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NOTE 1—BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) as of and for the periods ended September 30, 2017 and 2016 were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are considered necessary for the fair statement of the results for the periods presented. Because they cover interim periods, the statements and related notes to the financial statements do not include all disclosures normally provided in annual financial statements and, therefore, these statements should be read in conjunction with the 2016 audited consolidated financial statements included within the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2017.
The December 31, 2016 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 2016 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications did not have a material impact on the Company’s financial position or results. Refer to Note 14 for further information.
|
|||
NOTE 2—RECENT ACCOUNTING GUIDANCE
In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) jointly issued guidance 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 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. Additionally, the FASB has issued certain clarifying updates to this guidance, which the Company will consider as part of our adoption, which will be effective as of January 1, 2018. The Company has completed its scoping assessment for the adoption of this guidance by conducting surveys with relevant stakeholders in the business, including commercial and finance leadership, reviewing a representative sample of revenue arrangements across all businesses, and identifying a set of applicable qualitative revenue recognition changes related to the new standard update. In completing this phase, the Company has identified its major revenue streams, which are concentrated within individual product sales within each of our reportable segments. As a result of this work, the Company has concluded that it will adopt this new guidance applying the modified retrospective approach. The Company remains in the process of establishing and documenting key accounting policies, assessing new disclosure requirements, and evaluating impacts on business processes, information technology, and controls resulting from the adoption of this new standard. Additionally, while our final assessment has not been completed, we continue to progress in the quantification of the impacts that this standard will have on our consolidated financial statements and are refining certain estimates that will be used in order to calculate such impacts.
In July 2015, the FASB issued guidance which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (“NRV”) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. The Company adopted this guidance effective January 1, 2017, and the adoption did not have a material impact to the Company’s financial position or results of operations.
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. This new guidance is effective for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. The Company is in the process of assessing the impact on its consolidated financial statements from the adoption of the new guidance. However, as we are the lessee under various real estate, railcar, and other equipment leases, which we currently account for as operating leases, we anticipate an increase in the recognition of right-of-use assets and lease liabilities as a result of this adoption.
In August 2016, the FASB issued guidance that aims to eliminate diversity in practice for how certain cash receipts and payments are presented and classified in the consolidated statements of cash flows. Additionally, the FASB has issued further guidance related to the presentation of restricted cash on the consolidated statements of cash flows. The Company adopted this guidance effective September 30, 2017. The most significant impact of this adoption to the Company was the requirement to classify debt prepayment or extinguishment costs, which the Company had historically classified within cash flows from operating activities, as financing cash outflows. This change is reflected in the Company’s condensed consolidated statement of cash flows for the nine months ended September 30, 2017, including the impacts of the Company’s debt refinancing during the third quarter of 2017 (refer to Note 5 for further information). While this adoption was applied using the retrospective approach, there were no transactions during the nine months ended September 30, 2016 that required the condensed consolidated statement of cash flows for that period to be recast.
In January 2017, the FASB issued guidance that revises the definition of a business in order to assist in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the new guidance, fewer transactions are expected to be accounted for as business combinations. The Company adopted this guidance effective January 1, 2017. We expect this adoption could affect conclusions reached for future transactions in several areas, including acquisitions and disposals.
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment by removing Step 2 of the test, which requires a hypothetical purchase price allocation. As a result, a goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company adopted this guidance effective January 1, 2017, which did not have a material impact to the Company’s financial position or results of operations.
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. This presentation amendment is relevant to the Company and will be applied on a retrospective basis. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently assessing the impact of adopting this guidance on its results of operations.
In August 2017, the FASB issued significant amendments to existing hedge accounting guidance. Among other things, this guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting, amend presentation and disclosure requirements, and change how companies assess effectiveness. This guidance is required for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the timing and related impact of adopting this guidance on its financial position and results of operations.
|
|||
NOTE 3—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
During the nine months ended September 30, 2017, the Company had two joint ventures: Americas Styrenics LLC (“Americas Styrenics”, a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP) and Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate”, a polycarbonate joint venture with Sumitomo Chemical Company Limited). Investments held in the unconsolidated affiliates are accounted for by the equity method. The results of Americas Styrenics are included within its own reporting segment, and the results of Sumika Styron Polycarbonate were included within the Basic Plastics reporting segment until the Company sold its 50% share of the entity in January 2017. Refer to the discussion below for further information about the sale of the Company’s share in Sumika Styron Polycarbonate during the first quarter of 2017.
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.
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Sales |
|
$ |
458,744 |
|
$ |
460,305 |
|
$ |
1,369,572 |
|
$ |
1,241,908 |
|
|
Gross profit |
|
$ |
90,594 |
|
$ |
84,095 |
|
$ |
176,352 |
|
$ |
240,366 |
|
|
Net income |
|
$ |
81,059 |
|
$ |
65,041 |
|
$ |
141,508 |
|
$ |
188,853 |
|
Americas Styrenics
As of September 30, 2017 and December 31, 2016, respectively, the Company’s investment in Americas Styrenics was $161.9 million and $149.7 million, which was $49.1 million and $71.2 million less than the Company’s 50% share of the underlying net assets of Americas Styrenics. This amount represents 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 3.1 years as of September 30, 2017. The Company received dividends from Americas Styrenics of $35.0 million and $80.0 million during the three and nine months ended September 30, 2017, respectively, compared to $40.0 million and $100.0 million during the three and nine months ended September 30, 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 approximately $42.1 million. As a result, the Company recorded a gain on sale of $9.3 million during the nine months ended September 30, 2017, which was included within “Other expense (income), net” in the condensed consolidated statement of operations and was allocated entirely to the Basic Plastics segment. In addition, the parties have entered into a long-term agreement to continue sourcing polycarbonate resin from Sumika Styron Polycarbonate to the Company’s Performance Plastics segment.
As of December 31, 2016, the Company’s investment in Sumika Styron Polycarbonate was $41.8 million. Due to the sale in January 2017, the Company no longer has an investment in Sumika Styron Polycarbonate as of September 30, 2017. The Company received dividends from Sumika Styron Polycarbonate of zero and $9.8 million during the three and nine months ended September 30, 2017, respectively, compared to zero and $6.2 million during the three and nine months ended September 30, 2016, respectively. The dividend received during the nine months ended September 30, 2017 from Sumika Styron Polycarbonate related to the Company’s proportionate share of earnings for the year ended December 31, 2016.
|
|||
NOTE 4—INVENTORIES
Inventories consisted of the following:
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
2017 |
|
2016 |
|
||
|
Finished goods |
|
$ |
239,663 |
|
$ |
187,577 |
|
|
Raw materials and semi-finished goods |
|
|
211,186 |
|
|
168,804 |
|
|
Supplies |
|
|
32,309 |
|
|
28,964 |
|
|
Total |
|
$ |
483,158 |
|
$ |
385,345 |
|
|
|||
NOTE 5—DEBT
Refer to discussion below for details of the Company’s debt refinancing that occurred during the third quarter of 2017. For definitions of capitalized terms not included herein, refer to the Annual Report. The Company was in compliance with all debt related covenants as of September 30, 2017 and December 31, 2016.
As of September 30, 2017 and December 31, 2016, debt consisted of the following:
|
|
|
|
|
|
|
September 30, 2017 |
|
|||||||
|
|
|
Interest Rate as of September 30, 2017 |
|
Maturity |
|
Carrying |
|
Unamortized |
|
Total Debt, |
|
|||
|
Senior Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Revolving Facility(2) |
|
Various |
|
September 2022 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
2024 Term Loan B(3) |
|
3.735% |
|
September 2024 |
|
|
700,000 |
|
|
(18,957) |
|
|
681,043 |
|
|
2025 Senior Notes |
|
5.375% |
|
September 2025 |
|
|
500,000 |
|
|
(9,600) |
|
|
490,400 |
|
|
Accounts Receivable Securitization Facility(4) |
|
Various |
|
May 2019 |
|
|
— |
|
|
— |
|
|
— |
|
|
Other indebtedness |
|
Various |
|
Various |
|
|
1,481 |
|
|
— |
|
|
1,481 |
|
|
Total debt |
|
|
|
|
|
$ |
1,201,481 |
|
$ |
(28,557) |
|
$ |
1,172,924 |
|
|
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
|
(7,000) |
|
|
Total long-term debt, net of unamortized deferred financing fees |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,165,924 |
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|||||||
|
|
|
Interest Rate as of December 31, 2016 |
|
Maturity |
|
Carrying |
|
Unamortized |
|
Total Debt, |
|
|||
|
2020 Senior Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Revolving Facility |
|
Various |
|
May 2020 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
2021 Term Loan B |
|
4.250% |
|
November 2021 |
|
|
491,545 |
|
|
(9,159) |
|
|
482,386 |
|
|
2022 Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Notes |
|
6.750% |
|
May 2022 |
|
|
300,000 |
|
|
(5,726) |
|
|
294,274 |
|
|
Euro Notes |
|
6.375% |
|
May 2022 |
|
|
394,275 |
|
|
(7,157) |
|
|
387,118 |
|
|
Accounts Receivable Securitization Facility |
|
Various |
|
May 2019 |
|
|
— |
|
|
— |
|
|
— |
|
|
Other indebtedness |
|
Various |
|
Various |
|
|
1,591 |
|
|
— |
|
|
1,591 |
|
|
Total debt |
|
|
|
|
|
$ |
1,187,411 |
|
$ |
(22,042) |
|
$ |
1,165,369 |
|
|
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
|
(5,000) |
|
|
Total long-term debt, net of unamortized deferred financing fees |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,160,369 |
|
|
(1) |
This caption does not include deferred financing fees related to the Company’s revolving facilities, which are included within “Deferred charges and other assets” on the condensed consolidated balance sheets. |
|
(2) |
The Company had $357.2 million (net of $17.8 million outstanding letters of credit) of funds available for borrowing under this facility as of September 30, 2017. 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) |
The 2024 Term Loan B bears an interest rate of LIBOR plus 2.50%, subject to a 0.00% LIBOR floor. As of September 30, 2017, $7.0 million of the scheduled future payments related to this facility were classified as current debt on the Company’s condensed consolidated balance sheet. |
|
(4) |
This facility has a borrowing capacity of $200.0 million. As of September 30, 2017, the Company had approximately $148.8 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable. In regards to outstanding borrowings, fixed interest charges are 2.6% plus variable commercial paper rates, while for available, but undrawn commitments, fixed interest charges are 1.4%. |
2020 Senior Credit Facility
On May 5, 2015, the Company entered into a credit agreement which included $825.0 million of senior secured financing (the “2020 Senior Credit Facility”), inclusive of a $325.0 million revolving credit facility maturing in May 2020 (the “2020 Revolving Facility”) and a $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 unamortized original issue discount. As a result of this termination, the Company recognized a $0.8 million loss on extinguishment of long-term debt, 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 will be amortized along with new deferred financing fees over the life of the new facilities, discussed in further detail below.
Senior Credit Facility
On September 6, 2017, Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (together, the “Borrowers” or “Issuers”), both wholly-owned subsidiaries of the Company, entered into a 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.
The 2024 Term Loan B bears an interest rate of LIBOR plus 2.50%, subject to a 0.00% LIBOR floor. Further, 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.
Loans under the 2022 Revolving Facility, at the Borrowers’ option, may be maintained as (a) LIBO rate loans, which bear interest at a rate per annum equal to the LIBO rate plus the applicable margin (as defined in the Credit Agreement), if applicable, or (b) base rate loans which shall 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 we conduct; prepay certain other indebtedness; amend certain material documents; and change our 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. As of September 30, 2017, the Company was in compliance with all debt covenant requirements under the Senior Credit Facility.
Fees incurred in connection with the issuance of the 2024 Term Loan B were $12.3 million. Due to a portion of the 2024 Term Loan B meeting the criteria for modification accounting, $1.2 million of these fees were expensed and included within “Other expense (income), net” in the condensed consolidated statement of operations for the three and nine months ended September 30, 2017. The remaining $11.1 million of fees were capitalized and recorded within “Long-term debt, net of unamortized deferred financing fees” on the condensed consolidated balance sheet, to be amortized along with the remaining $8.1 million of unamortized deferred financing fees from the 2021 Term Loan B. Capitalized fees related to the 2024 Term Loan B are being amortized over the 7.0 year term of the facility using the effective interest method.
Fees incurred in connection with the issuance of the 2022 Revolving Facility were $0.8 million and were capitalized and recorded within “Deferred charges and other assets” in the condensed consolidated balance sheets. The new capitalized fees related to the 2022 Revolving Facility (along with $4.0 million of unamortized deferred financing fees from the 2020 Revolving Facility) are being amortized over the 5.0 year term of the facility using the straight-line method. Amortization of deferred financing fees are recorded within “Interest expense, net” in the condensed consolidated statements of operations.
2022 Senior Notes
In May 2015, the Company 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, 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, using applicable foreign exchange rates.
As a result of this redemption, during the three months ended September 30, 2017, the Company recorded a loss on extinguishment of long-term debt of $64.5 million, which includes the above $53.0 million call premium and an $11.5 million write-off of unamortized deferred financing fees related to the 2022 Senior Notes.
2025 Senior Notes
On August 29, 2017, the Issuers executed an 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.
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 facility and the Issuers’ Senior Credit Facility (discussed above), 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 stock; 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. As of September 30, 2017, the Company was in compliance with all debt covenant requirements under the Indenture.
Fees and expenses incurred in connection with the issuance of the 2025 Senior Notes were $9.7 million, which were capitalized and recorded within “Long-term debt, net of unamortized deferred financing fees” on the condensed consolidated balance sheet, and are being amortized into “Interest expense, net” in the condensed consolidated statements of operations over their 8.0 year term using the effective interest method.
|
|||
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill by segment from December 31, 2016 to September 30, 2017:
|
|
|
Performance Materials |
|
Basic Plastics & Feedstocks |
|
|
|
|
||||||||||||||
|
|
|
Latex |
|
Synthetic |
|
Performance |
|
Basic |
|
|
|
Americas |
|
|
|
|
||||||
|
|
|
Binders |
|
Rubber |
|
Plastics |
|
Plastics |
|
Feedstocks |
|
Styrenics |
|
Total |
|
|||||||
|
Balance at December 31, 2016 |
|
$ |
11,544 |
|
$ |
8,177 |
|
$ |
4,210 |
|
$ |
5,554 |
|
$ |
— |
|
$ |
— |
|
$ |
29,485 |
|
|
Acquisition (Note 13) |
|
|
— |
|
|
— |
|
|
28,598 |
|
|
— |
|
|
— |
|
|
— |
|
|
28,598 |
|
|
Foreign currency impact |
|
|
1,415 |
|
|
1,002 |
|
|
1,592 |
|
|
682 |
|
|
— |
|
|
— |
|
|
4,691 |
|
|
Balance at September 30, 2017 |
|
$ |
12,959 |
|
$ |
9,179 |
|
$ |
34,400 |
|
$ |
6,236 |
|
$ |
— |
|
$ |
— |
|
$ |
62,774 |
|
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets as of September 30, 2017 and December 31, 2016, respectively:
|
|
|
|
|
September 30, 2017 |
|
December 31, 2016 |
|
||||||||||||||
|
|
|
Estimated |
|
Gross |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
||
|
|
|
Useful Life |
|
Carrying |
|
Accumulated |
|
|
|
|
Carrying |
|
Accumulated |
|
|
|
|
||||
|
|
|
(Years) |
|
Amount |
|
Amortization |
|
Net |
|
Amount |
|
Amortization |
|
Net |
|
||||||
|
Developed technology(1) |
|
9 - 15 |
|
$ |
198,535 |
|
$ |
(91,078) |
|
$ |
107,457 |
|
$ |
166,230 |
|
$ |
(72,159) |
|
$ |
94,071 |
|
|
Customer Relationships(1) |
|
19 |
|
|
14,520 |
|
|
(171) |
|
|
14,349 |
|
|
— |
|
|
— |
|
|
— |
|
|
Manufacturing Capacity Rights |
|
6 |
|
|
22,426 |
|
|
(12,728) |
|
|
9,698 |
|
|
19,977 |
|
|
(8,908) |
|
|
11,069 |
|
|
Software |
|
5 - 10 |
|
|
87,412 |
|
|
(22,617) |
|
|
64,795 |
|
|
82,275 |
|
|
(15,095) |
|
|
67,180 |
|
|
Software in development |
|
N/A |
|
|
8,617 |
|
|
— |
|
|
8,617 |
|
|
4,751 |
|
|
— |
|
|
4,751 |
|
|
Other(1) |
|
3 |
|
|
3,056 |
|
|
(153) |
|
|
2,903 |
|
|
274 |
|
|
— |
|
|
274 |
|
|
Total |
$ |
334,566 |
$ |
(126,747) |
$ |
207,819 |
$ |
273,507 |
$ |
(96,162) |
$ |
177,345 |
|||||||||
|
(1) |
Balances as of September 30, 2017 include assets acquired related to the acquisition of API Applicazioni Plastiche Industriali S.p.A (“API Plastics”). Refer to Note 13 for further information. |
Amortization expense on other intangible assets totaled $7.2 million and $19.6 million for the three and nine months ended September 30, 2017, respectively, and $5.0 million and $15.2 million for the three and nine months ended September 30, 2016.
In addition to the significant accounting policies disclosed in Note 2 in our Annual Report, Basis of Presentation and Summary of Significant Accounting Policies, the Company notes the following significant accounting policies related to certain definite-lived intangible assets, for which we had substantial activity during the quarter ended September 30, 2017 as a result of the API Plastics acquisition.
Developed Technology
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. We determine amortization periods for developed technology based on our 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
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. We determine amortization periods for customer relationships based on our 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.
|
|||
NOTE 7—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 on the condensed consolidated balance sheets at fair value.
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 our 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 its exposure, the Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on our assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for hedge accounting treatment.
As of September 30, 2017, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $327.9 million. The following table displays the notional amounts of the most significant net foreign exchange hedge positions outstanding as of September 30, 2017.
|
|
|
September 30, |
|
|
|
Buy / (Sell) |
|
2017 |
|
|
|
Euro |
|
$ |
(161,885) |
|
|
Chinese Yuan |
|
$ |
(58,335) |
|
|
Indonesian Rupiah |
|
$ |
(29,493) |
|
|
Swiss Franc |
|
$ |
16,762 |
|
|
Korean Won |
|
$ |
(10,983) |
|
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 rates. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income/loss (“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 September 30, 2017 have maturities occurring over a period of 15 months, and have a net notional U.S. dollar equivalent of $196.5 million.
Interest Rate Swaps
As discussed in Note 5, on September 6, 2017, the Company issued the 2024 Term Loan B, which bears an interest rate of LIBOR plus 2.50%, 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 the third quarter of 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 September 30, 2017, 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 over a period of five years.
Net Investment Hedge
Through August 31, 2017, the Company had designated a portion (€280 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 5 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 cumulative foreign currency translation loss of $24.1 million within AOCI as of September 30, 2017.
On August 29, 2017, the Issuers executed an indenture pursuant to which they issued the $500.0 million 5.375% 2025 Senior Notes (refer to Note 5 for further information). Subsequently, on September 1, 2017, the Company entered into certain fixed-for-fixed cross currency swaps (“CCS”), swapping USD principal and interest payments on the newly issued 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 million at a weighted-average interest rate of 3.45% for approximately five years.
Effective September 1, 2017, the Company designated the full notional amount of the CCS (€420 million) as a hedge of the Issuers’ net investment in certain European subsidiaries. As the CCS were deemed to be highly effective hedges, changes in the fair value of the CCS were recorded as cumulative foreign currency translation loss of $7.1 million within AOCI as of September 30, 2017.
Summary of Derivative Instruments
Information regarding changes in the fair value of the Company’s derivative instruments, net of tax, including those not designated for hedge accounting treatment, is as follows:
|
|
|
Gain (Loss) Recognized in |
|
Gain (Loss) Recognized in |
|
|
||||||||
|
|
|
AOCI on Balance Sheet |
|
Statement of Operations |
|
|
||||||||
|
|
|
Three Months Ended September 30, |
|
Statement of Operations |
||||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Classification |
||||
|
Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
|
$ |
(4,458) |
|
$ |
(2,280) |
|
$ |
(2,666) |
|
$ |
245 |
|
Cost of sales |
|
Interest rate swaps |
|
|
743 |
|
|
— |
|
|
(6) |
|
|
— |
|
Interest expense, net |
|
Total |
|
$ |
(3,715) |
|
$ |
(2,280) |
|
$ |
(2,672) |
|
$ |
245 |
|
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
|
$ |
(13,924) |
|
$ |
(2,128) |
|
$ |
— |
|
$ |
— |
|
|
|
Cross-currency swaps (CCS) |
|
|
(7,112) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Total |
|
$ |
(21,036) |
|
$ |
(2,128) |
|
$ |
— |
|
$ |
— |
|
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
— |
|
$ |
— |
|
$ |
(6,526) |
|
$ |
1,060 |
|
Other expense (income), net |
|
Total |
|
$ |
— |
|
$ |
— |
|
$ |
(6,526) |
|
$ |
1,060 |
|
|
|
|
|
Gain (Loss) Recognized in |
|
Gain (Loss) Recognized in |
|
|
||||||||
|
|
|
AOCI on Balance Sheet |
|
Statement of Operations |
|
|
||||||||
|
|
|
Nine Months Ended September 30, |
|
Statement of Operations |
||||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Classification |
||||
|
Designated as Cash Flow Hedges |
||||||||||||||
|
Foreign exchange cash flow hedges |
|
$ |
(22,234) |
|
$ |
(3,676) |
|
$ |
794 |
|
$ |
616 |
|
Cost of sales |
|
Interest rate swaps |
|
|
743 |
|
|
— |
|
|
(6) |
|
|
— |
|
Interest expense, net |
|
Total |
|
$ |
(21,491) |
|
$ |
(3,676) |
|
$ |
788 |
|
$ |
616 |
|
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
|
$ |
(38,584) |
|
$ |
(4,615) |
|
$ |
— |
|
$ |
— |
|
|
|
Cross-currency swaps (CCS) |
|
|
(7,112) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Total |
|
$ |
(45,696) |
|
$ |
(4,615) |
|
$ |
— |
|
$ |
— |
|
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
— |
|
$ |
— |
|
$ |
(17,036) |
|
$ |
2,054 |
|
Other expense (income), net |
|
Total |
|
$ |
— |
|
$ |
— |
|
$ |
(17,036) |
|
$ |
2,054 |
|
|
The Company recorded losses of $6.5 million and $17.0 million during the three and nine months ended September 30, 2017, respectively, and gains of $1.1 million and $2.1 million during the three and nine months ended September 30, 2016, respectively, from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges). The gains and losses from these forward contracts offset net foreign exchange transaction gains of $8.2 million and $16.1 million during the three and nine months ended September 30, 2017, respectively, and losses of $1.5 million and $4.1 million during the three and nine months ended September 30, 2016, respectively, which resulted from the remeasurement of the Company’s foreign currency denominated assets and liabilities. The cash settlements of these foreign exchange forward contracts are included within operating activities in the condensed consolidated statement of cash flows.
As of September 30, 2017, the Company had no ineffectiveness related to its derivatives designated as hedging instruments. Further, the Company expects to reclassify in the next twelve months an approximate $10.3 million net loss from AOCI into earnings related to the Company’s outstanding foreign exchange cash flow hedges and interest rate swaps as of September 30, 2017 based on current foreign exchange rates.
The following table summarizes the net unrealized gains and losses and balance sheet classification of outstanding derivatives recorded in the condensed consolidated balance sheets:
|
|
|
September 30, 2017 |
|
December 31, 2016 |
|
||||||||||||||||||||
|
|
|
Foreign |
|
Foreign |
|
Interest |
|
Cross- |
|
|
|
Foreign |
|
Foreign |
|
|
|
||||||||
|
|
|
Forward |
|
Cash Flow |
|
Rate |
|
Currency |
|
|
|
Forward |
|
Cash Flow |
|
|
|
||||||||
|
Balance Sheet Classification |
|
Contracts |
|
Hedges |
|
Swaps |
|
Swaps |
|
Total |
|
Contracts |
|
Hedges |
|
Total |
|
||||||||
|
Asset Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance |
|
$ |
3,368 |
|
$ |
— |
|
$ |
— |
|
$ |
6,420 |
|
$ |
9,788 |
|
$ |
1,664 |
|
$ |
11,018 |
|
$ |
12,682 |
|
|
Deferred charges and other assets |
|
|
— |
|
|
— |
|
|
1,432 |
|
|
— |
|
|
1,432 |
|
|
— |
|
|
— |
|
|
— |
|
|
Total asset derivatives |
|
$ |
3,368 |
|
$ |
— |
|
$ |
1,432 |
|
$ |
6,420 |
|
$ |
11,220 |
|
$ |
1,664 |
|
$ |
11,018 |
|
$ |
12,682 |
|
|
Liability Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
117 |
|
$ |
9,612 |
|
$ |
688 |
|
$ |
— |
|
$ |
10,417 |
|
$ |
511 |
|
$ |
— |
|
$ |
511 |
|
|
Other noncurrent obligations |
|
|
— |
|
|
2,148 |
|
|
— |
|
|
13,531 |
|
|
15,679 |
|
|
— |
|
|
— |
|
|
— |
|
|
Total liability derivatives |
|
$ |
117 |
|
$ |
11,760 |
|
$ |
688 |
|
$ |
13,531 |
|
$ |
26,096 |
|
$ |
511 |
|
$ |
— |
|
$ |
511 |
|
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. As such, in accordance with the Company’s accounting policy, we record these derivative instruments on a net basis by counterparty within the condensed consolidated balance sheet. Information regarding the gross amounts of the Company’s derivative instruments and the amounts offset in the condensed consolidated balance sheets is as follows:
|
|
|
Gross Amounts |
|
Gross Amounts |
|
Net Amounts |
|
|||
|
|
|
Recognized in the |
|
Offset in the |
|
Presented in the |
|
|||
|
|
|
Balance Sheet |
|
Balance Sheet |
|
Balance Sheet |
|
|||
|
Balance at September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
|
$ |
12,793 |
|
$ |
(1,573) |
|
$ |
11,220 |
|
|
Derivative liabilities |
|
|
27,669 |
|
|
(1,573) |
|
|
26,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
|
$ |
23,401 |
|
$ |
(10,719) |
|
$ |
12,682 |
|
|
Derivative liabilities |
|
|
11,230 |
|
|
(10,719) |
|
|
511 |
|
Refer to Notes 8 and 16 of the condensed consolidated financial statements for further information regarding the fair value of the Company’s derivative instruments and the related changes in AOCI.
|
|||
NOTE 8—FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.
Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The following table summarizes the basis used to measure certain assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016.
|
|
|
September 30, 2017 |
|
||||||||||
|
|
|
Quoted Prices in Active Markets for Identical Items |
|
Significant Other Observable Inputs |
|
Significant Unobservable Inputs |
|
|
|
|
|||
|
Assets (Liabilities) at Fair Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
||||
|
Foreign exchange forward contracts—Assets |
|
$ |
— |
|
$ |
3,368 |
|
$ |
— |
|
$ |
3,368 |
|
|
Foreign exchange forward contracts—(Liabilities) |
|
|
— |
|
|
(117) |
|
|
— |
|
|
(117) |
|
|
Foreign exchange cash flow hedges—(Liabilities) |
|
|
— |
|
|
(11,760) |
|
|
— |
|
|
(11,760) |
|
|
Interest rate swaps—Assets |
|
|
— |
|
|
1,432 |
|
|
— |
|
|
1,432 |
|
|
Interest rate swaps—(Liabilities) |
|
|
— |
|
|
(688) |
|
|
— |
|
|
(688) |
|
|
Cross-currency swaps—Assets |
|
|
— |
|
|
6,420 |
|
|
— |
|
|
6,420 |
|
|
Cross-currency swaps—(Liabilities) |
|
|
— |
|
|
(13,531) |
|
|
— |
|
|
(13,531) |
|
|
Total fair value |
|
$ |
— |
|
$ |
(14,876) |
|
$ |
— |
|
$ |
(14,876) |
|
|
|
|
December 31, 2016 |
|
||||||||||
|
|
|
Quoted Prices in Active Markets for Identical Items |
|
Significant Other Observable Inputs |
|
Significant Unobservable Inputs |
|
|
|
|
|||
|
Assets (Liabilities) at Fair Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
||||
|
Foreign exchange forward contracts—Assets |
|
$ |
— |
|
$ |
1,664 |
|
$ |
— |
|
$ |
1,664 |
|
|
Foreign exchange forward contracts—(Liabilities) |
|
|
— |
|
|
(511) |
|
|
— |
|
|
(511) |
|
|
Foreign exchange cash flow hedges—Assets |
|
|
— |
|
|
11,018 |
|
|
— |
|
|
11,018 |
|
|
Total fair value |
|
$ |
— |
|
$ |
12,171 |
|
$ |
— |
|
$ |
12,171 |
|
The Company uses an income approach to value its derivative instruments, utilizing discounted cash flow techniques, considering the terms of the contract and observable market information available as of the reporting date, such as interest rate yield curves and currency spot and forward rates. Significant inputs to the valuation for these derivative instruments are obtained from broker quotations or from listed or over-the-counter market data, and are classified as Level 2 in the fair value hierarchy.
Fair Value of Debt Instruments
The following table presents the estimated fair value of the Company’s outstanding debt not carried at fair value as of September 30, 2017 and December 31, 2016, respectively:
|
|
|
As of |
|
As of |
|
||
|
|
|
September 30, 2017 |
|
December 31, 2016 |
|
||
|
2025 Senior Notes |
|
$ |
515,625 |
|
$ |
— |
|
|
2022 Senior Notes |
|
|
|
|
|
|
|
|
USD Notes |
|
|
— |
|
|
315,000 |
|
|
Euro Notes |
|
|
— |
|
|
424,437 |
|
|
2024 Term Loan B |
|
|
707,441 |
|
|
— |
|
|
2021 Term Loan B |
|
|
— |
|
|
498,041 |
|
|
Total fair value |
|
$ |
1,223,066 |
|
$ |
1,237,478 |
|
The fair value of the Company’s debt facilities above (each Level 2 securities) is determined using over-the-counter market quotes and benchmark yields received from independent vendors.
There were no other significant financial instruments outstanding as of September 30, 2017 and December 31, 2016.
|
|||
NOTE 9—PROVISION FOR INCOME TAXES
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
||||
|
Effective income tax rate |
|
|
20.0 |
% |
|
19.2 |
% |
|
21.1 |
% |
|
21.7 |
% |
|
Provision for income taxes for the three and nine months ended September 30, 2017 were $8.3 million, resulting in an effective tax rate of 20.0%, and $56.4 million, resulting in an effective tax rate of 21.1%, respectively. Provision for income taxes for the three and nine months ended September 30, 2016 were $16.0 million, resulting in an effective tax rate of 19.2%, and $66.5 million, resulting in an effective tax rate of 21.7%, respectively.
While the effective tax rate for the three and nine months ended September 30, 2017 and 2016 remained relatively consistent, the rate was impacted by non-recurring items in both periods.
The effective tax rate for the three and nine months ended September 30, 2017 was impacted by payments made of $10.9 million related to a portion of the fees associated with the call premium paid to retire the Company’s 2022 Senior Notes, which are not anticipated to provide a tax benefit to the Company in the future (refer to Note 5 for further information). The effective tax rate for the three and nine months ended September 30, 2016 was impacted by an impairment charge of $0.3 million and $13.2 million, respectively, for the estimated loss on sale of Trinseo Brazil. Refer to Note 13 for further information.
|
|||
NOTE 10—COMMITMENTS AND CONTINGENCIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law, existing technologies and other information. Pursuant to the terms of the agreement associated with the Company’s formation, the pre-closing environmental conditions were retained by Dow and Dow has agreed to indemnify the Company from and against all environmental liabilities incurred or relating to the predecessor periods. No environmental claims have been asserted or threatened against the Company, and the Company is not a potentially responsible party at any Superfund Sites. As of September 30, 2017 and December 31, 2016, the Company had no accrued obligations for environmental remediation and restoration costs.
Inherent uncertainties exist in the Company’s potential environmental liabilities primarily due to unknown conditions, whether future claims may fall outside the scope of the indemnity, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. In connection with the Company’s existing indemnification, the possibility is considered remote that environmental remediation costs will have a material adverse impact on the condensed consolidated financial statements.
Purchase Commitments
In the normal course of business, the Company has certain raw material purchase contracts where it is required to purchase certain minimum volumes at current market prices. These commitments range from 1 to 5 years. In certain raw material purchase contracts, the Company has the right to purchase less than the required minimums and pay a liquidated damages fee, or, in case of a permanent plant shutdown, to terminate the contracts. In such cases, these obligations would be less than the annual commitment as disclosed in the consolidated financial statements included in the Annual Report.
Litigation Matters
From time to time, the Company may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as product liability, antitrust/competition, past waste disposal practices and release of chemicals into the environment. While it is impossible at this time to determine with certainty the ultimate outcome of these routine claims, the Company does not believe that the ultimate resolution of these claims will have a material adverse effect on the Company’s results of operations, financial condition or cash flow. Legal costs, including those legal costs expected to be incurred in connection with a loss contingency, are expensed as incurred.
|
|||
NOTE 11—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for all significant plans were as follows:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Defined Benefit Pension Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
5,000 |
|
$ |
4,156 |
|
$ |
14,291 |
|
$ |
12,438 |
|
|
Interest cost |
|
|
1,184 |
|
|
1,391 |
|
|
3,376 |
|
|
4,160 |
|
|
Expected return on plan assets |
|
|
(450) |
|
|
(492) |
|
|
(1,285) |
|
|
(1,474) |
|
|
Amortization of prior service credit |
|
|
(503) |
|
|
(488) |
|
|
(1,456) |
|
|
(1,459) |
|
|
Amortization of net loss |
|
|
1,479 |
|
|
1,058 |
|
|
4,232 |
|
|
3,169 |
|
|
Net settlement and curtailment loss(1) |
|
|
— |
|
|
— |
|
|
129 |
|
|
— |
|
|
Net periodic benefit cost |
|
$ |
6,710 |
|
$ |
5,625 |
|
$ |
19,287 |
|
$ |
16,834 |
|
|
(1) |
Represents a settlement loss of approximately $0.5 million triggered by benefit payments exceeding the sum of service and interest cost for one of the Company’s pension plans in Switzerland, partially offset by a curtailment gain of approximately $0.4 million related to a reduction in the number of participants in the Company’s pension plan in Japan. |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Other Postretirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
53 |
|
$ |
67 |
|
$ |
161 |
|
$ |
196 |
|
|
Interest cost |
|
|
63 |
|
|
135 |
|
|
189 |
|
|
385 |
|
|
Amortization of prior service cost |
|
|
26 |
|
|
25 |
|
|
77 |
|
|
77 |
|
|
Amortization of net gain |
|
|
(11) |
|
|
(43) |
|
|
(32) |
|
|
(128) |
|
|
Net periodic benefit cost |
|
$ |
131 |
|
$ |
184 |
|
$ |
395 |
|
$ |
530 |
|
As of September 30, 2017 and December 31, 2016, the Company’s benefit obligations included primarily in “Other noncurrent obligations” in the condensed consolidated balance sheets were $221.6 million and $195.8 million, respectively. The net periodic benefit costs are recognized in the condensed consolidated statement of operations as “Cost of sales” and “Selling, general and administrative expenses.”
The Company made cash contributions and benefit payments to unfunded plans of approximately $1.7 million and $11.9 million during the three and nine months ended September 30, 2017, respectively. The Company expects to make additional cash contributions, including benefit payments to unfunded plans, of approximately $4.0 million to its defined benefit plans for the remainder of 2017.
|
|||
NOTE 12—STOCK-BASED COMPENSATION
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on the Company’s stock-based compensation programs included in the tables below.
The following table summarizes the Company’s stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016, as well as unrecognized compensation cost as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, 2017 |
|
|||||||||||
|
|
|
September 30, |
|
September 30, |
|
Unrecognized |
|
Weighted |
|
|||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Compensation Cost |
|
Average Years |
|
|||||
|
RSUs |
|
$ |
2,287 |
|
$ |
1,476 |
|
$ |
6,295 |
|
$ |
3,826 |
|
$ |
11,682 |
|
1.8 |
|
|
Options |
|
|
454 |
|
|
733 |
|
|
3,661 |
|
|
4,867 |
|
|
1,659 |
|
1.4 |
|
|
PSUs |
|
|
324 |
|
|
— |
|
|
796 |
|
|
— |
|
|
3,062 |
|
2.4 |
|
|
Restricted Stock Awards issued by Former Parent |
|
|
— |
|
|
3,817 |
|
|
— |
|
|
6,149 |
|
|
— |
|
— |
|
|
Total Stock-based Compensation Expense |
|
$ |
3,065 |
|
$ |
6,026 |
|
$ |
10,752 |
|
$ |
14,842 |
|
|
|
|
|
|
The following table summarizes awards granted and the respective weighted-average grant date fair value for the nine months ended September 30, 2017:
|
|
|
Nine Months Ended |
|
||||
|
|
|
September 30, 2017 |
|
||||
|
|
|
Awards Granted |
|
Weighted Average Grant Date Fair Value per Award |
|
||
|
RSUs |
|
|
110,767 |
|
$ |
70.85 |
|
|
Options |
|
|
192,546 |
|
|
20.61 |
|
|
PSUs |
|
|
50,937 |
|
|
75.74 |
|
Option Awards
The following are the weighted-average assumptions used within the Black-Scholes pricing model for the Company’s option awards granted during the nine months ended September 30, 2017:
|
|
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
|
|
|
|
2017 |
|
|
|
Expected term (in years) |
|
5.50 |
|
|
|
Expected volatility |
|
35.00 |
% |
|
|
Risk-free interest rate |
|
2.19 |
% |
|
|
Dividend yield |
|
2.00 |
% |
|
Since the Company’s equity interests were privately held prior to its initial public offering (“IPO”) in June 2014, there is limited publicly available trading history of the Company’s ordinary shares. Until such time that the Company can determine expected volatility based solely on the publicly traded history of its ordinary shares, expected volatility used in the Black-Scholes model for option awards granted is based on a combination of the Company’s historical volatility and similar companies’ stock that are publicly traded. The expected term of option awards represents the period of time that option awards granted are expected to be outstanding. For the option awards granted during the nine months ended September 30, 2017, the simplified method was used to calculate the expected term, given the Company’s limited historical exercise data. The risk-free interest rate for the periods within the expected term of option awards is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is estimated based on historical and expected dividend activity.
Performance Share Units (PSUs)
The Company granted PSUs for the first time during the nine months ended September 30, 2017. The PSUs, which are granted to executives, cliff vest on the third anniversary of the date of grant, generally subject to the executive remaining continuously employed by the Company through the vesting date and achieving certain performance conditions. The number of the PSUs that vest upon completion of the service period can range from 0 to 200 percent of the original grant, subject to certain limitations, contingent upon the Company’s total shareholder return (“TSR”) during the performance period relative to a pre-defined set of industry peer companies. Upon a termination of employment due to the executive’s death or retirement, or termination in connection with a change in control or other factors prior to the vesting date, the PSUs will vest in full or in part, depending on the type of termination and the achievement of the performance conditions. Dividend equivalents will accumulate on PSUs during the vesting period, will be paid in cash upon vesting, and do not accrue interest. When PSUs vest, shares will be issued from the existing pool of treasury shares. The fair value for PSU awards is computed using a Monte Carlo valuation model.
|
|||
NOTE 13—ACQUISITIONS AND DIVESTITURES
Acquisition of API Plastics
On July 10, 2017, the Company acquired 100% of the equity interests of API Applicazioni Plastiche Industriali S.p.A, or API Plastics, a privately held company. The gross purchase price for the acquisition was $90.5 million, inclusive of $8.4 million of cash acquired, yielding a net purchase price of $82.1 million. These amounts are subject to certain customary post-closing adjustments. During the nine months ended September 30, 2017, the Company paid $79.7 million for this acquisition, leaving an additional $2.4 million of unpaid purchase price accrued, which is expected to be paid during the fourth quarter of 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 ABS and PC/ABS, which presents opportunities for complementary technology product offerings within our 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.
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 becomes available. Additional information is being gathered to finalize these preliminary measurements, particularly with respect to property, plant and equipment, intangible assets, inventory, deferred income taxes and income taxes payable. Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed, including goodwill, 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:
|
|
|
July 10, |
|
|
|
|
|
2017 |
|
|
|
Cash and cash equivalents |
|
$ |
8,431 |
|
|
Accounts receivable |
|
|
16,484 |
|
|
Inventories |
|
|
10,282 |
|
|
Other current assets |
|
|
728 |
|
|
Property, plant, and equipment |
|
|
24,146 |
|
|
Other intangible assets(1) |
|
|
|
|
|
Customer relationships |
|
|
14,000 |
|
|
Developed technology |
|
|
11,500 |
|
|
Other amortizable intangible assets |
|
|
2,700 |
|
|
Total fair value of assets acquired |
|
$ |
88,271 |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
12,219 |
|
|
Income taxes payable |
|
|
202 |
|
|
Accrued expenses and other current liabilities |
|
|
1,416 |
|
|
Deferred income tax liabilities—noncurrent |
|
|
11,262 |
|
|
Other noncurrent obligations |
|
|
1,277 |
|
|
Total fair value of liabilities assumed |
|
$ |
26,376 |
|
|
Net identifiable assets acquired |
|
$ |
61,895 |
|
|
Goodwill(2) |
|
|
28,598 |
|
|
Net assets acquired |
|
$ |
90,493 |
|
|
(1) |
The expected lives of the acquired intangible assets are 19 years for customer relationships, 9 years for developed technology, and 3 years for other amortizable intangible assets. |
|
(2) |
Goodwill consists of expected operating synergies resulting from combining API Plastics with our existing businesses, and is allocated entirely to the Performance Plastics segment. None of the goodwill related to this acquisition will be deductible for income tax purposes. |
During the three and nine months ended September 30, 2017, transaction and integration costs related to advisory and professional fees incurred in conjunction with the API Plastics acquisition were $2.4 million and $3.5 million, respectively, and were included within “Selling, general and administrative expenses” in the condensed consolidated statement of operations. Additionally, during the three and nine months ended September 30, 2017, the Company recorded a $1.3 million non-cash fair value inventory adjustment related to the API Plastics acquisition which was included within “Cost of sales” in the condensed consolidated statement of operations.
Pro forma results of operations information has not been presented, as the effect of the API Plastics acquisition is not material. The operating results of API Plastics are included within the Company's condensed consolidated statement of operations since the acquisition date of July 10, 2017 and were not material to the Company's results for the three and nine months ended September 30, 2017.
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, including both a latex binders and automotive business. The sale closed on October 1, 2016.
As a result of this agreement, during the three and nine months ended September 30, 2016, the Company recorded impairment charges for the estimated loss on sale of approximately $0.3 million, and $13.2 million, respectively, within “Other expense (income), net” in the condensed consolidated statement of operations. The $13.2 million charge was allocated as $8.4 million, $4.2 million, and $0.6 million to the Performance Plastics segment, Latex Binders segment, and Corporate, respectively. During the year ended December 31, 2016, the Company received $1.8 million in proceeds from the sale of these businesses, with an additional $1.7 million received during the nine months ended September 30, 2017.
|
|||
NOTE 14—SEGMENTS
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the business is managed and results are reviewed by the chief executive officer, who is the Company’s chief operating decision maker. This change in segments was made to provide increased clarity and understanding around the indicators of profitability and cash flow of the Company. The previous Basic Plastics & Feedstocks segment was split into three new segments: Basic Plastics, which includes polystyrene, copolymers, and polycarbonate; Feedstocks, which represents the Company’s styrene monomer business; and Americas Styrenics, which reflects the equity earnings from its 50%-owned styrenics joint venture. In addition, certain highly differentiated acrylonitrile-butadiene-styrene, or ABS, supplied into Performance Plastics markets, which was previously included in the results of Basic Plastics & Feedstocks, is now included in Performance Plastics. Finally, the Latex segment was renamed to Latex Binders. In conjunction with the segment realignment, the Company also changed its primary measure of segment operating performance from EBITDA to Adjusted EBITDA. Refer to the discussion below for further information about Adjusted EBITDA.
The information in the tables below has been retroactively adjusted to reflect the changes in reporting segments and segment operating performance.
The Latex Binders segment produces styrene-butadiene latex, or SB latex, and other latex polymers and binders, primarily for coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex binders applications, such as adhesive, building and construction and the technical textile paper market. The Synthetic Rubber segment produces synthetic rubber products used predominantly in high-performance tires, impact modifiers and technical rubber products, such as conveyer belts, hoses, seals and gaskets. The Performance Plastics segment produces highly engineered compounds and blends and some specialized ABS grades for automotive end markets, as well as consumer electronics, medical, electrical and lighting, collectively consumer essential markets, or CEM. The Basic Plastics segment produces styrenic polymers, including polystyrene, basic ABS, and styrene-acrylonitrile, or SAN, products, as well as polycarbonate, or PC, all of which are used as inputs in a variety of end use markets. The Basic Plastics segment also included the results of our previously 50%-owned joint venture, Sumika Styron Polycarbonate, until the Company sold its share in the entity in January 2017 (refer to Note 3 for further information). The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of North America, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, ABS resins, solution styrene-butadiene rubber, or SSBR, etc. Lastly, the Americas Styrenics segment consists solely of the operations of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in North America.
Asset, capital expenditure, and intersegment sales information is not reviewed or included with the Company’s reporting to the chief operating decision maker. Therefore, the Company has not disclosed this information for each reportable segment.
|
|
|
Performance Materials |
|
Basic Plastics & Feedstocks |
|
|
|
|
|
|
|
||||||||||||||
|
|
|
Latex |
|
Synthetic |
|
Performance |
|
Basic |
|
|
|
Americas |
|
Corporate |
|
|
|
|
|||||||
|
Three Months Ended |
|
Binders |
|
Rubber |
|
Plastics |
|
Plastics |
|
Feedstocks |
|
Styrenics |
|
Unallocated |
|
Total |
|
||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
266,260 |
|
$ |
118,684 |
|
$ |
206,999 |
|
$ |
393,622 |
|
$ |
111,017 |
|
$ |
— |
|
$ |
— |
|
$ |
1,096,582 |
|
|
Equity in earnings of unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
43,807 |
|
|
— |
|
|
43,807 |
|
|
Adjusted EBITDA(1) |
|
|
32,343 |
|
|
(5,579) |
|
|
29,436 |
|
|
42,062 |
|
|
45,597 |
|
|
43,807 |
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
161,883 |
|
|
— |
|
|
161,883 |
|
|
Depreciation and amortization |
|
|
6,046 |
|
|
8,960 |
|
|
4,102 |
|
|
4,274 |
|
|
3,603 |
|
|
— |
|
|
2,191 |
|
|
29,176 |
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
242,600 |
|
$ |
112,690 |
|
$ |
175,355 |
|
$ |
323,729 |
|
$ |
81,036 |
|
$ |
— |
|
$ |
— |
|
$ |
935,410 |
|
|
Equity in earnings of unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
2,356 |
|
|
— |
|
|
34,330 |
|
|
— |
|
|
36,686 |
|
|
Adjusted EBITDA(1) |
|
|
29,815 |
|
|
28,491 |
|
|
30,187 |
|
|
34,134 |
|
|
12,729 |
|
|
34,330 |
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
38,197 |
|
|
— |
|
|
148,802 |
|
|
— |
|
|
186,999 |
|
|
Depreciation and amortization |
|
|
5,742 |
|
|
9,138 |
|
|
1,372 |
|
|
4,057 |
|
|
2,446 |
|
|
— |
|
|
1,016 |
|
|
23,771 |
|
|
|
|
Performance Materials |
|
Basic Plastics & Feedstocks |
|
|
|
|
|
|
|
||||||||||||||
|
|
|
Latex |
|
Synthetic |
|
Performance |
|
Basic |
|
|
|
Americas |
|
Corporate |
|
|
|
|
|||||||
|
Nine Months Ended |
|
Binders |
|
Rubber |
|
Plastics |
|
Plastics |
|
Feedstocks |
|
Styrenics |
|
Unallocated |
|
Total |
|
||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
846,721 |
|
$ |
456,055 |
|
$ |
581,724 |
|
$ |
1,156,831 |
|
$ |
304,940 |
|
$ |
— |
|
$ |
— |
|
$ |
3,346,271 |
|
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
810 |
|
|
— |
|
|
92,219 |
|
|
— |
|
|
93,029 |
|
|
Adjusted EBITDA(1) |
|
|
105,228 |
|
|
68,381 |
|
|
79,799 |
|
|
112,691 |
|
|
86,342 |
|
|
92,219 |
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
161,883 |
|
|
— |
|
|
161,883 |
|
|
Depreciation and amortization |
|
|
17,469 |
|
|
26,027 |
|
|
8,947 |
|
|
12,094 |
|
|
9,172 |
|
|
— |
|
|
6,511 |
|
|
80,220 |
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
684,552 |
|
$ |
326,278 |
|
$ |
527,875 |
|
$ |
1,029,683 |
|
$ |
230,800 |
|
$ |
— |
|
$ |
— |
|
$ |
2,799,188 |
|
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
5,375 |
|
|
— |
|
|
104,939 |
|
|
— |
|
|
110,314 |
|
|
Adjusted EBITDA(1) |
|
|
70,042 |
|
|
81,787 |
|
|
103,745 |
|
|
115,050 |
|
|
66,087 |
|
|
104,939 |
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
38,197 |
|
|
— |
|
|
148,802 |
|
|
— |
|
|
186,999 |
|
|
Depreciation and amortization |
|
|
17,904 |
|
|
26,073 |
|
|
4,505 |
|
|
11,581 |
|
|
8,071 |
|
|
— |
|
|
3,610 |
|
|
71,744 |
|
(1)The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring; acquisition related costs and other items. Adjusted EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure that management believes reflects core operating performance by removing the impact of transactions and events that would not be considered a part of core operations. Adjusted EBITDA is useful for analytical purposes; however, it should not be considered an alternative to the Company’s reported GAAP results, as there are limitations in using such financial measures. Other companies in the industry may define Adjusted EBITDA differently than the Company, and as a result, it may be difficult to use Adjusted EBITDA, or similarly named financial measures, that other companies may use to compare the performance of those companies to the Company’s segment performance.
The reconciliation of income before income taxes to Segment Adjusted EBITDA is as follows:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Income before income taxes |
|
$ |
41,515 |
|
$ |
83,254 |
|
$ |
267,068 |
|
$ |
306,305 |
|
|
Interest expense, net |
|
|
18,436 |
|
|
18,832 |
|
|
55,355 |
|
|
56,542 |
|
|
Depreciation and amortization |
|
|
29,176 |
|
|
23,771 |
|
|
80,220 |
|
|
71,744 |
|
|
Corporate Unallocated(2) |
|
|
21,864 |
|
|
26,397 |
|
|
70,888 |
|
|
72,766 |
|
|
Adjusted EBITDA Addbacks(3) |
|
|
76,675 |
|
|
17,432 |
|
|
71,129 |
|
|
34,293 |
|
|
Segment Adjusted EBITDA |
|
$ |
187,666 |
|
$ |
169,686 |
|
$ |
544,660 |
|
$ |
541,650 |
|
(2)Corporate unallocated includes corporate overhead costs and certain other income and expenses.
(3)Adjusted EBITDA addbacks for the three and nine months ended September 30, 2017 and 2016 are as follows:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
(in millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Loss on extinguishment of long-term debt (Note 5) |
|
$ |
65.3 |
|
$ |
— |
|
$ |
65.3 |
|
$ |
— |
|
|
Net loss (gain) on disposition of businesses and assets (Notes 3 and 13) |
|
|
0.2 |
|
|
0.3 |
|
|
(9.7) |
|
|
13.2 |
|
|
Restructuring and other charges (Note 15) |
|
|
1.5 |
|
|
16.8 |
|
|
4.8 |
|
|
18.6 |
|
|
Acquisition transaction and integration costs (Note 13) |
|
|
3.8 |
|
|
— |
|
|
4.9 |
|
|
— |
|
|
Asset impairment charges or write-offs(a) |
|
|
4.3 |
|
|
— |
|
|
4.3 |
|
|
— |
|
|
Other items(b) |
|
|
1.6 |
|
|
0.3 |
|
|
1.6 |
|
|
2.5 |
|
|
Total Adjusted EBITDA Addbacks |
|
$ |
76.7 |
|
$ |
17.4 |
|
$ |
71.2 |
|
$ |
34.3 |
|
|
(a) |
Asset impairment charges for the three and nine months ended September 30, 2017 primarily relate to the impairment of certain long-lived assets in the Company’s Performance Plastics segment. |
|
(b) |
Other items for the three and nine months ended September 30, 2017 primarily relate to fees incurred in conjunction with the Company’s debt refinancing which was completed during the third quarter of 2017 (refer to Note 5 for further information). Other items for the three and nine months ended September 30, 2016 primarily relate to fees incurred in conjunction with the Company’s secondary offerings completed during these periods. |
|
|||
NOTE 15—RESTRUCTURING
Refer to the Annual Report for details regarding the Company’s previously announced restructuring activities included in the tables below. New restructuring activities are discussed in greater detail below. Restructuring charges are included within “Selling, general and administrative expenses” in the condensed consolidated statement of operations.
The following table provides detail of the Company’s restructuring charges for the three and nine months ended September 30, 2017 and 2016:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
Cumulative |
|
|
|
|||||||||
|
|
|
September 30, |
|
September 30, |
|
Life-to-date |
|
|
|
|||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Charges |
|
Segment |
|
|||||
|
Terneuzen Compounding Restructuring(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment/accelerated depreciation |
|
$ |
614 |
|
$ |
— |
|
$ |
1,745 |
|
$ |
— |
|
$ |
1,745 |
|
|
|
|
Employee termination benefits |
|
|
170 |
|
|
— |
|
|
326 |
|
|
— |
|
|
326 |
|
|
|
|
Contract terminations |
|
|
— |
|
|
— |
|
|
590 |
|
|
— |
|
|
590 |
|
|
|
|
Decommissioning and other |
|
|
192 |
|
|
— |
|
|
192 |
|
|
— |
|
|
818 |
|
|
|
|
Terneuzen Subtotal |
|
$ |
976 |
|
$ |
— |
|
$ |
2,853 |
|
$ |
— |
|
$ |
3,479 |
|
Performance Plastics |
|
|
Livorno Plant Restructuring(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment/accelerated depreciation |
|
$ |
— |
|
$ |
14,345 |
|
$ |
— |
|
$ |
14,345 |
|
$ |
14,345 |
|
|
|
|
Employee termination benefits |
|
|
220 |
|
|
1,405 |
|
|
579 |
|
|
1,405 |
|
|
5,211 |
|
|
|
|
Contract terminations |
|
|
— |
|
|
269 |
|
|
— |
|
|
269 |
|
|
269 |
|
|
|
|
Decommissioning and other |
|
|
633 |
|
|
64 |
|
|
1,695 |
|
|
64 |
|
|
2,372 |
|
|
|
|
Livorno Subtotal |
|
$ |
853 |
|
$ |
16,083 |
|
$ |
2,274 |
|
$ |
16,083 |
|
$ |
22,197 |
|
Latex Binders |
|
|
Other Restructurings |
|
|
288 |
|
|
759 |
|
|
1,453 |
|
|
2,989 |
|
|
|
|
Various |
|
|
Total Restructuring Charges |
|
$ |
2,117 |
|
$ |
16,842 |
|
$ |
6,580 |
|
$ |
19,072 |
|
|
|
|
|
|
|
(1) |
In March 2017, the Company announced plans to upgrade its production capability for compounded resins with the construction of a new state-of-the art compounding facility to replace its existing compounding facility in Terneuzen, The Netherlands. The new facility is expected to start up by the end of 2018, with substantive production at the existing facility expected to cease by December 2018, followed by decommissioning activities in 2019. The Company expects to incur incremental accelerated depreciation charges of approximately $1.9 million through the end of 2018, as well as estimated decommissioning and other charges of approximately $1.2 million throughout 2019, the majority of which are expected to be paid in late 2018 and throughout 2019. |
|
(2) |
In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders manufacturing facility in Livorno, Italy. The Company expects to incur incremental employee termination benefit charges of $0.2 million throughout 2017, which are expected to be paid in early 2018. The Company also expects to incur additional decommissioning costs associated with this plant shutdown in 2017, the cost of which will be expensed as incurred. |
The following table provides a rollforward of the liability balances associated with the Company’s restructuring activities as of September 30, 2017. Employee termination benefit and contract termination charges are recorded within “Accrued expenses and other current liabilities” in the condensed consolidated balance sheet.
|
|
|
Balance at |
|
|
|
|
|
|
|
Balance at |
|
||
|
|
|
December 31, 2016 |
|
Expenses |
|
Deductions(1) |
|
September 30, 2017 |
|
||||
|
Employee termination benefits |
|
$ |
5,021 |
|
$ |
2,492 |
|
$ |
(5,674) |
|
$ |
1,839 |
|
|
Contract terminations |
|
|
269 |
|
|
590 |
|
|
(122) |
|
|
737 |
|
|
Decommissioning and other |
|
|
— |
|
|
2,474 |
|
|
(2,474) |
|
|
— |
|
|
Total |
|
$ |
5,290 |
|
$ |
5,556 |
|
$ |
(8,270) |
|
$ |
2,576 |
|
|
(1) |
Includes primarily payments made against the existing accrual, as well as immaterial impacts of foreign currency remeasurement. |
|
|||
NOTE 16—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of AOCI, net of income taxes, consisted of:
|
|
|
Cumulative |
|
Pension & Other |
|
|
|
|
|
|
|
||
|
|
|
Translation |
|
Postretirement Benefit |
|
|
Cash Flow |
|
|
|
|
||
|
Three Months Ended September 30, 2017 and 2016 |
|
Adjustments |
|
Plans, Net |
|
|
Hedges, Net |
|
Total |
|
|||
|
Balance as of June 30, 2017 |
|
$ |
(95,747) |
|
$ |
(61,332) |
|
$ |
(5,504) |
|
$ |
(162,583) |
|
|
Other comprehensive income (loss) |
|
|
(1,561) |
|
|
— |
|
|
(6,387) |
|
|
(7,948) |
|
|
Amounts reclassified from AOCI to net income (1) |
|
|
— |
|
|
840 |
|
|
2,672 |
|
|
3,512 |
|
|
Balance as of September 30, 2017 |
|
$ |
(97,308) |
|
$ |
(60,492) |
|
$ |
(9,219) |
|
$ |
(167,019) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2016 |
|
$ |
(106,702) |
|
$ |
(45,887) |
|
$ |
4,173 |
|
$ |
(148,416) |
|
|
Other comprehensive income (loss) |
|
|
1,488 |
|
|
— |
|
|
(2,035) |
|
|
(547) |
|
|
Amounts reclassified from AOCI to net income (1) |
|
|
— |
|
|
533 |
|
|
(245) |
|
|
288 |
|
|
Balance as of September 30, 2016 |
|
$ |
(105,214) |
|
$ |
(45,354) |
|
$ |
1,893 |
|
$ |
(148,675) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
Pension & Other |
|
|
|
|
|
|
|||
|
|
|
Translation |
|
Postretirement Benefit |
|
Cash Flow |
|
|
|
|
|||
|
Nine Months Ended September 30, 2017 and 2016 |
|
Adjustments |
|
Plans, Net |
|
Hedges, Net |
|
Total |
|
||||
|
Balance as of December 31, 2016 |
|
$ |
(118,922) |
|
$ |
(63,504) |
|
$ |
12,272 |
|
$ |
(170,154) |
|
|
Other comprehensive income (loss) |
|
|
21,614 |
|
|
— |
|
|
(20,703) |
|
|
911 |
|
|
Amounts reclassified from AOCI to net income (1) |
|
|
— |
|
|
3,012 |
|
|
(788) |
|
|
2,224 |
|
|
Balance as of September 30, 2017 |
|
$ |
(97,308) |
|
$ |
(60,492) |
|
$ |
(9,219) |
|
$ |
(167,019) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
|
$ |
(109,120) |
|
$ |
(46,166) |
|
$ |
5,569 |
|
$ |
(149,717) |
|
|
Other comprehensive income (loss) |
|
|
3,906 |
|
|
(800) |
|
|
(3,060) |
|
|
46 |
|
|
Amounts reclassified from AOCI to net income (1) |
|
|
— |
|
|
1,612 |
|
|
(616) |
|
|
996 |
|
|
Balance as of September 30, 2016 |
|
$ |
(105,214) |
|
$ |
(45,354) |
|
$ |
1,893 |
|
$ |
(148,675) |
|
|
(1) |
The following is a summary of amounts reclassified from AOCI to net income for the three and nine months ended September 30, 2017 and 2016, respectively: |
|
|
|
Amount Reclassified from AOCI |
|
Amount Reclassified from AOCI |
|
|
|
||||||||
|
AOCI Components |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Statement of Operations |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Classification |
|
||||
|
Cash flow hedging items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
|
$ |
2,666 |
|
$ |
(245) |
|
$ |
(794) |
|
$ |
(616) |
|
Cost of sales |
|
|
Interest rate swaps |
|
|
6 |
|
|
— |
|
|
6 |
|
|
— |
|
Interest expense, net |
|
|
Total before tax |
|
|
2,672 |
|
|
(245) |
|
|
(788) |
|
|
(616) |
|
|
|
|
Tax effect |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Provision for income taxes |
|
|
Total, net of tax |
|
$ |
2,672 |
|
$ |
(245) |
|
$ |
(788) |
|
$ |
(616) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement benefit plan items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
$ |
(477) |
|
$ |
(461) |
|
$ |
(1,379) |
|
$ |
(1,382) |
|
(a) |
|
|
Net actuarial loss |
|
|
1,697 |
|
|
1,250 |
|
|
4,886 |
|
|
3,770 |
|
(a) |
|
|
Net settlement and curtailment loss |
|
|
— |
|
|
— |
|
|
648 |
|
|
— |
|
(a) |
|
|
Total before tax |
|
|
1,220 |
|
|
789 |
|
|
4,155 |
|
|
2,388 |
|
|
|
|
Tax effect |
|
|
(380) |
|
|
(256) |
|
|
(1,143) |
|
|
(776) |
|
Provision for income taxes |
|
|
Total, net of tax |
|
$ |
840 |
|
$ |
533 |
|
$ |
3,012 |
|
$ |
1,612 |
|
|
|
|
(a) |
These AOCI components are included in the computation of net periodic benefit costs (see Note 11). |
|
|||
The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) as of and for the periods ended September 30, 2017 and 2016 were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are considered necessary for the fair statement of the results for the periods presented. Because they cover interim periods, the statements and related notes to the financial statements do not include all disclosures normally provided in annual financial statements and, therefore, these statements should be read in conjunction with the 2016 audited consolidated financial statements included within the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2017.
The December 31, 2016 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 2016 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications did not have a material impact on the Company’s financial position or results. Refer to Note 14 for further information.
|
|||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Sales |
|
$ |
458,744 |
|
$ |
460,305 |
|
$ |
1,369,572 |
|
$ |
1,241,908 |
|
|
Gross profit |
|
$ |
90,594 |
|
$ |
84,095 |
|
$ |
176,352 |
|
$ |
240,366 |
|
|
Net income |
|
$ |
81,059 |
|
$ |
65,041 |
|
$ |
141,508 |
|
$ |
188,853 |
|
|
|||
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
2017 |
|
2016 |
|
||
|
Finished goods |
|
$ |
239,663 |
|
$ |
187,577 |
|
|
Raw materials and semi-finished goods |
|
|
211,186 |
|
|
168,804 |
|
|
Supplies |
|
|
32,309 |
|
|
28,964 |
|
|
Total |
|
$ |
483,158 |
|
$ |
385,345 |
|
|
|||
|
|
|
|
|
|
|
September 30, 2017 |
|
|||||||
|
|
|
Interest Rate as of September 30, 2017 |
|
Maturity |
|
Carrying |
|
Unamortized |
|
Total Debt, |
|
|||
|
Senior Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Revolving Facility(2) |
|
Various |
|
September 2022 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
2024 Term Loan B(3) |
|
3.735% |
|
September 2024 |
|
|
700,000 |
|
|
(18,957) |
|
|
681,043 |
|
|
2025 Senior Notes |
|
5.375% |
|
September 2025 |
|
|
500,000 |
|
|
(9,600) |
|
|
490,400 |
|
|
Accounts Receivable Securitization Facility(4) |
|
Various |
|
May 2019 |
|
|
— |
|
|
— |
|
|
— |
|
|
Other indebtedness |
|
Various |
|
Various |
|
|
1,481 |
|
|
— |
|
|
1,481 |
|
|
Total debt |
|
|
|
|
|
$ |
1,201,481 |
|
$ |
(28,557) |
|
$ |
1,172,924 |
|
|
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
|
(7,000) |
|
|
Total long-term debt, net of unamortized deferred financing fees |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,165,924 |
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|||||||
|
|
|
Interest Rate as of December 31, 2016 |
|
Maturity |
|
Carrying |
|
Unamortized |
|
Total Debt, |
|
|||
|
2020 Senior Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Revolving Facility |
|
Various |
|
May 2020 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
2021 Term Loan B |
|
4.250% |
|
November 2021 |
|
|
491,545 |
|
|
(9,159) |
|
|
482,386 |
|
|
2022 Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Notes |
|
6.750% |
|
May 2022 |
|
|
300,000 |
|
|
(5,726) |
|
|
294,274 |
|
|
Euro Notes |
|
6.375% |
|
May 2022 |
|
|
394,275 |
|
|
(7,157) |
|
|
387,118 |
|
|
Accounts Receivable Securitization Facility |
|
Various |
|
May 2019 |
|
|
— |
|
|
— |
|
|
— |
|
|
Other indebtedness |
|
Various |
|
Various |
|
|
1,591 |
|
|
— |
|
|
1,591 |
|
|
Total debt |
|
|
|
|
|
$ |
1,187,411 |
|
$ |
(22,042) |
|
$ |
1,165,369 |
|
|
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
|
(5,000) |
|
|
Total long-term debt, net of unamortized deferred financing fees |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,160,369 |
|
|
(1) |
This caption does not include deferred financing fees related to the Company’s revolving facilities, which are included within “Deferred charges and other assets” on the condensed consolidated balance sheets. |
|
(2) |
The Company had $357.2 million (net of $17.8 million outstanding letters of credit) of funds available for borrowing under this facility as of September 30, 2017. 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) |
The 2024 Term Loan B bears an interest rate of LIBOR plus 2.50%, subject to a 0.00% LIBOR floor. As of September 30, 2017, $7.0 million of the scheduled future payments related to this facility were classified as current debt on the Company’s condensed consolidated balance sheet. |
|
(4) |
This facility has a borrowing capacity of $200.0 million. As of September 30, 2017, the Company had approximately $148.8 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable. In regards to outstanding borrowings, fixed interest charges are 2.6% plus variable commercial paper rates, while for available, but undrawn commitments, fixed interest charges are 1.4%. |
|
12-month period commencing September 1 in Year |
|
Percentage |
|
|
2020 |
|
102.688 |
% |
|
2021 |
|
101.792 |
% |
|
2022 |
|
100.896 |
% |
|
2023 and thereafter |
|
100.000 |
% |
|
|||
|
|
|
Performance Materials |
|
Basic Plastics & Feedstocks |
|
|
|
|
||||||||||||||
|
|
|
Latex |
|
Synthetic |
|
Performance |
|
Basic |
|
|
|
Americas |
|
|
|
|
||||||
|
|
|
Binders |
|
Rubber |
|
Plastics |
|
Plastics |
|
Feedstocks |
|
Styrenics |
|
Total |
|
|||||||
|
Balance at December 31, 2016 |
|
$ |
11,544 |
|
$ |
8,177 |
|
$ |
4,210 |
|
$ |
5,554 |
|
$ |
— |
|
$ |
— |
|
$ |
29,485 |
|
|
Acquisition (Note 13) |
|
|
— |
|
|
— |
|
|
28,598 |
|
|
— |
|
|
— |
|
|
— |
|
|
28,598 |
|
|
Foreign currency impact |
|
|
1,415 |
|
|
1,002 |
|
|
1,592 |
|
|
682 |
|
|
— |
|
|
— |
|
|
4,691 |
|
|
Balance at September 30, 2017 |
|
$ |
12,959 |
|
$ |
9,179 |
|
$ |
34,400 |
|
$ |
6,236 |
|
$ |
— |
|
$ |
— |
|
$ |
62,774 |
|
|
|
|
|
|
September 30, 2017 |
|
December 31, 2016 |
|
||||||||||||||
|
|
|
Estimated |
|
Gross |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
||
|
|
|
Useful Life |
|
Carrying |
|
Accumulated |
|
|
|
|
Carrying |
|
Accumulated |
|
|
|
|
||||
|
|
|
(Years) |
|
Amount |
|
Amortization |
|
Net |
|
Amount |
|
Amortization |
|
Net |
|
||||||
|
Developed technology(1) |
|
9 - 15 |
|
$ |
198,535 |
|
$ |
(91,078) |
|
$ |
107,457 |
|
$ |
166,230 |
|
$ |
(72,159) |
|
$ |
94,071 |
|
|
Customer Relationships(1) |
|
19 |
|
|
14,520 |
|
|
(171) |
|
|
14,349 |
|
|
— |
|
|
— |
|
|
— |
|
|
Manufacturing Capacity Rights |
|
6 |
|
|
22,426 |
|
|
(12,728) |
|
|
9,698 |
|
|
19,977 |
|
|
(8,908) |
|
|
11,069 |
|
|
Software |
|
5 - 10 |
|
|
87,412 |
|
|
(22,617) |
|
|
64,795 |
|
|
82,275 |
|
|
(15,095) |
|
|
67,180 |
|
|
Software in development |
|
N/A |
|
|
8,617 |
|
|
— |
|
|
8,617 |
|
|
4,751 |
|
|
— |
|
|
4,751 |
|
|
Other(1) |
|
3 |
|
|
3,056 |
|
|
(153) |
|
|
2,903 |
|
|
274 |
|
|
— |
|
|
274 |
|
|
Total |
$ |
334,566 |
$ |
(126,747) |
$ |
207,819 |
$ |
273,507 |
$ |
(96,162) |
$ |
177,345 |
|||||||||
|
(1) |
Balances as of September 30, 2017 include assets acquired related to the acquisition of API Applicazioni Plastiche Industriali S.p.A (“API Plastics”). Refer to Note 13 for further information. |
|
|||
|
|
|
September 30, |
|
|
|
Buy / (Sell) |
|
2017 |
|
|
|
Euro |
|
$ |
(161,885) |
|
|
Chinese Yuan |
|
$ |
(58,335) |
|
|
Indonesian Rupiah |
|
$ |
(29,493) |
|
|
Swiss Franc |
|
$ |
16,762 |
|
|
Korean Won |
|
$ |
(10,983) |
|
|
|
|
Gain (Loss) Recognized in |
|
Gain (Loss) Recognized in |
|
|
||||||||
|
|
|
AOCI on Balance Sheet |
|
Statement of Operations |
|
|
||||||||
|
|
|
Three Months Ended September 30, |
|
Statement of Operations |
||||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Classification |
||||
|
Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
|
$ |
(4,458) |
|
$ |
(2,280) |
|
$ |
(2,666) |
|
$ |
245 |
|
Cost of sales |
|
Interest rate swaps |
|
|
743 |
|
|
— |
|
|
(6) |
|
|
— |
|
Interest expense, net |
|
Total |
|
$ |
(3,715) |
|
$ |
(2,280) |
|
$ |
(2,672) |
|
$ |
245 |
|
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
|
$ |
(13,924) |
|
$ |
(2,128) |
|
$ |
— |
|
$ |
— |
|
|
|
Cross-currency swaps (CCS) |
|
|
(7,112) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Total |
|
$ |
(21,036) |
|
$ |
(2,128) |
|
$ |
— |
|
$ |
— |
|
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
— |
|
$ |
— |
|
$ |
(6,526) |
|
$ |
1,060 |
|
Other expense (income), net |
|
Total |
|
$ |
— |
|
$ |
— |
|
$ |
(6,526) |
|
$ |
1,060 |
|
|
|
|
|
Gain (Loss) Recognized in |
|
Gain (Loss) Recognized in |
|
|
||||||||
|
|
|
AOCI on Balance Sheet |
|
Statement of Operations |
|
|
||||||||
|
|
|
Nine Months Ended September 30, |
|
Statement of Operations |
||||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Classification |
||||
|
Designated as Cash Flow Hedges |
||||||||||||||
|
Foreign exchange cash flow hedges |
|
$ |
(22,234) |
|
$ |
(3,676) |
|
$ |
794 |
|
$ |
616 |
|
Cost of sales |
|
Interest rate swaps |
|
|
743 |
|
|
— |
|
|
(6) |
|
|
— |
|
Interest expense, net |
|
Total |
|
$ |
(21,491) |
|
$ |
(3,676) |
|
$ |
788 |
|
$ |
616 |
|
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Notes |
|
$ |
(38,584) |
|
$ |
(4,615) |
|
$ |
— |
|
$ |
— |
|
|
|
Cross-currency swaps (CCS) |
|
|
(7,112) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Total |
|
$ |
(45,696) |
|
$ |
(4,615) |
|
$ |
— |
|
$ |
— |
|
|
|
Not Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
— |
|
$ |
— |
|
$ |
(17,036) |
|
$ |
2,054 |
|
Other expense (income), net |
|
Total |
|
$ |
— |
|
$ |
— |
|
$ |
(17,036) |
|
$ |
2,054 |
|
|
|
|
|
September 30, 2017 |
|
December 31, 2016 |
|
||||||||||||||||||||
|
|
|
Foreign |
|
Foreign |
|
Interest |
|
Cross- |
|
|
|
Foreign |
|
Foreign |
|
|
|
||||||||
|
|
|
Forward |
|
Cash Flow |
|
Rate |
|
Currency |
|
|
|
Forward |
|
Cash Flow |
|
|
|
||||||||
|
Balance Sheet Classification |
|
Contracts |
|
Hedges |
|
Swaps |
|
Swaps |
|
Total |
|
Contracts |
|
Hedges |
|
Total |
|
||||||||
|
Asset Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance |
|
$ |
3,368 |
|
$ |
— |
|
$ |
— |
|
$ |
6,420 |
|
$ |
9,788 |
|
$ |
1,664 |
|
$ |
11,018 |
|
$ |
12,682 |
|
|
Deferred charges and other assets |
|
|
— |
|
|
— |
|
|
1,432 |
|
|
— |
|
|
1,432 |
|
|
— |
|
|
— |
|
|
— |
|
|
Total asset derivatives |
|
$ |
3,368 |
|
$ |
— |
|
$ |
1,432 |
|
$ |
6,420 |
|
$ |
11,220 |
|
$ |
1,664 |
|
$ |
11,018 |
|
$ |
12,682 |
|
|
Liability Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
117 |
|
$ |
9,612 |
|
$ |
688 |
|
$ |
— |
|
$ |
10,417 |
|
$ |
511 |
|
$ |
— |
|
$ |
511 |
|
|
Other noncurrent obligations |
|
|
— |
|
|
2,148 |
|
|
— |
|
|
13,531 |
|
|
15,679 |
|
|
— |
|
|
— |
|
|
— |
|
|
Total liability derivatives |
|
$ |
117 |
|
$ |
11,760 |
|
$ |
688 |
|
$ |
13,531 |
|
$ |
26,096 |
|
$ |
511 |
|
$ |
— |
|
$ |
511 |
|
|
|
|
Gross Amounts |
|
Gross Amounts |
|
Net Amounts |
|
|||
|
|
|
Recognized in the |
|
Offset in the |
|
Presented in the |
|
|||
|
|
|
Balance Sheet |
|
Balance Sheet |
|
Balance Sheet |
|
|||
|
Balance at September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
|
$ |
12,793 |
|
$ |
(1,573) |
|
$ |
11,220 |
|
|
Derivative liabilities |
|
|
27,669 |
|
|
(1,573) |
|
|
26,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
|
$ |
23,401 |
|
$ |
(10,719) |
|
$ |
12,682 |
|
|
Derivative liabilities |
|
|
11,230 |
|
|
(10,719) |
|
|
511 |
|
|
|||
|
|
|
September 30, 2017 |
|
||||||||||
|
|
|
Quoted Prices in Active Markets for Identical Items |
|
Significant Other Observable Inputs |
|
Significant Unobservable Inputs |
|
|
|
|
|||
|
Assets (Liabilities) at Fair Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
||||
|
Foreign exchange forward contracts—Assets |
|
$ |
— |
|
$ |
3,368 |
|
$ |
— |
|
$ |
3,368 |
|
|
Foreign exchange forward contracts—(Liabilities) |
|
|
— |
|
|
(117) |
|
|
— |
|
|
(117) |
|
|
Foreign exchange cash flow hedges—(Liabilities) |
|
|
— |
|
|
(11,760) |
|
|
— |
|
|
(11,760) |
|
|
Interest rate swaps—Assets |
|
|
— |
|
|
1,432 |
|
|
— |
|
|
1,432 |
|
|
Interest rate swaps—(Liabilities) |
|
|
— |
|
|
(688) |
|
|
— |
|
|
(688) |
|
|
Cross-currency swaps—Assets |
|
|
— |
|
|
6,420 |
|
|
— |
|
|
6,420 |
|
|
Cross-currency swaps—(Liabilities) |
|
|
— |
|
|
(13,531) |
|
|
— |
|
|
(13,531) |
|
|
Total fair value |
|
$ |
— |
|
$ |
(14,876) |
|
$ |
— |
|
$ |
(14,876) |
|
|
|
|
December 31, 2016 |
|
||||||||||
|
|
|
Quoted Prices in Active Markets for Identical Items |
|
Significant Other Observable Inputs |
|
Significant Unobservable Inputs |
|
|
|
|
|||
|
Assets (Liabilities) at Fair Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
||||
|
Foreign exchange forward contracts—Assets |
|
$ |
— |
|
$ |
1,664 |
|
$ |
— |
|
$ |
1,664 |
|
|
Foreign exchange forward contracts—(Liabilities) |
|
|
— |
|
|
(511) |
|
|
— |
|
|
(511) |
|
|
Foreign exchange cash flow hedges—Assets |
|
|
— |
|
|
11,018 |
|
|
— |
|
|
11,018 |
|
|
Total fair value |
|
$ |
— |
|
$ |
12,171 |
|
$ |
— |
|
$ |
12,171 |
|
|
|
|
As of |
|
As of |
|
||
|
|
|
September 30, 2017 |
|
December 31, 2016 |
|
||
|
2025 Senior Notes |
|
$ |
515,625 |
|
$ |
— |
|
|
2022 Senior Notes |
|
|
|
|
|
|
|
|
USD Notes |
|
|
— |
|
|
315,000 |
|
|
Euro Notes |
|
|
— |
|
|
424,437 |
|
|
2024 Term Loan B |
|
|
707,441 |
|
|
— |
|
|
2021 Term Loan B |
|
|
— |
|
|
498,041 |
|
|
Total fair value |
|
$ |
1,223,066 |
|
$ |
1,237,478 |
|
|
|||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
||||
|
Effective income tax rate |
|
|
20.0 |
% |
|
19.2 |
% |
|
21.1 |
% |
|
21.7 |
% |
|
|
|||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Defined Benefit Pension Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
5,000 |
|
$ |
4,156 |
|
$ |
14,291 |
|
$ |
12,438 |
|
|
Interest cost |
|
|
1,184 |
|
|
1,391 |
|
|
3,376 |
|
|
4,160 |
|
|
Expected return on plan assets |
|
|
(450) |
|
|
(492) |
|
|
(1,285) |
|
|
(1,474) |
|
|
Amortization of prior service credit |
|
|
(503) |
|
|
(488) |
|
|
(1,456) |
|
|
(1,459) |
|
|
Amortization of net loss |
|
|
1,479 |
|
|
1,058 |
|
|
4,232 |
|
|
3,169 |
|
|
Net settlement and curtailment loss(1) |
|
|
— |
|
|
— |
|
|
129 |
|
|
— |
|
|
Net periodic benefit cost |
|
$ |
6,710 |
|
$ |
5,625 |
|
$ |
19,287 |
|
$ |
16,834 |
|
|
(1) |
Represents a settlement loss of approximately $0.5 million triggered by benefit payments exceeding the sum of service and interest cost for one of the Company’s pension plans in Switzerland, partially offset by a curtailment gain of approximately $0.4 million related to a reduction in the number of participants in the Company’s pension plan in Japan. |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Other Postretirement Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
53 |
|
$ |
67 |
|
$ |
161 |
|
$ |
196 |
|
|
Interest cost |
|
|
63 |
|
|
135 |
|
|
189 |
|
|
385 |
|
|
Amortization of prior service cost |
|
|
26 |
|
|
25 |
|
|
77 |
|
|
77 |
|
|
Amortization of net gain |
|
|
(11) |
|
|
(43) |
|
|
(32) |
|
|
(128) |
|
|
Net periodic benefit cost |
|
$ |
131 |
|
$ |
184 |
|
$ |
395 |
|
$ |
530 |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, 2017 |
|
|||||||||||
|
|
|
September 30, |
|
September 30, |
|
Unrecognized |
|
Weighted |
|
|||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Compensation Cost |
|
Average Years |
|
|||||
|
RSUs |
|
$ |
2,287 |
|
$ |
1,476 |
|
$ |
6,295 |
|
$ |
3,826 |
|
$ |
11,682 |
|
1.8 |
|
|
Options |
|
|
454 |
|
|
733 |
|
|
3,661 |
|
|
4,867 |
|
|
1,659 |
|
1.4 |
|
|
PSUs |
|
|
324 |
|
|
— |
|
|
796 |
|
|
— |
|
|
3,062 |
|
2.4 |
|
|
Restricted Stock Awards issued by Former Parent |
|
|
— |
|
|
3,817 |
|
|
— |
|
|
6,149 |
|
|
— |
|
— |
|
|
Total Stock-based Compensation Expense |
|
$ |
3,065 |
|
$ |
6,026 |
|
$ |
10,752 |
|
$ |
14,842 |
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
||||
|
|
|
September 30, 2017 |
|
||||
|
|
|
Awards Granted |
|
Weighted Average Grant Date Fair Value per Award |
|
||
|
RSUs |
|
|
110,767 |
|
$ |
70.85 |
|
|
Options |
|
|
192,546 |
|
|
20.61 |
|
|
PSUs |
|
|
50,937 |
|
|
75.74 |
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
|
|
|
|
2017 |
|
|
|
Expected term (in years) |
|
5.50 |
|
|
|
Expected volatility |
|
35.00 |
% |
|
|
Risk-free interest rate |
|
2.19 |
% |
|
|
Dividend yield |
|
2.00 |
% |
|
|
|||
|
|
|
July 10, |
|
|
|
|
|
2017 |
|
|
|
Cash and cash equivalents |
|
$ |
8,431 |
|
|
Accounts receivable |
|
|
16,484 |
|
|
Inventories |
|
|
10,282 |
|
|
Other current assets |
|
|
728 |
|
|
Property, plant, and equipment |
|
|
24,146 |
|
|
Other intangible assets(1) |
|
|
|
|
|
Customer relationships |
|
|
14,000 |
|
|
Developed technology |
|
|
11,500 |
|
|
Other amortizable intangible assets |
|
|
2,700 |
|
|
Total fair value of assets acquired |
|
$ |
88,271 |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
12,219 |
|
|
Income taxes payable |
|
|
202 |
|
|
Accrued expenses and other current liabilities |
|
|
1,416 |
|
|
Deferred income tax liabilities—noncurrent |
|
|
11,262 |
|
|
Other noncurrent obligations |
|
|
1,277 |
|
|
Total fair value of liabilities assumed |
|
$ |
26,376 |
|
|
Net identifiable assets acquired |
|
$ |
61,895 |
|
|
Goodwill(2) |
|
|
28,598 |
|
|
Net assets acquired |
|
$ |
90,493 |
|
|
(1) |
The expected lives of the acquired intangible assets are 19 years for customer relationships, 9 years for developed technology, and 3 years for other amortizable intangible assets. |
|
(2) |
Goodwill consists of expected operating synergies resulting from combining API Plastics with our existing businesses, and is allocated entirely to the Performance Plastics segment. None of the goodwill related to this acquisition will be deductible for income tax purposes. |
|
|||
|
|
|
Performance Materials |
|
Basic Plastics & Feedstocks |
|
|
|
|
|
|
|
||||||||||||||
|
|
|
Latex |
|
Synthetic |
|
Performance |
|
Basic |
|
|
|
Americas |
|
Corporate |
|
|
|
|
|||||||
|
Three Months Ended |
|
Binders |
|
Rubber |
|
Plastics |
|
Plastics |
|
Feedstocks |
|
Styrenics |
|
Unallocated |
|
Total |
|
||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
266,260 |
|
$ |
118,684 |
|
$ |
206,999 |
|
$ |
393,622 |
|
$ |
111,017 |
|
$ |
— |
|
$ |
— |
|
$ |
1,096,582 |
|
|
Equity in earnings of unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
43,807 |
|
|
— |
|
|
43,807 |
|
|
Adjusted EBITDA(1) |
|
|
32,343 |
|
|
(5,579) |
|
|
29,436 |
|
|
42,062 |
|
|
45,597 |
|
|
43,807 |
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
161,883 |
|
|
— |
|
|
161,883 |
|
|
Depreciation and amortization |
|
|
6,046 |
|
|
8,960 |
|
|
4,102 |
|
|
4,274 |
|
|
3,603 |
|
|
— |
|
|
2,191 |
|
|
29,176 |
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
242,600 |
|
$ |
112,690 |
|
$ |
175,355 |
|
$ |
323,729 |
|
$ |
81,036 |
|
$ |
— |
|
$ |
— |
|
$ |
935,410 |
|
|
Equity in earnings of unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
2,356 |
|
|
— |
|
|
34,330 |
|
|
— |
|
|
36,686 |
|
|
Adjusted EBITDA(1) |
|
|
29,815 |
|
|
28,491 |
|
|
30,187 |
|
|
34,134 |
|
|
12,729 |
|
|
34,330 |
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
38,197 |
|
|
— |
|
|
148,802 |
|
|
— |
|
|
186,999 |
|
|
Depreciation and amortization |
|
|
5,742 |
|
|
9,138 |
|
|
1,372 |
|
|
4,057 |
|
|
2,446 |
|
|
— |
|
|
1,016 |
|
|
23,771 |
|
|
|
|
Performance Materials |
|
Basic Plastics & Feedstocks |
|
|
|
|
|
|
|
||||||||||||||
|
|
|
Latex |
|
Synthetic |
|
Performance |
|
Basic |
|
|
|
Americas |
|
Corporate |
|
|
|
|
|||||||
|
Nine Months Ended |
|
Binders |
|
Rubber |
|
Plastics |
|
Plastics |
|
Feedstocks |
|
Styrenics |
|
Unallocated |
|
Total |
|
||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
846,721 |
|
$ |
456,055 |
|
$ |
581,724 |
|
$ |
1,156,831 |
|
$ |
304,940 |
|
$ |
— |
|
$ |
— |
|
$ |
3,346,271 |
|
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
810 |
|
|
— |
|
|
92,219 |
|
|
— |
|
|
93,029 |
|
|
Adjusted EBITDA(1) |
|
|
105,228 |
|
|
68,381 |
|
|
79,799 |
|
|
112,691 |
|
|
86,342 |
|
|
92,219 |
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
161,883 |
|
|
— |
|
|
161,883 |
|
|
Depreciation and amortization |
|
|
17,469 |
|
|
26,027 |
|
|
8,947 |
|
|
12,094 |
|
|
9,172 |
|
|
— |
|
|
6,511 |
|
|
80,220 |
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
684,552 |
|
$ |
326,278 |
|
$ |
527,875 |
|
$ |
1,029,683 |
|
$ |
230,800 |
|
$ |
— |
|
$ |
— |
|
$ |
2,799,188 |
|
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
5,375 |
|
|
— |
|
|
104,939 |
|
|
— |
|
|
110,314 |
|
|
Adjusted EBITDA(1) |
|
|
70,042 |
|
|
81,787 |
|
|
103,745 |
|
|
115,050 |
|
|
66,087 |
|
|
104,939 |
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
38,197 |
|
|
— |
|
|
148,802 |
|
|
— |
|
|
186,999 |
|
|
Depreciation and amortization |
|
|
17,904 |
|
|
26,073 |
|
|
4,505 |
|
|
11,581 |
|
|
8,071 |
|
|
— |
|
|
3,610 |
|
|
71,744 |
|
(1)The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as income from continuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring; acquisition related costs and other items. Adjusted EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure that management believes reflects core operating performance by removing the impact of transactions and events that would not be considered a part of core operations. Adjusted EBITDA is useful for analytical purposes; however, it should not be considered an alternative to the Company’s reported GAAP results, as there are limitations in using such financial measures. Other companies in the industry may define Adjusted EBITDA differently than the Company, and as a result, it may be difficult to use Adjusted EBITDA, or similarly named financial measures, that other companies may use to compare the performance of those companies to the Company’s segment performance.
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Income before income taxes |
|
$ |
41,515 |
|
$ |
83,254 |
|
$ |
267,068 |
|
$ |
306,305 |
|
|
Interest expense, net |
|
|
18,436 |
|
|
18,832 |
|
|
55,355 |
|
|
56,542 |
|
|
Depreciation and amortization |
|
|
29,176 |
|
|
23,771 |
|
|
80,220 |
|
|
71,744 |
|
|
Corporate Unallocated(2) |
|
|
21,864 |
|
|
26,397 |
|
|
70,888 |
|
|
72,766 |
|
|
Adjusted EBITDA Addbacks(3) |
|
|
76,675 |
|
|
17,432 |
|
|
71,129 |
|
|
34,293 |
|
|
Segment Adjusted EBITDA |
|
$ |
187,666 |
|
$ |
169,686 |
|
$ |
544,660 |
|
$ |
541,650 |
|
(2)Corporate unallocated includes corporate overhead costs and certain other income and expenses.
(3)Adjusted EBITDA addbacks for the three and nine months ended September 30, 2017 and 2016 are as follows:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
(in millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Loss on extinguishment of long-term debt (Note 5) |
|
$ |
65.3 |
|
$ |
— |
|
$ |
65.3 |
|
$ |
— |
|
|
Net loss (gain) on disposition of businesses and assets (Notes 3 and 13) |
|
|
0.2 |
|
|
0.3 |
|
|
(9.7) |
|
|
13.2 |
|
|
Restructuring and other charges (Note 15) |
|
|
1.5 |
|
|
16.8 |
|
|
4.8 |
|
|
18.6 |
|
|
Acquisition transaction and integration costs (Note 13) |
|
|
3.8 |
|
|
— |
|
|
4.9 |
|
|
— |
|
|
Asset impairment charges or write-offs(a) |
|
|
4.3 |
|
|
— |
|
|
4.3 |
|
|
— |
|
|
Other items(b) |
|
|
1.6 |
|
|
0.3 |
|
|
1.6 |
|
|
2.5 |
|
|
Total Adjusted EBITDA Addbacks |
|
$ |
76.7 |
|
$ |
17.4 |
|
$ |
71.2 |
|
$ |
34.3 |
|
|
(a) |
Asset impairment charges for the three and nine months ended September 30, 2017 primarily relate to the impairment of certain long-lived assets in the Company’s Performance Plastics segment. |
|
(b) |
Other items for the three and nine months ended September 30, 2017 primarily relate to fees incurred in conjunction with the Company’s debt refinancing which was completed during the third quarter of 2017 (refer to Note 5 for further information). Other items for the three and nine months ended September 30, 2016 primarily relate to fees incurred in conjunction with the Company’s secondary offerings completed during these periods. |
|
|||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
Cumulative |
|
|
|
|||||||||
|
|
|
September 30, |
|
September 30, |
|
Life-to-date |
|
|
|
|||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Charges |
|
Segment |
|
|||||
|
Terneuzen Compounding Restructuring(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment/accelerated depreciation |
|
$ |
614 |
|
$ |
— |
|
$ |
1,745 |
|
$ |
— |
|
$ |
1,745 |
|
|
|
|
Employee termination benefits |
|
|
170 |
|
|
— |
|
|
326 |
|
|
— |
|
|
326 |
|
|
|
|
Contract terminations |
|
|
— |
|
|
— |
|
|
590 |
|
|
— |
|
|
590 |
|
|
|
|
Decommissioning and other |
|
|
192 |
|
|
— |
|
|
192 |
|
|
— |
|
|
818 |
|
|
|
|
Terneuzen Subtotal |
|
$ |
976 |
|
$ |
— |
|
$ |
2,853 |
|
$ |
— |
|
$ |
3,479 |
|
Performance Plastics |
|
|
Livorno Plant Restructuring(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment/accelerated depreciation |
|
$ |
— |
|
$ |
14,345 |
|
$ |
— |
|
$ |
14,345 |
|
$ |
14,345 |
|
|
|
|
Employee termination benefits |
|
|
220 |
|
|
1,405 |
|
|
579 |
|
|
1,405 |
|
|
5,211 |
|
|
|
|
Contract terminations |
|
|
— |
|
|
269 |
|
|
— |
|
|
269 |
|
|
269 |
|
|
|
|
Decommissioning and other |
|
|
633 |
|
|
64 |
|
|
1,695 |
|
|
64 |
|
|
2,372 |
|
|
|
|
Livorno Subtotal |
|
$ |
853 |
|
$ |
16,083 |
|
$ |
2,274 |
|
$ |
16,083 |
|
$ |
22,197 |
|
Latex Binders |
|
|
Other Restructurings |
|
|
288 |
|
|
759 |
|
|
1,453 |
|
|
2,989 |
|
|
|
|
Various |
|
|
Total Restructuring Charges |
|
$ |
2,117 |
|
$ |
16,842 |
|
$ |
6,580 |
|
$ |
19,072 |
|
|
|
|
|
|
|
(1) |
In March 2017, the Company announced plans to upgrade its production capability for compounded resins with the construction of a new state-of-the art compounding facility to replace its existing compounding facility in Terneuzen, The Netherlands. The new facility is expected to start up by the end of 2018, with substantive production at the existing facility expected to cease by December 2018, followed by decommissioning activities in 2019. The Company expects to incur incremental accelerated depreciation charges of approximately $1.9 million through the end of 2018, as well as estimated decommissioning and other charges of approximately $1.2 million throughout 2019, the majority of which are expected to be paid in late 2018 and throughout 2019. |
|
(2) |
In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders manufacturing facility in Livorno, Italy. The Company expects to incur incremental employee termination benefit charges of $0.2 million throughout 2017, which are expected to be paid in early 2018. The Company also expects to incur additional decommissioning costs associated with this plant shutdown in 2017, the cost of which will be expensed as incurred. |
|
|
|
Balance at |
|
|
|
|
|
|
|
Balance at |
|
||
|
|
|
December 31, 2016 |
|
Expenses |
|
Deductions(1) |
|
September 30, 2017 |
|
||||
|
Employee termination benefits |
|
$ |
5,021 |
|
$ |
2,492 |
|
$ |
(5,674) |
|
$ |
1,839 |
|
|
Contract terminations |
|
|
269 |
|
|
590 |
|
|
(122) |
|
|
737 |
|
|
Decommissioning and other |
|
|
— |
|
|
2,474 |
|
|
(2,474) |
|
|
— |
|
|
Total |
|
$ |
5,290 |
|
$ |
5,556 |
|
$ |
(8,270) |
|
$ |
2,576 |
|
|
(1) |
Includes primarily payments made against the existing accrual, as well as immaterial impacts of foreign currency remeasurement. |
|
|||
|
|
|
Cumulative |
|
Pension & Other |
|
|
|
|
|
|
|
||
|
|
|
Translation |
|
Postretirement Benefit |
|
|
Cash Flow |
|
|
|
|
||
|
Three Months Ended September 30, 2017 and 2016 |
|
Adjustments |
|
Plans, Net |
|
|
Hedges, Net |
|
Total |
|
|||
|
Balance as of June 30, 2017 |
|
$ |
(95,747) |
|
$ |
(61,332) |
|
$ |
(5,504) |
|
$ |
(162,583) |
|
|
Other comprehensive income (loss) |
|
|
(1,561) |
|
|
— |
|
|
(6,387) |
|
|
(7,948) |
|
|
Amounts reclassified from AOCI to net income (1) |
|
|
— |
|
|
840 |
|
|
2,672 |
|
|
3,512 |
|
|
Balance as of September 30, 2017 |
|
$ |
(97,308) |
|
$ |
(60,492) |
|
$ |
(9,219) |
|
$ |
(167,019) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2016 |
|
$ |
(106,702) |
|
$ |
(45,887) |
|
$ |
4,173 |
|
$ |
(148,416) |
|
|
Other comprehensive income (loss) |
|
|
1,488 |
|
|
— |
|
|
(2,035) |
|
|
(547) |
|
|
Amounts reclassified from AOCI to net income (1) |
|
|
— |
|
|
533 |
|
|
(245) |
|
|
288 |
|
|
Balance as of September 30, 2016 |
|
$ |
(105,214) |
|
$ |
(45,354) |
|
$ |
1,893 |
|
$ |
(148,675) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
Pension & Other |
|
|
|
|
|
|
|||
|
|
|
Translation |
|
Postretirement Benefit |
|
Cash Flow |
|
|
|
|
|||
|
Nine Months Ended September 30, 2017 and 2016 |
|
Adjustments |
|
Plans, Net |
|
Hedges, Net |
|
Total |
|
||||
|
Balance as of December 31, 2016 |
|
$ |
(118,922) |
|
$ |
(63,504) |
|
$ |
12,272 |
|
$ |
(170,154) |
|
|
Other comprehensive income (loss) |
|
|
21,614 |
|
|
— |
|
|
(20,703) |
|
|
911 |
|
|
Amounts reclassified from AOCI to net income (1) |
|
|
— |
|
|
3,012 |
|
|
(788) |
|
|
2,224 |
|
|
Balance as of September 30, 2017 |
|
$ |
(97,308) |
|
$ |
(60,492) |
|
$ |
(9,219) |
|
$ |
(167,019) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
|
$ |
(109,120) |
|
$ |
(46,166) |
|
$ |
5,569 |
|
$ |
(149,717) |
|
|
Other comprehensive income (loss) |
|
|
3,906 |
|
|
(800) |
|
|
(3,060) |
|
|
46 |
|
|
Amounts reclassified from AOCI to net income (1) |
|
|
— |
|
|
1,612 |
|
|
(616) |
|
|
996 |
|
|
Balance as of September 30, 2016 |
|
$ |
(105,214) |
|
$ |
(45,354) |
|
$ |
1,893 |
|
$ |
(148,675) |
|
|
|
|
Amount Reclassified from AOCI |
|
Amount Reclassified from AOCI |
|
|
|
||||||||
|
AOCI Components |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Statement of Operations |
|
||||||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Classification |
|
||||
|
Cash flow hedging items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange cash flow hedges |
|
$ |
2,666 |
|
$ |
(245) |
|
$ |
(794) |
|
$ |
(616) |
|
Cost of sales |
|
|
Interest rate swaps |
|
|
6 |
|
|
— |
|
|
6 |
|
|
— |
|
Interest expense, net |
|
|
Total before tax |
|
|
2,672 |
|
|
(245) |
|
|
(788) |
|
|
(616) |
|
|
|
|
Tax effect |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Provision for income taxes |
|
|
Total, net of tax |
|
$ |
2,672 |
|
$ |
(245) |
|
$ |
(788) |
|
$ |
(616) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement benefit plan items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
$ |
(477) |
|
$ |
(461) |
|
$ |
(1,379) |
|
$ |
(1,382) |
|
(a) |
|
|
Net actuarial loss |
|
|
1,697 |
|
|
1,250 |
|
|
4,886 |
|
|
3,770 |
|
(a) |
|
|
Net settlement and curtailment loss |
|
|
— |
|
|
— |
|
|
648 |
|
|
— |
|
(a) |
|
|
Total before tax |
|
|
1,220 |
|
|
789 |
|
|
4,155 |
|
|
2,388 |
|
|
|
|
Tax effect |
|
|
(380) |
|
|
(256) |
|
|
(1,143) |
|
|
(776) |
|
Provision for income taxes |
|
|
Total, net of tax |
|
$ |
840 |
|
$ |
533 |
|
$ |
3,012 |
|
$ |
1,612 |
|
|
|
|
(a) |
These AOCI components are included in the computation of net periodic benefit costs (see Note 11). |
|
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