10-Q 1 tse-20150930x10q.htm 10-Q tse_Current folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

 

(Mark One)                                                                                                                                                                                         

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

or

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

N/A

(State or other jurisdiction of

incorporation or organization)

(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)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No    

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   

 

As of November 5, 2015, there were 48,777,934 shares of the registrant’s ordinary shares outstanding.

 

 

 


 

 

TABLE OF CONTENTS

 

 

    

    

    

    

 

 

    

 

    

Page

 

 

 

 

 

 

 

Part I 

 

Financial Information

 

 

 

 

 

 

 

 

 

Item 1. 

 

Financial Statements

 

4 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 (Unaudited)

 

4 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (Unaudited)

 

5 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014 (Unaudited)

 

6 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2015 and 2014 (Unaudited)

 

7 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (Unaudited)

 

8 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9 

 

 

 

 

 

 

 

Item 2. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

31 

 

 

 

 

 

 

 

Item 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

 

50 

 

 

 

 

 

 

 

Item 4. 

 

Controls and Procedures

 

50 

 

 

 

 

 

 

 

Part II 

 

Other Information

 

 

 

 

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

50 

 

 

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

50 

 

 

 

 

 

 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

51 

 

 

 

 

 

 

 

Item 3. 

 

Defaults Upon Senior Securities

 

51 

 

 

 

 

 

 

 

Item 4. 

 

Mine Safety Disclosures

 

51 

 

 

 

 

 

 

 

Item 5. 

 

Other Information

 

51 

 

 

 

 

 

 

 

Item 6. 

 

Exhibits

 

51 

 

 

 

 

 

 

 

Signatures 

 

 

 

 

 

 

 

 

 

 

 

Exhibit Index 

 

 

 

 

 

 

 

2


 

Trinseo S.A.

Quarterly Report on Form 10-Q

For the quarterly period ended September 30, 2015

Unless otherwise indicated or required by context, as used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the term “Trinseo” refers to Trinseo S.A. (NYSE: TSE), a public limited liability company (société anonyme) existing under the laws of Luxembourg, and not its subsidiaries. The terms “Company,” “we,” “us” and “our” refer to Trinseo and its consolidated subsidiaries, taken as a consolidated entity and as required by context, may also include our business as owned by our predecessor, The Dow Chemical Company, for any dates prior to June 17, 2010. The terms “Trinseo Materials Operating S.C.A.” and “Trinseo Materials Finance, Inc.” refer to Trinseo’s indirect subsidiaries, Trinseo Materials Operating S.C.A., a Luxembourg partnership limited by shares incorporated under the laws of Luxembourg, and Trinseo Materials Finance, Inc., a Delaware corporation, and not their subsidiaries. All financial data provided in this Quarterly Report is the financial data of the Company, unless otherwise indicated.

Prior to our formation, our business was wholly owned by The Dow Chemical Company. We refer to our predecessor business as “the Styron business.” On June 17, 2010, investment funds advised or managed by affiliates of Bain Capital Partners, LLC (“Bain Capital”) acquired the Styron business and Dow Europe Holding B.V., which we refer to as “Dow Europe,” or, together with other affiliates of The Dow Chemical Company, “Dow,” retained an ownership interest in the Styron business through an indirect ownership interest in us. We refer to our acquisition by Bain Capital as the “Acquisition.”

In the first quarter of 2015, we completed a rebranding process to change our operating name and legal entities from “Styron” to “Trinseo,” a name that we believe reflects our breadth as a company with broad global reach and a diverse portfolio of materials and technologies.

Cautionary Note on Forward-Looking Statements

This Quarterly Report contains forward-looking statements including, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. Forward-looking statements may be identified by the use of words like “expect,” “anticipate,” “intend,” “forecast,” “outlook,” “will,” “may,” “might,” “potential,” “likely,” “target,” “plan,” “contemplate,” “seek,” “attempt,” “should,” “could,” “would” or expressions of similar meaning. Forward-looking statements reflect management’s evaluation of information currently available and are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2014 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 10, 2015 under Part I, Item IA— “Risk Factors”, and elsewhere within this Quarterly Report.

As a result of these or other factors, 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. Therefore, we caution you against relying on these forward-looking statements. The forward-looking statements included in this Quarterly 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.

Where You Can Find Additional Information

Our website is www.trinseo.com. Information contained on our website is not part of this Quarterly Report. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Washington, D.C. 20549.

 

 

3


 

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements 

TRINSEO S.A.

Condensed Consolidated Balance Sheets  

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31,

 

 

    

2015

    

2014

 

Assets

    

 

    

    

 

    

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

320,771

 

$

220,786

 

Accounts receivable, net of allowance for doubtful accounts (September 30, 2015 -- $2,339; December 31, 2014 -- $6,268)

 

 

550,006

 

 

601,066

 

Inventories

 

 

391,247

 

 

473,861

 

Deferred income tax assets

 

 

10,198

 

 

11,786

 

Other current assets

 

 

19,749

 

 

15,164

 

Total current assets

 

 

1,291,971

 

 

1,322,663

 

Investments in unconsolidated affiliates

 

 

191,194

 

 

167,658

 

Property, plant and equipment, net of accumulated depreciation (September 30, 2015 -- $358,415; December 31, 2014 -- $324,383)

 

 

522,213

 

 

556,697

 

Other assets

 

 

 

 

 

 

 

Goodwill

 

 

31,917

 

 

34,574

 

Other intangible assets, net

 

 

155,194

 

 

165,358

 

Deferred income tax assets—noncurrent

 

 

62,269

 

 

46,812

 

Deferred charges and other assets

 

 

57,381

 

 

62,354

 

Total other assets

 

 

306,761

 

 

309,098

 

Total assets

 

$

2,312,139

 

$

2,356,116

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Short-term borrowings and current portion of long-term debt

 

$

5,627

 

$

7,559

 

Accounts payable

 

 

337,759

 

 

434,692

 

Income taxes payable

 

 

36,007

 

 

9,413

 

Deferred income tax liabilities

 

 

834

 

 

1,413

 

Accrued expenses and other current liabilities

 

 

109,164

 

 

120,928

 

Total current liabilities

 

 

489,391

 

 

574,005

 

Noncurrent liabilities

 

 

 

 

 

 

 

Long-term debt

 

 

1,215,334

 

 

1,194,648

 

Deferred income tax liabilities—noncurrent

 

 

29,571

 

 

27,311

 

Other noncurrent obligations

 

 

232,592

 

 

239,287

 

Total noncurrent liabilities

 

 

1,477,497

 

 

1,461,246

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock, $0.01 nominal value, 50,000,000 shares authorized at September 30, 2015 and December 31, 2014, 48,778 and 48,770 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively

 

 

488

 

 

488

 

Additional paid-in-capital

 

 

556,964

 

 

547,530

 

Accumulated deficit

 

 

(61,421)

 

 

(151,936)

 

Accumulated other comprehensive loss

 

 

(150,780)

 

 

(75,217)

 

Total shareholders’ equity

 

 

345,251

 

 

320,865

 

Total liabilities and shareholders’ equity

 

$

2,312,139

 

$

2,356,116

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

TRINSEO S.A.

Condensed Consolidated Statements of Operations  

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2015

    

2014

    

2015

    

2014

 

Net sales

    

$

1,027,952

    

$

1,305,493

    

$

3,074,890

    

$

4,005,560

 

Cost of sales

 

 

916,390

 

 

1,237,257

 

 

2,718,112

 

 

3,746,285

 

Gross profit

 

 

111,562

 

 

68,236

 

 

356,778

 

 

259,275

 

Selling, general and administrative expenses

 

 

51,093

 

 

48,113

 

 

153,607

 

 

172,351

 

Equity in earnings of unconsolidated affiliates

 

 

33,489

 

 

9,267

 

 

111,037

 

 

29,595

 

Operating income

 

 

93,958

 

 

29,390

 

 

314,208

 

 

116,519

 

Interest expense, net

 

 

19,489

 

 

30,098

 

 

73,945

 

 

95,518

 

Loss on extinguishment of long-term debt

 

 

 —

 

 

7,390

 

 

95,150

 

 

7,390

 

Other expense (income), net

 

 

1,214

 

 

(1,638)

 

 

7,998

 

 

29,406

 

Income (loss) before income taxes

 

 

73,255

 

 

(6,460)

 

 

137,115

 

 

(15,795)

 

Provision for income taxes

 

 

21,200

 

 

3,650

 

 

46,600

 

 

21,850

 

Net income (loss)

 

$

52,055

 

$

(10,110)

 

$

90,515

 

$

(37,645)

 

Weighted average shares- basic

 

 

48,778

 

 

48,770

 

 

48,773

 

 

41,693

 

Net income (loss) per share- basic

 

$

1.07

 

$

(0.21)

 

$

1.86

 

$

(0.90)

 

Weighted average shares- diluted

 

 

48,989

 

 

48,770

 

 

48,936

 

 

41,693

 

Net income (loss) per share- diluted

 

$

1.06

 

$

(0.21)

 

$

1.85

 

$

(0.90)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

 

TRINSEO S.A.

Condensed Consolidated Statements of Comprehensive Income (Loss)  

(In thousands, unless otherwise stated)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2015

    

2014

    

2015

    

2014

 

Net income (loss)

    

$

52,055

    

$

(10,110)

    

$

90,515

    

$

(37,645)

 

Other comprehensive income (loss), net of tax (tax amounts shown in millions below for the three and nine months ended September 30, 2015 and 2014, respectively):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustments

 

 

1,234

 

 

(84,868)

 

 

(77,680)

 

 

(95,220)

 

Net gain (loss) on foreign exchange cash flow hedges

 

 

97

 

 

 —

 

 

(308)

 

 

 —

 

Pension and other postretirement benefit plans (net of tax of: 2015—$0.3 and $1.0; 2014—$0.2 and $0.5)

 

 

797

 

 

286

 

 

2,425

 

 

866

 

Total other comprehensive income (loss), net of tax

 

 

2,128

 

 

(84,582)

 

 

(75,563)

 

 

(94,354)

 

Comprehensive income (loss)

 

$

54,183

 

$

(94,692)

 

$

14,952

 

$

(131,999)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

TRINSEO S.A.

Condensed Consolidated Statements of Shareholders’ Equity  

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

 

    

Accumulated

    

    

 

    

    

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Total

 

Balance at December 31, 2014

 

48,770

 

$

488

 

$

547,530

 

$

(75,217)

 

$

(151,936)

 

$

320,865

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

90,515

 

 

90,515

 

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(75,563)

 

 

 —

 

 

(75,563)

 

Stock-based compensation

 

8

 

 

 —

 

 

9,434

 

 

 —

 

 

 —

 

 

9,434

 

Balance at September 30, 2015

 

48,778

 

$

488

 

$

556,964

 

$

(150,780)

 

$

(61,421)

 

$

345,251

 

Balance at December 31, 2013

 

37,270

 

$

373

 

$

339,055

 

$

88,378

 

$

(84,604)

 

$

343,202

 

Issuance of common stock

 

11,500

 

 

115

 

 

197,974

 

 

 

 

 

 

198,089

 

Net loss

 

 

 

 

 

 

 

 

 

(37,645)

 

 

(37,645)

 

Other comprehensive loss

 

 

 

 

 

 

 

(94,354)

 

 

 

 

(94,354)

 

Stock-based compensation

 

 

 

 

 

7,779

 

 

 

 

 

 

7,779

 

Balance at September 30, 2014

 

48,770

 

$

488

 

$

544,808

 

$

(5,976)

 

$

(122,249)

 

$

417,071

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


 

TRINSEO S.A.

Condensed Consolidated Statements of Cash Flows  

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2015

    

2014

 

Cash flows from operating activities

    

 

    

    

 

    

 

Net income (loss)

 

$

90,515

 

$

(37,645)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

 

 

Depreciation and amortization

 

 

67,287

 

 

78,798

 

Amortization of deferred financing costs and issuance discount

 

 

6,075

 

 

7,495

 

Deferred income tax

 

 

(13,815)

 

 

4,716

 

Stock-based compensation

 

 

9,434

 

 

7,779

 

Earnings of unconsolidated affiliates, net of dividends

 

 

(23,540)

 

 

(9,596)

 

Unrealized net losses (gains) on foreign exchange forward contracts

 

 

(4,435)

 

 

13,324

 

Loss on extinguishment of debt

 

 

95,150

 

 

7,390

 

Prepayment penalty on long-term debt

 

 

(68,603)

 

 

(3,975)

 

Loss (gain) on sale of businesses and other assets

 

 

 —

 

 

(116)

 

Changes in assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

 

11,726

 

 

(42,015)

 

Inventories

 

 

63,117

 

 

(1,360)

 

Accounts payable and other current liabilities

 

 

(47,861)

 

 

1,535

 

Income taxes payable

 

 

26,780

 

 

764

 

Other assets, net

 

 

(7,119)

 

 

(6,254)

 

Other liabilities, net

 

 

994

 

 

(19,179)

 

Cash provided by operating activities

 

 

205,705

 

 

1,661

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures

 

 

(79,088)

 

 

(69,269)

 

Proceeds from capital expenditures subsidy

 

 

2,191

 

 

 —

 

Proceeds from the sale of businesses and other assets

 

 

689

 

 

6,257

 

Payment for working capital adjustment from sale of business

 

 

 —

 

 

(700)

 

Distributions from unconsolidated affiliates

 

 

 —

 

 

978

 

Increase in restricted cash

 

 

(413)

 

 

 —

 

Cash used in investing activities

 

 

(76,621)

 

 

(62,734)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from initial public offering, net of offering costs

 

 

 —

 

 

198,087

 

Deferred financing fees

 

 

(28,033)

 

 

 —

 

Short term borrowings, net

 

 

(17,703)

 

 

(43,430)

 

Repayments of Term Loans

 

 

(1,250)

 

 

 —

 

Net proceeds from issuance of Term Loan B

 

 

498,750

 

 

 —

 

Net proceeds from issuance of 2022 Senior Notes

 

 

716,625

 

 

 —

 

Repayments of 2019 Senior Notes

 

 

(1,192,500)

 

 

(132,500)

 

Proceeds from Accounts Receivable Securitization Facility

 

 

25,000

 

 

283,292

 

Repayments of Accounts Receivable Securitization Facility

 

 

(25,000)

 

 

(283,859)

 

Cash provided by (used in) financing activities

 

 

(24,111)

 

 

21,590

 

Effect of exchange rates on cash

 

 

(4,988)

 

 

(4,893)

 

Net change in cash and cash equivalents

 

 

99,985

 

 

(44,376)

 

Cash and cash equivalents—beginning of period

 

 

220,786

 

 

196,503

 

Cash and cash equivalents—end of period

 

$

320,771

 

$

152,127

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

8


 

TRINSEO S.A.

Notes to Condensed Consolidated Financial Statements  

(Dollars in thousands, unless otherwise stated)

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) as of and for the periods ended September 30, 2015 and 2014 were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are considered necessary for the fair statement of the results for the periods presented. Because they cover interim periods, the statements and related notes to the financial statements do not include all disclosures normally provided in annual financial statements and, therefore, these statements should be read in conjunction with the 2014 audited consolidated financial statements included within the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 10, 2015.

The December 31, 2014 condensed consolidated balance sheet data presented herein was derived from the Company’s December 31, 2014 audited consolidated financial statements, but does not include all disclosures required by GAAP for annual periods.

Reverse Stock Split and Initial Public Offering

On May 30, 2014, the Company amended its Articles of Association to effect a 1-for-436.69219 reverse stock split of its issued and outstanding common stock (“reverse split”) and to increase its authorized shares to 50.0 billion. On June 17, 2014, the Company completed an initial public offering (the “IPO”) of 11,500,000 ordinary shares at a price of $19.00 per share, which included 1,500,000 of shares sold pursuant to the underwriters’ exercise of their over-allotment option. The Company received cash proceeds of $203.2 million from this transaction, net of underwriting discounts.

Company Realignment

 

Until January 1, 2015, the chief executive officer, who is the Company’s chief operating decision maker, managed the Company’s operations under two divisions, Emulsion Polymers and Plastics, which included the following four reporting segments: Latex, Synthetic Rubber, Styrenics, and Engineered Polymers. Effective January 1, 2015, the Company was reorganized under two new divisions called Performance Materials and Basic Plastics & Feedstocks. The Performance Materials division now includes the following reporting segments: Synthetic Rubber, Latex, and Performance Plastics. The Basic Plastics & Feedstocks division represents a separate segment for financial reporting purposes. These condensed consolidated financial statements and related notes thereto have been recast to reflect this change in reporting segments. See Note 14 for more information.

 

NOTE 2—RECENT ACCOUNTING GUIDANCE

In April 2014, the Financial Accounting Standards Board (“FASB”) issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The Company adopted this guidance effective January 1, 2015, and the adoption did not have a significant impact on the Company’s financial position, results of operations, or disclosures.

In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued new guidance which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for public entities for annual and interim periods beginning after December 15, 2017.  The Company is

9


 

currently assessing the impact of adopting this guidance on its financial position and results of operations.

In January 2015, the FASB issued guidance to simplify income statement classification by removing the concept of extraordinary items from GAAP. The Company adopted this guidance effective January 1, 2015, and the adoption did not have an impact on the Company’s financial position or results of operations.

In April 2015, the FASB issued guidance that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. This new guidance, which is to be applied on a retrospective basis, is effective for public companies for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The Company will adopt this guidance effective January 1, 2016, which we do not expect to have a significant impact on the Company’s financial position or results of operations.

In July 2015, the FASB issued guidance which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (“NRV”) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation.  This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, and prospective adoption is required.  The Company is currently assessing the impact of adopting this guidance on its financial position and results of operations.

 

NOTE 3—INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company is supplemented by two strategic joint ventures, the results of which are included within the Basic Plastics & Feedstocks reporting segment: Americas Styrenics LLC (“Americas Styrenics”, a polystyrene joint venture with Chevron Phillips Chemical Company LP) and Sumika Styron Polycarbonate Limited (“Sumika Styron Polycarbonate”, a polycarbonate joint venture with Sumitomo Chemical Company, Limited). Investments held in the unconsolidated affiliates are accounted for by the equity method.

As of September 30, 2015 and December 31, 2014, respectively, the Company’s investment in Americas Styrenics was $154.1 million and $133.5 million, which was $97.2 million and $108.4 million less than the Company’s 50% share of the underlying net assets of Americas Styrenics. This amount represents the difference between the book value of assets contributed to the joint venture at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the joint venture’s assets and certain adjustments to conform with the Company’s accounting policies. This difference is being amortized over a weighted average remaining useful life of the contributed assets of approximately 5.0 years as of September 30, 2015. The Company received dividends from Americas Styrenics of $42.5 million and $87.5 million during the three and nine months ended September 30, 2015, respectively, compared to dividends of $7.5 million and $20.0 million during the three and nine months ended September 30, 2014, respectively.  

As of September 30, 2015 and December 31, 2014, respectively, the Company’s investment in Sumika Styron Polycarbonate was $37.1 million and $34.1 million, which was $20.2 million and $21.3 million greater than the Company’s 50% share of the underlying net assets of Sumika Styron Polycarbonate. This amount represents the fair value of certain identifiable assets which have not been recorded on the historical financial statements of Sumika Styron Polycarbonate. This difference is being amortized over the remaining useful life of the contributed assets of 10.0 years as of September 30, 2015. The Company received no dividends from Sumika Styron Polycarbonate during the three and nine months ended September 30, 2015, respectively, compared to dividends of zero and $1.0 million during the three and nine months ended September 30, 2014, respectively.

10


 

Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their stock are not available. The summarized financial information of the Company’s unconsolidated affiliates is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2015

    

2014

    

2015

    

2014

 

Sales

    

$

447,712

    

$

577,519

    

$

1,388,085

    

$

1,682,571

 

Gross profit

 

$

79,972

 

$

29,743

 

$

249,334

 

$

65,222

 

Net income

 

$

61,018

 

$

13,667

 

$

201,498

 

$

24,161

 

 

 

NOTE 4—INVENTORIES

Inventories consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31,

 

 

    

2015

    

2014

 

Finished goods

    

$

186,568

    

$

235,949

 

Raw materials and semi-finished goods

 

 

172,866

 

 

205,061

 

Supplies

 

 

31,813

 

 

32,851

 

Total

 

$

391,247

 

$

473,861

 

 

 

NOTE 5—GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table shows changes in the carrying amount of goodwill by segment from December 31, 2014 to September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Materials

 

 

 

 

 

 

 

 

 

 

 

 

Synthetic

 

Performance

 

Basic Plastics

 

 

 

 

 

    

Latex

    

Rubber

    

Plastics

    

& Feedstocks

    

Total

 

Balance at December 31, 2014

 

$

13,815

 

$

9,461

 

$

3,243

 

$

8,055

 

$

34,574

 

Foreign currency impact

 

 

(1,062)

 

 

(727)

 

 

(249)

 

 

(619)

 

 

(2,657)

 

Balance at September 30, 2015

 

$

12,753

 

$

8,734

 

$

2,994

 

$

7,436

 

$

31,917

 

 

11


 

Other Intangible Assets

The following table provides information regarding the Company’s other intangible assets as of September 30, 2015 and December 31, 2014, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

Estimated

 

Gross

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

Useful Life

 

Carrying

 

Accumulated

 

 

 

 

Carrying

 

Accumulated

 

 

 

 

 

   

(Years)

   

Amount

   

Amortization

   

Net

   

Amount

   

Amortization

   

Net

 

Developed technology

 

15

 

$

177,481

 

$

(61,497)

 

$

115,984

 

$

188,854

 

$

(56,782)

 

$

132,072

 

Manufacturing Capacity Rights

 

6

 

 

21,320

 

 

(5,186)

 

 

16,134

 

 

23,095

 

 

(2,809)

 

 

20,286

 

Software

 

5

 

 

17,703

 

 

(8,603)

 

 

9,100

 

 

13,177

 

 

(6,441)

 

 

6,736

 

Software in development

 

N/A

 

 

13,976

 

 

 —

 

 

13,976

 

 

6,000

 

 

 —

 

 

6,000

 

Other

 

N/A

 

 

 —

 

 

 —

 

 

 —

 

 

264

 

 

 —

 

 

264

 

Total

 

 

 

$

230,480

 

$

(75,286)

 

$

155,194

 

$

231,390

 

$

(66,032)

 

$

165,358

 

 

Amortization expense on other intangible assets totaled $4.8 million and $13.7 million for the three and nine months ended September 30, 2015, respectively, and $5.4 million and $14.6 million for the three and nine months ended September 30, 2014, respectively.

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

 

 

 

 

 

 

 

Estimated Amortization Expense for the Next Five Years

 

Remainder of 2015

    

$

4,871

 

2016

 

 

18,931

 

2017

 

 

18,096

 

2018

 

 

17,405

 

2019

 

 

17,158

 

2020

 

 

13,465

 

 

 

NOTE 6—DEBT

Debt consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31,

 

 

    

2015

    

2014

 

Senior Credit Facility

    

 

 

    

 

 

 

2020 Revolving Facility

 

$

 

$

 

2021 Term Loan B

 

 

497,571

 

 

 

2022 Senior Notes

 

 

 

 

 

 

 

USD Notes

 

 

300,000

 

 

 —

 

Euro Notes

 

 

420,788

 

 

 —

 

2019 Senior Notes

 

 

 —

 

 

1,192,500

 

Accounts Receivable Securitization Facility

 

 

 —

 

 

 

Other indebtedness

 

 

2,602

 

 

9,707

 

Total debt

 

 

1,220,961

 

 

1,202,207

 

Less: current portion

 

 

(5,627)

 

 

(7,559)

 

Total long-term debt

 

$

1,215,334

 

$

1,194,648

 

 

12


 

2018 Senior Secured Credit Facility

On June 17, 2010, the Company entered into a credit agreement, which was subsequently amended on February 2, 2011, July 28, 2011, February 13, 2012, August 9, 2012, January 19, 2013, and December 3, 2013 which was to mature in January 2018 (“2018 Senior Secured Credit Facility”).  The 2018 Senior Secured Credit Facility included a revolving credit facility (“2018 Revolving Facility”), which, as a result of the amendment in January 2013, included a borrowing capacity of $300.0 million. As of December 31, 2014, the Company had no amounts outstanding under the 2018 Revolving Facility.  

In May 2015, upon completion of the refinancing transactions discussed below, the Company terminated the 2018 Senior Secured Credit Facility.  Immediately prior to this termination, the Company had no outstanding borrowings under the 2018 Revolving Facility. As a result of this termination, the Company recognized a $0.7 million loss on extinguishment of long-term debt, comprised entirely of the write-off of a portion of the existing unamortized deferred financing fees related to the 2018 Revolving Facility.  The remaining unamortized deferred financing fees under the 2018 Revolving Facility totaled $7.2 million, which remained capitalized and is being amortized along with new deferred financing fees over the life of the new revolving credit facility, discussed in further detail below.  

Senior Credit Facility

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

The 2021 Term Loan B bears an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor, and was issued at a 0.25% original issue discount.  Further, the 2021 Term Loan B requires scheduled quarterly payments in amounts equal to 0.25% of the original principal amount of the 2021 Term Loan B, with the balance to be paid at maturity. As of September 30, 2015, $5.0 million of these scheduled future payments were classified as current debt on the Company’s condensed consolidated balance sheet.

Loans under the 2020 Revolving Facility, at the Borrowers’ option, may be maintained as (a) LIBO rate loans, which bear interest at a rate per annum equal to the LIBO rate plus the applicable margin (as defined in the Credit Agreement), if applicable, or (b) base rate loans which shall bear interest at a rate per annum equal to the base rate plus the applicable margin (as defined in the Credit Agreement).  The Borrowers will be required to pay a quarterly commitment fee in respect of any unused commitments under the 2020 Revolving Facility equal to 0.50% per annum.

As of September 30, 2015, the Company had no outstanding borrowings, and had $313.0 million (net of $12.0 million outstanding letters of credit) of funds available for borrowing under the 2020 Revolving Facility.

The Senior Credit Facility is collateralized by a security interest in substantially all of the assets of Trinseo Materials Operating S.C.A., as lead borrower, Trinseo Materials Finance, Inc., as co-borrower, and the guarantors thereunder including Trinseo Materials S.à r.l., certain U.S. subsidiaries and certain foreign subsidiaries organized in Luxembourg, The Netherlands, Hong Kong, Singapore, Ireland, Germany and Switzerland.

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

The 2020 Revolving Facility contains a financial covenant that requires compliance with a springing first lien net leverage ratio test. If the outstanding balance under the 2020 Revolving Facility exceeds 30% of the $325.0 million borrowing capacity (excluding undrawn letters of credit up to $10.0 million and cash collateralized letters of credit) at a

13


 

quarter-end, then the Company’s first lien net leverage ratio may not exceed 2.00 to 1.00.  As of September 30, 2015, the Company was in compliance with all debt covenant requirements under the Senior Credit Facility.

Fees and expenses incurred in connection with the issuance of the 2021 Term Loan B and the 2020 Revolving Facility were $12.0 million and $0.3 million, respectively, which were capitalized and recorded in “Deferred charges and other assets” in the condensed consolidated balance sheets.

For the 2021 Term Loan B, deferred financing fees and the 0.25% debt discount are being amortized over its 6.5 year term using the effective interest method.  For the 2020 Revolving Facility, deferred financing fees (along with an additional $7.2 million of unamortized deferred financing fees from the 2018 Revolving Facility) are being amortized over its 5.0 year term using the straight-line method.  Amortization of deferred financing fees and debt discounts are recorded in “Interest expense, net” in the condensed consolidated statements of operations.

2019 Senior Notes

In January 2013, the Company issued $1,325.0 million 8.750% senior notes due to mature on February 1, 2019 (the “2019 Senior Notes”). In July 2014, using proceeds from the Company’s IPO (see Note 1), the Company redeemed $132.5 million in aggregate principal amount of the 2019 Senior Notes.

On May 13, 2015, using the net proceeds from the issuance of the 2021 Term Loan B, together with the net proceeds from the issuance of the 2022 Senior Notes (defined and discussed below) and available cash, the Company redeemed all outstanding borrowings under the 2019 Senior Notes, totaling $1,192.5 million in principal, together with a call premium of $68.6 million (with a redemption price of 103% on the first $132.5 million and 106.097% on the remaining balance) and accrued and unpaid interest thereon of $29.6 million.

As a result of this redemption, during the nine months ended September 30, 2015, the Company recorded a loss on extinguishment of long-term debt of $94.5 million, which includes the above $68.6 million call premium and a $25.9 million write-off of unamortized deferred financing fees related to the 2019 Senior Notes.

2022 Senior Notes

On May 5, 2015, the Issuers executed an indenture (the “Indenture”) pursuant to which they issued $300.0 million aggregate principal amount of 6.750% senior notes due May 1, 2022 (the “USD Notes”) and €375.0 million aggregate principal amount of 6.375% senior notes due May 1, 2022 (the “Euro Notes”, and together with the USD Notes, the “2022 Senior Notes”).  Interest on the 2022 Senior Notes is payable semi-annually on May 1 and November 1 of each year, commencing on November 1, 2015.

At any time prior to May 1, 2018, the Issuers may redeem the Euro Notes and/or the USD Notes in whole or in part, at their option at a redemption price equal to 100% of the principal amount of such notes plus the relevant applicable premium as of, and accrued and unpaid interest to, but not including, the redemption date. At any time and from time to time after May 1, 2018, the Issuers may redeem the Euro Notes and/or the USD Notes, in whole or in part, at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the notes redeemed to, but not including, the redemption date:  

 

 

 

 

 

 

 

 

 

    

Euro Notes

 

    

USD Notes

 

12-month period commencing May 1 in Year 

 

Percentage

 

 

Percentage

 

2018

 

103.188

%  

 

103.375

%

2019

 

101.594

%  

 

101.688

%

2020 and thereafter

 

100.000

%  

 

100.000

%

In addition, at any time prior to May 1, 2018, the Issuers may redeem up to 40% of the aggregate principal amount of each of the USD Notes and the Euro Notes, either together or separately, at a redemption price equal to 106.750% of the principal amount thereof for the USD Notes and 106.375% of the principal amount thereof for the Euro Notes plus, in each case, accrued and unpaid interest to, but not including, the redemption date, in an amount equal to the aggregate gross proceeds from certain equity offerings.

The 2022 Senior Notes are the Issuers’ senior unsecured obligations and rank equally in right of payment with all of the Issuers’ existing and future indebtedness that is not expressly subordinated in right of payment thereto. The 2022

14


 

Senior Notes will be senior in right of payment to any future indebtedness that is expressly subordinated in right of payment thereto and effectively junior to (a) the Issuers’ existing and future secured indebtedness, including the Company’s accounts receivable facility and the Issuers’ Senior Credit Facility (discussed above), to the extent of the value of the collateral securing such indebtedness and (b) all existing and future liabilities of the Issuers’ non-guarantor subsidiaries.

The Indenture contains customary covenants that, among other things, limit the Issuers’ and certain of their subsidiaries’ ability to incur additional indebtedness and guarantee indebtedness, pay dividends or make other distributions, make investments, or prepay certain indebtedness, each subject to a number of exceptions and qualifications. Certain of these covenants, will be suspended during any period of time that (1) the 2022 Notes have investment grade ratings (as defined in the Indenture) and (2) no default has occurred and is continuing under the Indenture. In the event that the 2022 Senior Notes are downgraded to below an investment grade rating, the Issuers and certain subsidiaries will again be subject to the suspended covenants with respect to future events. As of September 30, 2015, the Company was in compliance with all debt covenant requirements under the Indenture.

Fees and expenses incurred in connection with the issuance of the 2022 Senior Notes were $16.0 million, which were capitalized and recorded in “Deferred charges and other assets” in the condensed consolidated balance sheets, and are being amortized into “Interest expense, net” in the condensed consolidated statements of operations over their 7.0 year term using the effective interest method.  

Accounts Receivable Securitization Facility

In May 2013, the Company amended its existing accounts receivable securitization facility (“Accounts Receivable Securitization Facility”) which increased its borrowing capacity from $160.0 million to $200.0 million, extended the maturity date to May 2016 and allows for the expansion of the pool of eligible accounts receivable to include previously excluded U.S. and Netherlands subsidiaries.

The Accounts Receivable Securitization Facility is subject to interest charges against the amount of outstanding borrowings as well as the amount of available, but undrawn borrowings. As a result of the amendment to the Accounts Receivable Securitization Facility, in regards to outstanding borrowings, fixed interest charges decreased from 3.25% plus commercial paper rates to 2.60% plus variable commercial paper rates. In regards to available, but undrawn borrowings, fixed interest charges decreased from 1.50% to 1.40%.  

As of September 30, 2015 and December 31, 2014, there were no amounts outstanding under the Accounts Receivable Securitization Facility, with approximately $153.0 million and $136.1 million, respectively, of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.

NOTE 7—DERIVATIVE INSTRUMENTS

The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates.  To manage these risks, the Company periodically enters into derivative financial instruments such as foreign exchange forward contracts.  The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives are recorded on the condensed consolidated balance sheets at fair value.

Foreign Exchange Forward Contracts

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

As of September 30, 2015, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalent absolute value of $370.4 million. The following table displays the notional amounts of the most significant

15


 

net foreign exchange hedge positions outstanding as of September 30, 2015.

 

 

 

 

 

 

 

 

    

September 30, 

 

Buy / (Sell) 

    

2015

 

Chinese Yuan

 

$

(158,543)

 

Euro

 

$

94,637

 

Indonesian Rupiah

 

$

(52,218)

 

Swiss Franc

 

$

40,835

 

Japanese Yen

 

$

(8,919)

 

Foreign Exchange Cash Flow Hedges

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

Open foreign exchange cash flow hedges as of September 30, 2015 have maturities occurring over a period of 15 months, and have a net notional U.S. dollar equivalent of $135.0 million.

Net Investment Hedge

The Company’s outstanding debt includes €375.0 million of Euro Notes (see Note 6 for details).  As of September 30, 2015, the Company has designated a portion (€150.0 million) of the principal amount of these Euro Notes as a hedge of the foreign currency exposure of the Issuers’ net investment in certain European subsidiaries. As this debt was deemed to be a highly effective hedge, changes in the Euro Notes’ carrying value resulting from fluctuations in the euro exchange rate were recorded as cumulative foreign currency translation loss of $4.1 million within accumulated other comprehensive loss as of September 30, 2015.

Summary of Derivative Instruments

Information regarding changes in the fair value of the Company’s derivative instruments, including those not designated for hedge accounting treatment, is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in

 

Gain (Loss) Recognized in

 

 

 

 

AOCI on Balance Sheet

 

Statement of Operations

 

 

 

 

Three Months Ended September 30, 

 

Statement of Operations

 

 

2015

 

2014

 

2015

 

2014

 

Classification

Designated as Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange cash flow hedges

    

$

97

    

$

 —

    

$

(17)

    

$

 —

    

Cost of sales

Total

 

$

97

 

$

 —

 

$

(17)

 

$

 —

 

 

Net Investment Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Euro Notes

 

$

(1,635)

 

$

 —

 

$

 —

 

$

 —

 

Other expenses, net

Total

 

$

(1,635)

 

$

 —

 

$

 —

 

$

 —

 

 

Not Designated as Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange forward contracts

 

$

 —

 

$

 —

 

$

4,452

 

$

(19,524)

 

Other expenses, net

Total

 

$

 —

 

$

 —

 

$

4,452

 

$

(19,524)

 

 

 

 

16


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in

 

Gain (Loss) Recognized in

 

 

 

 

AOCI on Balance Sheet

 

Statement of Operations

 

 

 

 

Nine Months Ended September 30, 

 

Statement of Operations

 

 

2015

 

2014

 

2015

 

2014

 

Classification

Designated as Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange cash flow hedges

    

$

(308)

    

$

 —

    

$

59

    

$

 —

    

Cost of sales

Total

 

$

(308)

 

$

 —

 

$

59

 

$

 —

 

 

Net Investment Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Euro Notes

 

$

(4,073)

 

$

 —

 

$

 —

 

$

 —

 

Other expenses, net

Total

 

$

(4,073)

 

$

 —

 

$

 —

 

$

 —

 

 

Not Designated as Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange forward contracts

 

$

 —

 

$

 —

 

$

(9,246)

 

$

(19,524)

 

Other expenses, net

Total

 

$

 —

 

$

 —

 

$

(9,246)

 

$

(19,524)

 

 

The Company recorded gains of $4.5 million and losses of $9.2 million during the three and nine months ended September 30, 2015 and losses of $19.5 million during the three and nine months ended September 30, 2014 from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges). The gains and losses from these forward contracts offset net foreign exchange transaction losses of $6.7 million and gains of $0.9 million during the three and nine months ended September 30, 2015, respectively, and gains of $21.8 million and $23.4 million during the three and nine months ended September 30, 2014, respectively, which resulted from the remeasurement of the Company’s foreign currency denominated assets and liabilities. The cash settlements of these foreign exchange forward contracts are included within operating activities in the condensed consolidated statement of cash flows.

As of September 30, 2015, the Company has no ineffectiveness related to its foreign exchange cash flow hedges. Further, the Company expects to reclassify in the next twelve months an approximate $1.0 million net loss from other comprehensive income (loss) into earnings related to the Company’s outstanding cash flow hedges as of September 30, 2015 based on current foreign exchange rates.

The following table summarizes the net unrealized gains and losses and balance sheet classification of outstanding derivatives recorded in the condensed consolidated balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

   

December 31, 2014

 

 

 

Foreign
Exchange

 

Foreign
Exchange

 

 

 

Foreign
Exchange

 

Foreign
Exchange

 

 

 

 

 

Forward

 

Cash Flow

 

 

 

Forward

 

Cash Flow

 

 

 

Balance Sheet Classification

    

Contracts

   

Hedges

    

Total

 

Contracts

   

Hedges

    

Total

 

Asset Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net of allowance

 

$