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Kraton Corporation Announces Third Quarter 2018 Results

HOUSTON, Oct. 24, 2018 /PRNewswire/ -- Kraton Corporation (NYSE: KRA), a leading global specialty chemicals company that manufactures styrenic block copolymers ("SBCs"), specialty polymers, and high-value performance products primarily derived from pine wood pulping co-products, announces financial results for the quarter ended September 30, 2018.

THIRD QUARTER 2018 SUMMARY

  • Third quarter consolidated net income of $42.3 million compared to net loss of $4.0 million in the third quarter of 2017.
  • Third quarter Adjusted EBITDA(1) of $98.7 million, down 18.9% compared to the third quarter of 2017.
  • Polymer segment operating income of $44.9 million, up 139.7%, and Adjusted EBITDA(1) of $57.0 million, down 26.3% compared to $77.4 million in the third quarter of 2017.
    • During the third quarter of 2017, favorable market dynamics contributed to notable sales volumes and margins.
    • Third quarter 2018 results were impacted by unplanned, short-term facility outages at our Belpre, Ohio, and Berre, France, sites, and higher operating costs including logistics and transportation costs.
  • Chemical segment operating income of $27.5 million, up 16.4%, and Adjusted EBITDA(1) of $41.6 million, down 6.0% compared to $44.3 million in the third quarter of 2017.
    • The decrease in Adjusted EBITDA(1) was primarily attributable to higher operating costs, including planned maintenance activities and higher transportation and logistics costs.
    • Unit margins increased, driven by higher pricing for TOFA, TOFA derivatives and other high value products.
  • Through the first nine months of 2018, consolidated indebtedness reduced by $70.0 million and consolidated net debt (non-GAAP) reduced by $32.4 million.

 


Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017


(In thousands, except percentages and per share amounts)

Revenue

$

523,105



$

510,947



$

1,563,892



$

1,494,392


Polymer segment operating income

$

44,899



$

18,731



$

137,930



$

98,339


Chemical segment operating income

$

27,495



$

23,623



$

79,406



$

66,614


Net income attributable to Kraton

$

42,349



$

(4,033)



$

49,491



$

27,941


Adjusted EBITDA (non-GAAP)(1)

$

98,651



$

121,687



$

292,900



$

288,738


Adjusted EBITDA margin (non-GAAP)(2)

18.9

%


23.8

%


18.7

%


19.3

%

Diluted earnings (loss) per share

$

1.31



$

(0.13)



$

1.53



$

0.88


Adjusted diluted earnings per share (non-GAAP)(1)

$

1.02



$

1.51



$

2.49



$

1.88


________________________________________

(1)

See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.

(2)

Defined as Adjusted EBITDA as a percentage of revenue.

"Our third quarter 2018 results reflect solid unit margin fundamentals in both our Polymer and our Chemical segments, indicative of the resiliency of our value-added product offerings and consistent execution of our price right market strategies. Moreover, while longer-term growth prospects remain on track to benefit from our commitment to sustainable, innovation-led growth, and cash-flow generation, third quarter Adjusted EBITDA was $98.7 million, down $23.0 million compared to the strong results we posted in the third quarter of 2017, primarily resulting from a $20.4 million decline in Adjusted EBITDA in our Polymer segment," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer.

"Third quarter 2018 Adjusted EBITDA for the Polymer segment was $57.0 million, down from $77.4 million in the year-ago quarter. This decrease in Adjusted EBITDA resulted from four key drivers: modestly lower sales volume in our Performance Products business, lower unit margins in our Specialty Polymers business, unfavorable costs resulting from unplanned facility outages, and higher operating expenses, including transportation and logistics costs," said Fogarty.

"Specifically with respect to lower sales volumes in our Performance Polymer business, this was primarily due to lower sales into paving applications outside of our core North American and European markets, and to a lesser extent, lower sales into adhesive applications. That being said, third quarter 2018 unit margins for our Performance Products business were on par with the year-ago quarter. Unit margins in our Specialty Polymers business, while consistent with our historical and longer-term sustainable planning levels, did not benefit from the favorable feedstock conditions and overall market dynamics we experienced in the third quarter of 2017," added Fogarty.

"Third quarter results for our Chemical segment reflect modestly lower sales volumes compared to the third quarter of 2017 and improved unit margins that were associated with higher average pricing for TOFA, TOFA derivatives and other high value products. Third quarter 2018 Adjusted EBITDA of $41.6 million was down $2.7 million compared to the third quarter of 2017 primarily due to higher operating costs, including planned maintenance activities and higher logistics and transportation costs," said Fogarty.

As previously disclosed, our Panama City refinery was unfortunately damaged by Hurricane Michael. Thankfully, our employees and their families were safe, although we have a number of families who have suffered substantial losses. Our thoughts are with our employees and everyone in the region as the recovery process continues, and we are working to provide assistance to our employees who are in need," said Fogarty. "We do carry appropriate levels of property, casualty and business interruption insurance, and at this time we are still assessing the full impact of Hurricane Michael on our Panama City site. As such, at this time we cannot estimate when full operations at the plant will be restored," Fogarty added.

"Our outlook for the balance of 2018 must be tempered by uncertainty around global demand fundamentals, the impact of tariffs and trade negotiations with China and other factors including ongoing inflation in logistics costs. In addition, we expect our fourth quarter results to reflect the impact of a post-turnaround delay of approximately three weeks in start-up at our Wesseling, Germany, plant associated with unusually low water levels on the Rhine River. In light of these factors, and given our third quarter results, we now expect our full year 2018 Adjusted EBITDA to be approximately $380 million, excluding any fourth quarter 2018 impact associated with the Panama City, Florida, outage," Fogarty stated.

Polymer Segment



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017


(In thousands, except percentages)

Performance Products

$

179,684



$

175,968



$

506,151



$

508,820


Specialty Polymers

$

99,349



$

94,313



$

311,657



$

285,712


CariflexTM

$

41,818



$

43,031



$

130,319



$

124,433


Other

114



847



59



1,260


Polymer Segment Revenue

$

320,965



$

314,159



$

948,186



$

920,225










Operating income

$

44,899



$

18,731



$

137,930



$

98,339


Adjusted EBITDA (non-GAAP) (1)

$

57,008



$

77,363



$

170,469



$

172,233


Adjusted EBITDA margin (non-GAAP)(2)

17.8

%


24.6

%


18.0

%


18.7

%

________________________________________

(1)

See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.

(2)

Defined as Adjusted EBITDA as a percentage of revenue.

Q3 2018 VERSUS Q3 2017 RESULTS
Revenue for the Polymer segment was $321.0 million for the three months ended September 30, 2018 compared to $314.2 million for the three months ended September 30, 2017. The increase was driven by higher average sales prices, offset by lower sales volumes. Sales volumes of 84.2 kilotons for the three months ended September 30, 2018 declined 8.3% compared to the record third quarter 2017 sales volumes of 91.9 kilotons. Performance Products volumes decreased 10.8%, Cariflex volumes decreased 4.6%, and Specialty Polymers volumes decreased 0.3%. The decline in Performance Products sales volumes is largely associated with lower sales in paving applications primarily outside of our core North American and European markets and lower sales into adhesive applications. The negative effect from changes in currency exchange rates between the periods was $2.8 million.

For the three months ended September 30, 2018, the Polymer segment generated Adjusted EBITDA (non-GAAP) of $57.0 million compared to $77.4 million for the three months ended September 30, 2017. The decline in Adjusted EBITDA was associated with lower sales volumes in Performance Products and lower unit margins in Specialty Polymers, which remain in line with our expectations, but below levels we experienced in the third quarter of 2017 which benefited from favorable raw material market dynamics. In addition, third quarter 2018 Adjusted EBITDA was impacted by unplanned, short-term facility outages and to a lesser extent higher operating costs, including logistics and transportation costs. The negative effect from changes in currency exchange rates between the periods was $1.4 million. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

Chemical Segment



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017


(In thousands, except percentages)

Adhesives

$

73,781



$

75,018



$

220,907



$

226,008


Performance Chemicals

118,193



108,361



355,947



310,244


Tires

10,166



13,409



38,852



37,915


Chemical Segment Revenue

$

202,140



$

196,788



$

615,706



$

574,167










Operating income

$

27,495



$

23,623



$

79,406



$

66,614


Adjusted EBITDA (non-GAAP) (1)

$

41,643



$

44,324



$

122,431



$

116,505


Adjusted EBITDA margin (non-GAAP)(2)

20.6

%


22.5

%


19.9

%


20.3

%

________________________________________

(1)

See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.

(2)

Defined as Adjusted EBITDA as a percentage of revenue.

Effective January 1, 2018, results for our Roads and Constructions product line have been consolidated into our Adhesives and Performance Chemicals product lines to better align customer portfolio and end usage. We have adjusted the presentations for the three and nine months ended September 30, 2017 to conform to the respective 2018 presentations.

Q3 2018 VERSUS Q3 2017 RESULTS
Revenue for the Chemical segment was $202.1 million for the three months ended September 30, 2018 compared to $196.8 million for the three months ended September 30, 2017. The increase in revenue is attributable to higher average sales prices, partially offset by a modest decrease in sales volumes. Sales volumes were 105.9 kilotons for the three months ended September 30, 2018, a decrease of 1.8 kilotons or 1.7%. The sales volumes decline was driven by a 2.9% decrease in Performance Chemicals, partially offset by an increase in Adhesives sales volumes of 1.8%. The negative effect from changes in currency exchange rates between the periods was $1.5 million.

For the three months ended September 30, 2018, the Chemical segment generated $41.6 million of Adjusted EBITDA (non-GAAP) compared to $44.3 million for the three months ended September 30, 2017. The decrease in Adjusted EBITDA was primarily driven by higher operating costs, including planned maintenance activities, logistics, and transportation costs. The higher costs were partially offset by improved unit margins in both Performance Chemicals and Tires. The negative effect from changes in currency exchange rates between the periods was $0.7 million. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

CASH FLOW AND CAPITAL STRUCTURE
During the nine months ended September 30, 2018, consolidated net debt (total debt less cash) declined by $32.4 million compared to December 31, 2017.

Summary of principal amounts for indebtedness and a reconciliation of Kraton debt to Kraton net debt (non-GAAP) and consolidated net debt (non-GAAP):


September 30, 2018


December 31, 2017


(In thousands)

Kraton debt

$

1,482,288



$

1,525,351


Kraton cash

45,790



75,204


Kraton net debt

1,436,498



1,450,147






KFPC(1) debt

131,462



158,349


KFPC cash

5,718



13,848


KFPC net debt

125,744



144,501






Consolidated net debt

$

1,562,242



$

1,594,648


________________________________________

(1)

Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements.

OUTLOOK
Our expectations for the fourth quarter of  2018 are tempered by our outlook for global demand fundamentals, including the impact of tariffs and ongoing trade negotiations with China. In addition, we expect headwinds associated with inflation in transportation and logistics costs to continue for the balance of the year. Our fourth quarter results will also reflect the impact of a production outage at our Wesseling, Germany, plant associated with unusually low water levels on the Rhine River, which are currently limiting our access to raw materials. While resolution of raw material access is ultimately a function of weather, we are working with our suppliers to arrange possible alternatives, and at this time we are anticipating that production in Wesseling may be curtailed by approximately three weeks.

As previously disclosed, our refinery in Panama City, Florida, was impacted by Hurricane Michael. We do carry appropriate levels of property, casualty, and business interruption insurance. However, at this time we cannot estimate a timeframe for the plant to resume full operations, nor can we estimate the costs associated with the outage or the timing associated with incurrence of costs relative to receipt of insurance proceeds.

In light of our third quarter results, and given near-term uncertainty associated with global demand fundamentals and other factors noted, we now expect our full year 2018 Adjusted EBITDA to be approximately $380 million. With regard to our 2018 debt reduction target, we now expect to reduce consolidated net debt (total debt less cash), by $50 to $60 million. Our expectation for 2018 Adjusted EBITDA and reduction in consolidated net debt excludes any fourth quarter 2018 impact associated with the Panama City, Florida, outage or any incremental impact related to our Wesseling outage, should startup be later than we currently estimate.

We have not reconciled Adjusted EBITDA guidance to net income (loss) because we do not provide guidance for net income (loss) or for items that we do not consider indicative of our on-going performance, including, but not limited to, transaction costs and production downtime, as certain of these items are out of our control and/or cannot be reasonably predicted. We have not reconciled consolidated net debt guidance to debt due to high variability and difficulty in making accurate forecasts and projections that are impacted by future decisions and actions. The actual amount of such reconciling items will have a significant impact if they were included in our Adjusted EBITDA and net debt. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding U.S. GAAP measures is not available without unreasonable effort.

USE OF NON-GAAP FINANCIAL MEASURES
This press release includes the use of both GAAP and non-GAAP financial measures. The non-GAAP financial measures are EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Diluted Earnings per Share, Consolidated Net Debt Leverage Ratio, Consolidated Net Debt, and Net Debt. Tables included in this earnings release reconcile each of these non-GAAP financial measures with the most directly comparable U.S. GAAP financial measure. For additional information on the impact of the spread between the first-in, first-out ("FIFO") basis of accounting and estimated current replacement cost ("ECRC"), see Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

We consider these non-GAAP financial measures to be important supplemental measures of our performance and believe they are frequently used by investors, securities analysts, and other interested parties in the evaluation of our performance including period-to-period comparisons and/or that of other companies in our industry. Further, management uses these measures to evaluate operating performance, and our incentive compensation plan bases incentive compensation payments on our Adjusted EBITDA performance and attainment of net debt reduction, along with other factors. These non-GAAP financial measures have limitations as analytical tools and in some cases can vary substantially from other measures of our performance. You should not consider them in isolation, or as a substitute for analysis of our results under U.S. GAAP in the United States.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin: For our consolidated results, EBITDA represents net income (loss) before interest, taxes, depreciation, and amortization. For each reporting segment, EBITDA represents operating income before depreciation and amortization, and earnings of unconsolidated joint ventures. Among other limitations EBITDA does not: reflect the significant interest expense on our debt or reflect the significant depreciation and amortization expense associated with our long-lived assets; and EBITDA included herein should not be used for purposes of assessing compliance or non-compliance with financial covenants under our debt agreements. The calculation of EBITDA in our debt agreements includes adjustments, such as extraordinary, non-recurring or one-time charges, proforma cost savings, certain non-cash items, turnaround costs, and other items included in the definition of EBITDA in the debt agreements. Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure. As an analytical tool, Adjusted EBITDA is subject to all the limitations applicable to EBITDA. We prepare Adjusted EBITDA by eliminating from EBITDA the impact of a number of items we do not consider indicative of our on-going performance, including the spread between FIFO and ECRC, but you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, due to volatility in raw material prices, Adjusted EBITDA may, and often does, vary substantially from EBITDA and other performance measures, including net income calculated in accordance with U.S. GAAP. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of revenue (for each reporting segment or on a consolidated basis, if applicable). Because of these and other limitations, EBITDA and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business.

Adjusted Diluted Earnings Per Share: We prepare Adjusted Diluted Earnings per Share by eliminating from Diluted Earnings (loss) per Share the impact of a number of non-recurring items we do not consider indicative of our on-going performance, including the spread between FIFO and ECRC.

Consolidated Net Debt and Net Debt: We define net debt for Kraton as total debt (excluding debt of KFPC) less cash and cash equivalents. We define consolidated net debt as Kraton net debt plus debt of KFPC less KFPC's cash and cash equivalents. Management uses net debt to determine our outstanding debt obligations that would not readily be satisfied by its cash and cash equivalents on hand. Management believes that using net debt is useful to investors in determining our leverage since we could choose to use cash and cash equivalents to retire debt. In addition, management believes that presenting Kraton's net debt excluding KFPC is useful because KFPC has its own capital structure.

Consolidated Net Debt Leverage Ratio: The consolidated net debt leverage ratio is defined as consolidated net debt as of the balance sheet date divided by Adjusted EBITDA for the twelve months then ended. Our use of this term may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

CONFERENCE CALL AND WEBCAST INFORMATION
Kraton has scheduled a conference call on Thursday, October 25, 2018 at 9:00 a.m. (Eastern Time) to discuss third quarter 2018 financial results. Kraton invites you to listen to the conference call, which will be broadcast live over the internet at www.kraton.com, by selecting the "Investor Relations" link at the top of the home page and then selecting "Events" from the Investor Relations menu on the Investor Relations page.

You may also listen to the conference call by telephone by contacting the conference call operator 5 to 10 minutes prior to the scheduled start time and asking for the "Kraton Conference Call – Passcode: Earnings Call." U.S./Canada dial-in 800-857-6511. International dial-in #: 210-839-8886.

For those unable to listen to the live call, a replay will be available beginning at approximately 11:00 a.m. (Eastern Time) on October 25, 2018 through 1:59 a.m. (Eastern Time) on November 5, 2018. To hear a replay of the call over the Internet, access Kraton's Website at www.kraton.com by selecting the "Investor Relations" link at the top of the home page and then selecting "Events" from the Investor Relations menu on the Investor Relations page. To hear a telephonic replay of the call, dial 866-516-0665 or 203-369-2029.

ABOUTKRATON CORPORATION
Kraton Corporation (NYSE: KRA) is a leading global specialty chemicals company that manufactures styrenic block copolymers ("SBCs"), specialty polymers, and high-value performance products primarily derived from pine wood pulping co-products. Kraton's polymers are used in a wide range of applications, including adhesives, coatings, consumer and personal care products, sealants and lubricants, and medical, packaging, automotive, paving and roofing applications. As the largest global provider in the pine chemicals industry, the company's pine-based specialty products are sold into adhesives and tire markets, and it produces and sells a broad range of performance chemicals into markets that include fuel additives, oilfield chemicals, coatings, roads, construction, metalworking fluids and lubricants, inks, and mining. Kraton offers its products to a diverse customer base in numerous countries worldwide.

Kraton, the Kraton logo and design, and Cariflex are all trademarks of Kraton Polymers LLC or its affiliates.

FORWARD LOOKING STATEMENTS
Some of the statements and information in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This press release includes forward-looking statements that reflect our plans, beliefs, expectations, and current views with respect to, among other things, future events and financial performance. Forward-looking statements are often identified by words such as "outlook," "believes," "target," "estimates," "expects," "projects," "may," "intends," "plans," "on track," or "anticipates," or by discussions of strategy, plans or intentions, including, but not limited to our expectations with respect to full-year 2018 Adjusted EBITDA results, 2018 consolidated net debt reduction, our cost reset initiative, growth prospects and the timing for start-up at our Wesseling, Germany, site as well our beliefs with respect to the impact of global demand fundamentals, tariffs and trade negotiations with China, inflation in logistics and transportation costs, the outage at our Panama City, Florida, site and the delay in post turn-around start-up at our Wesseling, Germany, site.

All forward-looking statements in this press release are made based on management's current expectations and estimates, which involve known and unknown risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from those expressed in forward-looking statements. These risks and uncertainties are more fully described in our latest Annual Report on Form 10-K, including but not limited to "Part I, Item 1A. Risk Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" therein, and in our other filings with the Securities and Exchange Commission, and include, but are not limited to, risks related to: Kraton's ability to repay its indebtedness and risk associated with incurring additional indebtedness; Kraton's reliance on third parties for the provision of significant operating and other services; conditions in, and risk associated with operating in, the global economy and capital markets; fluctuations in raw material costs; natural disasters and weather conditions; limitations in the availability of raw materials; competition in Kraton's end-use markets; and other factors of which we are currently unaware or deem immaterial. In addition, to the extent any inconsistency or conflict exists between the information included in this report and the information included in our prior reports and other filings with the SEC, the information contained in this report updates and supersede such information. Readers are cautioned not to place undue reliance on our forward-looking statements. Forward-looking statements speak only as of the date they are made, and we assume no obligation to update such information in light of new information or future events.

KRATON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)




Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Revenue

$

523,105



$

510,947



$

1,563,892



$

1,494,392


Cost of goods sold

368,847



381,653



1,092,207



1,073,336


Gross profit

154,258



129,294



471,685



421,056


Operating expenses:








Research and development

10,597



10,212



31,868



30,096


Selling, general, and administrative

36,150



42,421



116,848



123,967


Depreciation and amortization

35,117



34,307



105,633



102,040


Operating income

72,394



42,354



217,336



164,953


Other expense

(740)



(846)



(2,960)



(2,517)


Loss on extinguishment of debt



(15,632)



(79,921)



(35,370)


Earnings of unconsolidated joint venture

100



125



357



370


Interest expense, net

(20,143)



(33,017)



(74,835)



(101,766)


Income (loss) before income taxes

51,611



(7,016)



59,977



25,670


Income tax benefit (expense)

(8,334)



2,165



(8,743)



(2,907)


Consolidated net income (loss)

43,277



(4,851)



51,234



22,763


Net (income) loss attributable to noncontrolling interest

(928)



818



(1,743)



5,178


Net income (loss) attributable to Kraton

$

42,349



$

(4,033)



$

49,491



$

27,941


Earnings (loss) per common share:








Basic

$

1.33



$

(0.13)



$

1.55



$

0.90


Diluted

$

1.31



$

(0.13)



$

1.53



$

0.88


Weighted average common shares outstanding:








Basic

31,459



30,625



31,381



30,548


Diluted

31,834



30,625



31,810



31,006


 

KRATON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)




September 30, 2018


December 31, 2017


(unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$

51,508



$

89,052


Receivables, net of allowances of $918 and $824

253,105



196,683


Inventories of products, net

404,138



367,796


Inventories of materials and supplies, net

27,758



25,643


Prepaid expenses

12,167



13,963


Other current assets

31,383



36,615


Total current assets

780,059



729,752


Property, plant, and equipment, less accumulated depreciation of $579,651 and $526,759

931,629



958,723


Goodwill

773,373



774,319


Intangible assets, less accumulated amortization of $234,163 and $197,318

371,661



406,863


Investment in unconsolidated joint venture

12,082



12,380


Debt issuance costs

1,463



2,340


Deferred income taxes

5,175



8,462


Other long-term assets

37,602



39,688


Total assets

$

2,913,044



$

2,932,527


LIABILITIES AND EQUITY




Current liabilities:




Current portion of long-term debt

$

50,689



$

42,647


Accounts payable-trade

167,241



169,265


Other payables and accruals

98,386



119,624


Due to related party

18,710



19,176


Total current liabilities

335,026



350,712


Long-term debt, net of current portion

1,527,322



1,574,881


Deferred income taxes

151,894



148,148


Other long-term liabilities

175,377



192,267


Total liabilities

2,189,619



2,266,008






Equity:




Kraton stockholders' equity:




Preferred stock, $0.01 par value; 100,000 shares authorized; none issued




Common stock, $0.01 par value; 500,000 shares authorized; 31,957 shares issued and outstanding at September 30, 2018; 31,605 shares issued and outstanding at December 31, 2017

320



316


Additional paid in capital

385,545



377,957


Retained earnings

403,104



356,503


Accumulated other comprehensive loss

(96,491)



(98,295)


Total Kraton stockholders' equity

692,478



636,481


Noncontrolling interest

30,947



30,038


Total equity

723,425



666,519


Total liabilities and equity

$

2,913,044



$

2,932,527


 

KRATON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)




Nine Months Ended September 30,


2018


2017

CASH FLOWS FROM OPERATING ACTIVITIES




Consolidated net income

$

51,234



$

22,763


Adjustments to reconcile consolidated net income to net cash provided by operating activities:




Depreciation and amortization

105,633



102,040


Amortization of debt original issue discount

1,938



4,926


Amortization of debt issuance costs

4,571



6,309


Loss on disposal of property, plant, and equipment

363



61


Loss on extinguishment of debt

79,921



35,370


Earnings from unconsolidated joint venture, net of dividends received

188



67


Deferred income tax provision (benefit)

3,581



(3,526)


Share-based compensation

7,620



7,366


Decrease (increase) in:




Accounts receivable

(63,068)



(38,921)


Inventories of products, materials, and supplies

(47,393)



(19,126)


Other assets

8,065



(6,171)


Increase (decrease) in:




Accounts payable-trade

5,869



2,267


Other payables and accruals

(19,057)



26,851


Other long-term liabilities

(2,584)



(5,433)


Due to related party

(292)



606


Net cash provided by operating activities

136,589



135,449


CASH FLOWS FROM INVESTING ACTIVITIES




Kraton purchase of property, plant, and equipment

(66,047)



(71,595)


KFPC purchase of property, plant, and equipment

(1,592)



(11,790)


Purchase of software and other intangibles

(4,630)



(4,959)


Net cash used in investing activities

(72,269)



(88,344)


CASH FLOWS FROM FINANCING ACTIVITIES




Proceeds from debt

731,540



739,167


Repayments of debt

(796,863)



(837,012)


KFPC proceeds from debt

24,918



39,898


KFPC repayments of debt

(48,084)



(16,244)


Capital lease payments

(785)



(703)


Purchase of treasury stock

(6,051)



(2,297)


Proceeds from the exercise of stock options

3,133



2,954


Settlement of interest rate swap

2,584



(879)


Settlement of foreign currency hedges



(716)


Debt issuance costs

(11,113)



(13,929)


Net cash used in financing activities

(100,721)



(89,761)


Effect of exchange rate differences on cash

(1,143)



10,025


Net decrease in cash and cash equivalents

(37,544)



(32,631)


Cash and cash equivalents, beginning of period

89,052



121,749


Cash and cash equivalents, end of period

$

51,508



$

89,118



 

KRATON CORPORATION

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In thousands)




Three Months Ended September 30, 2018


Three Months Ended September 30, 2017


Polymer


Chemical


Total


Polymer


Chemical


Total

Net income (loss) attributable to Kraton





$

42,349







$

(4,033)


Net income (loss) attributable to noncontrolling interest





928







(818)


Consolidated net income (loss)





43,277







(4,851)


Add (deduct):












Income tax expense (benefit)





8,334







(2,165)


Interest expense, net





20,143







33,017


Earnings of unconsolidated joint venture





(100)







(125)


Loss on extinguishment of debt











15,632


Other expense





740







846


Operating income

$

44,899



$

27,495



$

72,394



$

18,731



$

23,623



$

42,354


Add (deduct):












Depreciation and amortization

17,554



17,563



35,117



17,342



16,965



34,307


Other income (expense)

(958)



218



(740)



(929)



83



(846)


Loss on extinguishment of debt







(15,632)





(15,632)


Earnings of unconsolidated joint venture

100





100



125





125


EBITDA

61,595



45,276



106,871



19,637



40,671



60,308


Add (deduct):












Transaction, acquisition related costs, restructuring, and other costs (a)

689



(177)



512



2,240



61



2,301


Loss on extinguishment of debt







15,632





15,632


Weather related costs (b)







760



1,320



2,080


KFPC startup costs (c)







2,424





2,424


Non-cash compensation expense

2,495





2,495



2,219





2,219


Spread between FIFO and ECRC

(7,771)



(3,456)



(11,227)



34,451



2,272



36,723


Adjusted EBITDA

$

57,008



$

41,643



$

98,651



$

77,363



$

44,324



$

121,687


________________________________________

(a)

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.

(b)

Costs related to Hurricane Harvey and Hurricane Irma.

(c)

Startup costs related to the joint venture company, KFPC.

 


Nine Months Ended September 30, 2018


Nine Months Ended September 30, 2017


Polymer


Chemical


Total


Polymer


Chemical


Total

Net income attributable to Kraton





$

49,491







$

27,941


Net income (loss) attributable to noncontrolling interest





1,743







(5,178)


Consolidated net income





51,234







22,763


Add (deduct):












Income tax expense





8,743







2,907


Interest expense, net





74,835







101,766


Earnings of unconsolidated joint venture





(357)







(370)


Loss on extinguishment of debt





79,921







35,370


Other expense





2,960







2,517


Operating income

$

137,930



$

79,406



$

217,336



$

98,339



$

66,614



$

164,953


Add (deduct):












Depreciation and amortization

52,914



52,719



105,633



50,439



51,601



102,040


Other income (expense)

(3,600)



640



(2,960)



(2,767)



250



(2,517)


Loss on extinguishment of debt

(79,921)





(79,921)



(35,370)





(35,370)


Earnings of unconsolidated joint venture

357





357



370





370


EBITDA

107,680



132,765



240,445



111,011



118,465



229,476


Add (deduct):












Transaction, acquisition related costs, restructuring, and other costs (a)

2,062



(963)



1,099



11,493



(509)



10,984


Loss on extinguishment of debt

79,921





79,921



35,370





35,370


Weather related costs (b)







760



1,320



2,080


KFPC startup costs (c)

897





897



9,664





9,664


Non-cash compensation expense

7,620





7,620



7,366





7,366


Spread between FIFO and ECRC

(27,711)



(9,371)



(37,082)



(3,431)



(2,771)



(6,202)


Adjusted EBITDA

$

170,469



$

122,431



$

292,900



$

172,233



$

116,505



$

288,738


________________________________________

(a)

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.

(b)

Costs related to Hurricane Harvey and Hurricane Irma.

(c)

Startup costs related to the joint venture company, KFPC.

 

KRATON CORPORATION

RECONCILIATION OF DILUTED EARNINGS (LOSS) PER SHARE TO ADJUSTED DILUTED EARNINGS PER SHARE

(Unaudited)




Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Diluted Earnings (Loss) Per Share

$

1.31



$

(0.13)



$

1.53



$

0.88


Transaction, acquisition related costs, restructuring, and other costs (a)

0.02



0.05



0.03



0.25


Loss on extinguishment of debt



0.32



1.89



0.72


Weather related costs (b)



0.04





0.04


KFPC startup costs (c)



0.04



0.01



0.16


Spread between FIFO and ECRC

(0.31)



1.19



(0.97)



(0.17)


Adjusted Diluted Earnings Per Share (non-GAAP)

$

1.02



$

1.51



$

2.49



$

1.88


________________________________________

(a)

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.

(b)

Costs related to Hurricane Harvey and Hurricane Irma.

(c)

Startup costs related to the joint venture company, KFPC.

 

POLYMER RECONCILIATION OF GROSS PROFIT TO ADJUSTED GROSS PROFIT (d)

(Unaudited)

(In thousands)











Three Months
Ended September
30, 2018


Three Months
Ended September
30, 2017


Nine Months
Ended September
30, 2018


Nine Months
Ended September
30, 2017

Gross profit

$

90,202



$

67,308



$

281,407



$

242,807










Add (deduct):








Restructuring and other charges (a)



1,028





6,528


Weather related costs (b)



760





760


KFPC startup costs (c)



2,341





7,662


Non-cash compensation expense

149



133



457



442


Spread between FIFO and ECRC

(7,771)



34,451



(27,711)



(3,431)


Adjusted gross profit (non-GAAP)

$

82,580



$

106,021



$

254,153



$

254,768










Sales volume (kilotons)

84.2



91.9



249.5



258.1


Adjusted gross profit per ton

$

980



$

1,154



$

1,019



$

987


________________________________________

(a)

Severance expenses and other restructuring related charges.

(b)

Costs related to Hurricane Harvey and Hurricane Irma.

(c)

Startup costs related to the joint venture company, KFPC.

(d)

Certain amounts reported in the prior periods have been reclassified to conform to the current reporting presentation.

For further information:

H. Gene Shiels
Director of Investor Relations
(281) 504-4886

Kraton Corporation Logo (PRNewsFoto/)

 

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SOURCE Kraton Corporation