KRATON Polymers LLC (Form: 8-K)  

 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

     
Date of Report (Date of Earliest Event Reported):   March 27, 2006

KRATON Polymers LLC
__________________________________________
(Exact name of registrant as specified in its charter)

     
Delaware 333-123747 94-2805249
_____________________
(State or other jurisdiction
_____________
(Commission
______________
(I.R.S. Employer
of incorporation) File Number) Identification No.)
      
700 Milam Street, 13th Floor, North Tower, Houston, Texas   77002
_________________________________
(Address of principal executive offices)
  ___________
(Zip Code)
     
Registrant’s telephone number, including area code:   832-204-5400

Not Applicable
______________________________________________
Former name or former address, if changed since last report

 

Polymer Holdings LLC
__________________________________________
(Exact name of registrant as specified in its charter)

     
Delaware 333-123749 20-0411521
_____________________
(State or other jurisdiction
_____________
(Commission
______________
(I.R.S. Employer
of incorporation) File Number) Identification No.)
      
700 Milam Street, 13th Floor, North Tower Houston, Texas   77002
_________________________________
(Address of principal executive offices)
  ___________
(Zip Code)
     
Registrant’s telephone number, including area code:   832-204-5400

n/a
______________________________________________
Former name or former address, if changed since last report

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Top of the Form

Item 2.02 Results of Operations and Financial Condition.

On March 27, 2006, Polymer Holdings LLC and KRATON Polymers LLC (collectively, the "Company") issued a press release announcing its earnings for the fiscal quarter ended December 31, 2005 and full year 2005. The Company announced that it will hold a conference call, to discuss these results on Tuesday, March 28, 2006 at 2:00 p.m. A copy of the press release is attached hereto as exhibit 99.1.





Item 9.01 Financial Statements and Exhibits.

(c) Exhibits

Exhibit 99.1: Press Release dated March 27, 2006






Top of the Form

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

         
    KRATON Polymers LLC
          
March 27, 2006   By:   Raymond K. Guba
       
        Name: Raymond K. Guba
        Title: Chief Financial Officer
         
    Polymer Holdings LLC
          
March 27, 2006   By:   Raymond K. Guba
       
        Name: Raymond K. Guba
        Title: Chief Financial Officer


Top of the Form

Exhibit Index


     
Exhibit No.   Description

 
99.1
  Press Release dated March 27, 2006.
EX-99.1

Press Release

For Further Information:
KRATON Polymers LLC
Analyst and Media: Shari Mattern 832-204-5998

KRATON ANNOUNCES FOURTH QUARTER AND FULL YEAR 2005 EARNINGS

Gross Profit Increased 41.3% versus Fourth Quarter 2004 and 83.2% for the Full Year

Total Revenue and Net Income Improve

HOUSTON, TX. – March 27, 2006 – Polymer Holdings LLC (Holdings), parent company of KRATON Polymers LLC (KRATON) announces its financial results for the fourth quarter and for the year ended December 31, 2005. Holdings’ total revenues for the quarter were $223.0 million compared to $208.8 million in the comparable period of 2004, an increase of 6.8%. This improvement was primarily driven by an increase in average selling prices and an increase in sales volume.

Holdings’ gross profit for the fourth quarter increased over $12.6 million or 41.3% to $43.1 million, as compared to $30.5 million in the comparable period of 2004. After adjusting for period to period differences in the amortization of the step-up in inventory value related to the acquisition of the company in December 2003, the improvement in gross profit over 2004 was $10.0 million. Holdings’ net loss for the quarter was $4.5 million, compared with a net loss of $13.0 million in the comparable period of 2004. Holdings ended the quarter with $100.9 million in cash and cash equivalents, an increase of $54.6 million from December 31, 2004 and $29.4 million from September 30, 2005.

KRATON, the operating subsidiary of Holdings, had a net loss for the quarter of $1.9 million as compared with a net loss of $11.9 million in the comparable period of 2004. At the end of the fourth quarter 2005, Last Twelve Months (LTM) Adjusted Bank Covenant EBITDA, a measure used to determine compliance with KRATON’s debt covenants, totaled $123.8 million, an increase of $25.8 million from the comparable period of 2004. A reconciliation of KRATON’s EBITDA and Adjusted Bank Covenant EBITDA to net income or net loss, as applicable, is attached.

Holdings’ total revenue, which includes product sales and $22.7 million of other revenues, for the full year ended December 31, 2005 was $975.6 million, compared to $807.4 million for the year ended December 31, 2004, an increase of 20.8%. Product sales increased to $952.9 million as compared to $791.2 million last year, an increase of 20.4%. Sales volume increased by approximately 6.9 kT, or 2.0% during the year, which increased revenue by an estimated $9.6 million. Favorable pricing and product mix accounted for an estimated $145.8 million of the increase and favorable foreign currency exchange rates improved revenue by an estimated $6.3 million.

“We are very pleased with our fourth quarter results and the improvements we achieved during the year. In 2005 despite continuing increases in raw material costs, KRATON was able to make progress in our pricing strategies and operational improvement programs,” said George Gregory, Chief Executive Officer and President. “Our efforts to drive profitable growth, while carefully managing costs and inventory levels are paying off. In 2005, we posted record numbers in sales volume growth and inventory reduction. Our enhanced liquidity gives us the confidence to continue to invest in the innovation and growth required to meet the future needs of our customers.”

Other Business Highlights:

    Sales volumes reach 353 kT for the year, a record for KRATON.

    Inventory volumes dropped by 20 KT for the year, a new record low of 77 kT, increasing turns and improving liquidity. This was another record for KRATON.

    IR Latex growth is on track with the construction underway of KRATON’s 1,500 dry metric ton polyisoprene latex plant, located in Paulinia, Brazil. KRATON polyisoprene latex is a unique synthetic alternative to natural rubber latex for dipped goods and various specialty products.

    Asia business strategy continues to show progress and promise.

    Strong innovation pipeline with the recent announcements in KRATON’s adhesives, sealants and coatings; and packaging and film business units.

KRATON has scheduled an investor and analyst conference call for Tuesday, March 28, 2006 to discuss the results of today’s earnings announcement. The call will begin at 2:00 p.m. central time, 3:00 p.m. eastern time. You may listen to the analyst conference call by telephone by contacting the conference call operator 5-10 minutes prior to the scheduled start time and asking for the “Earnings Conference Call.”. US Dial-In #: (888) 324-6856. International Dial-In #: (517) 308-9001. For those unable to listen to the live call, a replay will be available 24 hours a day beginning at approximately 6:00 p.m. CT March 28th through 5:00 p.m. CT on April 11th. To hear a telephonic replay of the call, dial 800-677-4302 or 402-998-0977 for international callers.

About KRATON

KRATON Polymers LLC is a premier, global specialty chemicals company and is the world’s largest producer of styrenic block copolymers (“SBCs”), a family of products whose chemistry was pioneered by KRATON over forty years ago. SBCs are highly-engineered synthetic elastomers, which enhance the performance of products by delivering a variety of attributes, including greater flexibility, resilience, strength, durability and processability. KRATON polymers are used in a wide range of applications including road and roofing materials, numerous consumer products (diapers, tool handles, toothbrushes), tapes, labels, medical applications, packaging, automotive and footwear products. KRATON has the leading position in nearly all of its core markets and is the only producer of SBCs with global manufacturing capability. Its production facilities are located in the United States, The Netherlands, Germany, France, Brazil, and Japan.

Polymer Holdings LLC is the parent company of KRATON Polymers LLC and has no material assets other than its investment in KRATON Polymers LLC.

Forward Looking Statements

This news release includes “forward-looking statements” as that term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements and are often characterized by the use of words such as “believes,” “expects,” “estimates,” “projects,” “may,” “will,” “intends,” “plans,” or “anticipates,” or by discussions of strategy, plans or intentions. In this news release, forward-looking information relates to bookings trends, backlog levels, estimated turns levels, gross margins and average selling prices, and similar matters. All forward-looking statements in this news release are made based on management’s current expectations and estimates, which involve risks, uncertainties and other factors that could cause results to differ materially from those expressed in forward-looking statements. Among these factors are changes in overall economic conditions, the cyclical nature of the chemical industry, changes in demand for our products, changes in inventories at our customers and distributors, technological and product development risks, availability and cost of raw materials, competitors’ actions, pricing and gross margin pressures, loss of key customers, order cancellations or reduced bookings, the timing and cost of planned capital expenditures, changes in manufacturing yields, control of costs and expenses, significant litigation, risks associated with acquisitions and dispositions, risks associated with our substantial leverage and restrictive covenants in our debt agreements, risks associated with our international operations, the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally, risks and costs associated with increased and new regulation of corporate governance and disclosure standards (including pursuant to Section 404 of the Sarbanes-Oxley Act of 2002), and risks involving environmental or other governmental regulation. Additional factors that could affect the company’s future operating results are described in our Form 10-K for the year ended December 31, 2005 under the caption “Trends, Risks and Uncertainties” in the MD&A section, and other factors are described from time to time in our subsequent filings. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information.

1

Polymer Holdings LLC

Consolidated Statements of Operations

(In thousands of U.S. dollars)

                 
    Quarter Ended   Quarter Ended
    December 31, 2005   December 31, 2004
Revenues:
               
Sales
  $ 220,583     $ 201,340  
Other
    2,383       7,422  
 
               
Total revenues
    222,966       208,762  
Costs and expense:
               
Costs of goods sold
    179,867       178,276  
 
               
Gross profit
    43,099       30,486  
Research and development expenses
    6,652       5,932  
Selling, general, and administrative expenses
    18,039       18,400  
Depreciation and amortization of identifiable intangibles
    10,330       10,781  
Earnings in joint venture
    (466 )     (328 )
Interest, net
    11,155       13,028  
 
               
Income (loss) before income taxes
    (2,611 )     (17,327 )
Income tax (provision) benefit
    (1,840 )     4,313  
 
               
Net income (loss)
  $ (4,451 )   $ (13,014 )
 
               
                 
    Year Ended December   Year Ended December
    31, 2005   31, 2004
Revenues:
               
Sales
  $ 952,921     $ 791,226  
Other
    22,670       16,160  
 
               
Total revenues
    975,591       807,386  
Costs and expense:
               
Costs of goods sold
    766,012       692,968  
 
               
Gross profit
    209,579       114,418  
Research and development expenses
    26,152       23,178  
Selling, general, and administrative expenses
    72,731       64,903  
Depreciation and amortization of identifiable intangibles
    44,090       42,630  
Earnings in joint venture
    (1,516 )     (462 )
Interest, net
    45,733       40,747  
 
               
Income (loss) before income taxes
    22,389       (56,578 )
Income tax (provision) benefit
    (7,999 )     19,645  
 
               
Net income (loss)
  $ 14,390     $ (36,933 )
 
               

2

Polymer Holdings LLC

Consolidated Balance Sheets

As of December 31, 2005 and December 31, 2004

(In thousands of U.S. dollars)

                 
    December 31,   December 31,
    2005   2004
Assets
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 100,934     $ 46,357  
Receivables, net of allowances of $1,013 and $750
    107,586       120,596  
Inventories of products
    192,595       211,076  
Inventories of materials and supplies
    9,336       8,778  
Other current assets
    23,511       10,381  
Deferred income taxes
    1,953        
 
               
Total current assets
    435,915       397,188  
Property, plant, and equipment, less accumulated depreciation
    394,192       424,333  
Identifiable intangible assets
    101,848       109,694  
Investment in joint venture
    10,542       10,753  
Deferred financing costs
    14,399       16,799  
Other long-term assets
    9,605       8,646  
 
               
Total assets
  $ 966,501     $ 967,413  
 
               
Liabilities and Member’s Equity
               
 
               
Current liabilities:
               
Current portion of long-term debt
  $ 30,570     $ 2,680  
Accounts payable—trade
    64,345       79,968  
Other payables and accruals
    48,758       40,059  
Due to related parties
    13,119       14,471  
Deferred income taxes
          1,240  
 
               
Total current liabilities
    156,792       138,418  
Long-term debt, net of current portion
    537,418       556,335  
Deferred income taxes
    29,818       24,513  
Long-term liabilities
    29,713       25,629  
 
               
Total liabilities
    753,741       744,895  
 
               
Commitments and contingencies
               
 
               
Member’s equity:
               
Common equity
    215,452       200,528  
Accumulated other comprehensive income
    (2,692 )     21,990  
 
               
Total member’s equity
    212,760       222,518  
 
               
Total liabilities and member’s equity
  $ 966,501     $ 967,413  
 
               

3

KRATON Polymers LLC

Consolidated Statements of Operations

(In thousands of U.S. dollars)

                 
    Quarter Ended   Quarter Ended
    December 31, 2005   December 31, 2004
Revenues
               
Sales
  $ 220,583     $ 201,340  
Other
    2,383       7,422  
 
               
Total revenues
    222,966       208,762  
Costs and expense
               
Costs of goods sold
    179,867       178,276  
 
               
Gross profit
    43,099       30,486  
Research and development expenses
    6,652       5,932  
Selling, general, and administrative expenses
    18,039       18,400  
Depreciation and amortization of identifiable intangibles
    10,330       10,781  
Earnings in joint venture
    (466 )     (328 )
Interest, net
    8,110       11,244  
 
               
Income (loss) before income taxes
    434       (15,543 )
Income tax (provision) benefit
    (2,330 )     3,641  
 
               
Net income (loss)
  $ (1,896 )   $ (11,902 )
 
               
                 
    Year Ended December   Year Ended December
    31, 2005   31, 2004
Revenues
               
Sales
  $ 952,921     $ 791,226  
Other
    22,670       16,160  
 
               
Total revenues
    975,591       807,386  
Costs and expense
               
Costs of goods sold
    766,012       692,968  
 
               
Gross profit
    209,579       114,418  
Research and development expenses
    26,152       23,178  
Selling, general, and administrative expenses
    72,731       64,903  
Depreciation and amortization of identifiable intangibles
    44,090       42,630  
Earnings in joint venture
    (1,516 )     (462 )
Interest, net
    33,943       38,963  
 
               
Income (loss) before income taxes
    34,179       (54,794 )
Income tax (provision) benefit
    (11,519 )     18,973  
 
               
Net income (loss)
  $ 22,660     $ (35,821 )
 
               

4

KRATON Polymers LLC

Consolidated Balance Sheets

As of December 31, 2005 and December 31, 2004

(In thousands of U.S. dollars)

                 
    December 31, 2005   December 31, 2004
Assets
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 100,934     $ 46,357  
Receivables, net of allowances of $1,013 and $750
    107,586       120,596  
Inventories of products
    192,595       211,076  
Inventories of materials and supplies
    9,336       8,778  
Other current assets
    23,511       10,381  
Deferred income taxes
    1,953        
 
               
Total current assets
    435,915       397,188  
Property, plant, and equipment, less accumulated depreciation of $57,654 and $38,086
    394,192       424,333  
Identifiable intangible assets, less accumulated amortization of $13,887 and $8,002
    101,848       109,694  
Investment in joint venture
    10,542       10,753  
Deferred financing costs
    12,711       14,973  
Other long-term assets
    9,605       8,646  
 
               
Total assets
  $ 964,813     $ 965,587  
 
               
Liabilities and Member’s Equity
               
 
               
Current liabilities:
               
Current portion of long-term debt
  $ 30,570     $ 2,680  
Accounts payable—trade
    64,345       79,968  
Other payables and accruals
    48,758       40,059  
Due to related parties
    13,119       14,471  
Deferred income taxes
          1,240  
 
               
Total current liabilities
    156,792       138,418  
Long-term debt, net of current portion
    432,093       462,663  
Deferred income taxes
    34,010       25,184  
Long-term liabilities
    29,713       25,629  
 
               
Total liabilities
    652,608       651,894  
 
               
Commitments and contingencies
               
 
               
Member’s equity:
               
Common equity
    314,897       291,703  
Accumulated other comprehensive income
    (2,692 )     21,990  
 
               
Total member’s equity
    312,205       313,693  
 
               
Total liabilities and member’s equity
  $ 964,813     $ 965,587  
 
               

5

KRATON Polymers LLC
LTM Bank Adjusted EBITDA

(In thousands of U.S. dollars)

                 
    Year Ended December   Year Ended December
    31, 2005   31, 2004
Net income (loss)
  $ 22,660     $ (35,821 )
Income tax provision (benefit)
    11,519       (18,973 )
Interest, net
    33,943       38,963  
Depreciation and amortization of identifiable intangibles
    44,090       42,630  
 
               
Financial Statement EBITDA (1)
    112,212       26,799  
Further Adjustments to EBITDA (2)
               
Sponsor fees and expenses
    1,950       2,050  
Plant turnaround costs
    350       6,000  
Increase in cost of goods sold related to inventory step-up in the period from December 23
    1,683       35,225  
Fire repairs
    (100 )     1,144  
Severance related restructuring charges
          2,100  
Specific cost savings expenses
          4,582  
Other nonrecurring items
    530       1,856  
Specified other restructuring charges
    2,674       3,755  
Other noncash items reducing Consolidated Net Income (non-cash charge related to inventory reduction)
    4,459       14,411  
 
               
Adjusted Bank Covenant EBITDA (3)
  $ 123,758     $ 97,922  
 
               

6

(1) The EBITDA measure is used by management to evaluate operating performance. Management believes that EBITDA is useful to investors because it is frequently used by securities analysts, institutional investors and other interested parties in the evaluation of companies in our industry. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income (loss) as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. Because all companies do not use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements.

(2) These adjustments are made pursuant to the Credit and Guaranty Agreement, dated December 23, 2003, as amended as of March 4, 2004 and as of October 21, 2004, among KRATON Polymers LLC, as Borrower, Polymer Holdings LLC, certain subsidiaries of KRATON Polymers LLC, as Guarantors, various lenders, Goldman Sachs Credit Partners L.P. and UBS Securities LLC, as Lead Arrangers, Goldman Sachs Credit Partners L.P., as Syndication Agent, UBS AG, Stanford Branch, as Administrative Agent and Collateral Agent (the “senior secured credit facility”).

(3) Adjusted Bank Covenant EBITDA is defined as EBITDA adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under the senior secured credit facility. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted Bank Covenant EBITDA are appropriate to provide additional information to investors to demonstrate compliance with the financing covenants contained in the senior secured credit facility.

7