ANNUAL REPORT
People
We are outstanding and diverse
individuals, passionate about
developing solutions to create
shared value for our customers
and Trinseo. We think deep
and act fast.
Technology
Trinseo was born out of one of the most
storied technology companies in the
world, with a six-decade rich and proud
history. We’re proud of where we’re from, but
it’s where we’re going that excites us the most.
Corporate Message
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 everyday — products that are
intrinsic to how we live our lives — across a wide range of
end-markets, including automotive, consumer electronics,
appliances, medical devices, carpet, paper and board, building
and construction, footwear, and tires.
We collaborate with our customers to meet their most
complex materials challenges. We believe that
innovation through our technology and the
creativity of our people power our success
and the success of our customers.
Customers
The products, processes, and solutions we develop enable our
customers’ innovations that benefit consumers all over the world.
Our customers come to us when they need a challenge solved,
and that’s exactly what we do.
Worldwide Manufacturing Assets
Technology
Plastics
Latex
Rubber
Fast Facts
• $3.8 Billion (USD) in revenue (2019)
• Approximately 2,700 employees in 25 countries
Global Footprint
• 17 Manufacturing sites
• 10 Research and development facilities
1
From a financial perspective, it’s important to note that,
even in a weaker economic environment, Trinseo
continues to demonstrate positive cash flow. Last year, we
generated $322 million of cash from operating activities,
which contributed to a Free Cash Flow¹ of $212 million.
We also returned cash to our shareholders via our
dividend of $66 million and by repurchasing 2.8 million
Trinseo shares worth $120 million.
One thing that is certain is that macroeconomic conditions
will always change and that the landscape of our industry
will change with it. The coronavirus covid-19 pandemic
reminds us that much is outside our control. But with the
foundation we have put in place of a functionally aligned
company with a strong balance sheet and a focus on
Business Excellence, I’m confident in our ability to provide
solid earnings with strong cash generation while
capitalizing on our growth opportunities in sustainability
and solutions-oriented materials.
Frank Bozich
CEO & President
April 2020
Letter from
the
When I joined Trinseo early in 2019, I was
impressed with the Company’s reputation for
safety, its ability to generate cash and the
strong balance sheet. With my first year at the
company complete, I am even more excited
about our prospects for the future. 2019 was a
year in which Trinseo observed a continuation
of the challenging macroeconomic conditions
that were present at the end of 2018. Slower
growth in China and global uncertainty
stemming from trade conflicts and
geopolitical events such as Brexit, caused
headwinds most of the year – not only for
Trinseo but for the chemicals industry as a
whole. These economic hurdles led to a
decrease in year-over-year profitability.
However, despite these challenges, I’m proud
of the actions we have taken to better
position Trinseo to grow and provide steady
results in future years.
2
One of the actions taken was implementing a Business
Excellence process, which is a framework for optimizing
business processes, driving productivity and improving
efficiencies. As part of this, we established four Business
Excellence committees which focus on: Commercial, Supply
Chain, Operational, and Functional Excellence. The Business
Excellence process is already yielding positive results, such
as higher earnings in Polystyrene from greater focus on the
customer portfolio and increased cash generation via
inventory reductions from Supply Chain initiatives. Our
successes in Business Excellence is the foundation for
accelerating growth in applications that offer higher
earnings margins and less cyclicality, such as Coatings,
Adhesives, Sealants, and Elastomers (CASE) in Latex
Binders, S-SBR in Synthetic Rubber for high-performance
tires, and Engineered Materials in Performance Plastics.
We also reorganized our executive leadership team in 2019
to reflect a global functional structure. This new structure
has increased organizational effectiveness through business
process optimization. 2019 was also a pivotal year in
advancing our systems independence from Dow, which we
plan to largely achieve in the first half of 2020. The control
of our systems and business processes is now a rich area of
opportunity for productivity and optimization in the future.
Safety has always been one of the hallmarks of Trinseo and
2019 was no exception. Our safety goal is always zero
incidents, so at the end of each year we recognize those
locations with zero injuries, zero spills and zero process
safety incidents with our Triple Zero Award. I’m happy to say
that 24 of our manufacturing and R&D sites, which is more
than half of our locations, achieved Triple Zero during 2019.
With that kind of performance, it’s unsurprising that we
ranked in the top decile of our industry, with an
OSHA-recordable rate of 0.11 globally, including contractors.
Our dedication to corporate social responsibility and
sustainability, such as our work in developing recycled
polystyrene in packaging, resulted in Newsweek naming
Trinseo in its list of “Most Responsible Companies in
America.”
One of the actions taken was implementing a Business
Excellence process, which is a framework for optimizing
business processes, driving productivity and improving
efficiencies. As part of this, we established four Business
Excellence committees which focus on: Commercial, Supply
Chain, Operational, and Functional Excellence. The Business
Excellence process is already yielding positive results, such
as higher earnings in Polystyrene from greater focus on the
customer portfolio and increased cash generation via
inventory reductions from Supply Chain initiatives. Our
successes in Business Excellence is the foundation for
accelerating growth in applications that offer higher
earnings margins and less cyclicality, such as Coatings,
Adhesives, Sealants, and Elastomers (CASE) in Latex
Binders, S-SBR in Synthetic Rubber for high-performance
tires, and Engineered Materials in Performance Plastics.
We also reorganized our executive leadership team in 2019
to reflect a global functional structure. This new structure
has increased organizational effectiveness through business
process optimization. 2019 was also a pivotal year in
advancing our systems independence from Dow, which we
plan to largely achieve in the first half of 2020. The control
of our systems and business processes is now a rich area of
opportunity for productivity and optimization in the future.
Safety has always been one of the hallmarks of Trinseo and
2019 was no exception. Our safety goal is always zero
incidents, so at the end of each year we recognize those
locations with zero injuries, zero spills and zero process
safety incidents with our Triple Zero Award. I’m happy to say
that 24 of our manufacturing and R&D sites, which is more
than half of our locations, achieved Triple Zero during 2019.
With that kind of performance, it’s unsurprising that we
ranked in the top decile of our industry, with an
OSHA-recordable rate of 0.11 globally, including contractors.
Our dedication to corporate social responsibility and
sustainability, such as our work in developing recycled
polystyrene in packaging, resulted in Newsweek naming
Trinseo in its list of “Most Responsible Companies in
America.”
When I joined Trinseo early in 2019, I was
impressed with the Company’s reputation for
safety, its ability to generate cash and the
strong balance sheet. With my first year at the
company complete, I am even more excited
about our prospects for the future. 2019 was a
year in which Trinseo observed a continuation
of the challenging macroeconomic conditions
that were present at the end of 2018. Slower
growth in China and global uncertainty
stemming from trade conflicts and
geopolitical events such as Brexit, caused
headwinds most of the year – not only for
Trinseo but for the chemicals industry as a
whole. These economic hurdles led to a
decrease in year-over-year profitability.
However, despite these challenges, I’m proud
of the actions we have taken to better
position Trinseo to grow and provide steady
results in future years.
From a financial perspective, it’s important to note that,
even in a weaker economic environment, Trinseo
continues to demonstrate positive cash flow. Last year, we
generated $322 million of cash from operating activities,
which contributed to a Free Cash Flow¹ of $212 million.
We also returned cash to our shareholders via our
dividend of $66 million and by repurchasing 2.8 million
Trinseo shares worth $120 million.
One thing that is certain is that macroeconomic conditions
will always change and that the landscape of our industry
will change with it. The coronavirus covid-19 pandemic
reminds us that much is outside our control. But with the
foundation we have put in place of a functionally aligned
company with a strong balance sheet and a focus on
Business Excellence, I’m confident in our ability to provide
solid earnings with strong cash generation while
capitalizing on our growth opportunities in sustainability
and solutions-oriented materials.
Frank Bozich
CEO & President
April 2020
¹ See pages 4-5 for a reconciliation of US GAAP to non-GAAP measures. For a
definition of Free Cash Flow, a description of reconciling items to
comparable US GAAP measure, and a discussion of the usefulness and
purposes of these measures, please see pages 44-47 of this Annual Report.
Executive Leadership Team
Frank A. Bozich
President and Chief Executive Officer
David Stasse
Executive Vice President and Chief Financial Officer
Angelo Chaclas
Senior Vice President and Chief Legal Officer
Alice Heezen
Senior Vice President, Human Resources
Rainer Schewe
Vice President, Supply Chain Services
Tim Thomas
Vice President, Manufacturing and Operational
Excellence
Board of Directors
Stephen M. Zide
Chairman, Trinseo; Director, Sensata Technologies Holding PLC
Christopher D. Pappas
Director, FirstEnergy Corp.; Director, Univar, Inc.; Former
President & CEO, Trinseo
Frank A. Bozich
President & CEO, Trinseo
Jeffrey J. Cote
Chief Executive Officer & President, Sensata Technologies
Holding PLC
Pierre-Marie De Leener
Former Chairman, Braas Monier Building Group S.A.
Mark Tomkins
Director, ServiceMaster; Director, W.R. Grace & Co.
Donald T. Misheff
Director, TimkenSteel Corporation; Director, FirstEnergy Corp.
Sandra Beach Lin
Director, American Electric Power; Director, Interface Biologics;
Director, PolyOne Corporation; Former President & CEO,
Calisolar, Inc.
Philip R. Martens
Chairman, Graphic Packaging Holding Company; Former
President & CEO, Novelis, Inc.
Joseph Alvarado
Director, Kennametal Inc.; Director, Arcosa; Director, PNC
Financial Services Group; Former Chairman & CEO, Commercial
Metals Company
K’Lynne Johnson
Director, FMC Corporation; Former Chairwoman, President &
CEO, Elevance Renewable Sciences Inc.
Henri Steinmetz
Former CEO, Ceramtec Group; Former Executive Director & CEO,
Ruetgers N.V.; Former President, Sulzer Metco
3
Financial Statements
$ (USD) Millions Unless Noted
2019 2018 2017
Sales Volume (kt)
Net Sales
Net Income
Wtd Avg Shares - diluted (MM)
EPS - diluted ($)
Adj EBITDA²
Adj Net Income³
Adj EPS ($)³
2,288
2,382
2,408
3,776
4,623
4,448
92
41
292
328
44
45
2.26
6.70
7.30
352
573
642
127
317
366
3.13
7.25
8.13
Cash provided by operating activities
322
367
391
Free Cash Flow⁴
212
245
244
1 See page 5 of this presentation for reconciliation of US GAAP to non-GAAP
measures.
2 For a definition of Adjusted EBITDA, as well as description of the
reconciling terms and the usefulness and purpose of this measure,
please see pages 44-45 of this Annual Report.
3 For a definition of Adjusted Net Income and Adjusted EPS,
as well as description of the reconciling items and the
usefulness and purpose of these measures, please
see Trinseo’s 2019 fourth quarter earnings release,
furnished as Exhibit 99.1 of the Company's
Form 8-K filed on February 6, 2020.
4 For a definition of Free Cash Flow,
as well as description of the
usefulness and purpose of
these measures, please
see page 47 of this
Annual Report.
Other
3%
2019
Net Sales by
Geography
United
States
15%
Asia
Pacific
25%
Europe
57%
Tires /
Rubber
Goods 12%
Styrene
Related 7%
Board & Specialty
Paper 8%
Other
14%
Appliances
9%
2019
Net Sales by
End Market
Automotive
15%
Building &
Construction
/ Sheet 11%
Textile 5%
Consumer
Electronics 5%
4
Graphical
Paper 7%
Packaging
7%
US GAAP to
non-GAAP
Reconciliation
(in $millions, unless noted)
2019 2018 2017
Net Income
Interest expense, net
Provision for income taxes
Depreciation and amortization
EBITDA
92.0
292.5 328.3
39.3
12.6
46.4
70.1
71.8
82.8
136.0
130.2
110.6
279.9 540.9 591.8
Loss on extinguishment of long-term debt
-
0.2
65.3
Other items
Restructuring and other charges
55.4
22.8
(19.9)
18.1
8.2
6.0
Net gain on disposition of businesses and assets
(0.7)
(1.0)
(9.7)
Acquisition transaction and integration net costs (benefits)
(0.9)
Asset impairment charges or write-offs
-
0.6
1.5
4.7
4.3
Adjusted EBITDA
351.8
573.2
642.5
Adjusted EBITDA to Adjusted Net Income
Adjusted EBITDA
Interest expense, net
Provision for income taxes - Adjusted
351.8
573.2
642.5
39.3
46.4
70.1
52.8
81.0
98.2
Depreciation and amortization - Adjusted
132.4
129.1
108.6
Adjusted Net Income
Wtd Avg Shares - Diluted (000)
Adjusted EPS - Diluted ($)
127.3
316.7
365.6
40,710 43,666 44,973
3.13
7.25
8.13
Adjustments by Statement of Operations Caption
Loss on extinguishment of long-term debt
Cost of sales
Selling, general and administrative expenses
Other income, net
Total EBITDA Adjustments
-
0.4
74.7
0.2
1.8
65.3
(16.0)
30.8
9.9
(3.2)
(0.5)
(8.5)
71.9
32.3
50.7
Free Cash Flow Reconciliation
Cash provided by operating activities
Capital expenditures
Free Cash Flow
322.5
366.5
391.3
(110.1)
(121.4)
(147.4)
212.4
245.1
243.9
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Trinseo News
Highlights
February
January
Trinseo Releases Impressive
EH&S Performance Results for
2018 with an OSHA
Recordable Injury Rate of 0.21
Trinseo Improves its 2018 CDP and
Supplier Engagement Ratings to a
“B-“; Ranks in the Top 25% of
Chemical Sector Companies
March
Frank A. Bozich Officially
Takes the Helm as President
and CEO of Trinseo
April
Styrenics Circular Solutions
Elects Trinseo’s Global Business
Director for Polystyrene Nicolas
Joly as the Joint Industry
Initiative’s First President
May
Trinseo Indonesia Receives Best
Supplier Award 2018 from Panasonic for
the Fifth Consecutive Year
June
Trinseo Launches its New
Food Contact Grade ABS
Resins for Kitchenware and
Appliances at Chinaplas
July
Trinseo Opens New Compounding
Plant at Hoek Site in the
Netherlands Providing an Extra Boost
to R&D and stainability Programs
August
Trinseo Named 2019
Michigan Governor’s Service
Award Winner in the Corporate
Community Leader Category
September
Trinseo Leaders Sign Circular
Plastics Alliance Declaration in
Brussels with More than 100
Partners Within the Value Chain
October
Trinseo Completes Acquisition of
Latex Binders Assets and
Rheinmuenster Site
in Germany
November
Former CEO and Current Board Member
Christopher D. Pappas to Receive Prestigious
2020 SCI Chemical Industry Medal
December
Trinseo Named One of
America’s Most Responsible
Companies by Newsweek;
Ranks Fifth in Materials Industry
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7
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
For the fiscal year ended: December 31, 2019
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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
Trading Symbol
TSE
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
☐
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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, 2020, there were 38,320,508 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 shares on the New York Stock Exchange as of June 30, 2019 was approximately $1,691,486,980.
Portions of the registrant’s definitive proxy statement for the 2019 annual general meeting of shareholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A of the Securities Exchange Act of 1934 are incorporated by reference into Part III of this report.
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,” “estimate”, “see,” “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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
volatility in costs or disruption in the supply of the raw materials or energy utilized for our products;
escalations in global trade conflicts, including the imposition of tariffs;
conditions in the global economy and capital markets;
our migration from services and technologies provided by The Dow Chemical Company and the impact of
migration on our ongoing operations;
the execution of capital projects and other growth investments in accordance with the Company’s plan,
budget and forecasts;
any disruptions in production at our manufacturing facilities;
findings by European competition authorities that the Company violated the law with respect to our styrene
monomer commercial activities;
costs and business restrictions associated with complying to custom, international trade, export control and
antitrust laws;
strategic acquisitions or divestitures affecting our operations or financial condition;
the stability of our joint ventures;
our continued reliance on our relationship with The Dow Chemical Company for certain services and
supply of raw materials;
regulatory and statutory changes applicable to our raw materials and products;
our current and future levels of indebtedness;
the restrictions on our operations due to our indebtedness;
any inability to continue technological innovation and successful introduction of new products;
local business risks in the different countries in which we operate;
liabilities and losses related to contamination, environmental damage, or chemical exposures or release;
the limitations of our intellectual property licensing arrangements with The Dow Chemical Company;
expenditures related to changes to and our compliance with environmental, health and safety laws;
fluctuations in currency exchange rates;
our ability to successfully generate cost savings through restructuring and business excellence initiatives;
any inability to protect our trademarks, patents, and other intellectual property rights;
our infringement on the intellectual property rights of others;
data security breaches;
risks associated with our incorporation in Luxembourg; and
1
•
other risks described in the “Risk Factors” section or other sections 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
actual results. Accordingly, forward-looking statements should not be relied upon as a prediction of 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” and in other portions of
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. Should unknown risks or uncertainties materialize or underlying assumptions prove inaccurate, actual results could
differ materially from past results and/or those anticipated, estimated or projected. 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 Shareholder 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 Shareholder
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.
Item 16.
Signatures
Index to Consolidated Financial Statements
Exhibits, Financial Statement Schedules
Form 10-K Summary
Page
5
19
30
30
32
32
32
37
38
56
58
58
58
59
59
59
59
59
59
60
65
65
F-1
3
Trinseo S.A.
Form 10-K Annual Report
For the Fiscal Year Ended December 31, 2019
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. 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, which we refer to as,
together with its affiliates, “Dow.” 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 Dow Europe
Holding B.V. and the Styron business. We refer to our acquisition by Bain Capital as the “Acquisition.” During 2016,
Bain Capital Everest Manager Holding SCA (the “former Parent”), an affiliate of Bain Capital, divested its entire
ownership in the Company in a series of secondary offerings to the market.
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. Beginning in 2020, the Company expects future distributions to be paid
from allocation of statutory profits, which trigger certain Luxembourg holding tax requirements. See Item 5,
“Luxembourg Tax Considerations.”
Definitions of capitalized terms not defined herein appear in the notes to our consolidated financial statements.
Specifically, refer to Note 11 in the consolidated financial statements for definitions of the Company’s debt facilities.
4
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 Holding B.V.
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 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 manufacturing 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.
We have significant manufacturing and production operations around the world, which allow us to serve our global
customer base. As of December 31, 2019, our production facilities included 32 manufacturing plants (which included a
total of 77 production units) at 24 sites across 12 countries, including the Company’s joint venture. Additionally, as of
December 31, 2019, we operated 10 research and development (“R&D”) facilities globally, including technology and
innovation development centers, which we believe are critical to our global presence and innovation capabilities. Our
significant global operations also provide diversity in the end markets for our products.
5
Our 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. The Company’s business strategy is to grow both organically and through
the pursuit of strategic acquisitions and joint ventures that have attractive risk-adjusted returns that extend our leadership
positions in attractive markets and geographies, while also achieving cost efficiencies across our businesses and making
strategic divestures or closures of non-performing businesses and geographies. The Company’s organic growth will be
developed through strategic capital investments to extend our leadership position in select market segments and by
innovation that provides technological differentiation to our customers who seek our technological and development
capabilities to create specialty grades, new and sustainable products, and technologically-differentiated formulations. In
addition, in 2019 we implemented a Business Excellence program which is focused on business process optimization and
increasing our operational efficiency and effectiveness.
Additionally, starting in 2019, we have increased our focus on efforts and investments in several product offerings
serving the following applications, which are less cyclical and offer significantly higher growth and margin potential:
coatings, adhesives, sealants, and elastomers (“CASE”) applications within the Latex Binders segment; engineered
materials (“Engineered Materials”) applications within the Performance Plastics segment, which includes consumer
electronics, medical, and thermoplastic elastomers (“TPEs”) applications; and solution styrene butadiene rubber
(“SSBR”) within the Synthetic Rubber segment.
In order to support the Company’s strategic growth, 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. For 2019, this included distributing a quarterly dividend to shareholders
of $0.40 per share, and using $119.7 million in cash to repurchase approximately 2.8 million ordinary shares, about 7%
of our ordinary shares outstanding at the beginning of the year.
The priorities for uses of available cash include the servicing of our debt, the continued return of capital to our
shareholders via quarterly dividends, the funding of targeted growth initiatives, and the repurchase of our ordinary
shares. Management believes that strong cash flow generation, continued profitability, and spending discipline are
critical to providing the Company with the ongoing flexibility to pursue our business strategy.
For more information regarding our strategic highlights see Item 7 – Management’s Discussion and Analysis of
Financial Condition and Results of Operations – 2019 Highlights.
Business Segments
The Company operates under six reporting segments: Latex Binders, Synthetic Rubber, Performance Plastics,
Polystyrene, Feedstocks, and Americas Styrenics. Our reporting segments reflect the model under which the business is
being managed and results are being reviewed by the Chief Executive Officer, who is the Company’s chief operating
decision maker.
Refer to Note 19 in the consolidated financial statements for information regarding sales, Adjusted EBITDA, the
performance metric used by management to evaluate our segments’ performance, and capital expenditures by segment,
as well as sales and long-lived assets by geographic area.
Latex Binders Segment
Overview
We are a global leader in styrene-butadiene latex (“SB latex”), holding a strong market position across the
geographies and applications in which we compete, including the #2 position in SB latex capacity in Europe and the #1
position in capacity in North America, based on third party data. In 2019, approximately 43% of our Latex Binders
segment’s sales were generated in Europe, 29% were generated in the United States, and the majority of the remaining
net sales were generated in Asia. Additionally, this segment includes the results of our styrene-acrylate latex (“SA
latex”) production facilities and related infrastructure in Rheinmünster, Germany, which we acquired in October 2019.
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Products and End Uses
We hold the #1 position for supplying SB latex for the coated paper market globally, based on capacity data. 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 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 SB
latex, SA latex, vinylidene chloride, and butadiene-methacrylate latex products for the commercial and niche carpet
markets. SB latex is also used in flooring as an adhesive for carpet and artificial turf fibers. We continue to implement
new chemistries for paper coating and carpet backing applications.
We also offer a broad range of performance latex binders products, including SB latex, SA latex, and vinylidene
chloride latex for the CASE applications. Net sales to CASE applications made up approximately 12% of total Latex
Binders net sales in 2019, with margins of more than two times the average of products serving all applications within
the segment.
Competition and Customers
Our principal competitors in our Latex Binders segment include BASF Group, Omnova Solutions Inc., and
Synthomer plc. In this 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
formulations and product development expertise. Our R&D team and Technical Services and Development (“TS&D”)
team are able to use our paper fabrication and testing labs, carpet technology centers located near carpet producers, and
product development and process research centers to assist customers in designing new products and enhancing their
manufacturing processes. 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 2019, we estimate that more than half of net sales in this
segment related to contracts that include raw material pass-through clauses.
Seasonality
Reporting periods impacted by the winter season and unfavorable weather conditions that typically affect the
construction and building materials end markets may result in seasonally lower performance in our Latex Binders
segment.
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 54% of Western Europe’s SSBR capacity available for sale.
While substantially all of our net sales were generated in Europe in 2019, approximately 19% of these net sales were
exported to Asia, 14% to North America, and 5% to Latin America.
Products and End Uses
Our Synthetic Rubber segment produces synthetic rubber products used in high-performance tires 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
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their rubber suppliers. This is 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, while also producing core products, such as emulsion styrene-butadiene rubber (“ESBR”). Our synthetic rubber
products are extensively used in tires, with approximately 91% of our net sales from this segment in 2019 attributable to
the tire market. 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 four SSBR production lines. We believe these
processes provide leading and technologically-differentiated solutions to tire manufacturers.
During the last several 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. Sales of advanced SSBR grades as a percentage of our total Synthetic Rubber segment have continually
increased since 2013, and we expect our synthetic rubber product mix to continue to shift to more advanced SSBR
grades in order to meet this shift in product demand. In 2019, SSBR represented approximately 65% of total segment net
sales. SSBR margins are typically two to three times those of commodity grade synthetic rubber.
Performance tires represent an especially attractive market to rubber producers because they provide substantial
value to end customers. In fact, the market for performance tires is expected to grow at a rate of approximately 5% in
2020, which is approximately two to three times that of the total 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 European Union (“EU”) regulations which set minimum requirements and are being phased in through
2021. 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 as a result of regulatory reforms aimed at improving fuel efficiency
and reducing carbon dioxide emissions in the EU, Japan, and Korea, are now more commonly used by automakers as
original equipment manufacturer specified tires in their vehicles.
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 2019, ESBR
represented approximately 27% of total segment net sales.
Ni-PBR and Nd-PBR. We operate a dual-use facility at our Schkopau, Germany location to allow for the
production of both nickel polybutadiene rubber (“Ni-PBR”) and neodymium polybutadiene rubber (“Nd-PBR”). We sell
Ni-PBR products for use in standard tires, performance tires, technical goods, and footwear. Nd-PBR 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
2019, Ni-PBR and Nd-PBR represented in aggregate approximately 8% 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, Kumho Petrochemical Co., Ltd., Versalis S.p.A, LG Chem, 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), range
from 10 to more than 20 years. In 2019, our top three customers in this segment accounted for 59% of segment net sales.
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 that we are a supplier of choice to our customers, given our broad rubber portfolio, including
technologically-differentiated grades, and our product customization capabilities. Our R&D and TS&D teams use our
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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.
Enhanced SSBR, which includes later generations of SSBR and functionalized SSBR and is used in the new
generation of performance tires, is expected to make up approximately 47% of the total SSBR market by 2025 in
comparison to approximately 38% in 2019, based on third-party estimates. 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
over the next five years.
In order to address this anticipated demand, the Company has added 125 kilotons (“KT”) of SSBR capacity since
2012, including additional SSBR capacity that came online in January 2018 at our Schkopau, Germany facility. In 2018,
the Company also opened a new SSBR rubber pilot plant that allows us to 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 customers who would prefer local manufacturers.
While the prices of raw materials used in the production of products in this segment can fluctuate, approximately
three quarters of net sales in 2019 in this segment were related to contracts that included raw material pass-through
clauses.
Seasonality
Our Synthetic Rubber segment experiences some seasonality with its highest period of demand typically occurring
during the first quarter of the year as inventories are built ahead of the summer season. The lowest period of demand
normally occurs during the third quarter of the year due to the summer holidays.
Performance Plastics Segment
Overview
Our Performance Plastics segment consists of a variety of compounds and blends, and also includes our
acrylonitrile-butadiene-styrene (“ABS”), styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses. We are a
producer of highly engineered compounds and blends for automotive end markets, as well as consumer electronics,
medical, electrical, lighting, building and construction, and appliances. Additionally, this segment includes the results of
our production of soft-touch polymers and bioplastics, such as TPEs. In 2019, approximately 54% of our Performance
Plastics segment’s net sales were generated in Europe, approximately 22% were generated in the United States, and
approximately 17% were generated in Asia, with the remainder in other geographic areas, including Mexico and Canada.
Products and End Uses
Our Performance Plastics segment consists of compounds and blends and some specialized ABS grades, SAN, PC,
polypropylene, and TPEs.
Copolymers. Our copolymers products consist of ABS and SAN. In 2019, copolymers represented approximately
46% of total segment net sales.
We are a leading producer of ABS in Europe and are one of the few producers with a presence in North America.
We also operate an ABS production line at our manufacturing plant in Zhangjiagang, China, which provides additional
regional production capabilities in order to meet customer needs for ABS in the Asia Pacific automotive, appliance,
electronics, lighting and consumer goods markets. We produce mass ABS (“mABS”), a variation of ABS that has lower
conversion and capital costs compared to the more common emulsion ABS (“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 they are produced in a continuous process
as opposed to the batch process used in eABS. mABS also has environmental benefits such as waste reduction and
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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 due to the differentiating attributes of our mABS
products, our reputation as a knowledgeable supplier, our broad product mix and our customer collaboration and design
capabilities.
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.
PC. Our PC products are manufactured in Stade, Germany and are sold into various markets as well as consumed
internally for our compounding products. In 2019, PC represented approximately 12% of total segment net sales.
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, medical, 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. 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.
Compounding. Our compounding products consist of PC/ABS compounds, PC blends, PC and polypropylene
blends, and TPE. In 2019, compounding products represented approximately 41% of total segment net sales.
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, 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/ABS blends under the PULSE™ brand, and we innovate
collaboratively with our customers to develop performance solutions to meet industry 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 additional geographies,
like 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 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.
Since 2017, we have added TPEs and other soft polymers to our product offerings for several industries including
automotive and footwear. On October 7, 2019, we announced our plans to build a TPE pilot facility in Hsinchu, Taiwan
to better serve our customers in the automotive, consumer electronics, footwear and medical markets, and to complement
our existing TPE manufacturing facility in Italy.
Within the Performance Plastics segment, we have increased efforts and investments on product offerings serving
Engineered Materials applications, which include consumer electronics, medical, and TPE applications. In 2019, margins
for product offerings to Engineered Materials applications were more than two times the average of products serving all
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applications within the Performance Plastics segment, and net sales to these applications made up approximately 17% of
the Performance Plastics segment net sales.
Competition and Customers
Our principal competitors in our Performance Plastics segment are Covestro AG, Saudi Basic Industries
Corporation, Borealis AG, Celanese Corporation, Shanghai Kumho Sunny Plastics Co., Ltd., Shanghai Pret Composites
Co. Ltd., INEOS Styrolution, Lotte Chemical Corporation, and LyondellBasell. 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 potential growth in the Performance Plastics segment will be impacted by a number of factors,
including consumer preference for lighter weight and impact-resistant products, the development of new consumer
electronics, and continuing growth in medical device applications. Additionally, we believe growth prospects are
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.
However, for PC, we have a lower competitive position than our peers, which may ultimately impact our ability to
implement an effective pricing strategy. Of all the styrene derivative products, ABS has the highest projected growth rate
over the next five years, based on third-party estimates.
Seasonality
Reporting periods impacted by the winter season and unfavorable weather conditions that typically affect the
construction and building materials end markets may result in seasonally lower performance in our Performance Plastics
segment.
Polystyrene Segment
Overview
We are a leading producer of polystyrene and focus on sales to injection molding and thermoforming customers.
In 2019, approximately 55% of net sales from our Polystyrene segment were generated in Europe and 45% of net sales
were generated in Asia.
Products and End Uses
Our product offerings include a variety of general purpose polystyrenes (“GPPS”) and high impact polystyrene
(“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 capabilities provide valuable, differentiated solutions for our customers,
making us well-positioned to address the sustainability, weight reduction, and safety needs.
Competition and Customers
Our principal competitors in our Polystyrene segment are INEOS Styrolution, Versalis S.p.A., Total S.p.A.,
Sinopec Corp., Formosa Chemicals & Fibre Corp., and Chi Mei Corporation. In this segment, we compete primarily
based on our ability to offer reliable products as well as 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 relationships that
add value beyond the value of the actual product performance. For durable applications, we focus our TS&D, R&D and
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marketing teams on product design engineering initiatives for developing and specifying plastics in the next generation
of construction applications and appliances. 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 product
lines in this segment to develop long-standing customer relationships, including a number who have purchased from us,
including our predecessor business operated by Dow for more than 20 years. We believe that our asset footprint is an
advantage, allowing us to provide customers with consistent product grades and positioning us to strategically serve
growth economies.
Seasonality
Due to the geographic diversity of the Company’s customers and end-markets for our polystyrene products across
the globe, our Polystyrene segment does not typically experience material levels of seasonality. However, sales volumes
may fluctuate from quarter-to-quarter as customers may adjust their purchase patterns based on their expectations of
polystyrene price changes.
Feedstocks Segment
Overview
Our Feedstocks segment is primarily focused on the revenue and profitability related to the Company’s production
of styrene monomer in Europe. The Feedstocks segment supplied 15% of the styrene monomer capacity out of Europe in
2019.
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, SAN resins, SA latex, SB
latex, ABS resins, unsaturated polyethylene resins, and styrene-butadiene rubber.
Competition and Customers
Our principal competitors in our Feedstocks segment are: INEOS Styrolution, Versalis S.p.A., Total S.p.A., BASF
SE, Saudi Basic Industries Corporation, LyondellBasell, Repsol S.A., Sinopec Corp., and Royal Dutch Shell plc. The
majority of styrene monomer produced within the Feedstocks segment is consumed by the Company in our own
manufacturing activities.
Global styrene operating rates were approximately 85% in 2019 and we believe operating rates will decrease over
the next several years due to new capacity, primarily in China, which could result in lower global styrene margins. This
operating rate decrease could be less than expected due to the potential closure of higher-cost styrene plants. Effective
operating rates can, from time to time, be impacted by planned and unplanned outages, leading to periods of elevated
margins.
Seasonality
Our Feedstocks segment does not generally experience material levels of seasonality affecting sales volumes;
however, there may be seasonal fluctuations in margin as planned supply outages generally occur more often in the
spring and fall seasons.
Americas Styrenics Segment
Overview
This segment consists solely 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. In 2019, Americas Styrenics was the #1 producer of polystyrene, based on capacity data,
and supplied 18% of the styrene monomer capacity in North America. We received a total of $110.0 million in cash
dividends from Americas Styrenics during 2019. We estimate that the contribution to our equity earnings from Americas
Styrenics’ polystyrene business was approximately 49% in 2019, 32% in 2018, and 40% in 2017. This translates to a
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contribution from Americas Styrenics’ polystyrene business to our Adjusted EBITDA of approximately 13% in 2019,
8% in 2018, and 8% in 2017.
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 2019 approximately 58% of the styrene
monomer produced by Americas Styrenics was 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 INEOS Styrolution, Total S.p.A., and LyondellBasell. In our
Americas Styrenics segment, we compete primarily based on our ability to offer reliable products as well as 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 consolidation
dynamics in the styrene and polystyrene industries within the region. However, with new styrene capacity expected in
China, global styrene utilization rates are expected to decline, which may decrease global styrene margins.
Seasonality
Reporting periods impacted by the winter season and unfavorable weather conditions that typically affect the
construction and building materials end markets may result in seasonally lower performance in our Americas Styrenics
segment.
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 on 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
support, supply chain and certain sourcing and transactional procurement services. This agreement is effective through
December 31, 2020, with automatic two-year renewals, barring six-months’ notice of non-renewal provided by either
party. The Company has the ability to terminate all or a portion of the services under the SAR MOSA, subject to
payment of termination charges, with certain ‘highly integrated’ services following a separate process for evaluation and
termination. In addition, either party may terminate for cause, 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.
During 2018, the Company began efforts to insource, and in some cases outsource to other vendors, certain
information technology, procurement, supply chain, finance, and ERP services and systems currently provided by Dow.
At the end of 2019, Dow no longer provided the majority of these services, such as customer service and logistics
activities, procurement services, and environmental health and safety activities. Certain information security and
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information technology services and systems are planned for transition away from Dow in the first half of 2020. At that
point, nearly all of the services covered under this agreement will no longer be provided by Dow. During 2019, the
Company incurred $68.1 million in costs related to our transition of these services away from Dow, of which $21.8
million was capitalized and $46.3 million was recognized as expense. The Company expects to incur further significant
costs related to transitioning services away from Dow in 2020.
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. 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. As of December 31, 2019, we have converted approximately half of our plants from the MOD5
process control technology through a strategic external relationship with ABB Ltd. and expect to convert six additional
plants in 2020, with the remainder of our plants converted thereafter. In 2020 we will negotiate amended agreement
terms to appropriately allow for the conversion of plants that remain to be converted after 2020.
In addition, we entered into various site services agreements with Dow to provide site services to the Company at
Dow-owned sites, which were modified as of June 1, 2013 (the “Amendment Date”). 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, 2019, 2018, and 2017, we incurred a total of $204.0 million, $265.1 million,
and $236.4 million, respectively, in expenses under the SAR MOSA, AR MOD5 Agreement, and site services
agreements (which include utilities), including $164.2 million, $210.8 million, and $183.3 million, respectively, for both
the variable and fixed cost components of the site services agreements and $39.8 million, $54.3 million, and $53.1
million, respectively, covering all other agreements.
In addition, at the date of the Acquisition, we entered into a contract manufacturing agreement pursuant to which
we operate and maintain our SAN facility in Midland, Michigan to manufacture 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 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.
For the years ended December 31, 2019, 2018, and 2017, purchases and other charges from Dow and its affiliated
companies (excluding the SAR MOSA, AR MOD5 Agreement, and site services agreements) were approximately
$781.9 million, $1,145.5 million, and $1,120.8 million, respectively. These purchases and other charges primarily relate
to the purchase of raw materials for manufacturing of our products, as discussed further below. Additionally, for the
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years ended December 31, 2019, 2018, and 2017, sales to Dow and its affiliated companies were approximately $80.0
million, $248.4 million, and $235.2 million, respectively. Amounts presented represent transactions with Dow and do not
include transactions with DuPont companies, noting the entities separated in 2019.
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. Significant capital expenditures would be
required to integrate these capabilities into our own 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
reason for 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.
Latex
Synthetic Performance
Americas
Polystyrene Feedstocks Styrenics
X
X
Benzene
Bisphenol A
Butadiene
Ethylene
Polycarbonate
Styrenic resins
Styrene
Binders
Rubber
Plastics
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 2019, we obtained approximately 25% of our raw materials from Dow (based on aggregate purchase price).In
2019, Dow supplied us with approximately 99% of our benzene requirements and 100% of our ethylene requirements
through 10-year contracts that commenced in 2010. Dow has been our largest supplier for these materials as well as a
significant supplier of butadiene. In 2019, we gave notice of non-renewal of our existing ethylene, benzene, and
butadiene supply agreements with Dow and are currently in negotiations on new agreements for supply of these raw
materials.
While Dow has provided a significant portion of our raw materials pursuant to these supply agreements, we have
developed a comprehensive strategy for obtaining additional sources of supply where needed. 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.
Through long-term strategic contracts and spot market purchases, we obtained 27% and 33%, respectively, of our
styrene supply in 2019. Additionally, our internal production of styrene from purchased ethylene and benzene at our own
manufacturing sites provided 40% of our styrene supply in 2019. 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.
Bisphenol A (“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. We are currently in negotiation with this supplier on a
new multi-year BPA supply agreement.
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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 innovation and technology centers support our technological and R&D/TS&D capabilities. In addition, our
R&D/TS&D efforts are also supported by certain “mini-plants” operated by our businesses 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. We also operate a plastics research center, which integrates two existing
technical support centers and research lab operations in a single location at our Terneuzen, The Netherlands office
location.
R&D and TS&D costs are included in expenses as incurred. Our R&D and TS&D costs were $54.6 million, $56.0
million, and $54.3 million, for the years ended December 31, 2019, 2018, and 2017, 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 162 professionals working in sales and marketing around the world,
along with approximately 94 customer service professionals and we sell our products to customers in approximately 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.
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 three 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.
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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.
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 our product lines within the
Company’s Synthetic Rubber, Latex Binders and Performance Plastics segments. The intellectual property that we have
created or acquired since the Acquisition is largely in these segments and covers areas such as material formulations,
material process technologies and various end-use industrial applications.
Environmental, Health, Safety and Product Stewardship
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 and safety laws and regulations, which address, among other things, the following:
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•
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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;
climate change impacts;
process and 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.
We monitor compliance with applicable state, national, and international environmental, health and safety
requirements and maintain policies and procedures to monitor and control environmental, health and safety risks, which
may in some circumstances exceed the requirements imposed by applicable law. We have a strong environmental, health
and safety organization with a staff of professionals who are responsible for environmental, health, safety and product
regulatory compliance and stewardship, in addition to providing us with comprehensive standards, tools and services.
We supplement our programs with our participation in trade associations which monitor developments in legislation
impacting our businesses. Additionally, our 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 follow the American Chemistry Council Responsible Care® Guiding Principles for our global facilities and
products and last received third party certification of our Responsible Care® Management System in 2019. Many of our
facilities have been certified to ISO 14001 and other ISO management systems. We have a mature corporate
environmental, health and safety audit program for all of our facilities. We focus on emergency preparedness and crisis
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planning and drills, at both the facility and corporate level. We expect that stringent environmental regulations will
continue to be imposed on us and our industry in general.
Sustainability and Climate Change
We recognize that climate change has had and will continue to have significant impacts on our environment,
particularly as it relates to extreme weather conditions and rising sea levels, and which has prompted regulations
limiting, among other things, the emission of greenhouse gases. In the countries in which we operate, particularly in the
EU, we are required to comply with increasingly extensive regulations to address climate change impacts and resource
conservation requirements.
We track and publicly report our greenhouse gas emissions, water usage, and energy consumptions and our
facilities work to improve our performance at reducing chemical emissions, water usage and energy consumption. Our
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 highlights our initiatives to improve
our sustainability performance. We do not expect the costs to comply with legislation enacted as a result of climate
change and other sustainability efforts will be material to our operations and consolidated financial position in the next
12 months.
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, for which potential liabilities 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 have 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, or for any Superfund site. Any active remedial projects on our properties
are being performed by Dow pursuant to its indemnification obligations or for any Superfund sites. We conduct
comprehensive environmental due diligence for potential acquisitions to mitigate the risk of assuming obligations to
conduct material levels of environmental remediation.
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.
We use Dow’s information security program and systems and have expanded our own information security
resources, policies, programs and preparedness to respond to potential information security breaches and to maintain
compliance with the increasing amount of data privacy laws and regulation.
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Employees
As of December 31, 2019, we had approximately 2,700 employees worldwide. Nearly 69% 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 57 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 (“SEC”). Copies of our board committee charters, code of conduct, corporate governance guidelines and
other corporate governance information are also available on our website. See Part III–Item 10–Code of Ethics. We
provide this website and the information contained in or connected to it for informational purposes only. This
information is not included in, or incorporated by reference to, this Annual Report.
Item 1A. Risk Factors
Risks Related to Our Business
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 or
cause our financial results to differ materially from our forecasts.
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 49% 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 and our financial results
may differ materially from our forecasts.
We have given notice of non-renewal and are currently renegotiating supply agreements with Dow for ethylene,
benzene, and butadiene, which are critical raw materials to our business. These raw materials and other less critical
materials amount to approximately 25% of our total raw materials acquired in 2019, 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
supply agreements expire, we may be unable to renegotiate or renew these contracts, or obtain new long-term supply
agreements on terms comparable or favorable to us, or at all, 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.
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Escalations in global trade conflicts, including the imposition of tariffs, may have a material adverse impact on
our business and results of operations.
Various governments have adopted new approaches to their trade policies seeking to renegotiate, or potentially
terminate, certain existing bilateral or multi-lateral trade agreements and implement new tariff schedules. For example,
the U.S. and China have applied tariffs to certain of each other’s exports and announced additional tariffs to be applied in
the future. These measures have resulted in shifting trade flows and increased costs for raw materials and finished goods.
Uncertainty over global tariffs or trade wars has and may continue to delay purchasing decisions by our customers as
they assess the impact of such trade policies on their business. Further, continued uncertainty over the future trade
relationship between the United Kingdom and the EU as a result of Brexit could also negatively impact or delay our
customers’ purchasing decisions.
The adoption and expansion of trade restrictions, tariffs, or other governmental action has the potential to
adversely impact demand for our products or our customers’ products, and our costs, including prices of raw materials,
which in turn could adversely impact our business, financial condition and results of operations.
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
affecting the global economy can affect us and our customers. Instability and uncertainty in financial and commodity
markets throughout the world may cause, among other things, severely diminished liquidity and credit availability, 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, disease pandemics,
terrorism, Brexit, rising protectionism, tariffs, and the threat of war, 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.
Our migration away from services and technologies provided by Dow will entail significant expense and may
cause significant disruptions to operations that could materially adversely affect our future results, business and
financial condition.
During 2018 and 2019, the Company has taken significant steps to insource, and in some cases outsource to other
vendors, certain information technology infrastructure, procurement, supply chain, and ERP services and applications
currently provided by Dow. At the end of December 31, 2019, the Company had transitioned and Dow no longer
provided the majority of these services, such as back office customer service and logistics activities, transactional
procurement and sourcing services, and environmental health and safety support services. Primarily, the remaining
information technology infrastructure, security, and ERP services and applications are planned for transition away from
Dow in the first half of 2020. At that point, nearly all of the services covered under the SAR MOSA will no longer be
provided by Dow. Additionally, the Company is continuing to migrate our manufacturing facilities away from Dow’s
MOD5 process controller technology over the next several years.
We believe we employ adequate methodologies to plan, test and execute this migration, and we believe that we
have adequate staffing and resources to ensure successful implementation. However, the migration away from services
and technologies previously developed and provided by Dow, or third party vendors employed by Dow, carries
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significant potential risks, including the potential failure of our systems, automated processes, or other day-to-day
operations to continue to operate as designed, inability of our systems to connect to third party vendor systems, the
potential loss or corruption of data or information, impact of changes in security processes, implementation delays,
disruption of operations, and the potential inability to meet business or customer demands or reporting requirements.
Any prolonged disruption in the operations of our existing manufacturing facilities, supply chain, distribution or other
operations, whether due to technical or integration difficulties, could have a material adverse effect on our business,
reputation, future sales, financial condition and results of operations. We cannot assure that there will not be associated
excessive costs, disruptions or other negative impacts in portions of our business in the course of our migration of these
services and systems. For more information regarding our relationship with Dow, please see Item 1—Business — Our
Relationship with Dow.
During 2019 and 2018, the Company incurred $68.1 million and $26.1 million in costs, respectively, related to our
transition of these services away from Dow, of which $21.8 million and $5.7 million, respectively, was capitalized and
$46.3 million and $20.4 million, respectively, was recognized as expense. The Company expects to incur further
significant costs related to transitioning services away from Dow in 2020. Unanticipated capital expenditures and
additional expense associated with these migrations may reduce the Company’s cash position and profitability,
respectively. The migration of these services and technologies may also divert the attention of our management from
day-to-day operations and impose significant administrative burdens on our business.
Capital projects and other growth investments 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 or growth plans 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 and other spending programs involving engineering, procurement and
construction of facilities or manufacturing lines or the development of new technologies 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, but not limited to:
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denial of or delay in receiving requisite regulatory approvals, licenses and/or permits;
unanticipated increases in the cost of construction materials, labor, or utilities;
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
non-performance by, or disputes with, vendors, partners, suppliers, contractors or subcontractors.
Furthermore, presumed demand for the technologies or products provided by the manufacturing facilities or lines
being constructed or the technologies being developed 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.
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:
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pipeline and storage tank leaks and ruptures;
explosions and fires;
inclement or extreme weather and natural disasters, which may be aggravated by climate change;
disease outbreaks or epidemics, and government responses thereto, which may impact our employees or
those of our suppliers or transportation providers;
terrorist attacks;
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failure of mechanical, process safety and pollution control equipment;
failures or delays in properly implementing new technologies and processes;
chemical spills and other discharge or releases of toxic or hazardous substances or gases; and
exposure to toxic chemicals.
These hazards could expose employees, customers, the community and others to toxic chemicals and other
hazards, contaminate the environment, damage property, result in personal 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 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.
Trinseo Europe GmbH, one of our subsidiaries, received a Request for Information from the European
Commission Directorate General for Competition, involving commercial activity for styrene monomer. To the
extent the European Commission’s inquiry would lead to a finding that the Company’s subsidiary violated the
law, the results of this finding could have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
On June 6, 2018, Trinseo Europe GmbH, a subsidiary of the Company, received a Request for Information in the
form of a letter from the European Commission Directorate General for Competition (the “European Commission”)
related to styrene monomer commercial activity in the European Economic Area. In addition, the Company commenced
an internal investigation into the matter and has discovered instances of inappropriate activity. On October 28, 2019, a
supplemental request for information was received from the European Commission. This request was limited to
historical employment, entity, and organizational structures, along with certain financial, styrene purchasing, and styrene
market information, as well as certain spot styrene purchase contracts. We have provided this information to the
European Commission and continue to fully cooperate with the Request for Information.
Notwithstanding the delivery of our response to the European Commission, this matter remains open with the
European Commission. As a result, we are unable to make any predictions regarding the ultimate outcome of our
response to the European Commission’s request.
Based on its findings, the European Commission may decide to: (i) require further information; (ii) conduct
unannounced raids of the Company’s premises; (iii) adopt decisions imposing fines, interim measures to halt
immediately any anti-competitive behavior, orders for the Company to cease anti-competitive activities, and/or certain
behavioral or structural commitments from the Company; or (iv) take no further action. If Trinseo Europe GmbH is
found to have violated one or more laws, it could also be subject to additional actions by local competition authorities.
European Commission inquiries or investigations can continue over a long period of time, which can divert the attention
of our management from day-to-day operations and impose significant administrative burdens. Any of these
consequences could damage our reputation and impair our ability to conduct business, which could have a material
adverse effect on our business, financial condition, results of operations, and cash flows.
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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.
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, but not limited to:
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potential disruption of our ongoing business and the distraction of our 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 or other stakeholders, 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 our senior secured credit agreement (the “Credit Agreement”)
governing our senior secured financing facility of up to $1,075.0 million (the “Senior Credit Facility”) and the indenture
(the “Indenture”) governing our $500.0 million aggregate principal of 5.375% senior notes due 2025 (the “2025 Senior
Notes”), we may be required to apply the proceeds of the sale to repay any borrowings under our Senior Credit Facility
or our 2025 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 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.
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, 2019, we received dividends of $110.0 million from our Americas Styrenics
joint venture. 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 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 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
23
distributions from joint ventures may significantly impact short-term and longer-term financial results, financial
condition and the value of our ordinary shares.
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; and
supply and sales agreements pursuant to which Dow, among other things, provides us with raw materials,
including ethylene, benzene, and butadiene.
•
The SAR MOSA and AR MOD5 Agreement expire according to their terms as of December 31, 2020. Under the
terms of the above agreements, either party is also 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 our inability to
renegotiate, renew or replace any of these contracts, particularly without an alternative source of raw materials, could
adversely affect our operations. 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, on terms as favorable to us or at all. For more information
regarding our relationship with Dow, please see Item 1—Business — Our Relationship with Dow.
Regulatory and statutory changes applicable to our raw materials and products and our customers’ products and
consumer preferences 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,
sustainability, 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. Moreover, bans on
single-use plastic and similar regulatory actions to reduce plastic waste and consumer preferences for sustainable and
recyclable materials may reduce the demand for some of our products over time.
Additionally, these regulatory regimes currently require significant compliance expenditures and future regulatory
changes applicable to our raw materials and products or our customers’ products, could require significant additional
expenditures 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. Our customers or distributors may not
follow our policies and advice regarding the safe use and application of our products, which may unknowingly expose us
to third-party claims. 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 U.S. Toxic Substances Control Act
and the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals regulations. 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,
24
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.
Our current and future level of indebtedness of our subsidiaries could adversely affect our financial condition.
As of December 31, 2019, our indebtedness totaled approximately $1.2 billion. Additionally, as of
December 31, 2019, we had $361.0 million (net of $14.0 million outstanding letters of credit) of funds available for
borrowings under our Senior Credit Facility, as well as $150.0 million of funds available for borrowings under our
accounts receivable securitization facility (the “Accounts Receivable Securitization Facility”). Our level of indebtedness
could have important consequences, including, but not limited to:
•
•
•
•
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 Credit Agreement and the Indenture contain restrictions on the incurrence of additional indebtedness,
these restrictions are subject to a number of qualifications and exceptions and the indebtedness incurred in compliance
with these restrictions could be substantial. 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— Capital Resources,
Indebtedness and Liquidity.
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 our 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 or assign assets;
•
incur additional indebtedness;
•
pay dividends to Trinseo S.A.;
• make investments or acquisitions;
•
incur liens;
•
repurchase or redeem capital shares;
•
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
25
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 2025 Senior Notes at maturity would result in
a default. In addition, a breach of any of the covenants in the Credit Agreement or Indenture 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— Capital Resources, Indebtedness and
Liquidity.
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.
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 worldwide, including manufacturing facilities, R&D facilities, sales personnel and
customer support operations. As of December 31, 2019, we operated, or others operated on our behalf, 32 manufacturing
plants (which include a total of 77 production units) at 24 sites around the world, including in Colombia, Germany, The
Netherlands, Belgium, Finland, Sweden, Italy, China, South Korea, Indonesia, 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;
restrictive labor and employment laws;
uncertainties regarding interpretation and enforcement of laws and regulations;
variation in political and economic policy of the local governments and social conditions;
tariffs, 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
•
•
26
•
local economic, political and social conditions, including the possibility of hyperinflationary conditions
and political instability.
We may not be successful in developing and implementing policies and strategies to address the foregoing factors
in a timely and effective manner at each location where we do business. Consequently, the occurrence of one or more of
the foregoing factors could have a material adverse effect on our international operations or upon our financial condition
and results of operations.
Our operations in developing markets could expose us to political, economic and regulatory risks that are greater
than those we may face in established markets. 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.
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.
Under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar
statutes outside the U.S., 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. In addition to potential
statutory liability, 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. We may be subject to
claims with respect to workplace exposure, workers’ compensation and other health and safety matters. 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 and Dalton, Georgia. 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.
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 our separation from Dow, 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 prior to our separation, subject to licenses previously granted by Dow, and to certain
27
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
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.
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 continue to 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 has and will continue to result in new
environmental regulations that may require us to incur additional costs in complying with new regulatory and customer
requirements, 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 may incur substantial costs, including
penalties, fines, damages, criminal or civil sanctions and remediation costs for the failure to comply with these laws or
permit requirements.
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, as approximately 57% of our net sales were generated in Europe in 2019. To a lesser degree, we are
also exposed to other currencies, including the Chinese yuan, Swiss 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 we may not be able to effectively limit our exposure to intermediate or long-term
movements in currency exchange rates, which could adversely impact our financial condition or results of operations.
Given the volatility of exchange rates, there can be no assurance that we will be able to effectively manage our currency
28
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.
We may be unable to achieve cost savings and other benefits from our restructuring activities and business
excellence initiatives.
In 2019, we announced a corporate restructuring plan associated with our shift to a global functional structure and
adoption of our business excellence initiatives designed to create cost savings through business process optimization and
efficiencies. Our efforts to achieve these improvements and efficiencies may not be successful or generate expected cost
savings, and we may incur greater costs than currently anticipated to implement and achieve these initiatives, which
could have an adverse impact on our financial condition or results of operations.
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
information without our authorization or independently developing intellectual property and other proprietary
information that is similar to or competes with ours. 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.
Many of our competitors have a substantial amount of intellectual property that we must continually strive to avoid
infringing as we improve our own business processes and develop new products and applications. 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-
29
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 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 or the private information
of our employees, vendors, and customers, which could adversely affect our business and our reputation.
Cyberattacks or data security breaches could compromise confidential, private, business critical information or
cause a failure in our computer or operating systems that may disrupt 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 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. In addition, the loss or disclosure of sensitive or private information
about our employees, vendors, or customers as a result of such a breach may result in violations of various data privacy
regulations and expose us to litigation, fines and other penalties. Therefore, any such disruptions to our operations or
violations of data privacy laws could negatively impact our reputation and results of operations.
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.
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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own and operate 63 production units at 17 sites around the world. In addition, we source products from another
14 production units at 7 joint venture sites. We also own or lease other properties, including office buildings,
warehouses, research and development facilities, testing facilities and sales offices.
30
The following table sets forth a list of our principal offices, production sites and other facilities as of December 31,
2019:
Site Name
Corporate Offices
Luxembourg City
Berwyn
Hong Kong
Horgen
Midland
Production Sites
Boehlen*
Dalton
Hamina
Hoek
Hsinchu
Merak++
Midland*
Mussolente
Norrkoping
Rheinmünster*
Schkopau*
Stade*
Terneuzen*
Tessenderlo*
Tsing Yi+
Ulsan
Zhangjiagang*
R&D Facilities
Dalton
Hsinchu
Midland 1300
Midland 1604
Mussolente
Rheinmünster
Samstagern
Schkopau
Shanghai
Terneuzen
Tsing Yi
Joint Venture
Americas Styrenics
Allyn’s Point
Cartegena
Hanging Rock
Joliet
Marietta
St. James
Torrance
Location
Leased/owned
Products/Functions
Business Segments
Luxembourg
USA (PA)
Hong Kong
Switzerland
USA (MI)
Germany
USA (GA)
Finland
The Netherlands
Taiwan
Indonesia
USA (MI)
Italy
Sweden
Germany
Germany
Germany
The Netherlands
Belgium
Hong Kong
Korea
China
USA (GA)
Taiwan
USA (MI)
USA (MI)
Italy
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
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Owned
Owned
Owned
Leased
Corporate office
Global operating center
Regional operating center
Regional operating center
Regional operating center
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Styrene monomer
Latex
Latex
Performance Plastics
Compounds and blends
Latex, Polystyrene
Latex, ABS
Soft-touch polymers and
bioplastics
Latex
Latex
ESBR, SSBR, PBR,
Polystyrene
PC
Compounds and blends,
Latex, Styrene monomer,
ABS
Polystyrene
Polystyrene
Latex
Latex, ABS
Latex
Performance plastics
Latex
Performance plastics and
Latex
Soft-touch polymers and
bioplastics
Latex
Latex
Synthetic rubber
Latex
Performance plastics
Performance plastics
Polystyrene
Polystyrene
Polystyrene
Polystyrene
Polystyrene
Styrene monomer
Polystyrene
Feedstocks
Latex Binders
Latex Binders
Performance Plastics
Performance Plastics
Latex Binders, Polystyrene
Latex Binders, Performance
Plastics
Performance Plastics
Latex Binders
Latex Binders
Synthetic Rubber,
Polystyrene
Performance Plastics
Latex Binders, Performance
Plastics, Feedstocks
Polystyrene
Polystyrene
Latex Binders
Latex Binders, Performance
Plastics
Latex Binders
Performance Plastics
Latex Binders
Performance Plastics,
Latex Binders
Performance Plastics
Latex Binders
Latex Binders
Synthetic Rubber
Latex Binders
Performance Plastics
Performance Plastics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Americas Styrenics
Facility co-located with Dow (or other companies) 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.
31
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, current and former employees, 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 Shareholder Matters, and Issuer Purchases of Equity
Securities
The principal market on which our ordinary shares is traded is the New York Stock Exchange (“NYSE”), under
the ticker symbol “TSE.” As of February 24, 2020, there were three record holders of our ordinary shares, 48,777,934
ordinary shares issued, and 38,320,508 ordinary shares outstanding. By including persons holding shares in broker
accounts under street names, however, we estimate that we have approximately 13,871 beneficial holders.
32
Performance Graph
The following performance graph reflects the comparative changes in the value from December 31, 2014 through
December 31, 2019, 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, (3) the S&P 500 Chemicals Industry GICS Level
3 Index, and (4) the S&P SmallCap 600 Index. The Company was added to the S&P SmallCap 600 GICS Commodity
Chemicals Sub-Industry Index in August 2019, and as a result we have added the S&P SmallCap 600 Index to the
performance graph in place of the S&P 500 Index, as we believe it is a more appropriate benchmark for comparative
purposes. The share price performance shown in the graph is not necessarily indicative of future price performance.
33
Purchases of equity securities by the Company and affiliated purchasers
The following table provides information regarding purchases of the Company’s ordinary shares by the Company
during the three months ended December 31, 2019:
Issuer Purchases of Equity Securities
Period
Total number
of shares
purchased
Average price
paid per share
October 1 - October 31, 2019
November 1 - November 30, 2019
December 1 - December 31, 2019
Total
305,624 $
167,749 $
— $
473,373 $
41.81
41.64
—
41.75
Total number of
shares purchased
as part of
publicly
announced plans
or programs
305,624
167,749
—
473,373
Approximate number
of shares that may yet
be purchased under
the plans or programs
2,580,343 (1)
2,412,594 (1)
2,412,594 (1)
(1) The general meeting of our shareholders on June 19, 2019 authorized the Company to sunset the 2017 share
repurchase authorization and replace it with a new authorization to repurchase up to 4.0 million ordinary shares over
the next eighteen months at a price per share of not less than $1.00 and not more than $1,000.00.
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 of December 4, 1967) 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 and acting on their own behalf,
capital gains will only be taxable if they are realized on a disposal 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. A disposal may include a sale, exchange, contribution or any other kind of transfer of the
shareholding.
For Luxembourg individuals acting on their own behalf and holding (together with his/her spouse or civil partner
and minor children) directly or indirectly more than 10% of the capital of Trinseo at any time in the last five years,
capital gains will be taxable, if the sale, disposal, redemption or liquidation takes place:
• within six months from the acquisition, the capital gain or liquidation proceeds are generally expected to be
taxed at progressive income tax rates (ranging from 0% to 45.78% for 2020).
34
•
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 sale, disposal or redemption of shares by a
Luxembourg corporate holder (not subject to a special tax regime) will in principle be subject to corporate income tax
and municipal business tax. The combined applicable rate for Luxembourg corporate holders with taxable income in
excess of EUR 200,001 will be 24.94% for fiscal year ended 2020 for a Luxembourg corporate holder established in
Luxembourg-City (taking into account the solidarity surtax of 7% on the corporate income tax and including the 6.75%
municipal business tax). 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 all 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.
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. In certain circumstances, the exemption may not apply; for example, the capital gains exemption (for gains
arising on a disposal of shares) does not apply up to the aggregate amount of previously tax deducted expenses and
write-offs related to these shares.
A corporate non-Luxembourg Holder, which have neither 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
Luxembourg 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
35
the conditions set forth therein. If we and a U.S. relevant holder are eligible for all 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 qualified resident
as defined in article 24 of the Treaty is the beneficial owner that owns at least 10% of our voting shares.
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 EU 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 12 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. In 2019, a general anti-abuse
rule was implemented by Luxembourg under which dividend distributions will not benefit from the withholding tax
exemption when the distributions are made in the framework of an arrangement created for the main purpose of
obtaining a tax advantage.
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, 2019. 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
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 in 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 up to 500 million euros for an enterprise
resident in Luxembourg, as determined for net wealth tax purposes (a 0.05% rate applies for net wealth amount
exceeding the threshold of 500 million euros). Net wealth tax is always levied at certain minimums. 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.
36
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. No Luxembourg gift tax is levied on the transfer of the ordinary shares by way of a gift,
unless the gift is recorded in a Luxembourg notarized deed or otherwise registered in Luxembourg.
Item 6. Selected Financial Data
The following tables set forth our selected historical financial and operating data and other information. The
historical results of operations data for the years ended December 31, 2019, 2018, and 2017, and the historical balance
sheet data as of December 31, 2019 and 2018 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, 2016 and 2015 and the historical balance sheet data as of
December 31, 2017, 2016, and 2015 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.
Year Ended
December 31,
(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
Other expense (income), net
Income before income taxes
Provision for income taxes
Net income
Weighted average shares— basic
Net income per share— basic
Weighted average shares— diluted
Net income per share— diluted
Dividends per share
$
$
$
$
2019
2018
2017
2016
2015
3,775.8 $
3,446.9
328.9
300.0
4,622.8 $
4,094.0
528.8
258.5
4,448.1 $
3,807.8
640.3
239.0
3,716.6 $
3,124.4
592.2
238.7
3,971.9
3,496.7
475.2
205.0
119.0
147.9
39.3
—
4.0
104.6
12.6
92.0 $
40.3
2.28 $
40.7
2.26 $
1.60 $
144.1
414.4
46.4
0.2
3.5
364.3
71.8
123.7
525.0
70.1
65.3
(21.5)
411.1
82.8
144.7
498.2
75.0
—
17.9
405.3
87.0
292.5 $
42.8
6.83 $
43.7
6.70 $
1.56 $
328.3 $
43.8
7.49 $
45.0
7.30 $
1.38 $
318.3 $
46.5
6.84 $
47.5
6.70 $
0.90 $
140.2
410.4
93.2
95.2
18.2
203.8
70.2
133.6
48.8
2.74
49.0
2.73
—
37
(In millions)
Other Financial Data:
Depreciation and amortization
Capital expenditures, net of subsidy(2)
Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Debt(3)
Total liabilities
Total shareholders’ equity
2019
As of and for the Year Ended
December 31,
2017
2018
2016
2015
$
$
136.0 $
110.1
130.2 $
120.4
110.6 $
147.4
96.4 $
123.9
96.8
107.1
456.2 $
963.5
2,758.8
1,194.7
2,089.9
668.9
452.3 $
432.8 $
1,094.3
2,726.8
1,192.4
1,958.1
768.7
1,019.6
2,772.0
1,199.7
2,097.2
674.8
465.1 $
890.7
2,421.3
1,187.4
1,973.6
447.7
431.3
839.8
2,270.7
1,207.8
1,879.0
391.7
(1) Net sales and cost of sales increase or decrease, in part, 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. See Item 7A—Quantitative and
Qualitative Disclosures about Market Risk—Commodity Price Risk for further information.
(2) Represents capital expenditures, net of government subsidies received for SSBR expansion of $1.0 million and $2.2
million for the years ended December 31, 2018 and 2015, respectively. No government subsidies were received for
the other periods presented above. During the year ended December 31, 2019, capital expenditures include $21.8
million of costs capitalized related to our transition of services away from Dow, as described in Item 1 – Business –
Our Relationship with Dow. Included in capital expenditures for the year ended December 31, 2017 were amounts
related to a number of key growth initiatives, including our ABS capacity expansion in China, a 50 KT increase to
our global production capabilities in SSBR, and the opening of our new SSBR pilot plant in Germany. During the
year ended December 31, 2016, we completed the upgrade of our legacy 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.
(3) Balances reflect gross debt balances outstanding at each period end and are not net of unamortized deferred
financing fees and unamortized original issue discount.
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
and are made as of the date of this Annual Report. See “Cautionary Note Regarding Forward-Looking Statements.”
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.
2019 Highlights
For the year ended December 31, 2019, we had net income of $92.0 million and Adjusted EBITDA of $351.8
million. The challenging market dynamics and economic conditions that began at the end of 2018 continued in 2019.
Despite this, the Company delivered strong cash generation throughout 2019 and returned significant cash to our
shareholders, purchasing approximately 2.8 million ordinary shares for an aggregate purchase price of $119.7 million
and declaring quarterly dividends for an aggregate value of $1.60 per ordinary share, or $64.2 million. Refer to “Non-
38
GAAP Performance Measures” below for further discussion of our use of non-GAAP measures in evaluating our
performance. Other highlights of 2019 are described below.
Corporate Restructuring Program
In November 2019, the Company announced a corporate restructuring program associated with our shift to a
global functional structure and business excellence initiatives to drive greater focus on business process optimization and
efficiency. The corporate restructuring program is expected to be substantially completed by the end of the first half of
2020. The Company expects to achieve full-year cost savings in connection with this corporate restructuring program of
approximately $20 million to $30 million.
Trinseo to Build New TPE Pilot Facility in Taiwan
On October 7, 2019, Trinseo announced plans to build a TPE pilot facility at our existing manufacturing site in
Hsinchu, Taiwan, with operations anticipated to begin in 2020. The TPE pilot facility emphasizes Trinseo’s growth
strategy for TPEs globally and will serve customers in the automotive, consumer electronics, footwear, and medical
markets. This investment, which is expected to total approximately $3.0 million, marks the next step of Trinseo’s TPE
growth roadmap, following the acquisition of API Applicazioni Plastiche Industriali S.p.A (“API Plastics”) in July 2017.
Acquisition of Latex Binders Assets in Germany
On October 1, 2019, the Company completed the acquisition from Dow of its latex binders production facilities
and related infrastructure in Rheinmünster, Germany. The transaction includes full ownership and operational control of
latex production facilities, site infrastructure, and service contracts, as well as certain employees transferring from Dow
to Trinseo. This acquisition will provide Trinseo with manufacturing assets supporting our strategy to grow our Latex
Binders business in applications serving the coatings, adhesives, specialty paper, and sealants markets. Refer to Note 4 in
the consolidated financial statements for further information.
Chief Executive Officer and Chief Financial Officer Transition
On March 4, 2019, Frank Bozich replaced Christopher Pappas as President and Chief Executive Officer. On
July 1, 2019, David Stasse replaced Barry Niziolek as Executive Vice President and Chief Financial Officer. Both
Messrs. Pappas and Niziolek had each previously announced their plans to retire.
39
Results of Operations
Results of Operations for the Years Ended December 31, 2019, 2018, and 2017
The table below sets forth our historical results of operations, and these results as a percentage of net sales for the
periods indicated. Refer to the Company’s Form 10-K filed on February 28, 2019 for explanations of our results of
operations for 2018 in comparison to 2017.
Year Ended
December 31,
(in millions)
Net sales
Cost of sales
Gross profit
2019
$ 3,775.8
3,446.9
328.9
2018
%
100 % $ 4,622.8
4,094.0
528.8
91 %
9 %
2017
%
100 % $ 4,448.1
3,807.8
640.3
89 %
11 %
%
100 %
86 %
14 %
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 (income), net
Income before income taxes
Provision for income taxes
Net income
$
300.0
8 %
258.5
6 %
239.0
5 %
119.0
147.9
39.3
—
4.0
104.6
12.6
92.0
3 %
4 %
1 %
— %
— %
3 %
0 %
3 % $
144.1
414.4
46.4
0.2
3.5
364.3
71.8
292.5
3 %
9 %
1 %
— %
— %
8 %
2 %
6 % $
123.7
525.0
70.1
65.3
(21.5)
411.1
82.8
328.3
3 %
12 %
2 %
1 %
— %
9 %
2 %
7 %
2019 vs. 2018
Net Sales
Of the 18% decrease in net sales, 14% was due to lower selling prices resulting mainly from the pass through of
lower raw material costs, primarily from styrene and butadiene. There was also a 2% decrease due to currency impacts as
the euro weakened in comparison to the U.S. dollar during the period. An additional 2% decrease was due to lower sales
volume within the Feedstocks, Polystyrene and Synthetic Rubber segments, which was partially offset by higher sales
volume across the remaining segments. See segment discussion below for further information.
Cost of Sales
Of the 16% decrease in cost of sales, 11% was due to lower raw material costs, primarily from styrene and
butadiene, as well as a 3% decrease due to lower sales volume primarily from the Feedstocks and Synthetic Rubber
segments. An additional 3% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar
during the period, which was slightly offset by a 1% increase due to higher fixed costs.
Gross Profit
The decrease in gross profit of 38% was primarily attributable to margin compression in the Feedstocks, Latex
Binders and Performance Plastics segments. Overall performance was impacted by weaker market conditions, including in
certain key markets such as automotive, graphical paper, and tires. See the segment discussion below for further
information.
Selling, General and Administrative Expenses (SG&A)
The $41.5 million, or 16%, increase in SG&A was due to several factors. Higher advisory and professional fees, as
well as higher personnel costs, resulted in a $39.2 million increase. These increases were primarily related to the
Company’s transition of business and technical services from Dow. Additionally, there was an increase of $9.3 million
40
in restructuring charges due primarily to the $17.8 million corporate restructuring program associated with the
Company’s shift to a global functional structure, which was partially offset by a decrease in other restructuring charges.
There was also an increase of $4.3 million related to increased depreciation. Offsetting these increased costs was a $7.0
million decrease due to currency impacts on our euro-based expenses, as the euro weakened in comparison to the U.S.
dollar, as well as a decrease of $1.6 million related to decreased bad debt expense.
Equity in Earnings of Unconsolidated Affiliates
The decrease in equity earnings of $25.1 million was due to lower equity earnings from Americas Styrenics,
mainly attributable to lower styrene margins in the current year, as prior year results were positively impacted by several
industry outages.
Interest Expense, Net
The decrease in interest expense, net of $7.1 million, or 15%, was primarily attributable to the benefits received
from the cross currency swaps that the Company entered into in September 2017, which are recorded as a benefit within
interest expense following our adoption of new hedging accounting guidance during the second quarter of 2018.
Other Expense (Income), Net
Other expense, net for the year ended December 31, 2019 was $4.0 million, which included $6.4 million of
expense related to the non-service cost components of net periodic benefit cost. Partially offsetting these expenses was a
net gain of $2.5 million recorded in conjunction with our acquisition of latex binders production assets and related site
infrastructure in Rheinmünster, Germany, consisting of a bargain purchase gain of $4.7 million offset by expense of $2.2
million for certain jurisdictional asset transfer taxes incurred related to the acquisition. Refer to Note 4 of the
consolidated financial statements for more information. Further offsetting these expenses were net foreign exchange
transaction gains for the period of $1.8 million. Net foreign transaction gains included $8.0 million of gains from our
foreign exchange forward contracts, which were partially offset by $6.2 million of foreign exchange transaction losses
primarily from 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. Other expense, net also included $1.9 million of net other miscellaneous
expenses during the period.
Other expense, net for the year ended December 31, 2018 was $3.5 million, which included $7.3 million of
expense related to the non-service cost components of net periodic benefit cost, $0.5 million of fees incurred in
conjunction with the repricing of the Company’s 2024 Term Loan B during the second quarter of 2018, and other
miscellaneous expenses of $0.9 million. These expenses were partially offset by net foreign exchange transaction gains
for the period of $5.2 million. Net foreign exchange transactions gains included $15.8 million of foreign exchange
transaction losses primarily from 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 $21.0 million of gains from our foreign
exchange forward contracts.
Provision for Income Taxes
Provision for income taxes was $12.6 million and $71.8 million, respectively, for the years ended December 31,
2019 and 2018, which resulted in an effective tax rate of 12% and 20%, respectively. The decrease in provision for
income taxes was primarily driven by a $65.0 million one-time deferred tax benefit for the year ended December 31,
2019 as a result of changes in the Swiss federal and cantonal tax rules, which were enacted on August 6, 2019 and
October 25, 2019, respectively. The decrease in provision for income taxes from this one-time benefit was partially
offset by a $25.3 million valuation allowance for the portion of the cantonal deferred tax asset that more likely than not
will expire before utilization. Refer to Note 14 in the consolidated financial statements for further information.
Conversely, the decrease in provision for income taxes was partially offset by a lower proportion of income before taxes
attributable to non-U.S. jurisdictions, including losses not anticipated to provide a tax benefit for the Company in the
future.
41
Selected Segment Information
The Company’s reportable segments are as follows: Latex Binders, Synthetic Rubber, Performance Plastics,
Polystyrene, Feedstocks, and Americas Styrenics. Refer to Item 1—Business for a description of our segments, including
a detailed overview, products and end uses, and competition and customers.
The following sections present net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the
years ended December 31, 2019, 2018, and 2017. Intersegment sales have been eliminated. Refer to Note 19 in the
consolidated financial statements for a detailed definition of Adjusted EBITDA and a reconciliation of income before
income taxes to segment Adjusted EBITDA. Refer to the Company’s Form 10-K filed on February 28, 2019 for
explanations of our segment results for 2018 in comparison to 2017.
Latex Binders Segment
($ in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
$
$
2019 vs. 2018
Year Ended
December 31,
Percentage Change
2019
902.8
80.8
2018
$ 1,069.0
$
110.4
9 %
2017
$ 1,097.1
$
138.5
10 %
13 %
2019 vs. 2018
2018 vs. 2017
(16)%
(27)%
(3)%
(20)%
Of the 16% decrease in net sales, 15% was due to lower pricing from the pass through of lower raw material costs,
primarily from styrene and butadiene, and 2% was due to currency impacts as the euro weakened in comparison to the
U.S. dollar during the period. These decreases were partially offset by a 2% increase in sales volume.
Adjusted EBITDA decreased by $29.6 million, or 27%, compared to the prior year, primarily due to a 32%
decrease due to lower margins from raw material dynamics, competitive market conditions and global market
uncertainty, which was partially offset by a 6% increase in sales volume.
Synthetic Rubber Segment
Year Ended
December 31,
Percentage Change
($ in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
$
$
2019
441.3
40.7
$
$
9 %
2018
572.5
77.0
$
$
13 %
2019 vs. 2018
2019 vs. 2018
2018 vs. 2017
(23)%
(47)%
(2)%
(8)%
2017
582.8
83.3
14 %
Of the 23% decrease in net sales, 11% was due to lower sales volume, primarily related to ESBR as a result
of weakness in the global tire market, and 8% was due to lower pricing from the pass through of lower raw material
costs. An additional 4% decrease was due to currency impacts as the euro weakened in comparison to the U.S. dollar
during the period.
Adjusted EBITDA decreased by $36.3 million, or 47%, compared to the prior year. Lower margins resulted in a
21% decrease due mainly to unfavorable net timing impacts, and lower sales volume resulted in a 20% decrease
primarily due to weakness in the global tire market. In addition, higher fixed costs, mainly due to a lower level of fixed
cost absorption, resulted in an 8% decrease.
42
Performance Plastics Segment
($ in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
2019 vs. 2018
Year Ended
December 31,
Percentage Change
2019
$ 1,366.2
135.1
$
2018
$ 1,577.6
188.9
$
10 %
2017
$ 1,419.1
$
230.9
12 %
16 %
2019 vs. 2018 2018 vs. 2017
(13)%
(28)%
11 %
(18)%
Of the 13% decrease in net sales, 12% was due to lower pricing from the pass through of lower styrene costs as
well as lower PC prices due to lower industry operating rates. In addition, there was a 2% decrease due to currency
impacts as the euro weakened in comparison to the U.S. dollar during the period.
Adjusted EBITDA decreased by $53.8 million, or 28%, compared to the prior year. Lower margins, mainly related
to PC, resulted in a $45.4 million, or 24% decrease, due primarily to general market weakness as well as an increase in
supply in the PC market. An additional 7% decrease was due to higher fixed costs from growth investments, including
the ramping up of the new ABS facility in China, as well as lower fixed cost absorption in the current year. Partially
offsetting these decreases was a 2% increase due to higher PC and compounding products sales volumes.
Polystyrene Segment
($ in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
$
$
2019 vs. 2018
Year Ended
December 31,
Percentage Change
2019
809.4
54.6
2018
$ 1,017.1
$
33.7
7 %
$
$
3 %
2017
941.4
48.2
5 %
2019 vs. 2018
2018 vs. 2017
(20)%
62 %
8 %
(30)%
Of the 20% decrease in net sales, 17% was due to lower pricing from the pass through of lower styrene costs to our
customers and 2% was due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.
Adjusted EBITDA increased by $20.9 million, or 62%, compared to the prior year. Higher margins, primarily from
business excellence initiatives related to pricing, resulted in a $23.4 million, or 69%, increase, while lower fixed costs
resulted in a 3% increase. Partially offsetting these increases was a $2.9 million, or 9%, decrease in total sales volume
driven by reduced sales volume in Europe, partially offset by higher sales volume in Asia. Additionally, there was a 2%
decrease due to currency impacts as the euro weakened in comparison to the U.S. dollar during the period.
43
Feedstocks Segment
Year Ended
December 31,
Percentage Change
($ in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA margin
$
$
2019
256.1
7.0
$
$
3 %
2018
386.6
107.1
$
$
28 %
2019 vs. 2018
2019 vs. 2018
2018 vs. 2017
(34)%
(93)%
(5)%
(3)%
2017
407.7
110.5
27 %
Of the 34% decrease in net sales, 18% was due to lower pricing from the pass through of lower styrene prices and
14% was due to lower styrene-related sales volume. There was an additional 2% decrease due to currency impacts as the
euro weakened in comparison to the U.S. dollar during the period.
Adjusted EBITDA decreased by $100.1 million, or 93%, compared to the prior year. Lower margins resulted in a
$101.3 million, or 95% decrease, due mainly to lower styrene margins in Europe and Asia as well as lower production
volume from unplanned outages. In addition, higher fixed costs, due mainly to a lower level of fixed cost absorption,
resulted in a 2% decrease. These decreases were partially offset by an increase of 3% due to currency impacts.
Americas Styrenics Segment
Year Ended
December 31,
Percentage Change
($ in millions)
Adjusted EBITDA*
2019
119.0
$
2018
144.1
$
$
2017
122.9
2019 vs. 2018
2018 vs. 2017
(17)%
17 %
*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.
2019 vs. 2018
The 17% decrease in Adjusted EBITDA was mainly due to less favorable styrene margins in the current year, as
prior year results were positively impacted by several industry outages.
Outlook
As discussed above, the Company’s results continue to be impacted by difficult global economic conditions. In
the fourth quarter of 2019 we adopted a corporate restructuring plan associated with the Company’s shift to a global
functional structure and business excellence initiatives to drive greater focus on business process optimization and
efficiency. We anticipate that our Business Excellence program, our improved cost structure from the corporate
restructuring, and our focus on the growth areas of our portfolio will partially offset the challenging market conditions,
including expected lower styrene margins and the anticipated first quarter adverse impacts from the outbreak of the
coronavirus.
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 charges; acquisition related costs and benefits, and other items. In doing so, we are providing
management, investors, and credit rating agencies with an 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.
44
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 accounting principles generally accepted in the United States of America (“GAAP”).
Adjusted EBITDA is calculated as follows for the years ended December 31, 2019, 2018, and 2017. For discussion
related to 2017 activity, refer to the Company’s Form 10-K filed on February 28, 2019.
(in millions)
Net income
Interest expense, net
Provision for income taxes
Depreciation and amortization
EBITDA(a)
Loss on extinguishment of long-term debt
Net gain on disposition of businesses and assets(b)
Restructuring and other charges(c)
Acquisition transaction and integration net costs (benefit)(d)
Asset impairment charges or write-offs(e)
Other items(f)
Adjusted EBITDA
Year Ended
December 31,
2018
$ 292.5
46.4
71.8
130.2
$ 540.9
0.2
(1.0)
8.2
0.6
1.5
22.8
$ 573.2
2017
$ 328.3
70.1
82.8
110.6
$ 591.8
65.3
(9.7)
6.0
4.7
4.3
(19.9)
$ 642.5
2019
$
92.0
39.3
12.6
136.0
$ 279.9
—
(0.7)
18.1
(0.9)
—
55.4
$ 351.8
(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) Net gain on disposition of businesses and assets during the years ended December 31, 2019 and 2018 relates to the
sale of our primary operating entity in Brazil, from which we earned consideration for the subsequent performance
of our former latex business. Refer to Note 4 in the consolidated financial statements for further information.
(c) Restructuring and other charges for the year ended December 31, 2019 primarily relate to employee termination
benefit charges as well as contract termination charges incurred in connection with the Company’s corporate
restructuring program. Restructuring and other charges for the year ended December 31, 2018 primarily relate to
employee termination benefit charges incurred in connection with restructuring in our Synthetic Rubber segment.
Additionally, a portion of the restructuring and other charges for the years ended December 31, 2019 and 2018
relate to decommissioning, contract termination, and employee termination benefit charges incurred in connection
with the upgrade and replacement of our compounding facility in Terneuzen, The Netherlands as well as our
decision to cease manufacturing activities at our latex binders manufacturing facility in Livorno, Italy. Refer to
Note 20 in the consolidated financial statements for further information regarding restructuring activities.
Note that the accelerated depreciation charges incurred as part of both the Company’s corporate restructuring
program and the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands
are included within the “Depreciation and amortization” caption above, and therefore are not included as a
separate adjustment within this caption.
(d) Acquisition transaction and integration net benefit for the year ended December 31, 2019 is comprised of the
bargain purchase gain, recorded in conjunction with our acquisition of latex binders production assets and related
45
site infrastructure in Rheinmünster, Germany, offset by certain jurisdictional asset transfer taxes and advisory and
professional fees incurred related to this acquisition. Acquisition transaction and integration costs for the year
ended December 31, 2018 relate to advisory and professional fees incurred in conjunction with our acquisition of
API Plastics, which closed in July 2017. Refer to Note 4 in the consolidated financial statements for further
information.
(e) Asset impairment charges for the year ended December 31, 2018 relate to the impairment of certain corporate
long-lived assets.
(f) Other items for the years ended December 31, 2019 and 2018 primarily relate to advisory and professional fees
incurred in conjunction with our initiative to transition business services from Dow, including certain
administrative services such as accounts payable, logistics, finance, and IT services. Also included within other
items for the years ended December 31, 2019 and 2018 are fees incurred in conjunction with certain of the
Company’s strategic initiatives.
Cash Flows
Liquidity and Capital Resources
The table below summarizes our primary sources and uses of cash for the years ended December 31, 2019, 2018,
and 2017. We have derived the summarized cash flow information from our audited financial statements. Refer to the
Company’s Form 10-K filed on February 28, 2019 for discussion related to 2017.
(in millions)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rates on cash
Net change in cash, cash equivalents, and
restricted cash
Year Ended
December 31,
2019
2018
2017
$
$
322.5
(109.3)
(206.7)
(1.4)
366.5
(118.7)
(222.2)
(6.1)
$
391.3
(182.6)
(253.0)
12.0
$
5.1
$
19.5
$
(32.3)
Operating Activities
Net cash provided by operating activities during the year ended December 31, 2019 totaled $322.5 million,
inclusive of $110.0 million in dividends from Americas Styrenics. Net cash provided by operating assets and liabilities
for the year ended December 31, 2019 totaled $129.3 million, noting decreases in inventories of $70.7 million and
accounts receivable of $66.6 million. This activity was partially offset by a decrease in income taxes payable of $10.9
million. The decrease in inventories was primarily due to lower days sales in inventory as well as decreased raw material
prices. Accounts receivable at the end of 2019 decreased relative to the end of 2018 primarily due to decreased raw
material prices as well as lower volumes. The decrease in income taxes payable was primarily due to the overall
reduction in earnings before income taxes.
Net cash provided by operating activities during the year ended December 31, 2018 totaled $366.5 million,
inclusive of $117.5 million in dividends from Americas Styrenics. Net cash used in operating assets and liabilities for the
year ended December 31, 2018 totaled $52.1 million, noting an increase in inventories of $16.0 million and decreases in
accounts payable and other current liabilities, and income taxes payable of $43.8 million and $19.7 million, respectively.
These were partially offset by a decrease in accounts receivable of $21.2 million. The increase in inventories was
primarily due to higher days sales in inventory, partially offset by decreased raw material prices. The decreases in
accounts payable and other current liabilities as well as accounts receivable were primarily due to decreased raw material
prices as well as lower volumes. The decrease in income taxes payable was primarily due to the overall reduction in
earnings before income taxes and the mix of jurisdictional earnings.
46
Investing Activities
Net cash used in investing activities during the year ended December 31, 2019 totaled $109.3 million, primarily
resulting from capital expenditures of $110.1 million.
Net cash used in investing activities during the year ended December 31, 2018 totaled $118.7 million, primarily
resulting from capital expenditures of $121.4 million. This was partially offset by proceeds received of $1.7 million from
the sale of businesses and other assets, primarily comprised of $1.3 million received as a prepayment in connection with
the Company’s preliminary agreement for the sale of certain land in Livorno, Italy, as described further in Note 20
within the consolidated financial statements.
Financing Activities
Net cash used in financing activities during the year ended December 31, 2019 totaled $206.7 million. This
activity was primarily due to $119.7 million of payments related to the repurchase of ordinary shares, $65.7 million of
dividends paid, $7.0 million of net principal payments related to our 2024 Term Loan B during the period, and $10.6
million net repayments of short-term borrowings. Additionally, net cash used in financing activities included $4.6
million of withholding taxes paid related to the vesting of certain Restricted Stock Units (“RSUs”) during the period,
partially offset by $0.9 million of proceeds received from the exercise of option awards.
Net cash used in financing activities during the year ended December 31, 2018 totaled $222.2 million. This
activity was primarily due to $142.9 million of payments related to the repurchase of ordinary shares, $66.0 million of
dividends paid, and $7.0 million of net principal payments related to our 2024 Term Loan B during the period.
Additionally, net cash used in financing activities included $8.2 million of withholding taxes paid related to the vesting
of certain RSUs during the period, partially offset by $2.8 million of proceeds received from the exercise of option
awards.
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
Flow provides an 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, pay dividends (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
2019
322.5
(110.1)
212.4
$
$
Year Ended
December 31,
2018
$
$
366.5
(121.4)
245.1
$
$
2017
391.3
(147.4)
243.9
Refer to the discussion above for significant impacts to cash provided by operating activities for the years ended
December 31, 2019 and 2018. Refer to the Company’s Form 10-K filed on February 28, 2019 for discussion related to
2017.
47
Capital Resources, Indebtedness and Liquidity
We require cash principally for day-to-day operations, including the purchase of raw materials for production, to
finance capital investments and other initiatives, to service our outstanding indebtedness, and to fund the return of capital
to shareholders via dividend payments and ordinary share repurchases. 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, 2019 and 2018, we had $1,194.7 million and $1,192.4 million, respectively, in outstanding
indebtedness and $963.5 million and $1,094.3 million, respectively, in working capital. In addition, as of December 31,
2019 and 2018, we had $153.5 million and $113.7 million, respectively, of foreign cash and cash equivalents on our
consolidated balance sheets, outside of our country of domicile of Luxembourg, all of which is readily convertible into
other foreign currencies, including the U.S. dollar. Our intention is not to permanently reinvest our foreign cash and cash
equivalents. Accordingly, we record deferred income tax liabilities related to the unremitted earnings of our subsidiaries.
For a detailed description of the Company’s debt structure, borrowing rates, and expected future payment obligations,
refer to Note 11 in the consolidated financial statements.
The following table outlines our outstanding indebtedness as of December 31, 2019 and 2018 and the associated
interest expense, including amortization of deferred financing fees and issuance discounts. Effective interest rates for the
borrowings included in the table below exclude the impact of deferred financing fee amortization, certain other fees
charged to interest expense (such as fees for unused commitment fees during the period), and the impacts of derivatives
designated as hedging instruments.
($ in millions)
Senior Credit Facility
2024 Term Loan B
2022 Revolving Facility
$
2025 Senior Notes
Accounts Receivable Securitization
Facility
Other indebtedness
Total
$
As of and for the Year Ended
December 31, 2019
Effective
Interest
Balance
Rate
Interest
Expense
As of and for the Year Ended
December 31, 2018
Effective
Interest
Rate
Interest
Expense
Balance
684.3
—
500.0
—
10.4
1,194.7
4.3 % $
—
5.4 %
—
2.1 %
$
31.5 $
3.2
12.1
691.3
—
500.0
1.5
0.1
48.4 $
—
1.1
1,192.4
4.1 % $
—
5.4 %
—
4.8 %
$
31.6
2.9
16.1
1.5
0.1
52.2
Our Senior Credit Facility includes the 2022 Revolving Facility, which matures in September 2022 and has a
borrowing capacity of $375.0 million. As of December 31, 2019 the Company had no outstanding borrowings and had
$361.0 million (net of $14.0 million outstanding letters of credit) of funds available for borrowing under this facility.
Further, as of December 31, 2019, the Company is required to pay a quarterly commitment fee in respect of any unused
commitments under the 2022 Revolving Facility equal to 0.375% per annum.
Also included in our Senior Credit Facility is our 2024 Term Loan B, which had original principal of $700.0
million, maturing in September 2024, requires scheduled quarterly payments in amounts equal to 0.25% of the original
principal. The stated interest rate on our 2024 Term Loan B is LIBOR plus 2.00% (subject to a 0.00% LIBOR floor).
During the year ended December 31, 2019, the Company made net payments of $7.0 million on the 2024 Term Loan B,
with an additional $7.0 million of scheduled future payments classified as current debt on the consolidated balance sheet
as of December 31, 2019.
Our 2025 Senior Notes issued under the Indenture include $500.0 million aggregate principal amount of 5.375%
senior notes that mature on September 1, 2025. Interest on the 2025 Senior Notes is payable semi-annually on May 3 and
November 3 of each year. These notes may be redeemed prior to their maturity at the option of the Company under
certain circumstances at specific redemption prices. Refer to Note 11 in the consolidated financial statements for further
information.
We also continue to maintain our Accounts Receivable Securitization Facility, which matures in September 2021
and has an outstanding borrowing capacity of $150.0 million. As of December 31, 2019, there were no amounts
outstanding under this facility and the Company had approximately $137.6 million of accounts receivable available to
48
support this facility, based on the pool of eligible accounts receivable.
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 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.
Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers” of our 2025 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 venture 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 our subsidiaries will not
face transfer restrictions in the future due to regulatory or other reasons beyond our control.
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.
During the year ended December 31, 2019, the Company declared total dividends of $1.60 per ordinary share, or $64.2
million, of which $16.4 million, inclusive of dividend equivalents, remains accrued as of December 31, 2019 and the
majority of which will be paid in January 2020. These dividends are well 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 dividends to shareholders, should
the Company continue to declare them.
The Company’s cash flow generation in recent years has been strong, as discussed above. During the year ended
December 31, 2019, under authority from our board of directors, the Company purchased approximately 2.8 million
ordinary shares from our shareholders through open market transactions for an aggregate purchase price of $119.7
million. We believe that funds provided by operations, our existing cash, cash equivalent, and restricted cash balances,
borrowings available under our 2022 Revolving Facility and 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, while also providing the Company the ability to return capital to our shareholders via dividend payments and
share repurchases. Nevertheless, our ability to generate future cash and to pay our indebtedness and fund other
liquidation needs is subject to certain risks described under Item 1A—Risk Factors. As of December 31, 2019, we were
in compliance with all the covenants and default provisions under our debt agreements. Refer to Note 11 in the
consolidated financial statements for further information on the details of the covenant requirements.
Derivative Instruments
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange
rates and interest rate risk. To manage this risk, the Company periodically enters into derivative financial instruments,
such as foreign exchange forward contracts and interest rate swap agreements. A brief summary of these derivative
financial instrument programs is described below; however, refer to Note 12 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 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.
49
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 our subsidiaries whose functional currency is the
euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company buys a
designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the
fluctuations in the euro-to-U.S. dollar foreign currency exchange rate.
Interest Rate Swaps
The Company enters into interest rate swap agreements to manage our exposure to variability in interest payments
associated with the Company’s variable rate debt. Under these interest rate swap agreements, which are designated as
cash flow hedges, the Company is effectively converting a portion of our variable rate borrowings into a fixed rate
obligation to mitigate the risk of variability in interest rates.
Net Investment Hedge
The Company has certain fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and
interest payments on the Company’s 2025 Senior Notes for euro-denominated payments, which were designated as a
hedge of the Company’s net investment in certain European subsidiaries under the forward method through March 31,
2018. As such, changes in their fair value, to the extent effective, were recorded within the cumulative translation
adjustment account as a component of accumulated other comprehensive income or loss (“AOCI”) through March 31,
2018.
Effective April 1, 2018, in conjunction with the adoption of previously issued hedging accounting guidance, the
Company elected as an accounting policy to re-designate the CCS as a net investment hedge (and any future similar
hedges) under the spot method. As such, changes in the fair value of the CCS that are included in the assessment of
effectiveness (changes due to spot foreign exchange rates) are recorded as cumulative foreign currency translation within
AOCI, and will remain in AOCI until either the sale or substantially complete liquidation of the subsidiary. As an
additional accounting policy election applied to similar hedges under this standard, the initial value of any component
excluded from the assessment of effectiveness is recognized in income using a systematic and rational method over the
life of the hedging instrument. Any difference between the change in the fair value of the excluded component and
amounts recognized in income under that systematic and rational method is recognized in AOCI. The Company has
elected to amortize the initial excluded component value as a reduction of “Interest expense, net” in the consolidated
statements of operations using the straight-line method over the remaining term of the CCS. Additionally, the accrual of
periodic USD and euro-denominated interest receipts and payments under the terms of the CCS will also be recognized
within “Interest expense, net” in the consolidated statements of operations.
On February 26, 2020, the Company settled our existing CCS and replaced it with a new CCS arrangement that
carried substantially the same terms (the “2020 CCS”) as the existing CCS. Upon settlement of the existing CCS, the
Company realized net cash proceeds of $51.6 million. Under the 2020 CCS, the Company notionally exchanged $500.0
million at an interest rate of 5.375% for €459.3 million at a weighted average interest rate of 3.672% for approximately
2.7 years, with a final maturity of November 3, 2022. The cash flows under the 2020 CCS are aligned with the
Company’s principal and interest obligations on our 5.375% 2025 Senior Notes. The 2020 CCS was executed at an
exchange rate of 1.09 USD per euro.
The Company does not expect to record any significant gains or losses within the consolidated statements of
operations as a result of the above settlement. Further, as a result of these combined transactions, the Company expects
to incur an increase in annual cash interest payments and book interest expense of approximately $2.5 million.
Additionally, the Company expects that annual book interest expense will increase by approximately $5.0 million, as the
excluded component related to the existing CCS, referenced above, will no longer be amortized as a reduction to
“Interest expense, net.”
50
Contractual Obligations and Commercial Commitments
The following table reflects our contractual obligations as of December 31, 2019. Amounts we pay in future
periods may vary from those reflected in the table:
(In millions)
Purchase commitments(1)
Long-term indebtedness(2)
Interest payments on long-term debt
(net of interest rate swap effects)(3)
Pension and other postretirement
benefits(4)
Minimum lease commitments and
other obligations(5)
Uncertain tax positions, including
interest and penalties(6)
Total
2020
2021
2022
2023
2024
Thereafter
Total
Payments due by year
$ 1,038.8 $ 90.5 $ 67.0 $ — $
7.0
7.0
7.0
7.0
— $
7.0
— $ 1,196.3
1,184.3
1,149.3
53.2
52.9
52.5
52.3
44.3
22.2
277.4
17.7
5.9
7.2
10.1
8.9
63.4
113.2
18.9
13.4
11.1
8.5
6.8
35.6
94.3
—
9.7
$ 1,135.6 $ 169.7 $ 144.8 $ 77.9 $ 67.0 $ 1,280.2 $ 2,875.2
9.7
—
—
—
—
(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 one to three 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) The long-term indebtedness line in the table includes obligations on our outstanding borrowing amounts as of
December 31, 2019, which are related to the 2024 Term Loan B and the 2025 Senior Notes. The impacts of certain
fixed-for-fixed cross currency swaps, which are discussed in Note 12 of the consolidated financial statements, as
well as all other debt outstanding as of December 31, 2019 totaling $10.4 million are not included in this line.
(3) Interest payments on debt are calculated for future periods using interest rates in effect as of December 31, 2019.
The amounts above include estimated interest on the 2024 Term Loan B and the related effects of interest rate swap
agreements, as well as interest on the 2025 Senior Notes; however, they do not include the impacts of certain fixed-
for-fixed cross currency swaps. Interest on the 2024 Term Loan B is payable quarterly and interest on the 2025
Senior Notes is payable semi-annually on each May 3 and November 3. Refer to Item 7A—Quantitative and
Qualitative Disclosures about Market Risk for further discussion of interest rate and foreign currency risks. Certain
of these projected interest payments may differ in the future based on changes in floating interest rates or other
factors and events. This line does not include the 2022 Revolving Facility or Accounts Receivable Securitization
Facility as amounts outstanding under these facilities vary due to periodic borrowings and repayments and there are
no such amounts outstanding under either facility as of December 31, 2019.
(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 2019 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 $2.9 million through
2029. The payments identified above as subsequent to 2024 represent estimated pension and postretirement
payments from 2025 through 2029. Refer to Note 16 in the consolidated financial statements for further information.
(5) Includes minimum commitments related to our finance and operating lease obligations. Refer to Note 23 in the
consolidated financial statements for further information. 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, including details regarding the
51
rights of the Company and Dow to terminate said agreements, refer to Item 1— Business— Our Relationship with
Dow.
As discussed in the aforementioned section of Item 1, the Company has transitioned the majority of the services
under the SAR MOSA that were previously provided by Dow as of December 31, 2019, and nearly all of the
remaining services under the agreement will be transitioned in the first half of 2020. Based on this transition, we
estimate our minimum remaining obligation under the SAR MOSA to be approximately $5.0 million as of
December 31, 2019.
Additionally, utilizing current year known costs and assuming that we continue with the SAR SSAs, we estimate our
contractual obligations under these agreements to be approximately $157.1 million annually for 2020 through 2024,
and a total of $2,116.2 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 our 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.
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 in the United States. The U.S.-based plan provides
health care benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life
insurance benefits. 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 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
52
benefits. Using this methodology, we determined weighted-average discount rates of 1.03% and 3.48% for pension and
postretirement benefits, respectively, to be appropriate as of December 31, 2019.
We use a full yield curve approach in the estimation of the future service and interest cost components of net
periodic benefit cost for our defined benefit pension and other postretirement benefit plans by applying the specific spot
rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The
weighted-average discount rates that we used to measure service cost for pension and postretirement plans during 2019
were 1.79% and 4.42%, respectively. The weighted-average discount rates that we used to measure interest cost for
pension and postretirement plans during 2019 were 1.59% and 4.14%, respectively.
Service cost related to our defined benefit pension plans and other postretirement plans is included within “Cost of
sales” and “Selling, general and administrative expenses,” whereas all other components of net periodic benefit cost are
included within “Other expense (income), net” in the consolidated statements of operations.
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 1.57% and 1.54% for 2019 and 2018, respectively. The increase
was primarily due to higher interest rates during 2019 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.
Holding all other factors constant, a 0.25% increase (decrease) in the discount rate used to determine net periodic
cost would decrease (increase) 2020 pension expense by approximately $1.8 million and $(1.7) million, respectively.
Holding all other factors constant, a 0.25% increase (decrease) in the long-term rate of return on assets used to determine
net periodic cost would decrease (increase) 2020 pension expense by approximately $0.1 million and $(0.1) million,
respectively.
As noted above, plan assets are invested primarily in insurance contracts that provide for guaranteed returns. As of
December 31, 2019 and 2018, plan assets totaled $151.8 million and $138.5 million, respectively. 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.
Business Combinations and Asset Impairments
Business Combinations
Acquisitions that qualify as a business combination are accounted for using the purchase accounting method.
Amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair value as of
the date of acquisition. Goodwill is recorded as the difference between the fair value of the acquired assets and liabilities
assumed (net assets acquired) and the purchase price. Goodwill is not amortized, but is reviewed for impairment
annually as of October 1, or when events or changes in the business environment indicate that the carrying value of a
reporting unit may exceed its fair value. Refer to the discussion below for further information on asset impairments.
Under the purchase accounting method, the Company completes valuation procedures for an acquisition, often
with the assistance of third-party valuation specialists, to determine the fair value of the assets acquired and liabilities
assumed. These valuation procedures require management to make assumptions and apply significant judgment to
estimate the fair value of the assets acquired and liabilities assumed. If the estimates or assumptions used should
significantly change, the resulting differences could materially affect the fair value of net assets.
Specifically, the calculation of the fair value of tangible assets, including property, plant and equipment, typically
utilize the cost approach, which computes the cost to replace the asset, less accrued depreciation resulting from physical
deterioration and functional and external obsolescence. The calculation of the fair value of identified intangible assets is
determined using cash flow models following the income approach. Significant inputs include estimated future cash
flows, discount rates, royalty rates, growth rates, sales projections, retention rates, and terminal values, all of which
require significant management judgment. Definite-lived intangible assets, which are primarily comprised of developed
technology, customer relationships, manufacturing capacity rights, and software, are amortized over their estimated
53
useful lives using the straight-line method and are assessed for impairment whenever events or changes in circumstances
indicate the carrying value of the asset may not be recoverable.
Asset Impairments
As of December 31, 2019 net property, plant and equipment, net identifiable finite-lived intangible assets, and
goodwill totaled $625.8 million, $191.5 million, and $67.7 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. In the
event the carrying value of the asset exceeds its undiscounted future cash flows and the carrying value is not considered
recoverable, impairment may exist. An impairment loss, if any, is measured as the excess of the asset’s carrying value
over its fair value, generally based on a discounted future cash flow method, independent appraisals, etc.
Through December 31, 2019, we have continued to assess the recoverability of certain assets, and concluded there
are no additional significant 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. In June 2018, we entered into a preliminary
agreement to sell the land on which our aforementioned former Livorno facility was located, subject to certain activities
being competed prior to closing. The sale was considered probable to close within one year following the balance sheet
date; therefore, as of the years ended December 31, 2019 and 2018, the land was recorded as held-for-sale within “Other
current assets” at a value of $11.8 million and $12.0 million, respectively (adjusted for foreign currency impact), and the
deferred tax liability associated with that land is recorded as held-for-sale within “Accrued expenses and other current
liabilities” at a value of $2.8 million and $2.9 million, respectively (adjusted for foreign currency impact), on the
Company’s consolidated balance sheets. The Company closed on the sale of the land in January 2020. Refer to Note 20
in the consolidated financial statements for further information.
As noted above, our goodwill impairment testing is performed annually as of October 1 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 has more likely than not declined below its carrying value. As of our annual assessment date of October 1,
2019, each of our reporting units had fair values that exceeded the carrying value of their net assets, indicating that no
impairment of goodwill is warranted.
A goodwill 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 Accounting Standards Codification
350. As of December 31, 2019, our $67.7 million in total goodwill is allocated to our reportable segments as follows:
$15.6 million to Latex Binders, $11.0 million to Synthetic Rubber, $36.7 million to Performance Plastics, and $4.4
million to Polystyrene, 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.
54
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, 2019. 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, 2019, we had deferred tax assets of $84.9 million, after valuation allowances of $218.0
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.
Swiss federal and cantonal tax reform was enacted on August 6, 2019 and October 25, 2019, respectively, and
includes measures such as, the elimination of certain preferential tax regimes and implementation of new tax rates at
both the federal and cantonal levels. It also includes transitional relief measures which may provide for future tax
deductions. As a result of both the federal and cantonal law changes, the Company recorded a $65.0 million one-time
deferred tax benefit for the year ended December 31, 2019, of which $61.6 million was related to cantonal tax law
changes. We believe it is more likely than not that a portion of the $61.6 million deferred tax benefit recorded as a result
of these cantonal tax law changes will not be realized during the utilization period provided by the legislation, spanning
2025 through 2029. This is based on our estimate of future taxable income in Switzerland, which was determined using
management’s judgment and assumptions about various factors, such as: historical experience and results, cyclicality of
the business, and future industry and macroeconomic conditions and trends during the aforementioned utilization period.
As a result, we recorded a $25.3 million valuation allowance as of December 31, 2019.
As of December 31, 2019, we had deferred tax assets for tax loss carryforward of approximately $748.4 million,
$51.4 million of which is subject to expiration in the years between 2020 and 2024. 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
estimate of future taxable income is based on management’s judgment and assumptions about various factors including
historical experience and results, cyclicality of the business, and future industry and macroeconomic conditions and
55
trends. Changes in these assumptions in future periods may require we adjust our valuation allowance, which could
materially impact our financial position and results of operations.
We do not have any off-balance sheet arrangements.
Off-balance Sheet Arrangements
We describe the impact of recent accounting pronouncements in Note 2 of the consolidated financial statements,
included elsewhere within this Annual Report.
Recent Accounting Pronouncements
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 flows 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 various 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 flows.
Interest Rate Risk
Given the Company’s debt structure, we have certain exposure to changes in interest rates. Refer to Note 11 in the
consolidated financial statements for further information regarding the Company’s debt facilities.
The Company’s 2024 Term Loan B bears an interest rate of LIBOR plus 2.00% (subject to a 0.00% LIBOR floor)
as of December 31, 2019. In order to reduce the variability in interest payments associated with our variable rate debt,
the Company has entered into interest rate swap agreements that convert a portion of these variable rate borrowings into
a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges, and as such, the
contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the
extent effective and reclassified to interest expense in the period during which the transaction effects earnings or it
becomes probable that the forecasted transaction will not occur.
Based on weighted-average outstanding borrowings under the 2024 Term Loan B for the year ended December 31,
2019, an increase in 100 basis points in LIBOR would have resulted in approximately $5.0 million of additional interest
expense for the period, inclusive of the impact of the interest rate swap agreements discussed above.
Loans under the 2022 Revolving Facility, at the Borrowers’ option, may be maintained as (a) LIBOR loans, which
bear interest at a rate per annum equal to LIBOR plus the applicable margin (as defined in the Credit Agreement), if
applicable, or (b) base rate loans which 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, 2019, the Borrowers are required to pay a quarterly
commitment fee in respect of any unused commitments under the 2022 Revolving Facility equal to 0.375% per annum.
As of and throughout the year ended December 31, 2019, we had no variable rate debt issued under our 2022 Revolving
Facility and as such we incurred no variable rate interest related to these facilities during the period.
56
Our Accounts Receivable Securitization Facility is subject to interest charges on both the amount of outstanding
borrowings as well as the amount of available, but undrawn commitments under the facility. As of December 31, 2019,
fixed interest charges on outstanding borrowings for this facility are 1.95% plus variable commercial paper rates which
vary by month and by currency, as outstanding balances can be denominated in euros and U.S. dollars, and fixed interest
charges on available, but undrawn commitments for this facility are 1.00%. As of and throughout the year ended
December 31, 2019, we had no variable rate debt issued under our Accounts Receivable Securitization Facility, and as
such we incurred no variable rate interest related to this facility during the period.
Foreign Currency Risks
The Company’s ongoing business operations expose us to foreign currency risks, including fluctuating foreign
exchange rates. Our primary foreign currency exposure is the euro-to-U.S. dollar exchange rate, noting that
approximately 57% of our net sales were generated in Europe for the year ended December 31, 2019. To a lesser degree,
we are also exposed to the exchange rates between the U.S. dollar and 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 monetary 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 use foreign exchange forward contracts to economically hedge the impact of the variability in exchange
rates on our monetary 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 our subsidiaries whose functional currency is the
euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company buys a
designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the
fluctuations in the euro-to-U.S. dollar foreign currency exchange rate. The qualifying hedge contracts are marked-to-
market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and
reclassified to cost of sales in the period during which the transaction affects earnings or it becomes probable that the
forecasted transaction will not occur. For 2020, the Company has hedged approximately 80% of our exposure to the euro
at a rate of 1.12. Inclusive of these hedges, a 1% change in the euro will impact our annual profitability by approximately
$1.0 million on a pre-tax basis.
We have legal entities consolidated in our financial statements that have functional currencies other than the 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, 2019 and 2018.
Commodity Price Risk
We purchase certain raw materials such as benzene, ethylene, butadiene, BPA, and styrene primarily under short-
and long-term supply contracts. The pricing terms for these raw material purchases are generally determined based on
commodity indices and prevailing market conditions within the relevant geography. The selling prices of our products
are generally based, in part, on the current or forecasted costs of our key raw materials, but are often subject to a
predetermined lag period for the pass through of these costs. As such, during periods of significant raw material price
volatility, the Company may experience material volatility in earnings and cash flows due to the lag in passing through
raw material costs, primarily for benzene, ethylene, butadiene, and styrene. Assuming no changes in sales price, volume
or mix, a hypothetical 10% change in the market price of our raw materials would have impacted cost of sales by
approximately $261.0 million for the year ended December 31, 2019.
We mitigate the risk of volatility in commodity prices where possible by passing changes in raw material costs
through to our customers by adjusting our prices or including provisions in our contracts that allow us to adjust prices in
such a circumstance or by including pricing formulas which utilize commodity indices. Nevertheless, we may be subject
57
to the timing differences described above for the pass through of these costs. In addition, even when raw material costs
may be passed on to our customers, during periods of high raw material price 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 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.
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, 2019. 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, 2019 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, 2019, 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, 2019 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
There was no change 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, 2019 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
58
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 “Delinquent Section 16(a) Reports” of the
Company’s definitive proxy statement for the 2020 annual general meeting of shareholders to be filed with the SEC
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the “2020 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 support policies which are specifically referenced in the Code, and most 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 a part of, and are not incorporated by reference into, this Annual Report.
Item 11. Executive Compensation
The information required by this Item 11 will be contained in our 2020 Proxy Statement and is incorporated by
reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this Item 12 will be contained in our 2020 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 2020 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 2020 Proxy Statement and is incorporated by
reference herein.
59
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, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018, and
2017
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements for the years ended December 31, 2019, 2018, and 2017
Financial Statement Schedule – Schedule II. Valuation and Qualifying Accounts for the years ended December 31,
2019, 2018, and 2017
Americas Styrenics LLC
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Members’ Equity for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements for the years ended December 31, 2019, 2018, and 2017
F-2
F-5
F-6
F-7
F-8
F-9
F-10
F-59
F-60
F-61
F-62
F-63
F-64
F-65
60
2. Exhibits: The exhibits to this report are listed in the exhibit index below.
Exhibit No.
3.1
4.1
4.2
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 Quarterly Report on Form 10-Q for the quarter ended June 30,
2018, filed August 3, 2018)
Indenture among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc. and The
Bank of New York Mellon, as Trustee, dated as of August 29, 2017 (incorporated herein by
reference to Exhibit 4.1 to the Current Report on Form 8-K, filed September 5, 2017)
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)
4.3†
Description of Securities
10.1
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, and the
guarantors and lenders from time to time party thereto, dated as of September 6, 2017
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed
September 7, 2017)
10.2
Amendment to the Credit Agreement dated September 6, 2017 among Trinseo Materials Operating
S.C.A., Trinseo Materials Finance, Inc., together with Trinseo Holding 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, and the guarantors and lenders party thereto from time to time,
dated as of May 22, 2018 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 2018, filed on August 3, 2018)
10.3
Deed of Amendment and Restatement, dated September 28, 2018, 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 (incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 2018, filed on November 9, 2018)
10.4
Form of Cross-Currency Rate Swap Transaction Confirmation (incorporated herein by reference to
Exhibit 10.2 to the Current Report on Form 8-K, filed September 7, 2017)
10.5*
Amended and Restated Employment Agreement, among Trinseo US Holding, Inc., Trinseo S.A.
and Christopher D. Pappas, dated December 20, 2017 (incorporated herein by reference to Exhibit
10.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed May 3,
2018)
10.6*
Amendment to Employment Agreement between Trinseo US Holding, Inc., Trinseo S.A. and
Christopher D. Pappas, dated December 2018 (incorporated herein by reference to Exhibit 10.1 to
the Current Report on Form 8-K, filed on December 21, 2018)
61
Exhibit No.
10.7*
Employment Agreement between Trinseo LLC and Barry Niziolek, dated May 20, 2016
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed May 23,
2016)
Description
10.8*
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 for the year ended December 31, 2015, File No. 001-36473, filed March 11, 2016)
10.9*
Letter Agreement Amendment to the Employment Agreement between Timothy Stedman and
Trinseo Europe GmbH, dated October 2, 2019 (incorporated herein by reference to Exhibit 10.2 to
the Current Report filed on Form 8-K, filed on October 2, 2019)
10.10*
10.11*
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 on Form 10-K
filed, March 11, 2016)
Separation Agreement between Hayati Yarkadas and Trinseo Europe GmbH, dated October 2,
2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed October 3, 2019)
10.12*
Employment Agreement between Trinseo LLC and Frank A. Bozich, dated December 11, 2018
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed on October 3, 2019)
10.13*
Employment Agreement between Trinseo LLC and David Stasse, dated April 29, 2019
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on
April 30, 2019)
10.14*
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 on Form 10-K for the year ended December 31,
2015, filed March 11, 2016)
10.15*
Letter Agreement, dated June 18, 2018, between Trinseo S.A. and Angelo N. Chaclas, defining
retirement for purpose of equity awards (incorporated by reference to Exhibit 10.4 to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2018, filed on August 3, 2018)
10.16*
Employment Agreement between Trinseo Europe GmbH and Alice Heezen-Dokianos dated
June 3, 2019 (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2019, filed August 9, 2019)
10.17**
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)
10.18**
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)
62
Exhibit No.
10.19**
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)
Description
10.20**
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)
10.21**
10.22**
10.23**
10.24
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 September 28, 2018, 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 (incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 2018, filed on November 9, 2018)
10.25*
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)
10.26*
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)
10.27*
Amended and Restated Omnibus Incentive Plan (incorporated herein by reference to Exhibit 4.2 to
the Form S-8, File No. 333-232925, filed on July 31, 2019)
10.28*
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)
10.29*
Form of Indemnification Agreement for Directors and Officers (incorporated herein by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q, File No.001-36473, filed August 3, 2017)
10.30*
Form of Director Offer Letter (incorporated herein by reference to Exhibit 10.27 to the Annual
Report on Form 10-K for the year ended December 31, 2017, filed March 1, 2018)
63
Exhibit No.
Description
10.31*
Form of Restricted Stock Unit Agreement for Directors (incorporated herein by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed
May 3, 2017)
10.32*
Form of Restricted Stock Unit Award Agreement for Executives (incorporated herein by reference
to Exhibit 10.5 to the Quarterly Report on Form 10-Q, for the quarter ended March 31, 2018, filed
May 3, 2018)
10.33*
Form of Non-statutory Stock Option Award Agreement for Executives (incorporated herein by
reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q, for the quarter ended March 31,
2018, filed May 3, 2018)
10.34*
Form of Performance Award Stock Unit Agreement for Executives (incorporated herein by
reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q, for the quarter ended March 31,
2018, filed May 3, 2018)
10.35*
Form of Restricted Stock Unit Award Agreement for Employees (incorporated herein by reference
to Exhibit 10.8 to the Quarterly Report on Form 10-Q, for the quarter ended March 31, 2018, filed
May 3, 2018)
10.36*
Form of Non-statutory Stock Option Award Agreement for Employees (incorporated herein by
reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q, for the quarter ended March 31,
2018, filed May 3, 2018)
10.37*
10.38*
10.39*
Form of Letter Agreement to Restricted Stock Unit Awardees regarding payment of dividend
equivalents (incorporated herein by reference to Exhibit 10.38 to the Annual Report on Form 10-K,
for the year ended December 31, 2016, filed March 1, 2017)
Form of Executive Side Letter for Equity Grants (incorporated by reference to Exhibit 10.7 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed August 9,
2019)
Form of Performance Award Stock Unit Agreement for Executives for 2018 Executive Retention
Awards (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed
September 17, 2018)
21.1†
Subsidiaries of Trinseo S.A.
23.1†
Consent of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP
23.2†
Consent of Independent Registered Public Accounting Firm Deloitte & Touche LLP
31.1†
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
31.2†
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
32.1†
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
32.2†
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
64
Exhibit No.
101.INS†
iXBRL Instance Document
Description
101.SCH†
iXBRL Taxonomy Extension Schema Document
101.CAL†
iXBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†
iXBRL Taxonomy Extension Definition Linkbase Document
101.LAB†
iXBRL Extension Label Linkbase Document
101.PRE†
iXBRL Taxonomy Extension Presentation Linkbase Document
104†
Cover Page Interactive Data File (formatted iXBRL and contained in Exhibit 101)
* Compensatory plan or arrangement.
** Application has been made to the SEC for confidential treatment of certain provisions of these exhibits. Omitted
material for which confidential treatment has been requested has been filed separately with the SEC.
† Filed herewith.
Item 16. Form 10-K Summary
None.
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: February 28, 2020
TRINSEO S.A.
/s/ Frank Bozich
By:
Name: Frank Bozich
Title: President and Chief Executive Officer
(Principal 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
Date
/s/ Frank Bozich
Frank Bozich
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ David Stasse
David Stasse
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 28, 2020
February 28, 2020
/s/ Bernard M. Skeete
Bernard M. Skeete
Vice President, Global Controller and Principal Accounting Officer February 28, 2020
(Principal Accounting Officer)
/s/ Joseph Alvarado
Joseph Alvarado
Director
February 28, 2020
65
Signature
Title
Date
/s/ Sandra Beach Lin
Sandra Beach Lin
Director
/s/ Jeffrey J. Cote
Jeffrey J. Cote
Director
/s/ Pierre-Marie De Leener Director
Pierre-Marie De Leener
/s/ K’Lynne Johnson
K’Lynne Johnson
Director
/s/ Philip R. Martens
Philip R. Martens
Director
/s/ Donald T. Misheff
Donald T. Misheff
Director
/s/ Christopher D. Pappas Director
Christopher D. Pappas
/s/ Henri Steinmetz
Henri Steinmetz
/s/ Mark Tomkins
Mark Tomkins
/s/ Stephen M. Zide
Stephen M. Zide
Director
Director
Director
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018, and
2017
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements for the years ended December 31, 2019, 2018, and 2017
Financial Statement Schedule – Schedule II. Valuation and Qualifying Accounts for the years ended December 31,
2019, 2018, and 2017
Americas Styrenics LLC*
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Members’ Equity for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements for the years ended December 31, 2019, 2018, and 2017
F-2
F-5
F-6
F-7
F-8
F-9
F-10
F-59
F-60
F-61
F-62
F-63
F-64
F-65
* The audited financial statements of Americas Styrenics LLC as of December 31, 2019 and 2018 and for the years
ended December 31, 2019, 2018, and 2017 have been included in this Annual Report in accordance with the
requirements of Rule 3-09 of Regulation S-X.
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Trinseo S.A.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Trinseo S.A. and its subsidiaries (the “Company”) as
of December 31, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income (loss),
of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2019, including
the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
We did not audit the financial statements of Americas Styrenics LLC, a 50% equity investment of Trinseo S.A., which is
reflected in the consolidated financial statements of Trinseo S.A. as an equity method investment of $188.1 million and
$179.1 million as of December 31, 2019 and 2018, respectively, and income from equity investment of $119.0 million,
$144.1 million and $122.9 million for the years ended December 31, 2019, 2018 and 2017 respectively. Those
statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for Americas Styrenics LLC, is based solely on the report of the other
auditors.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts
for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, 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 the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
F-2
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Valuation of Deferred Tax Asset Associated with Swiss Cantonal Tax Reform
As described in Note 14 to the consolidated financial statements, the Company is subject to income taxes in
Luxembourg, the United States and numerous other foreign jurisdictions. Management records valuation allowances to
reduce deferred tax assets when it is more-likely-than not that a tax benefit will not be realized. As of December 31,
2019, management had recorded a $62.4 million deferred tax asset related to the enactment of Swiss Cantonal Tax
Reform. This deferred tax asset was offset by a $25.3 million valuation allowance for the portion of the deferred tax asset
that more-likely-than-not, as a result of these cantonal tax law changes, will not be realized during the utilization period
provided by the legislation, spanning 2025 through 2029. The valuation of the deferred tax asset associated with Swiss
Cantonal Tax Reform is based on management’s estimate of future taxable income in Switzerland, which was
determined using management’s judgment and assumptions about various factors, such as: historical experience and
results, cyclicality of the business, and future industry and macroeconomic conditions and trends possible during the
aforementioned utilization period.
The principal considerations for our determination that performing procedures relating to the valuation of the deferred
tax asset associated with Swiss Cantonal Tax Reform is a critical audit matter are there was significant judgment and
estimation by management when applying the more likely than not recognition criteria to the Company’s deferred tax
assets, particularly as it relates to estimates of future taxable income in Switzerland over the utilization period provided
by the legislation, spanning 2025 through 2029. This in turn led to a high degree of auditor judgment, subjectivity, and
F-3
effort in performing procedures and evaluating audit evidence relating to management’s estimates of future taxable
income over the utilization period and assumptions, including historical experience and results, cyclicality of the
business, and future industry and macroeconomic conditions and trends possible during the aforementioned utilization
period.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to the valuation of deferred tax assets and controls associated with Swiss Cantonal Tax Reform, including
determination of future taxable income over the utilization period. These procedures also included, among others,
evaluating the judgments used by management in applying the more likely than not recognition criteria to the Company’s
deferred tax asset balance relating to Swiss Cantonal Tax Reform, including evaluating management’s assessment of the
realizability of the deferred tax asset and evaluating assumptions related to future taxable income over the utilization
period. Evaluating management’s assumptions relating to future taxable income over the utilization period involved
evaluating historical experience and results, cyclicality of the business, and future industry and macroeconomic
conditions and trends possible during the aforementioned utilization period. Professionals with specialized skill and
knowledge were used to assist in evaluating the reasonableness of assumptions used by management in assessing the
realizability of the deferred tax asset associated with Swiss Cantonal Tax Reform.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 28, 2020
We have served as the Company’s auditor since 2010.
F-4
TRINSEO S.A.
Consolidated Balance Sheets
(In millions, 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
Right-of-use assets - operating
Deferred income tax assets
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
Current lease liabilities - operating
Income taxes payable
Accrued expenses and other current liabilities
Total current liabilities
Noncurrent liabilities
Long-term debt, net of unamortized deferred financing fees
Noncurrent lease liabilities - operating
Deferred income tax liabilities
Other noncurrent obligations
Total noncurrent liabilities
Commitments and contingencies (Note 15)
Shareholders’ equity
December 31,
2019
2018
$
$
456.2 $
570.8
438.2
25.9
1,491.1
188.1
625.8
67.7
191.5
71.4
67.5
55.7
453.8
2,758.8 $
$
11.1 $
343.0
14.1
5.0
154.4
527.6
1,162.6
58.0
41.5
300.2
1,562.3
452.3
648.1
510.4
20.5
1,631.3
179.1
592.1
69.0
191.1
—
26.7
37.5
324.3
2,726.8
7.0
354.2
—
16.0
159.8
537.0
1,160.8
—
45.4
214.9
1,421.1
Ordinary shares, $0.01 nominal value, 50,000.0 shares authorized (December 31, 2019:
48.8 shares issued and 39.0 shares outstanding; December 31, 2018: 48.8 shares issued
and 41.6 shares outstanding)
Additional paid-in-capital
Treasury shares, at cost (December 31, 2019: 9.8 shares; December 31, 2018: 7.2
shares)
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
0.5
574.7
0.5
575.4
(524.9)
781.0
(162.4)
668.9
2,758.8 $
(418.1)
753.2
(142.3)
768.7
2,726.8
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
TRINSEO S.A.
Consolidated Statements of Operations
(In millions, 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 (income), net
Income before income taxes
Provision for income taxes
Net income
Weighted average shares- basic
Net income per share- basic
Weighted average shares- diluted
Net income per share- diluted
$
$
$
$
2019
3,775.8 $
3,446.9
328.9
300.0
119.0
147.9
39.3
—
4.0
104.6
12.6
92.0
40.3
2.28
40.7
2.26
Year Ended December 31,
2018
4,622.8
4,094.0
528.8
258.5
144.1
414.4
46.4
0.2
3.5
364.3
71.8
292.5
42.8
6.83
43.7
6.70
$
$
$
2017
4,448.1
3,807.8
640.3
239.0
123.7
525.0
70.1
65.3
(21.5)
411.1
82.8
328.3
43.8
7.49
45.0
7.30
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
TRINSEO S.A.
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net income
Other comprehensive income (loss), net of tax:
Cumulative translation adjustments
Net gain (loss) on cash flow hedges
Pension and other postretirement benefit plans:
$
Prior service credit arising during period (net of tax of $0, $0.2, and $0)
Net gain (loss) arising during period (net of tax of $(8.9), $0.3, and
$10.8)
Amounts reclassified from accumulated other comprehensive income
(loss)
Total other comprehensive income (loss), net of tax
Comprehensive income
$
2019
Year Ended December 31,
2018
292.5 $
92.0 $
5.1
(8.3)
—
(19.0)
(17.3)
15.0
0.7
1.8
2.1
(20.1)
71.9 $
3.1
3.3
295.8 $
2017
328.3
24.5
(18.4)
—
31.8
(13.3)
24.6
352.9
The accompanying notes are an integral part of these consolidated financial statements.
F-7
TRINSEO S.A.
Consolidated Statements of Shareholders’ Equity
(In millions, except per share data)
Shares
Ordinary
Shares
Outstanding
44.3
—
—
Treasury
Shares
Ordinary
Shares
Additional
Paid-In
Capital
Shareholders' Equity
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Shares
Retained
Earnings
(Accumulated
Deficit)
Total
4.5 $
—
—
0.5 $ 573.7 $ (217.5) $
—
—
—
—
—
—
(170.2) $
—
24.6
261.2 $ 447.7
328.3
328.3
24.6
—
0.5
(1.4)
(0.5)
1.4
—
—
5.1
—
17.5
(86.8)
—
—
—
—
22.6
(86.8)
—
43.4
—
—
—
5.4 $
—
—
—
—
—
0.5 $ 578.8 $ (286.8) $
—
—
—
—
—
—
—
(145.6) $
—
3.3
(61.6)
(61.6)
527.9 $ 674.8
292.5
292.5
3.3
—
0.4
(2.2)
(0.4)
2.2
—
—
(3.4)
13.7
— (145.0)
—
—
—
10.3
— (145.0)
—
41.6
—
—
—
7.2 $
—
—
—
—
—
0.5 $ 575.4 $ (418.1) $
—
—
—
—
—
—
—
(142.3) $
—
(20.1)
(67.2)
(67.2)
753.2 $ 768.7
92.0
(20.1)
92.0
—
0.2
(2.8)
(0.2)
2.8
—
—
(0.7)
9.6
— (116.4)
—
—
—
8.9
— (116.4)
—
39.0
—
9.8 $
—
—
—
0.5 $ 574.7 $ (524.9) $
—
(162.4) $
(64.2)
(64.2)
781.0 $ 668.9
Balance at December 31, 2016
Net income
Other comprehensive loss
Share-based compensation
activity
Purchase of treasury shares
Dividends on ordinary shares
($1.38 per share)
Balance at December 31, 2017
Net income
Other comprehensive income
Share-based compensation
activity
Purchase of treasury shares
Dividends on ordinary shares
($1.56 per share)
Balance at December 31, 2018
Net income
Other comprehensive income
Share-based compensation
activity
Purchase of treasury shares
Dividends on ordinary shares
($1.60 per share)
Balance at December 31, 2019
The accompanying notes are an integral part of these consolidated financial statements.
F-8
TRINSEO S.A.
Consolidated Statements of Cash Flows
(In millions)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization
Amortization of deferred financing fees, issuance discount, and excluded
component of hedging instruments
Deferred income tax
Share-based compensation expense
Earnings of unconsolidated affiliates, net of dividends
Unrealized net (gain) loss on foreign exchange forward contracts
Loss on extinguishment of long-term debt
Gain on sale of businesses and other assets
Impairment charges
Gain on bargain purchase
Pension curtailment and settlement (gain) loss
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
Net cash received (paid) for asset and business acquisitions, net of cash
acquired
Proceeds from capital expenditures subsidy
Proceeds from the sale of businesses and other assets
Distributions from unconsolidated affiliates
Cash used in investing activities
Cash flows from financing activities
Deferred financing fees
Short-term borrowings, net
Purchase of treasury shares
Dividends paid
Proceeds from exercise of option awards
Withholding taxes paid on restricted share units
Net proceeds from issuance of 2024 Term Loan B
Repayments of 2024 Term Loan B
Repayments of 2021 Term Loan B
Net proceeds from issuance of 2025 Senior Notes
Repayments of 2022 Senior Notes
Prepayment penalty on long-term debt
Cash used in financing activities
Effect of exchange rates on cash
Net change in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash—beginning of period
Cash, cash equivalents, and restricted cash—end of period
Less: Restricted cash, included in "Other current assets"
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
2019
Year Ended December 31,
2018
2017
$
92.0
$
292.5
$
328.3
136.0
130.2
110.6
(0.5)
(37.4)
13.5
(9.0)
3.0
—
(0.7)
0.2
(4.7)
0.8
66.6
70.7
(1.7)
(10.9)
(0.2)
4.8
322.5
(110.1)
0.1
—
0.7
—
(109.3)
—
(10.6)
(119.7)
(65.7)
0.9
(4.6)
—
(7.0)
—
—
—
—
(206.7)
(1.4)
5.1
452.3
457.4
(1.2)
456.2
66.3
39.7
17.2
$
$
$
$
$
0.6
5.3
15.8
(26.6)
(0.9)
0.2
(1.0)
1.9
—
0.6
21.2
(16.0)
(43.8)
(19.7)
(4.4)
10.6
366.5
(121.4)
—
1.0
1.7
—
(118.7)
(0.6)
(0.3)
(142.9)
(66.0)
2.8
(8.2)
696.5
(703.5)
—
—
—
—
(222.2)
(6.1)
19.5
432.8
452.3
—
452.3
85.2
50.7
10.2
$
$
$
$
$
5.1
14.8
13.8
5.3
2.6
65.3
(10.5)
4.3
—
(21.6)
(51.8)
(80.2)
9.3
9.9
(4.5)
(9.4)
391.3
(147.4)
(82.3)
—
46.2
0.9
(182.6)
(21.5)
(0.3)
(88.9)
(58.0)
9.3
(0.3)
700.0
(1.8)
(492.5)
500.0
(746.0)
(53.0)
(253.0)
12.0
(32.3)
465.1
432.8
—
432.8
75.0
63.3
15.6
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-9
TRINSEO S.A.
Notes to Consolidated Financial Statements
(Dollars in millions, 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 (which is referred to as
“the former Parent”), was formed through investment funds advised or managed by Bain Capital. Dow Europe Holding
B.V. (together with The Dow Chemical Company, “Dow”) retained an indirect ownership interest in the former Parent.
Trinseo S.A. (“Trinseo,” and together with its subsidiaries, the “Company”) was also formed on June 3, 2010,
incorporated under the existing laws of the Grand Duchy of Luxembourg. At that time, all ordinary shares of Trinseo
were owned by the former Parent. On June 17, 2010, Trinseo acquired 100% of the former Styron business from Dow
(the “Acquisition”), at which time the Company commenced operations. During the year ended December 31, 2016, the
former Parent sold 37,269,567 ordinary shares of the Company in a series of secondary offerings to the market. As such,
the former Parent no longer holds an ownership interest in the Company.
Business Activities
The Company is a leading global materials company engaged in the manufacturing and marketing of synthetic
rubber, latex binders, and plastics, including various specialty and technologically differentiated products. The Company
develops synthetic rubber, latex binders, and plastics products that are incorporated into a wide range of products
throughout the world, including tires and other products for automotive applications, carpet and artificial turf backing,
coated paper and packaging board, food packaging, appliances, medical devices, consumer electronics and construction
applications, among others.
The Company’s operations are located in Europe, North America, and Asia Pacific, supplemented by Americas
Styrenics, a styrenics joint venture with Chevron Phillips Chemical Company LP. Refer to Note 5 for further information
regarding the Company’s investment in Americas Styrenics.
The Company has significant manufacturing and production operations around the world, which allow service to
its global customer base. As of December 31, 2019, the Company’s production facilities included 32 manufacturing
plants (which included a total of 77 production units) at 24 sites across 12 countries, including its joint venture.
Additionally, as of December 31, 2019, the Company operated 10 research and development (“R&D”) facilities globally,
including mini plants, development centers, and pilot coaters.
The Company’s Chief Executive Officer, who is the chief operating decision maker, manages the Company’s
operations under six segments, Latex Binders, Synthetic Rubber, Performance Plastics, Polystyrene, Feedstocks, and
Americas Styrenics.
NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements as of December 31, 2019 and 2018 and for each of the three
years in the period ended December 31, 2019 are prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”). The consolidated financial statements of the Company contain the accounts
of all entities that are controlled and variable interest entities (“VIEs”) for which the Company is the primary
beneficiary. A VIE is defined as a legal entity that has equity investors that do not have sufficient equity at risk for the
entity to support its activities without additional subordinated financial support or, as a group, the holders of the equity at
risk lack (i) the power to direct the entity’s activities or (ii) the obligation to absorb the expected losses or the right to
receive the expected residual returns of the entity. A VIE is required to be consolidated by a company if that company is
the primary beneficiary. Refer to Note 11 for further discussion of the Company’s Accounts Receivable Securitization
Facility, which qualifies as a VIE and is consolidated within the Company’s financial statements.
F-10
All intercompany balances and transactions are eliminated. Joint ventures over which the Company has the ability
to exercise significant influence that are not consolidated are accounted for by the equity method.
Use of Estimates in Financial Statement Preparation
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual
amounts could differ from these estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
cash equivalents and accounts receivable. The Company uses major financial institutions with high credit ratings to
engage in transactions involving cash equivalents. The Company minimizes credit risk in its receivables by selling
products to a diversified portfolio of customers in a variety of markets located throughout the world.
The Company performs ongoing evaluations of its customers’ credit and generally does not require collateral. The
Company maintains an allowance for doubtful accounts for losses resulting from the inability of specific customers to
meet their financial obligations, representing its best estimate of probable credit losses in existing trade accounts
receivable. A specific reserve for doubtful receivables is recorded against the amount due from these customers. For all
other customers, the Company recognizes reserves for doubtful receivables based on historical experience.
Financial Instruments
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, and accrued and other current liabilities, approximate fair value due to their generally short
maturities.
The estimated fair values of the Company’s 2024 Term Loan B and 2025 Senior Notes and, when outstanding,
borrowings under its 2022 Revolving Facility and Accounts Receivable Securitization Facility (all of which are defined
in Note 11) are determined using Level 2 inputs within the fair value hierarchy. The carrying amounts of borrowings
under the 2022 Revolving Facility and Accounts Receivable Securitization Facility approximate fair value as these
borrowings bear interest based on prevailing variable market rates.
At times, the Company manages its exposure to changes in foreign currency exchange rates, where possible, by
entering into foreign exchange forward contracts. Additionally, the Company manages its exposure to variability in
interest payments associated with its variable rate debt by entering into interest rate swap agreements. When outstanding,
all derivatives, whether designated in hedging relationships or not, are required to be recorded on the consolidated
balance sheets at fair value. The fair value of the derivatives is determined from sources independent of the Company,
including the financial institutions which are party to the derivative instruments. The fair value of derivatives also
considers the credit default risk of the parties involved.
If the derivative is not designated for hedge accounting treatment, changes in the fair value of the underlying
instrument and settlements are recognized in earnings. If the derivative is designated as a fair value hedge, changes in the
fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated as a cash flow
hedge, the effective portion of the change in the fair value of the derivative will be recorded in accumulated other
comprehensive income or loss (“AOCI”) and will be recognized in the consolidated statements of operations when the
hedged item affects earnings or it becomes probable that the forecasted transaction will not occur. If the derivative is
designated as a net investment hedge, to the extent it is deemed to be effective, the change in the fair value of the
derivative will be recorded within the cumulative translation adjustment account as a component of AOCI and the
resulting gains or losses will be recognized in the consolidated statements of operations when the hedged net investment
is either sold or substantially liquidated.
As of December 31, 2019 and 2018, the Company had certain foreign exchange forward contracts outstanding that
were not designated for hedge accounting treatment and certain foreign exchange forward contracts and interest rate
swap agreements that were designated as cash flow hedges. As of December 31, 2019 and 2018, the Company also had
certain fixed-for-fixed cross currency swaps (“CCS”) outstanding, which swap U.S. dollar principal and interest
payments on the Company’s 2025 Senior Notes for euro-denominated payments. The Company’s CCS have been
F-11
designated as a hedge of its net investment in certain European subsidiaries. The CCS were initially designated as a
hedge effective September 1, 2017 and were subsequently re-designated as a net investment hedge in conjunction with
the Company’s adoption of new hedge accounting guidance effective April 1, 2018.
Forward contracts, interest rate swaps, and cross currency swaps are entered into with a limited number of
counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in
the event of a default on or termination of any one contract. The Company records these derivative instruments on a net
basis, by counterparty within the consolidated balance sheets.
The Company presents the cash receipts and payments from hedging activities in the same category as the cash
flows from the items subject to hedging relationships. As the items subject to economic hedging relationships are the
Company’s operating assets and liabilities, the related cash flows are classified within operating activities in the
consolidated statements of cash flows.
Refer to Notes 12 and 13 for further information on the Company’s derivative instruments and their fair value
measurements.
Foreign Currency Translation
For the majority of the Company’s subsidiaries, the local currency has been identified as the functional currency.
For remaining subsidiaries, the U.S. dollar has been identified as the functional currency due to the significant influence
of the U.S. dollar on their operations. Gains and losses resulting from the translation of various functional currencies into
U.S. dollars are recorded within the cumulative translation adjustment account as a component of AOCI in the
consolidated balance sheets. The Company translates asset and liability balances at exchange rates in effect at the end of
the period and income and expense transactions at the average exchange rates in effect during the period. Gains and
losses resulting from foreign currency transactions are recorded within “Other expense (income), net” in the consolidated
statements of operations.
For the years ended December 31, 2019 and 2018, the Company recognized net foreign exchange transaction
losses of $6.2 million and $15.8 million, respectively, while for the year ended December 31, 2017, the Company
recognized a net foreign exchange transaction gain of $20.6 million. These amounts exclude the impacts of foreign
exchange forward contracts discussed above.
Environmental Matters
Accruals for environmental matters are recorded when it is considered probable that a liability has been incurred
and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These
accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal
information become available. Accruals for environmental liabilities are recorded within “Other noncurrent obligations”
in the consolidated balance sheets at undiscounted amounts. As of December 31, 2019 and 2018, there were no accruals
for environmental liabilities recorded.
Environmental costs are capitalized in recognition of legal asset retirement obligations resulting from the
acquisition, construction or normal operation of a long-lived asset. Any costs related to environmental contamination
treatment and clean-ups are charged to expense. Estimated future incremental operations, maintenance, and management
costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Cash and Cash Equivalents
Cash and cash equivalents generally include time deposits or highly liquid investments with original maturities of
three months or less and no material liquidity fee or redemption gate restrictions.
Inventories
Inventories are stated at the lower of cost or net realizable value (“NRV”), with cost being determined on the first-
in, first-out (“FIFO”) method. NRV is calculated as the estimated selling price less reasonably predictable costs of
completion, disposal, and transportation. The Company periodically reviews its inventory for excess or obsolete
inventory, and will write-down the excess or obsolete inventory value to its NRV, if applicable.
F-12
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation and less impairment, if applicable,
and are depreciated over their estimated useful lives using the straight-line method.
Expenditures for maintenance and repairs are recorded in the consolidated statements of operations as incurred.
Expenditures that significantly increase asset value, extend useful asset lives or adapt property to a new or different use
are capitalized. These expenditures include planned major maintenance activity, or turnaround activities, that increase
the Company’s manufacturing plants’ output and improve production efficiency as compared to pre-turnaround
operations. As of December 31, 2019 and 2018, $23.1 million and $15.1 million, respectively, of the Company’s net
costs related to turnaround activities were capitalized within “Deferred charges and other assets” in the consolidated
balance sheets, and are being amortized over the period until the next scheduled turnaround.
The Company periodically evaluates actual experience to determine whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of property, plant and equipment. Engineering and other
costs directly related to the construction of property, plant and equipment are capitalized as construction in progress until
construction is complete and such property, plant and equipment is ready and available to perform its specifically
assigned function. The Company also capitalizes interest as a component of the cost of capital assets constructed for its
own use. Upon retirement or other disposal, the asset cost and related accumulated depreciation are removed from the
accounts and the net amount, less any proceeds, is charged or credited to income.
Impairment and Disposal of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group may not be recoverable. When undiscounted future cash flows are not
expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value based on a
discounted cash flow analysis utilizing market participant assumptions.
Long-lived assets to be disposed of by sale are classified as held-for-sale and are reported at the lower of carrying
amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of in a manner other
than by sale are classified as held-and-used until they are disposed. Refer to Note 20 for information on the Company’s
assets classified as held-for-sale as of December 31, 2019.
Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value
of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level
annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has
more likely than not declined below its carrying value. The Company utilizes a market approach and an income approach
(under the discounted cash flow method) to calculate the fair value of its reporting units. When supportable, the
Company employs the qualitative assessment of goodwill impairment prescribed by Accounting Standards Codification
(“ASC”) 350. The annual impairment assessment is completed using a measurement date of October 1. No goodwill
impairment losses were recorded in the years ended December 31, 2019, 2018, and 2017.
Finite-lived intangible assets, such as developed technology, customer relationships, manufacturing capacity
rights, and computer software for internal use are amortized on a straight-line basis over their estimated useful life and
are reviewed for impairment or obsolescence if events or changes in circumstances indicate that their carrying amount
may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows. No
intangible asset impairment losses were recorded in the years ended December 31, 2019, 2018, and 2017.
Acquired developed technology is recorded at fair value upon acquisition and is amortized using the straight-line
method over the estimated useful life ranging from 9 years to 15 years. The Company determines amortization periods
for developed technology based on its assessment of various factors impacting estimated useful lives and timing and
extent of estimated cash flows of the acquired assets. This includes estimates of expected period of future economic
benefit and competitive advantage related to existing processes and procedures at the date of acquisition. Significant
changes to any of these factors may result in a reduction in the useful life of these assets.
F-13
Customer relationships are recorded at fair value upon acquisition and are amortized using the straight-line method
over the estimated useful life of 19 years. The Company determines amortization periods for customer relationships
based on its assessment of various factors impacting estimated useful lives and timing and extent of estimated cash flows
of the acquired assets. This includes estimates of expected period of future economic benefit and customer retention
rates. Significant changes to any of these factors may result in a reduction in the useful life of these assets.
Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates in which the Company has the ability to exercise significant influence
(generally, 20% to 50%-owned companies) are accounted for using the equity method. Investments are evaluated for
impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be
recoverable. An impairment loss is recorded whenever a decline in fair value of an investment in an unconsolidated
affiliate below its carrying amount is determined to be other-than-temporary.
The Company uses the cumulative earnings approach for presenting distributions received from equity method
investees in the consolidated statements of cash flows.
Deferred Financing Fees
Capitalized fees and costs incurred in connection with the Company’s recognized debt liabilities are presented in
the consolidated balance sheets as a direct reduction from the carrying value of those debt liabilities, consistent with debt
discounts. Deferred financing fees related to the Company’s revolving debt facilities are included within “Deferred
charges and other assets” in the consolidated balance sheets.
Deferred financing fees on the Company’s term loan and senior note financing arrangements are amortized using
the effective interest method over the term of the respective agreement. Deferred financing fees on the Company’s
revolving facilities and the Accounts Receivable Securitization Facility are amortized using the straight-line method over
the term of the respective facility. Amortization of deferred financing fees is recorded in “Interest expense, net” within
the consolidated statements of operations.
Restricted Cash and Cash Equivalents
Restrictions on the Company’s cash and cash equivalents are primarily related to customs requirements. As of
December 31, 2019 and 2018, the Company had restricted cash and cash equivalents of $1.2 million and $0.0 million,
respectively, included within “Other current assets” in the consolidated balance sheets.
Sales
Sales are recognized at a point when control of the promised goods or services is transferred to the customer in an
amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services
when the Company’s related performance obligation is satisfied under the terms of the contract. Standard terms of
delivery are included in contracts of sale, order confirmation documents, and invoices. Sales and other taxes that the
Company collects concurrent with sales-producing activities are excluded from “Net sales” and included as a component
of “Cost of sales” in the consolidated statements of operations. Additionally, freight and any directly related costs of
transporting finished products to customers are accounted for as fulfilment costs and are also included within “Cost of
sales.”
The amount of net sales recognized varies with changes in returns, rebates, cash sales incentives, and other
allowances offered to customers based on the Company's experience. For arrangements where the period between
customer payment and transfer of goods/services is determined to be one year or less at contract inception, the Company
applies the practical expedient exception available under ASC 606 and does not adjust the promised amount of
consideration under the contract for the effects of a significant financing component. Additionally, the Company’s
incremental costs of obtaining contracts are expensed as incurred if the amortization period of the assets that the
Company otherwise would have recognized is one year or less, and are included within “Selling, general and
administrative expenses” in the consolidated statements of operations, pursuant to the practical expedient in ASC 606.
F-14
Cost of Sales
The Company classifies the costs of manufacturing and distributing its products as cost of sales. Manufacturing
costs include raw materials, utilities, packaging, employee salary and benefits and fixed manufacturing costs associated
with production. Fixed manufacturing costs include such items as plant site operating costs and overhead, production
planning, depreciation and amortization, repairs and maintenance, environmental, and engineering costs. Distribution
costs include shipping and handling costs. Freight and any directly related costs of transporting finished products to
customers are also included within cost of sales. As discussed above, inventory costs are recorded within cost of sales
utilizing the FIFO method.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses are generally charged to expense as incurred. SG&A
expenses are the cost of services performed by the marketing and sales functions (including sales managers, field sellers,
marketing research, marketing communications and promotion and advertising materials) and by administrative
functions (including product management, R&D, business management, customer invoicing, human resources,
information technology, legal and finance services, such as accounting and tax). Salary and benefit costs, including
share-based compensation, for these sales personnel and administrative staff are included within SG&A expenses. R&D
expenses include the cost of services performed by the R&D function, including technical service and development,
process research including pilot plant operations, and product development. The Company also includes restructuring
charges within SG&A expenses.
Total R&D costs included in SG&A expenses were $54.6 million, $56.0 million, and $54.3 million for the years
ended December 31, 2019, 2018, and 2017, respectively.
The Company expenses promotional and advertising costs as incurred to SG&A expenses. Total promotional and
advertising expenses were $1.8 million, $1.6 million, and $1.5 million for the years ended December 31, 2019, 2018, and
2017, respectively.
Restructuring charges included within SG&A expenses were $18.6 million, $9.3 million, and $8.0 million for the
years ended December 31, 2019, 2018, and 2017, respectively. Refer to Note 20 for further information.
Pension and Postretirement Benefits Plans
The Company has several defined benefit plans, under which participants earn a retirement benefit based upon a
formula set forth in the plan. The Company also provides certain health care and life insurance benefits to retired
employees in the United States. The U.S.-based plan provides health care benefits, including hospital, physicians’
services, drug and major medical expense coverage, and life insurance benefits.
Accounting for defined benefit pension plans and other postretirement benefit plans, and any curtailments and
settlements thereof, requires various assumptions, including, but not limited to, discount rates, expected rates of return on
plan assets and future compensation growth rates. The Company evaluates these assumptions at least once each year, or
as facts and circumstances dictate, and makes changes as conditions warrant.
A settlement is a transaction that is an irrevocable action that relieves the employer (or the plan) of primary
responsibility for a pension or postretirement benefit obligation, and that eliminates significant risks related to the
obligation and the assets used to effect the settlement. When a settlement occurs, the Company does not record
settlement gains or losses during interim periods when the cost of all settlements in a year is less than or equal to the sum
of the service cost and interest cost components of net periodic benefit cost for the plan in that year.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for income taxes.
Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts
of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for
the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the
financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when
F-15
changes are enacted. For each tax jurisdiction in which the Company operates, deferred tax assets and liabilities are
offset against one another and are presented as a single noncurrent amount within the consolidated balance sheets.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized. Provision is made for income taxes on unremitted earnings of subsidiaries and affiliates, unless such
earnings are deemed to be indefinitely invested.
The Company recognizes the financial statement effects of uncertain income tax positions when it is more likely
than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for
other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the
contingency can be reasonably estimated. Interest accrued related to unrecognized tax and income tax related penalties
are included in the provision for income taxes. The current portion of uncertain income taxes positions is recorded in
“Income taxes payable,” while the long-term portion is recorded in “Other noncurrent obligations” in the consolidated
balance sheets.
Share-based Compensation
Refer to Note 17 for detailed discussion regarding the Company’s share-based compensation award programs. In
connection with the Company’s initial public offering (“IPO”), the Company’s board of directors approved the 2014
Omnibus Plan. Since that time, certain equity grants have been awarded, comprised of restricted share units (“RSUs”),
options to purchase shares (“option awards”), and performance share units (“PSUs”). Share-based compensation expense
recognized in the consolidated financial statements is based on awards that are ultimately expected to vest. The
Company’s policy election is to recognize forfeitures as incurred, rather than estimating forfeitures in advance.
Compensation costs for the RSUs are measured at the grant date based on the fair value of the award and are
recognized ratably as expense over the applicable vesting term. The fair value of RSUs is equal to the fair market value
of the Company’s ordinary shares based on the closing price on the date of grant. Dividend equivalents accumulate on
RSUs during the vesting period, are payable in cash, and do not accrue interest. Award holders have no right to receive
the dividend equivalents unless and until the associated RSUs vest.
Compensation costs for the option awards are measured at the grant date based on the fair value of the award and
is recognized as expense over the appropriate service period utilizing graded vesting. The fair value for option awards is
computed using the Black-Scholes pricing model, which uses inputs and assumptions determined as of the date of grant.
Compensation costs for the PSUs are measured at the grant date based on the fair value of the award, which is
computed using a Monte Carlo valuation model, and is recognized ratably as expense over the applicable vesting term.
Dividend equivalents accumulate on PSUs during the vesting period, are payable in cash, and do not accrue interest.
Award holders have no right to receive the dividend equivalents unless and until the associated PSUs vest.
Treasury Shares
The Company may, from time to time, repurchase its ordinary shares at prevailing market rates. Share repurchases
are recorded at cost in “Treasury shares” within shareholders’ equity in the consolidated balance sheets. It is the
Company’s policy that, as RSUs, PSUs, and option awards vest or are exercised, ordinary shares will be issued from the
existing pool of treasury shares on a first-in-first-out basis. Refer to Note 17 for details of vesting for RSUs and PSUs as
well as the exercises of option awards.
Recent Accounting Guidance
In February 2016, the FASB issued guidance related to leases that outlines a comprehensive lease accounting
model and supersedes the current lease guidance. The new guidance requires lessees to recognize on the consolidated
balance sheets lease liabilities and corresponding right-of-use assets (“ROU”) for all leases with terms of greater than 12
months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements to help
investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising
from leases. The new guidance must be adopted using a modified retrospective transition, applying the new standard to
all leases existing at the date of initial application. The Company adopted the standard effective January 1, 2019, and as a
result, the Company recorded ROU assets and lease liabilities of $73.0 million and $72.4 million, respectively, on the
consolidated balance sheet as of January 1, 2019. The Company’s adoption of this standard did not result in a cumulative
F-16
effect adjustment being recorded to opening retained earnings as of January 1, 2019 and did not have a material impact
on the Company’s consolidated statements of operations or cash flows. Refer to Note 23 for new disclosure requirements
in effect as a result of this adoption.
In August 2018, the FASB issued guidance which modifies the disclosure requirements for employers that sponsor
defined benefit pension plans or other postretirement plans. Under the guidance, the Company is required to disclose
reasons for significant gains and losses related to changes in the benefit obligation for the period. The Company adopted
this guidance during the fourth quarter of 2019 on a retrospective basis, which did not result in material impact on its
consolidated financial statements. Refer to Note 16 for new disclosure requirements in effect as a result of this adoption.
In August 2018, the FASB issued guidance which aligns the requirements for capitalizing implementation costs
incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software. This standard update is effective for public
companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The
Company will adopt the new guidance prospectively to eligible costs incurred on or after the date first applied. The
Company does not anticipate that adoption of this guidance will have a material impact on its consolidated financial
statements, barring significant future cloud computing transactions.
In December 2019, the FASB issued guidance that simplifies the accounting for income taxes. The amended
guidance includes removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification
in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. This
guidance is effective for public business entities for interim and annual reporting periods beginning after December 15,
2020, with early adoption permitted. The Company is currently assessing the timing and impacts of adopting this
guidance on its consolidated financial statements.
NOTE 3—NET SALES
The following table provides disclosure of net sales to external customers by primary geographical market (based
on the location where the sales originated), by segment for the years ended December 31, 2019, 2018, and 2017.
Year Ended
December 31, 2019
United States
Europe
Asia-Pacific
Rest of World
Total
December 31, 2018
United States
Europe
Asia-Pacific
Rest of World
Total
December 31, 2017
United States
Europe
Asia-Pacific
Rest of World
Total
Latex
Binders
Synthetic Performance
Rubber
Plastics
Polystyrene Feedstocks
Total
$
— $
263.7 $
388.5
239.3
11.3
441.3
—
—
305.9 $
735.9
238.2
86.2
$
902.8 $ 441.3 $ 1,366.2 $
— $
10.7 $
448.8
360.6
—
580.3
2,163.3
148.8
934.7
96.6
97.5
—
809.4 $ 256.1 $ 3,775.8
$
— $
288.2 $
459.4
306.6
14.8
627.3
2,782.6
1,104.3
108.6
$ 1,069.0 $ 572.5 $ 1,577.6 $ 1,017.1 $ 386.6 $ 4,622.8
326.4 $
931.2
226.2
93.8
211.7
162.4
—
572.5
—
—
607.8
409.1
—
12.5 $
0.2 $
$
— $
290.9 $
468.5
320.6
17.1
582.8
—
—
$ 1,097.1 $ 582.8 $ 1,419.1 $
297.4 $
866.3
167.4
88.0
1.0 $
13.4 $
571.7
368.7
—
602.7
2,688.9
199.6
1,051.4
194.7
105.1
—
941.4 $ 407.7 $ 4,448.1
For all material contracts with customers, control is transferred and sales are recognized at a point in time when
the Company satisfies the performance obligations according to the terms of the contract, and when title and the risk of
loss is passed to the customer. Title and risk of loss varies by region and customer and is determined based upon the
purchase order received from the customer and the applicable contractual terms or jurisdictional standards. The
F-17
Company receives cash equal to the invoice price for most product sales, subject to cash sales incentives with certain
customers, with payment terms generally ranging from 10 to 90 days (with an approximate weighted-average of 58 days
as of December 31, 2019), also varying by segment and region.
Certain of the Company’s contracts with customers contain multiple performance obligations, most commonly
due to the sale of multiple distinct products. The transaction price within these contracts is allocated between these
separate and distinct products based on their stand-alone selling prices, as defined within the contract. The Company’s
products are typically sold at observable stand-alone sales values, which are used to determine the estimated stand-alone
selling price. The stand-alone selling prices of the Company’s products are generally based, in part, on the current or
forecasted costs of key raw materials, but are often subject to a predetermined lag period for the pass through of these
costs. As such, contracts with customers typically include provisions that allow for the changes in stand-alone selling
prices to reflect the pass through of changes in raw material costs, often using pricing formulas that utilize commodity
indices.
In cases where the Company’s transaction price is considered variable at the point of revenue recognition, the
‘most likely amount’ method is used to estimate the effect of any related uncertainty. In formulating this estimate, the
Company considers all historical, current, and forecasted information that is reasonably available to identify a reasonable
number of possible consideration amounts. Once the transaction price, including impacts of variable consideration, is
estimated, revenue is recognized only to the extent that it is probable that a subsequent change in the estimate would not
result in a significant revenue reversal. Furthermore, if the Company is not able to rely on observable stand-alone selling
prices, the ‘expected cost plus a margin approach’ is utilized to estimate the stand-alone selling price of each
performance obligation, primarily utilizing historical experience. During the year ended December 31, 2019, the impact
of recognizing changes in selling prices related to prior periods was immaterial.
NOTE 4—ACQUISITIONS AND DIVESTITURES
Acquisition of API Plastics
In July 2017, the Company acquired 100% of the equity interest of API Applicazioni Plastiche Industriali S.p.A
(“API Plastics”) a privately held company that manufactures soft-touch polymers and bioplastics, such as thermoplastic
elastomers (“TPEs”). The gross purchase price for the acquisition was $90.6 million, inclusive of $8.4 million of cash
acquired, yielding a net purchase price of $82.3 million, which was paid for in the year ended December 31, 2017. Of the
total consideration for the transaction, the Company allocated $28.3 million to goodwill, based on the expected future
cash flows of the acquired business. The Company finalized the purchase price allocation for API Plastics during the
third quarter of 2018, which is described in further detail in its Form 10-K filed on February 28, 2019.
Acquisition of Latex Binders Assets in Germany
On October 1, 2019, the Company completed the acquisition from Dow of its latex binder production facilities and
related infrastructure in Rheinmünster, Germany. The transaction includes full ownership and operational control of latex
production facilities, site infrastructure, and service contracts, as well as certain employees transferring from Dow to
Trinseo. This acquisition provides Trinseo with manufacturing assets supporting its strategy to grow its Latex Binders
business in applications serving the coatings, adhesives, specialty paper, and sealants markets. The transaction, which is
being accounted for as a business combination, did not require any upfront cash outlay from Trinseo. The Company
assumed net liabilities of $2.0 million as well as employees transferred in connection with the acquisition, as detailed in
the table below. In exchange for the net liabilities assumed, Trinseo received net cash of $6.7 million.
The Company allocated the purchase price of the acquisition, which was represented by the value of the pension
liabilities assumed net of cash and net assets received in connection with the transaction, to identifiable assets acquired
and liabilities assumed based on their estimated fair values as of the acquisition date. There was an excess in the
aggregate fair value of the identifiable net assets acquired over the purchase price, which was recorded as a bargain
purchase gain of $4.7 million during the fourth quarter of 2019. There were no intangible assets identified in conjunction
with this acquisition.
The Company calculated the fair value of the assets acquired and certain liabilities assumed using the market, cost,
and income approaches (or a combination thereof). Fair values of assets and certain liabilities were determined based on
Level 3 inputs including comparable asset sale information, discount rates, anticipated useful lives and depreciation
F-18
curves, and estimated future cash flows. The fair value of pension liabilities assumed was determined in accordance with
ASC 715 using key inputs including, but not limited to, discount rates, expected rates of return on plan assets, and future
compensation growth rates. The various inputs used in the asset and pension valuations require management judgment.
The purchase price allocation is based upon preliminary information and is subject to change if additional
information about the facts and circumstances that existed at the acquisition date become available. Additional
information is being gathered to finalize these preliminary measurements, particularly with respect to property, plant and
equipment, inventory, deferred income taxes and pension liabilities. Further adjustments may be necessary as a result of
the Company’s ongoing assessment of additional information related to the fair value of assets acquired and liabilities
assumed, including the bargain purchase gain, during the measurement period.
The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities
assumed as of the date of acquisition:
Inventories
Property, plant, and equipment
Right-of-use-assets - operating
Total fair value of assets acquired
Accrued expenses and other current liabilities
Noncurrent lease liabilities - operating
Deferred income tax liabilities
Other noncurrent obligations(1)
Total fair value of liabilities assumed
Net liabilities assumed
Net cash received
Bargain purchase gain(2)
October 1,
2019
3.9
48.2
0.3
52.4
(0.6)
(0.3)
(2.0)
(51.5)
(54.4)
(2.0)
6.7
4.7
$
$
$
$
$
(1) Relates primarily to pension liabilities of $44.5 million and unfavorable leasehold interest of $7.0 million. The
unfavorable leasehold interest is being amortized over its estimated remaining useful life of 18 years.
(2) The bargain purchase gain is included within “Other expense (income), net” in the consolidated statement of
operations for the year ended December 31, 2019.
During the year ended December 31, 2019, $2.2 million of expense was incurred related to jurisdictional asset
transfer taxes expected to be paid in conjunction with this acquisition, which were included within “Other expense
(income), net” in the consolidated statement of operations. Furthermore, during the year ended December 31, 2019,
transaction and integration costs related to advisory and professional fees incurred in conjunction with the acquisition
were $1.6 million, and are included within “Selling, general and administrative expenses” in the consolidated statement
of operations. Pro forma results of operations information have not been presented as the effect of the acquisition is not
material. The operating results of the acquisition are included within the Company’s consolidated statement of operations
since the acquisition date of October 1, 2019 and were not material for the year ended December 31, 2019.
Divestiture of Brazil Business
During the second quarter of 2016, the Company signed a definitive agreement to sell Trinseo do Brasil Comercio
de Produtos Quimicos Ltda. (“Trinseo Brazil”), its primary operating entity in Brazil which included both a latex binders
and PC & Compounding business. Under the agreement of sale, which closed on October 1, 2016, Trinseo Brazil was
sold to a single counterparty, for a selling price that is subject to certain contingent consideration payments, which could
be paid by the buyer over a five-year period subsequent to the closing date, based on the results of the Trinseo Brazil
latex binders business during that time. During the year ended December 31, 2017, the Company received $1.7 million in
proceeds from the sale of these businesses. During the years ended December 31, 2019 and 2018, the Company
recognized $0.7 million and $1.0 million, respectively, of consideration earned for the performance of the transferred
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latex binders business, of which $0.7 million and $0.5 million, respectively, was received in cash.
NOTE 5—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
During the year ended December 31, 2019, the Company had one joint venture: Americas Styrenics, a styrene and
polystyrene joint venture with Chevron Phillips Chemical Company LP. Previously, the Company also had a 50% share
in Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate,” a PC joint venture with Sumitomo Chemical
Company Limited), until the sale of the Company’s investment in the joint venture during the first quarter of 2017, as
discussed further below. Investments held in unconsolidated affiliates are accounted for by the equity method. The
results of Americas Styrenics are included within its own reporting segment. The results of Sumika Styron Polycarbonate
were included within the Performance Plastics segment prior to the sale of this investment.
Equity in earnings from unconsolidated affiliates was $119.0 million, $144.1 million, and $123.7 million for the
years ended December 31, 2019, 2018, and 2017, respectively.
Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their equity
interests are not available. The summarized financial information of the Company’s unconsolidated affiliates is shown
below. This table includes summarized financial information for Sumika Styron Polycarbonate through the date of sale
in January 2017.
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Sales
Gross profit
Net income
$
$
$
$
December 31,
2019
2018
326.6
247.7
574.3
158.8
18.5
177.3
$
$
$
$
Year Ended
December 31,
373.4
236.2
609.6
167.2
17.4
184.6
2019
1,486.1 $
$
$
243.2
192.5
2018
1,825.7
310.2
260.2
$
$
$
2017
1,798.1
244.3
196.3
$
$
$
There were no sales to unconsolidated affiliates for the year ended December 31, 2019 and 2018. Sales to
unconsolidated affiliates for the year ended December 31, 2017 were $3.6 million. Purchases from unconsolidated
affiliates were $81.9 million, $91.5 million, and $78.8 million for the years ended December 31, 2019, 2018, and 2017,
respectively.
As of December 31, 2019 and 2018, respectively, $0.1 million and $0.1 million due from unconsolidated affiliates
was included in “Accounts receivable, net of allowance” and $6.3 million and $5.4 million due to unconsolidated
affiliates was included in “Accounts payable” in the consolidated balance sheets.
Americas Styrenics
As of December 31, 2019 and 2018, respectively, the Company’s investment in Americas Styrenics was $188.1
million and $179.1 million, which was $10.3 million, and $33.3 million less than the Company’s 50% share of Americas
Styrenics’ underlying net assets. These amounts represent the difference between the book value of assets contributed to
the joint venture at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the
joint venture’s assets and certain adjustments to conform with the Company’s accounting policies. This difference is
being amortized over a weighted-average remaining useful life of the contributed assets of approximately 1.5 years as of
December 31, 2019. The Company received dividends from Americas Styrenics of $110.0 million, $117.5 million, and
$120.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.
F-20
Sumika Styron Polycarbonate
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to
Sumitomo Chemical Company Limited for total sales proceeds of $42.1 million. As a result, the Company recorded a
gain on sale of $9.3 million during the year ended December 31, 2017, which was included within “Other expense
(income), net” in the consolidated statement of operations and was allocated entirely to the Performance Plastics
segment. In addition, the parties have entered into a long-term agreement to continue sourcing PC resin from Sumika
Styron Polycarbonate to the Company’s Performance Plastics segment.
Due to the sale in January 2017, the Company no longer had an investment in Sumika Styron Polycarbonate as of
December 31, 2017. The Company received dividends from Sumika Styron Polycarbonate of $9.8 million for the year
ended December 31, 2017.
NOTE 6—ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
Trade receivables
Non-income tax receivables
Other receivables
Less: allowance for doubtful accounts
Total
December 31,
2019
2018
$
$
455.0 $
63.4
57.7
(5.3)
570.8
$
535.4
74.6
44.2
(6.1)
648.1
For the years ended December 31, 2019, 2018, and 2017, the Company recognized bad debt expense (benefit) of
$(0.7) million, $0.6 million, and $1.5 million, respectively.
NOTE 7—INVENTORIES
Inventories consisted of the following:
Finished goods
Raw materials and semi-finished goods
Supplies
Total
December 31,
2019
2018
$
$
210.8 $
190.1
37.3
438.2
$
269.8
205.8
34.8
510.4
F-21
NOTE 8—PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
Land
Land and waterway improvements
Buildings
Machinery and equipment
Leasehold interests
Other property
Construction in process
Property, plant and equipment
Less: accumulated depreciation
Property, plant and equipment, net
Estimated Useful
Lives (Years)
N/A
1 - 20
10 - 50
3 - 10
9 - 40
1 - 20
N/A
$
$
December 31,
2019
53.0 $
26.9
110.7
955.5
41.6
47.4
56.4
1,291.5
(665.7)
625.8
$
2018
26.0
18.4
97.0
912.9
40.9
34.8 (1)
52.7
1,182.7
(590.6)
592.1
(1) This prior year amount has been reclassified within the table to conform to the current year presentation.
Depreciation expense
Capitalized interest
$
$
96.9 $
$
3.0
95.7 $
$
3.6
Year Ended
December 31,
2018
2019
2017
77.9
5.0
NOTE 9—GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table shows the annual changes in the carrying amount of goodwill, by segment, from December 31,
2017 through December 31, 2019:
Latex
Binders Rubber Plastics
Synthetic Performance
Polystyrene Feedstocks Styrenics Total
Americas
Balance at
December 31, 2017
Foreign currency
impact
Balance at
December 31, 2018
Foreign currency
impact
Balance at
December 31, 2019
$ 16.5 $ 11.7 $
39.6 $
4.7 $
— $
— $ 72.5
(0.6)
(0.4)
(2.3)
(0.2)
—
—
(3.5)
$ 15.9 $ 11.3 $
37.3 $
4.5 $
— $
— $ 69.0
(0.3)
(0.3)
(0.6)
(0.1)
—
—
(1.3)
$ 15.6 $ 11.0 $
36.7 $
4.4 $
— $
— $ 67.7
Goodwill impairment testing is performed annually as of October 1. In 2019, the Company performed its annual
impairment test for goodwill and determined that the estimated fair value of each reporting unit was in excess of the
carrying value indicating that none of the Company’s goodwill was impaired. The Company concluded there were no
goodwill impairments or triggering events for the years ended December 31, 2019, 2018, and 2017.
F-22
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets as of December 31,
2019 and 2018:
Estimated Useful Gross Carrying Accumulated
Amount
Life (Years)
Amortization Net
Gross Carrying Accumulated
Amount
Amortization Net
December 31, 2019
December 31, 2018
Developed
technology
Customer
Relationships
Manufacturing
Capacity
Rights
Software
Software in
development
Other
Total
9 - 15
$
188.6 $
(117.2) $ 71.4 $
192.3 $
(105.6) $ 86.7
19
13.8
(1.8) 12.0
14.1
(1.1) 13.0
6
5 - 10
N/A
3
22.1
119.2
(20.0)
2.1
(50.0) 69.2
21.8
101.9
(16.8)
5.0
(35.3) 66.6
34.7
4.3
382.7 $
— 34.7
2.1
(2.2)
(191.2) $ 191.5 $
17.2
3.9
351.2 $
— 17.2
2.6
(160.1) $ 191.1
(1.3)
$
Amortization expense related to finite-lived intangible assets totaled $33.0 million, $29.7 million, and $27.0
million, for the years ended December 31, 2019, 2018, and 2017, respectively.
The following table details the Company’s estimated amortization expense for the next five years, excluding any
amortization expense related to software currently in development:
Estimated Amortization Expense for the Next Five Years
2020
2021
2022
2023
2024
$
30.6 $
26.6 $
25.7 $
25.3 $
24.9
NOTE 10—ACCOUNTS PAYABLE
Accounts payable consisted of the following:
Trade payables
Other payables
Total
December 31,
2019
304.6 $
38.4
343.0 $
2018
319.9
34.3
354.2
$
$
F-23
NOTE 11—DEBT
Refer to discussion below for details and definitions of the Company’s debt facilities. The Company was in
compliance with all debt related covenants as of December 31, 2019 and 2018.
December 31, 2019
Interest Rate as of
December 31, 2019 Maturity Date
Carrying
Amount
Total Debt,
Less
Unamortized
Deferred
Financing
Fees
Unamortized
Deferred
Financing
Fees(1)
3.799%
Various
5.375%
Various
Various
September 2024 $
September 2022
September 2025
684.3 $
—
500.0
September 2021
Various
—
10.4
$ 1,194.7 $
(13.7) $
—
(7.3)
—
—
(21.0) $
670.6
—
492.7
—
10.4
1,173.7
(11.1)
$
1,162.6
December 31, 2018
Interest Rate as of
December 31, 2018
Maturity
Date
Carrying
Amount
Total Debt,
Less
Unamortized
Deferred
Financing
Fees
Unamortized
Deferred
Financing
Fees(1)
4.522%
Various
5.375%
Various
Various
September 2024 $ 691.3 $
September 2022
September 2025
—
500.0
September 2021
Various
—
1.1
$ 1,192.4 $
(16.2) $
—
(8.4)
—
—
(24.6) $
675.1
—
491.6
—
1.1
1,167.8
(7.0)
$
1,160.8
Senior Credit Facility
2024 Term Loan B
2022 Revolving Facility(2)
2025 Senior Notes
Accounts Receivable
Securitization Facility(3)
Other indebtedness
Total debt
Less: current portion(4)
Total long-term debt, net of
unamortized deferred financing
fees
Senior Credit Facility
2024 Term Loan B
2022 Revolving Facility(2)
2025 Senior Notes
Accounts Receivable
Securitization Facility(3)
Other indebtedness
Total debt
Less: current portion
Total long-term debt, net of
unamortized deferred financing
fees
(1) This caption does not include unamortized deferred financing fees of $2.6 million and $3.6 million as of
December 31, 2019 and 2018, respectively, related to the Company’s revolving facilities, which are included
within “Deferred charges and other assets” on the consolidated balance sheets.
(2) The Company had $361.0 million (net of $14.0 million outstanding letters of credit) of funds available for
borrowing under this facility as of December 31, 2019. Additionally, the Company is required to pay a quarterly
commitment fee in respect of any unused commitments under this facility equal to 0.375% per annum.
(3) As of December 31, 2019, the Company had $137.6 million of accounts receivable available to support this
facility, based on the pool of eligible accounts receivable. In regard to outstanding borrowings, fixed interest
charges are 1.95% plus variable commercial paper rates, while for available, but undrawn commitments, fixed
charges are 1.00%.
(4) As of December 31, 2019 and 2018, the current portion of long-term debt is primarily related to $7.0 million of
scheduled future principal payments on the 2024 Term Loan B.
Total interest expense, net recognized during the years ended December 31, 2019, 2018, and 2017, was $39.3
million, $46.4 million, and $70.1 million, respectively, of which $4.7 million, $4.5 million, and $5.1 million,
F-24
respectively, represented amortization of deferred financing fees and debt discounts. Total accrued interest on
outstanding debt as of December 31, 2019 and 2018 was $4.4 million, excluding the impact of the CCS (see Note 12).
Accrued interest is recorded within “Accrued expenses and other current liabilities” on the consolidated balance sheets.
2020 Senior Credit Facility
On May 5, 2015, Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (together, the “Issuers”
or the “Borrowers”), both wholly-owned subsidiaries of the Company, entered into a senior secured credit agreement,
which provided senior secured financing of up to $825.0 million (the “2020 Senior Credit Facility”). The 2020 Senior
Credit Facility provided for senior secured financing consisting of a (i) $325.0 million revolving credit facility, with a
$25.0 million swingline subfacility and a $35.0 million letter of credit subfacility (the “2020 Revolving Facility”)
maturing in May 2020 and (ii) $500.0 million senior secured term loan B facility maturing in November 2021 (the “2021
Term Loan B”).
In September 2017, upon completion of the refinancing transactions discussed below, the Company terminated the
2020 Senior Credit Facility. Prior to this termination, the Company had no outstanding borrowings under the 2020
Revolving Facility and had $490.0 million outstanding under the 2021 Term Loan B, excluding the unamortized original
issue discount. As a result of this termination, the Company recognized a $0.8 million loss on extinguishment of long-
term debt during the year ended December 31, 2017, comprised entirely of the write-off of a portion of the existing
unamortized deferred financing fees and unamortized original issue discount related to the 2021 Term Loan B. The
remaining unamortized deferred financing fees and unamortized original issue discount for both the 2020 Revolving
Facility and 2021 Term Loan B remain capitalized and are being amortized along with new deferred financing fees over
the life of the new facilities, as discussed in further detail below.
Senior Credit Facility
On September 6, 2017, the Issuers entered into a new senior secured credit agreement (the “Credit Agreement”),
which provides senior secured financing of up to $1,075.0 million (the “Senior Credit Facility”). The Senior Credit
Facility provides for senior secured financing consisting of a (i) $375.0 million revolving credit facility, with a $25.0
million swingline subfacility and a $35.0 million letter of credit subfacility maturing in September 2022 (the “2022
Revolving Facility”) and a (ii) $700.0 million senior secured term loan B facility maturing in September 2024 (the “2024
Term Loan B”). Amounts under the 2022 Revolving Facility are available in U.S. dollars and euros.
Fees incurred in connection with the issuance of the 2024 Term Loan B were $12.3 million. A portion of the 2024
Term Loan B met the criteria for modification accounting; thus, $1.2 million of these fees were expensed and included
within “Other expense (income), net” in the consolidated statement of operations. The remaining $11.1 million of fees
were capitalized and recorded within “Long-term debt, net of unamortized deferred financing fees” on the consolidated
balance sheets. The capitalized fees are being amortized along with the remaining $8.1 million of unamortized deferred
financing fees from the 2021 Term Loan B (defined above) over the seven-year term of the 2024 Term Loan B using the
effective interest method.
Fees incurred in connection with the issuance of the 2022 Revolving Facility were $0.8 million, which were
capitalized and recorded within “Deferred charges and other assets” on the consolidated balance sheets, and are being
amortized along with the remaining $4.0 million of unamortized deferred financing fees from the 2020 Revolving
Facility over the five-year term of the 2022 Revolving Facility using the straight-line method.
As of December 31, 2019, the 2024 Term Loan B bears an interest rate of the London Interbank Offered Rate
(“LIBOR”) plus 2.00%, subject to a 0.00% LIBOR floor, which has been the effective rate since May 22, 2018, when the
Issuers repriced the interest rate from the initial rate of LIBOR plus 2.50%, subject to a 0.00% LIBOR floor. The
repricing did not affect any of the other terms of the 2024 Term Loan B; however, as a result of the repricing, the
Company recognized a $0.2 million loss on extinguishment of long-term debt during the year ended December 31, 2018,
comprised entirely of the write-off of a portion of the existing unamortized deferred financing fees related to the 2024
Term Loan B. Fees incurred in connection with the repricing were $1.1 million, of which $0.5 million were expensed
and included within “Other expense (income), net” in the consolidated statement of operations during the year ended
December 31, 2018 and the remaining $0.6 million were capitalized and recorded within “Long-term debt, net of
unamortized deferred financing fees” on the consolidated balance sheets. The capitalized fees associated with the
F-25
repricing are being amortized along with the remaining unamortized deferred financing fees related to the 2024 Term
Loan B over its original seven-year term.
The 2024 Term Loan B requires scheduled quarterly payments in amounts equal to 0.25% of the original principal
amount of the 2024 Term Loan B, with the balance to be paid at maturity. As of December 31, 2019 and 2018, $7.0
million of the scheduled future payments related to this facility were classified as current debt on the Company’s
consolidated balance sheets.
Loans under the 2022 Revolving Facility, at the Borrowers’ option, may be maintained as (a) LIBOR loans, which
bear interest at a rate per annum equal to LIBOR plus the applicable margin (as defined in the Credit Agreement), if
applicable, or (b) base rate loans which bear interest at a rate per annum equal to the base rate plus the applicable margin
(as defined in the Credit Agreement).
The Senior Credit Facility is collateralized by a security interest in substantially all of the assets of the Borrowers,
and the guarantors thereunder, including Trinseo Materials S.à r.l., certain Luxembourg subsidiaries and certain foreign
subsidiaries organized in the United States, The Netherlands, Hong Kong, Singapore, Ireland, Germany, and
Switzerland.
The Senior Credit Facility requires the Borrowers and their restricted subsidiaries to comply with customary
affirmative, negative, and financial covenants, including limitations on their abilities to incur liens; make certain loans
and investments; incur additional debt (including guarantees or other contingent obligations); merge, consolidate
liquidate or dissolve; transfer or sell assets; pay dividends and other distributions to shareholders or make certain other
restricted payments; enter into transactions with affiliates; restrict any restricted subsidiary from paying dividends or
making other distributions or agree to certain negative pledge clauses; materially alter the business they conduct; prepay
certain other indebtedness; amend certain material documents; and change their fiscal year.
The 2022 Revolving Facility contains a financial covenant that requires compliance with a springing first lien net
leverage ratio test. If the outstanding balance under the 2022 Revolving Facility exceeds 30% of the $375.0 million
borrowing capacity (excluding undrawn letters of credit up to $10.0 million and cash collateralized letters of credit) at a
quarter end, then the Borrowers’ first lien net leverage ratio may not exceed 2.00 to 1.00.
2022 Senior Notes
On May 5, 2015, the Issuers executed an indenture pursuant to which they issued $300.0 million aggregate
principal amount of 6.750% senior notes due May 1, 2022 (the “USD Notes”) and €375.0 million aggregate principal
amount of 6.375% senior notes due May 1, 2022 (the “Euro Notes,” and together with the USD Notes, the “2022 Senior
Notes”).
On September 7, 2017, using the net proceeds from the issuance of the 2024 Term Loan B discussed above,
together with the net proceeds from the issuance of the 2025 Senior Notes (defined and discussed below), and available
cash, the Company redeemed all outstanding borrowings under the 2022 Senior Notes, totaling $746.0 million in USD-
equivalent principal, together with a total combined call premium of $53.0 million (with a redemption price of
approximately 106.572% on the USD Notes and a redemption price of approximately 107.459% on the Euro Notes), and
accrued and unpaid interest thereon of $17.0 million.
As a result of this redemption, the Company recorded a loss on extinguishment of long-term debt of $64.5 million
during the year ended December 31, 2017, which was comprised of the $53.0 million call premium and the write-off of
$11.5 million of unamortized deferred financing fees related to the 2022 Senior Notes.
2025 Senior Notes
On August 29, 2017, the Issuers executed an indenture (the “Indenture”) pursuant to which they issued $500.0
million aggregate principal amount of 5.375% senior notes due 2025 (the “2025 Senior Notes”) in a 144A private
transaction exempt from the registration requirements of the Securities Act of 1933, as amended. Interest on the 2025
Senior Notes is payable semi-annually on May 3 and November 3 of each year, commencing on May 3, 2018. The 2025
Senior Notes mature on September 1, 2025.
Fees and expenses incurred in connection with the issuance of the 2025 Senior Notes in 2017 were $9.7 million,
which were capitalized and recorded within “Long-term debt, net of unamortized deferred financing fees” on the
F-26
consolidated balance sheets, and are being amortized over the eight-year term of the 2025 Senior Notes using the
effective interest method.
At any time prior to September 1, 2020, the Issuers may redeem the 2025 Senior Notes in whole or in part, at their
option, at a redemption price equal to 100% of the principal amount of such notes plus the relevant applicable premium
as of, and accrued and unpaid interest to, but not including, the redemption date. At any time and from time to time after
September 1, 2020, the Issuers may redeem the 2025 Senior Notes, in whole or in part, at a redemption price equal to the
percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the notes redeemed to, but not
including, the redemption date:
12-month period commencing September 1 in Year
2020
2021
2022
2023 and thereafter
Percentage
102.688 %
101.792 %
100.896 %
100.000 %
At any time prior to September 1, 2020, the Issuers may redeem up to 40% of the aggregate principal amount of
the 2025 Senior Notes at a redemption price equal to 105.375%, plus accrued and unpaid interest to, but not including,
the redemption date, with the aggregate gross proceeds from certain equity offerings.
The 2025 Senior Notes are the Issuers’ senior unsecured obligations and rank equally in right of payment with all
of the Issuers’ existing and future indebtedness that is not expressly subordinated in right of payment thereto. The 2025
Senior Notes will be senior in right of payment to any future indebtedness that is expressly subordinated in right of
payment thereto and effectively junior to (a) the Issuers’ existing and future secured indebtedness, including the
Company’s Accounts Receivable Securitization Facility (defined below) and the Issuers’ Senior Credit Facility, to the
extent of the value of the collateral securing such indebtedness and (b) all existing and future liabilities of the Issuers’
non-guarantor subsidiaries.
The Indenture contains customary covenants that, among other things, limit the Issuers’ and certain of their
subsidiaries’ ability to incur additional indebtedness and guarantee indebtedness; pay dividends on, redeem or repurchase
capital shares; make investments; prepay certain indebtedness; create liens; enter into transactions with the Issuers’
affiliates; designate the Issuers’ subsidiaries as Unrestricted Subsidiaries (as defined in the Indenture); and consolidate,
merge, or transfer all or substantially all of the Issuers’ assets. The covenants are subject to a number of exceptions and
qualifications. Certain of these covenants will be suspended during any period of time that (1) the 2025 Senior Notes
have investment grade ratings (as defined in the Indenture) and (2) no default has occurred and is continuing under the
Indenture. In the event that the 2025 Senior Notes are downgraded to below an investment grade rating, the Issuers and
certain subsidiaries will again be subject to the suspended covenants with respect to future events.
Accounts Receivable Securitization Facility
In 2010, Styron Receivable Funding Ltd. (“SRF”), a VIE in which the Company is the primary beneficiary,
executed an agreement for an accounts receivable securitization facility (the “Accounts Receivable Securitization
Facility”). As of December 31, 2019, the Accounts Receivable Securitization Facility permits borrowings by two of the
Company’s subsidiaries, Trinseo Europe GmbH (“TE”) and Trinseo Export GmbH (“Trinseo Export”), up to a total of
$150.0 million and matures in September 2021.
Under the Accounts Receivable Securitization Facility, TE and Trinseo Export sell their accounts receivable to
SRF. In turn, SRF may utilize these receivables as collateral to borrow from commercial paper conduits in exchange for
cash. The Company has agreed to continue servicing the receivables for SRF. If utilized as collateral by SRF, the
conduits have a first priority perfected security interest in such receivables and, as a result, the receivables will not be
available to the creditors of the Company or its other subsidiaries.
F-27
NOTE 12—DERIVATIVE INSTRUMENTS
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange
rates and interest rate risk. To manage these risks, the Company periodically enters into derivative financial instruments,
such as foreign exchange forward contracts and interest rate swap agreements. The Company does not hold or enter into
financial instruments for trading or speculative purposes. All derivatives are recorded in the consolidated balance sheets
at fair value. Refer to Note 13 for fair value disclosures related to these instruments.
Foreign Exchange Forward Contracts
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional
currencies, which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes
in foreign currency exchange rates is to naturally hedge the foreign currency-denominated liabilities on its balance sheet
against corresponding assets of the same currency, such that any changes in liabilities due to fluctuations in exchange
rates are offset by changes in their corresponding foreign currency assets. In order to further reduce this exposure, the
Company also uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange
rates on assets and liabilities denominated in certain foreign currencies. These derivative contracts are not designated for
hedge accounting treatment.
As of December 31, 2019, the Company had open foreign exchange forward contracts with a notional U.S. dollar
equivalent absolute value of $500.3 million. The following table displays the notional amounts of the most significant
net foreign exchange hedge positions outstanding as of December 31, 2019:
Buy / (Sell)
Euro
Chinese Yuan
Swiss Franc
Indonesian Rupiah
Korean Won
December 31,
2019
$
$
$
$
$
(346.4)
(48.3)
35.4
(18.5)
(12.2)
Open foreign exchange forward contracts as of December 31, 2019 have maturities occurring over a period of two
months.
Foreign Exchange Cash Flow Hedges
The Company also enters into forward contracts with the objective of managing the currency risk associated with
forecasted U.S. dollar-denominated raw materials purchases by one of its subsidiaries whose functional currency is the
euro. By entering into these forward contracts, which are designated as cash flow hedges, the Company buys a
designated amount of U.S. dollars and sells euros at the prevailing market rate to mitigate the risk associated with the
fluctuations in the euro-to-U.S. dollar foreign currency exchange rate. The qualifying hedge contracts are marked-to-
market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and
reclassified to cost of sales in the period during which the transaction affects earnings or it becomes probable that the
forecasted transaction will not occur.
Open foreign exchange cash flow hedges as of December 31, 2019 have maturities occurring over a period of 12
months and had a net notional U.S. dollar equivalent of $84.0 million.
Interest Rate Swaps
On September 6, 2017, the Company issued the 2024 Term Loan B, which currently bears an interest rate of the
London Interbank Offered Rate (“LIBOR”) plus 2.00%, subject to a 0.00% LIBOR floor. In order to reduce the
variability in interest payments associated with the Company’s variable rate debt, during 2017 the Company entered into
certain interest rate swap agreements to convert a portion of these variable rate borrowings into a fixed rate obligation.
These interest rate swap agreements are designated as cash flow hedges, and as such, the contracts are marked-to-market
at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to
interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted
transaction will not occur.
F-28
As of December 31, 2019, the Company had open interest rate swap agreements with a net notional U.S. dollar
equivalent of $200.0 million, which had an effective date of September 29, 2017 and mature in September 2022. Under
the terms of the swap agreements, the Company is required to pay the counterparties a stream of fixed interest payments
at a rate of 1.81%, and in turn, receives variable interest payments based on one-month LIBOR (1.80% as of
December 31, 2019) from the counterparties.
Net Investment Hedge
Through August 31, 2017, the Company had designated a portion (€280.0 million) of the original principal amount
of the Company’s previous €375.0 million Euro Notes as a hedge of the foreign currency exposure of the Issuers’ net
investment in certain European subsidiaries. Effective September 1, 2017, the Company de-designated the Euro Notes as
a net investment hedge of the Issuers’ net investment in certain European subsidiaries, as the Euro Notes were redeemed
on September 7, 2017 (refer to Note 11 for further information). Through the date of de-designation, this hedge was
deemed to be highly effective, and changes in the Euro Notes’ carrying value resulting from fluctuations in the euro
exchange rate were recorded as a cumulative foreign currency translation loss of $24.1 million within AOCI as of
December 31, 2017.
On August 29, 2017, the Issuers executed an indenture pursuant to which they issued the $500.0 million 5.375%
2025 Senior Notes. Subsequently, on September 1, 2017, the Company entered into certain fixed-for-fixed cross
currency swaps (“CCS”), swapping USD principal and interest payments on its 2025 Senior Notes for euro-denominated
payments. Under the terms of the CCS, the Company has notionally exchanged $500.0 million at an interest rate of
5.375% for €420.0 million at a weighted average interest rate of 3.45% for approximately five years.
On September 1, 2017, the Company designated the full notional amount of the CCS (€420.0 million) as a hedge
of its net investment in certain European subsidiaries under the forward method, with all changes in the fair value of the
CCS recorded as a component of AOCI, as the CCS were deemed to be highly effective hedges. A cumulative foreign
currency translation loss of $38.0 million was recorded within AOCI related to the CCS through March 31, 2018.
Effective April 1, 2018, in conjunction with the adoption of new hedge accounting guidance, the Company elected
as an accounting policy to re-designate the CCS as a net investment hedge (and any future similar hedges) under the spot
method. As such, changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due
to spot foreign exchange rates) are recorded as cumulative foreign currency translation within OCI, and will remain in
AOCI until either the sale or substantially complete liquidation of the subsidiary. As of December 31, 2019, no gains or
losses have been reclassified from AOCI into income related to the sale or substantially complete liquidation of the
relevant subsidiaries. As an additional accounting policy election applied to similar hedges under this new standard, the
initial value of any component excluded from the assessment of effectiveness is recognized in income using a systematic
and rational method over the life of the hedging instrument. Any difference between the change in the fair value of the
excluded component and amounts recognized in income under that systematic and rational method is recognized in
AOCI. Prior to April 1, 2018, no components were excluded from the assessment of effectiveness for any of the
Company’s existing net investment hedges.
As of April 1, 2018, the initial excluded component value related to the CCS was $23.6 million, which the
Company elected to amortize as a reduction of “Interest expense, net” in the consolidated statements of operations using
the straight-line method over the remaining term of the CCS. Additionally, the accrual of periodic USD and euro-
denominated interest receipts and payments under the terms of the CCS are being recognized within “Interest expense,
net” in the consolidated statements of operations.
On February 26, 2020, the Company settled its existing CCS and replaced it with a new CCS arrangement that
carried substantially the same terms (the “2020 CCS”) as the existing CCS. Upon settlement of the existing CCS, the
Company realized net cash proceeds of $51.6 million. Under the 2020 CCS, the Company notionally exchanged $500.0
million at an interest rate of 5.375% for €459.3 million at a weighted average interest rate of 3.672% for approximately
2.7 years, with a final maturity of November 3, 2022. The cash flows under the 2020 CCS are aligned with the
Company’s principal and interest obligations on its 5.375% 2025 Senior Notes. The 2020 CCS was executed at an
exchange rate of 1.09 USD per euro. The Company does not expect to record any significant gains or losses within the
consolidated statements of operations as a result of the above settlement.
F-29
Summary of Derivative Instruments
The following table presents the effect of the Company’s derivative instruments, including those not designated for
hedge accounting treatment, on the consolidated statements of operations for the years ended December 31, 2019, 2018,
and 2017:
Location and Amount of Gain (Loss) Recognized in
Statements of Operations
Year Ended
December 31, 2019
Year Ended
December 31, 2018
Year Ended
December 31, 2017
Cost of
sales
Interest
expense,
net
Other
expense
(income),
net
Cost of
sales
Interest
expense,
net
Other
expense
(income),
net
Cost of
sales
Interest
expense,
net
Other
expense
(income),
net
$ 3,446.9 $ 39.3 $
4.0 $ 4,094.0 $ 46.4 $
3.5
$ 3,807.8
$ 70.1
$ (21.5)
Total amount of income and expense
line items presented in the statements
of operations in which the effects of
derivative instruments are recorded
Effects of cash flow hedge instruments:
Foreign exchange cash flow hedges
Amount of gain (loss) reclassified from
AOCI into income
Interest rate swaps
Amount of gain (loss) reclassified from
AOCI into income
$
$
6.7 $
— $
— $
(6.0) $
— $
— $
(2.0) $
— $
—
— $ 0.9 $
— $
— $ 0.3 $
— $
— $ (0.3) $
—
Effects of net investment hedge
instruments:
Cross currency swaps (CCS)
Amount of gain excluded from
effectiveness testing
Effects of derivatives not designated as
hedge instruments:
Foreign exchange forward contracts
Amount of gain (loss) recognized in
income
$
— $ 15.8 $
— $
— $ 11.8 $
— $
— $
— $
—
$
— $
— $
8.0 $
— $
— $ 21.0 $
— $
— $ (19.2)
The following table presents the effect of cash flow and net investment hedge accounting on AOCI for the years
ended December 31, 2019, 2018, and 2017:
Designated as Cash Flow Hedges
Foreign exchange cash flow hedges
Interest rate swaps
Total
Designated as Net Investment Hedges
Euro Notes
Cross currency swaps (CCS)
Total
Gain (Loss) Recognized in AOCI on Balance Sheets
Year Ended
December 31,
2019
2018
2017
$
$
$
$
$
(2.2) $
(6.1)
(8.3) $
— $
17.9 $
17.9 $
13.3 $
1.7
15.0 $
— $
23.7 $
23.7 $
(21.3)
2.9
(18.4)
38.6
(17.5)
21.1
The Company recorded gains of $8.0 million and $21.0 million during the years ended December 31, 2019 and
2018, respectively, and losses of $19.2 million during the year ended December 31, 2017 from settlements and changes
in the fair value of outstanding forward contracts (not designated as hedges). The gains and losses from these forward
F-30
contracts offset net foreign exchange transaction losses of $6.2 million and $15.8 million during the years ended
December 31, 2019 and 2018, respectively, and gains of $20.6 million during the year ended December 31, 2017, 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.
The Company expects to reclassify in the next 12 months an approximate $0.1 million net loss from AOCI into
earnings related to the Company’s outstanding foreign exchange cash flow hedges and interest rate swaps as of
December 31, 2019 based on current foreign exchange rates.
The following tables summarize the net unrealized gains and losses and balance sheet classification of outstanding
derivatives recorded in the consolidated balance sheets:
Balance Sheet
Classification
December 31, 2019
Foreign
Exchange
Forward
Contracts
Foreign
Exchange
Cash Flow
Hedges
Interest
Rate
Swaps
Cross
Currency
Swaps
Total
Asset Derivatives:
Accounts receivable, net of
allowance
Deferred charges and other assets
Gross derivative asset position
Less: Counterparty netting
Net derivative asset position
Liability Derivatives:
Accounts payable
Other noncurrent obligations
Gross derivative liability position
Less: Counterparty netting
Net derivative liability position
Total net derivative position
$
$
$
$
$
1.1 $
—
1.1
(0.4)
0.7 $
(5.7) $
—
(5.7)
0.5
(5.2) $
(4.5) $
— $
—
—
—
— $
(0.5) $
—
(0.5)
—
(0.5) $
(0.5) $
— $
—
—
—
— $
(0.4) $
(1.0)
(1.4)
—
(1.4) $
(1.4) $
8.6 $
19.2
27.8
—
27.8 $
— $
—
—
—
— $
27.8 $
9.7
19.2
28.9
(0.4)
28.5
(6.6)
(1.0)
(7.6)
0.5
(7.1)
21.4
December 31, 2018
Foreign
Exchange
Forward
Contracts Hedges
Foreign
Exchange
Cash Flow
Interest
Rate
Swaps
Cross
Currency
Swaps
Total
Balance Sheet
Classification
Asset Derivatives:
Accounts receivable, net of
allowance
Deferred charges and other assets
Gross derivative asset position
Less: Counterparty netting
Net derivative asset position
Liability Derivatives:
Accounts payable
Other noncurrent obligations
Gross derivative liability position
Less: Counterparty netting
Net derivative liability position
Total net derivative position
$
$
$
$
$
0.6 $
—
0.6
(0.5)
0.1 $
(2.1) $
—
(2.1)
0.5
(1.6) $
(1.5) $
1.9 $
—
1.9
—
1.9 $
— $
—
—
—
— $
1.9 $
1.5 $
3.2
4.7
—
4.7 $
— $
—
—
—
— $
4.7 $
8.1 $
—
8.1
—
8.1 $
12.1
3.2
15.3
(0.5)
14.8
— $
(3.4)
(3.4)
—
(3.4) $
4.7 $
(2.1)
(3.4)
(5.5)
0.5
(5.0)
9.8
Forward contracts, interest rate swaps, and cross currency swaps are entered into with a limited number of
counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in
F-31
the event of a default on or termination of any one contract. As such, in accordance with the Company’s accounting
policy, these derivative instruments are recorded on a net basis by counterparty within the consolidated balance sheets.
Refer to Notes 13 and 21 for further information regarding the fair value of the Company’s derivative instruments
and the related changes in AOCI.
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.
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 tables summarize the basis used to measure certain assets and liabilities at fair value on a recurring
basis in the consolidated balance sheets at December 31, 2019 and 2018:
Assets (Liabilities) at Fair Value
Foreign exchange forward
contracts—Assets
Foreign exchange forward
contracts—(Liabilities)
Foreign exchange cash flow
hedges—(Liabilities)
Interest rate swaps—(Liabilities)
Cross currency swaps—Assets
Total fair value
$
$
December 31, 2019
Quoted Prices in
Active Markets
for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
— $
0.7 $
— $
0.7
—
(5.2)
—
—
—
—
— $
(0.5)
(1.4)
27.8
21.4 $
—
—
—
— $
(5.2)
(0.5)
(1.4)
27.8
21.4
December 31, 2018
Quoted Prices in
Active Markets
for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
— $
0.1 $
— $
0.1
—
(1.6)
—
—
—
1.9
4.7
8.1
—
—
—
—
$
—
— $
(3.4)
9.8 $
—
— $
(1.6)
1.9
4.7
8.1
(3.4)
9.8
Assets (Liabilities) at Fair Value
Foreign exchange forward
contracts—Assets
Foreign exchange forward
contracts—(Liabilities)
Foreign exchange cash flow
hedges—Assets
Interest rate swaps—Assets
Cross currency swaps—Assets
Cross currency swaps—
(Liabilities)
Total fair value
F-32
The Company uses an income approach to value its derivative instruments, utilizing discounted cash flow
techniques, considering the terms of the contract and observable market information available as of the reporting date,
such as interest rate yield curves and currency spot and forward rates. Significant inputs to the valuation for these
derivative instruments are obtained from broker quotations or from listed or over-the-counter market data, and are
classified as Level 2 in the fair value hierarchy.
Fair Value of Debt Instruments
The following table presents the estimated fair value of the Company’s outstanding debt not carried at fair value as
of December 31, 2019 and 2018:
As of
As of
2025 Senior Notes
2024 Term Loan B
Total fair value
December 31, 2019 December 31, 2018
438.3
$
658.9
1,097.2
503.7 $
686.4
1,190.1 $
$
The fair value of the Company’s debt facilities above (each Level 2 securities) is determined using over-the-
counter market quotes and benchmark yields received from independent vendors.
There were no other significant financial instruments outstanding as of December 31, 2019 and 2018.
NOTE 14—INCOME TAXES
Income before income taxes earned within and outside the United States is shown below:
Year Ended
December 31,
2018
2019
United States
Outside of the United States
Income before income taxes
$
$
115.3 $
(10.7)
104.6
$
147.0 $
217.3
364.3
$
The provision for income taxes is composed of:
2017
138.0
273.1
411.1
Year Ended
December 31, 2019
Current Deferred Total
Year Ended
December 31, 2018
Current Deferred Total
Year Ended
December 31, 2017
Current Deferred Total
U.S.
federal $ 16.9 $
U.S.
state
and
other
Non-
U.S.
Total
2.8
5.2 $ 22.1 $ 22.8 $
5.9 $ 28.7 $ 33.5 $
6.9 $ 40.4
0.9
3.7
4.1
1.0
5.1
4.8
—
4.8
30.3 (43.5) (13.2) 39.6 (1.6) 38.0 29.7
$ 50.0 $ (37.4) $ 12.6 $ 66.5 $
7.9 37.6
5.3 $ 71.8 $ 68.0 $ 14.8 $ 82.8
F-33
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(3)
Uncertain tax positions
Withholding taxes
U.S. manufacturing deduction
Share-based compensation
Non-deductible interest
Non-deductible other expenses
Provision to return adjustments
Swiss Tax Reform(3)
Other—net(4)
Total provision for income taxes
Effective tax rate
Year Ended December 31,
$
2019
2018
22.0 $
3.2
(8.8)
76.5 $
4.3
(39.7) (2)
2017
143.9
3.4
(97.4) (2)
(1.5)
5.2
45.0
4.0
4.4
—
(1.0)
2.1
0.3
3.4
(65.0)
(0.7)
12.6 $
12 %
(2.8)
2.2
29.9
1.3
3.7
—
(1.9)
2.2
1.5
(3.1)
—
(2.3) (2)
71.8 $
20 %
(1.6)
6.6
34.0
(10.7)
2.9
(3.6)
(1.1)
2.9
1.2
(0.3)
—
2.6 (2)
82.8
20 %
$
(1) The U.S. statutory rate has been used as management believes it is more meaningful to the Company. The U.S.
statutory rate was 21%, 21%, and 35%, respectively, for the years ended December 31, 2019, 2018, and 2017.
(2) These prior year amounts have been reclassified within the table to conform to the current year presentation.
(3) The year ended December 31, 2019 includes a $65.0 million one-time deferred tax benefit recorded as a result of
changes in the Swiss federal and cantonal tax rules, which were enacted on August 6, 2019 and October 25, 2019,
respectively. This one-time benefit was partially offset by a $25.3 million valuation allowance for the portion of the
cantonal deferred tax asset that more likely than not will expire before utilization. See discussion below for further
information.
(4) Included in “Other-net” for the year ended December 31, 2017 is $3.1 million of one-time income tax expense
related to the revaluation of the Company’s U.S. federal deferred tax assets and liabilities at the new U.S. federal
corporate income tax rate of 21% in accordance with the enactment of the “Tax Cuts and Jobs Act” signed into law
on December 22, 2017.
In addition to the footnoted items above, the decrease in provision for income taxes was partially offset by a lower
proportion of income before taxes attributable to non-U.S. jurisdictions, including losses not anticipated to provide a tax
benefit for the Company in the future.
F-34
Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and
tax reporting:
December 31,
2019
2018
Deferred
Tax
Assets
Deferred
Tax
Liabilities
Deferred
Tax
Assets
Deferred
Tax
Liabilities
Tax loss and credit
carryforwards
Unremitted earnings
Unconsolidated affiliates
Other accruals and reserves
Property, plant and equipment
Goodwill and other intangible
assets(1)
Deferred financing fees
Employee benefits
Valuation allowance
Total
$
185.9 $
—
—
3.3
—
65.1
5.4
43.2
302.9
(218.0)
84.9
$
$
— $
24.6
11.8
—
22.5
—
—
—
58.9
—
58.9
157.8 $
—
—
0.7
—
—
7.7
35.0
201.2
(167.6)
33.6
$
$
—
19.4
5.9
—
26.1
0.9
—
—
52.3
—
52.3
(1) Includes the impact of Swiss federal and cantonal tax reform of $4.2 million and $62.4 million, respectively, as of
December 31, 2019, measured at period-end exchange rates. See discussion below for further information.
As of December 31, 2019 and 2018, all undistributed earnings of foreign subsidiaries and affiliates are expected to
be repatriated.
Operating loss carryforwards amounted to $748.4 million in 2019 and $601.7 million in 2018. As of
December 31, 2019, $51.4 million of the operating loss carryforwards were subject to expiration in 2020 through 2024,
and $697.0 million of the operating loss carryforwards expire in years beyond 2024 or have an indefinite carryforward
period. 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, Switzerland and
China, of $218.0 million as of December 31, 2019 and $167.6 million as of December 31, 2018.
Swiss federal and cantonal tax reform was enacted on August 6, 2019 and October 25, 2019, respectively, and
includes measures such as, the elimination of certain preferential tax regimes and implementation of new tax rates at
both the federal and cantonal levels. It also includes transitional relief measures which may provide for future tax
deductions. As a result of both the federal and cantonal law changes, the Company recorded a $65.0 million one-time
deferred tax benefit for the year ended December 31, 2019, of which $61.6 million was related to cantonal tax law
changes. The Company believes it is more likely than not that a portion of the $61.6 million deferred tax benefit recorded
as a result of these cantonal tax law changes, will not be realized during the utilization period provided by the legislation,
spanning 2025 through 2029. This is based on the Company’s estimate of future taxable income in Switzerland, which
was determined using management’s judgment and assumptions about various factors, such as: historical experience and
results, cyclicality of the business, and future industry and macroeconomic conditions and trends possible during the
aforementioned utilization period. As a result, the Company recorded a $25.3 million valuation allowance as of
December 31, 2019.
F-35
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, 2016
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 statues of limitations
Balance as of December 31, 2017
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 statues of limitations
Balance as of December 31, 2018
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
Decrease due to expiration of statutes of limitations
Balance as of December 31, 2019
$
$
$
$
16.1
—
0.9
(8.0)
(0.7)
(1.3)
7.0
—
0.5
(0.3)
—
(0.9)
6.3
0.6
3.8
—
(1.3)
(0.4)
9.0
In regard to unrecognized tax benefits, the Company recognized expense related to interest and penalties of $0.8
million and $0.2 million during the years ended December 31, 2019 and 2018, respectively, whereas the Company
recognized a benefit related to interest and penalties of $2.4 million during the year ended December 31, 2017. Interest
and penalties related to unrecognized tax benefits was included as a component of income tax expense in the
consolidated statements of operations. As of December 31, 2019 and 2018, the Company had $1.9 million and $1.0
million, respectively, accrued for interest and penalties. To the extent that the unrecognized tax benefits are recognized in
the future, $8.3 million will impact the Company’s effective tax rate.
As of December 31, 2019, the Company anticipates that it is reasonably possible that less than $0.1 million of
unrecognized tax benefits, including the impact relating to accrued interest and penalties, could be realized within the
next 12 months due to the expiration of the statute of limitations in certain jurisdictions.
During the year ended December 31, 2017, the Company recorded a previously unrecognized tax benefit in the
amount of $8.5 million, including interest and penalties, upon completion of the 2010 through 2013 audit with the
German taxing authority.
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
2014
2014
2014
2017
2011
2009
2006
2014
2010
F-36
NOTE 15—COMMITMENTS AND CONTINGENCIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated, based on current law, existing technologies and other information.
Pursuant to the terms of the 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. As of December 31, 2019 and 2018, the
Company had no accrued obligations for environmental remediation and restoration costs.
Inherent uncertainties exist in the Company’s potential environmental liabilities primarily due to unknown
conditions, whether future claims may fall outside the scope of the indemnity, changing governmental regulations and
legal standards regarding liability, and evolving technologies for handling site remediation and restoration. In connection
with the Company’s existing indemnification, the possibility is considered remote that environmental remediation costs
will have a material adverse impact on the consolidated financial statements over the next 12 months.
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 one to three years. The
following table presents the fixed and determinable portion (based on current pricing indexes) of the minimum obligation
under the Company’s purchase commitments as of December 31, 2019:
2020
1,038.8 $
$
2021
2022
Annual Commitment
2023
2024
Thereafter
90.5 $
67.0 $
— $
— $
— $
Total
1,196.3
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.
European Commission Request for Information
On June 6, 2018, Trinseo Europe GmbH, a subsidiary of the Company, received a Request for Information in the
form of a letter from the European Commission Directorate General for Competition (the “European Commission”)
related to styrene monomer commercial activity in the European Economic Area. The Company subsequently
commenced an internal investigation into these commercial activities and discovered instances of inappropriate activity.
On October 28, 2019, a supplemental request for information was received from the European Commission. This request
was limited to historical employment, entity, and organizational structures, along with certain financial, styrene
F-37
purchasing, and styrene market information, as well as certain spot styrene purchase contracts. The Company has
provided this information and continues to fully cooperate with the European Commission.
Notwithstanding the delivery of the Company’s response to the European Commission, this matter remains open
with the European Commission. Based on its findings, the European Commission may decide to: (i) require further
information; (ii) conduct unannounced raids of the Company’s premises; (iii) adopt decisions imposing fines, interim
measures to halt immediately any anti-competitive behavior, orders for the Company to cease anti-competitive activities,
and/or certain behavioral or structural commitments from the Company; or (iv) take no further action. As a result of the
above factors, the Company is unable to predict the ultimate outcome of this matter or estimate the range of reasonably
possible losses that could be incurred. However, any potential losses incurred could be material to the Company’s results
of operations, balance sheet, and cash flows for the period in which they are resolved or become probable and reasonably
estimable.
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,
China, Indonesia, Taiwan, and Japan.
Company employees who were not previously associated with the acquired pension and postretirement plans are
not eligible for enrollment in a number of 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.
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.
Assumptions
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs are
provided below:
Pension Plan Obligations
December 31,
Net Periodic Benefit Costs
December 31,
2019 2018 2017 2019 2018 2017
Discount rate for projected benefit
obligation
Discount rate for service cost
Discount rate for interest cost
Rate of increase in future
compensation levels
Expected long-term rate of return on
plan assets
1.03 % 1.86 % 1.79 % 1.86 % 1.80 % 1.65 %
1.79 % 1.72 % 1.64 %
N/A
1.59 % 1.53 % 1.42 %
N/A
N/A
N/A
N/A
N/A
2.81 % 2.80 % 2.81 % 2.80 % 2.83 % 2.61 %
N/A
N/A
N/A
1.57 % 1.54 % 1.44 %
F-38
The weighted-average assumptions used to determine other postretirement benefit (“OPEB”) obligations and net
periodic benefit costs are provided below:
OPEB Obligations
December 31,
Net Periodic Benefit Costs
December 31,
2019 2018 2017 2019 2018 2017
Discount rate for accumulated
postretirement benefit obligation
Discount rate for service cost
Discount rate for interest cost
Initial health care cost trend rate
Ultimate health care cost trend rate
Year ultimate trend rate to be
reached
3.48 % 4.38 % 3.68 % 4.38 % 3.68 % 4.16 %
4.42 % 3.70 % 4.18 %
N/A
N/A
4.14 % 3.46 % 3.81 %
6.70 % 6.70 % 6.70 % 6.70 % 6.70 % 6.70 %
5.00 % 5.00 % 5.00 % 5.00 % 5.00 % 5.00 %
N/A
N/A
N/A
N/A
2025
2024
2023
2024
2023
2022
The Company determines 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. The Company sets its 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. The Company uses a full yield curve approach in the estimation of the future service and
interest cost components of net periodic benefit cost for its defined benefit pension and other postretirement benefit plans
by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant
projected cash flows.
The expected long-term rate of return on plan assets is determined by performing a detailed analysis of key
economic and market factors impacting 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.
F-39
The net periodic benefit costs for the pension and other postretirement benefit plans for the years ended
December 31, 2019, 2018, and 2017 were as follows:
Defined Benefit Pension Plans
December 31,
Other Postretirement Benefit Plans
December 31,
2019
2018
2017
2019
2018
2017
Net periodic benefit cost(1)
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
Amounts recognized in other
comprehensive income (loss)
Net (gain) loss
Amortization of prior service
(cost) credit
Amortization of net gain (loss)
Settlement and curtailment gain
(loss)
Prior service credit
Total recognized in other
comprehensive income (loss)
Net periodic benefit cost
Total recognized in net periodic
benefit cost and other
comprehensive income (loss)
$ 13.1 $ 12.3 $ 20.5 $
4.9
(2.1)
5.1
(2.2)
4.9
(1.7)
(1.1)
3.3
(1.1)
4.1
(2.0)
5.6
(2)
0.8
0.6
(21.9)
$ 19.0 $ 18.7 $
5.4 $
$ 27.9 $ (0.6) $ (42.6) $
0.1
0.2
—
—
(0.2)
$
0.2
0.2
—
0.1
—
$
0.2
0.3
—
0.1
(0.1)
—
0.1 $
—
0.5 $
—
0.5
0.1
$ (1.3) $ (0.1)
1.1
(3.3)
1.1
(4.1)
2.0
(5.6)
(2)
(0.8)
—
(0.6)
(0.5)
21.9
—
24.9
19.0
(4.7)
18.7
(24.3)
5.4
—
0.2
—
—
0.3
0.1
(0.1)
—
—
(0.4)
(1.8)
0.5
(0.1)
0.1
—
—
(0.1)
0.5
$ 43.9 $ 14.0 $ (18.9) $
0.4 $ (1.3) $
0.4
(1) Service cost related to the Company’s defined benefit pension plans and other postretirement plans is included
within “Cost of sales” and “Selling, general and administrative expenses,” whereas all other components of net
periodic benefit cost are included within “Other expense (income), net” in the consolidated statements of operations.
(2) Approximately $21.6 million of this amount related to a curtailment gain on certain of the Company’s pension plans
in Europe recorded during the year ended December 31, 2017, which was recorded within “Other expense (income),
net” in the consolidated statements of operations. This curtailment was triggered by a plan amendment under which
participants will not receive incremental benefits under the existing plan for service provided subsequent to
December 31, 2017. Previous participants in the curtailed pension plan became eligible to participate in a new multi-
employer plan starting on January 1, 2018.
F-40
The changes in the pension benefit obligations, the fair value of plan assets, and the funded status of all significant
plans for the years ended December 31, 2019 and 2018 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 (1)
Benefits paid from fund
Benefit payments by employer
Acquisitions
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
Settlements
Employer contributions
Plan participants’ contributions
Benefits paid
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,
2019
2018
2019
2018
$
$
$
$
$
$
321.9
13.1
5.1
1.9
45.7
0.1
(2.3)
44.5
—
(3.8)
(7.2)
(0.1)
(2.7)
416.2
138.5
16.3
(7.2)
5.7
1.9
(2.2)
(1.2)
$
$
$
321.7
12.3
4.9
1.8
(0.4)
(0.7)
(2.3)
—
(0.5)
—
(3.8)
1.6
(12.7)
321.9
140.1
2.4
(3.8)
5.9
1.8
(3.0)
(4.9)
$
$
$
5.8
0.1
0.2
—
0.1
—
—
—
—
—
—
—
—
6.2
—
—
—
—
—
—
—
7.1
0.2
0.2
—
(1.3)
—
—
—
(0.4)
—
—
—
—
5.8
—
—
—
—
—
—
—
151.8
$ (264.4)
138.5
$ (183.4)
$
—
(6.2)
$
—
(5.8)
(1) The actuarial loss for the year ended December 31, 2019 was primarily due to the decrease in discount rates during
the year, while the actuarial gain for the year ended December 31, 2018 was primarily due to an increase in discount
rates during the year.
F-41
The net amounts recognized in the consolidated balance sheets as of December 31, 2019 and 2018 were as follows:
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
Defined Benefit
Pension Plans
December 31,
Other Postretirement
Benefit Plans
December 31,
2019
2018
2019
2018
$
(5.8)
(258.6)
$ (264.4)
$
(2.7)
(180.7)
$ (183.4)
$
$
(0.1)
(6.1)
(6.2)
$
$
—
(5.8)
(5.8)
$ 380.6
$ 293.7
$
6.2
$
5.8
$
$
(3.7)
84.3
80.6
$
$
(4.8)
60.5
55.7
$
$
(0.1)
(1.9)
(2.0)
$
$
(0.2)
(2.1)
(2.3)
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
2020
2021
2022
2023
2024
2025
through
2029
Total
$ 17.6 $ 5.8 $ 7.1 $ 9.9 $ 8.6 $ 61.3 $ 110.3
0.1
2.9
$ 17.7 $ 5.9 $ 7.2 $ 10.1 $ 8.9 $ 63.4 $ 113.2
0.1
0.3
2.1
0.1
0.2
The Company estimates it will make cash contributions, including benefit payments for unfunded plans, of $7.8
million in 2020 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, 2019 and 2018:
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,
2019
2018
$
$
319.9
55.5
$
$
239.7
56.3
December 31,
2019
2018
$
$
289.1 $
$
55.5
210.8
50.3
Plan Assets
As of December 31, 2019 and 2018, plan assets totaled $151.8 million and $138.5 million, respectively, 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.
Insurance contracts are classified as Level 3 investments. Changes in the fair value of these Level 3 investments
during the years ended December 31, 2019 and 2018 are included in the “Change in plan assets” table above.
F-42
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 this plan during the years ended December 31, 2019, 2018, and 2017 were $0.3 million, $0.8 million, and
$1.1 million, respectively. This plan was concluded in 2019 and all remaining benefit payments were completed during
the year ended December 31, 2019. There were no benefit obligations under this plan as of December 31, 2019 and there
were $15.5 million of benefit obligations as of December 31, 2018. As of December 31, 2019 and 2018, the amounts of
net loss included in AOCI were $0.0 million and $0.3 million, respectively, with $0.3 million and $0.5 million amortized
from AOCI into net periodic benefit costs during the years ended December 31, 2019 and 2018, respectively.
Defined Contribution Plans
The Company also offers defined contribution plans to eligible employees in the U.S. and in other countries,
including Hong Kong, Korea, The Netherlands, Indonesia, 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. During the years ended December 31, 2019, 2018, and 2017, the Company contributed $11.1 million, $7.9
million, and $8.4 million, respectively, to the defined contribution plans.
Multiemployer Plans
The Company also has a multiemployer plan in The Netherlands for a closed population of employees. The
Company’s contributions to the plan are generally determined as a percentage of the participants’ salaries. During the
years ended December 31, 2019 and 2018, the Company recorded expense of $4.3 million and $4.5 million, respectively,
related to the plan, and made contributions of $4.2 million and $3.8 million, respectively, to the plan.
F-43
NOTE 17—SHARE-BASED COMPENSATION
Summary of Share-based Compensation Expense
Share-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, 2019, 2018, and 2017. Share
amounts in the tables below are in whole numbers, unless otherwise indicated.
Year Ended December 31,
2018
2019
2017 Compensation Cost Average Years
As of
December 31, 2019
Unrecognized
Weighted
2014 Omnibus Plan Awards
RSUs
Option Awards
PSUs
$ 7.5 $ 8.8 $ 8.6 $
4.4
2.6
3.1
2.9
4.1
1.1
8.6
1.4
3.3
1.8
1.3
2.0
Total share-based compensation
expense
$ 13.5 $ 15.8 $ 13.8
2014 Omnibus Plan
In connection with the IPO, the Company’s board of directors approved the 2014 Omnibus Plan, adopted on
May 28, 2014 and amended on June 19, 2019, under which 5.3 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 share options, share appreciation rights,
restricted shares, unrestricted shares, share 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 RSUs, option awards, and PSUs.
Restricted Share Units
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 an 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. 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. 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 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 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 are payable in cash
and do not accrue interest. The impact of this amendment is immaterial to the consolidated financial statements.
F-44
The following table summarizes the activity for RSUs during the year ended December 31, 2019:
Restricted Share Units
Unvested, December 31, 2018
Granted
Vested
Forfeited
Unvested, December 31, 2019
Weighted-Average
Shares
492,149
236,156
(319,580)
(94,397)
314,328
Grant Date
Fair Value per Share
48.82
$
48.63
33.98
62.45
59.67
$
The following table summarizes the weighted-average grant date fair value per share of RSUs granted during the
years ended December 31, 2019, 2018, and 2017 as well as the total fair value of awards vested during those periods:
Restricted Share Units
Weighted-Average Grant Date Total Fair Value
of Awards Vested
during Period
Fair Value per Share
of Grants during Period
Year Ended December 31, 2019
Year Ended December 31, 2018
Year Ended December 31, 2017
$
$
$
48.63
79.18
70.85
$
$
$
10.9
7.4
1.3
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. The following table summarizes the
activity for option awards during the year ended December 31, 2019:
Option Awards
Outstanding as of December 31, 2018
Granted
Exercised
Forfeited
Expired
Outstanding as of December 31, 2019
Exercisable as of December 31, 2019
Expected to vest as of December 31,
2019
Shares
934,338 $
237,071
(40,263)
(27,220)
(6,214)
1,097,712 $
688,131 $
Weighted-Average Weighted-Average Aggregate
Intrinsic
Value
Exercise Price
per share
Contractual
Term (years)
46.72
51.00
23.82
60.19
58.64
48.08
38.91
6.1 $
5.3 $
6.2
6.2
409,581 $
63.49
7.5 $
—
During the years ended December 31, 2019, 2018, and 2017, the total intrinsic value of option awards exercised
was $0.7 million, $6.7 million, and $21.4 million, respectively. 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.
F-45
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’ shares
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, 2019, 2018, and 2017:
Expected term (in
years)
Expected volatility
Risk-free interest rate
Dividend yield
2019
5.50
36.00 %
2.53 %
2.00 %
Year Ended
December 31,
2018
5.50
32.00 %
2.71 %
2.00 %
2017
5.50
35.00 %
2.19 %
2.00 %
Utilizing the above assumptions, the weighted-average grant date fair value per option award granted in the years
ended December 31, 2019, 2018, and 2017 was $15.40, $22.29, and $20.61, respectively.
Performance Share Units
PSUs, which are granted to executives, cliff vest on the third anniversary of the date of grant, generally subject to
the executive remaining continuously employed by the Company through the vesting date and achieving certain
performance conditions. The number of the PSUs that vest upon completion of the service period can range from 0% to
200% of the original grant, subject to certain limitations, contingent upon the Company’s total shareholder return during
the performance period relative to a pre-defined set of industry peer companies. Upon a termination of employment due
to the executive’s death or retirement, or termination in connection with a change in control or other factors prior to the
vesting date, the PSUs will vest in full or in part, depending on the type of termination and the achievement of the
performance conditions. Dividend equivalents accumulate on PSUs during the vesting period, are payable in cash, and
do not accrue interest. When PSUs vest, shares will be issued from the existing pool of treasury shares.
The following table summarizes the activity for PSUs during the year ended December 31, 2019:
Performance Share Units
Unvested, December 31, 2018
Granted
Vested
Forfeited
Unvested, December 31, 2019
Weighted-Average
Shares
116,362
117,053
—
(97,158)
136,257
Grant Date
Fair Value per Share
82.10
$
54.01
—
66.93
68.78
$
The fair value for PSU awards is computed using a Monte Carlo valuation model, whose inputs and assumptions
are determined as of the date of grant. Determining the fair value of the PSU awards requires considerable judgment,
including estimating the expected volatility of the price of the Company’s ordinary shares, the correlation between the
Company’s share price and that of its peer companies, and the expected rate of interest. The expected volatility for each
grant is determined based on the historical volatility of the Company’s ordinary shares. The expected term of PSU
awards represents the length of the performance period. The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the time of grant for a duration equivalent to the performance period. The share price is the closing
price of the Company’s ordinary shares on the grant date.
F-46
The following are the weighted-average assumptions used within the Monte Carlo valuation model for grants
during the years ended December 31, 2019 and 2018:
Expected term (in
years)
Expected volatility
Risk-free interest rate
Share Price
$
2019
Year Ended
December 31,
2018
3.00
36.40 %
2.58 %
$
50.95
3.00
35.03 %
2.55 %
$
79.42
2017
3.00
39.00 %
1.56 %
71.45
Utilizing the above assumptions, the total grant date fair value for PSU awards granted in the years ended
December 31, 2019, 2018 and 2017 was $6.3 million, $6.1 million and $3.9 million, respectively.
NOTE 18—RELATED PARTY AND DOW TRANSACTIONS
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 (“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. This agreement is effective through
December 31, 2020, with automatic two-year renewals, barring six-months’ notice of non-renewal provided by either
party. The Company has the ability to terminate all or a portion of the services under the SAR MOSA, subject to
payment of termination charges, with certain ‘highly integrated’ services following a separate process for evaluation and
termination. Either party may terminate for cause or for material breach which is not cured. Dow has the right to
terminate the agreement in the event of failure by the Company to pay for the services or in the event of a change of
control, as defined in the agreement. During 2018, the Company began efforts to insource, and in some cases outsource
to other vendors, certain information technology, procurement, supply chain, and enterprise resource planning services
and systems currently provided by Dow. During 2019 and 2018, the Company incurred $68.1 million and $26.1 million,
respectively, in costs related to its transition of these services away from Dow and expects to incur further significant
costs related to transitioning additional services away from Dow in 2020. The Company has transitioned the majority of
the services under the SAR MOSA that were previously provided by Dow as of December 31, 2019, and nearly all of the
remaining services under the agreement will be transitioned in the first half of 2020. Based on this transition, the
Company’s estimated remaining minimum obligation under the SAR MOSA was approximately $5.0 million as of
December 31, 2019.
In addition, the Company entered into various site service agreements with Dow, as amended 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 including 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 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
F-47
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, 2019, 2018, and 2017 under
the SAR MOSA and SAR SSAs by financial statement line item:
Financial Statement Line Item
Cost of sales
Selling, general, and administrative expenses
Total
$
$
Financial Statement Line Item
Cost of sales
Selling, general, and administrative expenses
Total
$
$
Financial Statement Line Item
Cost of sales
Selling, general, and administrative expenses
Total
$
$
Year Ended December 31, 2019
SAR MOSA
SAR SSAs
Total
26.2 $
8.2
34.4 $
160.8 $
3.4
164.2 $
187.0
11.6
198.6
Year Ended December 31, 2018
SAR MOSA
SAR SSAs
Total
39.1 $
8.5
47.6 $
206.9 $
3.9
210.8 $
246.0
12.4
258.4
Year Ended December 31, 2017
SAR MOSA
SAR SSAs
Total
39.8 $
9.3
49.1 $
179.2 $
4.1
183.3 $
219.0
13.4
232.4
The Company has transactions in the normal course of business with Dow and its affiliates. For the years ended
December 31, 2019, 2018, and 2017, sales to Dow and its affiliated companies were approximately $80.0 million,
$248.4 million, and $235.2 million, respectively. For the years ended December 31, 2019, 2018, and 2017, purchases
from Dow and its affiliated companies were approximately $985.9 million, $1,410.6 million, and $1,357.2 million,
respectively. Amounts presented represent transactions with Dow and do not include transactions with DuPont
companies, noting the entities separated in 2019.
NOTE 19—SEGMENTS
The Company operates under six segments: Latex Binders, Synthetic Rubber, Performance Plastics, Polystyrene,
Feedstocks, and Americas Styrenics. The Latex Binders segment produces styrene-butadiene latex (“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 includes a variety of highly engineered compounds and blends, the Company’s
acrylonitrile-butadiene-styrene (“ABS”), styrene-acrylonitrile (“SAN”), and polycarbonate (“PC”) businesses, and the
Company’s soft-touch polymers and bioplastics business, which includes TPEs. The Polystyrene segment includes a
variety of general purpose polystyrenes (“GPPS”) and polystyrene that has been modified with polybutadiene rubber to
increase its impact resistant properties (“HIPS”). 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, and solution styrene- butadiene rubber (“SSBR”).
Lastly, the Americas Styrenics segment consists solely of the operations of the Company’s 50%-owned joint venture,
Americas Styrenics, a producer of both styrene monomer and polystyrene in North America.
The following table provides disclosure of the Company’s segment Adjusted EBITDA, which is used to measure
segment operating performance and is defined below, for the years ended December 31, 2019, 2018, and 2017. Asset and
intersegment sales information by reporting segment is not regularly reviewed or included with the Company’s reporting
F-48
to the chief operating decision maker. Therefore, this information has not been disclosed below. Refer to Note 3 for the
Company’s net sales to external customers by segment for the years ended December 31, 2019, 2018, and 2017.
Year Ended
December 31, 2019
Equity in earnings of unconsolidated
affiliates
Adjusted EBITDA(1)
Investment in unconsolidated affiliates
Depreciation and amortization
Capital expenditures(2)
December 31, 2018
Equity in earnings of unconsolidated
affiliates
Adjusted EBITDA(1)
Investment in unconsolidated affiliates
Depreciation and amortization
Capital expenditures(2)
December 31, 2017
Equity in earnings of unconsolidated
affiliates
Adjusted EBITDA(1)
Investment in unconsolidated affiliates
Depreciation and amortization
Latex
Binders Rubber Plastics
Synthetic Performance
Polystyrene Feedstocks Styrenics Unallocated Total
Americas Corporate
$
— $
— $
— $
— $
80.8
—
25.8
21.4
40.7
—
44.4
26.1
135.1
—
28.8
26.6
54.6
—
10.9
4.1
119.0
— $ 119.0 $
7.0
—
12.8
8.1
188.1
—
—
— $ 119.0
—
13.3
23.8
188.1
136.0
110.1
$
— $
— $
— $
— $
— $ 144.1 $
— $ 144.1
110.4
—
24.9
17.2
77.0
—
43.9
26.8
188.9
—
28.7
55.1
33.7
—
11.6
3.4
107.1
—
12.1
13.2
144.1
179.1
—
—
—
9.0
5.7
179.1
130.2
121.4
$
— $
— $
0.8 $
— $
— $ 122.9 $
— $ 123.7
138.5
—
23.6
83.3
—
35.7
230.9
—
20.0
48.2
—
9.8
110.5
—
12.6
122.9
152.5
—
—
8.9
152.5
110.6
(1) The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as
income from continuing operations before interest expense, net; provision for income taxes; depreciation and
amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the
dispositions of businesses and assets; restructuring; acquisition related costs and benefits and other items. Segment
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. Other companies in the industry may define segment Adjusted EBITDA differently than the
Company, and as a result, it may be difficult to use segment 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.
(2) In 2018, capital expenditure information began being reviewed and included with the Company’s reporting to the
chief operating decision maker, thus it has been presented above by reportable segment for the years ended
December 31, 2019 and 2018.
The reconciliation of income before income taxes to segment Adjusted EBITDA is as follows:
Income before income taxes
Interest expense, net
Depreciation and amortization
Corporate Unallocated(3)
Adjusted EBITDA Addbacks(4)
Segment Adjusted EBITDA
Year Ended December 31,
2018
2019
104.6 $
$
39.3
136.0
85.4
71.9
$
437.2 $
364.3 $
46.4
130.2
88.0
32.3
661.2 $
2017
411.1
70.1
110.6
91.8
50.7
734.3
(3) Corporate unallocated includes corporate overhead costs and certain other income and expenses.
F-49
(4) Adjusted EBITDA addbacks for the years ended December 31, 2019, 2018, and 2017 are as follows:
Year Ended December 31,
2018
2019
2017
Loss on extinguishment of long-term debt (Note
11)
Net gain on disposition of businesses and assets
(Note 4)
Restructuring and other charges (Note 20)
Acquisition transaction and integration net costs
(benefit) (Note 4)
Asset impairment charges or write-offs(a)
Other items(b)
Total Adjusted EBITDA Addbacks
$
— $
0.2 $
65.3
(0.7)
18.1
(0.9)
—
55.4
71.9 $
(1.0)
8.2
0.6
1.5
22.8
32.3 $
(9.7)
6.0
4.7
4.3
(19.9)
50.7
$
(a) Asset impairment charges for the years ended December 31, 2018 and 2017 primarily relate to the impairment
of certain corporate long-lived assets and certain long-lived assets in the Performance Plastics segment,
respectively.
(b) Other items for the years ended December 31, 2019 and 2018 primarily relate to advisory and professional fees
incurred in conjunction with the Company’s initiative to transition business services from Dow, including
certain administrative services such as accounts payable, logistics, finance, and IT services. Also included
within other items for the year ended December 31, 2019 are fees incurred in conjunction with certain of the
Company’s strategic initiatives. Other items for the year ended December 31, 2018 are primarily related to fees
incurred in conjunction with the Company’s 2024 Term Loan B repricing completed in the second quarter of
2018. Other items for the year ended December 31, 2017 are primarily related to a curtailment gain recorded on
certain of the Company’s pension plans in Europe (refer to Note 16 for further information), offset by fees
incurred in conjunction with the Company’s debt refinancing which was completed during the third quarter of
2017.
Geographic Information
As of December 31, 2019, the Company operates 32 manufacturing plants (which include a total of 77 production
units) at 24 sites in 12 countries, inclusive of its joint venture. It also operates 10 R&D facilities globally, including
technology and innovation development centers. 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 therefore
represents its country of domicile. The Company has no existing long-lived assets or sales generated from this country.
F-50
United States
Sales to external customers
Long-lived assets
Right-of-use assets - operating
Europe
Sales to external customers
Long-lived assets
Right-of-use assets - operating
Asia-Pacific
Sales to external customers
Long-lived assets
Right-of-use assets - operating
Rest of World
Sales to external customers
Long-lived assets
Right-of-use assets - operating
Total
Sales to external customers(1)
Long-lived assets(2)
Right-of-use assets - operating(3)
$
$
$
$
$
As of and for the Year Ended
2019
December 31,
2018
2017
$
$
$
$
$
580.3
44.9
10.4
2,163.3
457.7
55.1
934.7
123.2
5.9
97.5
—
—
3,775.8
625.8
71.4
$
$
$
$
$
627.3
38.6
—
2,782.6
424.8
—
1,104.3
128.7
—
108.6
—
—
4,622.8
592.1
—
602.7
43.2
—
2,688.9
449.3
—
1,051.4
134.4
—
105.1
0.1
—
4,448.1
627.0
—
(1) Sales to external customers in Germany represented approximately 9%, 9%, and 10% of the total for the years ended
December 31, 2019, 2018, and 2017, respectively. Sales to external customers in Hong Kong represented
approximately 13% of the total for each of the years ended December 31, 2019, 2018, and 2017. Sales to external
customers in China represented approximately 6%, 6%, and 7% of the total for the years ended December 31, 2019,
2018, and 2017, respectively.
(2) Long-lived assets in Germany represented approximately 46%, 43%, and 45% of the total as of December 31, 2019,
2018, and 2017, respectively. Long-lived assets in The Netherlands represented approximately 17%, 19%, and 15%
of the total as of December 31, 2019, 2018, and 2017, respectively. Long-lived assets consist of property, plant and
equipment, net. Long-lived assets in China represented approximately 12%, 13%, and 13% of the total as of
December 31, 2019, 2018, and 2017, respectively. Amounts include right-of-use assets for finance leases.
(3) The Company began recognizing operating lease ROU assets on its consolidated balance sheets during the first
quarter of 2019 in conjunction with its adoption of the new lease accounting standard, as discussed further in Note 2.
Operating lease ROU assets in The Netherlands represented approximately 61% of the total as of December 31,
2019. ROU assets in the United States represented approximately 15% of the total as of December 31, 2019.
Operating lease ROU assets in Germany represented approximately 7% of the total as of December 31, 2019.
.
F-51
NOTE 20—RESTRUCTURING
Refer to the narrative below for discussion of the Company’s restructuring activities included in the tables below.
Restructuring charges are included within “Selling, general and administrative expenses” in the consolidated statements
of operations. The following table provides detail of the Company’s restructuring charges for the years ended
December 31, 2019, 2018, and 2017:
Year Ended December 31,
2018
2019
2017
Cumulative
Life-to-date
Charges
Segment
Corporate Restructuring Program
Accelerated depreciation
Employee termination benefits
Contract terminations
Corporate Program Subtotal
Synthetic Rubber Restructuring
$
0.4 $
17.0
0.4
$
17.8 $
Employee termination benefits
Synthetic Rubber Subtotal
$
$
— $
— $
Terneuzen Compounding
Restructuring
Asset impairment/accelerated
depreciation
Employee termination benefits
Contract terminations
Decommissioning and other
Terneuzen Subtotal
Livorno Plant Restructuring
Asset impairment/accelerated
depreciation
Employee termination benefits
Contract terminations
Decommissioning and other
Livorno Subtotal
Allyn's Point Restructuring
Asset impairment/accelerated
depreciation
Employee termination benefits
Decommissioning and other
Allyn's Point Subtotal
Other Restructurings
Total Restructuring Charges
$
$
$
$
$
$
$
$
—
(0.3)
—
0.6
0.3 $
$
—
—
—
0.5
0.5 $
$
—
—
—
— $
—
18.6 $
— $
—
—
— $
5.5 $
5.5 $
$
1.1
0.5
(0.3)
0.6
1.9 $
$
0.4
—
—
0.7
1.1 $
$
—
—
0.8
0.8 $
—
9.3 $
— $
—
—
— $
— $
— $
$
2.0
0.5
0.6
0.2
3.3 $
$
—
0.8
—
2.3
3.1 $
$
—
—
0.4
0.4 $
1.2
8.0
0.4
17.0
0.4
17.8 N/A(1)
5.5
5.5 Synthetic Rubber
3.1
0.7
0.3
2.0
6.1 Performance Plastics
14.7
5.4
0.3
4.2
24.6 Latex Binders
7.3
0.8
2.9
11.0 Latex Binders
Various
(1) As this was identified as a corporate-related activity, the charges related to this restructuring program were not allocated to a
specific segment, but rather included within corporate unallocated.
The following tables provide a rollforward of the liability balances associated with the Company’s restructuring
activities as of December 31, 2019 and 2018. Employee termination benefit and contract termination charges are
recorded within “Accrued expenses and other current liabilities” in the consolidated balance sheets. The liability balance
as of December 31, 2019 primarily represents activity related to the corporate restructuring program. No other individual
restructuring activity had a material liability balance as of December 31, 2019 or 2018.
Balance at
Balance at
December 31, 2018 Expenses Deductions(1) December 31, 2019
Employee termination
benefits
Contract terminations
Decommissioning and other
Total
$
$
6.4 $
0.3
—
6.7 $
16.7 $
0.4
1.1
18.2 $
(5.9) $
—
(1.1)
(7.0) $
17.2
0.7
—
17.9
F-52
Balance at
Balance at
Employee termination benefits $
Contract terminations
Decommissioning and other
Total
$
December 31, 2017 Expenses Deductions(1) December 31, 2018
6.4
6.0 $
0.3
(0.3)
—
2.1
6.7
7.8 $
(1.0) $
—
(2.1)
(3.1) $
1.4 $
0.6
—
2.0 $
(1) Includes primarily payments made against the existing accrual, as well as immaterial impacts of foreign currency
remeasurement.
Corporate Restructuring Program
In November 2019, the Company announced a corporate restructuring program associated with the Company’s
shift to a global functional structure and business excellence initiatives to drive greater focus on business process
optimization and efficiency. The corporate restructuring program is expected to be substantially completed by the end of
the first half of 2020. In connection with this restructuring plan, during the fourth quarter of 2019, the Company incurred
employee termination benefit charges of $17.0 million, inclusive of a share-based compensation benefit of $1.1 million,
and contract termination charges of $0.4 million, which will predominantly be paid in 2020. The Company also incurred
accelerated depreciation charges of $0.4 million during the fourth quarter of 2019. The Company expects to incur
incremental employee termination benefit charges of $1.5 million, inclusive of pension charges of approximately $0.5
million, as well as contract termination charges of $2.6 million and accelerated depreciation charges of $2.4 million
through the end of 2020, the majority of which are expected to be paid during 2020.
Synthetic Rubber Restructuring
In December 2018, the Company announced a reduction in force within its Synthetic Rubber segment in order to
more closely align the cost structure of the Synthetic Rubber segment with the current tire market environment. The
Company, however, remains committed to providing innovative technologies and solutions to serve the performance tire
market. As a result of this restructuring action, during the fourth quarter of 2018, the Company incurred employee
termination benefit charges of $5.5 million, which were paid during 2019.
Terneuzen Compounding Restructuring
In March 2017, the Company announced plans to upgrade its production capability for compounded resins with the
construction of a new state-of-the art compounding facility to replace its existing compounding facility in Terneuzen,
The Netherlands. As of December 31, 2019, the new facility is complete, noting certain ongoing quality assurance
activities. Substantive production at the prior facility ceased and decommissioning activities began during the second
quarter of 2019, which are expected to continue through 2020. The Company estimates it will incur decommissioning
and other charges of approximately $0.7 million in 2020, the majority of which are expected to be paid during the first
half of the year.
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 was 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.
In September 2018, the Company entered into a preliminary agreement to sell the land where the former facility is
located. This land sale closed on January 10, 2020, for a total purchase price of $12.5 million. Note that $1.3 million of
the purchase price was received as a prepayment in 2018, and is recorded within “Accrued expenses and other current
liabilities” on the consolidated balance sheets as of the years ended December 31, 2019 and 2018. The remaining
F-53
purchase price was received in January 2020. The Company expects to record a net gain on sale of less than $1.0 million
during the first quarter of 2020.
This land sale was considered probable to close within one year following the balance sheet date as of both
December 31, 2019 and 2018. As such, the land is recorded as held-for-sale within “Other current assets” at a value of
$11.8 million and $12.0 million, respectively (adjusted for foreign currency impact), and the deferred tax liability
associated with that land is recorded as held-for-sale within “Accrued expenses and other current liabilities” at a value of
$2.8 million and $2.9 million, respectively (adjusted for foreign currency impact), on the Company’s consolidated
balance sheets.
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 expects
to incur a limited amount of decommissioning costs associated with this plant shutdown in 2020, which will be expensed
as incurred.
NOTE 21—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss), net of income taxes, consisted of:
Years Ended December 31, 2019, 2018, and 2017
Balance at December 31, 2016
Other comprehensive income (loss)
Amounts reclassified from AOCI to net
income(1)
Balance at December 31, 2017
Other comprehensive income (loss)
Amounts reclassified from AOCI to net
income(1)
Balance at December 31, 2018
Other comprehensive income (loss)
Amounts reclassified from AOCI to net
income(1)
Balance at December 31, 2019
$
$
$
$
Cumulative
Translation
Adjustments
Pension & Other
Postretirement Benefit
Plans, Net
Cash Flow
Hedges, Net
(119.0)
24.5
—
(94.5)
(17.3)
—
(111.8)
5.1
—
(106.7)
$
$
$
$
(63.5)
31.8
(13.3)
(45.0)
2.5
3.1
(39.4)
(19.0)
2.1
(56.3)
$
$
$
$
12.3
(20.7)
2.3
(6.1)
9.3
5.7
8.9
(0.7)
(7.6)
0.6
Total
(170.2)
35.6
(11.0)
(145.6)
(5.5)
8.8
(142.3)
(14.6)
(5.5)
(162.4)
$
$
$
$
F-54
(1) The following is a summary of amounts reclassified from AOCI to net income for the years ended
December 31, 2019, 2018, and 2017:
AOCI Components
Cash flow hedging items
Foreign exchange cash flow hedges
Interest rate swaps
Total before tax
Tax effect
Total, net of tax
$
$
Amortization of pension and other
postretirement benefit plan items
Curtailment and settlement (gain) loss $
Prior service credit
Net actuarial loss
Total before tax
Tax effect
Total, net of tax
$
Amount Reclassified from AOCI
Year Ended December 31,
2018
2017
2019
Statement of Operations
Classification
(6.7) $
(0.9)
(7.6)
—
(7.6) $
6.0 $
(0.3)
5.7
—
5.7 $
Interest expense, net
2.0 Cost of sales
0.3
2.3
— Provision for income taxes
2.3
0.8 $
(1.1)
3.4
3.1
(1.0)
2.1 $
0.6 $
(1.0)
4.6
4.2
(1.1)
3.1 $
(21.9)
(1.9)
6.4
(17.4)
(a)
(b)
(b)
4.1 Provision for income taxes
(13.3)
(a) The amount for the year ended December 31, 2017 primarily relates to the curtailment of certain of the Company’s
pension plans in Europe. Refer to Note 16 for further information.
(b) These AOCI components are included in the computation of net periodic benefit costs. Refer to Note 16 for further
information.
NOTE 22—EARNINGS PER SHARE
Basic earnings per ordinary share (“basic EPS”) is computed by dividing net income available to ordinary
shareholders by the weighted-average number of the Company’s ordinary shares outstanding for the applicable period.
Diluted earnings per ordinary share (“diluted EPS”) is calculated using net income available to ordinary shareholders
divided by diluted weighted-average ordinary shares outstanding during each period, which includes unvested RSUs,
option awards, and PSUs. 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, 2019, 2018, and 2017.
(in millions, except per share data)
Earnings:
Net income
Shares:
Year Ended
December 31,
2019
2018
2017
$
92.0
$
292.5
$
328.3
Weighted average ordinary shares outstanding
Dilutive effect of RSUs, option awards, and
PSUs(1)
Diluted weighted average ordinary shares
outstanding
40.3
0.4
40.7
42.8
43.8
0.9
1.2
43.7
45.0
Income per share:
Income per share—basic
Income per share—diluted
$
$
2.28
2.26
$
$
6.83
6.70
$
$
7.49
7.30
(1) Refer to Note 17 for discussion of RSUs, option awards, and PSUs granted to certain Company directors and
employees. The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per
F-55
share were 0.6 million, 0.4 million, and 0.2 million for the years ended December 31, 2019, 2018, and 2017,
respectively.
NOTE 23 – LEASES
As discussed in Note 2, effective January 1, 2019, the Company adopted accounting guidance, Topic 842, issued
by the FASB related to leases that outlines a comprehensive lease accounting model and supersedes the prior lease
guidance. The Company adopted this guidance using the modified retrospective approach and elected the optional
transition method. As a result, comparative prior periods in the Company’s financial statements are not adjusted for the
impacts of the new standard. The Company’s accounting policy and practical expedient elections related to accounting
for leases, including those elected as a result of the adoption of Topic 842, are summarized as follows:
• Package of practical expedients – The Company did not reassess whether expired or existing contracts
contain a lease, did not reassess the classification of expired or existing leases, and did not reassess
whether lease initial direct costs would qualify for capitalization under the new lease accounting
standards.
• Lease and non-lease components as lessee – For leases across all asset classes in which the Company is a
lessee (discussed below), the Company did not separate non-lease components from lease components
and instead accounted for these items as a single lease component.
• Portfolio approach – The Company elected to utilize the portfolio approach under which it did not have to
consider the components to apply lease accounting. Specifically, the Company leveraged the portfolio
approach in determining the discount rate within multiple asset classes, and in determining the lease term
considerations for immaterial asset classes, including, but not limited to, motor vehicles and plant, office,
and information technology equipment.
• Land easements – The Company did not reassess whether existing or expired land easements that were
not previously accounted for as leases are or contain a lease under the new lease accounting standards.
• Use of hindsight and short-term lease exemption – The Company did not elect to utilize either the
practical expedient related to the use of hindsight or the election to exclude short-term leases from
balance sheet presentation.
The Company's ROU assets and lease liabilities are classified on its consolidated balance sheets as follows:
As of
December 31,
2019
Location on Balance Sheet
71.4 Right-of-use assets - operating
Property, plant, and equipment, net of
7.9
accumulated depreciation
14.1 Current lease liabilities - operating
58.0 Noncurrent lease liabilities - operating
Short-term borrowings and current
portion of long-term debt
Long-term debt, net of unamortized
deferred financing fees
2.6
5.3
Operating lease ROU assets
$
Finance lease ROU assets
Operating lease liabilities - current portion
Operating lease liabilities - noncurrent portion
Finance lease liabilities - current portion
Finance lease liabilities - noncurrent portion
F-56
The components of the Company's lease costs are classified on its consolidated statements of operations as
follows:
Finance lease cost:
Amortization of lease ROU assets
Interest on lease liabilities
Operating lease cost
Variable lease cost
Total lease cost
Year Ended
December 31,
2019
$
$
0.8
0.1
18.2
0.2
19.3
The table below shows the cash and non-cash activity related to the Company’s lease liabilities during the period:
Cash paid related to lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Non-cash lease liability activity(1):
ROU assets obtained in exchange for new operating lease
liabilities
ROU assets obtained in exchange for new finance lease liabilities
$
$
Year Ended
December 31,
2019
17.0
0.1
0.8
86.2
8.8
(1) Amounts include the impact of adopting the new lease accounting standard effective January 1, 2019.
As of December 31, 2019, the maturities of the Company's operating and finance lease liabilities were as follows:
2020
2021
2022
2023
2024
Thereafter
Total Lease
Payments
Less Imputed
Interest
Maturity of lease liabilities by year
Operating Leases $
$
Finance Leases
$
Total
16.1 $
2.8 $
18.9 $
10.6 $
2.8 $
13.4 $
8.8 $
2.3 $
11.1 $
8.4 $
0.1 $
8.5 $
6.7 $
0.1 $
6.8 $
35.3 $
0.3 $
35.6 $
85.9 $
8.4 $
94.3 $
(13.8) $
(0.5) $
(14.3) $
Lease
Liability
72.1
7.9
80.0
As of December 31, 2019, the weighted average remaining lease term of the Company's operating and finance
leases was 9.2 and 3.8 years, respectively, and the weighted average discount rate used to determine the lease liability for
operating and finance leases was 4.7% and 3.1%, respectively.
As of December 31, 2019, the Company has additional operating leases that have not yet commenced of $3.2
million. These leases are expected to commence in the first quarter of 2020 with lease terms of 0.5 to 5.0 years.
Disclosures related to periods prior to adoption of Topic 842
As discussed above, the Company adopted Topic 842 effective January 1, 2019 using a modified retrospective
approach. As required, the following disclosure is provided for periods prior to adoption. The Company’s total future
F-57
minimum annual rentals in effect at December 31, 2018 for noncancelable operating leases, which were accounted for
under the previous leasing standard, ASC 840, were as follows:
2019
2020
2021
Annual Commitment
2022
2023
Thereafter
Total
$
17.5 $
14.4 $
9.0 $
10.6 $
5.4 $
16.0 $
72.9
NOTE 24—SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(in millions, except per share data)
2019
Net sales
Gross profit
Equity in earnings of unconsolidated
affiliates
Operating income (loss)
Income before income taxes
Net income
Net income per share- basic
Net income per share- diluted
2018
Net sales
Gross profit
Equity in earnings of unconsolidated
affiliates
Operating income
Income before income taxes
Net income (loss)
Net income (loss) per share- basic
Net income (loss) per share- diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 1,013.1 $
951.8 $
922.1 $
97.4
86.2
85.2
888.8
60.0
32.2
60.8
46.6
35.8
0.87 $
0.86 $
40.3
55.1
43.7
28.0
0.69 $
0.68 $
25.7
43.3
31.8
22.5 (1)
0.56 (1) $
0.56 (1) $
20.8
(11.2)(2)
(17.5)(2)
5.7 (2) (3)
0.14 (2) (3)
0.14 (2) (3)
$
$
$ 1,121.6 $ 1,236.6 $ 1,199.7 $ 1,065.0
59.3
175.2
162.7
131.6
45.5
156.3
145.2
120.3
$
$
2.77 $
2.71 $
33.2
134.2
118.7
98.3
2.28 $
2.24 $
34.5
106.1
93.9
74.7
1.75 $
1.72 $
30.8
17.7
6.4
(0.9)
(0.02)
(0.02)
(1) Includes a $7.4 million deferred tax benefit related to the re-measurement of the Company’s deferred tax assets and
liabilities in Switzerland due to changes in Swiss Federal tax rules, which were enacted in August 2019. Refer to
Note 14 for more information.
(2) Includes $17.8 million of expense related to the Company’s corporate restructuring program. Refer to Note 20 for
further information.
(3) Includes a net $24.1 million tax benefit, which primarily related to a $32.7 million benefit recorded in connection
with the re-measurement of the Company’s deferred tax assets and liabilities in Switzerland due to changes in Swiss
Cantonal and Federal tax rules enacted in 2019. This is partially offset by a $6.2 million charge recorded to increase
the Company’s reserves for uncertain tax positions. Refer to Note 14 for more information.
.
F-58
TRINSEO S.A.
SCHEDULE II—FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
(In Millions)
Balance at Charged to Deduction Currency Balance at
from
Reserves
Beginning of Cost and
Expense
Translation
Adjustments
End of
the Period
the Period
Allowance for doubtful
accounts:
Year ended December 31, 2019 $
Year ended December 31, 2018
Year ended December 31, 2017
6.1 $
5.6
3.1
(0.7) $
0.6
1.5
(0.2)(a) $
(0.4)(a)
(0.1)(a)
0.1 $
0.3
1.1
5.3
6.1
5.6
Tax valuation allowances:
Year ended December 31, 2019 $
Year ended December 31, 2018
Year ended December 31, 2017
167.6 $
149.6
112.6
50.4 $
19.5
35.6
— $
— $
(0.9)
—
(0.6)
1.4
218.0
167.6
149.6
(a) Amounts written off, net of recoveries.
F-59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members and Board of Directors of
Americas Styrenics LLC
The Woodlands, Texas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Americas Styrenics LLC and its subsidiaries (the
"Company") as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income,
members' equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes
(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB 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 financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial
reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 12, 2020
We have served as the Company’s auditor since 2008.
F-60
AMERICAS STYRENICS LLC
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2018
(In millions of dollars)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables (net of allowance of $2.1 in 2019 and $2.4 in 2018)
Related company receivables
Inventories
Other current assets
Total current assets
NET PROPERTY, PLANT AND EQUIPMENT
INVESTMENT IN UNCONSOLIDATED AFFILIATE
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 8)
MEMBERS’ EQUITY:
Members' equity
Accumulated other comprehensive loss
Total members’ equity
TOTAL
See notes to consolidated financial statements.
2019
2018
42.2
117.1
6.1
145.7
15.5
326.6
238.6
2.7
1.0
5.4
6.4
574.3
89.3
34.6
14.1
4.3
16.5
158.8
16.9
1.6
177.3
398.3
(1.3)
397.0
574.3
$
$
$
$
31.3
165.4
5.5
155.0
16.2
373.4
227.4
—
1.3
7.5
8.8
609.6
106.0
29.0
9.3
7.0
15.9
167.2
15.4
2.0
184.6
425.8
(0.8)
425.0
609.6
$
$
$
$
F-61
$
2019
1,486.1
1,242.9
243.2
2.3
9.5
31.3
0.6
1.2
1.2
197.1
0.2
(1.3)
196.0
(3.5)
192.5
$
2018
1,825.7
1,515.5
310.2
2.7
8.9
29.4
1.2
—
0.5
267.5
0.2
(1.3)
266.4
(6.2)
260.2
$
2017
1,783.6
1,542.8
240.8
2.4
7.5
27.6
0.4
—
0.6
202.3
0.2
(1.3)
201.2
(6.8)
194.4
(1.2)
0.7
(0.5)
192.0
$
1.1
0.7
1.8
262.0
$
1.0
0.7
1.7
196.1
AMERICAS STYRENICS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(In millions of dollars)
Net sales
Cost of sales
Gross margin
Technical service and development
Selling and marketing
Administrative
Foreign exchange loss
Equity in loss of investment in unconsolidated affiliate
Other operating expense - net
Operating income
Interest income
Other expense - net
Income before income taxes
Income tax expense
Net income
Other comprehensive loss:
Net actuarial (loss) gain
Reclassification of prior-service cost to income
Net other comprehensive (loss) income — defined benefit plans
Total comprehensive income
$
See notes to consolidated financial statements.
F-62
AMERICAS STYRENICS LLC
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(In millions of dollars)
BALANCE—January 1, 2017
Distribution to Members
Defined benefit plans—other comprehensive income
Net income
BALANCE—December 31, 2017
Distribution to Members
Defined benefit plans—other comprehensive income
Net income
BALANCE—December 31, 2018
Distribution to Members
Defined benefit plans—other comprehensive loss
Net income
BALANCE—December 31, 2019
See notes to consolidated financial statements.
Accumulated
Other
Comprehensive
Loss
Members'
Equity
$
$
446.2
(240.0)
—
194.4
400.6
(235.0)
—
260.2
425.8
(220.0)
—
192.5
398.3
$
$
(4.3)
—
1.7
—
(2.6)
—
1.8
—
(0.8)
—
(0.5)
—
(1.3)
$
$
Total
441.9
(240.0)
1.7
194.4
398.0
(235.0)
1.8
260.2
425.0
(220.0)
(0.5)
192.5
397.0
F-63
2019
2018
2017
$ 192.5 $ 260.2 $ 194.4
41.4
0.7
0.3
1.1
(0.3)
43.0
0.2
(0.5)
—
(0.7)
42.4
0.1
1.0
—
0.4
48.6
(0.6)
9.3
(16.7)
5.6
7.2
289.1
(18.3)
0.8
(20.8)
(5.6)
(7.3)
(14.3)
236.7
(26.8)
5.0
12.6
42.5
(0.2)
0.9
272.3
(54.4)
—
(3.8)
(58.2)
(220.0)
(220.0)
10.9
31.3
42.2 $
(36.8)
0.2
—
(36.6)
(235.0)
(235.0)
(34.9)
66.2
31.3 $
(29.2)
0.2
—
(29.0)
(240.0)
(240.0)
3.3
62.9
66.2
$
$
$
7.6 $
3.9 $
10.6 $
4.0 $
4.3
4.5
AMERICAS STYRENICS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(In millions of dollars)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Net loss on disposal of assets
Deferred income taxes
Equity in loss of investment in unconsolidated affiliate
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
Disposal of assets
Investment in unconsolidated affiliate
Net cash used in investing activities
FINANCING ACTIVITY—Distribution to Members
Cash used in financing activity
INCREASE (DECREASE) 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.
F-64
AMERICAS STYRENICS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019 AND 2018, AND
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(Amounts in millions of dollars)
1.
THE COMPANY
Americas Styrenics LLC is a joint venture between Chevron Phillips Chemical Company LP (“CPChem”) and
Trinseo 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 de
Mexico, de R.L. de C.V., Americas Styrenics Canada Inc., and Americas Styrenics Participacoes 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 nil and $0.2 of interest-bearing investments
at December 31, 2019 and 2018, 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, 2019 and 2018, were as follows:
Finished goods
Work in process
Raw materials
Supplies
Total inventories
$
2019
61.4 $
32.0
32.7
19.6
$
145.7 $
2018
57.4
53.5
24.7
19.4
155.0
Inventories are stated at the lower of cost or net realizable value. Finished products and work-in-process
inventories include material, labor, and manufacturing overhead costs. US inventories are accounted for on a last-
in, first-out (LIFO) basis. The reserves reducing inventories from a first-in, first-out (FIFO) basis to a LIFO basis
amounted to $28.7 at December 31, 2019, and $26.5 at December 31, 2018. In 2019, the liquidation of certain of
the Company’s LIFO inventory layers increased operating income by $0.3. Inventories held by foreign subsidiaries
are accounted for on a FIFO basis.
Property, Plant, and Equipment—Upon formation of the Company, property, plant, and equipment were
recorded at the net book value of the original contributing members (CPChem and The Dow Chemical Company
or “Dow”). 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
F-65
turnarounds, are expensed as incurred. Components of property, plant, and equipment at December 31, 2019 and
2018, 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
$
2019
13.2 $
33.8
63.3
914.6
21.7
36.1
2018
12.7
32.3
64.5
888.7
14.1
42.8
1,082.7
(844.1)
$
238.6 $
1,055.1
(827.7)
227.4
Equity Method Investments— The Company contributed $3.8 million to establish the Regenyx LLC joint
venture in April 2019 for which the Company has an ownership percentage of 50%. We account for our equity
investment where we own a non-controlling interest, but exercise significant influence, under the equity method of
accounting. Under the equity method of accounting, our original cost of the investment is adjusted for our share of
equity in the earnings of the equity investee and reduced by dividends and distributions of capital received. The
Company’s investment in this unconsolidated affiliate was $2.7 million as of December 31, 2019.
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, 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.
Accounting standards establish a “more-likely-than-not” recognition threshold that must be met before a tax
benefit can be recognized in the financial statements. If a tax deduction is taken on a tax return, but does not meet
the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax
return, is required to be recorded. An uncertain tax position may also result in an asset which means that, after
settlement, taxable income could be less than what was reported on the original tax return. 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 2019, 2018, or 2017.
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, 2019 and 2018, the Company had no significant
asset retirement obligations.
F-66
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.
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 generates all revenue through product sales in which revenue is recognized
at a point in time. The Company recognizes revenue when control of the promised goods is transferred to the
customer. Control of goods usually passes to the customer at the time shipment is made. Revenue is measured as
the amount that reflects the consideration expected to be entitled to in exchange for those goods. See “Note 5
Revenue Recognition.”
Cost of Goods Sold—The Company classifies the costs of manufacturing and distributing our products as cost of
goods sold. Manufacturing costs include variable costs, primarily raw materials and energy, and fixed expenses
directly associated with production. Manufacturing costs also include, among other things, plant site operating
costs and overhead (including depreciation), production planning and logistics costs, repair and maintenance costs,
plant site purchasing costs, and engineering and technical support costs. Distribution, freight and warehousing
costs are also included in cost of goods sold.
Subsequent Events— The Company has evaluated subsequent events through February 12, 2020, the date the
financial statements were available to be issued.
3.
RECENT ACCOUNTING GUIDANCE
Accounting Pronouncements Adopted during 2019
The FASB issued ASUs which amended ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
ASU 2014-09, as amended, provides a comprehensive new revenue recognition model that requires revenue to be
recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the
consideration expected to be received in exchange for those goods or services. ASU 2014-09, as amended, is
effective for fiscal years beginning after December 15, 2018 and permits early adoption by nonpublic entities. The
ASU, as amended, permits 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 initial
application. On January 1, 2018, we adopted the amendments in ASU No. 2014-09, as amended, to all current
revenue contracts using the modified retrospective approach, and the initial adoption of these amendments did not
have an impact on our consolidated financial statements. As a result of the adoption of these amendments, we
revised our accounting policy for revenue recognition as detailed in “Note 2. Nature of Operations and Significant
Accounting Policies.”
Accounting Pronouncements Pending Adoption in Future Periods
The FASB issued ASUs which amended ASU No. 2016-02, Leases (Topic 842). This ASU, as amended, 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 their right to use the underlying asset for the lease term. ASU No. 2016-02 is effective for
fiscal years beginning after December 15, 2020. Early adoption is permitted. Reporting entities are required to
F-67
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
on our consolidated financial statements and believe, based on our preliminary assessment, that we will record
material additional right-to-use assets and lease obligations. We are establishing and evaluating an inventory of our
existing leases for consideration of the accounting impact of each lease. We have selected a lease accounting
software solution to support the new requirements under the amendments in these ASUs. We are also evaluating
key policy elections and considerations under the amendments in these ASUs and are developing internal policies
to address these amendments.
In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit
Plans—General (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Defined
Benefit Plans. The amendments in this ASU modify certain disclosure requirements for employers that sponsor
other postretirement plans by removing disclosures that no longer are considered cost beneficial, clarifying the
specific requirements of disclosures and adding disclosure requirements identified as relevant. The amendments in
this ASU are effective for fiscal years ending after December 15, 2020 and should be applied on a retrospective
basis to all periods presented. Early adoption is permitted. We do not expect the adoption of the amendments in
this ASU to have a significant impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an
internal-use software license). The amendments in this ASU are effective for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim
period after the issuance of this ASU. We do not expect the adoption of the amendments in this ASU to have a
significant impact on our consolidated financial statements.
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
London InterBank Offered Rate-based rate (plus 125 basis points as of December 31, 2019) as defined in the credit
agreement. There were no outstanding borrowings at December 31, 2019 or 2018.
5.
REVENUE RECOGNITION
The Company generates all revenues through sales in the open market and long-term supply agreements. The
Company recognizes revenue when control of the promised goods is transferred to the customers. Control of goods
usually passes to the customer at the time shipment is made. Revenue is measured as the amount that reflects the
consideration that we expect to be entitled to in exchange for those goods. Sales, value add, and other taxes
collected concurrent with revenue-producing activities are excluded from revenue. Incidental items that are
immaterial in the context of the contract are recognized as expense. The Company has elected to account for all
shipping and handling activities as fulfillment costs. The Company also elected to expense commissions when
incurred as the amortization period of the commission asset that the Company would have otherwise recognized is
less than one year.
All revenue is generated through product sales and recognized at a point in time. At contract inception, the
Company assesses the goods and services, if any, promised in the contracts and identify a performance obligation
for each promise to transfer to the customer a good or service that is distinct. In all cases, a contract has a single
performance obligation to deliver a promised good to the customer. Revenue is recognized when control of the
product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which
typically occurs at shipment. Further, in determining whether control has transferred, the Company considers if
there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to
the customer.
F-68
The amount of consideration the Company receives and recognizes as revenue is based upon the terms stated in the
sales contract, which may contain variable consideration such as discounts or rebates. The Company allocates the
transaction price to each distinct product based on their relative standalone selling price. The product price as
specified on the purchase order or in the sales contract is considered the standalone selling price as it is an
observable input that depicts the price as if sold to a similar customer in similar circumstances. In order to estimate
the applicable variable consideration, the Company uses historical and current trend information to estimate the
amount of discounts or rebates to which customers are likely to be entitled. Historically, actual discount or rebate
adjustments relative to those estimated and included when determining the transaction price have not materially
differed. Payment terms vary but are less than one year. As standard payment terms are less than one year, the
Company has elected to not assess whether a contract has a significant financing component. In the normal course
of business, the Company does not accept product returns unless the item is defective as manufactured
6.
INCOME TAXES
The components of income before taxes for the years ended December 31, 2019, 2018, and 2017, are as follows:
Domestic
Foreign
Total income before taxes
2019
179.2
16.8
196.0
$
$
2018
254.9
11.5
266.4
$
$
2017
188.2
13.0
201.2
$
$
The components of income tax expense for the years ended December 31, 2019, 2018, and 2017, are as follows:
State—current
Foreign—current
Foreign—deferred
Total income tax expense
2019
2018
2017
$
$
0.1 $
3.5
(0.1)
3.5 $
0.2 $
6.2
(0.2)
6.2 $
0.2
5.6
1.0
6.8
The components of deferred income tax assets and liabilities at December 31, 2019 and 2018, are as follows:
2019
2018
Inventory
Fixed assets
Other temporary differences
Total deferred tax
$
$
0.5 $
0.4
0.1
1.0 $
Deferred
Tax Assets
Deferred
Tax
Liabilities
—
—
—
— $
$
Deferred
Tax Assets
Deferred
Tax
Liabilities
—
(0.4)
—
(0.4)
1.1 $
—
0.2
1.3 $
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.
7.
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 an unfunded plan and 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.
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At each of December 31, 2019 and 2018, the RRA had benefit obligations in the amount of $18.0 and $16.4,
respectively. The Company contributed and paid benefits in the amount of $0.8 in 2019, $0.8 in 2018, and $0.7 in
2017.
At December 31, 2019 and 2018, amounts recognized in the consolidated balance sheets consist of:
Current liabilities
Noncurrent liabilities
Total
2019
2018
$
$
(1.1)
(16.9)
(18.0)
$
$
(1.0)
(15.4)
(16.4)
At December 31, 2019 and 2018, amounts recognized in accumulated other comprehensive loss were as follows:
Net actuarial loss (gain)
Prior service cost
Total
2019
2018
$
$
0.7
0.7
1.4
$
$
(0.5)
1.3
0.8
In 2020, $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:
Service cost
Interest cost
Amortization of prior service cost
Net periodic postretirement benefit cost
Other changes in benefit obligations recognized in other
comprehensive loss:
Net actuarial loss (gain)
Recognized prior-service cost
2019 2018 2017
$ 0.5
0.7
0.6
$ 0.5
0.6
0.7
$ 1.8 $ 1.8 $ 1.8
$ 0.5
0.6
0.7
1.2
(0.7)
0.5
(1.1)
(0.7)
(1.8)
(1.0)
(0.7)
(1.7)
Total recognized in other comprehensive (loss) income
Total recognized in net periodic benefit cost and other
comprehensive loss
$ 2.3 $
— $ 0.1
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
2019
2018
2017
4.28 %
3.49 %
3.82 %
2.94 %
4.28 % N/A
2019
2018
2017
6.95 %
4.50 %
2027
7.30 %
4.50 %
2027
7.65 %
4.50 %
2027
Estimated health care cost trend rates can have a significant effect on the amounts reported for the RRA.
The Company expects to contribute approximately $1.2 to its RRA plan in 2020.
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At December 31, 2019, the estimated future benefit payments, reflecting expected future service, as appropriate,
are expected to be paid as follows:
2020
2021
2022
2023
2024
2025 through 2029
Total
$
$
1.2
1.3
1.5
1.7
1.8
9.2
16.7
The Company also has a defined contribution employee savings plan and made discretionary contributions of $4.2
in 2019, $3.8 in 2018, and $3.7 in 2017.
8. 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 2020
and 2029.
Total future minimum annual rentals in effect at December 31, 2019, for noncancelable operating leases are as
follows:
Years Ending December 31
2020
2021
2022
2023
2024
2025 and thereafter
Total
$
$
8.8
7.6
4.6
2.9
1.8
7.1
32.8
Expense for total rental and long-term commitments was $8.3, $13.6, and $12.2, for the years ended December 31,
2019, 2018, and 2017, respectively.
The Company has entered into long-term sales commitments and purchase agreements with several of its key
suppliers, including its Members (see Note 9). 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 $66.8 mainly related to certain feedstock, utility, and third
party service 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 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 balance sheets or statements of comprehensive income.
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Pursuant to the contribution agreement, all preexisting environmental matters have been outlined for each site and
any contingencies are the responsibility of the original contributing members. All subsequent obligations are the
liability of the Company. No environmental reserve was recorded as of December 31, 2019 and 2018.
9.
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, 2019, 2018, and 2017, is as follows:
Net sales
Purchases
2019
$
86.5 $
365.2
2018
101.4 $
423.8
2017
82.9
386.1
Balances receivable and payable to the Members are presented in the consolidated balance sheets as related
company receivables and payables.
******
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Trinseo Europe GmbH
Zugerstrasse 231
8810 Horgen / Switzerland
Trinseo S.A.
1000 Chesterbrook Blvd., Suite 300
Berwyn, PA 19312
Trinseo (Hong Kong) Limited
Suite 3401-4, 34/F, Central Plaza
18 Harbour Road,
Wanchai, Hong Kong
investorrelations@Trinseo.com • www.Trinseo.com