Kraton Performance Polymers, Inc. Announces Fourth Quarter and Full Year 2015 Results

Feb 23, 2016, 19:34 ET from Kraton Performance Polymers, Inc.

HOUSTON, Feb. 23, 2016 /PRNewswire/ -- Kraton Performance Polymers, Inc. (NYSE: KRA), a leading global producer of styrenic block copolymers, specialty polymers and high-value performance products derived from pine wood pulping co-products, announces financial results for the quarter and year ended December 31, 2015.

2015 FOURTH QUARTER OVERVIEW

  • Sales volume was 74.9 kilotons in the fourth quarter 2015 compared to 72.2 kilotons in the fourth quarter 2014.
  • Gross profit was $66.8 million in the fourth quarter 2015 compared to $44.1 million in the fourth quarter 2014, an increase of $22.8 million.
  • Adjusted gross profit (non-GAAP) was $77.5 million, or $1,035 per ton, in the fourth quarter 2015 compared to $59.0 million, or $817 per ton, in the fourth quarter 2014.
  • Adjusted EBITDA (non-GAAP) was $50.0 million in the fourth quarter 2015 compared to $31.7 million in the fourth quarter 2014, an increase of $18.3 million.
  • Net loss attributable to Kraton was $4.0 million, or $0.13 per diluted share, in the fourth quarter 2015 compared to a net loss attributable to Kraton of $17.4 million, or $0.54 per diluted share, in the fourth quarter 2014.
  • Adjusted net income (non-GAAP) was $22.8 million, or $0.74 per diluted share, in the fourth quarter 2015 compared to $5.1 million, or $0.16 per diluted share, in the fourth quarter 2014.

Three months ended
December 31,


Years ended
December 31,

($ in thousands, except per share amounts)

2015


2014


2015


2014

Sales volume (in kilotons)

74.9



72.2



306.5



305.6


Revenue

$

248,277



$

276,039



$

1,034,626



$

1,230,433


EBITDA(1)  

$

19,483



$

6,471



$

80,730



$

97,164


Adjusted EBITDA(1)

$

50,044



$

31,703



$

166,817



$

147,194


Net income (loss) attributable to Kraton (GAAP)

$

(3,961)



$

(17,430)



$

(10,535)



$

2,419


Adjusted net income attributable to Kraton(1)

$

22,816



$

5,136



$

63,481



$

38,380


Earnings (loss) per diluted share (GAAP)

$

(0.13)



$

(0.54)



$

(0.34)



$

0.07


Adjusted earnings per diluted share(1)

$

0.74



$

0.16



$

2.02



$

1.16


Net cash provided by operating activities

$

22,274



$

48,635



$

103,847



$

29,858


















(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.

 

"Kraton's fourth quarter 2015 results reflect year-on-year sales volume increases in all three of our business lines, led by Cariflex, where fourth quarter sales volume was up nearly 25% compared to the fourth quarter 2014, primarily driven by increased sales into surgical glove applications. Sales volume in our Specialty Polymers business was up 3% compared to the fourth quarter 2014, driven largely by higher sales into industrial, medical, and consumer applications, while sales volume in Performance Products was up 2% on increased sales into paving, personal care, and roofing applications. As a result, fourth quarter 2015 sales volume of nearly 75 kilotons was the highest fourth quarter posted by Kraton since 2007," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer. "Our favorable sales mix in the fourth quarter, reflective of our continuing portfolio shift to higher margin products, along with the benefit of our ongoing cost reset initiatives, led to a significant improvement in quarterly profitability. Adjusted gross profit was $1,035 per ton in the fourth quarter 2015, up from $817 per ton in the fourth quarter 2014, driving full year 2015 adjusted gross profit to $912 per ton, consistent with our prior guidance, and demonstrating execution against our stated objectives. Given these factors, Kraton delivered record fourth quarter adjusted EBITDA of $50 million and full-year adjusted EBITDA of nearly $167 million, up 13% compared to adjusted EBITDA of $147 million in 2014. In addition, on a full-year basis we generated $104 million in cash from operating activities, an increase of $74 million compared to cash from operating activities of $30 million in 2014," added Fogarty.  

"In terms of Kraton's overall strategic objectives, on January 6th we completed the acquisition of Arizona Chemical Holdings Corporation. The process of integrating Arizona is now underway, and we are implementing the initiatives that we expect will deliver $65 million of transaction synergies by 2018. In parallel, progress continues on Kraton's standalone cost reduction programs that we expect will result in $70 million of run-rate cost outs by 2018, $19 million of which were achieved in 2015," said Fogarty. "And in late January we completed the sale of certain assets relating to our compounding business for $72 million in cash. Proceeds from the sale were used to reduce outstanding indebtedness, pre-funding near term scheduled amortization under the term loan we entered into in conjunction with the Arizona Chemical acquisition, and reducing annual interest expense by approximately $4 million."

4Q 2015 VERSUS 4Q 2014 RESULTS

Revenue was $248.3 million for the three months ended December 31, 2015 compared to $276.0 million for the three months ended December 31, 2014, a decrease of $27.8 million or 10.1%. The negative effect of currency changes accounted for $16.4 million of the decline. The remaining decline was due to lower average selling prices amounting to $25.9 million driven by lower average raw material costs partially offset by an increase of $14.5 million related to higher sales volumes. Sales volumes were 74.9 kilotons for the fourth quarter of 2015 compared to 72.2 kilotons for the fourth quarter of 2014, an increase of 2.7 kilotons, or 3.8%. Sales volumes increased for all product groups including a record quarter for Cariflex.

With respect to revenue in each of our product groups:

  • Cariflex revenue was $40.8 million for the three months ended December 31, 2015 compared to $34.0 million for the three months ended December 31, 2014, an increase of $6.8 million, or 20.0%. Sales volume increased 24.7%, driving an $8.4 million increase in revenue, largely resulting from higher sales into surgical glove applications. This revenue increase was partially offset by a $1.1 million negative effect of currency fluctuations and modestly lower selling prices due to lower raw material costs.
  • Specialty Polymers revenue was $87.6 million for the three months ended December 31, 2015 compared to $94.9 million for the three months ended December 31, 2014, a decline of $7.3 million, or 7.7%. The negative effect of currency fluctuations accounted for $3.7 million of the decline. The balance of the decline was due to lower average selling prices of $6.4 million primarily driven by lower raw material costs, partially offset by a $2.8 million increase in sales volume, largely due to higher sales into medical, industrial, consumer and cable gel applications.
  • Performance Products revenue was $119.7 million for the three months ended December 31, 2015 compared to $147.0 million for the three months ended December 31, 2014, a decline of $27.3 million, or 18.5%. The negative effect of currency fluctuations accounted for $11.6 million of the decline. The remaining decline was due to lower average selling prices of $19.0 million driven by lower raw material costs, partially offset by a $3.4 million increase related to higher sales volume. The increase in sales volume was largely due to higher sales into European paving and roofing applications as well as personal care applications.

Gross profit was $66.8 million for the three months ended December 31, 2015 compared to $44.1 million for the three months ended December 31, 2014. Adjusted gross profit (non-GAAP) was $77.5 million, or $1,035 per ton, for the three months ended December 31, 2015 compared to $59.0 million, or $817 per ton, for the three months ended December 31, 2014, an increase in adjusted gross profit of $218 per ton despite a negative impact from currency fluctuations of $87 per ton.

Research and development expenses were $7.7 million for the three months ended December 31, 2015 compared to $7.6 million for the three months ended December 31, 2014.

Selling, general, and administrative expenses were $39.8 million for the three months ended December 31, 2015 compared to $25.3 million for the three months ended December 31, 2014, an increase of $14.5 million or 57.2%. This increase was primarily due to a $14.3 million increase in transaction and acquisition related costs primarily associated with the acquisition of Arizona Chemical.

Adjusted EBITDA (non-GAAP) in the fourth quarter 2015 was $50.0 million, or 20.2% of revenue, compared to $31.7 million, or 11.5% of revenue in the fourth quarter 2014, an increase of $18.3 million, or 57.9%, despite a $5.3 million negative effect from currency fluctuations.

Fourth quarter 2015 net loss (GAAP) attributable to Kraton was $4.0 million, or $0.13 per diluted share, compared to a fourth quarter 2014 net loss attributable to Kraton of $17.4 million, or $0.54 per diluted share. Adjusted net income attributable to Kraton was $22.8 million, or $0.74 per diluted share, in the fourth quarter 2015 compared to adjusted net income attributable to Kraton of $5.1 million, or $0.16 per diluted share, in the fourth quarter 2014.

FY 2015 VERSUS FY 2014 RESULTS

Revenue was $1,034.6 million for the year ended December 31, 2015 compared to $1,230.4 million for the year ended December 31, 2014, a decrease of $195.8 million or 15.9%. The negative effect of currency movements accounted for $89.1 million of the decline. The remaining decline was due to lower average selling prices amounting to $112.2 million primarily driven by lower average raw material costs, partially offset by $5.5 million due to higher sales volumes. Sales volumes were 306.5 kilotons for the year ended December 31, 2015 compared to 305.6 kilotons for the year ended December 31, 2014.

With respect to revenue for each of our product groups:

  • Cariflex revenue was $142.9 million for the year ended December 31, 2015 compared to $138.6 million for the year ended December 31, 2014, an increase of $4.3 million or 3.1%. Cariflex sales volumes increased 10.2% compared to the year ended December 31, 2014, driven primarily by higher sales into surgical glove applications. Higher sales volume, amounting to $14.5 million, was partially offset by a $7.7 million negative effect from currency fluctuations and $2.5 million associated with lower selling prices primarily resulting from lower raw material costs.
  • Specialty Polymers revenue was $350.7 million for the year ended December 31, 2015 compared to $412.4 million for the year ended December 31, 2014, a decline of $61.7 million, or 15.0%. The negative effect of currency fluctuations accounted for $19.6 million of the decline. The remaining decline reflects a $27.4 million impact from lower average selling prices primarily related to lower raw material costs and $14.8 million due to a 3.4% decline in sales volumes. The decline in sales volume was largely due to lower sales into lubricant additive applications associated with inventory reduction measures by a significant customer, and, to a lesser extent, lower sales into personal care applications. Partially offsetting these declines were higher sales into medical, cable gel, and consumer applications.
  • Performance Products revenue was $540.6 million for the year ended December 31, 2015 compared to $678.9 million for the year ended December 31, 2014, a decline of $138.3 million, or 20.4%. The decline includes a $61.8 million negative effect of currency fluctuations. The remaining decline was due to lower average selling prices primarily resulting from lower raw material costs. Sales volume increased modestly, despite the previously disclosed seven kilotons of lost production at our Wesseling and Berre facilities in the second quarter 2015. The increase in sales volume was driven by higher sales into North American paving applications and personal care applications, largely offset by lower sales into adhesives and roofing applications.

Gross profit was $228.7 million for the year ended December 31, 2015 compared to $237.1 million for the year ended December 31, 2014. Adjusted gross profit amounted to $279.5 million, or $912 per ton, for the year ended December 31, 2015 compared to $257.9 million, or $844 per ton, for the year ended December 31, 2014, an increase in adjusted gross profit of $68 per ton despite a negative impact from currency fluctuations of $54 per ton. The increase in adjusted gross profit includes a $12.4 million reduction in manufacturing costs resulting from the implementation of our previously announced cost reduction initiatives.

Research and development expenses were $31.0 million for the year ended December 31, 2015 compared to $31.4 million for the year ended December 31, 2014. The $0.4 million decrease includes $2.8 million of savings from the implementation of our previously announced cost reduction initiatives, largely offset by higher variable employee compensation and other operating costs.

Selling, general, and administrative expenses were $117.3 million for the year ended December 31, 2015 compared to $104.2 million for the year ended December 31, 2014, an increase of $13.1 million, or 12.6%. This increase was primarily due to an $11.3 million increase in transaction and acquisition related costs, a $7.2 million increase in employee related expenses, primarily variable compensation expense, and a $2.3 million increase in other professional fees. These increases were partially offset by a $3.9 million positive effect from currency fluctuations and a $4.1 million reduction from the implementation of our previously announced cost reduction initiatives.

Adjusted EBITDA was $166.8 million or 16.1% of revenue in 2015, compared to $147.2 million, or 12.0% of revenue in 2014, an increase of $19.6 million or 13.3%, despite an $11.0 million negative effect from currency fluctuations.

Net loss attributable to Kraton was $10.5 million or $0.34 per diluted share for the year ended December 31, 2015, a decrease in net income of $13.0 million compared to net income of $2.4 million or 0.07 per diluted share for the year ended December 31, 2014. Adjusted net income attributable to Kraton was $63.5 million or $2.02 per diluted share in 2015 compared to $38.4 million or $1.16 per diluted share in 2014.

CASH FLOW

In the fourth quarter 2015 and 2014, cash provided by operating activities totaled $22.3 million and $48.6 million, respectively. For the full year 2015, cash provided by operating activities was $103.8 million, compared to $29.9 million in 2014. The $74.0 million year-over-year increase in operating cash flows was primarily driven by changes in working capital that provided cash flows of $46.1 million for the year ended December 31, 2015 compared to a use of cash of $53.2 million for the year ended December 31, 2014. This period-over-period change includes a $63.4 million increase in cash flows associated with inventories of products, materials, and supplies, due to a decrease in inventory volumes for the year ended December 31, 2015 compared to an increase in inventory volumes for the year ended December 31, 2014. In addition, cash flows associated with inventories increased as a result of declining costs of raw material and finished goods inventories for the year ended December 31, 2015.

OUTLOOK

With respect to the full year 2016, we currently estimate revenue of approximately $1.9 billion, reflecting modest volume growth for our SBC and pine-based specialty chemicals businesses. We project Adjusted EBITDA in the range of $370.0 million to $390.0 million. In addition, we currently estimate the following: depreciation and amortization in the range of $135.0 million to $145.0 million; interest expense of approximately $140.0 million (including estimated amortization of deferred financing costs and accretion of original issue discount totaling approximately $17.0 million); and a tax provision currently estimated in the range of $10.0 million to $15.0 million (excluding the impact of an anticipated release of $87.9 million of valuation allowance related to U.S. net deferred tax assets in 2016).

We currently estimate that our results in the first quarter 2016 will reflect a negative spread between FIFO and ECRC of approximately $20.0 million to $25.0 million.

USE OF NON-GAAP FINANCIAL MEASURES

This earnings release includes the use of both GAAP and non-GAAP financial measures. The non-GAAP financial measures are EBITDA, Adjusted EBITDA, Adjusted Gross Profit and Adjusted Net Income attributable to Kraton (or adjusted diluted earnings per share). Tables included in this earnings release reconcile each of these non-GAAP financial measures with the most directly comparable GAAP financial measure. For additional information on the impact of the spread between the FIFO basis of accounting and ECRC, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2015.

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, 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 GAAP in the United States. For EBITDA, these limitations include: EBITDA does not reflect the significant interest expense on our debt; EBITDA does not reflect the significant depreciation and amortization expense associated with our long-lived assets; 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 the 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; and 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; and Adjusted EBITDA may, and often will, vary significantly from EBITDA calculations under the terms of our debt agreements and should not be used for assessing compliance or non-compliance with financial covenants under our debt agreements. 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. As a measure of our performance, Adjusted Gross Profit is limited because it often will vary substantially from gross profit calculated in accordance with U.S. GAAP due to volatility in raw material prices. Finally, we prepare Adjusted Net Income attributable to Kraton (or adjusted diluted earnings per share) by eliminating from net income the impact of a number of items we do not consider indicative of our on-going performance, including the spread between FIFO and ECRC. Our presentation of non-GAAP financial measures and the adjustments made therein should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items, and in the future we may incur expenses or charges similar to the adjustments made in the presentation of our non-GAAP financial measures.

CONFERENCE CALL AND WEBCAST INFORMATION

Kraton has scheduled a conference call on Wednesday, February 24, 2016 at 9:00 a.m. (Eastern Time) to discuss fourth quarter and full year 2015 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 February 24, 2016 through 1:59 a.m. (Eastern Time) on March 13, 2016. 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 888-566-0401 and International callers dial 203-369-3040.

ABOUT KRATON

Kraton Performance Polymers, Inc. (NYSE "KRA") is a leading global producer of styrenic block copolymers, specialty polymers and high-value performance products 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, roofing and footwear products.  As the largest global provider in the pine chemicals industry, the company's pine-based specialty products are sold into adhesive, road and construction and tire markets, and it produces and sells a broad range of chemical intermediates into markets that include fuel additives, oilfield chemicals, coatings, metalworking fluids and lubricants, inks, flavors and fragrances and mining.  Kraton offers its products to a diverse customer base in over 70 countries worldwide. Kraton, the Kraton logo and design, and the "Giving Innovators their Edge" tagline are all trademarks of Kraton Polymers LLC.

FORWARD LOOKING STATEMENTS

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 characterized by the use of words such as "outlook," "believes," "estimates," "expects," "projects," "may," "intends," "plans" or "anticipates," or by discussions of strategy, plans or intentions, including the expected amount of, and timing to achieve, transaction synergies and run-rate cost outs, and all matters described under the caption "Outlook" including, but not limited to, full year 2016 expectations for revenue, volume growth, Adjusted EBITDA, depreciation and amortization, interest expense, tax provision, and the spread between FIFO and ECRC.

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, 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 I, 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: the integration of Arizona Chemical Holdings Corporation; Kraton's ability to repay its indebtedness; Kraton's reliance on third parties for the provision of significant operating and other services; conditions in the global economy and capital markets; fluctuations in raw material costs; 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. Readers are cautioned not to place undue reliance on 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.

For Further Information:
H. Gene Shiels
Director of Investor Relations
(281)-504-4886

KRATON PERFORMANCE POLYMERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)


Three months ended
December 31,


Years ended
December 31,


2015


2014


2015


2014

Revenue

$

248,277



$

276,039



$

1,034,626



$

1,230,433


Cost of goods sold

181,428



231,949



805,970



993,366


Gross profit

66,849



44,090



228,656



237,067


Operating expenses:








Research and development

7,679



7,634



31,024



31,370


Selling, general, and administrative

39,820



25,337



117,308



104,209


Depreciation and amortization

15,241



16,612



62,093



66,242


Impairment of long-lived assets



4,731





4,731


Total operating expenses

62,740



54,314



210,425



206,552


Earnings of unconsolidated joint venture

133



83



406



407


Interest expense, net

6,248



5,927



24,223



24,594


Income (loss) before income taxes

(2,006)



(16,068)



(5,586)



6,328


Income tax expense

2,808



1,713



6,943



5,118


Consolidated net income (loss)

(4,814)



(17,781)



(12,529)



1,210


Net loss attributable to noncontrolling interest

(853)



(351)



(1,994)



(1,209)


Net income (loss) attributable to Kraton

$

(3,961)



$

(17,430)



$

(10,535)



$

2,419


Earnings (loss) per common share:








Basic

$

(0.13)



$

(0.54)



$

(0.34)



$

0.07


Diluted

$

(0.13)



$

(0.54)



$

(0.34)



$

0.07


Weighted average common shares outstanding:








Basic

29,969



31,907



30,574



32,163


Diluted

29,969



31,907



30,574



32,483


 

KRATON PERFORMANCE POLYMERS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)


December 31,
2015


December 31,
2014

ASSETS




Current assets:




Cash and cash equivalents

$

70,049



$

53,818


Receivables, net of allowances of $244 and $245

105,089



107,432


Inventories of products

264,107



326,992


Inventories of materials and supplies

12,138



10,968


Other current assets

31,278



24,521


Total current assets

482,661



523,731


Property, plant and equipment, less accumulated depreciation of $382,157 and $387,463

517,673



451,765


Intangible assets, less accumulated amortization of $100,093 and $88,939

41,602



49,610


Investment in unconsolidated joint venture

11,628



12,648


Debt issuance costs

13,480



7,153


Deferred income taxes

3,867



3,848


Other long-term assets

21,789



28,122


Total assets

$

1,092,700



$

1,076,877


LIABILITIES AND EQUITY




Current liabilities:




Current portion of long-term debt

$

141



$

87


Accounts payable-trade

59,337



72,786


Other payables and accruals

91,011



50,888


Due to related party

14,101



18,121


Total current liabilities

164,590



141,882


Long-term debt, net of current portion

429,056



351,785


Deferred income taxes

9,070



11,320


Other long-term liabilities

96,992



103,739


Total liabilities

699,708



608,726


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; 30,569 shares issued and outstanding at December 31, 2015; 31,831 shares issued and outstanding at December 31, 2014

306



318


Additional paid in capital

349,871



361,342


Retained earnings

147,131



168,041


Accumulated other comprehensive loss

(138,568)



(99,218)


Total Kraton stockholders' equity

358,740



430,483


Noncontrolling interest

34,252



37,668


Total equity

392,992



468,151


Total liabilities and equity

$

1,092,700



$

1,076,877


 

KRATON PERFORMANCE POLYMERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


Years ended December 31,


2015


2014

CASH FLOWS FROM OPERATING ACTIVITIES




Consolidated net income (loss)

$

(12,529)



$

1,210


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




Depreciation and amortization

62,093



66,242


Amortization of debt premium

(174)



(164)


Amortization of debt issuance costs

2,233



2,223


Loss on disposal of property, plant, and equipment

237



314


Impairment of long-lived assets



4,731


Impairment of spare parts inventory



430


Earnings from unconsolidated joint venture, net of dividends received

(43)



80


Deferred income tax benefit

(3,114)



(2,523)


Share-based compensation

9,015



10,475


Decrease (increase) in:






Accounts receivable

(5,149)



13,005


Inventories of products, materials, and supplies

47,530



(15,883)


Other assets

(5,466)



(6,437)


  Increase (decrease) in:




Accounts payable-trade

(7,910)



(35,368)


Other payables and accruals

21,232



(30)


Other long-term liabilities

(163)



(3,849)


Due to related party

(3,945)



(4,598)


Net cash provided by operating activities

103,847



29,858


CASH FLOWS FROM INVESTING ACTIVITIES




Kraton purchase of property, plant, and equipment

(57,065)



(66,398)


KFPC purchase of property, plant, and equipment

(69,105)



(44,277)


Purchase of software and other intangibles

(2,572)



(3,710)


Settlement of net investment hedge




Net cash used in investing activities

(128,742)



(114,385)


CASH FLOWS FROM FINANCING ACTIVITIES




Proceeds from debt

30,000



39,000


Repayments of debt

(30,000)



(39,000)


KFPC proceeds from debt

80,094




Capital lease payments

(133)



(6,007)


Purchase of treasury stock

(31,899)



(19,383)


Proceeds from the exercise of stock options

1,026



1,448


Debt issuance costs

(1,957)



(485)


Net cash provided by (used in) financing activities

47,131



(24,427)


Effect of exchange rate differences on cash

(6,005)



(13,100)


Net increase (decrease) in cash and cash equivalents

16,231



(122,054)


Cash and cash equivalents, beginning of period

53,818



175,872


Cash and cash equivalents, end of period

$

70,049



$

53,818


Supplemental disclosures




Cash paid during the period for income taxes, net of refunds received

$

6,340



$

10,724


Cash paid during the period for interest, net of capitalized interest

$

21,157



$

22,396


Capitalized interest

$

4,185



$

3,198


Supplemental non-cash disclosures




Property, plant, and equipment accruals

$

16,883



$

5,375


Asset acquired through capital lease

$

681



$

7,033


 

KRATON PERFORMANCE POLYMERS, INC.

DETAIL ON CASH FLOW AND DEBT

(Unaudited)

(In millions)


Year ended December 31, 2015


Kraton


KFPC


Consolidated

Operating activities

$

112.9



$

(9.1)



$

103.8


Investing activities

$

(59.6)



$

(69.1)



$

(128.7)


Financing activities

$

(33.0)



$

80.1



$

47.1


Foreign exchange

$

(5.4)



$

(0.6)



$

(6.0)


Beginning cash

$

45.8



$

8.0



$

53.8


Ending cash

$

60.7



$

9.3



$

70.0


Debt

$

352.3



$

76.9



$

429.2


Net Debt

$

291.6



$

67.6



$

359.2


 

RECONCILIATION OF GROSS PROFIT TO ADJUSTED GROSS PROFIT

(Unaudited)

(In thousands)


Three months ended

December 31,


Years ended

December 31,


2015


2014


2015


2014

Gross profit

$

66,849



$

44,090



$

228,656



$

237,067


Add (deduct):








Restructuring and other charges (a)

17



93



159



651


Production downtime (b)



(1,518)



(474)



9,905


Impairment of spare parts inventory (c)



430





430


Non-cash compensation expense (d)

145



120



541



628


Spread between FIFO and ECRC

10,514



15,763



50,658



9,255


Adjusted gross profit

$

77,525



$

58,978



$

279,540



$

257,936


















(a)

Employee severance costs and other restructuring related charges

(b)

In 2015, the reduction in costs is due to insurance recoveries related to the Belpre production downtime. In 2014, weather-related production downtime at our Belpre, Ohio, facility and an operating disruption from a small fire at our Berre, France, facility

(c)

Impairment of spare parts inventory associated with the coal-burning boilers which were decommissioned in 2015

(d)

Represents non-cash expense related to equity compensation plans

 

KRATON PERFORMANCE POLYMERS, INC.

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

(Unaudited)

(In thousands)


Three months ended

December 31,


Years ended

December 31,


2015


2014


2015


2014

Net income (loss) attributable to Kraton

$

(3,961)



$

(17,430)



$

(10,535)



$

2,419


Net loss attributable to noncontrolling interest

(853)



(351)



(1,994)



(1,209)


Consolidated net income (loss)

(4,814)



(17,781)



(12,529)



1,210


Add:








Interest expense, net

6,248



5,927



24,223



24,594


Income tax expense

2,808



1,713



6,943



5,118


Depreciation and amortization expenses

15,241



16,612



62,093



66,242


EBITDA

19,483



6,471



80,730



97,164


Add (deduct):








Retirement plan charges (a)

792



399



792



399


Restructuring and other charges (b)

230



2,300



1,729



2,953


Transaction and acquisition related costs (c)

15,048



763



20,846



9,585


Impairment of long-lived assets (d)



4,731





4,731


Impairment of spare parts inventory (e)



430





430


Production downtime (f)

(250)



(1,732)



(593)



10,291


KFPC startup costs (g)

1,813



571



3,640



1,911


Non-cash compensation expense (h)

2,414



2,007



9,015



10,475


Spread between FIFO and ECRC

10,514



15,763



50,658



9,255


Adjusted EBITDA

$

50,044



$

31,703



$

166,817



$

147,194




(a)

Charges associated with the termination of the defined benefit restoration pension plan, which are primarily recorded in selling, general, and administrative expenses

(b)

Employee severance, professional fees, and other restructuring related charges which are primarily recorded in selling, general, and administrative expenses

(c)

Charges related to the evaluation of acquisition transactions which are recorded in selling, general, and administrative expenses. In 2015, charges are primarily related to the acquisition of Arizona Chemical. In 2014, charges are primarily related to the terminated combination agreement with LCY

(d)

The charge recognized in 2014 includes $2.4 million related to engineering and design assets for projects we determined were no longer economically viable, $1.4 million related to information technology and office assets associated with restructuring activities, and $0.9 million related to other long-lived assets

(e)

Impairment of spare parts inventory associated with the coal-burning boilers which were decommissioned in 2015 which is recorded in cost of goods sold

(f)

In 2015, the reduction in costs is due to insurance recoveries related to the Belpre production downtime, which are primarily recorded in cost of goods sold. In 2014, weather-related production downtime at our Belpre, Ohio, facility and an operating disruption from a small fire at our Berre, France, facility, of which $9.9 million is recorded in cost of goods sold and $0.4 million is recorded in selling, general, and administrative expenses

(g)

Startup costs related to the joint venture company, KFPC, which are recorded in selling, general, and administrative expenses

(h)

Represents non-cash expense related to equity compensation plans. For the three months and year ended December 31, 2015, $2.1 million and $7.8 million was recorded in selling, general and administrative expenses, $0.2 million and $0.7 million was recorded in research and development expenses and $0.1 million and $0.5 million was recorded in cost of goods sold, respectively. For the three months and year ended December 31, 2014, $1.7 million and $9.0 million was recorded in selling, general and administrative expenses, $0.2 million and $0.9 million was recorded in research and development expenses and $0.1 million and $0.6 million was recorded in cost of goods sold, respectively

 

KRATON PERFORMANCE POLYMERS, INC.

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

(Unaudited)

(In thousands, except per share amounts)


Three months ended December 31, 2015


Three months ended December 31, 2014


Income
(Loss)
Before
Income
Tax


Income
Taxes


Noncontrolling
Interest


Diluted
EPS


Income
(Loss)
Before
Income
Tax


Income
Taxes


Noncontrolling
Interest


Diluted
EPS

GAAP loss

$

(2,006)



$

2,808



$

(853)



$

(0.13)



$

(16,068)



$

1,713



$

(351)



$

(0.54)


Retirement plan charges (a)

792







0.03



399



8





0.01


Restructuring and other charges (b)

230



6





0.01



2,300



78





0.07


Transaction and acquisition related costs (c)

15,048







0.49



763



15





0.03


Impairment of long-lived assets (d)









4,731



95





0.14


Impairment of spare parts inventory (e)









430



9





0.01


Production downtime (f)

(250)







(0.01)



(1,732)



(35)





(0.05)


KFPC startup costs (g)

1,813



308



753



0.02



571



96



238



0.01


Change in valuation allowance (h)











(84)






Spread between FIFO and ECRC

10,514



303





0.33



15,763



239





0.48


Adjusted Earnings

$

26,141



$

3,425



$

(100)



$

0.74



$

7,157



$

2,134



$

(113)



$

0.16



















Year ended December 31, 2015


Year ended December 31, 2014


Income
(Loss)
Before
Income
Tax


Income
Taxes


Noncontrolling
Interest


Diluted
EPS


Income 
Before
Income
Tax


Income
Taxes


Noncontrolling
Interest


Diluted
EPS

GAAP earnings (loss)

$

(5,586)



$

6,943



$

(1,994)



$

(0.34)



$

6,328



$

5,118



$

(1,209)



$

0.07


Retirement plan charges (a)

792







0.03



399



8





0.01


Restructuring and other charges (b)

1,729



44





0.05



2,953



204





0.08


Transaction and acquisition related costs (c)

20,846







0.67



9,585



192





0.29


Impairment of long-lived assets (d)









4,731



95





0.14


Impairment of spare parts inventory (e)









430



9





0.01


Production downtime (f)

(593)







(0.02)



10,291



135





0.31


KFPC startup costs (g)

3,640



618



1,511



0.05



1,911



325



793



0.02


Change in valuation allowance (h)











1,769





(0.05)


Spread between FIFO and ECRC

50,658



883





1.58



9,255



64





0.28


Adjusted Earnings

$

71,486



$

8,488



$

(483)



$

2.02



$

45,883



$

7,919



$

(416)



$

1.16




(a)

Charges associated with the termination of the defined benefit restoration pension plan, which are primarily recorded in selling, general, and administrative expenses

(b)

Employee severance, professional fees, and other restructuring related charges which are primarily recorded in selling, general, and administrative expenses

(c)

Charges related to the evaluation of acquisition transactions which are recorded in selling, general, and administrative expenses. In 2015, charges are primarily related to the acquisition of Arizona Chemical. In 2014, charges are primarily related to the terminated combination agreement with LCY

(d)

The charge recognized in 2014 includes $2.4 million related to engineering and design assets for projects we determined were no longer economically viable, $1.4 million related to information technology and office assets associated with restructuring activities, and $0.9 million related to other long-lived assets

(e)

Impairment of spare parts inventory associated with the coal-burning boilers which were decommissioned in 2015 which is recorded in cost of goods sold

(f)

In 2015, the reduction in costs is due to insurance recoveries related to the Belpre production downtime, which are primarily recorded in cost of goods sold. In 2014, weather-related production downtime at our Belpre, Ohio, facility and an operating disruption from a small fire at our Berre, France, facility, of which $9.9 million is recorded in cost of goods sold and $0.4 million is recorded in selling, general, and administrative expenses

(g)

Startup costs related to the joint venture company, KFPC, which are recorded in selling, general, and administrative expenses

(h)

Income tax benefit related to a portion of the change in our valuation allowance for deferred tax assets

 

KRATON PERFORMANCE POLYMERS, INC.

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

(Unaudited)

(In thousands, except per share amounts)


Three Months Ended December 31, 2015


As Reported


Other
Adjustments


FIFO TO ECRC
Adjustment


Adjusted

Revenue

$

248,277



$



$



$

248,277


Cost of goods sold

181,428



(17)


(a)

(10,514)



170,897


Gross profit

66,849



17



10,514



77,380


Operating expenses:








Research and development

7,679







7,679


Selling, general and administrative

39,820



(17,616)


(b)



22,204


Depreciation and amortization

15,241







15,241


Total operating expenses

62,740



(17,616)





45,124


Earnings of unconsolidated joint venture

133







133


Interest expense, net

6,248







6,248


Income (loss) before income taxes

(2,006)



17,633



10,514



26,141


Income tax expense

2,808



314


(c)

303



3,425


Consolidated net income (loss)

(4,814)



17,319



10,211



22,716


Net loss attributable to noncontrolling interest

(853)



753


(d)



(100)


Net income (loss) attributable to Kraton

$

(3,961)



$

16,566



$

10,211



$

22,816










Earnings (loss) per common share:








Basic

$

(0.13)



$

0.55



$

0.33



$

0.75


Diluted

$

(0.13)



$

0.54



$

0.33



$

0.74


Weighted average common shares outstanding:








Basic

29,969



29,969



29,969



29,969


Diluted

29,969



30,296



30,296



30,296




(a)

Restructuring and other charges

(b)

$15.0 million of transaction costs, $1.8 million of KFPC startup costs, $0.8 million of charges associated with the termination of the defined benefit restoration plan, $0.2 million of restructuring and other charges, partially offset by a $0.2 million reduction of production downtime costs

(c)

Tax effect of other adjustments

(d)

KFPC startup costs

 

KRATON PERFORMANCE POLYMERS, INC.

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO KRATON TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In thousands, except per share amounts)


Three Months Ended December 31, 2014


As Reported


Other
Adjustments


FIFO TO ECRC
Adjustment


Adjusted

Revenue

$

276,039



$



$



$

276,039


Cost of goods sold

231,949



996


(a)

(15,763)



217,182


Gross profit

44,090



(996)



15,763



58,857


Operating expenses:








Research and development

7,634



(16)


(b)



7,618


Selling, general and administrative

25,337



(3,711)


(c)



21,626


Depreciation and amortization

16,612







16,612


Impairment of long-lived assets

4,731



(4,731)


(d)




Total operating expenses

54,314



(8,458)





45,856


Earnings of unconsolidated joint venture

83







83


Interest expense, net

5,927







5,927


Income (loss) before income taxes

(16,068)



7,462



15,763



7,157


Income tax expense

1,713



182


(e)

239



2,134


Consolidated net income (loss)

(17,781)



7,280



15,524



5,023


Net loss attributable to noncontrolling interest

(351)



238


(f)



(113)


Net income (loss) attributable to Kraton

$

(17,430)



$

7,042



$

15,524



$

5,136










Earnings (loss) per common share:








Basic

$

(0.54)



$

0.22



$

0.48



$

0.16


Diluted

$

(0.54)



$

0.22



$

0.48



$

0.16


Weighted average common shares outstanding:








Basic

31,907



31,907



31,907



31,907


Diluted

31,907



32,160



32,160



32,160




(a)

$1.5 million reduction of production downtime costs related to a partial insurance recovery and change in total estimated costs, partially offset by $0.1 million of restructuring and other charges and $0.4 million of impairment of spare parts inventory

(b)

Charges associated with the termination of the defined benefit restoration pension plan

(c)

$2.2 million of restructuring and other charges, $0.8 million of transaction costs, $0.4 million of charges associated with the termination of the defined benefit restoration plan, and $0.6 million of KFPC startup costs, partially offset by a $0.2 million reduction of production downtime costs related to a partial insurance recovery and change in total estimated costs

(d)

Impairment of engineering, information technology, office, and other long-lived assets

(e)

Income tax benefit related to a portion of the change in our valuation allowance for deferred tax assets

(f)

KFPC startup costs

 

KRATON PERFORMANCE POLYMERS, INC.

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO KRATON TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In thousands, except per share amounts)


Year ended December 31, 2015


As Reported


Other
Adjustments


FIFO TO ECRC
Adjustment


Adjusted

Revenue

$

1,034,626



$



$



$

1,034,626


Cost of goods sold

805,970



315


(a)

(50,658)



755,627


Gross profit

228,656



(315)



50,658



278,999


Operating expenses:








Research and development

31,024







31,024


Selling, general and administrative

117,308



(26,729)


(b)



90,579


Depreciation and amortization

62,093







62,093


Total operating expenses

210,425



(26,729)





183,696


Earnings of unconsolidated joint venture

406







406


Interest expense, net

24,223







24,223


Income (loss) before income taxes

(5,586)



26,414



50,658



71,486


Income tax expense

6,943



662


(c)

883



8,488


Consolidated net income (loss)

(12,529)



25,752



49,775



62,998


Net loss attributable to noncontrolling interest

(1,994)



1,511


(d)



(483)


Net income (loss) attributable to Kraton

$

(10,535)



$

24,241



$

49,775



$

63,481










Earnings (loss) per common share:








Basic

$

(0.34)



$

0.78



$

1.60



$

2.04


Diluted

$

(0.34)



$

0.77



$

1.59



$

2.02


Weighted average common shares outstanding:








Basic

30,574



30,574



30,574



30,574


Diluted

30,574



30,913



30,913



30,913




(a)

$0.5 million reduction of production downtime costs related to incremental insurance recoveries and reductions in total estimated costs, partially offset by $0.2 million of restructuring and other charges

(b)

$20.8 million in transaction costs, $3.6 million in KFPC startup costs, $1.6 million in restructuring and other charges, $0.8 million of charges associated with the termination of the defined benefit restoration pension plan, partially offset by a $0.1 million reduction of production downtime costs

(c)

Tax effect of other adjustments

(d)

KFPC startup costs

 

KRATON PERFORMANCE POLYMERS, INC.

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

(Unaudited)

(In thousands, except per share amounts)


Year ended December 31, 2014


As Reported


Other
Adjustments


FIFO TO ECRC
Adjustment


Adjusted

Revenue

$

1,230,433



$



$



$

1,230,433


Cost of goods sold

993,366



(10,986)


(a)

(9,255)



973,125


Gross profit

237,067



10,986



9,255



257,308


Operating expenses:








Research and development

31,370



(16)


(b)



31,354


Selling, general and administrative

104,209



(14,567)


(c)



89,642


Depreciation and amortization

66,242







66,242


Impairment of long-lived assets

4,731



(4,731)


(d)




Total operating expenses

206,552



(19,314)





187,238


Earnings of unconsolidated joint venture

407







407


Interest expense, net

24,594







24,594


Income before income taxes

6,328



30,300



9,255



45,883


Income tax expense

5,118



2,737


(e)

64



7,919


Consolidated net income

1,210



27,563



9,191



37,964


Net loss attributable to noncontrolling interest

(1,209)



793


(f)



(416)


Net income attributable to Kraton

$

2,419



$

26,770



$

9,191



$

38,380










Earnings per common share:








Basic

$

0.07



$

0.82



$

0.28



$

1.18


Diluted

$

0.07



$

0.81



$

0.28



$

1.16


Weighted average common shares outstanding:








Basic

32,163



32,163



32,163



32,163


Diluted

32,483



32,483



32,483



32,483




(a)

$9.9 million of production downtime, $0.7 million of restructuring and other charges, and $0.4 million of impairment of spare parts inventory

(b)

Charges associated with the termination of the defined benefit restoration pension plan

(c)

$9.6 million in transaction costs, $2.3 million in restructuring and other charges, $1.9 million related to KFPC startup costs, $0.4 million of charges associated with the termination of the defined benefit restoration plan, and $0.4 million in production downtime

(d)

Impairment of engineering, information technology, office, and other long-lived assets

(e)

Income tax benefit related to a portion of the change in our valuation allowance for deferred tax assets

(f)

KFPC startup costs

 

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SOURCE Kraton Performance Polymers, Inc.



RELATED LINKS

http://www.kraton.com