HOUSTON, Oct. 24, 2017 /PRNewswire/ -- Kraton Corporation (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 ended September 30, 2017.
THIRD QUARTER 2017 SUMMARY
- Third quarter consolidated revenue of $510.9 million, up 12.5% compared to the third quarter of 2016
- Third quarter consolidated net loss of $4.0 million compared to net income of $15.6 million in the third quarter of 2016
- Third quarter Adjusted EBITDA(1) of $121.7 million, up 33.6% compared to the third quarter of 2016
- Polymer segment Adjusted EBITDA(1) of $77.4 million, with an associated margin(2) of 24.6%, up $27.8 million or 56.0% compared to the third quarter of 2016
- Chemical segment Adjusted EBITDA(1) of $44.3 million, with an associated margin(2) of 22.5%, up $2.8 million or 6.8% compared to the third quarter of 2016
- Delivered incremental cost reductions and transaction synergies of $10.7 million, with full realization of $65 million of transaction synergies at September 30, 2017, ahead of the initial FYE 2018 target
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In thousands, except percentages and per share amounts) | |||||||||||||||
Revenue | $ | 510,947 | $ | 454,143 | $ | 1,494,392 | $ | 1,328,715 | |||||||
Polymer segment operating income | $ | 17,802 | $ | 28,728 | $ | 95,572 | $ | 59,936 | |||||||
Chemical segment operating income | $ | 23,706 | $ | 22,089 | $ | 66,864 | $ | 40,894 | |||||||
Net income (loss) attributable to Kraton | $ | (4,033) | $ | 15,560 | $ | 27,941 | $ | 111,048 | |||||||
Adjusted EBITDA (non-GAAP)(1) | $ | 121,687 | $ | 91,074 | $ | 288,738 | $ | 276,911 | |||||||
Adjusted EBITDA margin (non-GAAP)(2) | 23.8 | % | 20.1 | % | 19.3 | % | 20.8 | % | |||||||
Diluted earnings (loss) per share | $ | (0.13) | $ | 0.49 | $ | 0.88 | $ | 3.56 | |||||||
Adjusted diluted earnings per share (non-GAAP)(1) | $ | 1.51 | $ | 0.63 | $ | 1.88 | $ | 2.07 | |||||||
(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. | |||||||||||||
"Kraton's favorable results for the third quarter 2017 reflect notable margin expansion and solid volume growth in our Polymer segment and improving fundamentals in our Chemical segment, where we posted our second quarter of sequential growth in Adjusted EBITDA and a return to Adjusted EBITDA margins above 22%. Building upon good business momentum in the second quarter, we posted consolidated Adjusted EBITDA of $122 million for the third quarter of 2017. This result was up $31 million or nearly 34% compared to the third quarter 2016, with a 370 basis point improvement in Adjusted EBITDA margin to 23.8%," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer. "As a result of our strong third quarter results, and in light of our overall year-to-date performance, we now expect that Adjusted EBITDA for the full-year 2017 will be approximately $375 million."
"As anticipated, cash generation continued to increase into the third quarter, and as a result we reduced Kraton net debt by $87 million in the quarter. For the full year 2017, we expect to reduce Kraton net debt by $125 to $150 million, despite incurring $16 million of financing costs in the first nine months of the year," said Fogarty. "During the quarter we repriced the USD tranche of our Term Loan Facility and issued a Euro tranche under the Term Loan Facility to further reduce interest expense," Fogarty added.
"With regard to ongoing cost reset initiatives in our Polymer segment and transaction synergies associated with the acquisition of our Chemical segment, as of September 30th we achieved our $65 million synergy goal, well ahead of our original year-end 2018 target. We now expect to realize approximately $50 million of our $70 million cost reset goal by year-end 2017, and we expect the full $70 million run rate to be achieved in 2018," Fogarty said.
Status of Synergies, Operational Improvement, and Cost Reduction Initiatives
We previously announced synergies and operational improvement initiatives associated with our January 6, 2016 acquisition of Arizona Chemical (the "Arizona Chemical Acquisition") and a cost reduction initiative targeted at lowering costs in our Polymer segment. Following is a summary of the status of these initiatives:
Cumulative through | |||||||
September 30, 2017 | December 31, 2016 | ||||||
(In thousands) | |||||||
General and administrative synergies | $ | 23,609 | $ | 17,663 | |||
Operational improvements | 41,044 | 19,223 | |||||
Cost reduction | 40,690 | 31,338 | |||||
$ | 105,343 | $ | 68,224 | ||||
Polymer Segment
Three Months Ended September 30, | Nine Months Ended September 30,(3) | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue | (In thousands, except percentages) | ||||||||||||||
Cariflex™ | $ | 43,031 | $ | 45,303 | $ | 124,433 | $ | 126,513 | |||||||
Specialty Polymers | 94,313 | 89,107 | 285,712 | 256,197 | |||||||||||
Performance Products | 175,968 | 138,479 | 508,820 | 403,214 | |||||||||||
Other | 847 | 81 | 1,260 | 208 | |||||||||||
$ | 314,159 | $ | 272,970 | $ | 920,225 | $ | 786,132 | ||||||||
Operating income | $ | 17,802 | $ | 28,728 | $ | 95,572 | $ | 59,936 | |||||||
Adjusted EBITDA (non-GAAP) (1) | $ | 77,363 | $ | 49,576 | $ | 172,233 | $ | 141,023 | |||||||
Adjusted EBITDA margin (non-GAAP)(2) | 24.6 | % | 18.2 | % | 18.7 | % | 17.9 | % | |||||||
(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. | |||||||||
(3) | The nine month information is provided for comparative purposes only. | |||||||||
Q3 2017 VERSUS Q3 2016 RESULTS
Revenue for the Polymer segment was $314.2 million for the three months ended September 30, 2017 compared to $273.0 million for the three months ended September 30, 2016. Sales volumes of 91.9 kilotons for the three months ended September 30, 2017 increased 6.9% compared to the three months ended September 30, 2016. Performance Products volumes increased 11.1%, Specialty Polymers volumes decreased 3.8% (excluding the effect of the sale of the compounding business, sales volumes would have been relatively flat), and Cariflex volumes decreased 1.3%. The positive effect from changes in currency exchange rates between the periods was $3.3 million.
For the three months ended September 30, 2017, the Polymer segment generated Adjusted EBITDA (non-GAAP) of $77.4 million compared to $49.6 million for the three months ended September 30, 2016. The increase was due to higher volumes and improved unit margins, primarily driven by higher selling prices. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.
Chemical Segment
The following results of operations for the Chemical segment have been included in our consolidated results since January 6, 2016.
Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2017(3) | For the period January 6, 2016 through September 30, 2016 | ||||||||||||
Revenue | (In thousands, except percentages) | ||||||||||||||
Adhesives | $ | 64,159 | $ | 60,771 | $ | 192,796 | $ | 186,903 | |||||||
Performance Chemicals | 106,280 | 96,244 | 304,877 | 284,597 | |||||||||||
Roads and Construction | 12,940 | 13,778 | 38,579 | 40,845 | |||||||||||
Tires | 13,409 | 10,380 | 37,915 | 30,238 | |||||||||||
$ | 196,788 | $ | 181,173 | $ | 574,167 | $ | 542,583 | ||||||||
Operating income | $ | 23,706 | $ | 22,089 | $ | 66,864 | $ | 40,894 | |||||||
Adjusted EBITDA (non-GAAP) (1) | $ | 44,324 | $ | 41,498 | $ | 116,505 | $ | 135,888 | |||||||
Adjusted EBITDA margin (non-GAAP)(2) | 22.5 | % | 22.9 | % | 20.3 | % | 25.0 | % | |||||||
(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. | ||||||||||
(3) | The nine month information is provided for comparative purposes only. | ||||||||||
Q3 2017 VERSUS Q3 2016 RESULTS
Revenue for the Chemical segment was $196.8 million for the three months ended September 30, 2017 compared to $181.2 million for the three months ended September 30, 2016. Sales volumes were 107.8 kilotons for the three months ended September 30, 2017, an increase of 3.5 kilotons or 3.3%. Adhesives volumes increased 5.1%, Performance Chemicals volumes increased 2.7%, and Tires volumes increased 12.3%, and Roads and Construction volumes decreased 1.1%. The positive effect from changes in currency exchange rates between the periods was $3.7 million.
For the three months ended September 30, 2017, the Chemical segment generated $44.3 million of Adjusted EBITDA (non-GAAP) compared to $41.5 million for the three months ended September 30, 2016. The increase in Adjusted EBITDA reflects higher sales volumes and stable overall unit margins compared to 2016. 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, 2017 (excluding borrowings under the Kraton Formosa Polymers Corporation (KFPC) Loan Agreement) we decreased Kraton Corporation net indebtedness by $69.4 million ($84.9 million excluding refinancing costs).
Summary of principal amounts for indebtedness and a reconciliation of Kraton debt to Kraton net debt and consolidated net debt (non-GAAP):
September 30, 2017 | December 31, 2016 | ||||||
(In thousands) | |||||||
USD Tranche | $ | 500,000 | $ | 1,278,000 | |||
Euro Tranche | 281,005 | — | |||||
10.5% Senior Notes | 440,000 | 440,000 | |||||
7.0% Senior Notes | 400,000 | — | |||||
ABL | — | — | |||||
Capital lease | 2,339 | 3,042 | |||||
Kraton debt | 1,623,344 | 1,721,042 | |||||
Kraton cash | 79,307 | 107,599 | |||||
Kraton net debt | 1,544,037 | 1,613,443 | |||||
KFPC(1) loan | 146,451 | 115,854 | |||||
KFPC(1) cash | 9,811 | 14,150 | |||||
KFPC(1) net debt | 136,640 | 101,704 | |||||
Consolidated net debt | $ | 1,680,677 | $ | 1,715,147 | |||
(1) | This amount includes all of the indebtedness of our Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. | |||||||||
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, 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 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, 2016.
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, 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, disposition and exit of business activities 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.
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.
CONFERENCE CALL AND WEBCAST INFORMATION
Kraton has scheduled a conference call on Wednesday, October 25, 2017 at 9:00 a.m. (Eastern Time) to discuss third quarter 2017 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, 2017 through 1:59 a.m. (Eastern Time) on November 18, 2017. 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 800-551-8152 or 203-369-3810.
ABOUT KRATON CORPORATION
Kraton Corporation (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 and roofing applications. 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 performance chemicals into markets that include fuel additives, oilfield chemicals, coatings, 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 2017 Adjusted EBITDA results, 2017 net debt reduction, and the amount and timing of our cost reset initiatives.
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, performance or our achievements, or industry 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: the integration of Arizona Chemical (now, AZ Chem Holdings LP); 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. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements. 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 supersedes 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, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue | $ | 510,947 | $ | 454,143 | $ | 1,494,392 | $ | 1,328,715 | |||||||
Cost of goods sold | 382,228 | 318,887 | 1,075,051 | 967,744 | |||||||||||
Gross profit | 128,719 | 135,256 | 419,341 | 360,971 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 10,325 | 9,693 | 30,429 | 30,383 | |||||||||||
Selling, general, and administrative | 42,579 | 42,769 | 124,436 | 135,845 | |||||||||||
Depreciation and amortization | 34,307 | 31,977 | 102,040 | 93,913 | |||||||||||
Operating income | 41,508 | 50,817 | 162,436 | 100,830 | |||||||||||
Disposition and exit of business activities | — | — | — | 40,001 | |||||||||||
Loss on extinguishment of debt | (15,632) | — | (35,370) | (13,423) | |||||||||||
Earnings of unconsolidated joint venture | 125 | 94 | 370 | 274 | |||||||||||
Interest expense, net | (33,017) | (33,870) | (101,766) | (101,450) | |||||||||||
Income (loss) before income taxes | (7,016) | 17,041 | 25,670 | 26,232 | |||||||||||
Income tax benefit (expense) | 2,165 | (2,198) | (2,907) | 83,024 | |||||||||||
Consolidated net income (loss) | (4,851) | 14,843 | 22,763 | 109,256 | |||||||||||
Net loss attributable to noncontrolling interest | 818 | 717 | 5,178 | 1,792 | |||||||||||
Net income (loss) attributable to Kraton | $ | (4,033) | $ | 15,560 | $ | 27,941 | $ | 111,048 | |||||||
Earnings (loss) per common share: | |||||||||||||||
Basic | $ | (0.13) | $ | 0.50 | $ | 0.90 | $ | 3.60 | |||||||
Diluted | $ | (0.13) | $ | 0.49 | $ | 0.88 | $ | 3.56 | |||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 30,625 | 30,221 | 30,548 | 30,137 | |||||||||||
Diluted | 30,625 | 30,783 | 31,006 | 30,557 | |||||||||||
KRATON CORPORATION | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(In thousands, except par value) | |||||||
September 30, 2017 | December 31, 2016 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 89,118 | $ | 121,749 | |||
Receivables, net of allowances of $1,406 and $814 | 253,437 | 200,860 | |||||
Inventories of products, net | 362,831 | 327,996 | |||||
Inventories of materials and supplies, net | 24,832 | 22,392 | |||||
Prepaid expenses | 36,348 | 35,851 | |||||
Other current assets | 45,993 | 37,658 | |||||
Total current assets | 812,559 | 746,506 | |||||
Property, plant, and equipment, less accumulated depreciation of $505,660 and $411,418 | 942,834 | 906,722 | |||||
Goodwill | 773,635 | 770,012 | |||||
Intangible assets, less accumulated amortization of $184,614 and $144,946 | 416,747 | 439,198 | |||||
Investment in unconsolidated joint venture | 12,098 | 11,195 | |||||
Debt issuance costs | 2,633 | 3,511 | |||||
Deferred income taxes | 8,766 | 6,907 | |||||
Other long-term assets | 23,334 | 22,594 | |||||
Total assets | $ | 2,992,606 | $ | 2,906,645 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 33,553 | $ | 41,825 | |||
Accounts payable-trade | 156,426 | 150,081 | |||||
Other payables and accruals | 151,856 | 130,398 | |||||
Due to related party | 16,045 | 14,669 | |||||
Total current liabilities | 357,880 | 336,973 | |||||
Long-term debt, net of current portion | 1,667,074 | 1,697,700 | |||||
Deferred income taxes | 215,145 | 211,396 | |||||
Other long-term liabilities | 168,139 | 170,339 | |||||
Total liabilities | 2,408,238 | 2,416,408 | |||||
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; 31,261 shares issued and outstanding at September 30, 2017; 30,960 shares issued and outstanding at December 31, 2016 | 313 | 310 | |||||
Additional paid in capital | 369,702 | 361,682 | |||||
Retained earnings | 282,380 | 254,439 | |||||
Accumulated other comprehensive loss | (97,105) | (158,530) | |||||
Total Kraton stockholders' equity | 555,290 | 457,901 | |||||
Noncontrolling interest | 29,078 | 32,336 | |||||
Total equity | 584,368 | 490,237 | |||||
Total liabilities and equity | $ | 2,992,606 | $ | 2,906,645 | |||
KRATON CORPORATION | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Unaudited) | |||||||
(In thousands) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Consolidated net income | $ | 22,763 | $ | 109,256 | |||
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 102,040 | 93,913 | |||||
Amortization of debt original issue discount | 4,926 | 4,893 | |||||
Amortization of debt issuance costs | 6,309 | 5,343 | |||||
(Gain) loss on disposal of property, plant, and equipment | 61 | 452 | |||||
Disposition and exit of business activities | — | (40,001) | |||||
Loss on extinguishment of debt | 35,370 | 13,423 | |||||
Earnings from unconsolidated joint venture, net of dividends received | 67 | 136 | |||||
Deferred income tax benefit | (3,526) | (4,343) | |||||
Release of valuation allowance | — | (86,631) | |||||
Share-based compensation | 7,366 | 7,272 | |||||
Decrease (increase) in: | |||||||
Accounts receivable | (38,921) | (18,114) | |||||
Inventories of products, materials, and supplies | (19,126) | 44,035 | |||||
Other assets | (6,171) | (3,044) | |||||
Increase (decrease) in: | |||||||
Accounts payable-trade | 2,267 | (2,981) | |||||
Other payables and accruals | 26,851 | (401) | |||||
Other long-term liabilities | (5,433) | 4,631 | |||||
Due to related party | 606 | (1,710) | |||||
Net cash provided by operating activities | 135,449 | 126,129 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Kraton purchase of property, plant, and equipment | (71,595) | (62,885) | |||||
KFPC purchase of property, plant, and equipment | (11,790) | (16,995) | |||||
Purchase of software and other intangibles | (4,959) | (4,691) | |||||
Acquisition, net of cash acquired | — | (1,312,105) | |||||
Sale of assets | — | 72,803 | |||||
Net cash used in investing activities | (88,344) | (1,323,873) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Proceeds from debt | 739,167 | 1,782,965 | |||||
Repayments of debt | (837,012) | (480,133) | |||||
KFPC proceeds from debt | 39,898 | 24,368 | |||||
KFPC repayments of debt | (16,244) | — | |||||
Capital lease payments | (703) | (105) | |||||
Purchase of treasury stock | (2,297) | (967) | |||||
Proceeds from the exercise of stock options | 2,954 | 2,625 | |||||
Settlement of interest rate swap | (879) | (5,155) | |||||
Settlement of foreign currency hedges | (716) | — | |||||
Debt issuance costs | (13,929) | (57,646) | |||||
Net cash provided by (used in) financing activities | (89,761) | 1,265,952 | |||||
Effect of exchange rate differences on cash | 10,025 | 5,291 | |||||
Net increase (decrease) in cash and cash equivalents | (32,631) | 73,499 | |||||
Cash and cash equivalents, beginning of period | 121,749 | 70,049 | |||||
Cash and cash equivalents, end of period | $ | 89,118 | $ | 143,548 | |||
Supplemental disclosures: | |||||||
Cash paid during the period for income taxes, net of refunds received | $ | 12,030 | $ | 7,788 | |||
Cash paid during the period for interest, net of capitalized interest | $ | 72,288 | $ | 56,972 | |||
Capitalized interest | $ | 3,334 | $ | 4,022 | |||
Supplemental non-cash disclosures: | |||||||
Property, plant, and equipment accruals | $ | 17,268 | $ | 30,494 | |||
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, 2017 | Three Months Ended September 30, 2016 | ||||||||||||||||||||||
Polymer | Chemical | Total | Polymer | Chemical | Total | ||||||||||||||||||
Net income (loss) attributable to Kraton | $ | (4,033) | $ | 15,560 | |||||||||||||||||||
Net loss attributable to noncontrolling interest | (818) | (717) | |||||||||||||||||||||
Consolidated net income (loss) | (4,851) | 14,843 | |||||||||||||||||||||
Add (deduct): | |||||||||||||||||||||||
Income tax expense (benefit) | (2,165) | 2,198 | |||||||||||||||||||||
Interest expense, net | 33,017 | 33,870 | |||||||||||||||||||||
Earnings of unconsolidated joint venture | (125) | (94) | |||||||||||||||||||||
Loss on extinguishment of debt | 15,632 | — | |||||||||||||||||||||
Operating income | $ | 17,802 | $ | 23,706 | $ | 41,508 | $ | 28,728 | $ | 22,089 | $ | 50,817 | |||||||||||
Add (deduct): | |||||||||||||||||||||||
Depreciation and amortization | 17,342 | 16,965 | 34,307 | 14,977 | 17,000 | 31,977 | |||||||||||||||||
Loss on extinguishment of debt | (15,632) | — | (15,632) | — | — | — | |||||||||||||||||
Earnings of unconsolidated joint venture | 125 | — | 125 | 94 | — | 94 | |||||||||||||||||
EBITDA | 19,637 | 40,671 | 60,308 | 43,799 | 39,089 | 82,888 | |||||||||||||||||
Add (deduct): | |||||||||||||||||||||||
Transaction, acquisition related costs, restructuring, and other costs (a) | 2,240 | 61 | 2,301 | 7,216 | 530 | 7,746 | |||||||||||||||||
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 | 1,421 | — | 1,421 | |||||||||||||||||
Non-cash compensation expense | 2,219 | — | 2,219 | 2,141 | — | 2,141 | |||||||||||||||||
Spread between FIFO and ECRC | 34,451 | 2,272 | 36,723 | (5,001) | 1,879 | (3,122) | |||||||||||||||||
Adjusted EBITDA | $ | 77,363 | $ | 44,324 | $ | 121,687 | $ | 49,576 | $ | 41,498 | $ | 91,074 | |||||||||||
(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 NET INCOME ATTRIBUTABLE TO KRATON AND OPERATING INCOME (LOSS) TO | |||||||||||||||||||||||
NON-GAAP FINANCIAL MEASURES | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | ||||||||||||||||||||||
Polymer | Chemical | Total | Polymer | Chemical(e) | Total | ||||||||||||||||||
Net income attributable to Kraton | $ | 27,941 | $ | 111,048 | |||||||||||||||||||
Net loss attributable to noncontrolling interest | (5,178) | (1,792) | |||||||||||||||||||||
Consolidated net income | 22,763 | 109,256 | |||||||||||||||||||||
Add (deduct): | |||||||||||||||||||||||
Income tax expense (benefit) | 2,907 | (83,024) | |||||||||||||||||||||
Interest expense, net | 101,766 | 101,450 | |||||||||||||||||||||
Earnings of unconsolidated joint venture | (370) | (274) | |||||||||||||||||||||
Loss on extinguishment of debt | 35,370 | 13,423 | |||||||||||||||||||||
Disposition and exit of business activities | — | (40,001) | |||||||||||||||||||||
Operating income | $ | 95,572 | $ | 66,864 | $ | 162,436 | $ | 59,936 | $ | 40,894 | $ | 100,830 | |||||||||||
Add (deduct): | |||||||||||||||||||||||
Depreciation and amortization | 50,439 | 51,601 | 102,040 | 45,199 | 48,714 | 93,913 | |||||||||||||||||
Disposition and exit of business activities | — | — | — | 40,001 | — | 40,001 | |||||||||||||||||
Loss on extinguishment of debt | (35,370) | — | (35,370) | (13,423) | — | (13,423) | |||||||||||||||||
Earnings of unconsolidated joint venture | 370 | — | 370 | 274 | — | 274 | |||||||||||||||||
EBITDA | 111,011 | 118,465 | 229,476 | 131,987 | 89,608 | 221,595 | |||||||||||||||||
Add (deduct): | |||||||||||||||||||||||
Transaction, acquisition related costs, restructuring, and other costs (a) | 11,493 | (509) | 10,984 | 19,255 | 7,773 | 27,028 | |||||||||||||||||
Disposition and exit of business activities | — | — | — | (40,001) | — | (40,001) | |||||||||||||||||
Loss on extinguishment of debt | 35,370 | — | 35,370 | 13,423 | — | 13,423 | |||||||||||||||||
Effect of purchase price accounting on inventory valuation (b) | — | — | — | — | 24,719 | 24,719 | |||||||||||||||||
Weather related costs (c) | 760 | 1,320 | 2,080 | — | — | — | |||||||||||||||||
KFPC startup costs (d) | 9,664 | — | 9,664 | 3,280 | — | 3,280 | |||||||||||||||||
Non-cash compensation expense | 7,366 | — | 7,366 | 7,272 | — | 7,272 | |||||||||||||||||
Spread between FIFO and ECRC | (3,431) | (2,771) | (6,202) | 5,807 | 13,788 | 19,595 | |||||||||||||||||
Adjusted EBITDA | $ | 172,233 | $ | 116,505 | $ | 288,738 | $ | 141,023 | $ | 135,888 | $ | 276,911 | |||||||||||
(a) | Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges. | ||||||
(b) | Higher costs of goods sold for our Chemical segment related to the fair value adjustment in purchase accounting for their inventory. | ||||||
(c) | Costs related to Hurricane Harvey and Hurricane Irma. | ||||||
(d) | Startup costs related to the joint venture company, KFPC. | ||||||
(e) | Chemical segment results are included since January 6, 2016. | ||||||
KRATON CORPORATION | |||||||||||||||
RECONCILIATION OF DILUTED EARNINGS PER SHARE TO ADJUSTED DILUTED EARNINGS PER SHARE | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Diluted earnings (loss) per share | $ | (0.13) | $ | 0.49 | $ | 0.88 | $ | 3.56 | |||||||
Transaction, acquisition related costs, restructuring, and other costs (a) | 0.05 | 0.20 | 0.25 | 0.72 | |||||||||||
Disposition and exit of business activities | — | — | — | (0.82) | |||||||||||
Loss on extinguishment of debt | 0.32 | — | 0.72 | 0.28 | |||||||||||
Weather related costs (b) | 0.04 | — | 0.04 | — | |||||||||||
Effect of purchase price accounting on inventory valuation (c) | — | — | — | 0.63 | |||||||||||
KFPC startup costs (d) | 0.04 | 0.02 | 0.16 | 0.04 | |||||||||||
Valuation allowance (e) | — | — | — | (2.77) | |||||||||||
Spread between FIFO and ECRC | 1.19 | (0.08) | (0.17) | 0.43 | |||||||||||
Adjusted diluted earnings per share (non-GAAP) | $ | 1.51 | $ | 0.63 | $ | 1.88 | $ | 2.07 | |||||||
(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) | We had higher costs of goods sold for our Chemical segment related to the fair value adjustment in purchase accounting for their inventory. | ||||
(d) | Startup costs related to the joint venture company, KFPC. | ||||
(e) | Reduction of income tax valuation allowance related to the assessment of our ability to utilize net operating losses in future periods. | ||||
For Further Information:
H. Gene Shiels 281-504-4886
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SOURCE Kraton Corporation
