadiene-styrene (“ABS”) and PC/ABS, which presents opportunities for complementary technology product offerings within the Performance Plastics segment. The acquisition was funded through existing cash on hand.

The Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The Company calculated the fair value of the assets acquired using the income and cost approaches (or a combination thereof). Fair values were determined based on Level 3 inputs including estimated future cash flows, discount rates, royalty rates, growth rates, sales projections, retention rates and terminal values, all of which require significant management judgment. During the third quarter of 2018, the Company finalized the purchase price allocation for API Plastics, which is summarized in the table below.

 

 

 

 

 

 

 

July 10,

 

 

    

2017

 

Cash and cash equivalents

 

$

8.4

 

Accounts receivable

 

 

16.5

 

Inventories

 

 

10.3

 

Other current assets

 

 

0.8

 

Property, plant, and equipment

 

 

23.6

 

Other intangible assets(1)

 

 

 

 

Customer relationships

 

 

14.0

 

Developed technology

 

 

11.5

 

Other amortizable intangible assets

 

 

3.8

 

Total fair value of assets acquired

 

$

88.9

 

 

 

 

 

 

Accounts payable

 

$

12.2

 

Income taxes payable

 

 

0.2

 

Accrued expenses and other current liabilities

 

 

1.4

 

Deferred income tax liabilities

 

 

11.5

 

Other noncurrent obligations

 

 

1.3

 

Total fair value of liabilities assumed

 

$

26.6

 

Net identifiable assets acquired

 

$

62.3

 

Goodwill(2)

 

 

28.3

 

Net assets acquired

 

$

90.6

 


(1)

The expected lives of the acquired intangible assets are 19 years for customer relationships, nine years for developed technology, and three years for other amortizable intangible assets.

(2)

Goodwill is supported by expected future cash flows of the acquired business, inclusive of projected future sales of API Plastics’ products to existing Trinseo customers. The goodwill is allocated entirely to the Performance Plastics segment. None of the goodwill related to this acquisition is deductible for income tax purposes.

 

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, 2018, the Company recognized $1.0 million of consideration earned for the performance of the transferred latex binders business, of which $0.5 million was received in cash.

As a result of this agreement, during the year ended December 31, 2016, the Company recorded impairment charges for the estimated loss on sale of $15.1 million within “Other expense (income), net” in the consolidated statement of operations. The $15.1 million charge primarily related to the unrecoverable net book value of property, plant and equipment along with certain working capital balances, and also included $0.4 million of goodwill written off with the sale (entirely attributable to the Latex Binders segment). This charge was allocated as $9.4 million, $4.9 million, and $0.7 million to the Performance Plastics segment, the Latex Binders segment, and Corporate, respectively. During the years ended December 31, 2017 and 2016, the Company received $1.7 million and $1.8 million, respectively, in proceeds from the sale of these businesses.

 

v3.10.0.1
Investments in Unconsolidated Affiliates
12 Months Ended
Dec. 31, 2018
Investments in Unconsolidated Affiliates  
Investments in Unconsolidated Affiliates

NOTE 5—INVESTMENTS IN UNCONSOLIDATED AFFILIATES

During the year ended December 31, 2018, 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 $144.1 million,  $123.7 million, and $144.7 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their stock 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,

 

 

 

2018

 

2017

 

Current assets

    

$

373.4

    

$

364.0

 

Noncurrent assets

 

 

236.2

 

 

236.2

 

Total assets

 

$

609.6

 

$

600.2

 

Current liabilities

 

$

167.2

 

$

184.3

 

Noncurrent liabilities

 

 

17.4

 

 

17.9

 

Total liabilities

 

$

184.6

 

$

202.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

December 31, 

 

 

    

2018

    

2017

    

2016

 

Sales

 

$

1,825.7

    

$

1,798.1

 

$

1,649.4

 

Gross profit

 

$

310.2

 

$

244.3

 

$

319.2

 

Net income

 

$

260.2

 

$

196.3

 

$

249.2

 

 

 

Sales to unconsolidated affiliates for the years ended December 31, 2018, 2017, and 2016 were $0.0 million, $3.6 million, and $4.2 million, respectively. Purchases from unconsolidated affiliates were $91.5 million,  $78.8 million, and $157.4 million for the years ended December 31, 2018, 2017, and 2016, respectively.

As of December 31, 2018 and 2017, respectively, $0.1 million and $0.1 million due from unconsolidated affiliates was included in “Accounts receivable, net of allowance” and $5.4 million and $4.7 million due to unconsolidated affiliates was included in “Accounts payable” in the consolidated balance sheets.

Americas Styrenics

As of December 31, 2018 and 2017, respectively, the Company’s investment in Americas Styrenics was $179.1 million and $152.5 million, which was $33.3 million, and $46.4 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 1.9 years as of December 31, 2018. The Company received dividends from Americas Styrenics of $117.5 million, $120.0 million, and $130.0 million for the years ended December 31, 2018, 2017, and 2016, 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 and $6.2 million for the years ended December 31, 2017 and 2016, respectively.

v3.10.0.1
Accounts Receivable
12 Months Ended
Dec. 31, 2018
Accounts Receivable [Abstract]  
Accounts Receivable

NOTE 6—ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2018

 

2017

 

Trade receivables

    

$

535.4

    

$

570.3

 

Non-income tax receivables

 

 

74.6

 

 

79.3

 

Other receivables

 

 

44.2

 

 

41.5

 

Less: allowance for doubtful accounts

 

 

(6.1)

 

 

(5.6)

 

Total

 

$

648.1

 

$

685.5

 

 

For the years ended December 31, 2018, 2017, and 2016, the Company recognized bad debt expense of $0.6 million, $1.5 million, and $1.0 million, respectively.

v3.10.0.1
Inventories
12 Months Ended
Dec. 31, 2018
Inventories  
Inventories

NOTE 7—INVENTORIES

Inventories consisted of the following:

 

 

 

 

 

 

 

 

 

December 31, 

 

    

2018

    

2017

Finished goods

    

$

269.8

    

$

250.9

Raw materials and semi-finished goods

 

 

205.8

 

 

226.7

Supplies

 

 

34.8

 

 

32.8

Total

 

$

510.4

 

$

510.4

 

 

 

 

 

 

 

 

v3.10.0.1
Property, Plant and Equipment
12 Months Ended
Dec. 31, 2018
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)

 

2018

 

2017

 

Land

    

N/A

    

$

26.0

    

$

40.8

 

Land and waterway improvements

 

5 - 20

 

 

18.4

 

 

16.4

 

Buildings

 

15 - 40

 

 

97.0

 

 

87.9

 

Machinery and equipment

 

3 - 10

 

 

912.9

 

 

874.5

 

Utility and supply lines

 

1 - 20

 

 

8.2

 

 

8.1

 

Leasehold interests

 

20 - 40

 

 

40.9

 

 

41.9

 

Other property

 

3 - 15

 

 

26.6

 

 

25.1

 

Construction in process

 

N/A

 

 

52.7

 

 

56.0

 

Property, plant and equipment

 

 

 

 

1,182.7

 

 

1,150.7

 

Less: accumulated depreciation

 

 

 

 

(590.6)

 

 

(523.7)

 

Property, plant and equipment, net

 

 

 

$

592.1

 

$

627.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2018

 

2017

 

2016

 

Depreciation expense

    

$

95.7

    

$

77.9

    

$

71.3

 

Capitalized interest

 

$

3.6

 

$

5.0

 

$

3.4

 

 

v3.10.0.1
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2018
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, 2016 through December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Latex

 

Synthetic

 

Performance

 

 

 

 

 

Americas

 

 

 

 

 

    

Binders

    

Rubber

    

Plastics

    

Polystyrene

    

Feedstocks

    

Styrenics

    

Total

 

Balance at December 31, 2016

    

$

14.8

 

$

10.6

 

$

8.4

 

$

4.2

 

$

 —

 

$

 —

 

$

38.0

 

Acquisitions/Divestitures (Note 4)

 

 

 —

 

 

 —

 

 

28.7

 

 

 —

 

 

 —

 

 

 —

 

 

28.7

 

Foreign currency impact

 

 

1.7

 

 

1.1

 

 

2.5

 

 

0.5

 

 

 —

 

 

 —

 

 

5.8

 

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

 

Goodwill impairment testing is performed annually as of October 1. In 2018, 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, 2018, 2017, and 2016.  

 

Other Intangible Assets

The following table provides information regarding the Company’s other intangible assets as of December 31, 2018 and 2017:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

 

 

 

Estimated Useful

 

Gross Carrying

 

Accumulated

 

 

 

 

Gross Carrying

 

Accumulated

 

 

 

 

 

   

Life (Years)

   

Amount

   

Amortization

   

Net

   

Amount

   

Amortization

   

Net

 

Developed technology

 

9 - 15

 

$

192.3

 

$

(105.6)

 

$

86.7

 

$

201.6

 

$

(96.1)

 

$

105.5

 

Customer Relationships

 

19

 

 

14.1

 

 

(1.1)

 

 

13.0

 

 

14.7

 

 

(0.4)

 

 

14.3

 

Manufacturing Capacity Rights

 

6

 

 

21.8

 

 

(16.8)

 

 

5.0

 

 

22.8

 

 

(13.9)

 

 

8.9

 

Software

 

5 - 10

 

 

101.9

 

 

(35.3)

 

 

66.6

 

 

89.5

 

 

(25.2)

 

 

64.3

 

Software in development

 

N/A

 

 

17.2

 

 

 —

 

 

17.2

 

 

11.5

 

 

 —

 

 

11.5

 

Other

 

3

 

 

3.9

 

 

(1.3)

 

 

2.6

 

 

3.4

 

 

(0.4)

 

 

3.0

 

Total

 

 

 

$

351.2

 

$

(160.1)

 

$

191.1

 

$

343.5

 

$

(136.0)

 

$

207.5

 

 

Amortization expense related to finite-lived intangible assets totaled $29.7 million, $27.0 million, and $21.3 million, for the years ended December 31, 2018, 2017, and 2016, 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: