20:16
A n n u a l R e p o r t
It’s Time….
Trinseo Products in Everyday Life
Our Commitment to You...
Trinseo (NYSE:TSE) is a global materials solutions provider and
manufacturer of plastics, latex binders, and synthetic rubber.
We are focused on delivering innovative and sustainable solutions to help our customers
create products that touch lives every day — products that are intrinsic to how
we live our lives — across a wide range of customer oriented end-markets,
including automotive, consumer electronics, appliances, medical devices,
lighting, electrical, carpet, paper and board, building and construction, and
high performance tires.
We collaborate with our customers to meet their most complex
materials challenges.
Fast Facts about Trinseo
• $3.7 Billion in revenue (2016)
• About 2,200 employees in 27 countries
• Global Footprint
• 15 manufacturing sites
• 10 R&D facilities
• Two Business Divisions:
• Performance Materials (Latex Binders, Synthetic
Rubber and Performance Plastics)
• Basic Plastics & Feedstocks (Basic Plastics,
Feedstocks, Americas Styrenics JV)
We believe that innovation through
People
our technology and the creativity
of our people power our success
and the success of our customers.
Technology
Customers
People.
Technology.
Customers.
We are outstanding
Trinseo was born out of
The products,
and diverse individuals,
one of the most storied
processes and solutions
passionate about
technology companies in
we develop enable our
developing solutions
the world, with a six decade
customers’ innovations that benefit
to create shared value
rich and proud history. We’re
consumers all over the world. Our
for our customers and
proud of where we’re from,
customers come to us when they
Trinseo. We think deep
but it’s where we’re going
need a challenge solved, and that’s
and act fast.
that excites us the most.
exactly what we do.
01
Trinseo 2016 Annual Report
Corporate Message
...and to The World
As a signatory to the Responsible Care® Guiding
Principles, Trinseo is committed to:
• Continuously improving our company’s
performance related to health, safety, and
the environment
• Communicating with stakeholders about
our products and processes
• Managing our products in a safe and
sustainable manner and encouraging our
suppliers and customers to join our efforts
• Maintaining a robust Ethics and
Compliance program
• Publishing an annual Sustainability and
Corporate Social Responsibility Report
and continuously reducing energy use,
preserving health, enhancing safety,
improving durability, and conserving
natural resources
Commitment to Sustainability
Trinseo 2016 Annual Report
02
A Letter to Our
Shareholders
Trinseo achieved strong fundamental performance
In the fourth quarter of 2016, we modified our business
across the company in 2016. I am proud of our record
segment reporting representing a step change to increase
profitability across several metrics including net income,
transparency to investors, specifically into the profitability
Adjusted EBITDA, and cash provided by operating
and drivers of the Basic Plastics & Feedstocks division. We
activities in 2016. In addition, we had record performance
began reporting on Feedstocks, which is essentially our
in both our Performance Materials and Basic Plastics &
styrene monomer business, Basic Plastics, and Americas
Feedstocks divisions. These accomplishments are the
Styrenics as discrete reporting segments.
result of the dedication, innovation, agility and focus on
shareholder value.
In addition, we announced several important growth
We continue to deliver on our commitment to return
• Capacity expansion for SSBR to meet growing
initiatives during the year.
capital to shareholders. Over the year we repurchased
approximately 4.5 million shares, representing about
9% of our outstanding shares, and we initiated a
quarterly cash dividend1 in July. In total, we returned
approximately $242 million, or 87% of free cash flow, to
shareholders in 2016.
A few of our 2016 full-year financial highlights include:
• Net Income of $318 million and diluted EPS of $6.702
• Adjusted EPS of $7.283
• Adjusted EBITDA of $611 million3
• Cash provided by operating activities of $404 million;
free cash flow of $280 million4
In the third quarter Trinseo became a fully publicly traded
company with improving trading liquidity. I am very proud
of the work by all of the Trinseo employees who made
this result possible.
customer demand for specialty rubber to increase
energy efficiency, safety and durability in
performance tires.
• A new S-SBR pilot plant being built in Schkopau,
Germany, to accelerate the development process
from lab sample to commercialization of our high
performance SSBR products.
• The construction of a modern R&D facility in
Terneuzen, The Netherlands allowing greater
collaboration and innovation for rapid response to
customer and market needs.
• Our first ABS production site in Zhangjiagang,
China, in support of our long-term commitment to
supplying the automotive industry globally. This will
also support regional ABS demand for applications
in home appliances, office equipment, consumer
electronics, toys, and more.
03
Trinseo 2016 Annual Report
A Letter to Our Shareholders
In 2016, Trinseo achieved its best safety results since
Our synthetic rubber allows tire manufacturers to make
the company’s formation. Environmental Health and
high-performance tires with improved wet grip and low
Safety and Responsible Care® are the foundation of our
rolling resistance for greater fuel efficiency.
culture at Trinseo. They drive behavior and ideals that
are fundamental to how we our work at Trinseo—with
And, our latex binders enable manufacturers to deliver
respect for individuals and environment through smart,
tailored solutions that enhance packaging materials…
empowered behaviors. Our yearly goal for all of Trinseo’s
strengthen building materials … give carpet and artificial
facilities around the globe is zero on-the-job injuries,
grass longevity … improve shipping boxes … and help
zero spills or losses of containment, and zero process
highway infrastructure last longer.
safety incidents.
I hope as you go about your daily routine, the examples
In 2016, 21 Trinseo manufacturing teams and three global
we show in this report will allow you to see just how
R&D groups—covering 1,486 employees—earned the
intrinsic our materials solutions are to your everyday life.
“Triple Zero Award” for this achievement. In September,
Trinseo’s Ulsan, Korea plant was recognized by the Korea
Looking to 2017, we continue to see strong business
government’s Occupational Safety & Health Agency for 21
fundamentals across all segments and expect continued
years as an “accident free business”. I am proud to lead a
strong cash generation. We remain committed to
company that has safety ingrained into its culture.
balancing future growth initiatives with returning capital
We have been building on Trinseo’s momentum since
continues to explore strategic growth options – whether
the IPO in June of 2014. At our first Investor Day in
that’s acquisitions, ventures or other types of strategic
to shareholders. Our executive management team
November, we discussed the Company’s transformation,
developments.
sustained profitability, growth opportunities, cash
deployment, dividends and share buybacks, and outlook
I am very proud of the company’s performance in 2016.
in detail. We displayed almost 100 end-use products
We remain focused on achieving strong 2017 results and
that are made with Trinseo’s plastics, synthetic rubber or
delivering on our growth targets.
latex binders. One comment we heard repeatedly from
attendees was “I use this product and had no idea your
In closing, I would like to thank our shareholders,
products were in there.”
customers, suppliers and employees for their steadfast
support of Trinseo. I am excited and believe 2017 will be
This report builds on the concept of “it’s time” – not just
another successful year, both financially and strategically,
Trinseo’s time to grow as a company – but all times of
for Trinseo.
the day, across the globe, that our material solutions are
intrinsic to people’s lives.
We help our customers meet their most complex materials
challenges. Our plastics enable manufacturers to create
LED lighting that is brighter and cooler and reduces energy
consumption … and medical devices that are impervious
to the harsh chemical cleansers used in sterilization …
and electronics that are thinner and lighter… and cars that
weigh less and use less fuel.
Christopher D. Pappas
CEO and President
May 2017
1
The Company may distribute cash to shareholders under Luxembourg law via repayments of equity or
an allocation of statutory profits. Since the Company began paying dividends, all distributions have been
considered repayments of equity under Luxembourg law.
2-4 For a reconciliation of this non-GAAP measure, please see page 6.
A Letter to Our Shareholders
Trinseo 2016 Annual Report
04
2016 Financial Highlights
Highlights of Consolidated Financial Statements1
Record Profitability in 2016
$Millions unless noted
2014
2015
2016
Sales Volume
5,210
5,339
5,296
Net Sales
Net Income
5,128
3,972
3,717
(67)
134
318
47
Wtd Average Shares - diluted (MM)
43
49
EPS ($)
Adj EBITDA2
(1.55)
2.73
6.70
262
492
611
Adj Net Income3
8
225
346
Adj EPS ($)3
0.18
4.59
7.28
Net Income ($MM)
EPS ($)
$318
$6.70
$134
$2.73
($67)
($1.55)
2015
2016
2015
2016
2014
Adj. EBITDA* ($MM)
2014
Adj. EPS *($)
$611
$492
$7.28
$4.59
Cash provided by operating activities
117
353
404
$262
Free Cash Flow4
19
244
280
1 See page 6 for a reconciliation of US GAAP to non-GAAP measures.
2 For a definition of Adjusted EBITDA, as well as description of the reconciling items and the usefulness and purpose of this
measure, please see pages 54-55 of this Annual Report.
3 For a definition of Adjusted Net Income and Adjusted EPS, as well as a description of the reconciling items and the
usefulness and purpose of these measures, please see Exhibit 99.1 of the Company’s Form 8-K filed on February 22, 2017.
4 For a definition of Free Cash Flow, as well as a description of and the usefulness and purpose of these measures, please
see pages 57-58 of this Annual Report.
$0.18
2014
2015
2016
2014
2015
2016
*See page 6 for reconciliation of non-GAAP measures.
Stock performance Chart – Outpaced S&P 500 and S&P Small Cap
Chemicals for second consecutive year
Diversified regions and end markets
2016 Net Sales by Geography
Other 4%
$400
$300
$200
$100
$0
June
2014
TSE
United
States
14%
Asia
Pacific
22%
Europe
60%
2016 Net Sales by End Market
Appliances 8%
Dec
2014
June
2015
Dec
2015
June
2016
Dec
2016
Automotive
15%
Other
17%
S&P 500
S&P Small Cap 600 Chemicals
Tires/Rubber
Goods 12%
Building and
Construction /
Sheet 14%
Textile 5%
This stock performance chart reflects the comparative changes in the value from June 12, 2014, the first trading day of our ordinary shares on the
NYSE, through December 31, 2016, assuming an initial investment of $100 and the reinvestment of dividends or other cash distributions, if any, in
(1) our ordinary shares, (2) the S&P 500 Index, and (3) the S&P Small Cap 600 Chemicals Index. The share price performance shown in the graph
is not necessarily indicative of future price performance.
Board and
Specialty
Paper 9%
Graphical
Paper 8%
Consumer
Electronics
5%
Packaging
7%
05
Trinseo 2016 Annual Report
2016 Financial Highlights
US GAAP to non-GAAP Reconciliation
(in $millions, unless noted)
Net Income (Loss)
Interest expense, net
Provision for (benefit from) income taxes
Depreciation and amortization
EBITDA
Loss on extinguishment of long-term debt
Other items
Restructuring and other charges
Net (gains) / losses on dispositions of businesses and assets
Fees paid pursuant to advisory agreement
2014
(67.3)
124.9
19.7
103.7
181.0
7.4
38.4
10.0
(0.6)
25.4
2015
133.6
93.2
70.2
96.8
2016
318.3
75.0
87.0
96.4
393.8
576.7
95.2
2.2
0.8
-
-
-
(4.4)
23.5
15.1
-
Adjusted EBITDA
261.6
492.0
610.9
Adjusted EBITDA to Adjusted Net Income
Adjusted EBITDA
Interest expense, net
Provision for (benefit from) income taxes - Adjusted
Depreciation and amortization - Adjusted
Adjusted Net Income
2014
261.6
124.9
29.4
99.6
7.7
2015
492.0
93.2
84.9
89.3
2016
610.9
75.0
94.6
95.4
224.6
345.9
Weighted Average Shares – Diluted (000)
43,476
48,970
47,478
Adjusted EPS - Diluted ($)
0.18
4.59
7.28
Free Cash Flow Reconciliation
Cash provided by operating activities
Capital expenditures
Free Cash Flow
2014
117.2
2015
353.2
2016
403.7
(98.6)
(109.3)
(123.9)
18.6
243.9
279.8
Cautionary Note on Forward-Looking Statements. This report and shareholder letter contains forward-looking statements including, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events
or performance, and underlying assumptions and other statements, which are not statements of historical facts or guarantees or assurances of future performance. Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this
Annual Report under Part I, Item 1A — “Risk Factors” and elsewhere in this report. We caution you against relying on any of these forward-looking statements. The forward-looking statements included in this report and shareholder letter are
made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Use of non-GAAP measures. In addition to using standard measures of performance and liquidity that are recognized in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we use additional
measures of income and liquidity excluding certain GAAP items (“non-GAAP measures”), such as Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and Free Cash Flow. We believe these measures are useful for investors and management
in evaluating key business trends and performance each period. These measures are also used to manage our business and assess current period profitability, as well as to provide an appropriate basis to evaluate the effectiveness of our
pricing strategies. These measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance.
2016 Financial Highlights
Trinseo 2016 Annual Report
06
Company Highlights
January
• New thermo-moldable binders for carpets, safety belts and
tire cords perform against safety, insulation and acoustic
requirements, without compromising on style or comfort
February
• Expansion of custom medical compounding global
production and fulfillment of its CALIBRE™ Polycarbonate
Resins in Asia Pacific for medical market
• New EMERGE™ 8830 LT Advanced Resin for lighting market,
an innovative transparent polycarbonate that balances the
properties of transparency, thickness and ignition resistance
March
• Bain Capital Everest Manager Holding SCA sells 10,600,000
ordinary shares in first Secondary offering, of which Trinseo
repurchases about 1,600,000 ordinary shares
• Trinseo receives Silver Medal level of achievement for
Corporate Social Responsibility from EcoVadis, a leading
sustainability assessor
• New PULSE™ XT line of PC-ABS products, lightweight and
cost effective solutions for exterior automotive applications
such as roof spoilers, side mirrors, mirror housings, roof
bows, front grills, front bumper grills, and spoilers
April
• Trinseo begins open market repurchases of about 752,000
shares through June
May
• Bain Capital Everest Manager Holding SCA sells 8,000,000
ordinary shares in second Secondary offering
June
• Ground breaking of new facility in Terneuzen, The
Netherlands, with modern R&D facilities, allowing greater
collaboration and innovation for rapid response to customer
and market needs
• Board of Directors authorizes $100 million share repurchase
program, underscoring the Company’s confidence in its
business portfolio and cash generation
July
• Publication of sixth Sustainability and Corporate Social
Responsibility Report, demonstrating Trinseo’s commitment
to reducing its environmental footprint. Since its first report
in 2011, the company achieved reductions in:
• Electricity use, down 4%
• Total chemical emissions, down 18%
• Volatile organic chemical (VOC) emissions, down 50%
• Waste, down 17% (over 2014)
• Trinseo redesigned external website www.trinseo.com for
enhanced customer experience and increased engagement
with an improved and more powerful product finder
August
• Third year in a row, Trinseo holds Global Volunteers Days
Program. Giving back to the communities where we live and
work to encourage employee volunteerism, cultivate morale
and enhance team unity among employees
• Bain Capital Everest Manager Holding SCA sells 8,000,000
ordinary shares in third Secondary offering
September
• Bain Capital Everest Manager Holding SCA completes fourth and
final sale of its remaining 10,669,567 shares. Trinseo reaches
milestone as fully public company
• Korea’s Occupational Safety & Health Agency (KOSHA)
recognizes Trinseo’s Ulsan plant for 21 years “Accident Free
Business”
October
• New products and capacity expansion announced at K Show
2016, the world’s premiere fair for the plastics and rubber
industry:
• Capacity expansion for Solution-Styrene Butadiene Rubber
(S-SBR) to meet growing customer demand for specialty
rubber to increase energy efficiency, safety and durability in
performance tires
• New S-SBR pilot plant being built in Schkopau, Germany,
to quicken the development process from lab sample to
commercialization, expected to be online in Q4 2017
• Production of MAGNUM™ ABS Resin will begin at the
Company’s Zhangjiagang, China site in second half of 2017,
reinforcing long-term commitment of automotive business
to production. China ABS resins production will also support
regional demand for applications in home appliances, office
equipment, consumer electronics, toys, and more
• New STYRON X-TECH™ 2175 Polystyrene resin for home
appliance market that enables stronger, thinner walls in
freezers and refrigerators and up to 10% material savings
• Broadens medical portfolio with new STYRON™ 2678 MED
Polystyrene Resin, a biocompatible grade ideal for clear
packaging, diagnostic components, petri dishes and test kit
housings
• Ceases manufacturing operations at Latex Binders Business at
Livorno, Italy, to bring our production capacity more closely into
balance with European demand for SB latex in paper coating
applications
• Trinseo Synthetic Rubber business is awarded Supplier Award
by Pirelli, for third time since Trinseo’s formation in 2010
November
• First Investor Day, discussing Company’s transformation, sustained profitability, growth opportunities, cash
deployment, dividends and share buybacks, and outlook
December
• ICIS, the world’s largest petrochemical market information
provider, names Chris Pappas tenth on its list of “ICIS Top
40 Power Players 2016” in the chemical industry, increasing
his position 29 spots from 2015 -- citing Trinseo more
than doubling its stock price as a top performer from a
shareholder value perspective in 2016
• Record EH&S Performance in 2016, with 21 manufacturing
teams and three R&D teams attaining zero injuries, spills or
safety incidents
Trinseo
Products in
Everyday Life
7:00AM
Durable,
Stylish
Products to
Start your Day
Consumers today desire products
with functionality, durability, quality
and appealing aesthetics.
Trinseo’s premium plastics, CALIBRETM polycarbonate,
TYRILTM SAN, MAGNUMTM ABS resins, STYRON TM
Polystyrene are used in various consumer goods
applications, notably household goods and recreational
equipment to meet the rigors of daily use.
Take a look at the sleek, transparent
design of a water filter pitcher or the
comfortable grip on a plastic travel cup
that also insulates hot and cold beverages. Trinseo
provides solutions for durable and scratch-resistant
luggage parts; protective bike helmets that
perform under pressure; smooth polycarbonate
floor mats for under a desk chair; decorative
table tops and edge banding; and elegant,
convenient disposable cutlery that will shine at
any party.
Trinseo Products in Everyday Life
Trinseo 2016 Annual Report
12
8:00AM
Engineered Comfort for your
Morning Commute
Trinseo’s innovative high-performance automotive resins - including
ABS, PC/ABS, polypropylene compounds and reinforced elastomers
help automakers meet the increasing need for functional and aesthetic
vehicle interiors.
These plastics solutions meet car manufacturers’ demands
Mid/floor consoles - ABS and PC/ABS used for
for safe, comfortable, lighter weight and cost-effective
high functionality, aesthetics and light-weighting.
interior automotive applications. Door panels, instrument
panels, overhead consoles, seating, glove boxes, mid/
Overhead console - advanced plastics solutions with low
floor consoles, pillars, and trims all are made with Trinseo
density and high flow to support designs for comfortable
products.
ambiance, connected functionality, and style.
Mercedes Benz and BMW recently collaborated with
Instrument panel - LGF PP solutions, PC/ABS
Trinseo to create unpainted premium aesthetic interior
resins and polypropylene compounds to fulfill
components for their flagship vehicles. Car makers
the complex requirements for a unique driving
appreciate the high-end look and superior scratch
experience.
resistance that help achieve high aesthetic performance
for unpainted components in car interiors.
Pillars - plastics to enhance safety, performance, and the
appearance of vehicle interior pillars.
Trinseo designed a customized UV stabilized and colored
PULSE™ GX50 UVB grade to create the matte high quality
Trim - globally available, innovative plastics with high flow
look for the interior of the BMW i3.
and low density, enabling cost-effective processing, fewer
CO2 emissions, and improved fuel efficiency for vehicles.
13
Trinseo 2016 Annual Report
Trinseo Products in Everyday Life
12:00pM
Packaging Solutions for
Lunch on the Go
The food service industry has seen an increase for higher productivity, new
convenient products, aesthetic packaging, disposable merchandise and safe
protection of food products.
Trinseo’s plastics are widely used for packaging because they are light and can easily conform to fit different packaging
needs. The Company collaborates with customers to meet price pressures, differentiation, sustainability, and weight
reduction - both for cost savings and sustainability requirements.
Trinseo’s products are used in dairy, food service, deli and bakery, frozen/chilled and more applications.
You will see Trinseo plastics on your grocer’s shelves in brown egg plastics containers to protect product
from breaking; dairy containers, like yogurt cups, which must be both strong and flexible; and plastics salad
or fruit containers to protect and preserve food. And Trinseo’s latex binders are used for coating paperboard, also used
to package food and consumer products.
Trinseo Products in Everyday Life
Trinseo 2016 Annual Report
14
3:00pM Performance Plastics
Steer Functionality and Style
Cars are subjected to all kinds of conditions on the road, and the Honda
Civic five door hatchback is no exception. Trinseo’s Automotive resins
provide the high-heat and high-impact properties that are vital for exterior
applications.
Approved against the specifications of major OEMs,
Not only was Trinseo MAGNUM™ ABS grade
Trinseo’s MAGNUM™ ABS Resins were selected for the
selected for the Honda spoilers, Trinseo was
Honda Civic upper and mid rear spoilers.
also asked to support the coloring of the
workpiece. Trinseo’s solution improves the compatibility
In addition to having all the right properties, MAGNUM™
between the polymer and masterbatch.
ABS provides color stability and consistency, assuring the
customer can match all exterior parts to a consistent color.
Following several trails, the Company’s black masterbatch
MAGNUM™ ABS is also easy to fabricate, which keeps
was selected to pair with high-heat MAGNUM™ ABS
production costs down.
grade, a combination known for excellent paintability for
several OEMs.
15
Trinseo 2016 Annual Report
Trinseo Products in Everyday Life
4:00pM
Latex Binders keep the Ball Rolling
In 2016, Trinseo experienced a soaring
volume growth of 346% in the artificial
grass market in China where its Latex
Binders are used as the substrate
underneath artificial grass.
Artificial grass, commonly
applied in fields in universities,
schools and sport facilities
Trinseo’s
latex binders
also possess
as well as residential and landscaped
excellent wet binding
spaces, is a rapidly growing application
strength and anti-aging
in China.
properties, which are
essential for artificial
Subject to stringent government
grass that will stand up to
regulations on total volatile organic
sports activities.
compounds (VOCs), Trinseo binders
have the high quality and low VOCs to
They are designed to be used in
meet these requirements for indoor
prolonged wet conditions such as in
Trinseo is among one of the
unique few material suppliers in
and outdoor spaces.
an artificial playing field environment
China capable of manufacturing
where high temperature and rainfall
latex binders in compliance with
are a day-to-day phenomenon. Typical
specific industry requirements for
end-use products include pre-coat and
the European, Asia Pacific and the
adhesive backings and ENVERSA™
Middle East marketplaces.
Cushion Technology Backing.
Trinseo Products in Everyday Life
Trinseo 2016 Annual Report
16
5:30PM
Synthetic Rubber grades Drive
Safer and more Sustainable Tires
To improve a car’s fuel efficiency,
drivers are demanding “green
tires.” With functionalized Solution
Styrene Butadiene Rubber (S-SBR)
grades from Trinseo, a driver can
reduce fuel consumption up to three
percent and reduce greenhouse
gas emissions. Over a typical life
span of a set of tires – about 22,000
miles – that could mean savings of
up to 21 gallons of fuel compared to
traditional tires.
Tires today have more technology than
ever, and include more specialized rubber
grades that meet consumer needs and
environmental requirements. Trinseo’s
SPRINTAN™ Rubber offers tire producers
excellent performance with improved wet
and snow grip, high abrasion resistance, reduced tire heat
buildup, and low rolling resistance.
The company is currently expanding its S-SBR production
capacity to meet this growing demand.
17
Trinseo 2016 Annual Report
Trinseo Products in Everyday Life
6:00PM Latex Coated Corrugated
Board Delivers your Shipped Goods
An increase in both global trade and online shopping is driving the demand
for corrugated board, used for shipping, storage and/or in-store displays.
Trinseo works with each customer to understand desired
Customers use Trinseo’s products to improve
performance characteristics, creating custom binder
brightness uniformity, reduce coat weight
solutions, providing technical assistance throughout the
and improve print performance. We also offer
lifetime of the product.
advice to optimize glueability, stiffness and scoring, and
Trinseo’s Multi-Layer Curtain Coating (MLCC) process
applies extremely thin – or thick - and uniform layers
Trinseo is the only latex binder supplier with two state-
simultaneously on paper or board all within one coating
of-the-art pilot coaters. Our state-of-the-art research
enhance ink and varnish performance.
station.
and development centers and application laboratories
ensure that we, along with our customers, stay close to
In Europe and the US, select board manufacturers have
innovation.
already opted for MLCC to respond to the market push
for white top liners (the outer layer of corrugated board),
ideal for more sophisticated printing and design. MLCC has
enabled corrugated packaging to grow into new markets,
such as electronics and wine packaging.
Trinseo Products in Everyday Life
Trinseo 2016 Annual Report
18
Polycarbonate blends offers a variety of benefits,
compared to traditional materials such as metal, including:
Design freedom: resins can easily be fabricated
into complex shapes offering designers endless
possibilities for attractive and innovative lighting
designs.
Lighter weight: The density of polycarbonate
is far less than that of metal, resulting in much
lighter weight parts for the same volume.
Cost savings: Expensive secondary processes
for metals such as painting and coating can be
eliminated, reducing system costs. In addition,
parts can be consolidated, streamlining assembly.
Impact resistance: Transparent resins have far
better impact resistance than glass, resulting in
a reduced chance of breaking lenses and optics
made from polycarbonate.
Aesthetics: Trinseo’s specialized lighting grades
can offer translucence that hides hot spots in
LED lights, providing more attractive appearance
while enabling energy efficiencies.
As more elements of consumer’s everyday lives integrate
with technology, such as turning on a front porch light
from your mobile device, the multi-functional properties
of Trinseo’s Performance Plastics are paving the way to a
more integrated way of life – from traditional electronics
to improved lighting applications.
8:00PM
Performance
Plastics Light
the Way
Trinseo’s Performance Plastics have
opened doors in outdoor and area
lighting applications.
19
Trinseo 2016 Annual Report
Trinseo Products in Everyday Life
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the fiscal year ended: December 31, 2016
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36473
Trinseo S.A.
(Exact name of registrant as specified in its charter)
Luxembourg
(State or other jurisdiction of
incorporation or organization)
N/A
(I.R.S. Employer Identification Number)
1000 Chesterbrook Boulevard, Suite 300
Berwyn, PA 19312
(Address of Principal Executive Offices)
(610) 240-3200
(Registrant’s telephone number)
Title of Each Class
Ordinary Shares, par value $0.01 per share
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
(Do not check if a smaller reporting company)
Non-accelerated filer
Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of February 24, 2017, there were 43,958,209 shares of the registrant’s ordinary shares outstanding.
The aggregate market value of the voting and non-voting shares of the registrant held by non-affiliates of Trinseo S.A. computed by reference to the closing price of the
registrant’s common stock on the New York Stock Exchange as of June 30, 2016 was approximately $1,181,459,401.
Smaller reporting company
Portions of the registrant’s definitive Proxy Statement for the 2017 Annual General Meeting of Shareholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference in Part III, Items 10-14 of this
Form 10-K.
Documents Incorporated by Reference
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K (“Annual Report”) contains forward-looking statements including, without
limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and
underlying assumptions and other statements, which are not statements of historical facts. Forward looking statements
may be identified by the use of words like “expect,” “anticipate,” “intend,” “forecast,” “outlook,” “will,” “may,”
“might,” “potential,” “likely,” “target,” “plan,” “contemplate,” “seek,” “attempt,” “should,” “could,” “would” or
expressions of similar meaning. Forward-looking statements reflect management’s evaluation of information currently
available and are based on our current expectations and assumptions regarding our business, the economy and other
future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict. Specific factors that may impact performance or other
predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking
statements. Our actual results may differ materially from those contemplated by the forward-looking statements. They
are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could
cause actual results to differ materially from those in the forward-looking statements include economic, business,
competitive, market and regulatory conditions and the following:
our current level of indebtedness;
the restrictions on our operations due to our indebtedness;
the stability of our joint ventures;
any disruptions in production at our manufacturing facilities;
volatility in costs or disruption in the supply of the raw materials or energy utilized for our products;
the execution of capital projects in accordance with the Company’s plan, budget and forecasts;
strategic acquisitions or divestitures affecting current operations;
liabilities and lawsuits resulting from our products or operations;
conditions in the global economy and capital markets;
our continued reliance on our relationship with The Dow Chemical Company;
changes to and our compliance with environmental, health and safety laws;
failure to maintain an effective system of internal controls;
changes to our tax rates or exposure to additional tax liabilities;
changes in laws and regulations applicable to our business;
fluctuations in currency exchange rates;
our ability to receive distributions from our subsidiaries and joint ventures;
the outcome of the ongoing investigation involving one of our joint ventures;
the loss of customers;
any inability to continue technological innovation and successful introduction of new products;
any inability to protect our trademarks, patents or other intellectual property rights;
our infringement on the intellectual property rights of others;
data security breaches;
restrictive labor laws, strikes, work stoppages or slowdowns;
local business risks in different countries in which we operate;
risks associated with our incorporation in Luxembourg;
other risks described in the “Risk Factors” section of this Annual Report.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based
upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very
difficult to predict the impact of known factors, and, it is impossible for us to anticipate all factors that could affect our
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actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary
statements, are disclosed under the sections entitled “Risk Factors”, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, and “Quantitative and Qualitative Disclosures About Market Risk” in
this Annual Report. All written and oral forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made
from time to time in our other public communications. You should evaluate all forward-looking statements made in this
Annual Report in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to
you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if
substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The
forward-looking statements included in this Annual Report are made only as of the date hereof. We undertake no
obligation to publicly update or revise any forward-looking statement as a result of new information, future events or
otherwise, except as otherwise required by law.
2
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Signatures
Index to Consolidated Financial Statements
Exhibits, Financial Statement Schedules
Page
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20
33
33
35
35
35
39
42
67
68
69
69
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F-1
3
Trinseo S.A.
Form 10-K Annual Report
For the Fiscal Year Ended December 31, 2016
Unless otherwise indicated or required by context, as used in this Annual Report, the term “Trinseo” refers to
Trinseo S.A. (NYSE: TSE), a public limited liability company (société anonyme) existing under the laws of Luxembourg,
and not its subsidiaries. The terms “Company,” “we,” “us” and “our” refer to Trinseo and its consolidated
subsidiaries, taken as a consolidated entity and as required by context, may also include our business as owned by our
predecessor, The Dow Chemical Company, for any dates prior to June 17, 2010. The terms “Trinseo Materials
Operating S.C.A.” and “Trinseo Materials Finance, Inc.” refer to Trinseo’s indirect subsidiaries, Trinseo Materials
Operating S.C.A., a Luxembourg partnership limited by shares incorporated under the laws of Luxembourg, and Trinseo
Materials Finance, Inc., a Delaware corporation, and not their subsidiaries. All financial data provided in this Annual
Report is the financial data of the Company, unless otherwise indicated.
Prior to our formation, our business was wholly owned by The Dow Chemical Company. We refer to our
predecessor business as “the Styron business.” On June 17, 2010, investment funds advised or managed by affiliates of
Bain Capital Partners, LP (“Bain Capital”) acquired the Styron business and Dow Europe Holding B.V., which we refer
to as “Dow Europe,” or, together with other affiliates of The Dow Chemical Company, “Dow,” retained an ownership
interest in the Styron business through an indirect ownership interest in us. We refer to our acquisition by Bain Capital
as the “Acquisition”. During 2016, Bain Capital divested its entire ownership in the Company in a series of secondary
offerings to the market.
Definitions of capitalized terms not defined herein appear in the notes to our consolidated financial statements.
Specifically, refer to Note 10 in the consolidated financial statements for definitions of the Company’s debt facilities.
In the first quarter of 2015, we completed a rebranding process to change our operating name and legal entities
from “Styron” to “Trinseo,” a name that we believe reflects our breadth as a company with broad global reach and a
diverse portfolio of materials and technologies.
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Item 1. Business
PART I
BUSINESS
The Company
Trinseo S.A. (NYSE: TSE) is a public limited liability company (société anonyme) formed in 2010 and existing
under the laws of Luxembourg. Prior to our formation, our business was wholly owned by Dow. On June 17, 2010,
investment funds advised or managed by affiliates of Bain Capital acquired our business and Dow Europe. During 2016,
Bain Capital divested its entire ownership in the Company in a series of secondary offerings to the market.
We are a leading global materials company engaged in the manufacture and marketing of synthetic rubber, latex
binders, and plastics, including various specialty and technologically differentiated products. We have leading market
positions in many of the markets in which we compete. Our products that are incorporated into a wide range of our
customers’ products throughout the world, including tires and other products for automotive applications, carpet and
artificial turf backing, coated paper, specialty paper and packaging board, food packaging, appliances, medical devices,
consumer electronics and construction applications, among others. We have long-standing relationships with a diverse
base of global customers, many of whom are leaders in their markets and rely on us for formulation, technological
differentiation, and compounding expertise to find sustainable solutions for their businesses. Many of our products
represent only a small portion of a finished product’s production costs, but provide critical functionality to the finished
product and are often specifically developed to customer specifications. Therefore, we seek to regularly develop new and
improved products and processes, supported by our intellectual property portfolio, designed to enhance our customers’
product offerings. We believe these product traits result in substantial customer loyalty for our products.
We have significant manufacturing and production operations around the world, which allow us to serve our global
customer base. As of December 31, 2016, our production facilities included 30 manufacturing plants (which included a
total of 75 production units) at 23 sites across 12 countries, including joint ventures and contract manufacturers.
Additionally, as of December 31, 2016, we operated 10 research and development (“R&D”) facilities globally, including
mini plants, development centers and pilot coaters, which we believe are critical to our global presence and innovation
capabilities. Our significant global operations provide geographic revenue diversity, and diversity in end markets for our
products.
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Our Business Strategy
We believe that there are significant opportunities to improve our business globally and enhance our position as a
leading global materials company engaged in the manufacture and marketing of standard, specialty and technologically
differentiated emulsion polymers and plastics.
For 2016, the Company progressed on its initiatives for improvement by:
Making strategic divestures or closures in non-performing segments and geographies, including the
divesture of our performance plastics and latex binders operations in Brazil and the cessation of
manufacturing activities at our latex binders plant in Livorno, Italy.
Initiating further expansion of our solution styrene-butadiene rubber, or SSBR, production capacity at our
Schkopau, Germany facility, which is expected to provide 50 kMT of new capacity by January 2018.
Providing sustained cash generation that has allowed the Company to return cash to its shareholders
through quarterly cash distributions and the repurchase of approximately 4.5 million ordinary shares
during 2016.
The introduction of ENLITE™ PP LGF 1851 and 1852, an 85% Long Glass Fiber (“LGF”)
Polypropylene (“PP”) concentrate product for automotive semi-structural applications by our
Performance Plastics segment. This innovation in glass concentration allows customers to achieve cost
savings of up to 10% through significantly reduced compounding costs, and other efficiencies such as
outstanding pellet robustness combined with good dispersion properties.
For 2017, in addition to continuing initiatives launched in 2016, the Company’s strategy will include:
Making strategic capital investments to extend our leadership position in select market segments and meet
expected growing demand for our products.
Opportunistically pursuing strategic acquisitions and joint ventures that have attractive risk-adjusted
returns to extend our leadership positions in what we believe are the more attractive markets and
geographies for us, including emerging markets.
Continuing to innovate and provide technological differentiation by addressing our customers’ critical
materials needs with our technological expertise and development capabilities to create specialty grades,
new and sustainable products and technologically differentiated formulations.
Our Financial Strategy
In addition to managing our business and growth initiatives, we remain committed to maintaining a strong
financial position with appropriate financial flexibility and liquidity. The Company employs a disciplined approach to
capital allocation and deployment of cash that strives to balance the growth of our business and continued cash
generation while providing attractive returns to our shareholders. The priorities for uses of available cash include the
servicing of our debt, the continued payment of quarterly cash distributions to our shareholders, the funding of targeted
growth initiatives, and the repurchase of our ordinary shares. Management expects that the combination of strong cash
flow generation, continued profitability, and spending discipline will continue to provide the Company with flexibility to
pursue organic and inorganic growth.
Business Segments and Products
We operate our business in two divisions: Performance Materials and Basic Plastics & Feedstocks. Our two
divisions are of similar size in terms of sales, but have different margin profiles, different strategic focus, different value
drivers and different operating requirements. By organizing in this way, we believe that we can best manage and operate
the Company, focusing on accelerating the growth of our Performance Materials division and improving the profitability
of our Basic Plastics & Feedstocks division.
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Our chief executive officer, who is our chief operating decision maker, previously managed our operations under
four reporting segments: Latex, Synthetic Rubber, Performance Plastics, and Basic Plastics & Feedstocks. Effective
October 1, 2016, the Company realigned its reporting segments in order to provide increased clarity and understanding
around the drivers of profitability and cash flow in our business. First, the previous Basic Plastics & Feedstocks segment
was split into three new segments: Basic Plastics, which includes polystyrene, copolymers, and polycarbonate;
Feedstocks, which represents our styrene monomer business; and Americas Styrenics, which reflects the equity earnings
from our 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.
Prior period financial information included within this Annual Report has been recast from its previous
presentation to reflect the Company’s new organizational structure.
The following chart provides an overview of this organizational structure:
The major products in our Performance Materials division include: styrene-butadiene latex, or SB latex, and
styrene-acrylate latex, or SA latex, in our Latex Binders segment; SSBR, lithium polybutadiene rubber, or Li-PBR,
emulsion styrene-butadiene rubber, or ESBR, nickel polybutadiene rubber, or Ni-PBR, and neodymium polybutadiene
rubber, or Nd-PBR, in our Synthetic Rubber segment; highly engineered compounds and blends products for automotive
end markets, as well as consumer electronics, medical, electrical and lighting, which we collectively call consumer
essential markets, or CEM, in our Performance Plastics segment. The major products in our Basic Plastics & Feedstocks
division include: polystyrene, polycarbonate, or PC, acrylonitrile-butadiene-styrene, or ABS, and styrene-acrylonitrile,
or SAN, in our Basic Plastics reporting segment; styrene monomer in our Feedstocks segment; and styrene and
polystyrene in our Americas Styrenics reporting segment
Refer to Note 19 in the consolidated financial statements for information regarding sales and Adjusted EBITDA by
segment, which is the performance metric used by management to evaluate our segments’ performance, as well as sales
and long-lived assets by geographic area.
Latex Binders Segment
Overview
We are a global leader in SB latex, holding a strong market position across the geographies and applications in
which we compete, including the #1 position in SB latex capacity in Europe and the #1 position in capacity in North
America. In 2016 approximately 42% of our Latex Binders segment’s sales were generated in Europe, 28% were
generated in the United States, and the majority of the remaining net sales were generated in Asia.
Products and End Uses
We hold the #1 position for supplying SB latex for the coated paper market globally. SB latex is widely used as a
binder for mineral pigments as it allows high coating speeds, improved smoothness, higher gloss level, opacity and water
resistance that is valued in the product’s end use in advertising, magazines, and packaging board coatings.
We are also a leading supplier of latex polymers and binders to the carpet and artificial turf industries and offer a
diverse range of products for use in residential and commercial broadloom, needlefelt, and woven carpet backings. We
produce high solids SB latex, SA latex, vinylidene chloride, and butadiene-methacrylate latex products for the
7
commercial and niche carpet markets. We incorporate vinyl acrylic latex in our formulations for its ignition resistant
properties, with the sourcing of vinyl acrylic latex readily available from a number of industry suppliers. SB latex is also
used in flooring as an adhesive for carpet and artificial turf fibers.
We also offer a broad range of performance latex products, including SB latex, SA latex, and vinylidene chloride
latex primarily for the adhesive, building and construction as well as the technical textile paper market, and have begun
to implement the use of starch and associated new chemistries in paper coatings and carpet backing.
Competition and Customers
Our principal competitors in our Latex Binders segment include BASF Group, Omnova Solutions Inc., and
Synthomer plc. In our Latex Binders segment, we compete primarily based on our ability to offer differentiated and
reliable products, the quality of our customer service and the length and depth of our relationships. We also believe our
growth prospects could be enhanced if the recent trend of industry capacity reduction and consolidation continues.
We believe our Latex Binders segment is able to differentiate itself by offering customers value-added formulation
and product development expertise. Our R&D team and Technical Services and Development team, which we refer to as
TS&D, are able to use our two pilot coating facilities in Switzerland and the United States, three paper fabrication and
testing labs in China, Switzerland and the United States, three carpet technology centers located near carpet producers in
China, the United States and Switzerland, and two product development and process research centers, one each in
Germany and the United States, to assist customers in designing new products and enhancing the manufacturing process.
Many of our major customers rely on our dedicated R&D and TS&D teams to complement their limited in-house
resources for formulation and reformulation tests and trials. We believe that this capability allows us to capture new
business, strengthen our existing customer relationships and broaden our technological expertise.
Additionally, our global manufacturing capabilities are key in serving customers cost-effectively, as latex binders
are costly to ship over long distances due to their high water content. We believe that our global network of service and
manufacturing facilities is highly valued by our customers. We seek to capture the value of our R&D and TS&D services
and manufacturing capabilities through our pricing strategy. In 2016, we estimate that approximately one half of net
sales in this segment related to contracts that include raw material pass-through clauses.
Synthetic Rubber Segment
Overview
We are a significant producer of styrene-butadiene and polybutadiene-based rubber products and we have a
leading European market position, providing approximately 52% of Western Europe’s SSBR capacity available for sale.
While substantially all of our sales were generated in Europe in 2016, approximately 25% of these net sales were
exported to Asia, 8% to North America, and 6% to Latin America.
Products and End Uses
Our Synthetic Rubber segment produces synthetic rubber products used in high-performance tires, impact
modifiers and technical rubber products, such as conveyor belts, hoses, seals and gaskets. We participate significantly in
the European synthetic rubber industry, where tire producers focus on high-performance and ultra high-performance tires
and rely heavily on rubber suppliers to provide their supply of rubber, in contrast to North America where tire
manufacturers produce most of their required rubber. We have a broad synthetic rubber technology and product
portfolio, focusing on specialty products, such as SSBR, Li-PBR, and Nd-PBR, while also producing core products, such
as ESBR. Our synthetic rubber products are extensively used in tires, with approximately 85% of our net sales from this
segment in 2016 attributable to the tire market. We estimate that 75% of these sales relate to replacement tires. We have
strong relationships with many of the top global tire manufacturers and believe we have remained a supplier of choice as
a result of our broad rubber portfolio and ability to offer technologically differentiated product and product
customization capabilities. Other applications for our synthetic rubber products include polymer modification and
technical rubber goods.
SSBR. We sell SSBR products for high-performance and ultra high-performance tire applications. We produce
both clear and oil extended SSBR through batch polymerization in our three SSBR production lines. We believe these
processes provide leading and technologically differentiated solutions to tire manufacturers.
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During the last six years, we have been working closely with major tire producers around the world to develop
multiple new SSBR grades, addressing key marketplace needs for improved tire fuel economy, grip, and abrasion
characteristics, which we believe will lead to significant demand growth for our rubber products in Europe and around
the world. We expect our synthetic rubber product mix to continue to shift to more advanced SSBR grades (from
approximately 8% of total Synthetic Rubber volume sold in 2011 to 28% in 2016) in order to meet expected demand
growth. In 2016, SSBR represented approximately 60% of total segment net sales.
Performance tires represent an especially attractive market to rubber producers because they provide substantial
value to end customers and the market for performance tires is expected to grow at a rate that is 2 to 3 times that of the
standard tire market. Tire manufacturers are expected to continually seek improvements in advanced rubber, which
optimizes the combination of fuel economy and wet grip in order to meet EU regulations which set minimum
requirements and are being phased in through 2020. Other jurisdictions have adopted or are considering similar
legislation and are also beginning to adopt the tire labeling requirements that have become mandatory in Europe. We
believe our growth prospects are enhanced by increasing demand for high performance tires, which are now more
commonly used by automakers as original equipment manufacturer specified tires in their vehicles as a result of
regulatory reforms in the EU, Japan and Korea that are aimed at improving fuel efficiency and reducing carbon dioxide
emissions.
ESBR. Our ESBR products are used in standard tires, technical goods, and footwear. Our ESBR product portfolio
offers tire producers a comprehensive suite of synthetic rubber capabilities. For example, ESBR provides enhanced wet
grip to tire treads and strength to the inner liner of tires, allowing the tires to be more easily processed. In 2016, ESBR
represented approximately 33% of total segment net sales.
Ni-PBR and Nd-PBR. Throughout much of 2016, we sold Ni-PBR products for use in standard tires, performance
tires, technical goods and footwear. In 2016, Ni-PBR represented approximately 5% of total segment net sales. In
November 2015, we completed the conversion of our Ni-PBR production capacity at our Schkopau, Germany facility to
a swing line, allowing for the production of Ni-PBR as well Nd-PBR, a more advanced, higher margin polybutadiene
rubber that is a key material in the latest generation of performance tires, and is also sold for use in industrial rubber
goods and polymer modification. In 2016, we began trials of Nd-PBR production, and expect to increase sales in this
area in the future.
Li-PBR. Our Li-PBR is used primarily for our own internal polymer modification applications. Polymer
modification is the use of synthetic rubber to improve the impact resistance quality of plastic products. In 2016,
approximately 85% of our Li-PBR products were consumed within our Basic Plastics segment for high impact
polystyrene, or HIPS, and ABS production. We make two grades of Li-PBR exclusively for our polymer modification
uses. In addition to impact resistance, Li-PBR provides visual surface gloss. In 2016, Li-PBR represented approximately
2% of total segment net sales.
Competition and Customers
Our principal competitors in our Synthetic Rubber segment include Asahi Kasei Corporation, JSR Corporation,
ARLANXEO, Zeon Corporation, Versalis S.p.A and Synthos S.A. In our Synthetic Rubber segment, we compete
primarily based on our ability to offer differentiated and reliable products, the quality of our customer service and the
length and depth of our relationships. We maintain deep and long-standing relationships with a large number of
multinational customers, including many of the top global tire manufacturers, as well as fast growing Asian tire
manufacturers. Our relationships with our top customers, including with our predecessor business operated by Dow prior
to the Acquisition (as defined in Note 1 in the consolidated financial statements), exceed 10 years on average. Our top
three customers in this segment accounted for 54% of our net sales in this reporting segment. The loss of one or more of
these customers could have a material adverse effect on the performance of the Synthetic Rubber segment.
We believe we have remained a supplier of choice given our broad rubber portfolio, including technologically
differentiated grades, and our product customization capabilities. Our R&D and TS&D teams use our broad rubber
portfolio to develop differentiated specialty products for customers. Once implemented with a customer, these newly-
developed specialty products cannot be easily replaced with a competitor’s product. As a result, we believe customers
are likely to buy from us throughout the life cycle of specific tire models to avoid high switching costs and prevent
repetition of the expensive development process.
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Enhanced SSBR, which includes later generations of SSBR and functionalized SSBR and is used in the new
generation of performance tires, is expected to approach 50% of the total SSBR market by 2018. We believe the
Company is well-positioned to capture additional market share in the high-growth, high-performance tire application
markets. We expect that demand for enhanced SSBR will grow at a rate in excess of supply, resulting in an expected
increase in industry utilization rates.
In order to address this anticipated demand, the Company has added 75 kMT of SSBR capacity since 2012 and
plans to have an additional 50kT in SSBR capacity come online in January 2018 at our Schkopau, Germany facility. By
the end of 2017, we also expect to have operational a new SSBR rubber pilot plant that will expedite the product
development process from lab sample to commercialization by delivering sufficient quantities of new formulations
without the need to interrupt production in our industrial lines.
While we export our rubber products worldwide, our production facilities currently are solely in Europe.
Therefore, we may face competitive challenges with rubber customers who would prefer local rubber manufacturers.
We seek to capture the value of our R&D and TS&D services through our pricing strategy. We estimate that
approximately 80% of net sales in this segment relate to contracts that include raw material pass-through clauses.
Performance Plastics Segment
Overview
We are a producer of highly engineered compounds and blends for automotive end markets, as well as consumer
electronics, medical, electrical, and lighting, or CEM. In 2016, approximately 41% of our Performance Plastics
segment’s net sales were generated in Europe, approximately 28% were generated in the United States, and
approximately 18% were generated in Asia, with the remainder in other geographic regions, including Latin America and
Canada.
Products and End Uses
Our Performance Plastics segment consists of compounds and blends and some specialized ABS grades. We have
a significant position in PC/ABS blends, which combine the heat resistance and impact strength of PC with the easy to
process qualities and resilience of ABS. Our Performance Plastics segment also compounds and blends our PC and ABS
plastics into differentiated products for customers within these sectors, as well as compounds of polypropylene. We have
also developed compounds containing post-consumer recycled polymers to respond to what we believe is a growing need
for some customers to include recycled content in their products. We believe our ability to offer technologically
differentiated products to meet customer needs sets us apart from our competitors, and with our history as a leading
innovator in compounds and blends, we have established ourselves as a leading supplier of PC-based products.
For the automotive industry, we manufacture PC blends under the PULSE™ brand, and we innovate
collaboratively with our customers to develop performance solutions to meet the industry’s needs, such as reducing the
weight of vehicles. As a result, we are a key supplier of these products to leading automotive companies in North
America and Europe, who tend to specify these products on a per car program platform basis, making it difficult to be
displaced as a supplier once selected and providing us with relatively stable and predictable cash flows for several years
during the production lifecycle. We are also accelerating our development of similar supply capabilities in growing areas
such as China.
For the consumer electronics, electrical and lighting and medical device industries, we manufacture our products
under the EMERGE™ brand, among others, and we believe that we have substantial growth opportunities in tablets,
notebooks, smart phones and other handheld devices, and electrical and lighting and medical device components. In
serving these markets, we leverage our polymer and compound technologies to meet increasingly stringent performance
requirements along with the aesthetic and color-matching requirements which are crucial characteristics for the products
involved.
Competition and Customers
Our principal competitors in our Performance Plastics segment are Covestro AG, LG Chem Ltd., Mitsubishi
Chemical Corporation, Saudi Basic Industries Corporation, Teijin Limited, Borealis AG, Celanese Corporation,
10
Styrolution Group, and LyondellBasell Industries. In our Performance Plastics segment, we compete primarily based on
our ability to offer differentiated and reliable products, the quality of our customer service and the length and depth of
our customer relationships.
We believe growth in the Performance Plastic segment is driven by a number of factors, including consumer
preference for lighter weight and impact-resistant products and the development of new consumer electronics, increases
in LED lighting applications and continuing growth in medical device applications. Additionally, we believe growth is
bolstered by sustainability trends, such as the substitution of lighter-weight plastics for metal in automobiles. Therefore,
we believe our history of innovation and our focus on differentiated products enhances our growth prospects in this
segment. Our innovation has contributed to long-standing relationships with customers who are recognized leaders in
their respective end-markets. We also believe our global facilities are a competitive advantage that allows us to provide
customers with consistent grades across markets and positions us to strategically serve emerging markets.
Basic Plastics Segment
Overview
Basic Plastics consists of styrenic polymers, including polystyrene, ABS, and SAN products, as well as PC. We
do not anticipate investing in strategic growth initiatives in this segment in the near term. In 2016, approximately 69% of
sales from our Basic Plastics segment were generated in Europe and an additional 25% of sales were generated in Asia.
Products and End Uses
Polystyrene. We are a leading producer of polystyrene and focus on sales to injection molding and thermoforming
customers. Our product offerings include a variety of general purpose polystyrenes, or GPPS, and HIPS, which is
polystyrene that has been modified with polybutadiene rubber to increase its impact resistant properties. These products
provide customers with performance and aesthetics at a low cost across applications, including appliances, packaging,
including food packaging and food service disposables, consumer electronics and building and construction materials.
We believe our STYRON™ brand is one of the longest established brands in the industry and is widely recognized
in the global marketplace. We believe our R&D efforts have resulted in valuable, differentiated solutions for our
customers. For instance, during the early 2000s, we developed an innovative STYRON A-TECH™ family of resins that
is an advanced polystyrene product allowing customers to balance key properties such as toughness, gloss, stiffness, flow
and cost, and provide combinations of properties that were previously not available with standard HIPS. We believe that
over the past decade, this product family has become the industry standard for this application. In 2016, polystyrene
represented approximately 62% of total segment net sales.
Acrylonitrile-Butadiene-Styrene (ABS). We are a leading producer of ABS in Europe and are one of the few
producers with a presence in North America. We produce mass ABS, or mABS, a variation of ABS that has lower
conversion and capital costs compared to the more common emulsion ABS, or eABS, process, marketed under our
MAGNUM™ brand. mABS has similar properties to eABS but has greater colorability, thermal stability and lower
gloss. mABS products can be manufactured to stricter specifications because it is produced in a continuous process as
opposed to the batch process used in eABS. mABS also has environmental benefits such as waste reduction and higher
yields. In addition to our own mABS production capacity, we have licensed our proprietary mABS technology to other
producers.
Primary end uses for our ABS products include automotive and construction sheet applications. We maintain a
significant share of ABS sales into these markets, which we believe is driven by the differentiating attributes of our
mABS products, our reputation as a knowledgeable supplier, our broad product mix and our customer collaboration and
design capabilities. In 2016, ABS products represented approximately 21% of total segment net sales.
Styrene-Acrylonitrile. SAN is composed of styrene and acrylonitrile, which together provide clarity, stiffness,
enhanced ability to be processed, mechanical strength, barrier properties, chemical resistance and heat resistance. SAN is
used mainly in appliances, consumer goods and construction sheets, due to its low-cost, clarity and chemical resistance
properties. Within our Basic Plastics segment, we manufacture SAN under the TYRIL™ brand name for use in
housewares, appliances, automotive, construction sheets, battery cases and lighting applications. In addition, TYRIL™ is
suitable for self-coloring which adds value in many of these uses. In 2016, SAN represented approximately 4% of total
segment net sales.
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Polycarbonate. PC has high levels of clarity, impact resistance and temperature resistance. PC can be used in its
neat form (prior to any compounding or blending) for markets such as construction sheet, optical media and LED
lighting. Additionally, PC can be compounded or blended with other polymers, such as ABS, which imparts specific
performance attributes tailored to the product’s end-use.
Our products for glazing and construction sheets are marketed under the CALIBRE™ brand name and offer
customers a combination of clarity, heat resistance and impact performance. Glazing and construction sheet represents
our largest PC application, and is a key growth focus for us. Key end-markets include the construction industry, with
additional opportunities for growth with compounded products in the medical device market, consumer electronics and
other applications such as smart meter casings that require plastics with enhanced weatherability, ignition resistance and
impact performance. In 2016, PC represented approximately 13% of total segment net sales.
Competition and Customers
Our principal competitors in our Basic Plastics segment are Styrolution Group GmbH, Versalis S.p.A., Total
S.p.A., Covestro AG, LG Chem Ltd., Mitsubishi Chemical Corporation, Formosa Plastics Corporation, Saudi Basic
Industries Corporation, Shanghai SECCO Petrochemical Company Limited, and Chi Mei Corporation. In our Basic
Plastics segment, we compete primarily based on our ability to offer differentiated and reliable products, the quality of
our customer service and the length and depth of our relationships.
Our customer centric model focuses on understanding customers’ needs and developing tailored solutions that
create value for both parties. For durable applications, we focus our TS&D, R&D and marketing teams on product
design engineering initiatives for developing and specifying plastics in the next generation of construction applications,
appliances, automotive, and consumer electronics. In non-durable applications, we focus on innovative products that
provide clear cost advantages to our customers, serving customers with our cost-advantaged technology and operating
excellence. We have leveraged industry-leading product development and technology capabilities in many of our basic
plastics product lines to develop long-standing customer relationships with many of our customers, including a number
who have purchased from us, including our predecessor business operated by Dow prior to the Acquisition, for more
than 20 years. We believe that our global presence is an advantage, allowing us to provide customers with consistent
product grades and positioning us to strategically serve growth economies.
We have a leading competitive position in many of the products in our basic plastics segment. However, for PC,
we have a lower competitive position than those of our peers, which may ultimately impact our ability to implement an
effective pricing strategy. The ABS market has also experienced a number of capacity rationalizations since 2006. These
rationalizations, combined with improved end-market demand, have resulted in a substantial improvement in operating
rates since the most recent global economic downturn. We believe the Company’s global footprint make the Basic
Plastics segment well-positioned to compete in this market.
Feedstocks Segment
Overview
Our Feedstocks segment is primarily focused on the revenue and profitability related to the Company’s production
and procurement of styrene monomer outside of North America. The Feedstocks segment supplied 15% of the styrene
monomer capacity out of Europe in 2016. Annually, the Company produces nearly 700 kilotons of styrene in Western
Europe and purchases approximately 300 kilotons of styrene in Asia on a raw material cost basis. With all other inputs
remaining equal, a $50 per metric ton change in styrene margin over raw materials would be expected to impact our
Feedstock reporting segment’s annual Adjusted EBITDA by approximately $35 million and $15 million in Europe and
Asia, respectively.
Products and End Uses
Styrene monomer is a basic building block of plastics and a key input to many of the Company’s products. Styrene
monomer is a key raw material for the production of polystyrene, expandable polystyrene, SB latex, ABS resins,
unsaturated polyethylene resins, and styrene-butadiene rubber.
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Competition and Customers
Our principal competitors in our Feedstocks segment are: Styrolution Group GmbH, Versalis S.p.A., Total S.p.A.,
BASF SE, Saudi Basic Industries Corporation, LyondellBasell, Repsol S.A., Shanghai SECCO Petrochemical Company
Limited, and Royal Dutch Shell plc. The majority of styrene monomer produced within the Feedstocks segment is
consumed by the Company in its own manufacturing activities.
Within styrene monomer, we believe there is a current and longer term trend towards higher styrene margins, due
to demand growth, an aging industry asset base, and limited new capacity expected over the next several years that will
allow the Company to remain competitive. Global styrene operating rates were approximately 85% in 2016 and are
forecasted to remain flat through 2020. These relatively high operating rates can result in periods of elevated margins
due to planned or unplanned production outages.
Americas Styrenics Segment
Overview
This segment solely consists of the operations of our 50%-owned joint venture with Chevron Phillips Chemical
Company, Americas Styrenics LLC (“Americas Styrenics”), which continues to be a leading producer in North America
of both styrene and polystyrene. Specifically, Americas Styrenics is the #1 producer of polystyrene in North America. In
2016, Americas Styrenics supplied 17% of the styrene monomer capacity in North America. Additionally, we received
$130.0 million in cash dividends from Americas Styrenics during 2016.
Products and End Uses
Styrene monomer is a basic building block of plastics and a key input to many of the Company’s products. Styrene
monomer is a key raw material for the production of polystyrene, and in 2016 approximately 63% of the styrene
monomer produced by Americas Styrenics is consumed in its own production of polystyrene. The remainder of
Americas Styrenics’ product is sold as a key raw material to other manufacturers of polystyrene, expandable polystyrene,
SB latex, ABS resins, unsaturated polyethylene resins, and styrene-butadiene rubber.
Americas Styrenics also produces GPPS, high heat, high impact resin, and STYRON A-TECH™ polystyrene
products. Major applications for these polystyrene products include appliances, food packaging, food service
disposables, consumer electronics and building and construction materials.
Competition and Customers
Americas Styrenics’ principal competitors are Styrolution Group GmbH, Total S.p.A. and LyondellBasell. In our
Americas Styrenics segment, we compete primarily based on our ability to offer differentiated and reliable products, the
quality of our customer service and the length and depth of our relationships.
As a leading styrenics producer in North America, this segment is well-positioned to benefit from the recent
consolidation dynamics in the styrene and polystyrene industries within the region. With global utilization rates expected
to steadily improve as demand grows in end-markets, we believe opportunities will be created for us, given our scale and
geographic reach that will benefit the Americas Styrenics segment. However, like many of competitors in the styrenics
market, the aged assets associated with this segment may result in unplanned outages that may adversely impact our
service levels and competitive position.
Our Relationship with Dow
We have entered into certain agreements with Dow, including the Second Amended and Restated Master
Outsourcing Services Agreement, which was modified on June 1, 2013 (“SAR MOSA”), the Amended and Restated
MOD5 Computerized Process Control Software, Licenses and Services Agreement, with Rofan Services, Inc. which was
modified June 1, 2013 (“AR MOD5 Agreement”), site and operating services agreements (“SAR SSAs”), and supply
agreements.
The SAR MOSA provides for ongoing worldwide services from Dow, in areas such as information technology,
enterprise resource planning, finance, environmental health and safety, training, customer service, marketing and sales
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support, supply chain and certain sourcing and transactional procurement services. The term of this agreement runs
through December 2020 and which automatically renews for two year periods unless either party provides six months’
notice of non-renewal to the other party. The services provided pursuant to the SAR MOSA generally are priced per
function, and we have the ability to terminate the services or any portion thereof, for convenience any time after June 1,
2015, subject to payment of termination charges. Services which are “highly integrated” follow a different process for
evaluation and termination. In addition, either party may terminate for cause, which includes a bankruptcy, liquidation or
similar proceeding by the other party, for material breach which is not cured, or by Dow in the event of our failure to pay
for the services thereunder. In the event of a change of control, as defined in the agreement, Dow has the right to
terminate the SAR MOSA.
We use SAP’s Enterprise Resource Planning (“ERP”) software systems to support our operations worldwide and
to manage our day-to-day business processes and relationships with customers and suppliers. Under the SAR MOSA,
Dow provides us with ERP systems support, global data/voice network and server infrastructure for desktop computing,
email, file sharing, intranet and internet website access, and mainframe and midrange computer access.
Under the AR MOD5 Agreement, Dow provides worldwide process control technology, including hardware,
software licenses and support services, and related enterprise resource planning services. The AR MOD5 Agreement,
with a term through December 2020, may be terminated by either party for cause, which includes a bankruptcy,
liquidation or similar proceeding by the other party, for material breach which is not cured by us if we no longer wish to
receive maintenance and support for any licensed software; or by Dow if we use the licensed software for any purposes
other than Company business. Dow may terminate the maintenance and support terms at any time if we fail to make
payments when due and the default is not corrected within 30 days from notice, or upon two years written notice us, if
Dow has made the decision not to support the software systems, provided that Dow will use commercially reasonable
efforts to assist us in locating and transitioning to an alternate service provider. While we are not permitted to use this
automation technology for new plants or to substantially expand existing plants, we can use other technology solutions
for those situations. We have started to move our plants off the AR MOD5 process control technology through a strategic
external relationship with ABB Ltd. and expect to convert all of our plants by 2020.
In addition, we entered into various site services agreements with Dow, which were modified as of June 1, 2013,
(the “Amendment Date”) where at Dow owned sites, Dow provides site services to Company. Conversely, we entered
into similar agreements with Dow in June 2010, where at Company owned sites, we provide such services to Dow.
These SAR SSAs cover general services that are provided at specific facilities co-located with Dow, rather than
organization-wide services, and include utilities, site administration, environmental health and safety, site maintenance
and supply chain. In certain circumstances, the parties may adjust certain prices and volumes. These agreements
generally have 25-year terms from the Amendment Date, with options to renew. These agreements may be terminated at
any time by agreement of the parties, or, by either party, for cause, including a bankruptcy, liquidation or similar
proceeding by the other party, or under certain circumstances for a material breach which is not cured. In addition, we
may terminate for convenience any services that Dow has agreed to provide to us that are identified in any site services
agreement as “terminable” with 12 months prior notice to Dow, dependent upon whether the service is highly integrated
into Dow operations. Highly integrated services are agreed to be nonterminable. With respect to “nonterminable”
services that Dow has agreed to provide to us, such as electricity and steam, we generally cannot terminate such services
prior to the termination date unless we experience a production unit shut down for which we provide Dow with 15-
months prior notice, or upon payment of a shutdown fee. Upon expiration or termination, we would be obligated to pay a
monthly fee to Dow, which obligation extends for a period of 45 (in the case of expiration) to 60 months (in the case of
termination) following the respective event of each site services agreement. The agreements under which Dow receives
services from us may be terminated under the same circumstances and conditions.
For the years ended December 31, 2016, 2015, and 2014, we incurred a total of $224.7 million, $244.8 million,
and $285.2 million in expenses under the SAR MOSA, AR MOD5 Agreement, and site services agreements (which
include utilities), including $174.8 million, $194.1 million, and $233.7 million, respectively, for both the variable and
fixed cost components of the site service agreements and $49.9 million, $50.7 million, $51.5 million, respectively,
covering all other agreements.
In addition, upon Acquisition, we entered into a contract manufacturing agreement pursuant to which we operate
and maintain our SAN facility in Midland, Michigan to produce products for Dow. This agreement has a 25-year term,
with automatic renewals for five-year terms unless one party gives notice at least 18 months prior to the end of the
period. We may terminate any operational service under the agreement in the event that we experience a production unit
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shutdown, with 15-months prior notice to Dow. Furthermore, the agreement may be terminated by mutual agreement
between the parties, by either party on notice that the other party fails to cure non-performance or if the other party is in
material breach of a material obligation under the agreement within certain parameters, or because of either party’s
insolvency.
We have also entered into certain license agreements pursuant to which we have obtained exclusive licenses to use
certain of Dow’s intellectual property in connection with the Styron business as it was conducted by Dow and non-
exclusive licenses to use certain Dow intellectual property, other than patents, with respect to products outside of the
Styron business as it was conducted by Dow prior to the Acquisition, subject to certain limitations. While our license
rights are sufficient to allow us to operate our current business, new growth opportunities in latex binders and, to a lesser
extent, plastics involving new products may fall outside of our license rights with Dow. Therefore, our ability to develop
new products may be adversely impacted by intellectual property rights that have been retained by Dow.
For the years ended December 31, 2016, 2015, and 2014, purchases and other charges from Dow and its affiliated
companies (excluding the SAR MOSA, AR MOD5 Agreement, and site services agreements) were approximately
$865.7 million, $999.4 million, and $1,910.8 million, respectively. For the years ended December 31, 2016, 2015, and
2014, sales to Dow and its affiliated companies were approximately $203.5 million, $227.0 million, and $343.8 million,
respectively.
We continue to leverage Dow’s scale and operational capabilities by procuring certain raw materials, utilities, site
services, and other information technology and business services from Dow. In connection with the Acquisition, we
entered into several agreements with Dow relating to the provision of certain products and services and other operational
arrangements. Dow provides significant operating and other services, and certain raw materials used in the production of
our products, under agreements that are important to our business. The failure of Dow to perform their obligations, or the
termination of these agreements, could adversely affect our operations. See Item 1A—Risk Factors.
Sources and Availability of Raw Materials
The prices of our key raw materials are volatile and can fluctuate significantly over time. While the predominant
driver of this volatility is the impact of market imbalances in supply and demand from time to time, energy prices may
also impact the volatility of some of our raw materials. The table below shows our key raw materials by reporting
segment.
Benzene
Bisphenol A
Butadiene
Ethylene
Polycarbonate
Styrenic resins
Styrene
Performance Materials
Basic Plastics & Feedstocks
Latex
Synthetic
Performance
Basic
Americas
Binders
Rubber
Plastics
Plastics
Feedstocks
X
Styrenics
X
X
X
X
X
X
X
X
X
X
X
X
X
We have supply contracts in place to help maintain our supply of raw materials at competitive market prices and
seek to implement the most efficient and reliable raw material strategy for each of our segments, including maintaining a
balance between contracted and spot purchases of raw materials. We also produce raw materials for use by our
businesses, such as styrene monomer.
In 2016, we obtained approximately 31% of our raw materials from Dow (based on aggregate purchase price).
While Dow provides a significant portion of our raw materials to us pursuant to supply agreements, we have developed a
comprehensive strategy for obtaining additional sources of supply where needed. Our 2010 agreements with Dow for
ethylene, benzene, and butadiene, have 10-year terms with automatic 2-year renewal provisions. Minimum and
maximum monthly contract quantities were established based on historical consumption rates, and our pricing terms are
based on commodity indices in the relevant geography.
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In 2016, Dow supplied us with approximately 98% of our benzene requirements and 100% of our ethylene
requirements through 10-year contracts that commenced in 2010 and include automatic 2-year renewal provisions. Dow
is our largest supplier for these materials in Europe, where we purchase directly from Dow’s existing butadiene
extraction facilities pursuant to the terms of a 10-year contract that commenced in 2010 and includes an automatic 2-year
renewal term. Other supply sources in Europe include major producers with contract terms of up to five years at
competitive market prices. Supply to North America and Asia are exclusively from other major third party producers via
supply contracts.
In addition to purchasing styrene through long-term strategic contracts and spot market purchases, we produce
styrene internally from purchased ethylene and benzene at our own manufacturing sites. These sources provided 41%,
15%, and 44%, respectively, of our supply in 2016. With this mix of purchased and produced styrene, we seek to
optimize our overall costs of securing styrene through efficient logistics, manufacturing economics and market
dynamics.
BPA is the major raw material associated with PC production. This raw material is produced by a subsidiary of
Olin Corporation and is supplied via pipeline to us through a supply contract in Europe that has an initial term expiring
in December 2019. We source BPA for Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate”), our
Asian joint venture, from other market participants.
Technology
Our R&D and TS&D activities across our segments focus on identifying needs in our customers’ end-markets. As
part of our customer-centric model, our R&D/TS&D organization interfaces with our sales and marketing teams and
directly with customers to determine their product requirements in light of trends in their industries and market segments.
This information is used to select R&D/TS&D projects that are value-enhancing for both our customers and us.
Our R&D facilities support our technological capabilities. In addition to our two SB latex pilot coaters and our
product development centers, certain of our businesses operate “mini plants” in Stade and Schkopau, Germany. These
mini plants are used to make samples of experimental products for testing, which we believe is a critical step in our new
product development process.
R&D and TS&D costs are included in expenses as incurred. Our R&D and TS&D costs were $51.0 million, $51.9
million, and $53.4 million for the years ended December 31, 2016, 2015, and 2014, respectively.
Sales and Marketing
We have a customer-centric business model that has helped us to develop strong relationships with many
customers. Our sales and marketing professionals are primarily located at our facilities or at virtual offices within their
respective geographies. We have approximately 126 professionals working in sales and marketing around the world,
along with approximately 79 customer service professionals and we sell our products to customers in over 80 countries.
We primarily market our products through our direct sales force. Typically our direct sales are made by our employees in
the regions closest to the given customer.
Intellectual Property
We evaluate on a case-by-case basis how best to utilize patents, trademarks, copyrights, trade secrets and other
intellectual property in order to protect our products and our critical investments in research and development,
manufacturing and marketing. We focus on securing and maintaining patents for certain inventions, while maintaining
other inventions as trade secrets, derived from our customer-centric business model, in an effort to maximize the value of
our product portfolio and manufacturing capabilities. Our policy is to seek appropriate protection for significant product
and process developments in the major markets where the relevant products are manufactured or sold. Patents may cover
products, processes, intermediate products and product uses. Patents extend for varying periods in accordance with the
date of patent application filing and the legal life of patents in the various countries. The protection afforded, which may
also vary from country to country, depends upon the type of subject matter covered by the patent and the scope of the
claims of the patent.
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In most industrial countries, patent protection may be available for new substances and formulations, as well as for
unique applications and production processes. However, given the geographical scope of our business and our continued
growth strategy, there are regions of the world in which we do business or may do business in the future where
intellectual property protection may be limited and difficult to enforce. We maintain strict information security policies
and procedures wherever we do business. These information security policies and procedures include data encryption,
controls over the disclosure and safekeeping of confidential information, as well as employee awareness training.
Moreover, we monitor our competitors’ products and, if circumstances were to dictate that we do so, we would
vigorously challenge the actions of others that conflict with our patents, trademarks and other intellectual property rights.
The technologies we utilize in some of our business lines have been in use for many years (e.g., SB latex and
ABS) and a number of our patents relating to such technologies have expired or will expire in within the next several
years. As patents expire, or are allowed to lapse, the products and processes described and claimed in those patents
become generally available for use by the public. We believe that the expiration of any single patent or family of patents
that is scheduled to expire in the next 3 years would not materially adversely affect our business or financial results. We
believe that our trade secrets relating to manufacturing and other processes used in connection with products to which
expiring patents relate will continue to provide us with a competitive advantage after the expiration of these patents.
We use trademarks as a means of differentiating our products. We protect our trademarks against infringement
where we deem appropriate. We have successfully registered the TRINSEO™ trademark in over 90 countries and have
other trademark applications pending.
Dow has either transferred to us or granted perpetual, royalty-free licenses to us to use Dow’s intellectual property
that was used by Dow to operate the Styron business prior to the Acquisition. This intellectual property includes certain
processes, compositions and apparatus used in the manufacture of our products. In addition to our license rights to use
Dow’s intellectual property related to the Styron business, we have obtained licenses to use Dow’s intellectual property
to the extent necessary to perform our obligations under the contracts transferred to us in the Acquisition and to use such
intellectual property (other than patents) for products outside of the Styron business as it was conducted by Dow prior to
the Acquisition, subject to certain limitations. While we believe our license rights with respect to Dow’s intellectual
property are sufficient to allow us to operate our current business, new growth opportunities in latex binders and, to a
lesser extent, plastics involving new products may fall outside of our license rights with Dow. Therefore, our ability to
develop new products may be impacted by intellectual property rights that have not been licensed to us by Dow. We
have the right, with Dow’s cooperation, to directly enforce the patents that are exclusively licensed to us by Dow where
infringement is primarily within the scope of our business; but nothing obligates Dow to enforce against third parties the
intellectual property rights of Dow that are licensed to us on a non-exclusive basis or where the infringement is primarily
outside the scope of our business.
Since our formation on June 17, 2010, we have focused our product innovation on the Performance Materials
division, including the Synthetic Rubber, Latex Binders and Performance Plastics segments. The intellectual property
that we have created since we were a wholly-owned subsidiary of Dow is largely in these segments and covers areas
such as material formulations, material process technologies and various end-use industrial applications.
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Environmental and Other Regulations
Obtaining, producing and distributing many of our products involve the use, storage, transportation and disposal of
toxic and hazardous materials. We are subject to extensive, evolving and increasingly stringent national and local
environmental laws and regulations, which address, among other things, the following:
emissions to the air;
discharges to soils and surface and subsurface waters;
other releases into the environment;
prevention, remediation or abatement of releases of hazardous materials into the indoor or outdoor
environment;
generation, handling, storage, transportation, treatment and disposal of waste materials;
maintenance of safe conditions in the workplace;
registration and evaluation of chemicals;
production, handling, labeling or use of chemicals used or produced by us; and
stewardship of products after manufacture.
Some of our products are also subject to food contact regulations.
We maintain policies and procedures to monitor and control environmental, health and safety risks, and to monitor
compliance with applicable state, national, and international environmental, health and safety requirements. Trinseo’s
Supplier Code of Conduct includes our expectations for our suppliers to comply with applicable laws and regulations and
encourages them to adhere to the highest principles of environmental responsibility. We have a strong environmental,
health and safety organization. We follow the American Chemistry Council Responsible Care® Guiding Principles for
our global facilities and last received third party certification of our Responsible Care® Management System in 2016.
We have a staff of professionals who are responsible for environmental health, safety and product regulatory compliance
in addition to the standards, tools and services purchased from Dow. We have implemented a corporate audit program
for all of our facilities. We expect that stringent environmental regulations will continue to be imposed on us and our
industry in general.
Following the National Toxicology Program (“NTP”)’s classification of styrene as “reasonably anticipated to be a
human carcinogen”, the State of California’s Office of Environmental Health Hazard Assessment (“OEHHA”) has listed
styrene as a substance "known to the State to cause cancer" under Proposition 65. Under Proposition 65, effective in
2017 manufacturers of products containing styrene that is sold in the state of California may have to provide warning if
the styrene exposures associated with the use of their products are below the No Significant Risk Level (“NSRL”) for
styrene. Polystyrene is excluded from the rule. Trinseo has determined that a warning is not required for its products
since it is under the proposed NSRL. Additionally, styrene monomer is considered to have low toxicity and is not
classified as a carcinogen or mutagen in the EU Nations. We have not seen a significant shift in customer demand away
from styrenics products. We believe that there are no simple substitutes for our products that can deliver the same
performance, quality, safety and cost effectiveness as the current set of products our customers buy from us.
There has been controversy for a number of years regarding the safety of BPA. However, we have not seen a
material impact on our products or manufacturing operations. After several years of study, the U.S. Food and Drug
Administration continues to reaffirm that BPA is safe at the current levels occurring in foods. Similarly, the European
Food Safety Authority (“EFSA”) has concluded there is no consumer health risk from Bisphenol A exposure.
Sustainability and Climate Change
Our July 2016 Sustainability and Corporate Social Responsibility Report, which is available on our website,
provides our most recent sustainability highlights for our products, performance and operations. The report also profiles
how our products help our customers improve their own sustainability in areas such as LED lighting, green tires,
building insulation, smart meters, life-saving medical devices, and lighter weight vehicles. Also in this report, the
company tracks its greenhouse gas emissions and works to improve its performance at reducing chemical emissions and
energy consumption.
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Chemical Registration
Trinseo is subject to a growing number of chemical regulation requirements globally. The Frank R. Lautenberg
Chemical Safety for the 21st Century Act (“LCSA”) was enacted in 2016 and modernized the U.S. Toxic Substances
Control Act (“TSCA”). The LSCA provides United States chemical manufacturers, processors importers, and
downstream users of the chemistries with multiple opportunities to provide input to the Environmental Protection
Agency (“EPA”) and allows the EPA to request further information on chemicals. TSCA, as revised by the LCSA,
requires EPA to assess chemicals using a risk based approach and requires unreasonable risks to be mitigated. We
actively monitor the progress of these and other legislative developments, and anticipate TSCA reforms this year.
Registration, Evaluation, and Authorization of Chemicals (“REACH”), the regulatory system for chemicals
management in the EU, requires EU manufacturers and importers to disclose information on the properties of their
substances that meet certain volume or toxicological criteria and register the information in a central database to be
maintained by the European Chemicals Agency. We have completed the REACH requirements for registration of high-
volume and high-hazard substances that we manufacture in or import into Europe and we are currently on track to
complete the remaining implementation requirements by the deadline in 2018. Other jurisdictions have enacted
legislation similar to REACH, including China, Japan and Korea.
We do not expect that the costs to comply with TSCA, REACH and similar requirements will be material to our
operations and consolidated financial position. We currently do not expect to need to register additional chemicals under
REACH until 2018, at which time we will be required to register our low volume chemicals.
Environmental Proceedings
Prior to our separation from Dow, the EPA conducted a multimedia investigation at Dow’s Midland, Michigan
sites, including the ABS site that we now operate. The investigation uncovered a number of alleged violations, including
of the Clean Air Act’s leak detection and repair program (“LDAR”). LDAR requires chemical and petroleum companies
to control fugitive (i.e., non-point source) emissions of hazardous air pollutants that occur from valves, pumps, flanges,
connectors and other piping components. We, Dow and the United States executed a consent decree, which was
approved by the District Court in Michigan in 2011. The decree provides that Dow will implement an enhanced LDAR
program at our ABS facility over a five year period, which is intended to further reduce fugitive emissions at the ABS
facility. We are not a defendant in the action, but under the decree, we or any future owner of the affected equipment will
be responsible for performing an enhanced LDAR program at the ABS facility should Dow fail to perform. The consent
decree obligations have been fulfilled and Dow has requested the EPA to terminate the consent decree.
Environmental Remediation
Environmental laws and regulations require mitigation or remediation of the effects of the disposal or release of
chemical substances. Under some of these regulations, as the current owner or operator of a property, we could be held
liable for the costs of removal or remediation of hazardous substances on or under the property, without regard to
whether we knew of or caused the contamination, and regardless of whether the practices that resulted in the
contamination were permitted at the time they occurred. At our Allyn’s Point, Connecticut property we lease a portion of
the property to our joint venture, Americas Styrenics, for its operations, which includes a regulated hazardous waste
boiler. Potential liabilities resulting from our owner status are addressed through financial assurance mechanisms and
other agreements. Many of our production sites have an extended history of industrial use, and it is impossible to predict
precisely what effect these laws and regulations will have on us in the future. Soil and groundwater contamination has
occurred at some of the sites, and might occur or be discovered at other sites. Subject to certain monetary and temporal
limitations, Dow is obligated to indemnify and hold us harmless with respect to releases of hazardous material that
existed at our sites prior to our separation from Dow in June 2010. However, we cannot be certain that Dow will fully
honor the indemnity or that the indemnity will be sufficient to satisfy all claims that we may incur. In addition, we face
the risk that future claims might fall outside of the scope of the indemnity, particularly if we experience a release of
hazardous materials that occurs in the future or at any time after our separation from Dow. Except for minor monitoring
activities that we are performing in Livorno, Italy pursuant to an agreement with Dow, we do not currently have any
material obligations to perform environmental remediation on our properties, and any active remedial projects on our
properties are being performed by Dow pursuant to its indemnification obligations or for any Superfund sites.
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Facility Security
We recognize the importance of security and safety to our employees and the community. Physical security
measures have been combined with process safety measures (including the use of technology), and emergency response
preparedness into integrated security plans. We have conducted vulnerability assessments at our operating facilities in
the U.S. and high priority sites worldwide and identified and implemented appropriate measures to protect these facilities
from physical and cyber-attacks. Effort and resources in assessing security vulnerabilities and taking steps to reinforce
security at our manufacturing facilities will continue to be required to comply with U.S. Department of Homeland
Security (“DHS”) and other requirements.
Employees
As of December 31, 2016, we had 2,197 employees worldwide. Nearly 78% of our personnel are located at the
various manufacturing sites, research and development, pilot coating, paper fabrication and testing and technology
centers. The remaining employees are located at operating centers, virtual locations or geographically dispersed
marketing and sales locations. Our Midland, Michigan site is the only U.S. facility with union representation for its
approximately 58 hourly operations personnel, and employees at certain of our locations are represented by work
councils. We consider relations with our personnel and the various labor organizations to be good. There have been no
labor strikes or work stoppages in these locations in recent history.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, are available free of charge through the Investor Relations section of our website, www.trinseo.com, as soon as
reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange
Commission. We provide this website and the information contained in or connected to it for informational purposes
only. That information is not part of this Annual Report.
Item 1A. Risk Factors
Risks Related to Our Business
Our current and future level of indebtedness of our subsidiaries could adversely affect our financial condition.
As of December 31, 2016, our indebtedness totaled approximately $1,187.4 million. Additionally, as of
December 31, 2016, the Company had $309.1 million (net of $15.9 million outstanding letters of credit) of funds
available for borrowings under our 2020 Revolving Facility, as well as $126.5 million of funds available for borrowings
under our Accounts Receivable Securitization Facility. We are also party to a short-term revolving credit facility through
our subsidiary in China that provides uncommitted funds available for borrowing, subject to the availability of collateral.
Our level of indebtedness could have important consequences, including:
increasing our vulnerability to economic downturns and adverse industry conditions;
compromising our flexibility to capitalize on business opportunities and to react to competitive pressures,
as compared to our competitors;
placing us at a disadvantage compared to other, less leveraged competitors or competitors with
comparable debt at more favorable interest rates; and
increasing our cost of borrowing.
Although the Senior Credit Facility and the Indenture governing our 2022 Senior Notes contain restrictions on the
incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the
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indebtedness incurred in compliance with these restrictions could be substantial. Also, we are not prevented from
incurring obligations that do not constitute “indebtedness” as defined in the Senior Credit Facility or the Indenture, such
as operating leases and trade payables. If new debt is added to our subsidiaries’ current debt levels, the risks related to
indebtedness that we now face could intensify.
In addition, a substantial portion of our subsidiaries current indebtedness is secured by substantially all of our
assets, which may make it more difficult to secure additional borrowings at reasonable costs. If we default or declare
bankruptcy, after these obligations are met, there may not be sufficient funds or assets to satisfy our subordinate
interests, including those of our shareholders. For more information regarding our indebtedness, please see Item 7—
Management’s Discussion and Analysis of Financial Conditions and Results of Operations— Indebtedness.
The terms of our subsidiaries’ indebtedness may restrict our current and future operations, particularly our
ability to respond to change or to take certain actions.
The Indenture and the credit agreement governing the Borrowers’ Senior Credit Facility contain a number of
covenants imposing certain restrictions on our subsidiaries’ businesses. These restrictions may affect our ability to
operate our business and may limit our ability to take advantage of business opportunities. These agreements restrict,
among other things, our subsidiaries’ ability to:
sell assets;
incur additional indebtedness;
pay dividends to Trinseo S.A.;
make investments or acquisitions;
incur liens;
repurchase or redeem capital stock;
engage in mergers or consolidations;
materially alter the business they conduct;
engage in transactions with affiliates; and
consolidate, merge or transfer all or substantially all of their assets.
The ability of our subsidiaries to comply with the covenants and financial ratios and tests contained in the
Indenture and Credit Agreement, to pay interest on indebtedness, fund working capital, and make anticipated capital
expenditures depends on our future performance, which is subject to general economic conditions and other factors,
some of which are beyond our control. There can be no assurance that our business will generate sufficient cash flow
from operations or that future borrowings will be available under our Senior Credit Facility to fund liquidity needs in an
amount sufficient to enable them to service their indebtedness. Furthermore, if we need additional capital for general
corporate purposes or to execute on an expansion strategy, there can be no assurance that this capital will be available on
satisfactory terms or at all.
A failure to repay amounts owed under the Senior Credit Facility or 2022 Senior Notes at maturity would result in
a default. In addition, a breach of any of the covenants in the Senior Credit Facility or Indenture governing our 2022
Senior Notes or our inability to comply with the required financial ratios or limits could result in a default. If a default
occurs, lenders may refuse to lend us additional funds and the lenders or noteholders could declare all of the debt and any
accrued interest and fees immediately due and payable. A default under one of our subsidiaries debt agreements may
trigger a cross-default under our other debt agreements. For more information regarding our indebtedness, please see
Item 7—Management’s Discussion and Analysis of Financial Conditions and Results of Operations— Indebtedness.
Our joint ventures may not operate according to their business plans if we or our partners fail to fulfill our or
their obligations, or differences in views among our joint venture partners result in delayed decisions, which may
adversely affect our results of operations and may force us to dedicate additional resources to these joint
ventures.
For the year ended December 31, 2016, we received dividends of $136.2 million and equity earnings of $144.7
million from two joint ventures. We may enter into additional joint ventures in the future. The nature of a joint venture
requires us to share control with unaffiliated third parties. If our joint venture partners do not fulfill their obligations, the
affected joint venture may not be able to operate according to its business plan. In that case, our results of operations
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may be adversely affected and we may be required to increase the level of our commitment to the joint venture.
Differences in views among joint venture participants and our inability to unilaterally implement sales and production
strategies or determine cash distributions from our joint ventures may significantly impact short-term and longer term
financial results, financial condition and the value of our ordinary shares.
Production at our manufacturing facilities could be disrupted for a variety of reasons. Disruptions could expose
us to significant losses or liabilities.
The hazards and risks of disruption associated with chemical manufacturing and the related storage and
transportation of raw materials, products and wastes exist in our operations and the operations of other occupants with
whom we share manufacturing sites. These potential risks of disruption include, but are not necessarily limited to:
pipeline and storage tank leaks and ruptures;
explosions and fires;
inclement weather and natural disasters;
terrorist attacks;
failure of mechanical, process safety and pollution control equipment;
chemical spills and other discharge or releases of toxic or hazardous substance or gases; and
exposure to toxic chemicals.
These hazards could expose employees, customers, the community and others to toxic chemicals and other
hazards, contaminate the environment, damage property, result in personal injury or death, lead to an interruption or
suspension of operations, damage our reputation and adversely affect the productivity and profitability of a particular
manufacturing facility or us as a whole, and result in the need for remediation, governmental enforcement, regulatory
shutdowns, the imposition of government fines and penalties, and claims brought by governmental entities or third
parties. Legal claims and regulatory actions could subject us to both civil and criminal penalties, which could affect our
product sales, reputation and profitability. Furthermore, the environmental, health and safety compliance, management
systems, and emergency response and crisis management plans we have in place may not address or foresee all potential
risks or causes of disruption.
If disruptions occur, alternative facilities with sufficient capacity or capabilities may not be available, may cost
substantially more or may take a significant time to start production. Each of these scenarios could negatively affect our
business and financial performance. If one of our key manufacturing facilities is unable to produce our products for an
extended period of time, our sales may be reduced by the shortfall caused by the disruption and we may not be able to
meet our customers’ needs, which could cause them to seek other suppliers. Furthermore, to the extent a production
disruption occurs at a manufacturing facility that has been operating at or near full capacity, the resulting shortage of our
product could be particularly harmful because production at the manufacturing facility may not be able to reach levels
achieved prior to the disruption. Our property, business interruption, comprehensive general liability, environmental
impairment liability and other insurance policies may not fully insure against all potential causes of disruption due to
limitations and exclusions in those policies. Therefore, incidents that significantly disrupt our operations may expose us
to significant losses and or liabilities.
Volatility in energy and the cost of the raw materials utilized for our products, or disruption in the supply of the
raw materials utilized for our products, may adversely affect our financial condition and results of operations.
Our results of operations can be directly affected, positively and negatively, by volatility in the cost of our raw
materials, which are subject to global supply and demand and other factors beyond our control. Our principal raw
materials (benzene, ethylene, butadiene, BPA and styrene) together represent approximately 54% of our total cost of
goods sold. Additionally, we use natural gas and electricity to operate our facilities and generate heat and steam for our
various manufacturing processes. Crude oil prices also impact our raw material and energy costs. Generally, higher crude
oil prices lead to higher costs of natural gas and raw materials, although some raw materials are impacted less than
others. Volatility in the cost of energy or raw materials makes it more challenging to manage pricing and pass the
increases on to our customers in a timely manner. We believe that rapid changes in pricing also can affect the volume our
customers consume. As a result, our gross profit and margins could also be adversely affected.
We have long-term supply agreements with Dow for ethylene, benzene, and butadiene, which are critical raw
materials to our business and expire in June 2020. These raw materials and other less critical materials amount to
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approximately 31% of our raw materials (based on aggregate purchase price). The remainder is purchased via other
third-party suppliers on a global basis. As our Dow contracts and other third-party contracts expire, we may be unable to
renew these contracts or obtain new long-term supply agreements on terms comparable or favorable to us, depending on
market conditions, which may significantly impact our operations. See Item 1—Business— Sources and Availability of
Raw Materials.
If the availability of any of our principal raw materials is limited, we may be unable to produce some of our
products in the quantities demanded by our customers, which could have an adverse effect on plant utilization and our
sales of products requiring such raw materials. Suppliers may have temporary limitations preventing them from meeting
our requirements, and we may not be able to obtain substitute alternative suppliers in a timely manner or on favorable
terms.
Capital projects may have lengthy deadlines during which market conditions may deteriorate between the capital
expenditure’s approval date and the conclusion of the project, negatively impacting projected returns. If we are
unable to execute on our capital projects within their expected budget and timelines, or if the market conditions
assumed in our projections deteriorate, our business, financial condition, results of operations and cash flows
could be materially and adversely affected.
Delays or cost increases related to capital spending programs involving engineering, procurement and construction
of facilities or manufacturing lines could materially adversely affect our ability to achieve forecasted operating results.
Project delays or budget overages may arise as a result of unpredictable events, which may be beyond our control,
including:
denial of or delay in receiving requisite regulatory approvals, licenses and/or permits;
unanticipated increases in the cost of construction materials or labor;
disruptions in transportation of components or construction materials;
adverse weather conditions or natural disasters, equipment malfunctions, explosions, fires or spills
affecting our facilities, or those of vendors or suppliers;
shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages; or
nonperformance by, or disputes with, vendors, partners, suppliers, contractors or subcontractors.
Furthermore, presumed demand for the technologies or product provided by the manufacturing facilities or lines
being constructed may deteriorate during the project period. If we were unable to stay within a project’s overall timeline
or budget, or if market conditions change, it could materially and adversely affect our business, financial condition,
results of operations and cash flows.
We may engage in strategic acquisitions or dispositions of certain assets and/or businesses that could affect our
business, results of operations, financial condition and liquidity.
We may selectively pursue complementary acquisitions and joint ventures, each of which inherently involves a
number of risks and presents financial, managerial and operational challenges, including:
potential disruption of our ongoing business and distraction of management;
difficulty with integration of personnel and financial and other systems;
hiring additional management and other critical personnel; and
increasing the scope, geographic diversity and complexity of our operations.
In addition, we may encounter unforeseen obstacles or costs in the integration of acquired businesses. Also, the
presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition may
have a material adverse effect on our business or financial results. Our acquisition and joint venture strategy may not be
successfully received by customers, and we may not realize any anticipated benefits from acquisitions or joint ventures.
We may also opportunistically pursue dispositions of certain assets and/or businesses, which may involve material
amounts of assets or lines of business, and adversely affect our results of operations, financial condition and liquidity. If
any such dispositions were to occur, under the terms of the Credit Agreement governing our Senior Credit Facility and
the Indenture, we may be required to apply the proceeds of the sale to repay any borrowings under our Senior Credit
Facility or our 2022 Senior Notes. Dispositions may also involve continued financial involvement in the divested
business, such as through continuing equity ownership, transition service agreements, guarantees, indemnities or other
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current or contingent financial obligations. Under these arrangements, performance by the divested businesses or other
conditions outside our control could affect our future financial results.
We may be subject to losses due to liabilities or lawsuits related to contaminated land we own or operate or
arising out of environmental damage or personal injuries associated with exposure to chemicals or the release of
chemicals.
The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and analogous state
and foreign laws are designed to address the problems associated with contaminated land, especially inactive and
abandoned hazardous waste sites listed on the “National Priorities List”, or NPL. Under CERCLA and similar statutes,
the current or former owner or operator of a property contaminated by hazardous substance releases is subject to strict,
unlimited, joint, several and retroactive liability for the investigation and remediation of the property, and also may be
liable for natural resource damages associated with the releases. We also face the risk that individuals could seek
damages for personal injury due to exposure to chemicals at our facilities, chemicals which have been released from our
facilities, chemicals otherwise owned or controlled by us, or chemicals which allegedly migrated from products
containing our materials. Legal claims and regulatory actions could subject us to both civil and criminal penalties, which
could affect our reputation as well as our results of operations, financial condition, and liquidity.
There are several properties which we now own on which Dow has been conducting remediation to address
historical contamination. Those properties include Allyn’s Point, Connecticut; Dalton, Georgia; and Livorno, Italy. There
are other properties with historical contamination that are owned by Dow that we lease for our operations, including our
facility in Midland, Michigan. While we did not assume the liabilities associated with these properties in the U.S.,
because CERCLA and similar laws can impose liability for contamination on the current owner or operator of a property,
even if it did not create the contamination, there is a possibility that a governmental authority or private party could seek
to include us in an action or claim for remediation or damages, even though the contamination may have occurred prior
to our ownership or occupancy. While Dow has agreed to indemnify us for liability for releases of hazardous materials
that occurred prior to our separation from Dow, the indemnity is subject to monetary and temporal limitations, and we
cannot be certain that Dow will fully honor the indemnity or that the indemnity will be sufficient to satisfy all claims that
we may incur. In addition, we face the risk that future claims might fall partially or fully outside of the scope of the
indemnity, particularly if there is a release of hazardous materials that occurs in the future or at any time after our
separation from Dow or if the condition requiring remediation is attributable to a combination of events or operations
occurring prior to and after our separation from Dow.
Risks are inherent in the chemical business, particularly risks associated with safety, health and the environment.
The U.S. EPA Risk Management Program (“RMP”) requires facilities that produce, handle, process, distribute or store
certain highly hazardous chemicals to develop a risk management plan and program in the event of an accidental release
of such chemicals. RMP also requires facilities to assess potential impacts to off-site populations in the event of a
credible worst-case release and to document the policies, procedures, equipment and work practices in place to mitigate
identified risks. Similar risk management requirements are imposed under the Emergency Planning and Community
Right-to-Know Act, which contains chemical emergency response planning, accident release and other reporting and
notification requirements applicable to our facility. In addition, we are subject to the Occupational Safety and Health
Administration Process Safety Management standard, which requires the development of a program to manage
workplace risks associated with highly hazardous chemicals. Similar laws apply to many of our international facilities.
Failure to comply with such laws could subject us to both civil and criminal penalties, which could affect our product
sales, reputation and profitability. We may be subject to claims with respect to workplace exposure, workers’
compensation and other health and safety matters.
Conditions in the global economy and capital markets may adversely affect our results of operations, financial
condition and cash flows.
Our products are sold in markets that are sensitive to changes in general economic conditions, such as sales of
automotive and construction products. Downturns in general economic conditions can cause fluctuations in demand for
our products, product prices, volumes and margins.
Turbulence in the credit markets, fluctuating commodity prices, volatile exchange rates and other challenges
currently affecting the global economy continue to affect us and our customers. Instability in financial and commodity
markets throughout the world has caused, among other things, severely diminished liquidity and credit availability,
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rating downgrades of certain investments and declining valuations and pricing volatility of others, volatile energy and
raw materials costs, geopolitical issues and failure and the potential failure of major financial institutions. Adverse events
affecting the health of the economy, including sovereign debt and economic crises, refugee crises, terrorism, Brexit, and
rising protectionism, could have a negative impact on the health of the global economy. These developments, or the
perception that any of them could occur, may have a material adverse effect on global economic conditions or on the
stability of global financial markets. During any period of uncertainty or heightened market volatility, consumer
confidence may decline which could lead to a decline in demand for our products or a shift to lower-margin products,
which could adversely affect sales of our products and our profitability and could also result in impairments of certain of
our assets.
Deterioration in the financial and credit market heightens the risk of customer bankruptcies and delay in payment.
We are unable to predict the duration of the current economic conditions or their effects on financial markets, our
business and results of operations. If economic conditions deteriorate, our results of operations, financial condition and
cash flows could be materially adversely affected.
Dow provides significant operating and other services, and certain raw materials used in the production of our
products, under agreements that are important to our business. The failure of Dow to perform its obligations, or
the termination of these agreements, could adversely affect our operations.
Prior to our inception, we were operated by Dow, which has provided and continues to provide services under
certain agreements that are important to our business. We are a party to:
The SAR MOSA, an outsourcing service agreement pursuant to which Dow provides certain
administrative and business services to us for our operations;
The AR MOD5 agreement, an outsourcing service agreement pursuant to which Dow provides worldwide
process control technology and related enterprise resource planning services;
supply and sales agreements pursuant to which Dow, among other things, provides us with raw materials,
including ethylene, benzene, and butadiene; and
an operating services agreement pursuant to which Dow will operate and maintain certain of our facilities
at Rheinmunster, Germany as well as employ and provide almost all of the staff for this facility.
Under the terms of the above agreements, either party is permitted to terminate the applicable agreement in a
variety of situations, including in the event of the other party’s uncured material breach, insolvency, change of control or
cessation of operations. Should Dow fail to provide these services or raw materials, or should any of the above
agreements be terminated, we would be forced to obtain these services and raw materials from third parties or provide
them ourselves. Additionally, if Dow terminates agreements pursuant to which we are obligated to provide certain
services, we may lose the fees received by us under these agreements. The failure of Dow to perform its obligations
under, or the termination of, any of these contracts could adversely affect our operations and, depending on market
conditions at the time of any such termination, we may not be able to enter into substitute arrangements in a timely
manner, or on terms as favorable to us. For more information regarding our relationship with Dow, please see Item 1—
Business — Our Relationship with Dow.
We are party to certain license agreements with Dow relating to intellectual property that is essential to our
business. Because of this relationship, we may have limited ability to expand our use of certain intellectual
property beyond the field of the license or to police infringement that may be harmful to our business.
In connection with the Acquisition, we acquired ownership of, or in some cases, a worldwide right and license to
use, certain patents, patent applications and other intellectual property of Dow that were used by Dow to operate our
business segments or held by Dow primarily for the benefit of our business segments, prior to the Acquisition. Generally,
we acquired ownership of the intellectual property that was primarily used in our business segments and acquired a
license to a more limited set of intellectual property that had broader application within Dow beyond our core business
segments. Our license from Dow is perpetual, irrevocable, fully paid, and royalty-free. Furthermore, our license from
Dow is exclusive within our business segments for certain patents and patent applications that were used by Dow
primarily in the Styron business prior to the Acquisition, subject to licenses previously granted by Dow, and to certain
retained rights of Dow, including Dow’s retained right to use patents and patent applications outside of our business
segments and for internal consumption by Dow. Our license from Dow relates to polymeric compositions, manufacturing
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processes and end applications for the polymeric compositions; and is limited to use in defined areas corresponding to
our current business segments excluding certain products and end-use application technology retained by Dow. Our
ability to develop, manufacture or sell products and technology outside of these defined areas may be impeded by the
intellectual property rights that have been retained by Dow, which could adversely affect our business, financial
condition and results of operations. Additionally, infringement on these intellectual property rights could also impact our
business and competitive position. We may not be able to enforce our rights, and Dow may be unwilling to enforce its
rights, with respect to this intellectual property that has been licensed by Dow.
Regulatory and statutory changes applicable to our raw materials and products and our customers’ products
could require material expenditures, changes in our operations and could adversely affect our financial condition
and results of operations.
Changes in environmental, health and safety regulations, in jurisdictions where we manufacture and sell our
products, could lead to a decrease in demand for our products. In addition to changes in regulations, health and safety
concerns could increase the costs incurred by our customers to use our products and otherwise limit the use of these
products, which could lead to decreased demand for these products. Such a decrease in demand likely would have an
adverse effect on our business and results of operations. Materials such as acrylonitrile, ethylbenzene, styrene, butadiene,
BPA and halogenated flame retardant are used in the manufacturing of our products and have come under scrutiny due to
potentially significant or perceived health and safety concerns.
Additionally, these regulatory regimes currently require significant compliance expenditures by us, and changes
applicable to our raw materials and products or our customers’ products could require significant additional expenditures
by us, or changes in our operations.
Our products are also used in a variety of end-uses that have specific regulatory requirements such as those
relating to products that have contact with food or medical device end-uses. We and many of the applications for the
products in the end markets in which we sell our products are regulated by various national and local rules, laws and
regulations, such as the TSCA. Changes in regulations could result in additional compliance costs, seizures,
confiscations, recall or monetary fines, any of which could prevent or inhibit the development, distribution and sale of
our products. Changes in environmental and safety laws and regulations banning or restricting the use of these residual
materials in our products, or our customers’ products, could adversely affect our results of operations and financial
condition. Failure to appropriately manage safety, human health, product liability and environmental risks associated
with our products, product life cycles and production processes could adversely impact employees, communities,
stakeholders, our reputation and the results of our operations.
Compliance with extensive and evolving environmental, health and safety laws may require substantial
expenditures.
We use large quantities of hazardous substances, generate hazardous wastes and emit wastewater and air pollutants
in our manufacturing operations. Consequently, our operations are subject to extensive environmental, health and safety
laws and regulations at both the national and local level in multiple jurisdictions. Many of these laws and regulations
have become more stringent over time and the costs of compliance with these requirements may increase, including costs
associated with any capital investments for pollution control facilities. In addition, our production facilities and
operations require operating permits, licenses or other approvals that may be subject to periodic renewal and, in
circumstances of noncompliance, may be subject to revocation. The necessary licenses, permits or other approvals may
not be issued or continue in effect, and any issued licenses, permits or approvals may contain more stringent limitations
that restrict our operations or that require further expenditures to meet the permit requirements.
This continuing focus on climate change in jurisdictions in which we operate could result in new, potentially
diverging or inconsistent, environmental regulations that may negatively affect us. Additional future regulation of
greenhouse gases in the U.S. could occur pursuant to future international treaty obligations, regulatory changes under the
federal Clean Air Act or other existing legislation, federal, state or regional adoption of greenhouse gas regulatory
schemes, or any combination of the foregoing or otherwise. This could cause us to incur additional costs in complying
with any new regulations, which may adversely impact our operations and financial condition.
Compliance with more stringent environmental requirements would likely increase our costs of transportation and
storage of raw materials and finished products, as well as the costs of storage and disposal of wastes. Additionally, we
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may incur substantial costs, including penalties, fines, damages, criminal or civil sanctions and remediation costs, or
experience interruptions in our operations for failure to comply with these laws or permit requirements.
We could be subject to changes in our tax rates and the adoption of tax legislation or exposure to additional tax
liabilities that may adversely affect our results of operations.
We are subject to taxes in Luxembourg, the U.S., and numerous other foreign jurisdictions where our subsidiaries
are organized. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant
change. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing
statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws or their
interpretation, such as interpretations as to the legality of tax advantages granted under the EU state aid rules. Our tax
returns and other tax matters are subject to examination by local tax authorities and governmental bodies. We regularly
assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our
provision for taxes. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to
increase, or if the ultimate determination of the taxes owed by us is for an amount in excess of amounts previously
accrued, our operating results, cash flows, and financial condition could be adversely affected.
Our business involves risk of exposure to product liability claims.
Even though we are generally a materials supplier rather than a manufacturer of finished goods, the development,
manufacture and sales of specialty emulsion polymers and plastics by us involves inherent risks of exposure to product
liability claims, product recalls and related adverse publicity. While we attempt to protect ourselves from such claims
and exposures by our adherence to standards and specifications and in our contractual negotiations, there can be no
assurance that our efforts in this regard will ultimately protect us from any such claims. For instance, a customer may
attempt to seek contribution from us due to a product liability claim brought against them by a consumer, or a consumer
may bring a product liability claim directly against us. A product liability claim or judgment against us could result in
substantial and unexpected expenditures, affect consumer or customer confidence in our products, and divert
management’s attention from other responsibilities. A successful product liability claim or series of claims against us in
excess of our insurance coverage payments, for which we are not otherwise indemnified, could have a material adverse
effect on our financial condition or results of operations.
We are subject to customs, international trade, export control, and antitrust laws that could require us to modify
our current business practices and incur increased costs.
We are subject to numerous regulations, including customs and international trade laws, export/import control
laws, and associated regulations. These laws and regulations limit the countries in which we can do business; the persons
or entities with whom we can do business; the products which we can buy or sell; and the terms under which we can do
business, including anti-dumping restrictions. In addition, we are subject to antitrust laws and zoning and occupancy
laws that regulate manufacturers generally and/or govern the importation, promotion and sale of our products, the
operation of factories and warehouse facilities and our relationship with our customers, suppliers and competitors. If any
of these laws or regulations were to change or were violated by our management, employees, suppliers, buying agents or
trading companies, the costs of certain goods could increase, or we could experience delays in shipments of our goods,
be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our products and hurt our
business and negatively impact results of operations. In addition, in some areas we benefit from certain trade protections,
including anti-dumping protection and the EU’s Authorized Economic Operator program, which provides expedited
customs treatment for materials crossing national borders. If we were to lose these protections, our results of operations
could be adversely affected.
Fluctuations in currency exchange rates may significantly impact our results of operations and may significantly
affect the comparability of our results between financial periods.
Our operations are conducted by subsidiaries in many countries. The results of the operations and the financial
position of these subsidiaries are reported in the relevant foreign currencies and then translated into U.S. dollars at the
applicable exchange rates for inclusion in our consolidated financial statements. The main currency to which we are
exposed is the euro, noting that approximately 60% of our net sales were generated in Europe for the year ended
December 31, 2016. To a lesser degree, we are also exposed to other currencies, including the Chinese yuan, Swiss
27
franc, and Indonesian rupiah. The exchange rates between these currencies and the U.S. dollar in recent years have
fluctuated significantly and may continue to do so in the future. A depreciation of these currencies against the U.S.
dollar, in particular the euro, will decrease the U.S. dollar equivalent of the amounts derived from these operations
reported in our consolidated financial statements and an appreciation of these currencies will result in a corresponding
increase in such amounts. Because some of our raw material costs are procured in U.S. dollars rather than on these
currencies, depreciation of these currencies may have an adverse effect on our profit margins or our reported results of
operations. Conversely, to the extent that we are required to pay for goods or services in foreign currencies, the
appreciation of such currencies against the U.S. dollar will tend to negatively impact our results of operations. In
addition, currency fluctuations may affect the comparability of our results of operations between financial periods.
We incur currency translation risk whenever we enter into either a purchase or sale transaction using a currency
other than the local currency of the transacting entity. From time to time, we enter into foreign exchange forward
contracts to hedge fluctuations associated with certain monetary assets and liabilities, primarily accounts receivable,
accounts payable and certain intercompany obligations. However, attempts to hedge against foreign currency fluctuation
risk may be unsuccessful and result in an adverse impact to our operating results. Given the volatility of exchange rates,
there can be no assurance that we will be able to effectively manage our currency translation risks or that any volatility in
currency exchange rates will not have a material adverse effect on our financial condition or results of operations.
Because our business operations are conducted entirely through our subsidiaries and joint ventures, we are
largely dependent on our receipt of distributions and dividends or other payments from our subsidiaries and joint
ventures for cash to fund all of our operations and expenses.
Trinseo S.A., and its subsidiaries and the issuers of its outstanding debt, Trinseo Materials Operating S.C.A. and
Trinseo Materials Finance, Inc., are each holding companies without business operations. Therefore, our revenues are
generated through business conducted through other operating subsidiaries and joint ventures. As a result, our
subsidiaries’ ability to service their debt or to make future dividend payments or repayments of equity to shareholders is
largely dependent on the earnings of our operating subsidiaries and joint ventures and the payment of those earnings to
them in the form of dividends, loans or advances and through repayment of loans or advances from us. Payments to us
by our operating subsidiaries and joint ventures will be contingent upon our subsidiaries’ or joint ventures’ earnings and
other business considerations. Furthermore, the Credit Agreement governing our Senior Credit Facility and the Indenture
for the 2022 Senior Notes include certain restrictions on the ability of our operating subsidiaries to pay dividends or
otherwise transfer assets to us. In addition, each of our subsidiaries and joint ventures is a distinct legal entity. Therefore,
there may be significant tax and other legal or regulatory developments in the future that may impact the ability of
foreign subsidiaries or joint ventures to continue to remit money to us.
Americas Styrenics, which is one of our joint ventures, is among the parties subject to an ongoing government
antitrust investigation by the United States Postal Service Office of Inspector General, and the United States
Department of Justice, involving the polystyrene market in North America, the results of which could have a
material adverse effect on our business, financial condition and results of operations.
In May 2015, Americas Styrenics, our 50%-owned joint venture, received a subpoena from the United States
Postal Service Office of Inspector General in coordination with the U.S. Department of Justice (collectively the
“Government”) requesting documents regarding its involvement and participation in the market for polystyrene. The
subpoena received by Americas Styrenics does not seek information regarding the market for styrene monomer. The
Government has informed Americas Styrenics that similar subpoenas have been sent to other companies that operate in
the polystyrene market.
Under the joint venture agreement, we granted Americas Styrenics the exclusive rights to manufacture and sell
polystyrene in North America and South America. Equity earnings attributable to Americas Styrenics was $135.8
million, $135.3 million, and $50.3 million in 2016, 2015, and 2014, respectively. We estimate that the contribution to
our equity earnings from Americas Styrenics’ polystyrene business was approximately 51% in 2016, 55% in 2015, and
approximately 87% in 2014. This translates to a contribution from Americas Styrenics’ polystyrene business to our
Adjusted EBITDA of approximately 11% in 2016, 15% in 2015, and approximately 17% in 2014.
We understand that Americas Styrenics is fully cooperating with the Government’s investigation and has delivered
all requested documents in response to the subpoena. Further, Americas Styrenics has informed us that it has completed
its own internal investigation and is unaware of any improper activity. We have reviewed the substance of Americas
28
Styrenics’ internal investigation and, based on this information, have no reason to believe any improper activity
occurred. Furthermore, we believe that the industry dynamics present in the polystyrene market are consistent with
legitimate competitive market activity and not the result of anti-competitive actions or activity.
Notwithstanding our current understanding of the facts, this matter remains open with the Government and there
can be no assurance that other facts will not come to light that result in Americas Styrenics being determined to have
violated applicable law. As a result, we are unable to make any predictions regarding the ultimate outcome of the
investigation. Other than the subpoena, to date there has been no complaint or demand of Americas Styrenics by the
Government regarding the matters that are the subject of the investigation. In addition, to date we have not been served
with a subpoena in connection with this ongoing investigation nor have we otherwise been contacted by the Government
or other enforcement authorities. However, there is no assurance that we won’t be served with a subpoena or otherwise
become involved in this investigation in the future.
Based on its findings in the investigation, the Government may (i) close the file, (ii) seek a consent decree to
remedy issues it believes violate the antitrust laws, or (iii) file suit against Americas Styrenics for violating the antitrust
laws, seeking injunctive or monetary relief. If injunctive and/or monetary relief were granted, depending on its scope, it
could affect the manner in which Americas Styrenics’ business is operated and potentially force changes to Americas
Styrenics’ business practices or operations. In addition, Americas Styrenics and its executives could be subject to
criminal prosecution and if Americas Styrenics is found to have violated one or more laws, it could be subject to a
variety of fines, penalties, and related administrative sanctions and private plaintiffs may seek treble damages. Private
plaintiffs may emerge and seek recourse against us, merely as a joint venture owner of Americas Styrenics, and if this
investigation continues over a long period of time, it could divert the attention of Americas Styrenics and our
management from day-to-day operations and impose significant administrative burdens. Any of these consequences
could damage Americas Styrenics’ and our reputation and impair Americas Styrenics’ ability to conduct its business,
which could have a material adverse effect on our business, financial condition and results of operations.
We generally do not have long-term contracts with our customers, and the loss of customers could adversely
affect our sales and profitability.
With some exceptions, our business is based primarily upon individual sales orders with our customers. As such,
our customers could cease buying our products from us at any time, for any reason, with little or no recourse. If multiple
customers elected not to purchase products from us, our business prospects, financial condition and results of operations
could be adversely affected.
If we are not able to continue the technological innovation and successful commercial introduction of new
products, our customers may turn to other producers to meet their requirements.
Our industry and the end markets into which we sell our products experience periodic technological changes and
ongoing product improvements. Our customers may introduce new generations of their own products or require new
technological and increased performance specifications that would require us to develop customized products.
Innovation or other changes in our customers’ product performance requirements may also adversely affect the demand
for our products. Our future growth will depend on our ability to gauge the direction of the commercial and technological
progress in all key end markets, and upon our ability to successfully develop, manufacture and market products in such
changing end markets. We need to continue to identify, develop and market innovative products on a timely basis to
replace existing products in order to maintain our profit margins and our competitive position. We may not be successful
in developing new products and technology that successfully compete with these materials, and our customers may not
accept any of our new products. If we fail to keep pace with evolving technological innovations or fail to modify our
products in response to our customers’ needs, then our business, financial condition and results of operations could be
adversely affected as a result of reduced sales of our products.
Our business relies on intellectual property and other proprietary information and our failure to adequately
protect or effectively enforce our rights could harm our competitive advantages with respect to the
manufacturing of some of our products.
Our success depends to a significant degree upon our ability to protect, preserve and enforce our intellectual
property rights, including patents, trademarks, licenses, trade secrets and other proprietary information of our business.
However, we may be unable to prevent third parties from using our intellectual property and other proprietary
29
information without our authorization or independently developing intellectual property and other proprietary
information that is similar to or competes with ours, particularly in those countries where the laws do not protect
proprietary rights to the same degree as in the United States. Any inability by us to effectively prevent the unauthorized
use of our intellectual property and other proprietary information by others could reduce or eliminate any competitive
advantage we have developed, cause us to lose sales or otherwise harm our business or goodwill. If it becomes necessary
for us to initiate litigation to protect our proprietary rights, any proceedings could be burdensome and costly, and we may
not prevail.
We may be unable to determine when third parties are using our intellectual property rights without our
authorization, particularly our manufacturing processes. In addition, we cannot be certain that any intellectual property
rights that we have licensed to third parties are being used only as authorized by the applicable license agreement. The
undetected, unremedied, or unauthorized use of our intellectual property rights or the legitimate development or
acquisition of intellectual property that is similar to or competes with ours by third parties could reduce or eliminate the
competitive advantage we have as a result of our intellectual property, adversely affecting our financial condition and
results of operations.
If we fail to adequately protect our intellectual property and other proprietary information, including our processes,
apparatuses, technology, trade secrets, trade names and proprietary manufacturing know how, methods and compounds,
through obtaining patent protection, securing trademark registrations and securing our trade secrets through the use of
confidentiality agreements of appropriate scope and other means, our competitive advantages over other producers could
be materially adversely affected. If we determine to take legal action to protect, defend or enforce our intellectual
property rights, any suits or proceedings could result in significant costs and diversion of our resources and our
management’s attention. We may not prevail in any such suits or proceedings. A failure to protect, defend or enforce our
intellectual property rights could have an adverse effect on our financial condition and results of operations.
Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected
costs or prevent us from selling our products.
We continually seek to improve our business processes and develop new products and applications. Many of our
competitors have a substantial amount of intellectual property that we must continually strive to avoid infringing.
Although it is our policy and intention not to infringe valid patents of which we are aware, we cannot provide assurances
that our processes and products and other activities do not and will not infringe issued patents (whether present or future)
or other intellectual property rights belonging to others. There nonetheless could be third-party patents that cover our
products, processes or technologies, and it is possible that we could be liable for infringement of such patents and could
be required to take remedial or curative actions to continue our manufacturing and sales activities with respect to one or
more products that are found to be infringing. We may also be subject to indemnity claims by our business partners
arising out of claims of their alleged infringement of the patents, trademarks and other intellectual property rights of third
parties in connection with their use of our products. Intellectual property litigation often is expensive and time-
consuming, regardless of the merits of any claim, and our involvement in such litigation could divert our management’s
attention from operating our business. If we were to discover that any of our processes, technologies or products infringe
on the valid intellectual property rights of others, we might determine to obtain licenses from the owners of these rights
or to modify our processes or technologies or re-engineer our products in order to avoid infringement. We may not be
able to obtain the necessary licenses on acceptable terms, or at all, or be able to modify our processes or technologies or
re-engineer our products in a manner that is successful in avoiding infringement. Moreover, if we are sued for
infringement and lose, we could be required to pay substantial damages and/or be enjoined from using or selling the
infringing products or technology. Any of the foregoing could cause us to incur significant costs and prevent us from
selling our products and could have an adverse effect on our financial condition and results of operations.
Data security breaches could compromise sensitive information related to our business, which could adversely
affect our business and our reputation.
Cyberattacks or data security breaches could compromise confidential, business critical information or cause a
disruption in our operations. We have attractive information assets, including intellectual property, trade secrets and
other sensitive, business critical information. We face an ever growing risk of attack from outside our organization
(including attack by organized crime, so-called “hacktivists,” and state-sponsored actors) using sophisticated technical
and non-technical methodologies (including social engineering and “spear phishing” attacks). We also face risks from
30
internal threats to information security, such as from negligent or dishonest employees or consultants. A successful
cyberattack or other breach of security could result in the loss of critical business information and/or could negatively
impact operations, which could have a negative impact on our financial results. Furthermore, in addition to using our
own systems and infrastructure, we use information systems and infrastructure operated by third-party service providers,
including Dow. If our third-party service providers experience an information security breach, depending on the nature
of the breach, it could compromise confidential, business critical information or cause a disruption in our operations.
The labor and employment laws in many jurisdictions in which we operate are more restrictive than in the United
States. Additionally, we have unionized employees in the United States who may stage work stoppages. Our
relationship with our employees could deteriorate, which could have an adverse effect on our operations.
As a manufacturing company, we rely on our employees and good relations with our employees to produce our
products and maintain our production processes and productivity. Approximately 85% of our employees are employed
outside of the United States. In certain of those countries, such as the member states of the EU, labor and employment
laws are more restrictive than in the United States. In many jurisdictions, the laws grant significant job protection to
employees, which subject us to employment arrangements that are very similar to collective bargaining agreements.
In addition, as of December 31, 2016, approximately 17% of our employees in the United States are members of a
union and subject to a collective bargaining agreement. We are required to consult with and seek the consent or advice of
the unions or works’ councils that represent our employees for certain of our activities. This requirement could have a
significant impact on our flexibility in managing costs and responding to market changes. Furthermore, there can be no
assurance that we will be able to negotiate labor agreements with our unionized employees in the future on satisfactory
terms. If those employees were to engage in a strike, work stoppage or other slowdown, or if any of our other employees
were to become unionized, we could experience a significant disruption of our operations or higher ongoing labor costs,
which could have a material adverse effect on our financial condition and results of operations.
As a global business, we are exposed to local business risks in different countries, which could have a material
adverse effect on our financial condition or results of operations.
We have significant operations in foreign countries, including manufacturing facilities, R&D facilities, sales
personnel and customer support operations. As of December 31, 2016, we operated, or others operated on our behalf, 30
manufacturing plants (which include a total of 75 production units) at 23 sites around the world, including in Colombia,
Germany, The Netherlands, Belgium, Finland, Sweden, China, South Korea, Indonesia, Japan, Taiwan, and the United
States. Our international operations are subject to risks inherent in doing business in foreign countries, including, but not
necessarily limited to:
new and different legal and regulatory requirements in local jurisdictions;
uncertainties regarding interpretation and enforcement of laws and regulations;
variation in political and economic policy of the local governments and social conditions;
export duties or import quotas;
domestic and foreign customs and tariffs or other trade barriers;
potential staffing difficulties and labor disputes;
managing and obtaining support and distribution for local operations;
increased costs of transportation or shipping;
credit risk and financial conditions of local customers and distributors;
potential difficulties in protecting intellectual property;
risk of nationalization of private enterprises by foreign governments;
potential imposition of restrictions on investments;
potentially adverse tax consequences, including imposition or increase of withholding and other taxes on
remittances and other payments by subsidiaries;
legal restrictions on doing business in or with certain nations, certain parties and/or certain products;
foreign currency exchange restrictions and fluctuations; and
local economic, political and social conditions, including the possibility of hyperinflationary conditions
and political instability.
31
We may not be successful in developing and implementing policies and strategies to address the foregoing factors
in a timely and effective manner at each location where we do business. Consequently, the occurrence of one or more of
the foregoing factors could have a material adverse effect on our international operations or upon our financial condition
and results of operations.
Our operations in developing markets could expose us to political, economic and regulatory risks that are greater
than those we may face in established markets. For example, we operate in some nations that have experienced
significant levels of governmental corruption. Any failure by us to ensure that our employees and agents comply with
applicable laws and regulations in foreign jurisdictions could result in substantial civil and criminal penalties or
restrictions on our ability to conduct business in certain foreign jurisdictions or reputational damage, and our results of
operations and financial condition could be materially and adversely affected.
Risks Related to Our Ordinary Shares
We are a Luxembourg company and, as a result, shareholders may have difficulty effecting service of process or
litigation against us or our officers and directors and will not have the same protections afforded to shareholders
of a company incorporated in Delaware.
We are organized under the laws of the Grand Duchy of Luxembourg. Many of our assets are located outside the
United States and some of our directors and officers reside outside the United States and most of their assets are located
outside the United States. As a result, investors may find it more difficult to effect service of process within the United
States upon us or these persons or to enforce outside the United States judgments obtained against us or these persons in
U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities
laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against us or these
persons in courts located in jurisdictions outside the United States, including actions predicated upon the civil liability
provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an original action in a
Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these
persons. Luxembourg law does not recognize a shareholder’s right to bring a derivative action on behalf of a company.
Our corporate affairs are governed by our articles of association and by the laws of the Grand Duchy of
Luxembourg. The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law
are different from those applicable to a corporation incorporated in Delaware, or any other state of the United States.
Luxembourg law and regulations in respect of corporate governance matters might not be as protective of minority
shareholders as the General Corporation Law of the State of Delaware or other state corporation laws. Therefore, our
shareholders may have more difficulty in protecting their interests in connection with actions taken by our directors and
officers or our principal shareholders than they would as shareholders of a Delaware corporation or a corporation
incorporated in another state of the United States.
Provisions in our organizational documents and Luxembourg law may deter takeover efforts or other actions that
could be beneficial to shareholder value.
Our articles of association and Luxembourg law contain provisions that could make it harder for a third party to
acquire us, even if doing so might be beneficial to our shareholders. These provisions include a staggered board of
directors, the ability of the board of directors to approve a merger or other acquisition and to issue additional ordinary
shares without shareholder approval that could be used to dilute a potential hostile acquirer. As a result, you may lose
your ability to sell your ordinary shares for a price in excess of the prevailing market price due to these protective
measures, and efforts by shareholders to change the direction or management of the company may be unsuccessful.
Pursuant to Luxembourg corporate law, existing shareholders are generally entitled to preemptive subscription
rights in the event of capital increases and issues of shares against cash contributions. However, our board of directors is
authorized to waive, limit or suppress such pre-emptive subscription rights until May 13, 2019. Furthermore, our
shareholders may renew, expand or amend this authorization, which could result in the extension of the waiver beyond
the initial five year period, at a future general meeting of shareholders.
32
Your percentage ownership in us may be diluted by future equity issuances, which could reduce your influence
over matters on which shareholders vote.
Our board of directors has the authority, without action or vote of our shareholders, to issue all or any part of our
authorized but unissued ordinary shares, including shares issuable upon the exercise of options. Issuances of ordinary
shares would reduce your influence over matters on which our shareholders vote and, in the case of issuances of
preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred
stock.
The Company has a limited history of distributions to shareholders, and is subject to certain conditions under
Luxembourg law that may restrict future distributions to shareholders.
The Company has a limited history of distributions to shareholders. Under Luxembourg law, cash dividends must
be paid from statutory accounting profits and approved by shareholders. Trinseo S.A. generally does not have statutory
accounting profits as a holding company without operations. Additionally, cash distributions may be made to
shareholders through the board of directors’ authorization of repayments of shareholder equity. These repayments of
equity are utilizing Trinseo S.A.’s distributable reserves, which is generally its statutory share premium less minimum
legal reserves.
Even if statutory requirements are satisfied to pay dividends or make other cash distributions, the Company’s
board may choose to retain future earnings, if any, for future operations, expansion and debt repayment. Any decision to
declare and pay dividends or make other distributions to shareholders, including the repayment of shareholder equity, in
the future will be made at the discretion of our board of directors and will depend on, among other things, our results of
operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors
may deem relevant. Even though our board has elected to make quarterly cash distributions to shareholders via
repayments of equity, it does not guarantee the board will continue to do so in the future.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own and operate 59 production units at 15 sites around the world. In addition, we source products from another
16 production units at 8 joint venture sites. We also own or lease other properties, including office buildings,
warehouses, research and development facilities, testing facilities and sales offices.
33
The following table sets forth a list of our principal offices, production sites and other facilities as of December 31,
2016.
Site Name
Corporate Offices
Berwyn
Hong Kong
Horgen
Midland
Production Sites
Boehlen*
Dalton
Hamina
Hsinchu
Merak++
Midland*
Norrkoping
Rheinmunster*
Schkopau*
Stade*
Terneuzen*
Tessenderlo*
Tsing Yi+
Ulsan
Zhangjiagang*
R&D Facilities
Dalton
Hsinchu
Midland 1300
Midland 1604
Rheinmunster
Samstagern
Schkopau
Shanghai
Terneuzen
Tsing Yi
Joint Ventures
Americas Styrenics
Allyn’s Point
Cartegena
Hanging Rock
Joliet
Marietta
St. James
Torrance
Location
Leased/owned Products/Functions
Business Segments
USA (PA)
Hong Kong
Switzerland
USA (MI)
Germany
USA (GA)
Finland
Taiwan
Indonesia
USA (MI)
Sweden
Germany
Germany
Germany
The Netherlands
Belgium
Hong Kong
Korea
China
USA (GA)
Taiwan
USA (MI)
USA (MI)
Germany
Switzerland
Germany
China
The Netherlands
Hong Kong
USA (CT)
Colombia
USA (OH)
USA (IL)
USA (OH)
USA (LA)
USA (CA)
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Owned
Owned
Owned
Leased
Global operating headquarters Not applicable
Not applicable
Regional operating center
Not applicable
Regional operating center
Not applicable
Regional operating center
Styrene monomer
Latex
Latex
Compounds and blends
Latex, Polystyrene
ABS, Latex, PC, Compounds
and blends
Latex
Latex
ESBR, SSBR, PBR,
Polystyrene
PC
Compounds and blends,
Latex, Styrene monomer,
ABS, Polystyrene
Polystyrene
Polystyrene
Latex
Latex
Feedstocks
Latex Binders
Latex Binders
Performance Plastics
Latex Binders, Basic
Plastics
Latex Binders, Performance
Plastics, Basic Plastics
Latex Binders
Latex Binders
Synthetic Rubber, Basic
Plastics
Basic Plastics
Latex Binders, Performance
Plastics, Basic Plastics,
Feedstocks
Basic Plastics
Basic Plastics
Latex Binders
Latex Binders
Latex
Performance plastics
Latex
Performance plastics and
Latex
Latex
Latex
Synthetic rubber
Latex
Performance plastics
Performance plastics
Latex Binders
Performance Plastics
Latex Binders
Performance Plastics,
Latex Binders
Latex Binders
Latex Binders
Synthetic Rubber
Latex Binders
Performance Plastics
Performance Plastics
Polystyrene
Polystyrene
Polystyrene
Polystyrene
Polystyrene
Styrene monomer
Polystyrene
Americas Styrenics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Sumika Styron Polycarbonate
Niihama
Japan
Owned
Polycarbonate
Basic Plastics
Facility co-located with Dow facilities under ground lease agreements. Plant facilities are owned by us.
*
+
Facility located on property owned by the applicable government.
++ Facility located on property under certification with right to build.
We believe that our properties and equipment are generally in good operating condition and are adequate for our
present needs. Production capacity at our sites can vary depending upon product mix and operating conditions.
34
Our global production facilities are certified to ISO 9001 standards. Our manufacturing facilities have established
reliability and maintenance programs and leverage production between sites to maximize efficiency.
Our plants have similar layouts, technology and manufacturing processes, depending upon the product being
manufactured. We believe this global uniformity creates a key competitive advantage for us, and helps lower overall
operating costs.
Item 3. Legal Proceedings
From time to time we 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, waste disposal practices, release of
chemicals into the environment and other matters that may arise in the ordinary course of our business. We currently
believe that there is no litigation pending that is likely to have a material adverse effect on our business. Regardless of
the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of
management resources and other factors.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
The principal market on which our ordinary shares is traded is the New York Stock Exchange, under the ticker
symbol “TSE”. As of February 24, 2017, there were two record holders of our ordinary shares and 48,777,934 ordinary
shares issued and 43,958,209 ordinary shares outstanding. By including persons holding shares in broker accounts under
street names, however, we estimate that we have approximately 19,450 beneficial holders.
The table below sets forth the market prices and cash distributions declared for each quarter of 2016 and 2015.
2016
Quarter ended March 31, 2016
Quarter ended June 30, 2016
Quarter ended September 30, 2016
Quarter ended December 31, 2016
2015
Quarter ended March 31, 2015
Quarter ended June 30, 2015
Quarter ended September 30, 2015
Quarter ended December 31, 2015
Price Range
High
Low
Repayments of Equity or
Dividends Declared per share
$
$
$
$
$
$
$
$
39.23
49.72
60.02
62.30
20.76
30.44
33.69
32.96
$
$
$
$
$
$
$
$
21.92
36.19
41.60
44.70
14.14
19.42
23.46
24.80
$
$
$
$
$
$
$
$
—
0.30
0.30
0.30
—
—
—
—
Any future determination to pay dividends or make other cash distributions to our shareholders will be at the
discretion of our board of directors, subject to compliance with covenants in current and future agreements governing our
indebtedness and applicable Luxembourg law, and will depend upon our results of operations, financial condition, capital
requirements and other factors that our board of directors deems relevant. Further discussion of these restrictions is
included in Item 7—Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
35
Performance Graph
The following performance graph reflects the comparative changes in the value from June 12, 2014, the first
trading day of our ordinary shares on the NYSE, through December 31, 2016, assuming an initial investment of $100
and the reinvestment of dividends or other cash distributions, if any, in (1) our ordinary shares, (2) the S&P 500 Index,
and (3) the S&P Small Cap 600 Chemicals Index. The share price performance shown in the graph is not necessarily
indicative of future price performance.
Purchases of equity securities by the Company and affiliated purchasers
Issuer Purchases of Equity Securities
Period
October 1 - October 31, 2016
November 1 - November 30, 2016
December 1 - December 31, 2016
Total
Total number
of shares
purchased
— $
29,239 $
379,500
$
408,739 $
Average price
paid per share
—
54.42
60.01
59.61
Total number of
shares purchased
as part of
publicly
announced plans
or programs
—
29,239
379,500
408,739
Approximate number
of shares that may yet
be purchased under
the plans or programs
—
2,711,567
2,332,067
(1)
(1)
(1)
(1) The general meeting of our shareholders on June 21, 2016 authorized the Company to repurchase up to 4.5 million
ordinary shares at a price per share of not less $1.00 and not more than $1,000. This authorization ends on June 21,
2018 or on the date of its renewal by a subsequent general meeting of shareholders. On November 1, 2016 the
Company announced that the board of directors had authorized the Company to repurchase, subject to market and
other conditions, the remaining shares left under the 2016 share repurchase authorization.
36
Luxembourg Tax Considerations
Tax Regime Applicable to Capital Gains Realized Upon Disposal of Shares
The following is a summary discussion of the material Luxembourg tax considerations of the acquisition,
ownership and disposition of your ordinary shares that may be applicable to you. It is not intended to be, nor should it
be construed to be, legal or tax advice. This discussion is based on Luxembourg laws and regulations as they stand on
the date of this report and is subject to any change in law or regulations or changes in interpretation or application
thereof (and which may possibly have a retroactive effect). Investors should therefore consult their own professional
advisers as to the effects of state, local or foreign laws and regulations, including Luxembourg tax law and regulations,
to which they may be subject. As used herein, a “Luxembourg individual” means an individual resident in Luxembourg
who is subject to personal income tax (impôt sur le revenu) on his or her worldwide income from Luxembourg or foreign
sources, and a “Luxembourg corporate holder” means a company (that is, a fully taxable collectivité within the meaning
of Article 159 of the Luxembourg Income Tax Law) resident in Luxembourg subject to corporate income tax (impôt sur
le revenu des collectivités) on its worldwide income from Luxembourg or foreign sources. For purposes of this
discussion, Luxembourg individuals and Luxembourg corporate holders of our ordinary shares are collectively referred
to as “Luxembourg Holders.” A “non-Luxembourg Holder” means any investor in our ordinary shares other than a
Luxembourg Holder.
Luxembourg individual holders. For Luxembourg individuals holding (together, directly or indirectly, with his or
her spouse or civil partner or minor children) 10% or less of the share capital of Trinseo, capital gains will only be
taxable if they are realized on a sale of shares, which takes place before their acquisition or within the first six months
following their acquisition. The capital gain or liquidation proceeds will be taxed at progressive income tax rates.
For Luxembourg individuals holding (together with his/her spouse or civil partner and minor children) directly or
indirectly more than 10% of the capital of Trinseo, capital gains will be taxable at a special rate, if the disposal or
liquidation takes place:
within six months from the acquisition, the capital gain or liquidation proceeds will be taxed at progressive
income tax rates (ranging from 0 to 42.0% for 2017).
after six months from the acquisition, the capital gain or the liquidation proceeds will be taxed at a reduced
tax rate corresponding to half of the investor’s global tax rate and EUR 50,000 (doubled for taxpayers filing
jointly) of gains realized over a ten-year period are exempt from taxation.
Luxembourg corporate holders. Capital gains realized upon the disposal of shares by a Luxembourg corporate
holder will in principle be subject to corporate income tax and municipal business tax. The combined applicable rate
(including an unemployment fund contribution) will be 27.08% for the fiscal year ending 2017 for a Luxembourg
corporate holder established in Luxembourg-City. An exemption from such taxes may be available to the Luxembourg
corporate holder pursuant to Article 166 of the Luxembourg Income Tax law subject to the fulfillment of the conditions
set forth therein. The scope of the capital gains exemption may be limited in the cases provided by the Grand Ducal
Decree of December 21, 2001.
Non-Luxembourg Holders
An individual non-Luxembourg Holder of shares will only be subject to Luxembourg taxation on capital gains
arising upon disposal of such shares if such holder has (together with his or her spouse or civil partner and underage
children) directly or indirectly held more than 10% of the capital of Trinseo, at any time during the five years preceding
the disposal, and either (i) such holder has been a resident of Luxembourg for tax purposes for at least 15 years and has
become a non-resident within the five years preceding the realization of the gain, subject to any applicable tax treaty, or
(ii) the disposal of shares occurs within six months from their acquisition (or prior to their actual acquisition), subject to
any applicable tax treaty. If we and a U.S. relevant holder are eligible for the benefits of the Convention Between the
Government of the Grand Duchy of Luxembourg and the Government of the United States for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital (the “Luxembourg-U.S.
Treaty”), such U.S. relevant holder generally should not be subject to Luxembourg tax on the gain from the disposal of
such shares unless such gain is attributable to a permanent establishment of such U.S. relevant holder in Luxembourg.
37
Subject to any restrictions imposed by the substantially and regularly traded clause in the limitation on benefits article of
the Luxembourg-U.S. treaty, we expect to be eligible for the benefits of the Luxembourg-U.S. Treaty.
A corporate non-Luxembourg Holder (that is, a collectivité within the meaning of Article 159 of the Luxembourg
Income Tax Law), which has a permanent establishment, a permanent representative or fixed place of business in
Luxembourg to which shares would be attributable, will bear corporate income tax and municipal business tax on a gain
realized on a disposal of such shares as set forth above for a Luxembourg corporate holder. However, gains realized on
the sale of the shares may benefit from the full exemption provided for by Article 166 of the Luxembourg Income Tax
Law and by the Grand Ducal Decree of December 21, 2001 subject in each case to fulfillment of the conditions set out
therein.
A corporate non-Luxembourg Holder, which has a permanent establishment, permanent representative or fixed
place of business in Luxembourg to which the shares would be attributable will not be subject to any Luxembourg tax on
a gain realized on a disposal of such shares unless such holder holds, directly or through tax transparent entities, more
than 10% of the share capital of Trinseo, and the disposal of shares occurs within six months from their acquisition (or
prior to their actual acquisition), subject to any applicable tax treaty. If we and a U.S. corporate holder without a
permanent establishment in Luxembourg are eligible for the benefits of the Luxembourg-U.S. Treaty, such U.S.
corporate holder generally should not be subject to Luxembourg tax on the gain from the disposal of such shares.
Tax Regime Applicable to Distributions
Withholding Tax. Dividend distributions by Trinseo are subject to a withholding tax of 15%. Distributions by the
Company sourced from a reduction of capital as defined in Article 97 (3) of the Luxembourg Income Tax Law including,
among others, share premium should not be subject to withholding tax provided that such reduction of capital is
motivated by serious business reasons as meant in said provision. We or the applicable paying agent will withhold on a
distribution if required by applicable law.
Where a withholding needs to be applied, the rate of the withholding tax may be reduced pursuant to the double
tax treaty existing between Luxembourg and the country of residence of the relevant holder, subject to the fulfillment of
the conditions set forth therein. If we and a U.S. relevant holder are eligible for the benefits of the Luxembourg-U.S.
Treaty, the rate of withholding on distributions generally is 15% or 5% if the U.S. relevant holder is a beneficial owner
that owns at least 10% of our voting stock.
No withholding tax applies if the distribution is made to (i) a Luxembourg resident corporate holder (that is, a fully
taxable collectivité within the meaning of Article 159 of the Luxembourg Income Tax Law), (ii) a corporation which is
resident of a Member State of the European Union and is referred to by article 2 of the Council Directive of July 23,
1990 concerning the common fiscal regime applicable to parent and subsidiary companies of different member states
(90/435/EEC), (iii) a corporation or a cooperative resident in Norway, Iceland or Liechtenstein and subject to a tax
comparable to corporate income tax as provided by Luxembourg Income Tax Law, (iv) a corporation resident in
Switzerland which is subject to corporate income tax in Switzerland without benefiting from an exemption, (v) a
corporation subject to a tax comparable to corporate income tax as provided by Luxembourg Income Tax Law which is
resident in a country that has concluded a tax treaty with Luxembourg and (vi) a Luxembourg permanent establishment
of one of the above-mentioned categories, provided each time that at the date of payment, the holder has held or commits
itself to continue to hold directly or through a tax transparent vehicle, during an uninterrupted period of at least twelve
months, shares representing at least 10% of the share capital of Trinseo or which had an acquisition price of at least EUR
1,200,000.
Equity Repayment. The repayment of equity, by the Company is not treated as a dividend distribution under
Luxembourg law, and therefore is not subject to any withholding tax, provided: (i) the Company has no statutory
reserves or profits at the Company level, and (ii) the capital decrease is motivated by sound business reasons. The
Company did not have any statutory profits or reserves as of December 31, 2015. In case the Company does not have
sound business reasons to provide a repayment of equity, the entire amount repaid will be subject to a 15% withholding
tax, unless the conditions for an exemption or a reduction from the withholding tax on dividends set forth above are met.
Luxembourg Holders
Dividend and liquidation proceeds are in principle taxable at the general income tax rates indicated above. A
partial dividend exemption may be available to Luxembourg Holders pursuant to Article 115.15a of the Luxembourg
38
Income Tax law or a full dividend exemption may be available to a Luxembourg corporate holder pursuant to Article
166 of the Luxembourg Income Tax law, subject to the fulfillment of the conditions set forth therein.
Non-Luxembourg Holders
Non-Luxembourg holders of the shares who have neither a permanent establishment, permanent representative nor
a fixed place of business Luxembourg to which the shares would be attributable are not liable for any Luxembourg tax
on dividends paid on the shares, other than a potential withholding tax as described above.
Net Wealth Tax
Luxembourg Holders
Luxembourg net wealth tax will not be levied on a Luxembourg Holder with respect to the shares held unless the
Luxembourg Holder is an entity subject to net wealth tax in Luxembourg.
Net wealth tax is levied annually at the rate of 0.5% on the net wealth of enterprises resident in Luxembourg, as
determined for net wealth tax purposes. The shares may be exempt from net wealth tax subject to the conditions set forth
by Article 60 of the Law of October 16, 1934 on the valuation of assets (Bewertungsgesetz), as amended.
Non-Luxembourg Holders
Luxembourg net wealth tax will not be levied on a non-Luxembourg Holder with respect to the shares held unless
the shares are attributable to an enterprise or part thereof which is carried on through a permanent establishment or a
permanent representative in Luxembourg.
Stamp and Registration Taxes
No registration tax or stamp duty will be payable by a holder of shares in Luxembourg solely upon the disposal of
shares or by sale or exchange.
Item 6. Selected Financial Data
The following table sets forth our selected historical financial and operating data and other information. The
historical results of operations data for the years ended December 31, 2016, 2015, and 2014, and the historical balance
sheet data as of December 31, 2016 and 2015 presented below were derived from our audited consolidated financial
statements and the related notes thereto included elsewhere within this Annual Report. The historical results of
operations data for the years ended December 31, 2013 and 2012 and the historical balance sheet data as of
December 31, 2014, 2013, and 2012 were derived from our audited financial statements and the related notes thereto not
included within this Annual Report. Our historical results are not necessarily indicative of the results to be expected for
any future periods.
You should read the information contained in this table in conjunction with Item 7—Management’s Discussion
and Analysis of Financial Condition and Results of Operations and the audited financial statements and the related notes
thereto included elsewhere in this Annual Report.
Definitions of capitalized terms not defined herein appear in the notes to our consolidated financial statements.
39
(in millions, except per share data)
Statement of Operations Data:
Net sales(1)
Cost of sales(1)
Gross profit
Selling, general and administrative expenses
Equity in earnings of unconsolidated affiliates
Operating income
Interest expense, net
Loss on extinguishment of long-term debt(2)
Other expense (income), net
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Weighted average shares— basic
Net income (loss) per share— basic
Weighted average shares— diluted
Net income (loss) per share— diluted
Repayments of equity per share
$
$
$
$
2016
2015
Year Ended
December 31,
2014
$ 3,716.6 $ 3,971.9 $ 5,128.0 $
3,502.8
3,129.0
4,830.6
587.6
241.5
144.7
490.8
75.0
—
10.5
$
405.3
87.0
318.3
46.5
6.84
47.5
6.70
$
0.90 $
$
469.1
208.0
140.2
401.3
93.2
95.2
9.1
203.8
70.2
133.6
48.8
2.74
49.0
2.73
$
$
$
— $
297.4
232.6
47.7
112.5
124.9
7.4
27.8
(47.6)
19.7
(67.3) $
43.5
(1.55) $
43.5
(1.55) $
— $
2013
2012
5,307.4 $ 5,451.9
5,115.2
4,949.4
336.7
358.0
182.0
216.9
27.1
39.1
181.8
180.2
110.0
132.0
—
20.7
24.0
27.9
47.8
(0.4)
17.5
21.8
30.3
(22.2) $
16.1
37.3
1.88
(0.60) $
16.1
37.3
1.88
(0.60) $
—
— $
(in millions)
Other Financial Data:
Depreciation and amortization
Capital expenditures, net of subsidy(3)
Balance Sheet Data:
Cash and cash equivalents
Working capital(4)
Total assets(5)
Debt(5)
Total liabilities(5)
Total shareholders’ equity
2016
2015
Year Ended
December 31,
2014
2013
2012
$
96.4 $
96.8 $
103.7 $
123.9
107.1
98.6
95.2 $
54.8
85.6
112.4
$
465.1
890.7
$
431.3
839.8
$
220.8
748.7
$
2,409.5
1,187.4
1,964.4
445.1
2,258.9
1,207.8
1,869.9
389.0
2,356.1
1,202.2
2,035.3
320.9
$
196.5
810.2
2,574.8
1,336.4
2,231.6
343.2
236.4
778.1
2,665.7
1,453.6
2,374.0
291.7
(1) Net sales and cost of sales increase or decrease based on fluctuations in raw material prices. Consistent with industry
practice, and as permitted under agreements with many of our customers, raw material price changes are generally
passed through to customers by means of corresponding price changes.
(2) For the year ended December 31, 2015, the loss on extinguishment of debt of $95.2 million related to the
Company’s debt refinancing in May 2015, and was comprised of both a call premium and the write-off of
unamortized deferred financing fees. For the year ended December 31, 2014, the loss on extinguishment of debt
related to the July 2014 redemption of $132.5 million in aggregate principal amount of the 2019 Senior Notes, using
a portion of the proceeds from our initial public offering. For the year ended December 31, 2013, the loss on
extinguishment of debt related to the January 2013 amendment of our 2018 Senior Secured Credit Facility and the
repayment of $1,239.0 million of outstanding term loans.
(3) Represents capital expenditures, net of government subsidies received for SSBR expansion of $2.2 million, $18.8
million and $6.1 million for the years ended December 31, 2015, 2013 and 2012, respectively. No government
subsidies were received in the years ended December 31, 2016 and 2014. During the year ended December 31,
2016, the Company completed the upgrade of its legacy enterprise resource planning (“ERP”) environment to the
latest version of SAP, resulting in capitalized software of $57.4 million. The majority of the capital spending for this
project occurred in 2016. For the year ended December 31, 2014, capital expenditures included approximately $26.1
40
million for the reacquisition of production capacity rights at the Company’s rubber production facility in Schkopau,
Germany.
(4) Working capital is defined as current assets minus current liabilities.
(5) In April 2015, the Financial Accounting Standards Board (“FASB”) issued guidance that requires deferred financing
fees related to a recognized debt liability be presented on the consolidated balance sheets as a direct reduction of the
carrying value of that debt liability, consistent with debt discounts. The recognition and measurement guidance for
deferred financing fees are not affected. The Company adopted this guidance effective January 1, 2016. Balances as
of December 31, 2015 presented herein have been retrospectively adjusted to reflect this adoption, with resulting
impacts to the captions “Total assets” and “Total liabilities”. Balances presented for all periods within the “Debt”
caption above reflect gross debt balances outstanding at each period end, and do not reflect a reduction for the
reclassification of unamortized deferred financing fees noted above.
41
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting the operating results, financial condition,
liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and
analysis should be read in conjunction with Item 6 — “Selected Financial Data” and the audited consolidated financial
statements and the accompanying notes thereto, included elsewhere within this Annual Report. The statements in this
discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital
resources and all other non-historical statements in this discussion are forward-looking statements and are based on the
beliefs of our management, as well as assumptions made by, and information currently available to, our management.
Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of
various factors, including those discussed below and elsewhere within this Annual Report, particularly in Item 1A—
“Risk Factors.” Definitions of capitalized terms not defined herein appear in the notes to our consolidated financial
statements.
2016 Highlights
We had strong performance in fiscal year 2016, with record net income of $318.3 million and Adjusted EBITDA
of $610.9 million. This included continued steady improvement within our Performance Materials division, as well as
record results from our Basic Plastics & Feedstocks division. We continued to focus efforts on investing in growth areas,
reducing costs through streamlining of our portfolio and asset footprint, generating cash, and improving our net leverage
and reducing interest expense. Refer to “Non-GAAP Performance Measures” below for further discussion of our use of
non-GAAP measures in evaluating our performance. Other highlights of 2016 are described below.
New Segmentation
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the
business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief
operating decision maker. This change in segments is being made to provide increased clarity and understanding around
the drivers 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 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.
Secondary Offerings
During the year ended December 31, 2016, Bain Capital Everest Manager Holding SCA (the “former Parent”) sold
a combined 37,269,567 ordinary shares by means of several secondary offerings pursuant to the Company’s shelf
registration statement filed with the SEC. As a result, as of December 31, 2016, the former Parent no longer holds any
ownership interest in the Company. Concurrently with the completion of the first of these offerings in March 2016, the
Company repurchased 1,600,000 of the ordinary shares that were sold by the former Parent, resulting in an aggregate
purchase price of $57.0 million.
Additional Share Repurchases and Repayments of Equity
During the year ended December 31, 2016, under existing authority from the Company’s board of directors, the
Company purchased 2,864,870 ordinary shares from its shareholders through a combination of open market transactions
for an aggregate purchase price of $156.7 million (with $3.4 million of additional repurchases not yet settled accrued on
the consolidated balance sheet as of December 31, 2016). Additionally, beginning in June 2016, the Company’s board of
directors began declaring quarterly repayments of equity of $0.30 per ordinary share to its shareholders. During the year
ended December 31, 2016, the declarations for repayments of equity had an aggregate value of $40.6 million.
Livorno Plant Restructuring
In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders
manufacturing facility in Livorno, Italy. This is a result of declining demand for graphical paper and is expected to
42
provide improved asset utilization, as well as cost reductions within the Company’s European latex binders business.
Production at the facility ceased in October 2016, with decommissioning activities beginning in 2016 and expected to
occur throughout 2017. Total charges of $20.0 million were incurred during the year ended December 31, 2016 related to
this restructuring.
Divestiture of Brazil Businesses
During the second quarter of 2016, the Company signed a definitive agreement to sell its primary operating entity
in Brazil, which includes both a latex binders and automotive business. The sale closed on October 1, 2016. As a result,
during the year ended December 31, 2016, the Company recorded an impairment charge for the estimated loss on sale of
approximately $15.1 million as well as $0.7 million of restructuring charges. Refer to Notes 3 and 20 in the consolidated
financial statements for further information. We do not expect this divestiture to have a material impact on the
Company’s ongoing financial position or results of operations.
Appointment of Chief Financial Officer
In May 2016, the Company announced the appointment of Barry Niziolek as Executive Vice President and Chief
Financial Officer of Trinseo, effective June 13, 2016.
The following discussion sets forth certain components of our statements of operations as well as factors that
Factors Affecting Our Operating Results
impact those items.
Net sales
We generate revenue from the sale of our products across all major geographic areas. Our net sales include total
sales less estimates for returns and price allowances. Price allowances include discounts for prompt payment as well as
volume-based incentives.
Our overall net sales are generally impacted by the following factors:
fluctuations in overall economic activity within the geographic markets in which we operate;
fluctuations in raw material input costs, noting that the selling prices of our products are generally derived,
in part, from the current or forecasted costs of our key raw materials, based on either spot pricing or a
predetermined lag period, which are then passed through to our customers;
underlying growth in one or more of our core end markets, either worldwide or in particular geographies in
which we operate;
changes in the level of competition faced by our products, including the substitution by customers of
alternative products to ours and the launch of new products by competitors;
the type of products used within existing customer applications, or the development of new applications
requiring products similar to ours;
the “mix” of products sold, including the proportion of new or improved products and their pricing relative
to existing products;
changes in product sales prices (including volume discounts and cash discounts for prompt payment);
our ability to successfully develop and launch new products and applications; and
fluctuations in foreign exchange rates.
While the factors described above impact net sales in each of our segments, the impact of these factors can differ
for each segment, as described below. For more information about risks relating to our business refer to Item 1A—Risk
Factors.
43
Cost of sales
Our cost of sales consists principally of the following:
Production Materials Costs. The costs of the materials we use in production are the largest element of our
overall cost of sales. We seek to use our substantial volumes and global geographic scope to obtain the
most favorable terms we can, but our production material costs are affected by global and local market
conditions.
Employee Costs. These employee costs include the salary costs and benefit charges for employees
involved in our manufacturing operations. These costs generally increase on an aggregate basis as
production volumes increase, but may decline as a percent of net sales as a result of economies of scale
associated with higher production volumes.
Sustaining Engineering Activity Costs. These costs relate to modifications of existing products for use by
new customers in familiar applications.
Depreciation and Amortization Expense. Property, plant, equipment and definite-lived intangible assets
are stated at cost and depreciated on a straight-line basis over their estimated useful lives.
Other. Our remaining cost of sales consists of:
customer-related development costs;
freight costs;
warehousing expenses;
purchasing costs; and
other general manufacturing expenses, such as expenses for utilities and energy consumption.
The main factors that influence our cost of sales as a percent of net sales include:
changes in the price of raw materials, and timing of corresponding price changes to our customers, which
impact our sales margins;
production volumes;
the implementation of cost control measures aimed at improving productivity, reductions of fixed
production costs, refinements in inventory management and purchasing cost of raw materials; and
the impact of FIFO method inventory treatment.
Selling, general and administrative expenses
Our selling, general and administrative (“SG&A”) expenses consist of all expenditures incurred in connection with
the sale and marketing of our products, as well as administrative overhead costs, including:
salary and benefit costs for sales personnel and administrative staff, including stock-based compensation
expense. Expenses relating to our sales personnel generally increase or decrease principally with changes in
sales volume due to the need to increase or decrease sales personnel to meet changes in demand. Expenses
relating to administrative personnel generally do not increase or decrease directly with changes in sales
volume;
other administrative expenses, including expenses related to logistics, information systems and legal and
accounting services;
general advertising expenses;
research and development expenses; and
other selling expenses, such as expenses incurred in connection with travel and communications.
44
Changes in SG&A expense as a percent of net sales have historically been impacted by a number of factors,
including:
changes in sales volume, as higher volumes enable us to spread the fixed portion of our administrative
expense over higher sales;
changes in the mix of products we sell, as some products may require more customer support and sales
effort than others;
changes in our customer base, as new customers may require different levels of sales and marketing
attention;
new product launches in existing and new markets, as these launches typically involve more intense sales
activity before they are integrated into customer applications;
customer credit issues requiring increases to the allowance for doubtful accounts; and
the implementation of cost control measures, including costs incurred in conjunction with restructuring
activities, aimed at improving productivity and overall profitability (refer to Note 20 in the consolidated
financial statements for details of restructuring activities in the periods presented herein).
Interest expense, net
Interest expense, net consists primarily of interest expense on institutional borrowings and other financing
obligations. Interest expense, net also includes the amortization of deferred financing fees and debt discount associated
with our financing agreements offset by interest income primarily associated with cash-on-hand. Factors affecting
interest expense include fluctuations in the market interest rate, our borrowing activities and our outstanding debt
balances.
Provision for income taxes
We and our subsidiaries are subject to income tax in the various jurisdictions in which we operate. While the
extent of our future tax liability is uncertain, changes to the debt and equity capitalization of our subsidiaries and the
realignment of the functions performed and risks assumed by the various subsidiaries are among the factors that will
determine the future book and taxable income of the respective subsidiary and the Company as a whole.
45
Results of Operations
Results of Operations for the Years Ended December 31, 2016, 2015 and 2014
The table below sets forth our historical results of operations, and these results as a percentage of net sales for the
periods indicated:
(in millions)
Net sales
Cost of sales
Gross profit
Selling, general and administrative
expenses
Equity in earnings of unconsolidated
affiliates
Operating income
Interest expense, net
Loss on extinguishment of long-term
debt
Other expense, net
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
2016 vs. 2015
Net Sales
Year Ended
December 31,
2016
$ 3,716.6
3,129.0
587.6
Percentage
2015
Percentage
2014
100.0 % $ 3,971.9
84.2 % 3,502.8
469.1
15.8 %
100.0 % $ 5,128.0
4,830.6
297.4
88.2 %
11.8 %
Percentage
100.0 %
94.2 %
5.8 %
241.5
6.5 %
208.0
5.2 %
232.6
4.5 %
144.7
490.8
75.0
3.9 %
13.2 %
2.0 %
140.2
401.3
93.2
3.5 %
10.1 %
2.3 %
47.7
112.5
124.9
—
10.5
405.3
87.0
$ 318.3
95.2
— %
9.1
0.3 %
203.8
10.9 %
70.2
2.3 %
8.6 % $ 133.6
7.4
2.4 %
27.8
0.2 %
(47.6)
5.2 %
19.7
1.8 %
3.4 % $ (67.3)
0.9 %
2.2 %
2.4 %
0.1 %
0.5 %
(0.8)%
0.4 %
(1.2)%
Of the 6.4% decrease in net sales, 5.0% was due to lower selling prices primarily due to the pass through of lower
raw material costs, particularly lower styrene and butadiene costs to customers across our segments. Also driving this
reduction in net sales was a decrease of 1.0% due to sales volume, primarily within Performance Plastics and Basic
Plastics, and a decrease of 0.4% due to an unfavorable currency impact across our segments, as the euro weakened in
comparison to the U.S. dollar on a year-to-date basis.
Cost of Sales
Of the 10.7% decrease in cost of sales, 8.6% was attributable to lower prices for raw materials, primarily butadiene
and styrene monomer, while an additional 1.0% of the decrease was due to lower sales volume primarily within
Performance Plastics and Basic Plastics. Also contributing to the decrease was a 0.6% impact from the reduction in fixed
costs due to prior year plant maintenance activities and a 0.4% decrease due to a favorable currency impact across our
segments, as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
Gross Profit
The increase in gross profit was primarily attributable to higher margins across our segments, especially in styrene,
styrenic polymers, and PC within Feedstocks and Basic Plastics. Partially offsetting this increase was an unfavorable
volume impact, primarily within Performance Plastics and Basic Plastics, as well as an unfavorable currency impact as the
euro weakened in comparison to the U.S. dollar on a year-to-date basis.
Selling, General and Administrative Expenses
The majority of the increase in SG&A expenses was driven by $15.8 million of increased restructuring charges,
primarily related to the Company’s decision to cease manufacturing activities at our latex binders facility in Livorno,
Italy. In addition, $8.4 million of the increase was related to an increase in stock-based compensation expense, which
included $2.9 million of one-time accelerated expense as a result of the complete liquidation of the former Parent’s
46
ownership interest in the Company through secondary offerings. Refer to Notes 20 and 17, respectively, in the
consolidated financial statements for further information. Also driving this change were increased employee benefit
costs, costs from additional resources supporting growth initiatives, and certain costs incurred to support secondary
offerings of the former Parent (refer to Note 18 in the consolidated financial statements).
Equity in Earnings of Unconsolidated Affiliates
Equity earnings increased slightly in 2016, as equity earnings from Americas Styrenics increased by $0.5 million,
from $135.3 million in 2015 to $135.8 million in 2016, and equity earnings from Sumika Styron Polycarbonate increased
by $4.0 million, from $4.9 million in 2015 to $8.9 million in 2016. The improvement in results from Sumika Styron
Polycarbonate was driven primarily by improved PC market conditions.
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to
Sumitomo Chemical Company Limited. Refer to Note 24 in the consolidated financial statements for further
information.
Interest Expense, Net
The decrease in interest expense, net was primarily attributable to the impact of the debt refinancing executed in
May 2015, which reduced applicable interest rates. Refer to Note 10 in the consolidated financial statements for further
information.
Loss on Extinguishment of Long-Term Debt
Loss on extinguishment of long-term debt was $95.2 million for the year ended December 31, 2015 related to the
Company’s debt refinancing in May 2015. This amount was comprised of a $68.6 million call premium paid to retire the
Company’s 2019 Senior Notes and a $25.9 million write-off of unamortized deferred financing fees related to these
notes, as well as the write-off of $0.7 million of unamortized deferred financing fees related to the termination of the
Company’s 2018 Revolving Facility.
Other Expense, net
Other expense, net for the year ended December 31, 2016 was $10.5 million, driven by an impairment charge for
the estimated loss on sale of its latex binders and automotive businesses in Brazil of approximately $15.1 million. Refer
to Note 3 in the consolidated financial statements for further information. Additionally, net foreign exchange transaction
losses for the period were $1.8 million. Included in these net losses of $1.8 million were foreign exchange transaction
losses of $5.5 million, primarily driven by the remeasurement of our euro denominated payables due to the relative
changes in rates between the U.S. dollar and the euro during the period, offset by $3.7 million in gains from our foreign
exchange forward contracts. Partially offsetting these net losses was $6.4 million of other income, which primarily
related to the effective settlement of certain value-added tax positions during the period.
Other expense, net for the year ended December 31, 2015 was $9.1 million, which consisted primarily of net
foreign exchange transaction losses of approximately $10.4 million. These net foreign exchange transactions losses were
comprised of foreign exchange transaction gains of $6.1 million primarily driven by the remeasurement of our euro
denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more
than offset by losses of $16.5 million recorded during the period related to the Company’s foreign exchange forward
contracts. Partially offsetting these net foreign exchange transactions losses was other miscellaneous income of $1.3
million.
Provision for Income Taxes
Provision for income taxes for 2016 totaled $87.0 million resulting in an effective tax rate of 21.5%. Provision for
income taxes for 2015 totaled $70.2 million resulting in an effective tax rate of 34.4%. The increase in provision for
income taxes was primarily driven by the $201.5 million increase in income before income taxes, from $203.8 million
for the year ended December 31, 2015 to $405.3 million for the year ended December 31, 2016.
47
This increase in the provision for income taxes was partially offset by the impact of a higher proportion of income
before taxes in 2016 being attributable to non-U.S. jurisdictions, particularly in Europe, where the statutory income tax
rates are lower than the U.S. statutory income tax rate.
Additionally, this increase in the provision for income taxes in 2016 was offset by a net reduction of losses
generated within companies which are not anticipated to provide a tax benefit to the Company in the future. These
losses are primarily generated within our holding companies incorporated in Luxembourg and our former primary
operating company incorporated in Brazil. For the year ended December 31, 2016, these losses totaled approximately
$65.1 million and included an impairment charge of $15.1 million for the estimated loss on the sale of Trinseo Brazil.
Refer to Note 3 in the consolidated financial statements for further information.
For the year ended December 31, 2015, these losses totaled approximately $84.7 million and included payments
made in our Luxembourg entities of $19.0 million related to a portion of the fees associated with the call premium paid
to retire the Company’s 2019 Senior Notes and $5.6 million related to the write off of the related unamortized deferred
financing fees (see Note 10 in the consolidated financial statements for further discussion). Also included in these losses
was non-deductible interest of $28.1 million and stock-based compensation expense.
In addition, for the year end December 31, 2015, the provision for income taxes was unfavorably impacted by the
recognition of a valuation allowance of $7.3 million on the net deferred tax asset of one of its China subsidiaries during
the fourth quarter, as this entity was in a three year cumulative loss position as of December 31, 2015.
2015 vs. 2014
Net Sales
Of the 22.5% decrease in net sales, 17.3% was due to lower selling prices primarily due to the pass through of
lower butadiene costs to our customers in Latex Binders and Synthetic Rubber and lower styrene monomer costs to our
customers in Latex Binders, Feedstocks, and Basic Plastics. In addition, 7.6% of the decrease was related to an
unfavorable currency impact across our segments, as the euro weakened in comparison to the U.S. dollar on a year-to-
date basis. Partially offsetting these decreases was a 2.4% increase due to higher sales volumes in Feedstocks, Latex
Binders, Synthetic Rubber, and Performance Plastics.
Cost of Sales
Of the 27.5% decrease in cost of sales, 22.5% was attributable to lower prices for raw materials, primarily
butadiene and styrene monomer, while an additional 7.1% of the decrease was due to a favorable currency impact across
our segments, as the euro weakened in comparison to the U.S. dollar on a year-to-date basis. Partially offsetting these
decreases was a 2.1% increase due to higher sales volumes in Feedstocks, Latex Binders, Synthetic Rubber, and
Performance Plastics.
Gross Profit
The increase in gross profit was primarily attributable to higher styrene monomer and styrenic polymer margins as
well as higher polycarbonate margins due to improved market dynamics in addition to our polycarbonate restructuring
efforts. These impacts were partially offset by an unfavorable currency impact, as the euro weakened in comparison to
the U.S. dollar on a year-to-date basis.
Selling, General and Administrative Expenses
The decrease in SG&A expenses was primarily related to $23.3 million in termination fees incurred in the second
quarter of 2014 related to the advisory agreement with Bain Capital (the “Advisory Agreement”) which we terminated
upon consummation of the initial public offering (the “IPO”) in June 2014. In addition, the Company incurred lower
restructuring charges during the year ended December 31, 2015 of $8.2 million, compared to charges of $14.1 million
during the year ended December 31, 2014. Refer to Note 20 in the consolidated financial statements for further
information. These decreases were partially offset by increased costs related to other employee benefit costs.
48
Equity in Earnings of Unconsolidated Affiliates
The increase in equity earnings was primarily attributable to the equity earnings from Americas Styrenics, which
increased to $135.3 million in 2015 from $50.3 million in 2014, due to stronger operating performance driven by higher
styrene and polystyrene margins as well as higher volumes of styrene monomer sold. Sumika Styron Polycarbonate
noted equity earnings of $4.9 million for 2015 compared to equity losses of $2.5 million in 2014.
Interest Expense, Net
The decrease in interest expense, net was primarily attributable to the debt refinancing in May 2015. Refer to Note
10 in the consolidated financial statements for further information.
Loss on Extinguishment of Long-Term Debt
Loss on extinguishment of long-term debt was $95.2 million for the year ended December 31, 2015, related to the
debt refinancing in May 2015. This amount was comprised of a $68.6 million call premium paid to retire the Company’s
2019 Senior Notes and a $25.9 million write-off of unamortized deferred financing fees related to these notes, as well as
the write-off of $0.7 million of unamortized deferred financing fees related to the termination of the Company’s 2018
Revolving Facility.
Loss on extinguishment of long-term debt was $7.4 million for the year ended December 31, 2014, related to the
redemption of $132.5 million in aggregate principal amount of the 2019 Senior Notes in July 2014, using proceeds from
the Company’s IPO. This loss was comprised of a $4.0 million call premium and a $3.4 million write-off of related
unamortized deferred financing fees.
Other Expense, net
Other expense, net for the year ended December 31, 2015 was $9.1 million, which consisted primarily of net
foreign exchange transaction losses of approximately $10.4 million. These net foreign exchange transactions losses were
comprised of foreign exchange transaction gains of $6.1 million primarily driven by the remeasurement of our euro
denominated payables due to the strengthening of the U.S. dollar against the euro during the period, more than offset by
losses of $16.5 million recorded during the period related to the Company’s foreign exchange forward contracts.
Partially offsetting these net foreign exchange transactions losses was other miscellaneous income of $1.3 million.
Other expense, net for the year ended December 31, 2014 was $27.8 million, which included a $32.5 million
payment made to Dow in connection with the termination of an option agreement between certain of the Company’s
affiliates and Dow pursuant to which Dow was granted an option to purchase 50% of the issued and outstanding interests
in a joint venture to be formed by Dow and the Company’s affiliates with respect to the SB Latex business (“Latex JV
Option Agreement”) in May of 2014. Refer to Note 18 in the consolidated financial statements for further information.
This was slightly offset by net foreign exchange transaction gains of $4.2 million and other income. These net foreign
exchange transaction gains were comprised of foreign exchange transaction gains of $32.4 million primarily driven by
the remeasurement of our euro denominated payables due to the strengthening of the U.S. dollar against the euro during
the period. Separately, beginning in the third quarter of 2014, the Company entered into foreign exchange forward
contracts and recorded related losses of approximately $28.2 million, largely offsetting the above described gains.
Provision for Income Taxes
Provision for income taxes for 2015 totaled $70.2 million resulting in an effective tax rate of 34.4%. Provision for
income taxes for 2014 totaled $19.7 million resulting in a negative effective tax rate of 41.4%. The increase in provision
for income taxes was primarily driven by the $251.5 million increase in income before income taxes, from a loss of
$47.6 million for the year ended December 31, 2014 to $203.9 million of income for the year ended December 31, 2015.
These increases in the provision for income taxes in 2015 were offset by a reduction of losses generated within our
holding companies incorporated in Luxembourg, which are not anticipated to provide a tax benefit to the Company in the
future. For the year ended December 31, 2015, these losses totaled approximately $84.7 million. Included in these losses
were payments made during the year ended December 31, 2015 of $19.0 million related to a portion of the fees
associated with the call premium paid to retire the Company’s 2019 Senior Notes and $5.6 million related to the write off
of the related unamortized deferred financing fees (refer to Note 10 in the consolidated financial statements). Also
49
included in these losses was non-deductible interest expense of $28.1 million and stock-based compensation expense.
Additionally, the overall increase in the provision for income taxes during the year was offset by the impact of a higher
proportion of income in 2015 being attributable to non-U.S. jurisdictions, particularly in Europe, where the statutory
income tax rates are lower than the U.S. statutory income tax rate.
For the year ended December 31, 2014, losses primarily within our holding companies incorporated in
Luxembourg, which were not anticipated to provide a tax benefit to the Company in the future, were approximately
$134.1 million. Included in these losses were payments made during the year ended December 31, 2014 of $32.5 million
related to an agreement with Dow to terminate the Latex JV Option Agreement and a portion of the fees related to the
termination of the Advisory Agreement with Bain Capital of approximately $18.6 million (refer to Note 18 in the
consolidated financial statements). Also included in these losses was non-deductible interest of $38.6 million and stock-
based compensation expense.
In addition to the above, there were certain other one-time items impacting the provision for income taxes for the
years ended December 31, 2015 and 2014, respectively.
For the year end December 31, 2015, the provision for income taxes was also unfavorably impacted by the
recognition of a valuation allowance of $7.3 million on the net deferred tax asset of one of its China subsidiaries during
the fourth quarter, as this entity was in a three year cumulative loss position as of December 31, 2015. While the
Company intends to realize the net operating loss carryforward before expiration due to forecasted profitability in this
subsidiary in future years, it was unable to overcome the negative evidence of recent cumulative operating losses.
Therefore, the Company could not assert it would more likely than not be able to realize its deferred tax asset as of
December 31, 2015. If in the future, this subsidiary generates sufficient profitability such that the evaluation of
recoverability of the deferred tax asset changes, the valuation allowance could be reversed.
For the year ended December 31, 2014, a tax benefit was recognized, as the Company effectively settled its 2010
and 2011 audits with the IRS and received a refund of $3.2 million in July 2014. As a result, the Company recorded a
previously unrecognized tax benefit in the amount of $2.7 million, including penalties and interest, relating to its 2011
tax return filing. No similar benefits were recorded for the year ended December 31, 2015.
Selected Segment Information
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the
business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief
operating decision maker. The Company’s reportable segments are as follows: Latex Binders, Synthetic Rubber,
Performance Plastics, Basic Plastics, Feedstocks, and Americas Styrenics. In conjunction with the segment realignment,
the Company also changed its primary measure of segment operating performance to Adjusted EBITDA. Refer to
Item 1—Business for a description of our segments, including a detailed overview, products and end uses, and
competition and customers.
The following sections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the
years ended December 31, 2016, 2015, and 2014, which have been recast to reflect the above changes. Inter-segment
sales have been eliminated. Refer to Note 19 in the consolidated financial statements for further information regarding
the segment realignment and change in segment operating performance measure, as well as for a detailed definition of
Adjusted EBITDA and a reconciliation of income (loss) before income taxes to segment Adjusted EBITDA.
Latex Binders Segment
Year Ended
December 31,
Percentage Change
(in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
2016
$ 925.3
$ 94.3
2015
$ 966.2
$ 79.0
10.2 %
8.2 %
50
2014
$ 1,261.1
97.2
7.7 %
$
2016 vs. 2015 2015 vs. 2014
(23.4)%
(18.7)%
(4.2)%
19.4 %
2016 vs. 2015
Of the 4.2% decrease in net sales, 4.1% was due to lower selling prices, primarily due to the pass through of lower
butadiene and styrene costs to our customers, and 0.3% was due to an unfavorable currency impact as the euro weakened
in comparison to the U.S. dollar on a year-to-date basis. These decreases were partially offset by a 0.2% increase due to
higher sales volume to the Asia paper and carpet markets.
The increase in Adjusted EBITDA was driven by margin improvements of $12.2 million during the period,
primarily due to price increases in North America and freight and utility savings, particularly in Asia. Additionally, fixed
cost improvements contributed to 3.3% of the increase, which includes the impact of the sale of our business in Brazil.
Refer to Note 3 in the consolidated financial statements for further information.
2015 vs. 2014
Of the 23.4% decrease in net sales, 21.0% was due lower selling prices primarily due to the pass through of lower
butadiene and styrene costs to our customers and 5.6% was due to an unfavorable currency impact as the euro weakened
in comparison to the U.S. dollar on a year-to-date basis. These decreases were slightly offset by a 3.3% increase from
higher sales volume driven by higher sales to the Europe paper and carpet markets.
The decrease in Adjusted EBITDA was driven by a 13.5% decrease due to lower margins, primarily in Europe and
Asia, and a 3.8% decrease due to unfavorable currency impact as the euro weakened in comparison to the U.S. dollar on
a year-to-date basis. In addition, 9.1% of the decrease was due to increased fixed costs. Partially offsetting these
decreases was a 7.8% increase in sales volume primarily related to increased sales to the Europe paper and carpet
markets.
Synthetic Rubber Segment
(in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
2016
$ 450.7
110.9
$
24.6 %
Year Ended
December 31,
2015
$ 474.6
93.0
19.6 %
$
Percentage Change
2014
$ 634.0
$ 137.0
2016 vs. 2015 2015 vs. 2014
(25.1)%
(32.1)%
(5.0)%
19.2 %
21.6 %
2016 vs. 2015
Of the 5.0% decrease in net sales, 5.1% was due to lower selling prices, primarily resulting from the pass through
of lower butadiene and styrene costs to customers, and 0.6% of the decrease was driven by an unfavorable currency
impact as the euro weakened in comparison to the U.S. dollar on a year-to-date basis. Partially offsetting these decreases
was a 0.7% increase due to increased sales volume, as higher customer demand for SSBR and other products was
partially offset by lower sales of Ni-PBR, as production decreased due to Nd-PBR plant trials.
The increase in Adjusted EBITDA was primarily driven by improved fixed costs, which resulted in 11.1% of the
increase, as the prior year included lower fixed cost absorption and higher maintenance costs due primarily to a planned
turnaround. Additionally, improved margins contributed to 3.4% of the increase and higher sales volume contributed to
5.1% of the increase, which was primarily related to higher demand and availability of SSBR.
2015 vs. 2014
Of the 25.1% decrease in net sales, 19.7% was due to lower selling prices primarily resulting from the pass
through of lower butadiene and styrene costs to customers and 11.6% was due to an unfavorable currency impact as the
euro weakened in comparison to the U.S. dollar on a year-to-date basis. These decreases were slightly offset by a 6.2%
increase from higher sales volume resulting from higher sales of SSBR to tire producers.
The decrease in Adjusted EBITDA was driven by a 25.6% decrease due to lower margins, including impacts from
the timing of raw material costs, and an unfavorable currency impact of 7.7 % as the euro weakened in comparison to the
U.S. dollar on a year-to-date basis. In addition, 8.4% of the decrease was driven by higher fixed costs due primarily to
51
higher planned maintenance expense in the current year as well as higher employee benefit costs. Partially offsetting
these decreases was a 9.5% increase due to sales volume driven by higher SSBR sales.
Performance Plastics Segment
Year Ended
December 31,
Percentage Change
(in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
2016
$ 693.4
136.2
$
2015
$ 742.8
$ 107.6
19.6 %
14.5 %
2016 vs. 2015
2014
$ 821.1
85.4
10.4 %
$
2016 vs. 2015 2015 vs. 2014
(9.5)%
26.0 %
(6.7)%
26.6 %
Of the 6.7% decrease in net sales, 3.7% was due to lower selling prices, primarily related to the pass through of
lower raw material costs to our customers, and 2.7% was due to decreased sales volume, driven by lower sales to the
consumer electronics market in Asia. In addition, 0.3% of the decrease was driven by an unfavorable currency impact as
the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
The increase in Adjusted EBITDA was driven by a 25.0% increase due to higher margins, including favorable raw
material timing, and a 6.4% increase due to improved fixed costs, which includes the impact of the sale of our business
in Brazil (refer to Note 3 in the consolidated financial statements for further information). These increases were partially
offset by a 4.6% decrease driven by lower sales volume, primarily caused by lower sales to the consumer electronics
market in Asia, which were partially offset by higher sales to the automotive market.
2015 vs. 2014
Of the 9.5% decrease in net sales, 6.2% was due to lower selling prices primarily related to the pass through of
lower raw material costs to our customers and 5.6% was due to an unfavorable currency impact as the euro weakened in
comparison to the U.S. dollar on a year-to-date basis. These decreases were partially offset by a 2.2% increase in sales
volume, primarily related to the consumer electronics market in Asia as well as the automotive market in North America.
The increase in Adjusted EBITDA was driven by an increase in sales volume, primarily related to the consumer
electronics market in Asia and the automotive market in North America, as well as higher margins due to lower raw
material costs, which contributed to 43.1% of the increase. Slightly offsetting this increase was an 11.2% decrease due to
increased fixed costs, including higher employee benefit costs.
Basic Plastics Segment
(in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
2016 vs. 2015
Year Ended
December 31,
Percentage Change
2016
$ 1,352.7
148.2
$
2015
$ 1,478.1
$ 115.6
2014
$ 1,978.1
$ (15.2)
2016 vs. 2015
2015 vs. 2014
(25.3)%
860.5 %
(8.5) %
28.2 %
11.0 %
7.8 %
(0.8)%
Of the 8.5% decrease in net sales, 6.3% was due to lower selling prices driven by the pass through of lower styrene
costs to customers, and 1.8% of the decrease was due lower sales volume, primarily related to lower polystyrene sales in
Europe and Asia. In addition, 0.4% of the decrease was driven by an unfavorable currency impact as the euro weakened
in comparison to the U.S. dollar on a year-to-date basis.
52
The increase in Adjusted EBITDA was driven by a 27.9% increase due to higher margins in styrenic polymers and
PC, and a 3.5% increase related to equity earnings from our joint venture, Sumika Styron Polycarbonate, driven
primarily by improved PC market conditions as well as favorable raw material timing. Partially offsetting these increases
was a 3.7% decrease due to lower sales volume, primarily related to Europe and Asia polystyrene sales.
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 ¥4.9 billion (approximately $43.2 million). As a result,
the Company will record an estimated gain on sale of approximately $9.0 million in the first quarter of 2017. In addition,
the parties have agreed to continue long-term supply of polycarbonate resin from Sumika Styron Polycarbonate to the
Company’s Performance Plastics businesses.
2015 vs. 2014
Of the 25.3% decrease in net sales, 16.4% was driven by decreases in selling prices due primarily to the pass
through of lower styrene costs to customers and 8.3% was due to unfavorable currency impact as the euro weakened in
comparison to the U.S. dollar on a year-to-date basis.
The increase in Adjusted EBITDA was due primarily to higher margins in styrenic polymers as well as in
polycarbonate as a result of our restructuring efforts and improved market conditions. In addition, increased equity
earnings from our polycarbonate joint venture Sumika Styron Polycarbonate of $7.4 million contributed to 48.7% of the
increase, primarily driven by improved polycarbonate market conditions. Partially offsetting these increases was a
107.9% unfavorable currency impact as the euro weakened in comparison to the U.S. dollar on a year-to-date basis.
Feedstocks Segment
(in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
2016 vs. 2015
Year Ended
December 31,
Percentage Change
2016
$ 294.5
$ 80.2
2015
$ 310.2
$ 51.3
2014
$ 433.7
$ (20.5)
2016 vs. 2015
2015 vs. 2014
(28.5)%
350.2 %
(5.1) %
56.3 %
27.2 %
16.5 %
(4.7)%
Of the 5.1% decrease in net sales, 5.1% of the decrease was due to lower selling prices, primarily driven by the
pass through of lower styrene costs to customers, and 0.4% of the decrease was driven by an unfavorable currency
impact as the euro weakened in comparison to the U.S. dollar on a year-to-date basis. Partially offsetting these decreases
was a 0.5% increase in sales volume.
The increase in Adjusted EBITDA was driven by a 50.3% increase due to higher margins in styrene, and a 6.0%
increase due to improved fixed costs.
2015 vs. 2014
Of the 28.5% decrease in net sales, 29.0% was driven by decreases in selling prices due primarily to the pass
through of lower styrene costs to customers and 8.4% was due to unfavorable currency impact as the euro weakened in
comparison to the U.S. dollar on a year-to-date basis. Partially offsetting these decreases was a 9.0% increase in sales
volume primarily related to higher sales of styrene monomer.
The increase in Adjusted EBITDA was primarily due to higher styrene monomer margins as a result of improved
market conditions, including some unplanned styrene production outages across the industry. Partially offsetting this
53
increase were decreases due to higher fixed costs and an unfavorable currency impact as the euro weakened in
comparison to the U.S. dollar on a year-to-date basis.
Americas Styrenics Segment
Year Ended
December 31,
Percentage Change
(in millions)
Adjusted EBITDA*
2016
$ 135.8
2015
$ 135.3
2014
$ 50.3
2016 vs. 2015
2015 vs. 2014
169.0 %
0.4 %
*The results of this segment are comprised entirely of earnings from Americas Styrenics, our equity method investment.
As such, Adjusted EBITDA related to this segment is included within “Equity in earnings of unconsolidated affiliates” in
the consolidated statements of operations.
2016 vs. 2015
The slight increase in Adjusted EBITDA was due to increased equity earnings from our styrenics joint venture
Americas Styrenics, as higher styrene margins and polystyrene volume were offset by lower polystyrene margins and the
impacts of the second quarter planned styrene production outage.
In February 2017, Americas Styrenics announced that it expects a planned first quarter styrene outage at its St.
James, LA, facility to extend into the second quarter of 2017 in order to complete repairs on critical equipment. This
outage extension is expected to result in an unfavorable first quarter 2017 impact of $15.0 million to the Adjusted
EBITDA of our Americas Styrenics segment, as compared to the fourth quarter of 2016, and it is not expected to
significantly impact Americas Styrenics’ downstream polystyrene production.
2015 vs. 2014
The increase in Adjusted EBITDA was due to increased equity earnings from our styrenics joint venture Americas
Styrenics, primarily driven by higher styrene margins, in part due to unplanned styrene production outages across the
industry, and polystyrene margins as well as higher volumes of styrene monomer sold.
Non-GAAP Performance Measures
We present Adjusted EBITDA as a non-GAAP financial performance measure, which we define 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 and other items. In doing so, we are providing management, investors, and credit rating agencies
with a stronger indicator of our ongoing performance and business trends, removing the impact of transactions and
events that we would not consider a part of our core operations.
There are limitations to using the financial performance measures such as Adjusted EBITDA. This performance
measure is not intended to represent net income or other measures of financial performance. As such, it should not be
used as an alternative to net income as an indicator of operating performance. Other companies in our industry may
define Adjusted EBITDA differently than we do. As a result, it may be difficult to use this or similarly-named financial
measures that other companies may use, to compare the performance of those companies to our performance. We
compensate for these limitations by providing a reconciliation of this performance measure to our net income, which is
determined in accordance with GAAP.
54
Adjusted EBITDA is calculated as follows for the years ended December 31, 2016, 2015, and 2014, respectively:
(in millions)
Net income (loss)
Interest expense, net
Provision for income taxes
Depreciation and amortization
EBITDA(a)
Loss on extinguishment of long-term debt
Net loss (gain) on disposition of businesses and assets(b)
Restructuring and other charges(c)
Fees paid pursuant to advisory agreement(d)
Other items(e)
Adjusted EBITDA
Year Ended
December 31,
2015
$ 133.6
93.2
70.2
96.8
$ 393.8
95.2
—
0.8
—
2.2
$ 492.0
2016
$ 318.3
75.0
87.0
96.4
$ 576.7
—
15.1
23.5
—
(4.4)
$ 610.9
2014
$ (67.3)
124.9
19.7
103.7
$ 181.0
7.4
(0.6)
10.0
25.4
38.4
$ 261.6
(a) EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because we
believe it provides our management as well as our investors and credit agencies with meaningful information
regarding the Company’s operational performance. We believe the use of EBITDA as a metric assists our board of
directors, management and investors in comparing our operating performance on a consistent basis. Other
companies in our industry may define EBITDA differently than we do. As a result, it may be difficult to use
EBITDA, or similarly-named financial measures that other companies may use, to compare the performance of
those companies to our performance. We compensate for these limitations by providing reconciliations of our
EBITDA results to our net income, which is determined in accordance with GAAP.
(b) During the year ended December 31, 2016, the Company recorded impairment charges for the loss on sale of its
primary operating entity in Brazil, which includes both latex binders and automotive businesses. Refer to Note 3 in
the consolidated financial statements for further information.
(c) Restructuring and other charges for the year ended December 31, 2016 relate primarily to $20.0 million in charges
incurred in connection with the decision to cease manufacturing activities at our latex binders manufacturing facility
in Livorno, Italy. The remaining restructuring charges for 2016 relate to the Company’s decision to divest our
operations in Brazil as well as the closure of our Allyn’s Point latex binders manufacturing facility. Restructuring
and other charges for the year ended December 31, 2015 relate primarily to the polycarbonate restructuring within
our Basic Plastics segment and employee termination benefit charges incurred in connection with the Allyn’s Point
shutdown within our latex binders business. Restructuring and other charges for the year ended December 31, 2014
was incurred primarily in connection with the shutdown of our latex binders manufacturing plant in Altona,
Australia and the restructuring within our Basic Plastics segment.
Accelerated depreciation charges incurred as a part of the Allyn’s Point shutdown announced in September 2015
and the 2014 restructuring within our Basic Plastics segment are included within the “Depreciation and
amortization” caption, and therefore are not included as a separate adjustment within this caption. Refer to Note 20
in the consolidated financial statements for further information.
(d) Represents fees paid under the terms of our Advisory Agreement with Bain Capital. For the year ended
December 31, 2014, this includes a charge of $23.3 million for fees incurred in connection with the termination of
the Advisory Agreement, pursuant to its terms, upon consummation of the Company’s IPO in June 2014. Refer to
Note 18 in the consolidated financial statements for further information.
(e) Other items for the year ended December 31, 2016 include other income of $6.9 million from the effective
settlement of certain value-added tax positions, offset by $2.5 million of fees incurred in conjunction with the
Company’s secondary offerings completed during the year. Other items incurred for the years ended December 31,
2015 and 2014 primarily consist of costs related to the process of changing our corporate name from Styron to
Trinseo. For the year ended December 31, 2014, these costs also include a one-time $32.5 million termination
payment made to Dow in connection with the termination of our Latex JV Option Agreement. Refer to Note 18 in
the consolidated financial statements for further information.
55
Liquidity and Capital Resources
Cash Flows
The table below summarizes our primary sources and uses of cash for the years ended December 31, 2016, 2015,
and 2014. We have derived the summarized cash flow information from our audited financial statements.
(in millions)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rates on cash
Net change in cash and cash equivalents
Year Ended
December 31,
2015
2016
2014
$
$
403.7
(117.3)
(247.5)
(5.0)
33.9
$
$
353.2
(106.7)
(26.2)
(9.8)
210.5
$
$
117.2
(92.6)
8.1
(8.4)
24.3
Operating Activities
Net cash provided by operating activities during the year ended December 31, 2016 totaled $403.7 million, driven
predominantly by improved net income for the period. Also driving cash flow from operating activities for the period
was $130.0 million in dividends from our 50%-owned joint venture, Americas Styrenics.
Net cash used in operating assets and liabilities for the year ended December 31, 2016 totaled $69.9 million, the
most significant drivers of which were increases in accounts receivable of $96.4 million and inventories of $51.0 million,
respectively, offset by an increase in accounts payable and other current liabilities of $57.1 million. The increase in
accounts receivable was primarily due to higher sales and lower collections, due to timing, during the fourth quarter of
2016 compared to the same period in 2015. The increase in inventory was primarily due to increases in raw material
prices in the fourth quarter of 2016 as compared to the same period in 2015. The increase in accounts payable and other
current liabilities was primarily driven by increases in raw material prices, as noted above, as well as timing of vendor
payments.
Net cash provided by operating activities during the year ended December 31, 2015 totaled $353.2 million, driven
predominantly by earnings for the period. Also driving our cash from operating activities for the period was $125.0
million in dividends from our joint venture, Americas Styrenics. These increases were noted despite several significant
decreases to operating cash flows, which included $81.7 million in interest payments made on our 2019 Senior Notes
prior to their May 2015 retirement as well as a $68.6 million call premium paid to retire those notes. Refer to Note 10 in
the consolidated financial statements for further information.
Net cash provided by operating assets and liabilities for the year ended December 31, 2015 totaled $103.9 million,
the most significant components of which were decreases in inventories of $97.2 million and decreases in accounts
receivable of $65.1 million, offset by a decrease in accounts payable and other current liabilities of $71.9 million.
Inventory decreased due to higher volume sold during the fourth quarter of 2015 when compared to the fourth quarter of
2014, as well as significant decreases in raw materials prices when comparing the periods. The decrease in accounts
receivable is primarily due to lower sales and higher collections during the fourth quarter of 2015, compared to the fourth
quarter of 2014, primarily driven by decreasing raw material prices. The decrease in accounts payable and other current
liabilities is primarily due to timing of payments as well as decreases in prices for raw materials purchases.
Net cash provided by operating activities during the year ended December 31, 2014 totaled $117.2 million, with
net cash provided by operating assets and liabilities totaling $61.1 million. The most significant components of the
changes in operating assets and liabilities for the year ended December 31, 2014 of $61.1 million was a decrease in
accounts receivable of $68.5 million and a decrease in inventories of $22.6 million, offset by a decrease in other
liabilities of $22.0 million. The decrease in accounts receivable is primarily due to lower sales and higher collections
during the fourth quarter of 2014, compared to the fourth quarter of 2013, primarily driven by decreasing raw material
prices. Our other liabilities decreased mainly due to reductions in normal operating costs. Our operating cash flow for the
year ended December 31, 2014 was negatively impacted by two significant one-time cash payments in the second quarter
of 2014 totaling approximately $55.8 million related to the termination of our Latex JV Option Agreement with Dow and
56
our Advisory Agreement with Bain Capital. Refer to Note 18 of the consolidated financial statements for further
information.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2016 totaled $117.3 million, driven by
capital expenditures of $123.9 million during the period, a significant portion of which related to our project to upgrade
our legacy ERP environment to the latest version of SAP. Partially offsetting these capital expenditures were $1.8
million in proceeds received from the sale of our businesses in Brazil (refer to Note 3 in the consolidated financial
statements) and dividends received from Sumika Styron Polycarbonate during the period, $4.8 million of which were
classified as investing activities in the consolidated statement of cash flows, with the remaining $1.4 million classified as
operating activities. Note that in January 2017, the Company completed the sale of its 50% share in Sumika Styron
Polycarbonate to Sumitomo Chemical Company Limited for total sales proceeds of ¥4.9 billion (approximately $43.2
million). Refer to Note 24 in the consolidated financial statements for further information
Net cash used in investing activities for the year ended December 31, 2015 totaled $106.7 million, consisting
primarily of capital expenditures of $107.1 million during the period, net of proceeds received from a government
subsidy of $2.2 million related to our capital expansion project at our rubber facility in Schkopau, Germany.
Net cash used in investing activities for the year ended December 31, 2014 totaled $92.6 million consisting
primarily of capital expenditures of $98.6 million, of which approximately $26.1 million (€19.0 million) was related to
the Company’s acquisition of production capacity rights from JSR at its rubber production facility in Schkopau,
Germany. These investing activities were partially offset by cash proceeds of $6.3 million from the sale of a portion of
land at our manufacturing site in Livorno, Italy.
Financing Activities
Net cash used in financing activities during the year ended December 31, 2016 totaled $247.5 million. This
activity was primarily driven by $215.1 million of payments related to the repurchase of ordinary shares during the
period and $27.3 million in repayments of equity on ordinary shares (refer to Note 12 to the consolidated financial
statements), as well as $5.0 million of principal payments related to our 2021 Term Loan B.
Net cash used in financing activities during the year ended December 31, 2015 totaled $26.2 million. The most
significant activity during the period related to the May 2015 debt refinancing, which included net proceeds of
$1,215.4 million from the issuance of our 2021 Term Loan B and our 2022 Senior Notes, offset by the retirement of our
existing 2019 Senior Notes totaling $1,192.5 million and deferred financing fees paid in conjunction with the refinancing
of $28.2 million. Also during the period, we had net repayments of short-term borrowings of $18.4 million, which
largely consisted of borrowings under our short-term revolving credit facility through our subsidiary in China. On a
limited basis, we continued to utilize our Accounts Receivable Securitization Facility to fund our working capital
requirements. For the year ended December 31, 2015, we had borrowings from and repayments of our Accounts
Receivable Securitization Facility of $25.0 million.
Net cash provided by financing activities during the year ended December 31, 2014 totaled $8.1 million. During
the period, the Company completed the IPO of 11,500,000 ordinary shares at a price of $19.00 per share. As a result, the
Company received net cash proceeds from the issuance of ordinary shares of $198.1 million, which was net of
underwriting discounts as well as advisory, accounting, and legal expenses directly related to the offering. In July 2014,
using proceeds from the Company’s IPO, the Company redeemed $132.5 million in aggregate principal amount of the
2019 Senior Notes. In addition, we had net repayments of short-term borrowings of $56.9 million, which largely
consisted of borrowings under our short-term revolving credit facility through our subsidiary in China. We also
continued to utilize our Accounts Receivable Securitization Facility to fund our working capital requirements. For the
year ended December 31, 2014, we had borrowings from our Accounts Receivable Securitization Facility of $308.6
million and repayments of $309.2 million, resulting in net repayments of $0.6 million due to changes in foreign currency
exchange rates, as a portion of our borrowings under the Accounts Receivable Securitization Facility originate in euros.
Free Cash Flow
We use Free Cash Flow as a non-GAAP measure to evaluate and discuss the Company’s liquidity position and
results. Free Cash Flow is defined as cash from operating activities, less capital expenditures. We believe that Free Cash
57
Flow provides an important indicator of the Company’s ongoing ability to generate cash through core operations, as it
excludes the cash impacts of various financing transactions as well as cash flows from business combinations that are not
considered organic in nature. We also believe that Free Cash Flow provides management and investors with a useful
analytical indicator of our ability to service our indebtedness, make repayments of equity (when declared), and meet our
ongoing cash obligations.
Free Cash Flow is not intended to represent cash flows from operations as defined by GAAP, and therefore, should
not be used as an alternative for that measure. Other companies in our industry may define Free Cash Flow differently
than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may
use, to compare the liquidity and cash generation of those companies to our own. We compensate for these limitations by
providing a reconciliation to cash provided by operating activities, which is determined in accordance with GAAP.
(in millions)
Cash provided by operating activities
Capital expenditures
Free cash flow
2016
403.7
(123.9)
279.8
$
$
2015
353.2
(109.3)
243.9
$
$
$
$
2014
117.2
(98.6)
18.6
Year Ended
December 31,
Capital Resources, Indebtedness and Liquidity
We require cash principally for day-to-day operations, to finance capital investments and other initiatives, to
purchase materials and support other working capital requirements, to service our outstanding indebtedness, and to fund
repayments of equity to our shareholders, if and when the Company elects to declare them. Our sources of liquidity
include cash on hand, cash flow from operations and amounts available under the Senior Credit Facility and the
Accounts Receivable Securitization Facility (discussed further below).
As of December 31, 2016 and 2015, we had $1,187.4 million and $1,207.8 million, respectively, in outstanding
indebtedness and $890.7 million and $839.8 million, respectively, in working capital. In addition, as of December 31,
2016 and 2015, we had $88.8 million and $73.7 million, respectively, of foreign cash and cash equivalents on our
consolidated balance sheets, all of which is readily convertible into other foreign currencies, including the U.S. dollar.
Our intention is not to permanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred
income tax liabilities related to the unremitted earnings of our subsidiaries.
Refer to Note 10 in the consolidated financial statements for a detailed description of the Company’s debt
structure, borrowing rates, and expected future payment obligations.
The following table outlines our outstanding indebtedness as of December 31, 2016 and 2015 and the associated
interest expense, including amortization of deferred financing fees and debt discounts, and effective interest rates for
58
such borrowings as of and for the years ended December 31, 2016 and 2015. Note that the effective interest rates below
exclude the impact of deferred financing fee amortization.
(dollars in millions)
2018 Senior Secured Credit Facility
2018 Revolving Facility
Senior Credit Facility
2021 Term Loan B
2020 Revolving Facility
2019 Senior Notes
2022 Senior Notes
USD Notes
Euro Notes
Accounts Receivable Securitization
Facility
Other indebtedness
Total
As of and for the Year Ended
December 31, 2016
Effective
Interest
Rate
Interest
Expense
Balance
As of and for the Year Ended
December 31, 2015
Effective
Interest
Rate
Interest
Expense
Balance
$
—
—
$
— $
—
—
$
1.6
491.5
—
—
4.3 %
—
—
300.0
394.3
6.8 %
6.4 %
—
1.6
—
4.8 %
23.3
3.3
—
21.1
27.4
3.3
0.1
$
1,187.4
$
78.5 $
496.4
—
—
4.3 %
—
8.8 %
300.0
409.5
6.8 %
6.4 %
—
1.9
1,207.8
2.7 %
2.5 %
$
15.4
2.3
40.4
13.8
17.9
4.1
0.1
95.6
Our Senior Credit Facility includes the 2020 Revolving Facility, which matures in May 2020, and has a borrowing
capacity of $325.0 million. As of December 31, 2016, the Company had no outstanding borrowings, and had $309.1
million (net of $15.9 million outstanding letters of credit) of funds available for borrowings under the 2020 Revolving
Facility. Further, we note that, as of December 31, 2016, the Borrowers are required to pay a quarterly commitment fee
in respect of any unused commitments under the 2020 Revolving Facility equal to 0.375% per annum.
Also included in our Senior Credit Facility is our $500.0 million 2021 Term Loan B (maturing in November
2021), which requires scheduled quarterly payments in amounts equal to 0.25% of the original principal. During the year
ended December 31, 2016, the Company made principal payments of $5.0 million on the 2021 Term Loan B, with an
additional $5.0 million of scheduled future payments classified as current debt on the Company’s consolidated balance
sheet as of December 31, 2016.
Our 2022 Senior Notes (which include $300.0 million aggregate principal amount of 6.750% USD Notes and
€375.0 million aggregate principal amount of 6.375% Euro Notes) are issued under the Indenture and mature on May 1,
2022. Interest on the 2022 Senior Notes is payable semi-annually on May 1 and November 1 of each year, commencing
on November 1, 2015. The 2022 Senior Notes may be redeemed prior to their maturity at the option of the Company
under certain circumstances at specific redemption prices. Refer to Note 10 in the consolidated financial statements for
further information.
We also continue to maintain our Accounts Receivable Securitization Facility set to mature in May 2019, under
which our borrowing capacity is $200.0 million. As of December 31, 2016, there were no amounts outstanding under the
Accounts Receivable Securitization Facility, with approximately $126.5 million of funds available for borrowing under
this facility, based on the pool of eligible accounts receivable
The Senior Credit Facility and Indenture contain certain customary affirmative, negative and financial covenants.
As of December 31, 2016, the Company was in compliance with all of these debt covenant requirements. Refer to Note
10 in the consolidated financial statements for further information on the details of these covenant requirements.
Our ability to raise additional financing and our borrowing costs may be impacted by short- and long-term debt
ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by
certain credit metrics such as interest coverage and leverage ratios.
We and our subsidiaries, affiliates or significant direct or indirect shareholders may from time to time seek to retire
or purchase our outstanding debt through cash purchases in the open market, privately negotiated transactions, exchange
transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our
liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
59
Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the Issuers of our 2022 Senior Notes and
Borrowers under our Senior Credit Facility) are dependent upon the cash generation and receipt of distributions and
dividends or other payments from our subsidiaries and joint ventures in order to satisfy their debt obligations. There are
no known significant restrictions by third parties on the ability of subsidiaries of the Company to disburse or dividend
funds to the Issuers and the Borrowers in order to satisfy these obligations. However, as the Company’s subsidiaries are
located in a variety of jurisdictions, the Company can give no assurances that its subsidiaries will not face transfer
restrictions in the future due to regulatory or other reasons beyond our control.
As noted above, during the year ended December 31, 2016, the Company continued to generate strong cash flows
from operations. However, we can make no assurances that, in the future, our business will generate sufficient cash flow
from operations or that future borrowings will be available to us under the Senior Credit Facility in an amount sufficient
to enable us to pay our indebtedness, or to fund our other liquidity needs. In addition, our current indebtedness may limit
our ability to procure additional financing in the future. As of December 31, 2016 and 2015, we were in compliance with
all the covenants and default provisions under our debt agreements.
The Senior Credit Facility and Indenture also limit the ability of the Borrowers and Issuers, respectively, to pay
dividends or make other distributions to Trinseo S.A., which could then be used to make distributions to shareholders.
As discussed in Note 12 to the consolidated financial statements, during the year ended December 31, 2016, the
Company’s board of directors began declaring quarterly repayments of equity of $0.30 per ordinary share to its
shareholders for an aggregate value of $40.6 million. These repayments of equity are within the available capacity under
the terms of the restrictive covenants contained in the Senior Credit Facility and Indenture. Further, significant additional
capacity continues to be available under the terms of these covenants to support expected future repayments of equity to
shareholders, should the Company continue to declare them.
We believe that funds provided by operations, our existing cash and cash equivalent balances, borrowings
available under our 2020 Revolving Facility and borrowings available under our Accounts Receivable Securitization
Facility will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current
operating conditions.
Derivative Instruments
The Company’s ongoing global business operations expose it to fluctuating foreign exchange rates. To manage
this risk, the Company periodically enters into derivative financial instruments such as foreign exchange forward
contracts. A brief summary of these derivative financial instrument programs is described below; however, refer to
Note 11 of the consolidated financial statements for further information. The Company does not hold or enter into
financial instruments for trading or speculative purposes.
Foreign Exchange Forward Contracts
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional
currencies, which creates foreign exchange risk. Our principal strategy in managing exposure to changes in foreign
currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our consolidated balance
sheets 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 our
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.
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.
60
Net Investment Hedge
The Company’s outstanding debt includes €375.0 million of Euro Notes (discussed above). As of
December 31, 2016, the Company has designated a portion (€280.0 million) of the principal amount of these Euro Notes
as a hedge of the foreign currency exposure of the Issuers’ net investment in certain European subsidiaries.
Contractual Obligations and Commercial Commitments
The following table reflects our contractual obligations as of December 31, 2016. Amounts we pay in future
periods may vary from those reflected in the table (in millions):
Payments due by year
Contractual Obligations as
of December 31, 2016
Purchase commitments(1)
Long-term Indebtedness(2)
Interest payments on long-term debt(3)
Pension and other postretirement
benefits(4)
Minimum operating lease commitments
and other obligations(5)
Uncertain tax positions, including
interest and penalties(6)
Total
2017
$ 1,420.4
2018
$ 1,177.5
2019
$ 800.7
2020
$ 860.0
5.0
66.5
5.0
66.4
5.0
66.1
5.0
65.9
2021
Thereafter
Total
5.4 $
$
472.5
62.6
— $ 4,264.0
1,186.8
346.0
694.3
18.5
4.4
20.0
4.6
5.6
5.1
41.3
81.0
11.0
9.4
8.3
5.9
3.8
17.1
55.5
—
—
—
—
—
14.8
$ 1,507.3
$ 1,278.3
$ 884.7
$ 942.4
$ 549.4 $ 786.0
14.8
$ 5,948.1
(1) We have certain raw material purchase contracts where we are required to purchase certain minimum volumes at the
then prevailing market prices. These commitments range from 1 to 5 years. In certain raw material purchase
contracts, we have the right to purchase less than 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
obligations shown in the table above.
(2) As a part of the May 2015 refinancing, we redeemed our existing 2019 Senior Notes, replacing those borrowings
with a $500.0 million 2021 Term Loan B due November 2021, $300.0 million in USD Notes and €375.0 million in
Euro Notes, both due May 2022. The Euro Notes displayed in the table above were translated using the
December 31, 2016 spot exchange rate. The table above excludes other debt outstanding as of December 31, 2016
totaling $1.6 million.
(3) Includes estimated interest on the 2021 Term Loan B, USD Notes, and Euro Notes. Interest on the 2021 Term Loan
B is payable quarterly. Interest on the USD Notes and Euro Notes is payable semi-annually on May 1st and
November 1st of each year. For the 2021 Term Loan B, the expected interest payments included in the table above
assume that the LIBO rate continues to be below the 1.00% floor as described in the Senior Credit Facility. For the
Euro Notes, the expected interest payments included in the table above were translated using the December 31, 2016
spot exchange rate. Refer to Item 7A—Quantitative and Qualitative Disclosures about Market Risk for further
discussion of interest rate and foreign currency risks. Estimated interest payments do not include the 2020 Revolving
Facility or Accounts Receivable Securitization Facility as amounts outstanding under these facilities vary due to
periodic borrowings and repayments. There are no amounts outstanding under either facility as of December 31,
2016.
(4) Includes minimum contributions required to be made to the funded pension plans and expected benefit payments to
the employees for unfunded pension plans. With respect to our minimum funding requirements under our pension
obligations, we may elect to make contributions in excess of the minimum funding requirements in response to
investment performance or changes in interest rates or when we believe that it is financially advantageous to do so
and based on our other cash requirements. Our minimum funding requirements after 2016 will depend on several
factors, including investment performance and interest rates. Our minimum funding requirements may also be
affected by changes in applicable legal requirements. We also have payments due with respect to our postretirement
benefit obligations, which we do not fund in advance. Rather, payments are made as costs are incurred by covered
retirees. We expect benefit payments related to our postretirement benefit obligations to be $3.1 million through
2026. The payments identified above as subsequent to 2021 represent estimated pension and postretirement
61
payments from 2022 through 2026. Also included in the above is a $15.5 million expected benefit obligation for
payments estimated to be payable in 2018 under the Company’s non-qualified supplemental employee retirement
plan. Refer to Note 16 in the consolidated financial statements for further information.
(5) Excludes certain estimated future commitments under agreements with Dow, including the SAR MOSA, under
which Dow provides administrative and operational services to us, and the 25-year SAR SSAs, under which Dow
provides utilities and site services to certain of our facilities co-located with Dow. For more information regarding
these agreements, refer to Item 1— Business— Our Relationship with Dow.
The services provided pursuant to the SAR MOSA generally are priced per function, and we have the ability to
terminate the services or any portion thereof, for convenience any time after June 1, 2015, subject to payment of
termination charges. Services which are “highly integrated” follow a different process for evaluation and
termination. In addition, either party may terminate for cause, which includes a bankruptcy, liquidation or similar
proceeding by the other party, for material breach which is not cured, or by Dow in the event of our failure to pay
for the services thereunder. In the event of a change of control, as defined in the agreement, Dow has the right to
terminate the SAR MOSA. As of December 31, 2016, we estimate our minimum obligation under the SAR MOSA
to be approximately $22.6 million. Utilizing current year known costs and assuming that we continue with this
agreement through its completion on December 31, 2020, we estimate our contractual obligations for the SAR
MOSA to be approximately $47.0 million annually for 2017 through 2020.
Additionally, the SAR SSAs may be terminated at any time by agreement of the parties, or, by either party, for
cause, including a bankruptcy, liquidation or similar proceeding by the other party, or under certain circumstances
for a material breach which is not cured. We may also terminate for convenience any services that Dow has agreed
to provide to us that are identified in any site services agreement as “terminable” with 12 months prior notice to
Dow, dependent upon whether the service is highly integrated into Dow operations. Highly integrated services are
agreed to be nonterminable. With respect to “nonterminable” services that Dow has agreed to provide to us, such as
electricity and steam, we generally cannot terminate such services prior to the termination date unless we experience
a production unit shut down for which we provide Dow with 15-months prior notice, or upon payment of a
shutdown fee. Upon expiration or termination, we would be obligated to pay a monthly fee to Dow, which
obligation extends for a period of 45 (in the case of expiration) to 60 months (in the case of termination) following
the respective event of each site services agreement. The agreements under which Dow receives services from us
may be terminated under the same circumstances and conditions. Utilizing current year known costs and assuming
that we continue with these agreements, we estimate our contractual obligations for the SAR SSAs to be
approximately $173.9 million annually for 2017 through 2021, and a total of $2,864.3 million thereafter through
June 2038.
Refer to Note 18 in the consolidated financial statements for further information.
(6) Due to uncertainties in the timing of the effective settlement of tax positions with the respective taxing authorities,
we are unable to determine the timing of payments related to its uncertain tax positions, including interest and
penalties. Amounts are therefore reflected in “Thereafter”.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition are based upon our financial
statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires
us to make estimates and judgments that affect the amounts reported. We base these estimates and judgments on
historical experiences and assumptions believed to be reasonable under the circumstances. Actual results could vary from
our estimates under different conditions. Our significant accounting policies, which may be affected by our estimates and
assumptions, are more fully described in Note 2 in the consolidated financial statements. An accounting policy is deemed
to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly
uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in
the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial
statements. The following critical accounting policies reflect our most significant estimates and assumptions used in the
preparation of the consolidated financial statements.
62
Pension Plans and Postretirement Benefits
We have various company-sponsored retirement plans covering substantially all employees. We also provide
certain health care and life insurance benefits to retired employees mainly in the United States. Prior to the divestiture of
our latex binders and automotive businesses in Brazil (refer to Note 3 in the consolidated financial statements), we also
provided health care and life insurance benefits to retired employees in Brazil. The U.S.-based plan provides health care
benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits.
We recognize the underfunded or overfunded status of a defined benefit pension or postretirement plan as an asset or
liability in our consolidated balance sheets and recognize changes in the funded status in the year in which the changes
occur through accumulated other comprehensive income (“AOCI”), which is a component of shareholders’ equity.
A settlement is a transaction that is an irrevocable action that relieves the employer (or the plan) of primary
responsibility for a pension or postretirement benefit obligation, and that eliminates significant risks related to the
obligation and the assets used to effect the settlement. The Company does not record settlement gains or losses during
interim periods when the cost of all settlements in a year is less than or equal to the sum of the service cost and interest
cost components of net periodic pension cost for the plan in that year.
Pension benefits associated with these plans are generally based on each participant’s years of service,
compensation, and age at retirement or termination. The discount rate is an important element of expense and liability
measurement. We evaluate our assumptions at least once each year, or as facts and circumstances dictate, and make
changes as conditions warrant.
We determine the discount rate used to measure plan liabilities as of the December 31 measurement date for the
pension and postretirement benefit plans. The discount rate reflects the current rate at which the associated liabilities
could be effectively settled at the end of the year. We set our rate to reflect the yield of a portfolio of high quality, fixed-
income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future
benefits. Using this methodology, we determined a weighted-average discount rate of 1.65% for pension and 4.16% for
postretirement benefits to be appropriate as of December 31, 2016.
In 2016, we changed the method used to estimate the future service and interest cost components of net periodic
benefit cost for our defined benefit pension and other postretirement benefit plans. Historically, we estimated the future
service and interest cost components using a single weighted
average discount rate derived from the yield curve that was
used to measure the benefit obligation at the beginning of the period. For 2017 and beyond, we have elected to use a full
‐
yield curve approach in the estimation of these components of benefit cost by applying the specific spot rates along the
yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We have made this
change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and
to provide a more precise measurement of service and interest costs. This change does not affect the measurement of our
total benefit obligations, as the change in the service cost and interest cost is entirely offset in the actuarial loss reported.
We have accounted for this as a change in estimate and, accordingly, will apply it prospectively, beginning in the first
quarter of 2017.
The weighted-average discount rates that we used to measure service cost for pension and postretirement plans
during 2017 were 1.63% and 4.18%, respectively. The weighted-average discount rates that we used to measure interest
cost for pension and postretirement plans during 2017 were 1.42% and 3.81%, respectively. Had we not changed our
estimation approach, we would have utilized the liability discount rates mentioned above (1.65% for pension and 4.16%
for postretirement benefits) to determine future service and interest cost. The expected reductions in service cost and
interest cost for 2017 associated with this change are not expected to be material to the consolidated financial statements.
We determine the expected long-term rate of return on assets by performing a detailed analysis of historical and
expected returns based on the underlying assets, which generally are insurance contracts. We also consider our historical
experience with the pension fund asset performance. The expected return of each asset class is derived from a forecasted
future return confirmed by current and historical experience. The weighted-average long-term rate of return assumptions
used for determining net periodic pension expense were 1.79% and 1.73% for 2016 and 2015, respectively. The increase
was primarily due to higher interest rates during 2016 on certain assets with guaranteed returns. Future actual pension
expense will depend on the performance of the underlying assets and changes in future discount rates, among other
factors.
63
Holding all other factors constant, a 0.25 percentage point increase (decrease) in the discount rate used to
determine net periodic cost would decrease (increase) 2016 pension expense by approximately $2.0 million and $(1.9)
million, respectively. Holding all other factors constant, a 0.25 percentage point increase (decrease) in the long-term rate
of return on assets used to determine net periodic cost would decrease (increase) 2016 pension expense by approximately
$0.3 million and $(0.3) million, respectively.
Plan assets are invested primarily in insurance contracts that provide for guaranteed returns. As of December 31,
2016 and 2015, respectively, plan assets totaled $114.2 million and $100.5 million. Investments in the pension plan
insurance are valued utilizing unobservable inputs, which are contractually determined based on cash surrender values,
returns, fees, and the present value of the future cash flows of the contracts, and are classified as Level 3 investments.
Stock-Based Compensation
2014 Omnibus Incentive Plan
In connection with the IPO, the Company’s board of directors approved and adopted the Trinseo S.A. 2014
Omnibus Incentive Plan (“2014 Omnibus Plan”), under which 4.5 million ordinary shares is the maximum number that
may be delivered upon satisfaction of awards granted. Following the IPO, all equity-based awards granted by the
Company have been granted under the 2014 Omnibus Plan, which provides for awards of stock options, share
appreciation rights, restricted stock, unrestricted stock, stock units, performance awards, cash awards and other awards
convertible into or otherwise based ordinary shares of the Company. Since the IPO, the board of directors of the
Company has approved equity award grants for certain directors, executives, and employees, including restricted share
units (or RSUs) and options to purchase shares (or options awards).
Compensation costs for the RSUs are measured at the grant date based on the fair value of the award and are
recognized ratably as expense over the applicable vesting term. Prior to November 2016, dividend and dividend
equivalents did not accumulate on unvested RSUs. In November 2016, the board of directors approved an amendment to
all outstanding RSUs, entitling each award holder to an amount equal to any cash dividend or repayment of equity paid
by the Company upon one ordinary share for each RSU held by the award holder (“dividend equivalents”). The dividend
equivalents earned on the RSUs only include dividends or repayments of equity paid after this amendment and the award
holders have no right to receive the dividend equivalents unless and until the associated RSUs vest. The dividend
equivalents will be payable in cash and will not accrue interest. The impact of this amendment is immaterial to the
consolidated financial statements.
The fair value of RSUs is equal to the fair market value of the Company’s ordinary shares based on the closing
price on the date of grant.
Compensation cost for the option awards is measured at the date of grant date based on the fair value of the award
and is recognized as expense over the appropriate service period utilizing graded vesting. The fair value for option
awards is computed using the Black-Scholes pricing model, whose significant inputs and assumptions are determined as
of the date of grant. Determining the fair value of the option awards requires considerable judgment, including
estimating the expected term of option awards and the expected volatility of the price of the Company’s ordinary shares.
Since the Company’s equity interests were privately held prior to the IPO in June 2014, there is limited publicly
traded 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 all grants of option awards presented herein, 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.
Effective April 1, 2016, the Company adopted new accounting guidance that simplifies several aspects of
accounting for share-based payments. Among other things, as part of this adoption, the Company made an accounting
policy election to recognize forfeitures as incurred, rather than estimating the forfeitures in advance. The impact of this
change was applied utilizing a modified retrospective approach, with an adjustment of $0.9 million recorded during the
64
year ended December 31, 2016 to decrease opening retained earnings and increase opening additional paid-in-capital. All
other impacts of this adoption were not material to the Company’s financial position and results of operations.
Restricted Stock Awards issued by the former Parent
From 2010 through 2013, the former Parent granted various time-based and performance-based restricted stock
awards to certain key members of management. Any related compensation associated with these awards is allocated to
the Company from the former Parent. With the adoption of the Company’s 2014 Omnibus Plan, discussed above,
restricted stock awards have not been issued by the former Parent on behalf of the Company.
During 2016, the former Parent completed the sale of its ordinary shares of the Company through secondary
offerings, and as a result, no longer holds any ownership interest in the Company. Refer to Note 12 in the consolidated
financial statements for further information. Given that the former Parent sold its interest in the substantive assets of the
Company, under the terms of the related securityholder agreements, vesting of all outstanding restricted stock awards
was fully accelerated into the year ended December 31, 2016. No additional expense is expected in future periods related
to these awards.
Asset Impairments
As of December 31, 2016, net property, plant and equipment, net identifiable finite-lived intangible assets, and
goodwill totaled $513.8 million, $177.3 million, and $29.5 million, respectively. Management makes estimates and
assumptions in preparing the consolidated financial statements for which actual results will emerge over long periods of
time. This includes the recoverability of long-lived assets employed in the business. These estimates and assumptions are
closely monitored by management and periodically adjusted as circumstances warrant. For instance, expected asset lives
may be shortened or impairment may be recorded based on a change in the expected use of the asset or performance of
the related asset group.
We evaluate long-lived assets and identifiable finite-lived intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset or asset grouping may not be recoverable. When
undiscounted future cash flows are not expected to be sufficient to recover an asset’s carrying value, the asset is written
down to its fair value based on a discounted cash flow analysis utilizing market participant assumptions.
In August 2016, we announced our plan to cease manufacturing activities at the Company’s latex binders
manufacturing facility in Livorno, Italy. As a result, we determined that the long-lived assets at this facility, which
included land and depreciable long-lived assets, should be assessed for impairment. This assessment indicated that the
carrying value of the asset group was not recoverable when compared to the expected undiscounted cash flows from the
operation and eventual disposition of these assets. The fair value of the depreciable assets was determined under the
income approach, utilizing a discounted cash flow model. The key assumption in this model was cash flow projections,
which were determined to be nil, as the plant ceased manufacturing operations in October 2016. The fair value of the
land was determined utilizing a combination of the market and income approaches, utilizing key inputs such as recent
comparable market transactions, expected date of sale, and discount rate. Based upon this assessment, for the year ended
December 31, 2016, we recorded an impairment loss of approximately $13.7 million. The amount was included in
“Selling, general and administrative expenses” in the consolidated statement of operations and was allocated entirely to
the Latex Binders segment.
Through December 31, 2016, we have continued to assess the recoverability of certain assets, and concluded there
are no additional events or circumstances identified by management that would indicate these assets are not recoverable.
However, the current environment is subject to changing market conditions and requires significant management
judgment to identify the potential impact to our assessment. If we are not able to achieve certain actions or our future
operating results do not meet our expectations, it is possible that impairment charges may need to be recorded on one or
more of our operating facilities.
Long-lived assets to be disposed of by sale are classified as held-for-sale and are reported at the lower of carrying
amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of in a manner other
than by sale are classified as held-and-used until they are disposed.
Our goodwill impairment testing is performed annually as of October 1st at a reporting unit level. We perform
more frequent impairment tests when events or changes in circumstances indicate that the fair value of a reporting unit
65
has more likely than not declined below its carrying value. As of our annual assessment date of October 1, 2016, which
reflects our new segmentation discussed above, each of our reporting units had fair values that substantially exceeded the
carrying value of their net assets, indicating that no impairment of goodwill is warranted.
An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets
exceeds the estimated fair value of the reporting unit. The estimated fair value of a reporting unit is determined using a
market approach and an income approach (under the discounted cash flow method). When supportable, the Company
employs the qualitative assessment of goodwill impairment prescribed by ASC 350. As of December 31, 2016, our $29.5
million in total goodwill is allocated to our reportable segments as follows: $11.5 million to Latex Binders, $8.2 million
to Synthetic Rubber, $4.2 million to Performance Plastics, and $5.6 million to Basic Plastics, with no amounts allocated
to the Feedstocks or Americas Styrenics segments.
Factors which could result in future impairment charges, among others, include changes in worldwide economic
conditions, changes in technology, changes in competitive conditions and customer preferences, and fluctuations in
foreign currency exchange rates. These factors are discussed in Item 7A—Quantitative and Qualitative Disclosures
about Market Risk and Item 1A— Risk Factors included in this Annual Report.
Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities using enacted rates. The effect of a change in tax rates on deferred taxes is recognized in
income in the period that includes the enactment date. Deferred taxes are provided on the outside basis differences and
unremitted earnings of subsidiaries outside of Luxembourg. All undistributed earnings of foreign subsidiaries and
affiliates are expected to be repatriated as of December 31, 2016. Based on the evaluation of available evidence, both
positive and negative, we recognize future tax benefits, such as net operating loss carryforwards and tax credit
carryforwards, to the extent that realizing these benefits is considered to be more likely than not.
As of December 31, 2016, we had deferred tax assets of $70.3 million, after valuation allowances of $112.6
million. In evaluating the ability to realize the deferred tax assets, we rely on, in order of increasing subjectivity, taxable
income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies
and forecasted taxable income using historical and projected future operating results.
As of December 31, 2016, we had deferred tax assets for tax loss carryforward of approximately $404.6 million,
$47.3 million of which is subject to expiration in the years between 2017 and 2021. We continue to evaluate our
historical and projected operating results for several legal entities for which we maintain valuation allowances on net
deferred tax assets.
We are subject to income taxes in Luxembourg, the United States and numerous foreign jurisdictions, and are
subject to audit within these jurisdictions. Therefore, in the ordinary course of business there is inherent uncertainty in
quantifying our income tax positions. The tax provision includes amounts considered sufficient to pay assessments that
may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues
raised may differ from the amounts accrued. Since significant judgment is required to assess the future tax consequences
of events that have been recognized in our financial statements or tax returns, the ultimate resolution of these events
could result in adjustments to our financial statements and such adjustments could be material. Therefore, we consider
such estimates to be critical in preparation of our financial statements.
The financial statement effect of an uncertain income tax position is recognized when it is more likely than not,
based on the technical merits, that the position will be sustained upon examination. Accruals are recorded for other tax
contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the
contingency can be reasonably estimated. Uncertain income tax positions have been recorded in “Other noncurrent
obligations” in the consolidated balance sheets for the periods presented.
Management judgment is required in determining our provision for income taxes, our deferred tax assets and
liabilities, and any valuation allowance recorded against our deferred tax assets. The valuation allowance is based on our
estimates of future taxable income and the period over which we expect the deferred tax assets to be recovered. Our
assessment of future taxable income is based on historical experience and current and anticipated market and economic
conditions and trends. In the event that actual results differ from these estimates or we adjust our estimates in the future,
we may need to adjust our valuation allowance, which could materially impact our financial position and results of
operations.
66
We do not have any off-balance sheet arrangements.
Off-balance Sheet Arrangements
Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note 2 to the consolidated financial statements,
included elsewhere within this Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain
operations through fixed and variable rate debt instruments and denominate our transactions in a variety of foreign
currencies. We are also exposed to changes in the prices of certain commodities that we use in production. Changes in
these rates and commodity prices may have an impact on future cash flow and earnings. We manage these risks through
normal operating and financing activities and, when deemed appropriate, through the use of derivative financial
instruments. We do not enter into financial instruments for trading or speculative purposes.
By using derivative instruments, we are subject to credit and market risk. The fair market value of the derivative
instruments is determined by using valuation models whose inputs are derived using market observable inputs, including
interest rate yield curves, as well as foreign exchange and commodity spot and forward rates, and reflects the asset or
liability position as of the end of each reporting period. When the fair value of a derivative contract is positive, the
counterparty owes us, thus creating a receivable risk for us. We are exposed to counterparty credit risk in the event of
non-performance by counterparties to our derivative agreements. We minimize counterparty credit (or repayment) risk
by entering into transactions with major financial institutions of investment grade credit rating.
Our exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market
conditions on earnings or cash flow.
Interest Rate Risk
Given the Company’s debt structure (refer to Note 10 in the consolidated financial statements), we have certain
exposure to changes in interest rates.
The 2021 Term Loan B bears an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor. Based on
weighted-average outstanding borrowings under the 2021 Term Loan B throughout the year ended December 31, 2016,
an increase in 100 basis points in the LIBO rate would have resulted in approximately $3.7 million of additional interest
expense for the period.
Loans under the 2020 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). As of December 31, 2016, the Borrowers are required to pay
a quarterly commitment fee in respect of any unused commitments under the 2020 Revolving Facility equal to 0.375%
per annum. As of and throughout the year ended December 31, 2016, we had no variable rate debt issued under our 2020
Revolving Facility. As such, we incurred no variable rate interest related to this facility during the year ended December
31, 2016.
Our Accounts Receivable Securitization Facility is subject to interest charges against both the amount of
outstanding borrowings as well as the amount of available, but undrawn commitments under the facility. Fixed interest
charges on outstanding borrowings for this facility are 2.6% plus variable commercial paper rates which vary by month
and by currency, as outstanding balances can be denominated in euro and U.S. dollar. Fixed interest charges on
available, but undrawn commitments for this facility are 1.4%. As of and throughout the year ended December 31, 2016,
we had no variable rate debt issued under our Accounts Receivable Securitization Facility. As such, we incurred no
variable rate interest related to this facility during the year ended December 31, 2016.
67
Foreign Currency Risks
The Company’s ongoing business operations expose it to foreign currency risks, including fluctuating foreign
exchange rates. Our primary foreign currency exposure is to the U.S. dollar to euro, noting that approximately 60% of
our net sales were generated in Europe for the year ended December 31, 2016. To a lesser degree, we are also exposed to
other currencies, including the Chinese yuan, Swiss franc, and Indonesian rupiah. To manage these risks, the Company
periodically enters into derivative financial instruments such as foreign exchange forward contracts.
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional
currencies, which creates foreign exchange risk. Our principal strategy in managing exposure to changes in foreign
currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our consolidated balance
sheets 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 our
exposure, we also use 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.
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 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.
We have legal entities consolidated in our financial statements that have functional currencies other than U.S.
dollar, our reporting currency. As a result of currencies fluctuating against the U.S. dollar, currency translation gains and
losses are recorded in other comprehensive income, primarily as a result of the remeasurement of our euro functional
legal entities as of December 31, 2016 and 2015.
Commodity Price Risk
We purchase certain raw materials such as benzene, ethylene, butadiene, BPA and styrene under short- and long-
term supply contracts. The purchase prices are generally determined based on prevailing market conditions. We mitigate
against the instability of commodity prices by passing higher raw material costs through to our customers by raising our
prices or including provisions in our contracts that allow us to increase prices in such a circumstance or by including
pricing formulas which utilize commodity indices. While the Company may experience some volatility in earnings and
cash flows due to the lag in passing through raw material costs, we do not believe these temporary lags create a material
risk to us over the next year. Nevertheless, even when raw material costs may be passed on easily to our customers,
during periods of high volatility customers without minimum purchase requirements with us may choose to delay
purchases of our materials or, in some cases, substitute purchases of our materials with less costly products.
We do not currently enter into derivative financial instruments for trading or speculative purposes to manage our
commodity price risk relating to our raw material contracts.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by Regulation S-X are included in Item 15- Exhibits,
Financial Statements Schedules contained in Part IV of this Annual Report.
68
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures designed to
provide reasonable assurance that information required to be disclosed by us in our reports that we file or submit under
the Exchange Act (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, with
the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Company’s disclosure controls and procedures as of December 31, 2016. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period
covered by this Annual Report were effective to provide the reasonable level of assurance described above.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures
may deteriorate.
Management conducted an assessment of the Company’s internal control over financial reporting as of
December 31, 2016 based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of
December 31, 2016, the Company’s internal control over financial reporting is effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
which appears herein.
Changes in Internal Control over Financial Reporting
In 2015, the Company began a two-year project to upgrade our legacy ERP environment to an updated version of
SAP through a phased implementation approach. As of December 31, 2016, we have completed this migration, including
our North America, Asia Pacific, and European operations. In connection with this implementation, we have updated the
processes that constitute our internal control over financial reporting, as necessary, to accommodate related changes to
our business processes. The Company believes we have maintained appropriate internal controls during this phased
implementation.
There have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) of the Exchange Act) that occurred during the quarter ended December 31, 2016 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
69
Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is incorporated herein by reference from the sections captioned “Election
of Directors,” “Corporate Governance,” “Stock Ownership Information,” and “Section 16(a) Beneficial Ownership
Reporting Compliance” of the Company’s definitive proxy statement for the 2017 annual general meeting of
shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934 (the “2017 Proxy Statement”).
Code of Ethics
The Company has adopted a Code of Business Conduct applicable to all of our directors, officers and employees,
and a Code of Ethics for Senior Financial Employees applicable to our principal executive, financial and accounting
officers, and all persons performing similar functions. A copy of each of those Codes is available on the Company’s
corporate website at www.trinseo.com under Investor Relations—Corporate Governance—Ethics and Compliance. If we
make any substantive amendments to these Codes, or grant any waivers, including any implicit waivers from the
provisions of these Codes, we will make a disclosure on our website or in a report on Form 8-K. Our Code of Business
of Conduct is supported by a number of subsidiary policies which are specifically referenced in the Code, and several of
which are also available on our corporate website. Our website and the information contained on that site, or accessible
through that site, are not incorporated into and are not a part of this Annual Report.
Item 11. Executive Compensation
The information required by this Item 11 will be contained in our 2017 Proxy Statement and is incorporated by
reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 will be contained in our 2017 Proxy Statement and is incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 will be contained in our 2017 Proxy Statement and is incorporated by
reference herein.
Item 14. Principal Accounting Fees and Services
The information required by this Item 14 will be contained in our 2017 Proxy Statement and is incorporated by
reference herein.
70
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Financial statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Operations for the years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015, and
2014
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements for the years ended December 31, 2016, 2015, and 2014
Financial Statement Schedule – Schedule II. Valuation and Qualifying Accounts
Americas Styrenics LLC
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Members’ Equity for the years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements for the years ended December 31, 2016, 2015, and 2014
2. Exhibits, as listed in the exhibit index to this report.
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-56
F-57
F-58
F-59
F-60
F-61
F-62
71
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 1, 2017
TRINSEO S.A.
/s/ Christopher D. Pappas
By:
Name: Christopher D. Pappas
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
Signature
Title
/s/ Christopher D. Pappas President and Chief Executive Officer
Christopher D. Pappas
(Principal Executive Officer)
/s/ Barry J. Niziolek
Barry J. Niziolek
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Ryan J. Leib
Ryan J. Leib
Corporate Controller
(Principal Accounting Officer)
/s/ Jeffrey J. Cote
Jeffrey J. Cote
Director
/s/ Pierre-Marie De
Leener
Pierre-Marie De Leener
Director
/s/ Philip R. Martens
Philip R. Martens
Director
/s/ Donald T. Misheff
Donald T. Misheff
Director
/s/ Michel G. Plantevin
Michel G. Plantevin
Director
/s/ Ruth Springham
Ruth Springham
Director
/s/ Stephen F. Thomas
Stephen F. Thomas
Director
/s/ Stephen M. Zide
Stephen M. Zide
Director
72
Date
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Operations for the years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015, and
2014
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements for the years ended December 31, 2016, 2015, and 2014
Financial Statement Schedule – Schedule II. Valuation and Qualifying Accounts
Americas Styrenics LLC*
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Members’ Equity for the years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements for the years ended December 31, 2016, 2015, and 2014
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-56
F-57
F-58
F-59
F-60
F-61
F-62
* The audited financial statements of Americas Styrenics LLC as of December 31, 2016 and 2015 and for the years
ended December 31, 2016, 2015 and 2014 have been included in this Annual Report in accordance with the
requirements of Rule 3-09 of Regulation S-X.
F-1
To the Board of Directors and Shareholders of Trinseo S.A.
Report of Independent Registered Public Accounting Firm
In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of comprehensive income (loss), of shareholders’ equity and of cash flows
present fairly, in all material respects, the financial position of Trinseo S.A. and its subsidiaries at December 31, 2016 and
December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on
Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial
statements, the financial statement schedule, and on the Company's internal control over financial reporting based on our audits
(which were integrated audits in 2016 and 2015). We did not audit the financial statements of Americas Styrenics LLC, a 50-
percent-owned equity investment of Trinseo S.A. as of December 31, 2016 and December 31, 2015 or for the years then ended.
Trinseo S.A.’s consolidated financial statements reflect an investment in unconsolidated affiliates for Americas Styrenics LLC
of $149.7 million as of December 31, 2016 and $143.9 million as of December 31, 2015 and includes equity in the earnings of
unconsolidated affiliates for Americas Styrenics LLC of $135.8 million for the year ended December 31, 2016 and $135.3
million for the year ended December 31, 2015. The financial statements of Americas Styrenics LLC were audited by other
auditors whose report thereon has been furnished to us, and our opinion on the December 31, 2016 and December 31, 2015
consolidated financial statements expressed herein, insofar as it relates to the amounts included for Americas Styrenics LLC, is
based solely on the report of the other auditors. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable
basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it classifies
deferred financing fees in 2016.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 1, 2017
F-2
TRINSEO S.A.
Consolidated Balance Sheets
(In thousands, except per share data)
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net of allowance
Inventories
Other current assets
Total current assets
Investments in unconsolidated affiliates
Property, plant and equipment, net
Other assets
Goodwill
Other intangible assets, net
Deferred income tax assets—noncurrent
Deferred charges and other assets
Total other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings and current portion of long-term debt
Accounts payable
Income taxes payable
Accrued expenses and other current liabilities
Total current liabilities
Noncurrent liabilities
Long-term debt, net of unamortized deferred financing fees
Deferred income tax liabilities—noncurrent
Other noncurrent obligations
Total noncurrent liabilities
Commitments and contingencies (Note 15)
Shareholders’ equity
Ordinary shares, $0.01 nominal value, 50,000,000 shares authorized
(December 31, 2016: 48,778 shares issued and 44,301 shares outstanding; December
31, 2015: 48,778 shares issued and outstanding)
Additional paid-in-capital
Treasury shares, at cost (December 31, 2016: 4,477 shares; December 31, 2015: zero
shares)
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2016
2015
$ 465,114
564,428
385,345
17,999
1,432,886
191,418
513,757
$
431,261
494,556
353,097
10,120
1,289,034
182,836
518,751
29,485
177,345
40,187
24,412
271,429
31,064
158,218
51,395
27,596
268,273
$ 2,409,490 $ 2,258,894
$
$
5,000
378,029
23,784
135,357
542,170
5,000
324,629
20,804
98,836
449,269
1,160,369
24,844
237,054
1,422,267
1,177,120
25,764
217,727
1,420,611
488
573,662
488
556,532
(217,483)
258,540
(170,154)
445,053
$ 2,409,490
—
(18,289)
(149,717)
389,014
$ 2,258,894
The accompanying notes are an integral part of these consolidated financial statements.
F-3
TRINSEO S.A.
Consolidated Statements of Operations
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Equity in earnings of unconsolidated affiliates
Operating income
Interest expense, net
Loss on extinguishment of long-term debt
Other expense, net
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Weighted average shares- basic
Net income (loss) per share- basic
Weighted average shares- diluted
Net income (loss) per share- diluted
Repayments of equity per share
2016
Year Ended December 31,
2015
3,716,640
3,129,014
587,626
241,543
144,733
490,816
74,968
—
10,539
405,309
86,997
318,312
46,510
6.84
47,478
6.70
0.90
$
$
$
$
$
3,971,902
3,502,800
469,102
207,964
140,178
401,316
93,197
95,150
9,113
203,856
70,209
133,647
48,774
2.74
48,970
2.73
—
$
$
$
$
$
2014
5,127,961
4,830,640
297,321
232,586
47,749
112,484
124,923
7,390
27,784
(47,613)
19,719
(67,332)
43,476
(1.55)
43,476
(1.55)
—
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TRINSEO S.A.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands, unless otherwise stated)
Net income (loss)
Other comprehensive income (loss), net of tax (tax amounts
shown in millions below for 2016, 2015, and 2014,
respectively):
Cumulative translation adjustments
Net gain on foreign exchange cash flow hedges
Pension and other postretirement benefit plans:
Prior service credit arising during period (net of tax of $0,
$0.2, and $3.2)
Net gain (loss) arising during period (net of tax of
$(7.3), $2.8, and $(15.1))
Amounts reclassified from accumulated other
comprehensive income (loss)
Total other comprehensive loss, net of tax
Comprehensive income (loss)
Year Ended December 31,
$
2016
318,312 $
2015
133,647
2014
(67,332)
$
(9,802)
6,703
(91,365)
5,569
(133,901)
—
—
(20,596)
3,222
4,716
9,529
(42,442)
3,258
(20,437)
297,875
$
$
3,358
(74,500)
59,147
3,219
(163,595)
(230,927)
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
TRINSEO S.A.
Consolidated Statements of Shareholders’ Equity
(In thousands, except per share data)
Shares
Shareholders' Equity
Ordinary
Shares
Outstanding
37,270
Treasury
Shares
Ordinary
Shares
Additional
Paid-In
Capital
Treasury
Shares
— $ 373 $ 339,055 $
— $
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
(Accumulated
Deficit)
88,378 $ (84,604)$ 343,202
Total
11,500
—
—
—
48,770
—
—
—
—
—
115 197,974
—
—
—
—
— 10,501
—
— $ 488 $ 547,530 $
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
(163,595)
—
(67,332)
198,089
(67,332)
— (163,595)
—
— 10,501
(75,217) $ (151,936)$ 320,865
133,647
133,647
(74,500)
—
(74,500)
—
8
48,778
—
— $ 488 $ 556,532 $
— 9,002
—
— $ (149,717) $
—
—
9,002
(18,289)$ 389,014
—
—
—
—
—
—
—
—
—
915
—
—
—
—
—
—
—
(20,437)
(915)
318,312
—
318,312
— (20,437)
27
(27)
(4,504) 4,504
— 16,215
—
961
— (218,444)
—
—
—
17,176
— (218,444)
—
—
44,301 4,477
—
(40,568)
$ 488 $ 573,662 $ (217,483)$ (170,154)$ 258,540 $ 445,053
(40,568)
—
—
—
Balance at December 31, 2013
Issuance of ordinary shares
(Note 12)
Net loss
Other comprehensive loss
Stock-based compensation
activity
Balance at December 31, 2014
Net income
Other comprehensive loss
Stock-based compensation
activity
Balance at December 31, 2015
Adoption of new accounting
standard(1)
Net income
Other comprehensive loss
Stock-based compensation
activity
Purchase of treasury shares
Repayments of equity on
ordinary shares ($0.90 per
share)
Balance at December 31, 2016
(1) Refer to Notes 2 and 17 for discussion of adoption of Accounting Standards Update 2016-09.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
TRINSEO S.A.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2015
2014
2016
$
318,312
$
133,647
$
(67,332)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization
Amortization of deferred financing fees and issuance discount
Deferred income tax
Stock-based compensation expense
Earnings of unconsolidated affiliates, net of dividends
Unrealized net losses (gains) on foreign exchange forward
contracts
Contingent gain on sale of business
Loss on extinguishment of debt
Prepayment penalty on long-term debt
Loss on sale of businesses and other assets
Impairment charges
Changes in assets and liabilities
Accounts receivable
Inventories
Accounts payable and other current liabilities
Income taxes payable
Other assets, net
Other liabilities, net
Cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Proceeds from capital expenditures subsidy
Proceeds from the sale of businesses and other assets
Payment for working capital adjustment from sale of business
Distributions from unconsolidated affiliates
Increase in restricted cash
Cash used in investing activities
Cash flows from financing activities
Proceeds from initial public offering, net of offering costs
Deferred financing fees
Short-term borrowings, net
Repayments of term loans
Purchase of treasury shares
Repayments of equity on ordinary shares
Proceeds from exercise of option awards
Withholding taxes paid on restricted share units
Net proceeds from issuance of 2021 Term Loan B
Net proceeds from issuance of 2022 Senior Notes
Repayments of 2019 Senior Notes
Proceeds from Accounts Receivable Securitization Facility
Repayments of Accounts Receivable Securitization Facility
Cash provided by (used in) financing activities
Effect of exchange rates on cash
Net change in cash and cash equivalents
Cash and cash equivalents—beginning of period
Cash and cash equivalents—end of period
Supplemental disclosure of cash flow information
Cash paid for income taxes, net of refunds
Cash paid for interest, net of amounts capitalized
Accrual for property, plant and equipment
$
$
$
$
96,459
5,817
16,088
17,061
(13,391)
3,192
—
—
—
14,928
15,113
(96,398)
(50,966)
57,115
3,784
5,394
11,150
403,658
(123,873)
—
1,974
—
4,809
(204)
(117,294)
—
—
(253)
(5,000)
(215,083)
(27,316)
214
(98)
—
—
—
—
—
(247,536)
(4,975)
33,853
431,261
465,114
66,623
69,357
35,581
96,752
7,662
(77)
9,002
(15,182)
(8,953)
—
95,150
(68,603)
—
—
65,123
97,151
(71,907)
12,019
3,166
(1,701)
353,249
(109,267)
2,191
818
—
—
(413)
(106,671)
—
(28,197)
(18,396)
(2,500)
—
—
—
—
498,750
716,625
(1,192,500)
25,000
(25,000)
(26,218)
(9,885)
210,475
220,786
431,261
58,151
121,229
14,205
$
$
$
$
$
$
$
$
103,706
9,937
4,833
10,501
(12,750)
4,554
(623)
7,390
(3,975)
(116)
—
68,483
22,605
(5,697)
259
(2,527)
(22,027)
117,221
(98,606)
—
6,257
(700)
978
(533)
(92,604)
198,087
—
(56,901)
—
—
—
—
—
—
—
(132,500)
308,638
(309,205)
8,119
(8,453)
24,283
196,503
220,786
5,097
119,820
18,245
The accompanying notes are an integral part of these consolidated financial statements.
F-7
TRINSEO S.A.
Notes to Consolidated Financial Statements
(Dollars in thousands, unless otherwise stated)
NOTE 1—ORGANIZATION AND BUSINESS ACTIVITIES
Organization
On June 3, 2010, Bain Capital Everest Manager Holding SCA, an affiliate of Bain Capital to which we refer to as
the former Parent, was formed through investment funds advised or managed by Bain Capital. Dow Europe Holding
B.V. (together with The Dow Chemical Company, “Dow”) retained an indirect ownership interest in the former Parent.
Trinseo S.A. (“Trinseo”, and together with its subsidiaries, the “Company”) was also formed on June 3, 2010,
incorporated under the existing laws of the Grand Duchy of Luxembourg. At that time, all ordinary shares of Trinseo
were owned by the former Parent. On June 17, 2010, Trinseo acquired 100% of the former Styron business from Dow
(the “Acquisition”), at which time, the Company commenced operations.
On June 17, 2014, Trinseo completed an IPO of 11,500,000 ordinary shares. During 2016, the former Parent
divested its entire ownership in the Company in a series of secondary offerings to the market. Refer to Note 12 for more
information.
Business Activities
The Company is a leading global materials company engaged in the manufacturing and marketing of synthetic
rubber, latex binders, and plastics, including various specialty and technologically differentiated products. The Company
develops synthetic rubber, latex binders, and plastics products that are incorporated into a wide range of products
throughout the world, including tires and other products for automotive applications, carpet and artificial turf backing,
coated paper and packaging board, food packaging, appliances, medical devices, consumer electronics and construction
applications, among others.
The Company’s operations are located in Europe, North America, and Asia Pacific, supplemented by two joint
ventures, Americas Styrenics, a styrenics joint venture with Chevron Phillips Chemical Company LP, and Sumika
Styron Polycarbonate, a polycarbonate joint venture with Sumitomo Chemical Company Limited. Refer to Note 4 for
further information regarding our investments in these unconsolidated affiliates.
The Company has significant manufacturing and production operations around the world, which allow service to
its global customer base. As of December 31, 2016, the Company’s production facilities included 30 manufacturing
plants (which included a total of 75 production units) at 23 sites across 12 countries, including joint ventures and
contract manufacturers. Additionally, as of December 31, 2016, the Company operated 10 research and development
(R&D) facilities globally, including mini plants, development centers and pilot coaters.
Company Realignment
Through September 30, 2016, the chief executive officer, who is the Company’s chief operating decision maker,
managed the Company’s operations under two divisions, Performance Materials and Basic Plastics & Feedstocks, which
included the following four reportable segments: Latex, Synthetic Rubber, Performance Plastics, and Basic Plastics &
Feedstocks.
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the
business will be managed and results will be reviewed by the chief executive officer. The previous Basic Plastics &
Feedstocks segment was split into three new segments: Basic Plastics, Feedstocks, and Americas Styrenics. In addition,
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. These
consolidated financial statements and related notes thereto have been retroactively adjusted to reflect this change in
reporting segments. Refer to Note 19 for further information.
F-8
NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements as of December 31, 2016 and 2015 and for each of the three
years in the period ended December 31, 2016 are prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”). The consolidated financial statements of the Company contain the accounts
of all entities that are controlled and variable interest entities (“VIEs”) for which the Company is the primary
beneficiary. A VIE is defined as a legal entity that has equity investors that do not have sufficient equity at risk for the
entity to support its activities without additional subordinated financial support or, as a group, the holders of the equity at
risk lack (i) the power to direct the entity’s activities or (ii) the obligation to absorb the expected losses or the right to
receive the expected residual returns of the entity. A VIE is required to be consolidated by a company if that company is
the primary beneficiary. Refer to Note 10 for further discussion of the Company’s Accounts Receivable Securitization
Facility, which qualifies as a VIE and is consolidated within the Company’s financial statements.
All intercompany balances and transactions are eliminated. Joint ventures over which the Company has the ability
to exercise significant influence that are not consolidated are accounted for by the equity method.
Certain prior year amounts have been reclassified to conform to the current year presentation. These
reclassifications did not have a material impact on the Company’s financial position or results. Refer to Notes 8, 10, and
19 for further information.
Use of Estimates in Financial Statement Preparation
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual
amounts could differ from these estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
cash equivalents and accounts receivable. The Company uses major financial institutions with high credit ratings to
engage in transactions involving cash equivalents. The Company minimizes credit risk in its receivables by selling
products to a diversified portfolio of customers in a variety of markets located throughout the world.
The Company performs ongoing evaluations of its customers’ credit and generally does not require collateral. The
Company maintains an allowance for doubtful accounts for losses resulting from the inability of specific customers to
meet their financial obligations, representing our best estimate of probable credit losses in existing trade accounts
receivable. A specific reserve for doubtful receivables is recorded against the amount due from these customers. For all
other customers, the Company recognizes reserves for doubtful receivables based on historical experience.
Financial Instruments
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued and other current liabilities, approximate fair value due to their generally short
maturities.
The estimated fair value of the Company’s 2021 Term Loan B and 2022 Senior Notes (both of which are defined
in Note 10) are determined using level 2 inputs within the fair value hierarchy. Refer to Note 13 for the fair value of
these debt instruments. When outstanding, the estimated fair values of borrowings under the Company’s 2020 Revolving
Facility and Accounts Receivable Securitization Facility (both of which are defined in Note 10) are determined using
level 2 inputs within the fair value hierarchy. The carrying amounts of borrowings under the 2020 Revolving Facility and
Accounts Receivable Securitization Facility approximate fair value as these borrowings bear interest based on prevailing
variable market rates.
At times, the Company manages its exposure to changes in foreign currency exchange rates, where possible, by
entering into foreign exchange forward contracts. When outstanding, all derivatives, whether designated in hedging
relationships or not, are required to be recorded on the consolidated balance sheets at fair value. The fair value of the
derivatives is determined from sources independent of the Company, including the financial institutions which are party
F-9
to the derivative instruments. The fair value of derivatives also considers the credit default risk of the paying party. If the
derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item will be
recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair
value of the derivative will be recorded in other comprehensive income and will be recognized in the consolidated
statements of operations when the hedged item affects earnings.
As of December 31, 2016 and 2015, the Company had certain foreign exchange forward contracts outstanding that
were not designated for hedge accounting treatment. As such, the settlements and changes in fair value of underlying
instruments are recognized in “Other expense, net” in the consolidated statements of operations. For the year ended
December 31, 2016, the Company recognized gains related to these forward contracts of $3.7 million, while for the years
ended December 31, 2015 and 2014 the Company recognized losses related to these forward contracts of $16.5 million
and $28.2 million, respectively.
As of December 31, 2016 and 2015, the Company also had foreign exchange forward contracts which are
designated as cash flow hedges. As such, 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 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.
Forward contracts are entered into with a limited number of counterparties, each of which allows for net settlement
of all contracts through a single payment in a single currency in the event of a default on or termination of any one
contract. The Company records these foreign exchange forward contracts on a net basis, by counterparty within the
consolidated balance sheets.
The Company presents the cash receipts and payments from hedging activities in the same category as the cash
flows from the items subject to hedging relationships. As the items subject to economic hedging relationships are the
Company’s operating assets and liabilities, the related cash flows are classified within operating activities in the
consolidated statements of cash flows.
Foreign Currency Translation
For the majority of the Company’s subsidiaries, the local currency has been identified as the functional currency.
For remaining subsidiaries, the U.S. dollar has been identified as the functional currency due to the significant influence
of the U.S. dollar on their operations. Gains and losses resulting from the translation of various functional currencies into
U.S. dollars are not recorded within the consolidated statements of operations. Rather, they are recorded within the
cumulative translation adjustment account as a separate component of shareholders’ equity (accumulated other
comprehensive income) in the consolidated balance sheets. The Company translates asset and liability balances at
exchange rates in effect at the end of the period and income and expense transactions at the average exchange rates in
effect during the period. Gains and losses resulting from foreign currency transactions are recorded within the
consolidated statements of operations.
For the year ended December 31, 2016, the Company recognized net foreign exchange transaction losses of
$5.5 million, while for the years ended December 31, 2015 and 2014 the Company recognized net foreign exchange
transaction gains of $6.1 million and $32.4 million, respectively. These amounts exclude the impacts of foreign exchange
forward contracts discussed above. Gains and losses on net foreign exchange transactions are recorded within “Other
expense, net” in the consolidated statements of operations.
Environmental Matters
Accruals for environmental matters are recorded when it is considered probable that a liability has been incurred
and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These
accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal
information become available. Accruals for environmental liabilities are recorded within “Other noncurrent obligations”
in the consolidated balance sheets at undiscounted amounts. As of December 31, 2016 and 2015, there were no accruals
for environmental liabilities recorded.
Environmental costs are capitalized in recognition of legal asset retirement obligations resulting from the
acquisition, construction or normal operation of a long-lived asset. Any costs related to environmental contamination
F-10
treatment and clean-ups are charged to expense. Estimated future incremental operations, maintenance and management
costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Cash and Cash Equivalents
Cash and cash equivalents generally include time deposits or highly liquid investments with original maturities of
three months or less and no material liquidity fee or redemption gate restrictions.
Inventories
Inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out (“FIFO”)
method. The Company periodically reviews its inventory for excess or obsolete inventory, and will write-down the
excess or obsolete inventory value to its net realizable value, if applicable.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation and less impairment, if applicable,
and are depreciated over their estimated useful lives using the straight-line method.
Expenditures for maintenance and repairs are charged against income as incurred. Expenditures that significantly
increase asset value, extend useful asset lives or adapt property to a new or different use are capitalized. These
expenditures include planned major maintenance activity or turnaround activities that increase our manufacturing plants’
output and improve production efficiency as compared to pre-turnaround operations. As of December 31, 2016 and
2015, $9.2 million and $7.6 million, respectively, of the Company’s net costs related to turnaround activities were
capitalized within “Deferred charges and other assets” in the consolidated balance sheets, and are being amortized over
the period until the next scheduled turnaround.
The Company periodically evaluates actual experience to determine whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of property, plant and equipment. Engineering and other
costs directly related to the construction of property, plant and equipment are capitalized as construction in progress until
construction is complete and such property, plant and equipment is ready and available to perform its specifically
assigned function. Upon retirement or other disposal, the asset cost and related accumulated depreciation are removed
from the accounts and the net amount, less any proceeds, is charged or credited to income. The Company also capitalizes
interest as a component of the cost of capital assets constructed for its own use.
Impairment and Disposal of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group may not be recoverable. When undiscounted future cash flows are not
expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value based on a
discounted cash flow analysis utilizing market participant assumptions. Refer to Note 13 for further information.
Long-lived assets to be disposed of by sale are classified as held-for-sale and are reported at the lower of carrying
amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of in a manner other
than by sale are classified as held-and-used until they are disposed.
Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value
of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level
annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has
more likely than not declined below its carrying value. The Company utilizes a market approach and an income approach
(under the discounted cash flow method) to calculate the fair value of its reporting units. When supportable, the
Company employs the qualitative assessment of goodwill impairment prescribed by ASC 350. The annual impairment
assessment is completed using a measurement date of October 1st. No goodwill impairment losses were recorded in the
years ended December 31, 2016, 2015, and 2014.
F-11
Finite-lived intangible assets, such as our intellectual property, manufacturing capacity rights, and computer
software for internal use are amortized on a straight-line basis over their estimated useful life and are reviewed for
impairment or obsolescence if events or changes in circumstances indicate that their carrying amount may not be
recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows. No intangible
asset impairment losses were recorded in the years ended December 31, 2016, 2015, and 2014.
Deferred Financing Fees
With the adoption of new guidance from the FASB, capitalized fees and costs incurred in connection with the
Company’s recognized debt liabilities are presented in the consolidated balance sheets as a direct reduction from the
carrying value of those debt liabilities, consistent with debt discounts. In accordance with this guidance, deferred
financing fees related to the Company’s revolving debt facilities remain included within “Deferred charges and other
assets” in the consolidated balance sheets. See “- Recent Accounting Guidance” below for further discussion of the
impact of adopting this guidance.
For the 2021 Term Loan B and 2022 Senior Notes (and the 2019 Senior Notes, prior to their repayment in May
2015), deferred financing fees are amortized over the term of the agreement using the effective interest method, while for
the 2020 Revolving Facility and the Accounts Receivable Securitization Facility, deferred financing fees are amortized
using the straight-line method over the term of the respective facility. Amortization of deferred financing fees is recorded
in “Interest expense, net” within the consolidated statements of operations.
Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates in which the Company has the ability to exercise significant influence
(generally, 20% to 50%-owned companies) are accounted for using the equity method. Investments are evaluated for
impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be
recoverable. An impairment loss is recorded whenever a decline in fair value of an investment in an unconsolidated
affiliate below its carrying amount is determined to be other-than-temporary.
Sales
Sales are recognized when the revenue is realized or realizable and the earnings process is complete, which occurs
when risk and title to the product transfers to the customer, typically at the time shipment is made. As such, title to the
product generally passes when the product is delivered to the freight carrier. Standard terms of delivery are included in
contracts of sale, order confirmation documents and invoices. Freight costs and any directly related costs of transporting
finished product to customers are recorded as “Cost of sales” in the consolidated statements of operations. Taxes on sales
are excluded from net sales.
Sales are recorded net of estimates for returns and price allowances, including discounts for prompt payment and
volume-based incentives.
Cost of Sales
The Company classifies the costs of manufacturing and distributing its products as cost of sales. Manufacturing
costs include raw materials, utilities, packaging and fixed manufacturing costs associated with production. Fixed
manufacturing costs include such items as plant site operating costs and overhead, production planning, depreciation and
amortization, repairs and maintenance, environmental, and engineering costs. Distribution costs include shipping and
handling costs.
Selling, General and Administrative Expenses
Selling, general and administrative, or SG&A, expenses are charged to expense as incurred. SG&A expenses are
the cost of services performed by the marketing and sales functions (including sales managers, field sellers, marketing
research, marketing communications and promotion and advertising materials) and by administrative functions
(including product management, R&D, business management, customer invoicing, and human resources). R&D
expenses include the cost of services performed by the R&D function, including technical service and development,
process research including pilot plant operations, and product development.
F-12
Total R&D costs included in SG&A expenses were approximately $51.0 million, $51.9, million and $53.4 million
for the years ended December 31, 2016, 2015, and 2014, respectively.
The Company expenses promotional and advertising costs as incurred to SG&A expenses. Total promotional and
advertising expenses were approximately $3.0 million, $3.5, million and $2.9 million for the years ended
December 31, 2016, 2015, and 2014, respectively.
The Company also includes restructuring charges within SG&A expenses. Total restructuring charges were
$23.9 million, $8.2 million and $14.1 million for the years ended December 31, 2016, 2015, and 2014, respectively.
Refer to Note 20 for further information.
Pension and Postretirement Benefits Plans
The Company has several defined benefit plans, under which participants earn a retirement benefit based upon a
formula set forth in the plan. The Company also provides certain health care and life insurance benefits to retired
employees mainly in the United States. Prior to the divestiture of our latex binders and automotive businesses in Brazil
(refer to Note 3) we also provided health care and life insurance benefits to retired employees in Brazil. The U.S.-based
plan provides health care benefits, including hospital, physicians’ services, drug and major medical expense coverage,
and life insurance benefits.
Accounting for defined benefit pension plans and other postretirement benefit plans, and any curtailments and
settlements thereof, requires various assumptions, including, but not limited to, discount rates, expected rates of return on
plan assets and future compensation growth rates. The Company evaluates these assumptions at least once each year, or
as facts and circumstances dictate, and makes changes as conditions warrant.
In 2016, the Company changed the method used to estimate the future service and interest cost components of net
periodic benefit cost for our defined benefit pension and other postretirement benefit plans. As a result, beginning in
2017, the Company will employ a full yield curve approach in the estimation of these components of benefit cost by
applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant
projected cash flows.
A settlement is a transaction that is an irrevocable action that relieves the employer (or the plan) of primary
responsibility for a pension or postretirement benefit obligation, and that eliminates significant risks related to the
obligation and the assets used to effect the settlement. When a settlement occurs, the Company does not record
settlement gains or losses during interim periods when the cost of all settlements in a year is less than or equal to the sum
of the service cost and interest cost components of net periodic pension cost for the plan in that year.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for income taxes.
Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts
of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for
the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the
financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when
changes are enacted. For each tax jurisdiction in which the Company operates, deferred tax assets and liabilities are
offset against one another and are presented as a single noncurrent amount within the consolidated balance sheets.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized. Provision is made for income taxes on unremitted earnings of subsidiaries and affiliates, unless such
earnings are deemed to be indefinitely invested.
The Company recognizes the financial statement effects of uncertain income tax positions when it is more likely
than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for
other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the
contingency can be reasonably estimated. Interest accrued related to unrecognized tax and income tax related penalties
are included in the provision for income taxes. The current portion of uncertain income taxes positions is recorded in
“Income taxes payable” while the long-term portion is recorded in “Other noncurrent obligations” in the consolidated
balance sheets.
F-13
Stock-based Compensation
Refer to Note 17 for detailed discussion regarding the Company’s stock-based compensation award programs.
Stock-based compensation expense recognized in our consolidated financial statements is based on awards that are
ultimately expected to vest. In connection with the IPO, the Company’s board of directors approved the 2014 Omnibus
Plan. Since that time, certain equity grants have been awarded, comprised of RSUs and options awards (defined in Note
17).
Compensation costs for the RSUs are measured at the grant date based on the fair value of the award and are
recognized ratably as expense over the applicable vesting term. Prior to November 2016, dividend and dividend
equivalents did not accumulate on unvested RSUs. In November 2016, the board of directors approved an amendment to
all outstanding RSUs, entitling each award holder to an amount equal to any cash dividend or repayment of equity paid
by the Company upon one ordinary share for each RSU held by the award holder (“dividend equivalents”). The dividend
equivalents earned on the RSUs only include dividends or repayments of equity paid after this amendment and the award
holders have no right to receive the dividend equivalents unless and until the associated RSUs vest. The dividend
equivalents will be payable in cash and will not accrue interest.
The fair value of RSUs is equal to the fair market value of the Company’s ordinary shares based on the closing
price on the date of grant.
Compensation cost for the option awards is measured at the grant date based on the fair value of the award and is
recognized as expense over the appropriate service period utilizing graded vesting. The fair value for option awards is
computed using the Black-Scholes pricing model, whose inputs and assumptions are determined as of the date of grant.
Effective April 1, 2016, the Company adopted new accounting guidance that simplifies several aspects of
accounting for share-based payments. Among other things, as part of this adoption, the Company made an accounting
policy election to recognize forfeitures as incurred, rather than estimating the forfeitures in advance. Refer to discussion
below for further information.
Treasury Shares
The Company may, from time to time, repurchase its ordinary shares at prevailing market rates. Share repurchases
are recorded at cost within “Treasury shares” within shareholders equity in the consolidated balance sheets. It is the
Company’s policy that, as RSUs vest or option awards are exercised, ordinary shares will be issued from the existing
pool of treasury shares on a first-in-first-out basis. Refer to Note 12 for discussion of share repurchases during the year
ended December 31, 2016 and to Note 17 for details of vesting of RSUs and exercises of option awards.
Recent Accounting Guidance
In May 2014, the 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. The
Company expects to adopt this guidance for annual and interim periods beginning after December 31, 2017 by applying
the modified retrospective transition approach. While our adoption efforts have progressed significantly, we have not yet
reached a final conclusion on the expected impacts of adopting this new standard on our consolidated financial
statements and disclosures, as well as on our underlying business processes and information technology systems.
In April 2015, the FASB issued guidance that requires deferred financing fees related to a recognized debt liability
be presented in the consolidated balance sheet as a direct deduction from the carrying value of that debt liability,
consistent with debt discounts. The recognition and measurement guidance for deferred financing fees are not affected.
The Company adopted this guidance effective January 1, 2016. Balances as of December 31, 2015 presented herein have
been retrospectively adjusted, with $25.7 million of unamortized deferred financing fees being reclassified from
“Deferred charges and other assets” and netted against “Long-term debt, net of unamortized deferred financing fees” in
the consolidated balance sheet. In accordance with this guidance, unamortized deferred financing fees related to the
F-14
Company’s revolving debt facilities were not reclassified as a reduction of long-term debt, and remain included within
“Deferred charges and other assets” in the consolidated balance sheets.
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. This pronouncement
is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, and
prospective adoption is required. The impact of adopting this guidance will not be material to the Company’s financial
position and 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 March 2016, the FASB issued guidance that simplifies several aspects of accounting for share-based payments.
The Company adopted this guidance effective April 1, 2016. Under this guidance, excess tax benefits associated with
share-based payment awards are recognized in the consolidated statements of operations when the awards vest or settle,
rather than in shareholders’ equity, and all tax-related cash flows resulting from share-based payments are reported as
operating activities on the consolidated statements of cash flows. In addition, this guidance modified the minimum
statutory withholding requirements to allow entities to withhold an amount up to the employees’ maximum individual
tax rate in the relevant jurisdiction without triggering liability classification of the award, while also clarifying that all
cash payments made to taxing authorities on employees’ behalf for withheld shares are to be reported as financing
activities on the consolidated statements of cash flows. The adoption of these changes did not materially impact the
Company’s financial position and result of operations. Additionally, as part of this adoption, the Company made an
accounting policy election to recognize forfeitures as incurred, rather than estimating the forfeitures in advance. The
impact of this change was applied utilizing a modified retrospective approach, with an adjustment of $0.9 million
recorded during the year ended December 31, 2016 to decrease opening retained earnings and increase opening
additional paid-in-capital.
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. This guidance is effective for
public companies for annual and interim periods beginning after December 15, 2017, with early adoption permitted. This
guidance must be adopted using a retrospective approach, and provides for certain practical expedients. Additionally, the
FASB has issued further guidance related to the presentation of restricted cash on the consolidated statements of cash
flows. The Company is currently assessing the timing and related impact of adopting this guidance on its consolidated
statements of cash flows.
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. This guidance is
effective for public companies for annual and interim periods beginning after December 15, 2017, with early adoption
permitted. 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.
This guidance is effective for calendar year-end public companies beginning in 2020, with early adoption permitted for
impairment tests performed after January 1, 2017. The impact of adopting this guidance is not expected to be material to
the Company’s financial position and results of operations.
F-15
NOTE 3—ACQUISITIONS AND DIVESTITURES
The Acquisition
The Company accounted for the Acquisition (as discussed in Note 1) under the purchase method of accounting,
whereby the purchase price paid, net of working capital adjustments, was allocated to the acquired assets and liabilities at
fair value.
As part of the Acquisition, the Company has been indemnified for various tax matters, including income tax and
value add taxes, as well as legal liabilities which have been incurred prior to the Acquisition. Conversely, certain tax
matters which the Company has benefitted from are subject to reimbursement by Trinseo to Dow. These amounts have
been estimated and provisional amounts have been recorded based on the information known during the measurement
period; however, these amounts remain subject to change based on the completion of our annual statutory filings, tax
authority review as well as a final resolution with Dow on amounts due to and due from the Company. Management
believes the Company’s estimates and assumptions are reasonable under the circumstances, however, settlement
negotiations or changes in estimates around pre-acquisition indemnifications could result in a material impact on the
consolidated financial statements.
Livorno Land Sale
In April 2014, the Company completed the sale of a portion of land at its manufacturing site in Livorno, Italy for a
purchase price of €4.95 million (approximately $6.8 million). As a result, the Company recorded a gain on sale of $0.1
million within “Other expense, net” in the consolidated statements of operations for the year ended December 31, 2014.
Divestiture of Brazil Business
During the second quarter of 2016, the Company signed a definitive agreement to sell Trinseo do Brasil Comercio
de Produtos Quimicos Ltda. (“Trinseo Brazil”), its primary operating entity in Brazil which includes both a latex binders
and automotive business. Under the agreement of sale, which closed on October 1, 2016, Trinseo Brazil was sold to a
single counterparty, for a selling price that is subject to certain contingent consideration payments, which could be paid
by the buyer over a 5-year period subsequent to the closing date, based on the results of the Trinseo Brazil latex binders
business during that time.
As a result of this agreement, during the year ended December 31, 2016, the Company recorded impairment
charges for the estimated loss on sale of approximately $15.1 million within “Other expense, net” in the consolidated
statement of operations. The $15.1 million charge primarily relates to the unrecoverable net book value of property, plant
and equipment along with certain working capital balances, and also includes $0.4 million of goodwill written off with
the sale (entirely attributable to the Latex Binders segment). This charge has been allocated as $9.4 million, $4.9
million, and $0.7 million to the Performance Plastics segment, Latex Binders segment, and Corporate, respectively. This
loss on sale has been recorded as an estimate based on available information and is subject to change through post-
closing settlement activities that remain ongoing. Through December 31, 2016, the Company has received $1.8 million
in proceeds from the sale of these businesses, with approximately $1.8 million of additional purchase price estimated to
be received in 2017.
The results of operations associated with the latex binders and automotive businesses of Trinseo Brazil were not
classified as discontinued operations as the decision to divest these businesses does not represent a strategic shift that
has, or will have, a major effect on the Company’s financial position or results of operations.
NOTE 4—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company is supplemented by two joint ventures: Americas Styrenics, a styrenics joint venture with Chevron
Phillips Chemical Company LP, and Sumika Styron Polycarbonate, a polycarbonate joint venture with Sumitomo
Chemical Company Limited. The results of Americas Styrenics are included within its own reporting segment, and the
results of Sumika Styron Polycarbonate are included with the Basic Plastics reporting segment.
F-16
As of December 31, 2016 and 2015, respectively, the Company’s investment in Americas Styrenics was $149.7
million and $143.9 million, which was $71.2 million and $91.9 million less than the Company’s 50% share of Americas
Styrenics’ underlying net assets. These amounts represent the difference between the book value of assets contributed to
the joint venture at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the
joint venture’s assets and certain adjustments to conform with the Company’s accounting policies. This difference is
being amortized over a weighted average remaining useful life of the contributed assets of approximately 3.86 years as
of December 31, 2016. The Company received dividends from Americas Styrenics of $130.0 million, $125.0 million,
and $35.0 million for the years ended December 31, 2016, 2015, and 2014, respectively.
As of December 31, 2016 and 2015, respectively, the Company’s investment in Sumika Styron Polycarbonate was
$41.8 million and $39.0 million, which was $18.5 million and $19.8 million greater than the Company’s 50% share of
Sumika Styron Polycarbonate’s underlying net assets. These amounts primarily represent the fair value of certain
identifiable assets which have not been recorded on the historical financial statements of Sumika Styron Polycarbonate.
This difference is being amortized over the remaining useful life of the contributed assets of 8.75 years as of
December 31, 2016. The Company received dividends of $6.2 million and $1.0 million for the years ended
December 31, 2016 and 2014, respectively. The Company received no dividends from Sumika Styron Polycarbonate for
the year ended December 31, 2015.
Equity in earnings from unconsolidated affiliates was $144.7 million, $140.2 million and $47.7 million for the
years ended December 31, 2016, 2015, and 2014, respectively.
Both Americas Styrenics and Sumika Styron Polycarbonate 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:
December 31,
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Sales
Gross profit
Net income
2016
$ 457,867
269,642
$ 727,509
2015
$ 455,186
293,322
$ 748,508
$ 207,831 $ 188,874
49,841
$ 239,264 $ 238,715
31,433
Year Ended
December 31,
2015
$ 1,753,511
2016
$ 1,649,409
$ 318,535 $ 318,073 $
$
$ 250,113
$ 249,158
2014
$ 2,161,232
117,667
52,957
Sales to unconsolidated affiliates for the years ended December 31, 2016, 2015, and 2014 were $4.2 million, $2.5
million and $6.5 million, respectively. Purchases from unconsolidated affiliates were $157.4 million, $178.4 million and
$290.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016 and 2015, respectively, $0.7 million and $1.0 million due from unconsolidated affiliates
was included in “Accounts receivable, net of allowance” and $16.3 million and $15.4 million due to unconsolidated
affiliates was included in “Accounts payable” in the consolidated balance sheets.
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to
Sumitomo Chemical Company Limited. Refer to Note 24 for further information.
F-17
NOTE 5—ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
Trade receivables
Non-income tax receivables
Other receivables
Less: allowance for doubtful accounts
Total
December 31,
2016
2015
$ 479,261 $ 407,535
61,990
27,448
(2,417)
$ 494,556
55,238
33,067
(3,138)
$ 564,428
The allowance for doubtful accounts was approximately $3.1 million and $2.4 million as of December 31, 2016
and 2015, respectively. For the years ended December 31, 2016, 2015, and 2014, respectively, the Company recognized
bad debt expense of $1.0 million, $0.3 million, and $1.1 million.
NOTE 6—INVENTORIES
Inventories consisted of the following:
Finished goods
Raw materials and semi-finished goods
Supplies
Total
NOTE 7—PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
December 31,
2016
2015
$ 187,577 $ 170,380
168,804
28,964
$ 385,345
151,444
31,273
$ 353,097
Land
Land and waterway improvements
Buildings
Machinery and equipment(1)
Utility and supply lines
Leasehold interests
Other property
Construction in process
Property, plant and equipment
Less: accumulated depreciation
Property, plant and equipment, net
Estimated Useful
Lives (Years)
Not applicable
1 - 20
2 -
40
1 - 20
1 -
10
1 - 45
8
1 -
Not applicable
December 31,
2016
35,042 $
14,691
57,555
670,085
7,359
39,234
27,051
83,083
934,100
(420,343)
513,757
$
$
$
2015
44,167
13,151
57,389
654,670
7,081
43,421
23,043
51,144
894,066
(375,315)
518,751
(1) Approximately 95% of our machinery and equipment had a useful life of three to ten years as of December 31, 2016
and 2015.
Depreciation expense
Capitalized interest
Year Ended
December 31,
2016
71,330
$
3,360 $
2015
74,938 $
3,892 $
2014
75,286
4,192
$
$
F-18
Refer to Notes 3 and 13, respectively, for a discussion of the impact to property, plant and equipment from the
Company’s divestiture of its latex binders and automotive businesses in Brazil as well as its decision to cease
manufacturing operations at its latex binders facility in Livorno, Italy during 2016.
NOTE 8—GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill, by segment, from December 31, 2014 to
December 31, 2015 and from December 31, 2015 to December 31, 2016, respectively. Prior period balances in this table
have been recast in conjunction with the segment realignment that occurred in the fourth quarter of 2016. Refer to Note
19 for further information.
Performance Materials
Basic Plastics & Feedstocks
Latex
Binders
Synthetic
Rubber
Performance
Plastics
Basic
Plastics
Americas
Feedstocks Styrenics
Total
Balance at
December 31, 2014 $ 13,815
$ 9,461
$
4,867
$ 6,431
$
—
$
—
$ 34,574
Foreign currency
impact
Balance at
December 31, 2015
Divestiture (Note 3)
Foreign currency
impact
Balance at
(1,403)
(960)
(494)
(653)
$ 12,412
(421)
$ 8,501
$
4,373
$ 5,778
$
—
—
—
(447)
(324)
(163)
(224)
—
—
—
—
—
(3,510)
$
—
—
$ 31,064
(421)
—
(1,158)
December 31, 2016
$ 11,544
$
8,177
$
4,210
$ 5,554
$
—
$
—
$ 29,485
Goodwill impairment testing is performed annually as of October 1st. In 2016, the Company performed its annual
impairment test for goodwill and determined that the estimated fair value of each reporting unit was substantially in
excess of the carrying value indicating that none of the Company’s goodwill was impaired. The Company concluded
there were no goodwill impairments or triggering events for the years ended December 31, 2016, 2015, and 2014.
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets as of December 31,
2016 and 2015, respectively:
December 31, 2016
December 31, 2015
Developed technology
Manufacturing Capacity
Rights
Software
Software in development
Other
Total
Estimated
Useful Life
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
15 $ 166,230 $ (72,159) $ 94,071
Gross
Carrying
Amount
Accumulated
Amortization
$ 172,675 $ (62,870) $ 109,805
Net
6
5 - 10
N/A
N/A
(15,095)
(8,908)
19,977
82,275
4,751
274
14,862
8,512
24,516
523
$ 273,507 $ (96,162) $ 177,345 $ 236,470 $ (78,252) $ 158,218
11,069
67,180
4,751
274
20,750
18,006
24,516
523
(5,888)
(9,494)
—
—
—
—
During the second quarter of 2016, the Company began a phased implementation by geographic region to upgrade
our legacy ERP environment to the latest version of SAP, which was completed as of December 31, 2016. The total
amount of capitalized software related to this project was $57.4 million, which is being amortized over its estimated
useful life of approximately 9.0 years.
F-19
In March 2014, the Company entered into an agreement with material supplier JSR Corporation, Tokyo (“JSR”) to
acquire its current production capacity rights at the Company’s rubber production facility in Schkopau, Germany for a
purchase price of €19.0 million (approximately $26.1 million based upon the acquisition date foreign exchange rate).
Prior to this agreement, JSR held 50% of the capacity rights of one of the Company’s three solution styrene-butadiene
rubber (“SSBR”) production trains in Schkopau. As a result, effective March 31, 2014, the Company had full capacity
rights to this production train. The €19.0 million purchase price was recorded in “Other intangible assets, net” in the
consolidated balance sheets, and is being amortized over its estimated useful life of approximately 6.0 years. Further, the
purchase price was recorded within capital expenditures in investing activities in the consolidated statement of cash
flows for the year ended December 31, 2014.
Amortization expense related to finite-lived intangible assets totaled $21.3 million, $18.5 million, and
$19.6 million, for the years ended December 31, 2016, 2015, and 2014, respectively.
The following table details the Company’s estimated amortization expense for the next five years, excluding any
amortization expense related to software currently in development:
Estimated Amortization Expense for the Next Five Years
2017
24,101 $
$
2018
2019
2020
2021
23,417 $
23,236 $
20,495 $
18,632
NOTE 9—ACCOUNTS PAYABLE
Accounts payable consisted of the following:
Trade payables
Other payables
Total
NOTE 10—DEBT
Debt consisted of the following:
December 31,
2016
$ 341,920
36,109
$ 378,029
2015
$ 296,045
28,584
$ 324,629
Senior Credit Facility
2020 Revolving Facility
2021 Term Loan B
2022 Senior Notes
USD Notes
Euro Notes
Accounts Receivable Securitization Facility
Other indebtedness
Total debt
Less: current portion
Less: unamortized deferred financing fees(1)
Total long-term debt, net of unamortized deferred
December 31,
2016
2015
$
—
$
491,545
—
496,365
300,000
394,275
—
1,591
1,187,411
(5,000)
(22,042)
300,000
409,538
—
1,895
1,207,798
(5,000)
(25,678)
financing fees
$
1,160,369
$
1,177,120
(1) As discussed in Note 2, effective January 1, 2016, the Company retroactively adopted new accounting guidance
that requires deferred financing fees related to a debt liability be presented in the consolidated balance sheets as
a direct reduction of the carrying value of that debt liability rather than as deferred assets. As such, fees and
expenses incurred in connection with the issuance of debt facilities are now capitalized and recorded within
“Long term debt, net of unamortized deferred financing fees” in the consolidated balance sheets. This caption
F-20
reflects this reclassification for both the current and prior periods. Note that this caption does not include
deferred financing fees related to the 2020 Revolving Facility and the Accounts Receivable Securitization
Facility, which are included within “Deferred charges and other assets” in the consolidated balance sheets.
For the years ended December 31, 2016, 2015, and 2014, interest charges, amortization of deferred financing fees
and debt discounts, and cash paid for interest by debt facility were as listed below. Interest charges and amortization of
deferred financing fees and debt discounts are recorded in “Interest expense, net” in the consolidated statements of
operations.
2018 Revolving Credit Facility
Interest expense
Amortization of deferred financing fees
Cash paid for interest
Senior Credit Facility
2020 Revolving Facility
Interest expense
Amortization of deferred financing fees
Cash paid for interest
2021 Term Loan B
Interest expense
Amortization of deferred financing fees
Amortization of debt discount
Cash paid for interest
2019 Senior Notes
Interest expense
Amortization of deferred financing fees
Cash paid for interest
2022 Senior Notes
Interest expense
Amortization of deferred financing fees
Cash paid for interest
Accounts Receivable Securitization Facility
Interest expense
Amortization of deferred financing fees
Cash paid for interest
Year Ended
December 31,
2016
2015
2014
$
-
-
-
$
648
982
648
1,799
2,854
1,869
1,827
1,491
1,624
21,414
1,707
180
21,357
-
-
-
46,562
1,929
47,239
2,834
510
2,834
$
1,287
$
978
1,287
14,212
1,078
115
14,153
38,259
2,091
81,736
30,543
1,194
22,763
2,849
1,223
2,849
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
110,559
5,656
115,390
-
-
-
2,890
1,425
2,890
$
$
$
$
$
$
Total accrued interest on outstanding debt as of December 31, 2016 and 2015 was $7.6 million and $7.8 million,
respectively. Accrued interest is recorded in “Accrued expenses and other current liabilities” within the consolidated
balance sheets.
2018 Senior Secured Credit Facility
In June 2010, the Company entered into a credit agreement, which was subsequently amended from time to time,
and was set to mature in January 2018 (“2018 Senior Secured Credit Facility”).
In January 2013, the Company amended the 2018 Senior Secured Credit Facility to, among other things, repay its
then outstanding term loans of $1,239.0 million using the proceeds from its sale of its 2019 Senior Notes (discussed
F-21
below). The 2018 Senior Secured Credit Facility also included a revolving credit facility (“2018 Revolving Facility”),
which included a borrowing capacity of $300.0 million and a maturity date of January 2018.
Capitalized fees and costs incurred in connection with the Company’s 2018 Revolving Facility were amortized
using a straight-line method over the term of the facility. Amortization of deferred financing fees are recorded in
“Interest expense, net” in the consolidated statements of operations.
In May 2015, upon completion of the refinancing transactions discussed below, the Company terminated the 2018
Senior Secured Credit Facility. Immediately prior to this termination, the Company had no outstanding borrowings under
the 2018 Revolving Facility. As a result of this termination, the Company recognized a $0.7 million loss on
extinguishment of long-term debt, comprised entirely of the write-off of a portion of the existing unamortized deferred
financing fees related to the 2018 Revolving Facility. The remaining unamortized deferred financing fees under the 2018
Revolving Facility totaled $7.2 million, which remained capitalized and are being amortized along with the new deferred
financing fees over the life of the new revolving credit facility, discussed in further detail below.
Senior Credit Facility
On May 5, 2015, Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (together, the “Issuers”
or the “Borrowers”), both wholly-owned subsidiaries of the Company, entered into a senior secured credit agreement
(the “Credit Agreement”), which provides senior secured financing of up to $825.0 million (the “Senior Credit Facility”).
The Senior Credit Facility provides for senior secured financing consisting of a (i) $325.0 revolving credit facility, with a
$25.0 million swingline subfacility and a $35.0 million letter of credit subfacility (the “2020 Revolving Facility”)
maturing in May 2020 and (ii) $500.0 million senior secured term loan B facility maturing in November 2021 (the “2021
Term Loan B”). Amounts under the 2020 Revolving Facility are available in U.S. dollars and euros.
The 2021 Term Loan B bears an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor, and was
issued at a 0.25% original issue discount. Further, the 2021 Term Loan B requires scheduled quarterly payments in
amounts equal to 0.25% of the original principal amount of the 2021 Term Loan B, with the balance to be paid at
maturity. During the years ended December 31, 2016 and 2015, the Company made principal payments of $5.0 million
and $2.5 million, respectively, related to the 2021 Term Loan B. As of December 31, 2016 and 2015, $5.0 million of
these scheduled future payments were classified as current debt on the Company’s consolidated balance sheets,
respectively.
Loans under the 2020 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). As of December 31, 2016, the Borrowers are required to pay
a quarterly commitment fee in respect of any unused commitments under the 2020 Revolving Facility equal to 0.375%
per annum.
As of December 31, 2016 and 2015, the Company had no outstanding borrowings, and had $309.1 million and
$311.5 million, respectively, of funds available for borrowing under the 2020 Revolving Facility, net of $15.9 million
and $13.5 million, respectively, of outstanding letters of credit.
The Senior Credit Facility is collateralized by a security interest in substantially all of the assets of Trinseo
Materials Operating S.C.A., as lead borrower, Trinseo Materials Finance, Inc., as co-borrower, and the guarantors
thereunder including Trinseo Materials S.à r.l., certain U.S. subsidiaries and certain foreign subsidiaries organized in
Luxembourg, 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 and negative covenants, including limitations on their abilities to incur liens; make certain loans and
investments; incur additional debt; merge, consolidate liquidate or dissolve; transfer or sell assets; pay dividends and
other distributions to shareholders or make certain other restricted payments; enter into transactions with affiliates;
restrict any restricted subsidiary from paying dividends or making other distributions or agree to certain negative pledge
clauses; materially alter the business they conduct; prepay certain other indebtedness; amend certain material documents;
and change our fiscal year.
F-22
The 2020 Revolving Facility contains a financial covenant that requires compliance with a springing first lien net
leverage ratio test. If the outstanding balance under the 2020 Revolving Facility exceeds 30% of the $325.0 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 Company’s first lien net leverage ratio may not exceed 2.00 to 1.00. As of December 31, 2016 and
2015, the Company was in compliance with all debt covenant requirements under the Senior Credit Facility.
Fees and expenses incurred in connection with the issuance of the 2021 Term Loan B and the 2020 Revolving
Facility were $12.0 million and $0.3 million, respectively.
For the 2021 Term Loan B, deferred financing fees and the 0.25% debt discount are being amortized over its 6.5
year term using the effective interest method. For the 2020 Revolving Facility, deferred financing fees (along with an
additional $7.2 million of unamortized deferred financing fees from the 2018 Revolving Facility) are being amortized
over its 5.0 year term using the straight-line method.
Unamortized deferred financing fees and debt discount related to the 2021 Term Loan B were $9.2 million and
$1.0 million, respectively, as of December 31, 2016, and $10.9 million and $1.1 million, respectively, as of December
31, 2015. Unamortized deferred financing fees related to the 2020 Revolving Facility were $5.0 million and $6.5 million
as of December 31, 2016 and 2015, respectively.
2019 Senior Notes
In January 2013, the Company issued $1,325.0 million 8.750% senior notes due to mature on February 1, 2019
(the “2019 Senior Notes”). The proceeds from the issuance of the 2019 Senior Notes were used to repay all of the
Company’s then outstanding term loans and related refinancing fees and expenses.
In July 2014, using proceeds from the Company’s IPO (refer to Note 12), the Company redeemed $132.5 million
in aggregate principal amount of the 2019 Senior Notes, together with a 103% call premium totaling $4.0 million and
accrued and unpaid interest thereon of $5.2 million. As a result, during the year ended December 31, 2014 the Company
incurred a loss on the extinguishment of debt of approximately $7.4 million, which includes the above $4.0 million call
premium and an approximately $3.4 million write-off of related unamortized deferred financing fees.
On May 13, 2015, using the net proceeds from the issuance of the 2021 Term Loan B, together with the net
proceeds from the issuance of the 2022 Senior Notes (defined and discussed below) and available cash, the Company
redeemed all outstanding borrowings under the 2019 Senior Notes, totaling $1,192.5 million in principal, together with a
call premium of $68.6 million (with a redemption price of 103% on the first $132.5 million and 106.097% on the
remaining balance) and accrued and unpaid interest thereon of $29.6 million.
As a result, during the year ended December 31, 2015, the Company recorded a loss on extinguishment of long-
term debt of $94.5 million, which includes the above $68.6 million call premium and a $25.9 million write-off of
unamortized deferred financing fees related to the 2019 Senior Notes.
Prior to the May 2015 redemption, fees and expenses incurred in connection with the issuance of 2019 Senior
Notes were being amortized over the term of the 2019 Senior Notes using the effective interest rate method.
2022 Senior Notes
On May 5, 2015, the Issuers executed an indenture (the “Indenture”) pursuant to which they issued $300.0 million
aggregate principal amount of 6.750% senior notes due May 1, 2022 (the “USD Notes”) and €375.0 million aggregate
principal amount of 6.375% senior notes due May 1, 2022 (the “Euro Notes”, and together with the USD Notes, the
“2022 Senior Notes”). Interest on the 2022 Senior Notes is payable semi-annually on May 1 and November 1 of each
year, commencing on November 1, 2015.
At any time prior to May 1, 2018, the Issuers may redeem the Euro Notes and/or the USD 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 May 1, 2018, the Issuers may redeem the Euro Notes and/or the USD 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,
F-23
on the notes redeemed to, but not including, the redemption date:
12-month period commencing May 1 in Year
2018
2019
2020 and thereafter
Euro Notes USD Notes
Percentage
Percentage
103.188 % 103.375 %
101.594 % 101.688 %
100.000 % 100.000 %
In addition, at any time prior to May 1, 2018, the Issuers may redeem up to 40% of the aggregate principal amount
of each of the USD Notes and the Euro Notes, either together or separately, at a redemption price equal to 106.750% of
the principal amount thereof for the USD Notes and 106.375% of the principal amount thereof for the Euro Notes plus,
in each case, accrued and unpaid interest to, but not including, the redemption date, in an amount equal to the aggregate
gross proceeds from certain equity offerings.
The 2022 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 2022
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 or make other
distributions, make investments, or prepay certain indebtedness, each subject to a number of exceptions and
qualifications. Certain of these covenants will be suspended during any period of time that (1) the 2022 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 2022 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
December 31, 2016 and 2015, the Company was in compliance with all debt covenant requirements under the Indenture.
Fees and expenses incurred in connection with the issuance of the 2022 Senior Notes were $16.0 million, which
are capitalized in the consolidated balance sheets and are being amortized over their 7.0 year term using the effective
interest method. As of December 31, 2016 and 2015, there were $12.9 million and $14.8 million, respectively, of
unamortized deferred financing fees in the consolidated balance sheets related to the 2022 Senior Notes.
Accounts Receivable Securitization Facility
In 2010, Styron Receivable Funding Ltd. (“SRF”), a VIE in which the Company is the primary beneficiary,
executed an agreement for an accounts receivable securitization facility (“Accounts Receivable Securitization Facility”).
As of December 31, 2016, the facility, as amended in October 2016, permitted borrowings by two of the Company’s
subsidiaries, Trinseo Europe GmbH (“TE”) and Trinseo Export GmbH (“Trinseo Export”), up to a total of
$200.0 million and has a maturity date of May 2019.
Under the facility, TE and Trinseo Export sell their accounts receivable from time to time to SRF. In turn, SRF
may sell undivided ownership interests in such receivables to commercial paper conduits in exchange for cash. The
Company has agreed to continue servicing the receivables for SRF. Upon the sale of the interests in the accounts
receivable by SRF, the conduits have a first priority perfected security interest in such receivables and, as a result, the
receivables will not be available to the creditors of the Company or its other subsidiaries.
The Accounts Receivable Securitization Facility is subject to interest charges against the amount of outstanding
borrowings as well as the amount of available, but undrawn commitments. 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%.
As of December 31, 2016 and 2015, there were no amounts outstanding under the Accounts Receivable
Securitization Facility, with approximately $126.5 million and $123.4 million, respectively, of funds available for
borrowing under this facility, based on the pool of eligible accounts receivable.
F-24
Unamortized deferred financing fees related to the Accounts Receivable Securitization Facility were zero and $0.5
million as of December 31, 2016 and 2015.
Other Indebtedness
The Company has a short-term revolving facility through our subsidiary in China that provides uncommitted funds
available for borrowing, subject to the availability of collateral. The facility is subject to annual renewal. Outstanding
borrowings under this revolving facility were zero as of December 31, 2016 and 2015, respectively.
NOTE 11—DERIVATIVE INSTRUMENTS
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange
rates. To manage these risks, the Company periodically enters into derivative financial instruments such as foreign
exchange forward contracts. The Company does not hold or enter into financial instruments for trading or speculative
purposes. All derivatives are recorded in the consolidated balance sheets at fair value. Refer to Note 13 for fair value
disclosures related to these instruments.
Foreign Exchange Forward Contracts
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional
currencies, which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes
in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on our consolidated
balance sheets 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 December 31, 2016, the Company had open foreign exchange forward contracts with a notional U.S. dollar
equivalent absolute value of $209.4 million. The following table displays the notional amounts of the most significant
net foreign exchange hedge positions outstanding as of December 31, 2016.
Buy / (Sell)
Chinese Yuan
Euro
Swiss Franc
Indonesian Rupiah
Japanese Yen
December 31,
2016
(67,571)
54,818
25,406
(25,099)
(11,640)
$
$
$
$
$
Open foreign exchange forward contracts as of December 31, 2016 have maturities of less than three months.
Foreign Exchange Cash Flow Hedges
The Company also enters into forward contracts with the objective of managing the currency risk associated with
forecasted U.S. dollar-denominated raw materials purchases by one of its subsidiaries whose functional currency is the
euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company buys a
designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the
fluctuations in the euro-to-U.S. dollar foreign currency exchange 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 to the extent effective, and reclassified to cost of sales in the period during which the transaction affects earnings
or it becomes probable that the forecasted transaction will not occur.
Open foreign exchange cash flow hedges as of December 31, 2016 have maturities occurring over a period of 12
months, and have a net notional U.S. dollar equivalent of $234.0 million.
F-25
Net Investment Hedge
The Company’s outstanding debt includes €375.0 million of Euro Notes (refer to Note 10). As of December 31,
2016, the Company has designated a portion (€280.0 million) of the principal amount of these Euro Notes as a hedge of
the foreign currency exposure of the Issuers’ net investment in certain European subsidiaries. As this debt was deemed to
be a highly effective hedge, changes in the Euro Notes’ carrying value resulting from fluctuations in the euro exchange
rate were recorded as cumulative foreign currency translation gain of $14.5 million within accumulated other
comprehensive income as of December 31, 2016.
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:
Designated as Cash Flow Hedges
Foreign exchange cash flow hedges
Total
Net Investment Hedges
Euro Notes
Total
Gain (Loss) Recognized in
AOCI on Balance Sheet
Gain (Loss) Recognized in
Statement of Operations
2016
2015
2014
2016
2015
2014
Year Ended December 31,
Statement of Operations
Classification
$ 6,703 $ 5,569 $ — $ 2,795 $
$ 6,703 $ 5,569 $ — $ 2,795 $
512 $
512 $
— Cost of sales
—
$ 14,061 $ 427 $ — $
$ 14,061 $ 427 $ — $
— $
— $
— $
— $
— Other expense, net
—
Not Designated as Cash Flow Hedges
Foreign exchange forward contracts
Total
$
$
— $
— $
— $ — $ 3,723 $ (16,526) $ (28,164) Other expense, net
— $ — $ 3,723 $ (16,526) $ (28,164)
The Company recorded gains of $3.7 million during the year ended December 31, 2016, and losses of
$16.5 million and $28.2 million during the years ended December 31, 2015 and 2014, respectively, from settlements and
changes in the fair value of outstanding forward contracts (not designated as hedges). The activity from these forward
contracts offset net foreign exchange transaction losses of $5.5 million during the year ended December 31, 2016, and
gains of $6.1 million and $32.4 million during the years ended December 31, 2015 and 2014, 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 consolidated
statements of cash flows.
As of December 31, 2016, the Company has no ineffectiveness related to its foreign exchange cash flow hedges.
Further, the Company expects to reclassify in the next twelve months an approximate $11.0 million net gain from other
comprehensive income (loss) into earnings related to the Company’s outstanding cash flow hedges as of
December 31, 2016 based on current foreign exchange rates.
F-26
The following table summarizes the net unrealized gains and losses and balance sheet classification of outstanding
derivatives recorded in the consolidated balance sheets:
Balance Sheet Classification
Asset Derivatives:
Accounts receivable, net of allowance
Deferred charges and other assets
Total asset derivatives
Liability Derivatives:
Accounts payable
Other noncurrent obligations
Total liability derivatives
Foreign
Exchange
Forward
Contracts
December 31, 2016
Foreign
Exchange
Cash Flow
Hedges
Total
Foreign
Exchange
Forward
Contracts
December 31, 2015
Foreign
Exchange
Cash Flow
Hedges
Total
$
$
1,664
—
1,664
$ 11,018 $ 12,682 $
—
—
$ 11,018 $ 12,682 $
4,592 $
—
4,592 $
4,958 $ 9,550
—
4,958 $ 9,550
—
$
511 $
—
$
511 $
— $
—
— $
511 $
—
511 $
194 $
—
194 $
— $
—
— $
194
—
194
Forward contracts 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 foreign exchange forward
contracts on a net basis by counterparty within the consolidated balance sheets. Information regarding the gross amounts
of the Company’s derivative instruments and the amounts offset in the consolidated balance sheets is as follows:
Balance at December 31, 2016
Derivative assets
Derivative liabilities
Balance at December 31, 2015
Derivative assets
Derivative liabilities
Gross Amounts
Recognized in the
Balance Sheet
Gross Amounts
Offset in the
Balance Sheet
Net Amounts
Presented in the
Balance Sheet
$
$
23,401 $
11,230
(10,719) $
(10,719)
12,682
511
10,044 $
688
(494) $
(494)
9,550
194
Refer to Notes 13 and 21 for further information regarding the fair value of the Company’s derivative instruments
and the related changes in accumulated other comprehensive income.
NOTE 12—SHAREHOLDERS’ EQUITY
Ordinary Shares
On June 17, 2014, the Company completed the IPO of 11,500,000 ordinary shares at a price of $19.00 per share.
The number of ordinary shares at closing included 1,500,000 of shares sold pursuant to the underwriters’ over-allotment
option. The Company received cash proceeds of $203.2 million from this transaction, net of underwriting discounts.
These net proceeds were used by the Company for: i) the July 2014 repayment of $132.5 million in aggregate principal
amount of the 2019 Senior Notes, together with accrued and unpaid interest thereon of $5.2 million and a call premium
of $4.0 million (refer to Note 10); ii) the payment of approximately $23.3 million in connection with the termination of
the Advisory Agreement with Bain Capital (refer to Note 18); iii) the payment of approximately $5.1 million of advisory,
accounting, legal and printing expenses directly related to the offering which were recorded as a reduction to additional
paid-in capital in the consolidated balance sheets; and iv) general corporate purposes.
F-27
Secondary Offerings and Tender Offer
During the year ended December 31, 2016, the former Parent sold 37,269,567 ordinary shares pursuant to the
Company’s shelf registration statement filed with the SEC. The following table summarizes these transactions.
Trade Month
March 2016(1)
May 2016
August 2016
September 2016
Underwriters
Goldman, Sachs & Co.
Goldman, Sachs & Co.
Morgan Stanley & Co. LLC
Jefferies LLC
Morgan Stanley & Co. LLC
Shares Sold by former Parent
Price per Share
10,600,000
$
8,000,000 $
8,000,000
$
10,669,567 $
35.63
42.90
49.15
54.05
(1) Concurrently with the completion of this offering, the Company agreed to repurchase from Goldman, Sachs & Co.
1,600,000 of the ordinary shares that were sold by the former Parent in the offering at the same $35.63 price per
share paid by Goldman, Sachs & Co. to the former Parent, resulting in an aggregate purchase price of $57.0 million.
Because a repurchase transaction was completed as part of the offering, in order to satisfy certain requirements of
Luxembourg law, promptly following the completion of the offering, the Company commenced a tender offer to
purchase up to an additional 1,165,000 shares from its shareholders (other than the former Parent) at the same price
per share that it paid to Goldman, Sachs & Co. for the shares repurchased as part of this offering. As a result of the
tender offer, 38,702 ordinary shares were repurchased by the Company for an aggregate purchase price of $1.4
million.
These repurchased shares were recorded at cost within “Treasury shares” in the consolidated balance sheets.
Additional Share Repurchases and Repayment of Equity
Under authorization from the Company’s shareholders and board of directors, during the year ended December 31,
2016, the Company purchased an additional 2,864,870 ordinary shares from its shareholders through a combination of
open market transactions for an aggregate purchase price of $156.7 million (with $3.4 million of additional repurchases
not yet settled accrued on the consolidated balance sheet as of December 31, 2016). These repurchased shares have been
recorded at cost within “Treasury shares” in the consolidated balance sheets.
As of December 31, 2016, there were approximately 2,332,067 ordinary shares available for repurchase under
existing authorization from shareholders and the board of directors. This authorization ends on June 21, 2018 or on the
date of its renewal by a subsequent general meeting of shareholders.
In 2016, pursuant to the authority granted to it by its shareholders, the Company began declaring repayments of
equity on its’ ordinary shares, summarized as follows:
Month of Declaration
June 2016
September 2016
December 2016
Date of Record
July 6, 2016
Date of Payment
July 20, 2016
October 12, 2016 October 26, 2016
January 25, 2017
January 11, 2017
Repayment of Equity per Share Total Repayment of Equity
13,920
0.30 $
$
13,396
0.30 $
$
13,252 (1)
0.30 $
$
(1) This amount was recorded within “Accrued expenses and other current liabilities” on the Company’s
consolidated balance sheet as of December 31, 2016..
NOTE 13—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.
F-28
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 consolidated balance sheets at December 31, 2016 and 2015.
Assets (Liabilities) at Fair Value
Foreign exchange forward contracts—
Assets
Foreign exchange forward contracts—
(Liabilities)
Foreign exchange cash flow hedges—
Assets
Total fair value
Assets (Liabilities) at Fair Value
Foreign exchange forward contracts—
Assets
Foreign exchange forward contracts—
(Liabilities)
Foreign exchange cash flow hedges—
Assets
Total fair value
December 31, 2016
Quoted Prices in
Active Markets for
Identical Items
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
— $
1,664
$
—
$
1,664
—
(511)
—
(511)
$
—
— $
11,018
12,171 $
—
— $
11,018
12,171
December 31, 2015
Quoted Prices in
Active Markets for
Identical Items
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
— $
4,592
$
—
$
4,592
—
(194)
—
$
—
— $
4,958
9,356 $
—
— $
(194)
4,958
9,356
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.
Significant inputs to the valuation for foreign exchange forward contracts and foreign exchange cash flow hedges 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.
Nonrecurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a nonrecurring basis as of
December 31, 2016 were as follows:
Assets:
Livorno property, plant and
equipment (Note 20)
Total
December 31, 2016
Quoted Prices in
Active Markets for
Identical Items
(Level 1)
Significant Other
Observable Inputs
Significant
Unobservable Inputs
(Level 2)
(Level 3)
Total Expense for
the Year Ended
December 31, 2016
Total
$
$
$
—
— $
$
—
— $
11,040
11,040
$
$
13,706
13,706
Refer to Note 20 for information regarding the Livorno plant restructuring announced during the third quarter of
2016. As a result, the Company determined that the long-lived assets at the Livorno latex binders facility, which included
F-29
land and depreciable long-lived assets, should be assessed for impairment. This assessment indicated that the carrying
value of the asset group was not recoverable when compared to the expected undiscounted cash flows from the operation
and eventual disposition of these assets. Based upon our assessment, the Company concluded that the fair value of this
asset group totaled $11.0 million as of December 31, 2016. As a result, the Company recorded an impairment loss on
these assets of approximately $13.7 million for the year ended December 31, 2016. The amount was recorded within
“Selling, general and administrative expenses” in the consolidated statement of operations and allocated entirely to the
Latex Binders segment.
The fair value of the depreciable assets was determined under the income approach, utilizing a discounted cash
flow model. The key assumption in this model was cash flow projections, which were determined to be nil, as the plant
ceased manufacturing operations in October 2016. The fair value of the land was determined utilizing a combination of
the market and income approaches, utilizing key inputs such as recent comparable market transactions, expected date of
sale, and discount rate.
There were no other financial assets and liabilities measured at fair value on a nonrecurring basis as of December
31, 2016 and 2015.
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 December 31, 2016 and 2015, respectively:
2022 Senior Notes
USD Notes
Euro Notes
2021 Term Loan B
Total fair value
As of
As of
December 31, 2016 December 31, 2015
$
315,000 $
424,437
498,041
$
1,237,478
$
296,250
410,054
491,401
1,197,705
The fair value of the Company’s Term Loan B, USD Notes, and Euro Notes (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 December 31, 2016 and 2015.
NOTE 14—INCOME TAXES
Income (loss) before income taxes earned within and outside the United States is shown below:
Year Ended
December 31,
United States
Outside of the United States
Income (loss) before income taxes
$
$
2016
137,232 $
268,077
405,309
$
2015
105,220 $
98,636
203,856
$
2014
17,522
(65,135)
(47,613)
The provision for (benefit from) income taxes is composed of:
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Year Ended
December 31, 2014
U.S. federal
U.S. state and
other
Non-U.S.
Total
Current
Deferred
Total
$ 24,818 $ 15,628 $ 40,446
Current
$ 28,253
Deferred
$ 238 $ 28,491
Total
Current
Deferred
$ 2,101 $ (2,536) $ (435)
Total
3,989
42,102
298
19,856
$ 70,909 $ 16,088 $ 86,997 $ 70,286 $ (77) $ 70,209 $ 14,886 $ 4,833 $ 19,719
1,335
(875)
12,490
4,566
4,535
5,324
295
(31)
(284)
41,227
37,183
37,467
7,366
3
F-30
The effective tax rate on pre-tax income differs from the U.S. statutory rate due to the following:
Taxes at U.S. statutory rate(1)
State and local income taxes
Non U.S. statutory rates, including credits
U.S. tax effect of foreign earnings and
dividends
Unremitted earnings
Change in valuation allowances
Uncertain tax positions
Withholding taxes on interest and royalties
U.S. manufacturing deduction
Stock-based compensation
Non-deductible interest
Non-deductible other expenses
Impact on foreign currency exchange
Other—net
Total provision for income taxes
Effective tax rate
Year Ended December 31,
2016
$ 141,858 $
3,928
(77,841)
2014
2015
71,350 $ (16,664)
571
2,988
899
(29,868)
(1,663)
3,766
6,186
(1,804)
2,452
(2,905)
2,060
2,527
5,974
2,086
373
86,997 $
21 %
(1,942)
4,008
24,292
1,155
2,570
(2,979)
1,231
3,142
857
(3,521)
(3,074)
70,209 $
34 %
(2,112)
(189)
14,679
(2,818)
3,652
—
3,343
5,401
15,589
(2,643)
11
19,719
(2)
(41)%
$
(1) The U.S. statutory rate has been used as management believes it is more meaningful to the Company.
(2) Non-deductible other expenses in 2014 include the tax effect of fees incurred for the termination of the Latex JV
Option Agreement with Dow and a portion of the fees incurred in connection with the termination of the Advisory
Agreement with Bain Capital. Refer to Note 18 for further information.
Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and
tax reporting:
December 31,
Tax loss and credit carry forwards
Unremitted earnings
Unconsolidated affiliates
Other accruals and reserves
Property, plant and equipment
Goodwill and other intangible assets
Deferred financing fees
Employee benefits
Valuation allowance
Total
2016
Deferred
Tax
Assets
104,435 $
—
$
4,383
1,715
—
13,766
13,206
45,474
182,979
(112,641)
70,338
$
Deferred
Tax
Liabilities
— $
10,597
—
—
44,398
—
—
—
54,995
—
$
54,995
$
2015
Deferred
Tax
Assets
Deferred
Tax
Liabilities
76,436 $
—
6,532
2,366
—
14,880
17,698
39,037
156,949
(85,092)
71,857
$
—
6,781
—
—
39,445
—
—
—
46,226
—
46,226
As of December 31, 2016 and 2015, all undistributed earnings of foreign subsidiaries and affiliates are expected to
be repatriated.
Operating loss carryforwards amounted to $404.6 million in 2016 and $263.9 million in 2015. As of December 31,
2016, $47.3 million of the operating loss carryforwards were subject to expiration in 2017 through 2021, and $357.3
million of the operating loss carryforwards expire in years beyond 2021 or have an indefinite carryforward period. As of
December 31, 2016, the Company had tax credit carryforwards of $3.2 million relating to U.S. foreign tax credits, of
which a portion will begin to expire in 2023.
F-31
The Company had valuation allowances which were related to the realization of recorded tax benefits on tax loss
carryforwards, as well as other net deferred tax assets, primarily from subsidiaries in Luxembourg and China, of $112.6
million as of December 31, 2016 and $85.1 million as of December 31, 2015. In addition, the Company recorded a
valuation allowance of $7.3 million on the net deferred tax asset of one of its China subsidiaries during the year ended
December 31, 2015, as this entity was in a three year cumulative loss position as of December 31, 2015 and the
Company could no longer assert it would more likely than not be able to realize its deferred tax asset. This conclusion
remains consistent as of December 31, 2016.
For the years presented, a reconciliation of the beginning and ending amount of the unrecognized tax benefits is as
follows:
Balance as of December 31, 2013
Increases related to current year tax positions
Decreases related to prior year tax positions
Balance as of December 31, 2014
Increases related to current year tax positions
Decreases related to prior year tax positions
Balance as of December 31, 2015
Increases related to current year tax positions
Increases related to prior year tax positions
Decreases related to prior year tax positions
Settlement of uncertain tax positions
Decreases due to expiration of statutes of limitations
Balance as of December 31, 2016
$
$
$
$
26,899
187
(6,701)
20,385
1,304
(1,647)
20,042
108
3,981
(5,972)
(1,087)
(968)
16,104
The Company recognized interest and penalties of $0.9 million, $0.7 million, and less than $0.1 million for the
years ended December 31, 2016, 2015, and 2014, respectively, which was included as a component of income tax
expense in the consolidated statements of operations. As of December 31, 2016 and 2015, the Company had $3.1 million
and $2.3 million, respectively, accrued for interest and penalties. To the extent that the unrecognized tax benefits are
recognized in the future, $12.7 million will impact the Company’s effective tax rate.
The Company is currently under examination in a number of tax jurisdictions. Although it is difficult to predict
the timing or results of these worldwide examinations, the company believes it is reasonably possible that approximately
$4.0 million to $5.0 million of unrecognized income tax benefits, including the impact relating to accrued interest and
penalties, could be realized within the next twelve months.
Tax years that remain subject to examination for the Company’s major tax jurisdictions are shown below.
Major Tax Jurisdictions
United States: Federal income tax
Germany
Switzerland
Netherlands
Luxembourg
China
Hong Kong
Indonesia
Italy
Earliest Open
Year
2012
2010
2012
2015
2010
2007
2008
2008
2010
F-32
NOTE 15—COMMITMENTS AND CONTINGENCIES
Leased Property
The Company routinely leases premises for use as sales and administrative offices, warehouses and tanks for
product storage, railcars, motor vehicles, and other equipment under operating leases. Rental expense for these leases
was $16.0 million, $18.4 million and $15.9 million during the years ended December 31, 2016, 2015, and 2014,
respectively.
Future minimum rental payments under operating leases with remaining non-cancelable terms in excess of one
year are as follows:
Year
2017
2018
2019
2020
2021
Thereafter
Total
Annual
Commitment
$ 11,041
9,449
8,281
5,919
3,824
17,134
$ 55,648
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.
As of December 31, 2016 and 2015, the Company had no accrued obligations for environmental remediation and
restoration costs. Pursuant to the terms of the Acquisition, the pre-closing environmental conditions were retained by
Dow and the Company has been indemnified by Dow from and against all environmental liabilities incurred or relating
to the predecessor periods. There are several properties which the Company now owns on which Dow has been
conducting investigation, monitoring, or remediation to address historical contamination. Those properties include
Allyn’s Point, Connecticut, Dalton, Georgia, and Livorno, Italy. There are other properties with historical contamination
that are owned by Dow that the Company leases for its operations, including its facilities in Midland, Michigan,
Schkopau, Germany, and Terneuzen, The Netherlands. No environmental claims have been asserted or threatened
against the Company, and the Company is not a potentially responsible party at any Superfund Sites.
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 consolidated financial statements.
There were no amounts recorded in the consolidated statements of operations relating to environmental
remediation for the years ended December 31, 2016, 2015, and 2014.
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. The following
F-33
table presents the fixed and determinable portion (based on current pricing) of the obligation under the Company’s
purchase commitments as of December 31, 2016 (in millions):
Year
2017
2018
2019
2020
2021
Thereafter
Total
Annual
Commitment
1,420
$
1,178
801
860
5
—
4,264
$
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 obligations shown in the table above.
The Company has service agreements with Dow, some of which contain fixed annual fees. Refer to Note 18 for
further information.
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 16—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Defined Benefit Pension Plans
Many of the Company’s employees are participants in various defined benefit pension plans which are
administered and sponsored by the Company and are primarily in Germany, Switzerland, The Netherlands, Belgium and
Japan.
Company employees who were not previously associated with the acquired pension and postretirement plans are
generally not eligible for enrollment in these plans. Pension benefits are typically based on length of service and the
employee’s final average compensation.
Other Postretirement Benefits
The Company provides certain health care and life insurance benefits to Dow-heritage employees in the United
States when they retire. Prior to the 2016 divestiture of the Company’s latex binders and automotive businesses in Brazil
(refer to Note 3 in the consolidated financial statements), the Company also provided health care and life insurance
benefits to retired employees in Brazil.
In the U.S., the plan provides for health care benefits, including hospital, physicians’ services, drug and major
medical expense coverage. In general, the plan applies to employees hired by Dow before January 1, 2008 and
transferred to the Company in connection with the Acquisition, and who are at least 50 years old with 10 years of
service. The plan allows for spouse coverage as well. If an employee was hired on or before January 1, 1993, the
coverage extends past age 65. For employees hired after January 1, 1993 but before January 1, 2008, coverage ends at
age 65. The Company reserves the right to modify the provisions of the plan at any time, including the right to terminate,
and does not guarantee the continuation of the plan or its provisions.
F-34
Prior to the divestiture of operations in Brazil, the Company provided an insured medical benefit to all employees
and eligible dependents under Brazil’s healthcare legislation, which grants the right to employees (and their
beneficiaries) who have contributed towards the medical plan to extend medical coverage upon retirement or in case of
involuntary dismissal. The extended medical plan must include the same level of coverage and other conditions offered
to active employees, whereas former employees must assume 100% of the premium cost. Prior to 2014, the Company
had not accrued for the postretirement benefits owed under this plan. As a result, for the year ended December 31, 2014,
a $2.7 million liability was recorded, which includes an adjustment related to the original purchase price allocation from
the Acquisition as a portion of this obligation was assumed from Dow. The impact of this adjustment was a $1.7 million
increase to goodwill and $1.0 million of net periodic benefit costs, net of currency remeasurement gains, incurred from
the date of the Acquisition through December 31, 2013. The Company does not believe these adjustments were material
to any prior period financial statements.
In The Netherlands, the Company previously provided postretirement medical benefits to Dow-heritage employees
who transferred to the Company in connection with the Acquisition. The Company ceased providing these benefits
effective January 1, 2015. As a result, the Company recognized approximately $1.5 million of curtailment gain for the
year ended December 31, 2014.
Assumptions
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs are
provided below:
Pension Plan Obligations
Net Periodic Benefit Costs
Discount rate
Rate of increase in future compensation levels
Expected long-term rate of return on plan assets
December 31,
2015
2014
2016
1.65 % 2.06 % 2.01 % 2.06 % 2.01 % 3.30 %
2.68 % 2.71 %
2.61 %
2.86 %
1.79 % 1.73 % 2.83 %
N/A
2.71 %
N/A
2.68 %
N/A
2014
2016
December 31,
2015
The weighted-average assumptions used to determine other postretirement benefit (“OPEB”) obligations and net
periodic benefit costs are provided below:
OPEB Obligations
Net Periodic Benefit Costs
Discount rate
Initial health care cost trend rate
Ultimate health care cost trend rate
Year ultimate trend rate to be reached
December 31,
December 31,
2015
2015
2014
2016
2016
4.16 % 6.51 % 6.40 % 6.51 % 6.40 % 6.69 %
6.70 %
6.67 %
5.00 % 5.26 % 5.43 % 5.26 % 5.43 % 5.00 %
2022
8.19 % 8.05 %
8.05 %
8.19 %
2021
2023
2019
2021
2023
2014
The discount rate utilized to measure the pension and other postretirement benefit plans is based on the yield of
high-quality fixed income debt instruments at the measurement date. Future expected, actuarially determined cash flows
of the plans are matched against a yield curve to arrive at a single discount rate for each plan.
The expected long-term rate of return on plan assets is determined by performing a detailed analysis of key
economic and market factors driving historical returns for each asset class and formulating a projected return based on
factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth,
interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of
return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for
each plan. The historical experience with the pension fund asset performance is also considered.
A one-percentage point change in the assumed health care cost trend rate would have had a nominal effect on both
service and interest costs, but would result in an approximate $0.4 million impact to the projected benefit obligation.
F-35
The net periodic benefit costs for the pension and other postretirement benefit plans for the years ended
December 31, 2016, 2015, and 2014 were as follows:
Defined Benefit Pension Plans
Other Postretirement Benefit Plans
December 31,
December 31,
2016
2015
2014
2016
2015
2014
Net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
(credit)
Amortization of net (gain) loss
Settlement and curtailment (gain) loss
Net periodic benefit cost (income)
Amounts recognized in other
comprehensive income (loss)
Net loss (gain)
Amortization of prior service (cost)
credit
Amortization of net gain (loss)
Settlement and curtailment gain (loss)
Prior service cost (credit)
Acquisitions/divestitures
Total recognized in other
comprehensive income (loss)
Net periodic benefit cost (income)
Total recognized in net periodic benefit
cost and other comprehensive income
(loss)
$ 16,511 $ 16,595 $ 14,097 $
5,219
(1,617)
5,500
(1,958)
7,687
(2,427)
$
243
447
—
338 $ 1,048 (4)
516
1,189 (4)
—
—
(1,940)
4,397
—
(1,567)
5,466
—
(1,002)
2,557
1,517 (1)
102
(171)
—
$ 22,510 $ 24,096 $ 22,429 $
621 $
102
—
—
956 $
102
(45)(4)
(1,507)(2)
787
$ 24,844 $ (6,299) $ 56,318 $ 1,864
$ (1,498) $ 1,263 (4)
1,940
(4,397)
—
—
156 (6)
1,567
(5,466)
—
1,002
(2,557)
(1,517)
(3,373)(5) (12,706)(3)
(102)
171
—
—
—
— (1,144)(6)
(102)
—
—
—
—
(102)
45 (4)
(242)
—
—
22,543
22,510
(13,571)
24,096
40,540
22,429
789
621
(1,600)
956
964
787
$ 45,053 $ 10,525 $ 62,969 $ 1,410 $
(644) $ 1,751
(1) This amount represents settlement losses from one of the Company’s defined benefit plans in Switzerland due to the
termination of certain employees during the year, which resulted in a loss recognized in the year ended
December 31, 2014 due to a charge against the unamortized net loss recorded in other comprehensive income.
(2) This amount represents a curtailment gain from the Company’s other postretirement benefit plan in The
Netherlands, due to the cessation of retiree medical benefit accruals effective January 1, 2015.
(3) This adjustment was made to the Company’s pension plan in The Netherlands to reflect the introduction of a salary
cap and lower accrual rate on pension benefits as a result of tax law changes effective January 1, 2015. The impact
of the change resulted in an adjustment to prior service credit in other comprehensive income as of
December 31, 2014, which will be amortized to net periodic benefit cost over the estimated remaining service period
of the employees.
(4) These amounts include the prior period net periodic cost and other comprehensive income components of the
postretirement benefits in Brazil recognized during 2014, as discussed above.
(5) This amount is primarily related to a reduction in annuity conversion rates announced by the insurance provider for
the pension plans in Switzerland. The impact of the change resulted in an adjustment to prior service credit in other
comprehensive income as of December 31, 2015, which will be amortized to net periodic benefit cost over the
estimated remaining service period of the employees.
(6) These amounts relate to the Company’s divestiture of its Brazilian business during 2016. As of December 31, 2016,
the Company had no residual AOCI balances recorded related to the Brazilian pension and postretirement medical
plans.
F-36
The changes in the pension benefit obligations and the fair value of plan assets and the funded status of all
significant plans for the years ended December 31, 2016 and 2015 were as follows:
Change in projected benefit obligations
Benefit obligation at beginning of period
Service cost
Interest cost
Plan participants’ contributions
Actuarial changes in assumptions and experience
Benefits paid from fund
Benefit payments by employer
Acquisitions/divestitures
Plan amendments
Curtailments
Settlements
Other
Currency impact
Benefit obligation at end of period
Change in plan assets
Fair value of plan assets at beginning of period
Actual return on plan assets(7)
Settlements
Employer contributions
Plan participants’ contributions
Benefits paid
Other
Currency impact
Fair value of plan assets at end of period
Funded status at end of period
Defined Benefit
Pension Plans
December 31,
Other Postretirement
Benefit Plans
December 31,
2016
2015
2016
2015
$ 265,470
$ 280,091
$
16,511
5,500
2,320
27,647
89
(1,888)
(850)
—
—
—
—
16,595
5,219
2,578
(7,485)
(4,087)
(1,652)
—
(3,373)
—
—
—
(11,472)
(22,416)
$ 303,327
$ 265,470
$ 100,505
$
92,570
$
$
4,761
—
12,761
2,320
(1,799)
—
(4,348)
430
—
16,828
2,578
(5,739)
—
(6,162)
114,200
$ (189,127)
100,505
$ (164,965)
$
7,567
243
447
—
1,864
—
(46)
(3,963)
—
—
—
—
539
6,651
—
—
—
46
—
(46)
—
—
—
(6,651)
$
$
$
9,077
338
516
—
(1,498)
—
(3)
—
—
—
—
—
(863)
7,567
—
—
—
3
—
(3)
—
—
—
$
(7,567)
(7) The fair values of certain plan assets as of December 31, 2016 and 2015 were determined using cash surrender values
provided under the insurance contracts which took effect on January 1, 2013. The resulting change in the fair value of
plan assets due to the use of cash surrender values was included as “return on plan assets”.
F-37
The net amounts recognized in the consolidated balance sheets as of December 31, 2016 and 2015 were as follows:
Defined Benefit
Pension Plans
December 31,
Other Postretirement
Benefit Plans
December 31,
2016
2015
2016
2015
Net amounts recognized in the balance sheets as of
December 31
Current liabilities
Noncurrent liabilities
Net amounts recognized in the balance sheet
Accumulated benefit obligation at the end of the period
Pretax amounts recognized in AOCI as of
December 31:
Net prior service cost (credit)
Net loss (gain)
Total at end of period
$
(1,571)
(187,556)
$ (189,127)
$ 245,342
$
(1,180)
(163,785)
$ (164,965)
$ 205,641
$ (21,252)
105,965
84,713
$
$ (23,192)
85,362
62,170
$
$
$
$
$
$
(60)
(6,591)
(6,651)
6,651
424
(873)
(449)
$
$
$
$
$
(48)
(7,519)
(7,567)
7,567
526
(1,764)
(1,238)
Approximately $5.4 million and $1.9 million of net loss and net prior service credit, respectively, for the defined
benefit pension plans and less than $0.1 million and $0.1 million of net gain and net prior service cost, respectively, for
other postretirement benefit plans will be amortized from accumulated other comprehensive income to net periodic
benefit cost in 2017.
The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the
following table:
Defined benefit pension plans
Other postretirement benefit plans
Total
2017
$ 4,347
2018
$ 4,395
2019
$ 4,478
2020
$ 5,412
60
93
137
188
$ 4,407
$ 4,488
$ 4,615
$ 5,600
2021
$ 4,835
247
$ 5,082
2022
through
2026
$ 38,924
2,350
$ 41,274
Total
$ 62,391
3,075
$ 65,466
The Company estimates it will make cash contributions, including benefit payments for unfunded plans, of $12.7
million in 2017 to the defined benefit pension plans.
The following information relates to pension plans with projected and accumulated benefit obligations in excess of
the fair value of plan assets as of December 31, 2016 and 2015:
Projected Benefit Obligation
Exceeds the Fair Value of Plan Assets
Projected benefit obligations
Fair value of plan assets
Accumulated Benefit Obligation
Exceeds the Fair Value of Plan Assets
Accumulated benefit obligations
Fair value of plan assets
December 31,
2016
2015
$ 303,327 $ 265,470
$ 114,200 $ 100,505
December 31,
2016
2015
$ 201,940 $ 161,520
41,365
45,378 $
$
Plan Assets
As of December 31, 2016 and 2015, respectively, plan assets totaled $114.2 million and $100.5 million, consisting
of investments in insurance contracts. Investments in the pension plan insurance were valued utilizing unobservable
inputs, which are contractually determined based on cash surrender values, returns, fees, and the present value of the
future cash flows of the contracts.
F-38
Insurance contracts are classified as Level 3 investments. Changes in the fair value of these level 3 investments
during the years ended December 31, 2016 and 2015 are included in the “Change in plan assets” table above.
Concentration of Risk
The Company mitigates the credit risk of investments by establishing guidelines with investment managers that
limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These
guidelines are monitored for compliance both by the Company and external managers. Credit risk related to derivative
activity is mitigated by utilizing multiple counterparties and through collateral support agreements.
Supplemental Employee Retirement Plan
The Company established a non-qualified supplemental employee retirement plan in 2010. The net benefit costs
recognized for the years ended December 31, 2016, 2015, and 2014 were $1.1 million, $1.0 million, and $1.3 million,
respectively. Benefit obligations under this plan were $15.1 million and $13.7 million as of December 31, 2016 and
2015, respectively. As of December 31, 2016 and 2015, the amounts of net loss included in AOCI were $1.8 million and
$1.6 million, respectively, with $1.0 million and $0.8 million amortized from AOCI into net periodic benefit costs during
the years ended December 31, 2016 and 2015, respectively. Approximately $0.9 million is expected to be amortized
from AOCI into net periodic benefit cost in 2017.
Based on the Company’s current estimates, the estimated future benefit payments under this plan, reflecting
expected future service, as appropriate, are presented in the following table:
Supplemental employee retirement
plan
$
— $ 15,518
$
— $
— $
—
$
— $ 15,518
2017
2018
2019
2020
2021
Thereafter
Total
Defined Contribution Plans
The Company also offers defined contribution plans to eligible employees in the U.S. and in other countries,
including China, Belgium, Hong Kong, Korea, The Netherlands, Taiwan and the United Kingdom. The defined
contribution plans are comprised of a non-discretionary elective matching contribution component as well as a
discretionary non-elective contribution component. Employees participate in the non-discretionary component by
contributing a portion of their eligible compensation to the plan, which is partially matched by the Company. Non-
elective contributions are made at the discretion of the Company and are based on a combination of eligible employee
compensation and performance award targets. For the years ended December 31, 2016, 2015, and 2014, respectively, the
Company contributed $8.6 million, $7.8 million, and $6.8 million to the defined contribution plans.
F-39
NOTE 17—STOCK-BASED COMPENSATION
Summary of Stock-based Compensation Expense
Stock-based compensation expense, which is recorded within “Selling, general and administrative expenses” in the
consolidated statements of operations, was as follows for the years ended December 31, 2016, 2015, and 2014,
respectively:
2014 Omnibus Plan Awards
RSUs
Option Awards
Liability Awards
Year Ended December 31,
2016
2015
2014
$ 5,322
5,590
329
$ 2,114
3,039
43
$
100
—
—
Restricted Stock Awards Issued by the former Parent
Time-based Restricted Stock Awards
Modified Time-based Restricted Stock Awards
1,646
4,503
2,531
2,406
7,037
2,469
Management Retention Awards
Liability awards issued by the former Parent
—
60
Total stock-based compensation expense
$ 17,450
(1,089)
48
$ 9,092
896
50
$ 10,552
2014 Omnibus Plan
In connection with the IPO, the Company’s board of directors approved the 2014 Omnibus Plan, adopted on
May 28, 2014, under which 4.5 million ordinary shares is the maximum number that may be delivered upon satisfaction
of awards granted. Following the IPO, all equity-based awards granted by the Company will be granted under the 2014
Omnibus Plan, which provides for awards of stock options, share appreciation rights, restricted stock, unrestricted stock,
stock units, performance awards, cash awards and other awards convertible into or otherwise based on ordinary shares of
the Company. Since the IPO, the board of directors of the Company has approved equity award grants for certain
directors, executives, and employees, including restricted share units (or RSUs) and options to purchase shares (or
options awards).
Restricted Share Units (RSUs)
The RSUs granted to executives and employees vest in full on the third anniversary of the date of grant, generally
subject to the employee remaining continuously employed by the Company through the vesting date. RSUs granted to
directors of the Company vest in full on the first anniversary of the date of grant. Upon a termination of employment due
to the employee’s death or retirement or a termination of employment by the Company without cause in connection with
a restructuring or redundancy or due to the employee’s disability prior to the vesting date, the RSUs will vest in full or in
part, depending on the type of termination. In the event employment is terminated for cause, all unvested RSUs will be
forfeited. When RSUs vest, shares are issued from the existing pool of treasury shares.
Compensation cost for RSUs is measured at grant date based on the fair value of the award and is recognized
ratably as expense over the applicable vesting term. Prior to November 2016, dividend and dividend equivalents did not
accumulate on unvested RSUs. In November 2016, the board of directors approved an amendment to all outstanding
RSUs, entitling each award holder to an amount equal to any cash dividend or repayment of equity paid by the Company
upon one ordinary share for each RSU held by the award holder (“dividend equivalents”). The dividend equivalents
earned on the RSUs only include dividends or repayments of equity paid after this amendment and the award holders
have no right to receive the dividend equivalents unless and until the associated RSUs vest. The dividend equivalents
will be payable in cash and will not accrue interest. The impact of this amendment is immaterial to the consolidated
financial statements.
The fair value of RSUs is equal to the fair market value of the Company’s ordinary shares based on the closing
price on the date of grant. Total compensation expense for RSUs was $5.3 million, $2.1 million, and $0.1 million for the
years ended December 31, 2016, 2015, and 2014, respectively. As of December 31, 2016, there was $9.4 million of total
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unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of
1.8 years.
The following table summarizes the award activity for RSUs during the year ended December 31, 2016:
Restricted Share Units
Unvested, December 31, 2015
Granted
Vested
Forfeited
Unvested, December 31, 2016
Weighted-Average
Shares
412,410
342,136
(17,570)
(14,193)
722,783
Grant Date
Fair Value per Share
18.62
$
28.39
27.19
26.73
22.88
$
The following table summarizes the weighted-average grant date fair value per share of RSUs granted during the
years ended December 31, 2016, 2015, and 2014 as well as the total fair value of awards vested during those periods:
Restricted Share Units
Weighted-Average Grant Date
Fair Value per Share
of Grants during Period
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
$
$
$
28.39
18.67
19.00
Total Fair Value
of Awards Vested
during Period
478
180
N/A (1)
$
$
(1) No RSUs vested during the year ended December 31, 2014.
Option Awards
The option awards, which contain an exercise term of nine years from the date of grant, vest in three equal annual
installments beginning on the first anniversary of the date of grant, generally subject to the employee remaining
continuously employed on the applicable vesting date. Upon a termination of employment due to the employee’s death
or retirement or a termination of employment by the Company without cause in connection with a restructuring or
redundancy or due to the employee’s disability prior to a vesting date, the option awards will vest in full or will continue
to vest on the original vesting schedule, depending on the type of termination. In the event employment is terminated for
cause, all vested and unvested option awards will be forfeited. When option awards are exercised, shares are issued from
the existing pool of treasury shares.
Compensation cost for option awards is measured at the grant date based on the fair value of the award and is
recognized as expense over the appropriate service period utilizing graded vesting. Total compensation expense for
option awards was $5.6 million, $3.0 million, and zero for the years ended December 31, 2016, 2015, and 2014,
respectively. As of December 31, 2016, there was $1.4 million of total unrecognized compensation cost related to option
awards, which is expected to be recognized over a weighted-average period of 1.4 years.
F-41
The following table summarizes the activity for option awards during the years ended December 31, 2016 and
2015 (noting no granted awards prior to 2015):
Weighted-AverageWeighted-Average Aggregate
Intrinsic
Value
Exercise Price
Term (years)
Contractual
per share
Shares
Option Awards
Outstanding as of December 31, 2014
Granted
Exercised
Forfeited
Outstanding as of December 31, 2015
Granted
Exercised
Forfeited
— $
607,382
—
(48,641)
558,741
569,281
(11,562)
(6,160)
$
Outstanding as of December 31, 2016
Exercisable as of December 31, 2016
Expected to vest as of December 31,
1,110,300
$
174,667 $
—
18.20
—
18.14
18.20
27.96
18.46
22.90
23.18
18.19
7.7 $ 40,109
7.2 $ 7,181
2016
935,633 $
24.11
7.8 $ 32,928
The range of exercise prices for the above option awards outstanding at December 31, 2016 is from
$18.14 to $47.45. During the year ended December 31, 2016, the Company received cash of $0.2 million from the
exercise of option awards and the total intrinsic value of option awards exercised was $0.4 million (noting no option
awards were exercised in 2015 or 2014).
The fair value for option awards is computed using the Black-Scholes pricing model, whose inputs and
assumptions are determined as of the date of grant. Determining the fair value of the option awards requires considerable
judgment, including estimating the expected term of said awards and the expected volatility of the price of the
Company’s ordinary shares.
Since the Company’s equity interests were privately held prior to the IPO in June 2014, there is limited publicly
traded 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 all grants of option awards presented herein, 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.
The following are the weighted-average assumptions used within the Black-Scholes pricing model for grants
during the years ended December 31, 2016 and 2015:
Expected term (in years)
Expected volatility
Risk-free interest rate
Dividend yield
Year Ended December 31,
2016
2015
5.50
40.00 %
1.42 %
0.60 %
5.50
45.00 %
1.65 %
— %
Utilizing the above assumptions, the weighted average grant date fair value per option award granted in
the years ended December 31, 2016 and 2015 was $10.10 and $7.82, respectively (noting no granted awards prior to
2015).
F-42
Restricted Stock Awards issued by the former Parent
On June 17, 2010, the former Parent authorized the issuance of up to 750,000 of its shares in restricted stock
awards to certain key members of management. Any related compensation associated with these awards has since been
allocated to the Company from the former Parent. Since the adoption of the 2014 Omnibus Plan in May 2014, discussed
further above, restricted stock awards are no longer issued by the former Parent on behalf of the Company.
During the year ended December 31, 2016, the former Parent completed the sale of its ordinary shares of the
Company through secondary offerings, and as a result, no longer holds an ownership interest in the Company. Refer to
Note 12 for further information. Given that the former Parent sold its interest in the substantive assets of the Company,
under the terms of the related securityholder agreements, vesting of all outstanding restricted stock awards was fully
accelerated into the year ended December 31, 2016. There will be no additional expense related to these awards in future
periods.
Time-based Restricted Stock Awards
Prior to the full acceleration of vesting in 2016 noted above, the time-based restricted stock awards issued by the
former Parent contained a service-based condition that required continued employment with the Company. Generally,
these awards were to vest over three to five years of service, with a portion (20% to 40%) cliff vesting after the first one
or two years, and the remaining portion vesting ratably over the subsequent service period. Compensation cost for the
time-based restricted stock awards was measured at the grant date based on the fair value of the award and was
recognized as expense over the appropriate service period utilizing graded vesting.
Total compensation expense for time-based restricted stock awards was $1.6 million, $2.5 million, and $7.0
million for the years ended December 31, 2016, 2015, and 2014, respectively. As of December 31, 2016, there was no
unrecognized compensation cost related to these awards.
The following table summarizes the activity in the former Parent’s time-based restricted stock awards during the
year ended December 31, 2016:
Time-based restricted stock
Unvested, December 31, 2015
Granted
Vested
Forfeited
Unvested, December 31, 2016
Weighted-Average
Shares
30,171
—
(30,171)
—
—
Grant Date
Fair Value per Share
156.65
$
—
156.65
—
—
$
The following table summarizes the weighted-average grant date fair value per share of time-based restricted stock
awards granted during the years ended December 31, 2016, 2015, and 2014, as well as the total fair value of awards
vested during those periods:
Time-Based Restricted Stock
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
Fair Value per Share
of Grants during Period
Weighted-Average Grant Date Total Fair Value
of Awards Vested
during Period
4,726
5,109
10,783
N/A (1) $
N/A (1) $
N/A (1) $
(1) There were no grants of time-based restricted stock awards by the former Parent during the years ended
December 31, 2016, 2015, and 2014 as a result of the adoption of the 2014 Omnibus Plan.
Modified Time-based Restricted Stock Awards
Prior to June 2014, the former Parent had issued performance-based restricted stock awards that contained
provisions wherein vesting was subject to the full satisfaction of both time and performance vesting criterion. On
F-43
June 10, 2014, prior to the completion of the Company’s IPO, the former Parent entered into agreements to modify the
outstanding performance-based restricted stock awards to remove the performance-based vesting condition associated
with such awards related to the achievement of certain investment returns (while maintaining the requirement for a
change in control or IPO). This modification also changed the time-based vesting requirement associated with such
awards to provide that any shares which would have satisfied the time-based vesting condition previously applicable on
or prior to June 30, 2017 to instead vest on June 30, 2017, subject to the holder remaining continuously employed by the
Company through such date. Any such awards that were subject to a time-based vesting condition beyond June 30, 2017
remained subject to those previous conditions. Henceforth, these awards have been described as modified time-based
restricted stock awards.
With the completion of the Company’s IPO in June 2014, the remaining performance condition associated with
these modified time-based restricted stock awards was achieved. As a result, the Company began recognizing
compensation expense on these awards, which was measured at the modification date based on their fair value. Prior to
the full acceleration of vesting in 2016 noted above, compensation expense on these awards was being recognized over
the appropriate service period utilizing graded vesting.
Total compensation expense for modified time-based restricted stock awards was $4.5 million, $2.4 million, and
$2.5 million for the years ended December 31, 2016, 2015, and 2014, respectively. As of December 31, 2016, there was
no unrecognized compensation cost related to these awards.
The following table summarizes the activity in the former Parent’s modified time-based restricted stock awards
during the year ended December 31, 2016:
Modified time-based restricted stock
Unvested, December 31, 2015
Shares
73,586
Granted
Vested
Forfeited
Unvested, December 31, 2016
Weighted-Average
Grant Date
Fair Value per Share
115.30
$
—
115.30
—
—
(73,586)
—
— $
The following table summarizes the weighted-average grant date fair value per share of modified time-based
restricted stock awards granted during the years ended December 31, 2016, 2015, and 2014, as well as the total fair value
of awards vested during those periods:
Modified Time-Based Restricted Stock
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
Fair Value per Share
of Grants during Period
Weighted-Average Grant Date Total Fair Value
of Awards Vested
during Period
8,484
298
—
N/A (1) $
N/A (1) $
N/A (1) $
(1) There were no grants of modified time-based restricted stock awards by the former Parent during the years ended
December 31, 2016, 2015, and 2014 as a result of the adoption of the 2014 Omnibus Plan.
Fair Value Assumptions for Restricted Stock Award Grants
There were no grants by the former Parent of time-based, performance-based, or modified time-based restricted
stock awards during the years ended December 31, 2016, 2015, and 2014. However, as a result of the above-described
June 2014 modification, the fair value of all modified time-based restricted stock awards was calculated as of the
modification date. The fair values of time-based, modified time-based, and performance-based restricted stock awards
(in prior years) were estimated on the grant date using a combination of a call option and digital option model that uses
assumptions about expected volatility, risk-free interest rates, the expected term, and dividend yield. The expected term
for time-based and modified time-based awards considered both the service conditions of vesting of the awards, as well
as management’s probability-weighted estimate of the expected liquidity horizon. The expected volatilities were based
on a combination of implied and historical volatilities of a peer group of companies, as the Company was a non-publicly
F-44
traded company prior to the IPO. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of
grant for periods corresponding with the expected life of the awards. The expected dividend yield was based on an
assumption that no dividends were expected to be declared in the near future.
The following are the weighted average assumptions used for the valuation of the modified time-based awards in
June 2014 (noting no grants or modifications during the years ended December 31, 2016 and 2015):
Dividend yield
Expected volatility
Risk-free interest rate
Expected term (in years) for modified time-based shares
Year Ended December 31,
2014
— %
65.00 %
1.54 %
4.50
Management Retention Awards
In 2012, the former Parent agreed to retention awards with certain officers, which generally vested over one to four
years and were payable upon vesting. Total compensation expense for these retention awards was $0.9 million for the
year ended December 31, 2014, while for the year ended December 31, 2015 a net benefit of $1.1 million was recorded
due to certain employment terminations, resulting in forfeited retention awards. As of December 31, 2015, there was no
unrecognized compensation cost related to these retention awards.
Adoption of Accounting Standards Update
As discussed in Note 2, effective April 1, 2016, the Company adopted new accounting guidance issued by the
FASB that simplifies several aspects of accounting for share-based payments. Among other things, as part of this
adoption, the Company made an accounting policy election to recognize forfeitures as incurred, rather than estimating
the forfeitures in advance. The impact of this change was applied utilizing a modified retrospective approach, with an
adjustment of $0.9 million recorded during the year ended December 31, 2016 to decrease opening retained earnings and
increase opening additional paid-in-capital. All other impacts of this adoption were not material to the Company’s
financial position and results of operations.
NOTE 18—RELATED PARTY AND DOW TRANSACTIONS
The Company has entered into certain agreements with Dow, including the Second Amended and Restated Master
Outsourcing Services Agreement, which was modified on June 1, 2013 (or SAR MOSA), site and operating services
agreements, and supply agreements.
The SAR MOSA provides for ongoing worldwide services from Dow in areas such as information technology,
enterprise resource planning, finance, environmental health and safety, training, customer service, marketing and sales
support, supply chain and certain sourcing and transactional procurement services. The term of this agreement runs
through December 31, 2020 and which automatically renews for two year periods unless either party provides six
months’ notice of non-renewal to the other party. The services provided pursuant to the SAR MOSA generally are priced
per function, and the Company has the ability to terminate the services or any portion thereof, for convenience any time
after June 1, 2015, subject to payment of termination charges. Services which are “highly integrated” follow a different
process for evaluation and termination. In addition, either party may terminate for cause, which includes a bankruptcy,
liquidation or similar proceeding by the other party, for material breach which is not cured, or by Dow in the event of our
failure to pay for the services thereunder. In the event of a change of control, as defined in the agreement, Dow has the
right to terminate the SAR MOSA. As of December 31, 2016, the estimated minimum contractual obligations under the
SAR MOSA are approximately $22.6 million.
In addition, the Company entered into various site service agreements with Dow, which were amended as of June
1, 2013 (the Second Amended and Restated Site Services Agreements, or SAR SSAs). Under the SAR SSAs, general
site services are provided at specific facilities co-located with Dow, rather than organization-wide services, and include
utilities, site administration, environmental health and safety, site maintenance and supply chain. Conversely, the
Company entered into similar agreements with Dow, where at Company owned sites, it provides such services to Dow.
These agreements generally have 25-year terms from the date amended, with options to renew. These agreements may be
F-45
terminated at any time by agreement of the parties, or, by either party, for cause, including a bankruptcy, liquidation or
similar proceeding by the other party, or under certain circumstances for a material breach which is not cured. In
addition, the Company may terminate for convenience any services that Dow has agreed to provide that are identified in
any site services agreement as “terminable” with 12 months prior notice to Dow, dependent upon whether the service is
highly integrated into Dow operations. Highly integrated services are agreed to be nonterminable. With respect to
“nonterminable” services that Dow has agreed to provide to the Company, such as electricity and steam, the Company
generally cannot terminate such services prior to the termination date unless the Company experiences a production unit
shut down for which Dow is provided with 15-months prior notice, or upon payment of a shutdown fee. Upon expiration
or termination, the Company would be obligated to pay a monthly fee to Dow, which obligation extends for a period of
45 (in the case of expiration) to 60 months (in the case of termination) following the respective event of each site
services agreement. The agreements under which Dow receives services from the Company may be terminated under the
same circumstances and conditions.
The following tables detail expenses incurred during the years ended December 31, 2016, 2015, and 2014 under
the SAR MOSA and SAR SSAs by financial statement line item:
(in millions)
Financial Statement Line Item
Cost of sales
Selling, general, and administrative expenses
Total
(in millions)
Financial Statement Line Item
Cost of sales
Selling, general, and administrative expenses
Total
(in millions)
Financial Statement Line Item
Cost of sales
Selling, general, and administrative expenses
Total
Year Ended December 31, 2016
SAR MOSA
41.7
5.6
47.3
SAR SSAs
Total
$
$
169.9
4.9
174.8
$
$
211.6
10.5
222.1
Year Ended December 31, 2015
SAR MOSA
42.9
5.1
48.0
SAR SSAs
Total
$
$
188.6
5.5
194.1
$
$
231.5
10.6
242.1
Year Ended December 31, 2014
SAR MOSA
43.6
5.2
48.8
SAR SSAs
Total
$
$
227.2
6.5
233.7
$
$
270.8
11.7
282.5
$
$
$
$
$
$
In connection with the Acquisition, certain of the Company’s affiliates entered into the Latex JV Option
Agreement with Dow, pursuant to which Dow was granted an irrevocable option to purchase 50% of the issued and
outstanding interests in a joint venture to be formed by Dow and the Company’s affiliates with respect to the SB Latex
business in Asia, Latin America, the Middle East, Africa, Eastern Europe, Russia and India. On May 30, 2014, the
Company’s affiliates entered into an agreement with Dow to terminate the Latex JV Option Agreement, Dow’s rights to
the option, and all other obligations thereunder, in exchange for a termination payment of $32.5 million. This termination
payment was made on May 30, 2014, and the termination of the Latex JV Option Agreement became effective as of such
date. This termination payment was recorded as an expense within “Other expense, net” in the consolidated statement of
operations for the year ended December 31, 2014.
In addition, the Company has transactions in the normal course of business with Dow and its affiliates. For the
years ended December 31, 2016, 2015, and 2014, sales to Dow and its affiliated companies were approximately
$203.5 million, $227.0 million, and $343.8 million, respectively. For the years ended December 31, 2016, 2015, and
2014, purchases from Dow and its affiliated companies were approximately $1,090.4 million, $1,244.2 million, and
$2,196.0 million, respectively.
As of December 31, 2016 and 2015, receivables from Dow and its affiliated companies were approximately
$20.7 million and $21.5 million, respectively, and are included in “Accounts receivable, net of allowance” in the
consolidated balance sheets. As of December 31, 2016 and 2015, payables to Dow and its affiliated companies were
approximately $121.6 million and $96.7 million, respectively, and are included in “Accounts payable” in the
consolidated balance sheets.
F-46
In connection with the Acquisition, the Company entered into the Advisory Agreement wherein Bain Capital
provided management and consulting services and financial and other advisory services to the Company. The Advisory
Agreement terminated upon consummation of the Company’s IPO in June 2014 and pursuant to its terms, the Company
paid $23.3 million of termination fees representing acceleration of the advisory fees for the remainder of the original
term. The termination fee was paid in June 2014 using the proceeds from the IPO, and was recorded as an expense
within “Selling, general and administrative expenses” in the consolidated statement of operations for the year ended
December 31, 2014. However, Bain Capital continued to provide an immaterial level of ad hoc advisory services for the
Company, which ceased as a result of the completed sale of the former Parent’s ownership interest in the Company
discussed in Note 12. In conjunction with the foregoing, we incurred Bain Capital fees (including out-of-pocket
expenses) of zero, $0.1 million, and $2.4 million for the years ended December 31, 2016, 2015, and 2014, respectively
(excluding the termination fees noted above).
Bain Capital also provided advice pursuant to a 10-year Transaction Services Agreement with fees payable
equaling 1% of the transaction value of each financing, acquisition or similar transaction. In connection with the IPO,
Bain Capital received $2.2 million of transaction fees, which were recorded within “Additional paid-in-capital” in the
consolidated balance sheets (refer to Note 12). As a result of the completed sale of the former Parent’s ownership interest
in the Company discussed in Note 12, these expenses are not expected in future periods.
During the year ended December 31, 2016, the former Parent sold 37,269,567 ordinary shares pursuant to the
Company’s shelf registration statement filed with the SEC. In connection with these offerings, the Company incurred
advisory, accounting, legal and printing expenses on behalf of the former Parent of $2.5 million during the year ended
December 31, 2016. These expenses were included within “Selling, general and administrative expenses” in the
consolidated statement of operations. Refer to Note 12 for further information.
Total fees incurred from Bain Capital for these management and transaction advisory services were zero, $0.1
million, and $27.9 million, respectively, for the years ended December 31, 2016, 2015, and 2014.
NOTE 19—SEGMENTS
Through September 30, 2016, the Company operated under two divisions: Performance Materials and Basic
Plastics & Feedstocks. The Performance Materials division included the following reporting segments: Latex, Synthetic
Rubber, and Performance Plastics. The Basic Plastics & Feedstocks division represented a separate segment for financial
reporting purposes.
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the
business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief
operating decision maker. This change in segments is being made to provide increased clarity and understanding around
the drivers 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 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 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 SAN products, as well as PC, all of which are used as inputs in
F-47
a variety of end use markets. The Basic Plastics segment also includes the results of our 50%-owned joint venture,
Sumika Styron Polycarbonate. 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, 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.
For the year ended
December 31, 2016
Sales to external customers
Equity in earnings (losses) of
unconsolidated affiliates
Adjusted EBITDA(1)
Investment in unconsolidated
affiliates
Depreciation and amortization
December 31, 2015
Sales to external customers
Equity in earnings (losses) of
unconsolidated affiliates
Adjusted EBITDA(1)
Investment in unconsolidated
affiliates
Depreciation and amortization
December 31, 2014
Sales to external customers
Equity in earnings (losses) of
unconsolidated affiliates
Adjusted EBITDA(1)
Investment in unconsolidated
affiliates
Depreciation and amortization
Performance Materials
Basic Plastics & Feedstocks
Latex
Binders
Synthetic Performance
Rubber
Plastics
Basic
Plastics
Feedstocks
Americas Corporate
Styrenics Unallocated
Total
$
925,337 $ 450,691 $
693,433 $ 1,352,690 $ 294,489 $
— $
— $ 3,716,640
—
94,310
—
110,920
—
136,232
8,932
148,156
— 135,801
—
144,733
80,247
135,801
—
23,840
—
34,727
—
6,138
41,753
15,701
— 149,665
—
10,593
—
5,460
191,418
96,459
$
966,209 $ 474,617 $
742,831 $ 1,478,069 $ 310,176 $
— $
— $ 3,971,902
—
79,012
—
92,999
—
107,596
4,848
115,530
— 135,330
—
140,178
51,341
135,330
—
32,360
—
30,358
—
5,611
38,972
15,396
— 143,864
—
9,958
—
3,069
182,836
96,752
$ 1,261,137 $ 633,983 $
821,053 $ 1,978,090 $ 433,698 $
— $
— $ 5,127,961
—
97,229
—
136,984
—
85,396
(2,520)
(15,129)
—
(20,547)
50,269
50,269
—
47,749
—
26,954
—
32,900
—
5,602
34,125
20,244
— 133,533
—
13,961
—
4,045
167,658
103,706
(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 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.
F-48
The reconciliation of income (loss) before income taxes to Segment Adjusted EBITDA is as follows:
Income (loss) before income taxes
Interest expense, net
Depreciation and amortization
Corporate Unallocated(2)
Adjusted EBITDA Addbacks(3)
Segment Adjusted EBITDA
Year Ended December 31,
$
$
2016
405,309
74,968
96,459
94,794
34,136
705,666
$
$
2015
$
203,856
93,197
96,752
89,820
98,183
581,808 $
2014
(47,613)
124,923
103,706
72,585
80,601
334,202
(2) Corporate unallocated includes corporate overhead costs and certain other income and expenses.
(3) Adjusted EBITDA addbacks for the years ended December 31, 2016, 2015, and 2014 are as follows:
(in millions)
$
Loss on extinguishment of long-term debt (Note 10)
Net loss (gain) on disposition of businesses and assets (Note 3)
Restructuring and other charges (Note 20)
Fees paid pursuant to advisory agreement (Note 18)
Other items(a)
Total Adjusted EBITDA Addbacks
$
Year Ended December 31,
2016
2015
2014
—
15.1
23.5
—
(4.4)
34.2
$
$
95.2 $
—
0.8
—
2.2
98.2 $
7.4
(0.6)
10.0
25.4
38.4
80.6
(a) For the year ended December 31, 2016, other items include other income of $6.9 million from the effective
settlement of certain value-added tax positions, offset by $2.5 million of fees incurred in conjunction with the
Company’s secondary offerings completed during the year (refer to Note 12). For the year ended December 31,
2015, other items represents costs related to the process of changing our corporate name from Styron to Trinseo.
For the year ended December 31, 2014, other items includes the above referenced name change costs, as well as
a one-time $32.5 million termination payment made to Dow in connection with the termination of our Latex JV
Option Agreement (refer to Note 18).
Geographic Information
As of December 31, 2016, the Company operates 30 manufacturing plants (which include a total of 75 production
units) at 23 sites in 12 countries, inclusive of joint ventures and contract manufacturers as well as 10 R&D facilities
globally, including mini plants, development centers and pilot coaters. Sales are attributed to geographic areas based on
the location where sales originated; long-lived assets are attributed to geographic areas based on asset location. The
Company is incorporated under the existing laws of the Grand Duchy of Luxembourg, as discussed in Note 1, which
F-49
therefore represents its country of domicile. The Company has no existing long-lived assets or sales generated from this
country.
United States
Sales to external customers
Long-lived assets
Europe
Sales to external customers
Long-lived assets
Asia-Pacific
Sales to external customers
Long-lived assets
Rest of World
Sales to external customers
Long-lived assets
Total
Sales to external customers(1)
Long-lived assets(2)(3)
2016
538,413
53,005
2,229,490
338,736
811,772
121,945
136,965
71
3,716,640
513,757
$
$
$
$
$
As of and for the Year Ended
December 31,
2015
$
$
$
$
$
551,823
51,189
2,373,242
355,033
889,451
104,438
157,386
8,091
3,971,902
518,751
2014
663,425
65,329
3,066,581
383,311
1,196,163
99,654
201,792
8,403
5,127,961
556,697
$
$
$
$
$
(1) Sales to external customers in China represented approximately 8%, 7% and 8% of the total for the years ended
December 31, 2016, 2015, and 2014, respectively. Sales to external customers in Germany represented
approximately 11%, 11% and 12% of the total for the years ended December 31, 2016, 2015, and 2014,
respectively. Sales to external customers in Hong Kong represented approximately 10%, 11% and 11% of the total
for the years ended December 31, 2016, 2015, and 2014, respectively.
(2) Long-lived assets in China represented approximately 14%, 8%, and 6% of the total as of December 31, 2016, 2015,
and 2014, respectively. Long-lived assets in Germany represented approximately 42%, 42%, and 43% of the total as
of December 31, 2016, 2015, and 2014, respectively. Long-lived assets in The Netherlands represented
approximately 14%, 14%, and 13% of the total as of December 31, 2016, 2015, and 2014, respectively.
(3) Long-lived assets consist of property, plant and equipment, net.
NOTE 20—RESTRUCTURING
Livorno Plant Restructuring
In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders
manufacturing facility in Livorno, Italy. This is a result of declining demand for graphical paper and is expected to
provide improved asset utilization, as well as cost reductions within the Company’s European latex binders business.
Production at the facility ceased in October 2016, followed by decommissioning activities which began in the fourth
quarter of 2016.
For the year ended December 31, 2016, the Company recorded restructuring charges of $14.3 million related to
property, plant and equipment and other asset impairment charges, $4.6 million related to employee termination benefit
charges, $0.3 million of contract termination charges, and $0.7 of decommissioning and other charges. These charges
were included in “Selling, general and administrative expenses” in the consolidated statement of operations and were
allocated entirely to the Latex Binders segment. Employee and contract termination benefits charges are recorded within
“Accrued expenses and other current liabilities” in the consolidated balance sheets.
F-50
The following table provides a rollforward of the liability balances associated with the Livorno plant restructuring
for the year ended December 31, 2016:
Balance at
December 31, 2015
Expenses
Deductions
Balance at
December 31, 2016
Employee termination benefit charges
Contract termination charges
Other(1)
Total
$
$
— $
—
—
—
$
4,632
269
677
5,578
$
$
—
—
(677)
(677)
$
$
4,632
269
—
4,901
(1) Includes decommissioning charges incurred, primarily related to labor and third party service costs.
The majority of the accrued balances above are expected to be paid during the first quarter of 2017. The Company
expects to incur incremental employee termination benefit charges of $0.8 million throughout 2017, which are expected
to be paid in early 2018. Lastly, 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, within the Latex Binders segment.
Divestiture of Brazil Business
As discussed in Note 3, during the second quarter of 2016, the Company signed a definitive agreement to sell
Trinseo Brazil. While the majority of the Company’s operations in Brazil were transferred to the buyer, certain corporate
functions not included in the sale were eliminated by the Company prior to the completion of the sale, resulting in the
exit of all direct operations in Brazil.
As a result, for the year ended December 31, 2016, the Company recorded restructuring charges of $0.7 million
related to employee termination benefit charges, which are included within “Selling, general, and administrative
expenses” in the consolidated statement of operations and were allocated entirely to Corporate. All employee termination
benefit charges were paid as of December 31, 2016 and therefore nothing remains accrued in the consolidated balance
sheet, as noted in the table below.
Employee termination benefit charges
Total
$
$
— $
$
—
656
656
$
$
(656)
(656)
Balance at
December 31, 2015
Expenses
Deductions
Balance at
December 31, 2016
—
—
$
$
Allyn’s Point Plant Shutdown
In September 2015, the Company approved the plan to close its Allyn’s Point latex binders manufacturing facility
in Gales Ferry, Connecticut. This restructuring plan was a strategic business decision to improve the results of the overall
Latex Binders segment due to continuing declines in the coated paper industry in North America. Production at the
facility ceased at the end of 2015, followed by decommissioning activities which began in 2016.
The Company recorded restructuring charges of $0.6 million and $6.7 million for the years ended December 31,
2016 and 2015, respectively, relating to the accelerated depreciation of the related assets at the Allyn’s Point facility, and
$2.1 million and $0.4 million, respectively, of employee termination benefit and decommissioning charges, which are
included within “Selling, general and administrative expenses” in the consolidated statements of operations and were
allocated entirely to the Latex Binders segment. Employee termination benefit charges are recorded within “Accrued
F-51
expenses and other current liabilities” in the consolidated balance sheets, the balances for which are displayed in the
tables below.
Employee termination benefit charges
Other(1)
Total
Balance at
December 31, 2015
434
$
$
—
434
Expenses
Deductions
$
$
363
1,720
2,083
$
$
Balance at
$
December 31, 2016
389
—
389
$
(408)
(1,720)
(2,128)
Employee termination benefit charges
Total
$
$
— $
$
—
434
434
$
$
—
—
$
$
434
434
Balance at
December 31, 2014
Expenses
Deductions
Balance at
December 31, 2015
(1) Includes decommissioning charges incurred, primarily related to labor and third party service costs.
The Company does not expect to incur additional employee termination benefit charges related to this
restructuring, with the majority of the benefits expected to be paid by September 30, 2017. The Company also expects to
incur a limited amount of decommissioning costs associated with this plant shutdown in 2017, the cost of which will be
expensed as incurred, within the Latex Binders segment.
Restructuring in Polycarbonate
During the second quarter of 2014, the Company announced a restructuring within its Basic Plastics segment to
exit the commodity market for polycarbonate in North America and to terminate existing arrangements with Dow
regarding manufacturing services for the Company at Dow’s Freeport, Texas facility (the “Freeport facility”). The
Company also entered into a new long-term supply contract with a third party to supply polycarbonate in North
America. These revised arrangements became operational in the fourth quarter of 2014. In addition, the Company
executed revised supply contracts for certain raw materials that are processed at its polycarbonate manufacturing facility
in Stade, Germany, which took effect January 1, 2015. Production at the Freeport facility ceased as of September 30,
2014, and decommissioning and demolition began thereafter, with completion in the first quarter of 2015.
For the year ended December 31, 2014, the Company recorded restructuring charges of $3.5 million relating to the
accelerated depreciation of the related assets at the Freeport facility and $6.6 million in charges for the reimbursement of
decommissioning and demolition costs incurred by Dow. For the year ended December 31, 2015, the Company recorded
the remainder of the restructuring charges of $0.5 million related to the reimbursement of decommissioning and
demolition costs incurred by Dow. These charges were included in “Selling, general and administrative expenses” in the
consolidated statements of operations, and were allocated entirely to the Basic Plastics segment. There were no
remaining amounts accrued in the consolidated balance sheet as of December 31, 2015.
Altona Plant Shutdown
In July 2013, the Company’s board of directors approved the plan to close the Company’s latex binders
manufacturing facility in Altona, Australia. This restructuring plan was a strategic business decision to improve the
results of the overall Latex Binders segment. The facility manufactured SB latex used in the carpet and paper markets.
Production at the facility ceased in the third quarter of 2013, followed by decommissioning, with demolition throughout
most of 2014.
As a result of the plant closure, for the year ended December 31, 2014, the Company recorded additional net
restructuring charges of approximately $2.8 million, related primarily to incremental employee termination benefit
charges, contract termination charges, and decommissioning costs. These charges were included in “Selling, general and
administrative expenses” in the consolidated statement of operations, and were allocated entirely to the Latex Binders
segment. There were no additional restructuring charges recorded related to the Altona plant shutdown during the year
ended December 31, 2015, and no amounts remained accrued as of December 31, 2015.
F-52
The following table provides a rollforward of the liability balances associated with the Altona plant shutdown for
the year ended December 31, 2015:
Contract termination charges
Total
Balance at
December 31, 2014
2,128
2,128
$
$
$
$
Expenses
Deductions(1)
(112)
(112)
$
$
(2,016)
(2,016)
Balance at
December 31, 2015
—
—
$
$
(1) Includes primarily payments made against the existing accrual, as well as immaterial impacts of foreign currency
remeasurement.
NOTE 21—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss), net of income taxes, consisted of:
Cumulative
Translation
Adjustments
Pension & Other
Postretirement Benefit
Plans, Net
Foreign Exchange
Cash Flow
Hedges, Net
Year Ended December 31, 2016, 2015, and 2014
Balance at December 31, 2013
Other comprehensive income (loss)
Amounts reclassified from AOCI to net
income (1)
Balance at December 31, 2014
Other comprehensive income (loss)
$
Amounts reclassified from AOCI to net
income (1)
Balance at December 31, 2015
$
Other comprehensive income (loss)
Amounts reclassified from AOCI to net
income (1)
Balance at December 31, 2016
$
$
116,146
(133,901)
$
—
(17,755) $
(91,365)
—
(109,120)
(9,802)
$
—
(118,922) $
(27,768)
(32,913)
$
3,219
(57,462) $
7,938
3,358
(46,166)
(20,596)
$
—
—
—
—
6,081
(512)
5,569
9,498
$
$
Total
88,378
(166,814)
3,219
(75,217)
(77,346)
2,846
$ (149,717)
(20,900)
3,258
(63,504) $
(2,795)
12,272
463
$ (170,154)
(1) The following is a summary of amounts reclassified from AOCI to net income for the years ended
December 31, 2016, 2015, and 2014:
F-53
AOCI Components
Year Ended December 31,
Statement of Operations
2016
2015
2014
Classification
Amount Reclassified from AOCI
Cash flow hedging items
Foreign exchange cash flow hedges
Total before tax
Tax effect
Total, net of tax
Amortization of pension and other
postretirement benefit plan items
Curtailment and settlement loss
$
$
$
Prior service credit
Net actuarial loss
Acquisitions/divestitures
Total before tax
Tax effect
Total, net of tax
(2,795)
$
(2,795)
—
(2,795)
$
—
$
(1,838)
5,191
988
4,341
(1,083)
$
3,258
$
(512) $
(512)
—
(512) $
— $
(1,465)
6,283
—
4,818
(1,460)
3,358 $
— Cost of sales
—
— Provision for income taxes
—
(a)
(a)
(a)
1,759
(900)
3,336
—
4,195
(976) Provision for income taxes
3,219
(b)
(a) These AOCI components are included in the computation of net periodic benefit costs (refer to Note 16).
(b) This amount relates to the Company's divestiture of its Brazilian business during 2016. As of December 31, 2016,
the Company had no residual AOCI balances recorded related to the Brazilian pension and postretirement medical
plans.
NOTE 22—EARNINGS PER SHARE
Basic earnings (loss) per ordinary share (“basic EPS”) is computed by dividing net income (loss) available to
ordinary shareholders by the weighted average number of the Company’s ordinary shares outstanding for the applicable
period. Diluted earnings (loss) per ordinary share (“diluted EPS”) is calculated using net income (loss) available to
ordinary shareholders divided by diluted weighted-average ordinary shares outstanding during each period, which
includes unvested RSUs and stock option awards. Diluted EPS considers the impact of potentially dilutive securities
except in periods in which there is a loss because the inclusion of the potential ordinary shares would have an anti-
dilutive effect.
The following table presents basic EPS and diluted EPS for the years ended December 31, 2016, 2015, and 2014,
respectively.
(in thousands, except per share data)
Earnings:
Net income (loss)
Shares:
Year Ended
December 31,
2016
2015
2014
$ 318,312
$ 133,647
$ (67,332)
Weighted-average ordinary shares outstanding
Dilutive effect of RSUs and option awards*
Diluted weighted-average ordinary shares outstanding
46,510
968
47,478
48,774
196
48,970
43,476
—
43,476
Income (loss) per share:
Income (loss) per share—basic
Income (loss) per share—diluted
$
$
6.84
6.70
$
$
2.74
2.73
$
$
(1.55)
(1.55)
* As net loss was reported for the year ended December 31, 2014, potentially dilutive awards have not been included
within the calculation of diluted EPS, as they would have an anti-dilutive effect.
F-54
NOTE 23—SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
$
2016
Net sales
Gross profit
Equity in earnings of unconsolidated affiliates
Operating income
Income before income taxes
Net income
Net income per share- basic
Net income per share- diluted
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
894,084 $
139,672
35,026
120,212
98,647
76,747
1.58
1.56
$
969,694 $
169,740
38,602
156,093
124,404 (1)
95,804 (1)
2.04 (1)
2.00 (1) $
$
935,410
140,384
36,686
103,170 (2)
83,254 (1)(2)
67,254 (1)(2)
1.47 (1)(2)
1.43 (1)(2)$
917,452
137,830
34,419
111,341 (2)
99,004 (1)(2)(3)
78,507 (1)(2)(3)
1.76 (1)(2)(3)
1.72 (1)(2)(3)
2015
Net sales
Gross profit
Equity in earnings of unconsolidated affiliates
Operating income
Income before income taxes
Net income
Net income per share- basic
Net income per share- diluted
142,137
40,841
132,239
103,079
36,707
88,011
55,604
37,704
$ 1,018,265 $ 1,028,673 $ 1,027,952
111,562
33,489
93,958
73,255
52,055
1.07
1.06
8,256 (4)
756 (4)
0.02 (4)
0.02 (4) $
0.77
0.77
$
$
$
$
897,012
112,324
29,141
87,108
66,741
43,132 (5)
0.88 (5)
0.88 (5)
(1) Includes charges for the estimated loss on sale of Trinseo Brazil of $12.9 million, $0.3 million, and $1.8 million
during the second, third, and fourth quarters of 2016, respectively. Refer to Note 3 for further information.
(2) Includes restructuring charges related to the Company’s decision to cease manufacturing activities at its latex
binders manufacturing facility in Livorno, Italy of $16.0 million and $3.9 million during the third and fourth
quarters of 2016, respectively. Refer to Note 20 for further information.
(3) Includes other income of $6.9 million from the effective settlement of certain value-added tax positions during the
fourth quarter of 2016.
(4) Includes a $95.2 million loss on extinguishment of debt related to the May 2015 redemption of $1,192.5 million in
aggregate principal amount of the 2019 Senior Notes. Refer to Note 10 for further information.
(5) Includes a valuation allowance of $7.3 million on the net deferred tax asset of one of the Company’s China
subsidiaries recorded in the fourth quarter of 2015. Refer to Note 14 for further information.
NOTE 24—SUBSEQUENT EVENTS
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 ¥4.9 billion (approximately $43.2 million). As a result,
the Company will record an estimated gain on sale of approximately $9.0 million in the first quarter of 2017. In addition,
the parties have agreed to continue long-term supply of polycarbonate resin from Sumika Styron Polycarbonate to the
Company’s Performance Plastics businesses.
F-55
TRINSEO S.A.
SCHEDULE II—FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
(In Millions)
Allowance for doubtful accounts:
Year ended December 31, 2016
Year ended December 31, 2015
Year ended December 31, 2014
Tax valuation allowances:
Year ended December 31, 2016
Year ended December 31, 2015
Year ended December 31, 2014
Balance at
Beginning of
the Period
Charged to
Cost and
Expense
Deduction Currency
Translation
Adjustments
from
Reserves
Balance at
End of
the Period
$
$
2.4
6.3
5.9
85.1
66.9
50.4
$
$
1.0
0.3
1.1
27.7
22.1
18.2
$
$
(0.1)(a) $
(3.3)(a)
— (a)
(0.2)
(0.9)
(0.7)
$
3.1
2.4
6.3
— $
—
—
(0.2)
(3.9)
(1.7)
$
112.6
85.1
66.9
(a) Amounts written off, net of recoveries. Amount in 2014 is less than $0.1 million.
F-56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members of
Americas Styrenics LLC
The Woodlands, Texas
We have audited the accompanying consolidated balance sheets of Americas Styrenics LLC and subsidiaries (the
"Company") as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income,
members’ equity, and cash flows for each of the three years in the period ended December 31, 2016. These consolidated
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States) and in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Americas Styrenics LLC and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 15, 2017
F-57
AMERICAS STYRENICS LLC
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2016 AND 2015
(In millions of dollars)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables (net of allowance of $2.6 in 2016 and $3.8 in 2015)
Related company receivables
Inventories
Other current assets
Total current assets
NET PROPERTY, PLANT AND EQUIPMENT
OTHER ASSETS:
Deferred income taxes
Other assets
Total other assets
TOTAL
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
Trade payables
Related company payables
Other payables
Income taxes payable
Accrued liabilities
Total current liabilities
POSTRETIREMENT BENEFIT LIABILITY
OTHER LONG-TERM LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 7)
MEMBERS’ EQUITY:
Members' equity
Accumulated other comprehensive loss
Total members’ equity
TOTAL
See notes to consolidated financial statements.
2016
2015
$
$
$
62.9
120.0
11.3
146.8
13.8
354.8
233.5
1.8
13.2
15.0
603.3
69.1
36.6
14.8
5.3
17.4
143.2
16.9
1.3
161.4
446.2
(4.3)
441.9
603.3
$
79.9
128.1
8.2
134.5
16.1
366.8
254.1
2.8
12.8
15.6
636.5
77.2
31.7
15.5
5.7
16.7
146.8
17.1
1.0
164.9
477.4
(5.8)
471.6
636.5
$
$
$
$
F-58
AMERICAS STYRENICS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015, AND 2014
(In millions of dollars)
2016
$ 1,483.1
1,205.0
278.1
2.4
8.9
31.0
0.6
0.3
234.9
0.2
(6.3)
228.8
0.7
0.1
0.7
1.5
2015
$ 1,600.1
1,309.5
290.6
2.5
8.7
29.0
4.7
2.0
243.7
0.1
(6.3)
237.5
(0.5)
—
0.7
0.2
237.7 $
$
230.3 $
2014
$ 1,992.4
1,881.0
111.4
2.9
9.1
25.8
4.6
3.8
65.2
—
(9.0)
56.2
(1.2)
—
0.7
(0.5)
55.7
Net sales
Cost of sales
Gross margin
Technical service and development
Selling and marketing
Administrative
Foreign exchange loss
Other expense—net
Operating income
Interest income
Income tax expense
Net income
Other comprehensive loss:
Net actuarial (loss) gain
Reclassification of actuarial loss to income
Reclassification of prior-service cost to income
Net other comprehensive income (loss)—defined benefit plans
Total comprehensive income
See notes to consolidated financial statements.
F-59
AMERICAS STYRENICS LLC
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015, AND 2014
(In millions of dollars)
BALANCE—January 1, 2014
Distribution to Members
Defined benefit plans—other comprehensive loss
Net income
BALANCE—December 31, 2014
Distribution to Members
Defined benefit plans—other comprehensive income
Net income
BALANCE—December 31, 2015
Distribution to Members
Defined benefit plans—other comprehensive income
Net income
BALANCE—December 31, 2016
See notes to consolidated financial statements.
Accumulated
Other
Comprehensive
Loss
Members'
Equity
$
$
503.7
(70.0)
—
56.2
489.9
(250.0)
—
237.5
477.4
(260.0)
—
228.8
446.2
$
$
(5.5)
—
(0.5)
—
(6.0)
—
0.2
—
(5.8)
—
1.5
—
(4.3)
$
$
Total
498.2
(70.0)
(0.5)
56.2
483.9
(250.0)
0.2
237.5
471.6
(260.0)
1.5
228.8
441.9
F-60
AMERICAS STYRENICS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015, AND 2014
(In millions of dollars)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Net gain on disposal of assets
Deferred income taxes
Allowance for doubtful accounts
Changes in assets and liabilities that provided (used) cash:
Trade receivables
Related company receivables
Inventories
Trade payables
Related company payables
Other assets and liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES:
Capital expenditures
Proceeds from settlement treated as reimbursement of capital expenditures
(Note 7)
Disposal of assets
Net cash used in investing activities
FINANCING ACTIVITY—Distribution to Members
Cash used in financing activity
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS—Beginning of year
CASH AND CASH EQUIVALENTS—End of year
SUPPLEMENTAL CASH FLOW INFORMATION:
Noncash investing activity—capital expenditures payable
Cash paid for income taxes
See notes to consolidated financial statements.
2016
2015
2014
$ 228.8 $ 237.5 $ 56.2
41.0
—
1.0
(1.2)
9.3
(3.1)
(12.3)
(8.1)
4.9
5.1
265.4
39.0
0.4
(0.4)
(0.7)
33.4
7.1
(20.5)
(21.4)
(9.5)
10.3
275.2
40.3
(0.1)
2.1
2.9
34.1
7.1
8.5
31.5
(61.0)
(11.0)
110.6
(22.5)
(36.5)
(23.5)
—
0.1
(22.4)
(260.0)
(260.0)
(17.0)
79.9
62.9
$
7.8
—
(28.7)
(250.0)
(250.0)
(3.5)
83.4
79.9
$
—
0.1
(23.4)
(70.0)
(70.0)
17.2
66.2
$ 83.4
$
$
$
2.1
4.7 $
$
2.9
3.3 $
7.0
3.6
F-61
AMERICAS STYRENICS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015, AND
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015, AND 2014
(Amounts in millions of dollars)
1.
FORMATION OF VENTURE
Effective May 1, 2008, Chevron Phillips Chemical Company LP (“CPChem”) and The Dow Chemical Company
(“Dow”) joined forces in styrenics by creating Americas Styrenics LLC (the “Company”). Effective June 17, 2010,
Dow divested its ownership in the Company to Trinseo LLC (formerly, Styron LLC). CPChem and Trinseo LLC
are referred to herein as the “Members.” The Members share equally in the profits and losses of the Company.
2.
NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s
subsidiaries and partnership interests are as follows: Americas Styrenics Colombia Ltda, Americas Styrenics Chile
Commercial Ltda (liquidated in 2014), Americas Styrenics de Mexico, de R.L. de C.V., Americas Styrenics
Canada Inc., and Americas Styrenics Industria e Comercico de Poliestireno Ltda (Brazil).
Nature of Operations—The Company was formed as a joint venture and focuses on styrenics (styrene and
polystyrene) production, sales, and distribution in North America and South America.
Cash and Cash Equivalents—Included in cash and cash equivalents, from time to time, are short-term interest-
bearing investments on deposit with financial institutions. There were $17.6 and $33.0 of interest-bearing
investments at December 31, 2016 and 2015, respectively.
Trade Receivables—The Company’s United States’ customers are primarily in the packaging industry, but also
consist of other chemical and plastics manufacturers. The Company’s foreign customers reside primarily in
Argentina, Brazil, Chile, Colombia, and Mexico. The Company evaluates the creditworthiness of customers and in
certain circumstances, may require letters of credit to support product sales. The Company maintains an allowance
for doubtful accounts based on anticipated collection of its accounts receivable.
Inventories—Inventories at December 31, 2016 and 2015, were as follows:
Finished goods
Work in process
Raw materials
Supplies
Total inventories
2016
$
55.1
67.6
13.5
10.6
$ 146.8
$
2015
47.3
53.2
24.7
9.3
$ 134.5
Inventories are stated at the lower of cost or market. Finished products and work-in-process inventories include
material, labor, and manufacturing overhead costs. The reserves reducing inventories from a first-in, first-out
(FIFO) basis to a last-in, first-out (LIFO) basis amounted to $31.4 at December 31, 2016, and $24.9 at December
31, 2015. In 2014, the liquidation of certain of the Company’s LIFO inventory layers increased operating income
by $1.8. Foreign inventories are accounted for on a FIFO basis.
F-62
Property, Plant, and Equipment—Upon formation of the Company, property, plant, and equipment were
recorded at CPChem’s and Dow’s net book value. Current additions of property, plant, and equipment are recorded
at cost. The Company provides for depreciation using the straight-line method at rates based on the estimated
service lives of the various classes of assets (3–45 years). Expenditures for repairs and maintenance, including
major maintenance commonly known as turnarounds, are expensed as incurred. Components of property, plant,
and equipment at December 31, 2016 and 2015, are as follows:
Land and waterway improvements
Buildings
Transportation and construction equipment
Machinery and other equipment
Utilities and supply lines/other property
Construction in progress
Total property, plant, and equipment
Less accumulated depreciation
Net property, plant, and equipment
$
2016
11.2
28.4
67.0
862.8
10.9
17.6
997.9
(764.4)
$ 233.5
$
2015
10.8
27.9
67.4
855.6
9.8
10.0
981.5
(727.4)
$ 254.1
Income Taxes—The Company is treated as a flow-through partnership for U.S. federal income tax purposes and
for most state income tax purposes. As such, the Company itself is not liable for U.S. federal income taxes. The
Company files a U.S. partnership return which reflects each Member’s share of income or loss. The Members are
responsible for reporting and paying any tax on their respective income tax returns. The Company is directly liable
for certain state income and franchise taxes, foreign withholding, and foreign direct or indirect taxes.
The Company has foreign subsidiaries in Canada, Chile (liquidated in 2014), Colombia, and Mexico. All foreign
entities except the Canadian subsidiary have elected to be treated as disregarded foreign branches of the Company
for U.S. purposes. As such, the income or loss of the respective disregarded entities will be included in the U.S.
federal partnership return. The foreign subsidiaries are responsible for all applicable taxes on foreign operations,
and these taxes have been provided for in the consolidated financial statements.
The Company has not recorded any liabilities for uncertain tax positions.
Impairment of Long-Lived Assets—The Company evaluates the carrying value of long-lived assets to be held
and used, including intangible assets, when events or circumstances warrant such a review. The carrying value of a
long-lived asset to be held and used is considered impaired when the anticipated, separately identifiable
undiscounted cash flows from such an asset are less than the carrying value of the asset. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair value of the long lived asset. Fair
value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk
involved. No impairment was recorded in 2016, 2015, or 2014.
Asset Retirement Obligation—The Company assesses whether it has legal obligations associated with the
retirement of tangible long-lived assets that result from the acquisition, construction, or development and/or the
normal operation of a long-lived asset, including any legal obligations that require disposal of a replaced part that
is a component of a tangible long-lived asset. At December 31, 2016 and 2015, the Company had no significant
asset retirement obligations.
Insurance —The Company maintains insurance for automobile risks, general liability, including products,
directors, officers, workers’ compensation, and property. This insurance is placed with highly rated insurance
carriers. The limits and deductibles are consistent for a company of this size and structure.
Foreign Currency—The functional currency for the Company’s foreign operations is the U.S. dollar, resulting in
no currency translation adjustments. Foreign currency gains and losses are reflected in operations.
Use of Estimates—The preparation of the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (U.S. GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-63
Fair Value of Financial Instruments—The carrying amounts reported in the balance sheets of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-
term maturity of these financial instruments.
Revenue Recognition—The Company recognizes revenue when there is evidence of a sales agreement, the
delivery of goods has occurred, the sales price is fixed or determinable, and the collectability of revenue is
reasonably assured. Revenue includes the selling price of the product and all related delivery charges paid by the
customer. Freight costs and any directly related associated costs of transporting finished product to customers are
recorded as “cost of sales.” Revenue is reduced at the time of sale for estimated customer-related incentives
(mostly volume-related incentives).
Subsequent Events—The Company has evaluated subsequent events through February 15, 2017, the date the
financial statements were available to be issued.
3.
RECENT ACCOUNTING GUIDANCE
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.
2014-09, Revenue from Contracts with Customers. The objective of ASU No. 2014-09 is to clarify the principles
for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial
Reporting Standards. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers:
Deferral of Effective Date, which deferred the effective date of ASU No. 2014-09 for one year. Further, in March
2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net), clarifying the implementation guidance on principal
versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with
Customers (Topic 606): Identifying Performance Obligations and Licensing, clarifying the implementation guidance
on identifying performance obligations in a contract and determining whether an entity’s promise to grant a license
provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time)
or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued
ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients, providing clarifications and practical expedients for certain narrow aspects of Topic 606. In December
2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from
Contracts with Customers. These ASUs are effective for fiscal years beginning after December 15, 2017. The
standards permit retrospective application using either of the following methodologies: (i) restatement of each prior
reporting period presented or (ii) recognition of a cumulative-effect adjustment as of the date of the initial
application. The Company is currently evaluating the impact of adopting these ASUs, including the transition method
to be applied.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. This ASU requires
entities to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current
guidance under which an entity must measure inventory at the lower of cost or market. ASU No. 2015-11 is effective
for fiscal years beginning after December 15, 2016, and should be applied prospectively. We do not expect the
adoption of this ASU to have a significant impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will increase transparency
and comparability among entities by recognizing lease assets and lease liabilities on the balance sheet and
disclosing key information about leasing arrangements. This ASU will require lessees to recognize in the statement
of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its
right to use the underlying asset for the lease term. ASU No. 2016-02 is effective for fiscal years beginning after
December 15, 2018. Early adoption is permitted. Reporting entities are required to recognize and measure leases
under these amendments at the beginning of the earliest period presented using a modified retrospective approach.
The Company is currently evaluating the impact of adopting ASU No. 2016-02.
4.
REVOLVING CREDIT FACILITY
The Company’s unsecured $50.0 revolving credit facility with Comerica Bank terminates in August 2020. Interest
on amounts drawn under the facility equal, at the Company’s option, a margin over either the prime rate or the
F-64
London InterBank Offered Rate-based rate as defined in the credit agreement. There were no outstanding
borrowings at December 31, 2016 or 2015.
5.
INCOME TAXES
The components of income before taxes for the years ended December 31, 2016, 2015, and 2014, are as follows:
Domestic
Foreign
Total income before taxes
2016
$ 215.0
20.1
$ 235.1
2015
$ 240.3
3.5
$ 243.8
2014
59.3
5.9
65.2
$
$
The components of income tax expense for the years ended December 31, 2016, 2015, and 2014, are as follows:
State—current
Foreign—current
Foreign—deferred
Total income tax expense
2016
2015
2014
$
0.2
5.1
1.0
6.3 $
$
0.2
6.5
(0.4)
6.3 $
—
7.7
1.3
9.0
$
$
The components of deferred income tax assets and liabilities at December 31, 2016 and 2015, are as follows:
Inventory
Fixed assets
Other temporary differences
Deferred tax assets
2016
2015
$
$
1.2
1.1
(0.5)
1.8
$
$
—
2.2
0.6
2.8
Undistributed earnings of foreign subsidiaries are not deemed to be permanently reinvested. Currently,
undistributed earnings exist in the Canadian, Colombian, and Mexican subsidiaries. Future repatriation of earnings
will not be subject to tax by the Company (but rather its Members); however, foreign withholding taxes may
apply.
6.
EMPLOYEE BENEFIT PLANS
The Company provides reimbursement of medical and dental costs to retired employees. The Company’s plan, the
Retiree Reimbursement Account (RRA), is calculated at the time of the employee’s retirement based on years of
credited service. The Company has the ability to change the benefits at any time. All employees are eligible,
except for former Dow employees who choose to participate in The Dow Chemical Company Retiree Medical
Care Program upon retirement. The Company uses a December 31 measurement date for the RRA.
At each of December 31, 2016 and 2015, the RRA had benefit obligations in the amount of $17.7. The Company
contributed and paid benefits in the amount of $0.5 in 2016, $0.4 in 2015, and $0.4 in 2014.
At December 31, 2016 and 2015, amounts recognized in the consolidated balance sheets consist of:
Current liabilities
Noncurrent liabilities
Total
2016
2015
(0.8)
(16.9)
(17.7)
$
$
(0.6)
(17.1)
(17.7)
$
$
At December 31, 2016 and 2015, amounts recognized in accumulated other comprehensive loss were as follows:
Net actuarial loss
Prior service cost
Total
2016
2015
$
$
1.6
2.7
4.3
$
$
2.4
3.4
5.8
F-65
In 2017, $0.7 of estimated prior service cost will be amortized from accumulated other comprehensive loss into net
periodic benefit cost.
Net periodic benefit cost and components of other amounts recognized in other comprehensive (income) loss were
as follows:
Net periodic postretirement benefit cost
Other changes in benefit obligations recognized in other
comprehensive loss (income):
Net actuarial (gain) loss
Recognized actuarial loss
Recognized prior-service cost
Total recognized in other comprehensive (income) loss
Total recognized in net periodic benefit cost and other
comprehensive loss (income)
2016
$ 2.0
2015
$ 1.8
2014
$ 1.8
(0.7)
(0.1)
(0.7)
(1.5)
0.5
—
(0.7)
(0.2)
1.2
—
(0.7)
0.5
$ 0.5
$ 1.6
$ 2.3
Actuarial assumptions used to determine benefit obligations and net periodic benefit cost were as follows:
Discount rate used to determine net periodic benefit cost
Discount rate used to determine benefit obligation at
December 31
Health Care Cost Assumptions
Initial health care cost trend rate
Ultimate health care cost trend rate
Year ultimate reached
2016
3.76 % 3.65 %
2015
2014
4.27 %
3.82 %
3.76 % N/A
2016
2015
2014
8.00 %
8.00 %
4.50 % 4.50 %
2027
2023
8.50 %
4.50 %
2023
Estimated health care cost trend rates can have a significant effect on the amounts reported for the RRA.
The Company expects to contribute approximately $0.8 to its RRA plan in 2017.
At December 31, 2016, the estimated future benefit payments, reflecting expected future service, as appropriate,
are expected to be paid as follows:
2017
2018
2019
2020
2021
2022 through 2026
Total
$
0.8
1.0
1.2
1.4
1.6
9.9
$ 15.9
The Company also has a defined contribution employee savings plan and made discretionary contributions of $3.5,
$3.5, and $3.4 in 2016, 2015, and 2014, respectively.
7. COMMITMENTS AND CONTINGENCIES
Commitments
The Company and its subsidiaries maintain outside service agreements and lease buildings, ground and easements,
rail cars, and other vehicles under noncancelable operating leases, which expire on varying dates between 2017
and 2028.
F-66
Total future minimum annual rentals in effect at December 31, 2016, for noncancelable operating leases are as
follows:
Years Ending December 31
2017
2018
2019
2020
2021
2022 and thereafter
Total
$
$
12.6
8.4
5.2
2.7
2.1
7.6
38.6
Expense for total rental and long-term commitments was $9.3, $7.6, and $9.4 for the years ended December 31,
2016, 2015, and 2014, respectively.
The Company has entered into long-term sales commitments and purchase agreements with several of its key
suppliers, including its Members (see Note 8). The commitment contracts are for one- to three-year periods.
Because the pricing and supply fluctuates with the commodity market, a definitive dollar value cannot be
determined.
In addition, the Company has purchase commitments of $54.6 mainly related to certain feedstock, utility, and
capital projects costs. The Company does not consider purchase orders to be firm commitments. If the Company
chooses to cancel a purchase order, it may be obligated to reimburse the vendor for unrecoverable outlays incurred
prior to cancellation under certain circumstances.
Contingencies
The Company is cooperating with a confidential subpoena dated May 11, 2015, from the U.S. Postal Service in
coordination with the U.S. Department of Justice seeking information relating to the polystyrene market. The
Company has conducted an internal review and is unaware of any improper activity. The Company has appointed a
Litigation Management Committee among its Board of Directors to provide oversight to the matter. At this time, it
is premature for the Company to determine whether it is probable that a loss will occur, nor is the Company able to
estimate a range of potential loss. Therefore, a liability has not been recorded with respect to this matter.
The Company is a party to various legal proceedings and claims incidental to the normal conduct of its business.
Management believes that the ultimate disposition of these matters will not have a material adverse effect on the
Company’s consolidated financial position or results of operations.
Pursuant to the contribution agreement, all preexisting environmental matters have been outlined for each site and
any contingencies are the responsibility of Dow and CPChem. All subsequent obligations are the liability of the
Company. No environmental reserve was recorded as of December 31, 2016, 2015, or 2014. During 2015, the
Company received reimbursement from Dow of certain capital costs at one of its polystyrene facilities, totaling
$7.8, which was recorded as a reduction of the carrying cost of the assets.
8.
RELATED-PARTY TRANSACTIONS
The Company entered into various supply and purchase agreements with the Members and their affiliated
companies. These agreements include sales and purchases of energy, raw materials, and services. A summary of
transactions for the years ended December 31, 2016, 2015, and 2014, is as follows:
Net sales
Purchases
$
2016
134.4
384.0
$
2015
161.4
483.3
$
2014
263.0
847.0
Balances receivable and payable to the Members are included in the consolidated financial statements as related
company receivables and payables.
******
F-67
Exhibit
No.
3.1
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
EXHIBIT INDEX
Description
Amended and Restated Articles of Association of Trinseo S.A.., as amended (incorporated
herein by reference to Exhibit 3.1 to the Annual Report filed on Form 10-K, File No. 001-
36473, filed March 10, 2015)
Indenture among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc. and The
Bank of New York Mellon, as Trustee, dated as of May 5, 2015 (incorporated herein by
reference to Exhibit 4.1 to the Current Report filed on Form 8-K, File No. 001-36473, filed May
11, 2015)
Form of Specimen Share Certificate of Trinseo S.A. (incorporated herein by reference to
Exhibit 4.1 to Amendment No. 3 of the Registration Statement filed on Form S-1, File No. 333-
194561, filed May 16, 2014)
Credit Agreement among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc.
together with Trinseo Holdings S.à r.l., and Trinseo Materials S.à r.l., Deutsche Bank AG New
York Branch, as administrative agent, collateral agent L/C issuer and swing line lender,
Citigroup Global Markets Inc., as syndication agent, and the lenders from time to time party
thereto, dated as of May 5, 2015 (incorporated herein by reference to Exhibit 10.1 to the Current
Report filed on Form 8-K, No. 001-36473, filed May 11, 2015)
Amended and Restated Employment Agreement, among Trinseo US Holding, Inc. (f/k/a Styron
US Holding, Inc.), Bain Capital Everest Manager Holding SCA and Christopher D. Pappas,
dated April 11, 2013 (incorporated herein by reference to Exhibit 10.7 to the Registration
Statement filed on Form S-4, File No. 333-191460, filed September 30, 2013)
First Amendment to Amended & Restated Employment Agreement between Trinseo US
Holding, Inc., Bain Capital Everest Manager Holding SCA, and Christopher D. Pappas, dated
March 30, 2016 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K,
File No. 001-36473, filed April 5, 2016)
Letter Agreement, dated March 3, 2016, between Trinseo S.A. and Christopher D. Pappas,
defining retirement for purpose of equity awards (incorporated by reference to Exhibit 10.3 to
the Quarterly Report filed on Form 10-Q, File No. 001-36473, filed May 5, 2016)
Employment Agreement among Trinseo US Holding, Inc. (f/k/a Styron US Holding, Inc.), Bain
Capital Everest Manager Holding SCA and Martin Pugh, dated March 1, 2013 (incorporated
herein by reference to Exhibit 10.35 to the Annual Report filed on Form 10-K, File No. 333-
191460, filed March 14, 2014)
First Amendment to the Employment Agreement, dated January 17, 2014, by and between
Trinseo US Holding, Inc. (f/k/a Styron US Holding, Inc.) and Martin Pugh (incorporated herein
by reference to Exhibit 10.35 to the Registration Statement filed on Form S-4, File No. 333-
191460, as amended on January 17, 2014)
Second Amendment to the Employment Agreement, dated October 8, 2014, by and between
Trinseo US Holding, Inc. (f/k/a Styron US Holding, Inc.) and Martin Pugh (incorporated herein
by reference to Exhibit 10.16 to the Annual Report filed on Form 10-K, File No. 001-36473,
filed March 10, 2015)
Exhibit
No.
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17*
10.18*
Description
Third Amendment to the Employment Agreement, dated October 6, 2015, by and between
Trinseo US Holding, Inc. (f/k/a Styron US Holding, Inc.) and Martin Pugh (incorporated herein
by reference to Exhibit 10.1 to the Current Report filed on Form 8-K, File No. 001-36473, filed
October 8, 2015)
Letter Agreement, dated March 1, 2016, between Trinseo S.A. and Martin Pugh, defining
retirement for purpose of equity awards (incorporated by reference to Exhibit 10.4 to the
Quarterly Report filed on Form 10-Q, File No. 001-36473, filed May 5, 2016)
Employment Agreement between Trinseo LLC and Barry Niziolek, dated May 20, 2016
(incorporated herein by reference to Exhibit 10.1 to the Current Report filed on Form 8-K, File
No. 001-36473, filed May 23, 2016)
Employment Agreement, dated September 14, 2015 by and between Trinseo Europe GmBH.
and Timothy M. Stedman (incorporated herein by reference to Exhibit 10.11 to the Annual
Report filed on Form 10-K, File No. 001-36473, filed March 11, 2016)
Employment Agreement, dated August 7, 2015, by and between Trinseo Europe GmBH and
Hayati Yarkadas (incorporated herein by reference to Exhibit 10.12 to the Annual Report filed
on Form 10-K, File No. 001-36473, filed March 11, 2016)
Employment Agreement, among Trinseo US Holding, Inc. (f/k/a Bain Capital Everest US
Holding, Inc.) Bain Capital Everest Manager Holding SCA and Marilyn Horner, dated January
5, 2011 (incorporated herein by reference to Exhibit 10.12 to the Annual Report filed on Form
10-K, File No. 001-36473, filed March 10, 2015)
First Amendment to Employment Agreement, among Trinseo US Holding, Inc. (f/k/a Bain
Capital Everest US Holding, Inc.) Bain Capital Everest Manager Holding SCA and Marilyn
Horner, dated February 14, 2012 (incorporated herein by reference to Exhibit 10.13 to the
Annual Report filed on Form 10-K, File No. 001-36473, filed March 10, 2015)
Letter Agreement, dated March 1, 2016, between Trinseo S.A. and Marilyn N. Horner, defining
retirement for purpose of equity awards (incorporated by reference to Exhibit 10.5 to the
Quarterly Report filed on Form 10-Q, File No. 001-36473, filed May 5, 2016)
Employment Agreement, dated November 17, 2014, by and between Trinseo US Holding, Inc.
(f/k/a Bain Capital Everest US Holding, Inc.) and Angelo N. Chaclas (incorporated herein by
reference to Exhibit 10.10 to the Annual Report filed on Form 10-K, File No. 001-36473, filed
March 11, 2016)
Second Amended and Restated Master Outsourcing Services Agreement, among The Dow
Chemical Company and Trinseo LLC (f/k/a Styron LLC) and Trinseo Holding B.V. (f/k/a
Styron Holding B.V.), dated June 1, 2013 (incorporated herein by reference to Exhibit 10.19 to
Amendment No. 2 to the Registration Statement filed on Form S-4, File No. 333-191460, filed
December 17, 2013)
Contract of Sale, by and between Americas Styrenics LLC and The Dow Chemical Company,
dated December 1, 2009, as amended by that certain Amendment to and Consent to Partial
Assignment, dated April 1, 2010 (incorporated herein by reference to Exhibit 10.20 to
Amendment No. 2 to the Registration Statement filed on Form S-4, File No. 333-191460, filed
December 17, 2013)
Exhibit
No.
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26†
10.27
10.28
Description
Styrene Baseload Sale and Purchase Agreement, between Trinseo Europe GmbH (f/k/a Dow
Europe GmbH) and Jubail Chevron Phillips Company, dated June 30, 2004 (incorporated herein
by reference to Exhibit 10.21 to Amendment No. 2 to the Registration Statement filed on Form
S-4, File No. 333-191460, filed December 17, 2013)
Amended and Restated Ethylene Sales Contract (Europe), between Dow Europe GmbH and
Trinseo Europe GmbH (f/k/a Styron Europe GmbH), dated June 17, 2010 (incorporated herein
by reference to Exhibit 10.22 to Amendment No. 2 to the Registration Statement filed on Form
S-4, File No. 333-191460, filed December 17, 2013)
Amended and Restated Benzene Sales Contract (Europe), between Dow Europe GmbH and
Trinseo Europe GmbH (f/k/a Styron Europe GmbH), dated June 17, 2010 (incorporated herein
by reference to Exhibit 10.23 to Amendment No. 2 to the Registration Statement filed on Form
S-4, File No. 333-191460, filed December 17, 2013)
Amended and Restated Butadiene Sales Contract (Europe), between Dow Europe GmbH and
Trinseo Europe GmbH (f/k/a Styron Europe GmbH), dated June 17, 2010 (incorporated herein
by reference to Exhibit 10.27 to Amendment No. 2 to the Registration Statement filed on Form
S-4, File No. 333-191460, filed December 17, 2013)
Amended and Restated MOD5 Computerized Process Control Software Agreement, Licenses
and Services, between Rofan Services Inc. and Trinseo LLC (f/k/a Styron LLC), dated as of
June 17, 2010 (incorporated herein by reference to Exhibit 10.29 to the Registration Statement
filed on Form S-4, File No. 333-191460, filed September 30, 2013)
Amendment No. 1 to the Amended and Restated MOD5 Computerized Process Control
Software Agreement, Licenses and Services, between Rofan Services Inc. and Trinseo LLC
(f/k/a Styron LLC), dated as of June 1, 2013 (incorporated herein by reference to Exhibit 10.30
to Amendment No. 2 to the Registration Statement filed on Form S-4, File No. 333-191460,
filed December 17, 2013)
Amended and Restated Styron License Agreement, among The Dow Chemical Company, Dow
Global Technologies Inc. and Trinseo LLC (f/k/a Styron LLC), dated as of June 17, 2010.
(incorporated herein by reference to Exhibit 10.31 to Amendment No. 2 to the Registration
Statement filed on Form S-4, File No. 333-191460, filed December 17, 2013)
Deed of Amendment, Restatement and Accession, dated October 31, 2016, entered into by and
among Trinseo Europe GmbH, Trinseo Export GmbH, Trinseo Deutschland
Anlagengesellschaft mbH, Trinseo Netherlands B.V., Trinseo LLC, Trinseo U.S. Receivables
Company SPV LLC, Styron Receivables Funding Designated Activity Company, Trinseo
Finance Luxembourg S.à r.l., Luxembourg, Zweigniederlassung Horgen, Regency Assets
Designated Activity Company, HSBC Bank plc, Trinseo Holding S.à r.l., TMF Administration
Services Limited and the Law Debenture Trust Corporation plc
Form of Restoration and Elective Deferral Plan (incorporated herein by reference to Exhibit
10.35 to Amendment No. 2 to the Registration Statement on Form S-1, File No. 333-194561,
filed May 5, 2014)
Performance Award (PA) Plan (incorporated herein by reference to Exhibit 10.36 to
Amendment No. 2 to the Registration Statement on Form S-1, File No. 333-194561, filed May
5, 2014)
Exhibit
No.
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Form of 2014 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.38 to
Amendment No. 4 to the Registration Statement on Form S-1, File No. 333-194561, filed June
2, 2014)
Description
Trinseo S.A. Cash Incentive Plan (incorporated herein by reference to Exhibit 10.35 to
Amendment No. 3 to the Registration Statement on Form S-1, File No. 333-194561, filed May
16, 2014)
Form of Indemnification Agreement for Directors and Officers (incorporated herein by
reference to Exhibit 10.39 to Amendment No. 2 to the Registration Statement on Form S-1, File
No. 333-194561, filed May 5, 2014)
Form of Director Offer Letter (incorporated herein by reference to Exhibit 10.1 to the Current
Report filed on Form 8-K, File No. 001-36473, filed August 31, 2016)
Form of Restricted Stock Unit Agreement for Directors (incorporated herein by reference to
Exhibit 10.38 to Amendment No. 4 to the Registration Statement on Form S-1, File No. 333-
194561, filed June 2, 2014)
Form of Executive Restricted Stock Unit Award Agreement (incorporated herein by reference
to Exhibit 10.1 to the Current Report filed on Form 8-K, File No. 001-36473, filed March 5,
2015)
Form of Executive Nonstatutory Option Award Agreement (incorporated herein by reference to
Exhibit 10.1 to the Current Report filed on Form 8-K, File No. 001-36473, filed March 5, 2015)
Form of Employee Restricted Stock Unit Award Agreement (incorporated herein by reference
to Exhibit 10.5 to the Quarterly Report filed on Form 10-Q, File No. 001-36473, filed August 7,
2015)
Form of Employee Non-statutory Option Award Agreement (incorporated herein by reference
to Exhibit 10.6 to the Quarterly Report filed on Form 10-Q, File No. 001-36473, filed August 7,
2015)
10.38†
Form of Letter Agreement to Restricted Stock Unit Awardees regarding payment of dividend
equivalents
12.1†
21.1†
23.1†
23.2†
31.1†
31.2†
32.1†
Statement of Computation of Ratios of Earnings to Fixed Charges
Subsidiaries of Trinseo S.A.
Consent of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP
Consent of Independent Registered Public Accounting Firm Deloitte & Touche LLP
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit
No.
32.2†
Description
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†
XBRL Instance Document
101.SCH†
XBRL Taxonomy Extension Schema Document
101.CAL†
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†
XBRL Extension Label Linkbase Document
101.PRE†
XBRL Taxonomy Extension Presentation Linkbase Document
* Application has been made to the Securities and Exchange Commission for confidential treatment of certain
provisions of these exhibits. Omitted material for which confidential treatment has been requested has been filed
separately with the Securities and Exchange Commission.
† Filed herewith.
Worldwide Manufacturing Assets
Terneuzen, Netherlands
Tessenderlo, Belgium
Midland, MI
Stade, Germany
Schkopau, Germany
Norrköping, Sweden
Hamina, Finland
Böhlen, Germany
Rheinmuenster, Germany
Zhangjiagang, China
Ulsan, South Korea
Dalton, GA
Hsinchu, Taiwan
Tsing Yi, Hong Kong
Merak, Indonesia
Plastics
Latex
Rubber
Trinseo LLC
Trinseo Europe GmbH
Trinseo (Hong Kong) Limited
1000 Chesterbrook Blvd.
Zugerstrasse 231
Suite 3401-3, 34/F Central Plaza
Berwyn, PA 19312
8810 Horgen / Switzerland
+1 888 789 7661
+1 855 TRINSEO
+41 44 718 3600
18 Harbour Road
Wanchai, Hong Kong
+852 3120 6300
CIG@Trinseo.com www.Trinseo.com