Kraton Corporation Announces Fourth Quarter and Full Year 2017 Results

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HOUSTON, Feb. 20, 2018 /PRNewswire/ -- Kraton Corporation 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, 2017.

2017 FOURTH QUARTER AND FULL YEAR SUMMARY

  • Diluted earnings per share was $2.17 for the three months ended December 31, 2017, compared to a loss of $0.12 in the same period in 2016.
  • Adjusted diluted earnings per share (non-GAAP) was $0.67 for the three months ended December 31, 2017, an increase of 131% compared to the same period in 2016.
  • Full year 2017 net income was $97.5 million and Adjusted EBITDA (non-GAAP) was $374 million, with an associated Adjusted EBITDA margin (non-GAAP) of 19.1%.
  • Reduced Kraton indebtedness by $196 million and Kraton net debt (non-GAAP) by $163 million, excluding the borrowings of our KFPC joint venture.
  • Achieved an incremental $13 million of cost reductions in the Polymer segment during 2017, for an aggregate $45 million as part of our previously announced $70 million cost reset initiatives.

 


Three Months Ended December 31,


Years Ended December 31,


2017


2016


2017


2016


(In thousands, except per share amounts)

Revenue

$

465,970



$

415,389



$

1,960,362



$

1,744,104


Polymer segment operating income

$

21,830



$

17,955



$

117,402



$

77,891


Chemical segment operating income

$

17,858



$

17,466



$

84,722



$

58,360


Net income (loss) attributable to Kraton

$

69,608



$

(3,740)



$

97,549



$

107,308


Adjusted EBITDA (non-GAAP)(1)

$

85,461



$

77,221



$

374,199



$

354,132


Adjusted EBITDA margin (non-GAAP)(1)

18.3

%


18.6

%


19.1

%


20.3

%

Diluted earnings (loss) per share

$

2.17



$

(0.12)



$

3.07



$

3.43


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

$

0.67



$

0.29



$

2.85



$

2.36















(1)

See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable U.S. GAAP measure. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue.



"Kraton reported Adjusted EBITDA of $85.5 million for the fourth quarter 2017 and on a full-year basis we posted Adjusted EBITDA of $374 million," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer. "While our fourth quarter and full-year 2017 results are in line with the updated view for the year we provided in October, reflecting an increase in Adjusted EBITDA of 11% and 6% compared to the fourth quarter and full-year 2016 respectively, our fourth quarter 2017 results include a $7.6 million negative pre-tax impact arising from customer-observed Cariflex processing issues. Specifically, and as previously discussed, in the third quarter of 2017 we initiated the "direct-connect" manufacturing process for our Cariflex products at our manufacturing facility in Paulinia, Brazil. Although material produced from this new process has met technical specifications, during the fourth quarter 2017 certain customers notified us that they were experiencing issues processing the material. We are working with our customers to fully resolve the issue and, to date, we have implemented a number of manufacturing stabilization actions that we believe will address our customers' processing concerns," said Fogarty.

"Despite these processing issues, our Polymer segment posted Adjusted EBITDA of $223 million in 2017, representing year-over-year growth of nearly 22%. Results for our Polymer segment underscore the resilience of our business, with full-year 2017 margin expansion to 18.6% of revenue and volume growth in each end-use resulting in a composite 3% year-on-year volume improvement. These strong segment results were realized despite significant raw material inflation in the first quarter of 2017."

"Full-year 2017 Adjusted EBITDA for the Chemical segment was $151 million, with an associated margin of 20% and volume growth of 4% year-on-year. After the apparent first quarter 2017 trough in Chemical segment margins and Adjusted EBITDA, we experienced improving fundamentals over the balance of the year, particularly for our TOFA-based products. As a result, second-half 2017 Adjusted EBITDA for the Chemical segment was up 9.5% compared to the first half of the year, and we are encouraged by business trends and the expectation of further margin recovery as we enter into 2018," Fogarty said.

Commenting on Kraton's debt and capital structure, Stephen E. Tremblay, the Company's Executive Vice President and Chief Financial Officer, said, "Since the closing of the Arizona Chemical acquisition we have been intently focused on debt reduction.  In 2017 we reduced Kraton net debt by $163 million, exceeding the high end of our most recent guidance by $13 million.  Furthermore, since the closing of the acquisition two years ago, we have reduced Kraton net debt by $281 million.  Consolidated net leverage has declined one full turn to 4.3 times as of December 31, 2017 and we have reduced the cost of our Term Loan by more than 200 basis points."

"With regard to the ongoing cost reset initiatives in our Polymer segment, as of year-end 2017, we have realized approximately $45 million of our $70 million goal. In addition, as previously announced, as of September 30th we achieved the $65 million of targeted synergies associated with the acquisition of our Chemical segment, well ahead of our original year-end 2018 target," Tremblay said.

Polymer Segment


Three Months Ended December 31,


Years Ended December 31,


2017


2016


2017


2016

Revenue

(In thousands)

Performance Products

$

131,489



$

109,867



$

640,313



$

513,081


Specialty Polymers

104,161



84,134



389,873



340,330


CariflexTM

43,835



44,470



168,267



170,983


Other

(34)



136



1,223



343



$

279,451



$

238,607



$

1,199,676



$

1,024,737










Operating income

$

21,830



$

17,955



$

117,402



$

77,891


Adjusted EBITDA (non-GAAP)(1)

$

50,782



$

42,064



$

223,015



$

183,087


Adjusted EBITDA margin (non-GAAP)(2)

18.2

%


17.6

%


18.6

%


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 U.S. GAAP measure.

(2)

Defined as Adjusted EBITDA as a percentage of revenue.



Q4 2017 VERSUS Q4 2016 RESULTS

Revenue for the Polymer segment was $279.5 million for the three months ended December 31, 2017 compared to $238.6 million for the three months ended December 31, 2016. Sales volume of 75.6 kilotons for the three months ended December 31, 2017 increased 3.0% compared to the three months ended December 31, 2016. Performance Products volumes increased 2.0%, Specialty Polymers volumes increased 6.8%, and Cariflex volumes decreased 1.1%. The positive effect from changes in currency exchange rate between the periods was $5.4 million.

For the three months ended December 31, 2017, the Polymer segment generated $50.8 million of Adjusted EBITDA (non-GAAP) compared to $42.1 million for the three months ended December 31, 2016, an increase of $8.7 million or 20.7%. The increase in Adjusted EBITDA was primarily due to improved unit margins, which were driven by higher selling prices and higher sales volumes. In the third quarter 2017, we initiated a new manufacturing process for our Cariflex product at our manufacturing facility in Paulinia, Brazil. Although material produced using this new process has met technical specifications, during the fourth quarter 2017, some customers notified us that they were experiencing processing issues with the material. While the majority of material shipped in the fourth quarter is being used, the degree of issues noted by our customers varied, and in certain cases the material was returned to us for evaluation. We have implemented a number of manufacturing changes in an effort to address these issues going forward and these changes appear to be lessening the processing issues. The negative financial impact to our fourth quarter 2017 operating income including our Adjusted EBITDA was $7.6 million. See a reconciliation of U.S. GAAP operating income to non-GAAP Adjusted EBITDA below.

FY 2017 VERSUS FY 2016 RESULTS

Revenue for the Polymer segment was $1,199.7 million for the year ended December 31, 2017 compared to $1,024.7 million for the year ended December 31, 2016. Sales volume of 333.7 kilotons for the year ended December 31, 2017, increased 9.5 kilotons or 2.9% compared to the year ended December 31, 2016. Performance Products volumes increased 2.9%, Specialty Polymers volumes increased 3.6%, and Cariflex volumes increased 0.4%. The positive effect from changes in currency exchange rate between the periods was $2.1 million.

For the year ended December 31, 2017, the Polymer segment generated $223.0 million of Adjusted EBITDA (non-GAAP) compared to $183.1 million for the year ended December 31, 2016, an increase of $39.9 million or 21.8%. The increase in Adjusted EBITDA was primarily due to improved unit margins and higher sales volumes. See a reconciliation of U.S. 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 December 31,
2017


Three Months
Ended December 31,
2016


Year Ended
December 31, 2017


For the period
January 6, 2016
through December
31, 2016

Revenue

(In thousands)

Adhesives

$

60,189



$

59,507



$

252,985



$

246,411


Roads and construction

9,594



8,092



48,174



48,938


Tires

12,041



12,241



49,955



42,478


Performance chemicals

104,695



96,943



409,572



381,540



$

186,519



$

176,783



$

760,686



$

719,367










Operating income

$

17,858



$

17,466



$

84,722



$

58,360


Adjusted EBITDA (non-GAAP) (1)

$

34,679



$

35,157



$

151,184



$

171,045


Adjusted EBITDA margin (non-GAAP)(2)

18.6

%


19.9

%


19.9

%


23.8

%














(1)

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

(2)

Defined as Adjusted EBITDA as a percentage of revenue.



Q4 2017 VERSUS Q4 2016 RESULTS

Revenue for the Chemical segment was $186.5 million for the three months ended December 31, 2017 compared to $176.8 million for the three months ended December 31, 2016. Sales volume was 100.9 kilotons for the three months ended December 31, 2017 compared to 103.5 kilotons for the three months ended December 31, 2016. Adhesives volumes increased 1.8%, Performance Chemicals volumes decreased 4.9%, Tires volumes decreased 3.2%, and Roads and Construction volumes increased 11.9%. The positive effect from changes in currency exchange rate between the periods was $6.3 million.

For the three months ended December 31, 2017, the Chemical segment generated Adjusted EBITDA (non-GAAP) of $34.7 million compared to $35.2 million for the three months ended December 31, 2016. See a reconciliation of U.S. GAAP operating income to non-GAAP Adjusted EBITDA below.

FY 2017 VERSUS FY 2016 RESULTS

Revenue for the Chemical segment was $760.7 million for the year ended December 31, 2017 compared to $719.4 million from the date of the Arizona Chemical Acquisition to December 31, 2016. Sales volume was 426.4 kilotons for the year ended December 31, 2017 compared to 411.5 kilotons for the year ended December 31, 2016. Adhesives volumes increased 7.2%, Performance Chemicals volumes increased 2.0%, Tires volumes increased 10.0%, and Roads and Construction volumes increased 2.6%. The positive effect from changes in currency exchange rate between the periods was $4.7 million.

For the year ended December 31, 2017, the Chemical segment generated Adjusted EBITDA (non-GAAP) of $151.2 million. From the date of the Arizona Chemical Acquisition to December 31, 2016, the Chemical segment generated Adjusted EBITDA (non-GAAP) of $171.0 million. Margin pressures in Adhesives and for Tall Oil Fatty Acid products, which had intensified in the second half of 2016 and into the first quarter of 2017, began to improve in the second quarter of 2017. Higher realized pricing, particularly for Tall Oil Fatty Acid products, led to an increase in average unit margins in the second half of 2017. As a result, Adjusted EBITDA for the second half of 2017 was up 9.5% compared to the first half of 2017. See a reconciliation of U.S. GAAP operating income to non-GAAP Adjusted EBITDA below.

Impact of the Tax Act

On December 22, 2017, the U.S. Tax Cuts and Jobs Act ("Tax Act") introduced significant changes to U.S. income tax law, including a reduction to the U.S. statutory tax rate from 35.0% to 21.0% as well as other reform initiatives, effective in 2018. There was a benefit to Diluted Earnings per Share of $1.60 for the year ended December 31, 2017. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we have made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 31, 2017, which are subject to change during 2018.

Status of Synergies, Operational Improvement, and Cost Reduction Initiatives

We previously announced synergies and operational improvement initiatives associated with the acquisition of Arizona Chemical and a cost reduction initiative targeted at lowering costs in our Polymer segment.

The Polymer segment cost reduction initiative began in 2015 with a total target savings of $70 million to be realized by the end of 2018. We realized approximately $45.0 million to date and anticipate realizing a significant portion of the remaining savings in 2018.

In conjunction with the acquisition of Arizona Chemical, we identified $65 million of cost-based synergies, approximately $25 million of which relate to general and administrative costs, and approximately $40 million of which are associated with operational improvements, all of which have been realized as of December 31, 2017.

CASH FLOW AND CAPITAL STRUCTURE

During the year ended December 31, 2017 we reduced Kraton indebtedness by approximately $196 million (excluding borrowings under the KFPC Loan Agreement), and net debt (non-GAAP) by $163 million.

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


December 31, 2017


December 31, 2016


(In thousands)

USD Tranche

$

485,000



$

1,278,000


Euro Tranche

198,265




10.5% Senior Notes

440,000



440,000


7.0% Senior Notes

400,000




ABL




Capital lease

2,086



3,042


Kraton debt

1,525,351



1,721,042


Kraton cash

75,204



107,599


Kraton net debt

1,450,147



1,613,443






KFPC(1)(2) loans

158,349



115,854


KFPC(1) cash

13,848



14,150


KFPC(1) net debt

144,501



101,704






Consolidated net debt

$

1,594,648



$

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 we consolidate within our financial statements.

(2)

During the fourth quarter of 2017, KFPC executed two revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement.

OUTLOOK

We currently anticipate 2018 Adjusted EBITDA will be approximately $400 million. This estimate assumes that the process stabilization actions that we have implemented, to address the Cariflex direct-connect processing issues that certain of our customers have observed, will continue on the current trend and therefore no material additional charges, above what was incurred in the fourth quarter of 2017, will be incurred. Consistent with the aforementioned 2018 Adjusted EBIDTA estimate, we currently anticipate reducing net debt, excluding KFPC net debt, by approximately $125 million. This estimate is less than the 2017 year-over-year improvement in net debt owing to the timing of certain items, including interest payments and other components of working capital and financing activities, and an increase in inventory commensurate with the start-up of our joint venture in Mailiao, Taiwan.

USE OF NON-GAAP FINANCIAL MEASURES

This press release includes the use of both U.S. 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 ECRC, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

We consider these non-GAAP financial measures to be important supplemental measures of our performance and believe they are frequently used by investors, securities analysts and other interested parties in the evaluation of our performance including period-to-period comparisons and/or that of other companies in our industry. Further, management uses these measures to evaluate operating performance, and our incentive compensation plan bases incentive compensation payments on our Adjusted EBITDA performance and attainment of net debt, 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 depreciations 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, as 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, February 21, 2018 at 9:00 a.m. (Eastern Time) to discuss fourth quarter and full year 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 February 21, 2018 through 1:59 a.m. (Eastern Time) on March 7, 2018. To hear a replay of the call over the Internet, access Kraton's Website at www.kraton.com by selecting the "Investor Relations" link at the top of the home page and then selecting "Events" from the Investor Relations menu on the Investor Relations page. To hear a telephonic replay of the call, dial 866-395-9164 and International callers dial 203-369-0500.

ABOUT KRATON

Kraton Corporation 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 adhesives, roads 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, flavors and fragrances 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.

FORWARD LOOKING STATEMENTS

Some of the statements 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 characterized by the use of 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 all matters described on the section titled "Outlook" including, but not limited to, our guidance for Adjusted EBITDA and net debt reduction, expectations regarding our direct-connect processing issues, expectations regarding the impact of the Tax Act and our estimates for cost reduction capture in 2018.

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 II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" therein, and in our other filings with the Securities and Exchange Commission, and include, but are not limited to, risks related to: Kraton's ability to repay its indebtedness and risk associated with incurring additional indebtedness; Kraton's reliance on third parties for the provision of significant operating and other services; conditions in, and risk associated with operating in, the global economy and capital markets; fluctuations in raw material costs; limitations in the availability of raw materials; competition in Kraton's end-use markets; and other factors of which we are currently unaware or deem immaterial. In addition, to the extent any inconsistency or conflict exists between the information included in this report and the information included in our prior reports and other filings with the SEC, the information contained in this report updates and 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

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



Three Months Ended December 31,


Years Ended December 31,


2017


2016


2017


2016


(Unaudited)





Revenue

$

465,970



$

415,389



$

1,960,362



$

1,744,104


Cost of goods sold

343,408



297,335



1,418,459



1,265,079


Gross profit

122,562



118,054



541,903



479,025


Operating expenses:








Research and development

10,296



9,108



40,725



39,491


Selling, general, and administrative

37,456



41,780



161,892



177,625


Depreciation and amortization

35,122



31,745



137,162



125,658


Operating income

39,688



35,421



202,124



136,251


Disposition and exit of business activities



(11,585)





28,416


Loss on extinguishment of debt

(19)





(35,389)



(13,423)


Earnings of unconsolidated joint venture

116



120



486



394


Interest expense, net

(30,693)



(37,502)



(132,459)



(138,952)


Income (loss) before income taxes

9,092



(13,546)



34,762



12,686


Income tax benefit

60,791



8,930



57,884



91,954


Consolidated net income (loss)

69,883



(4,616)



92,646



104,640


Net (income) loss attributable to noncontrolling interest

(275)



876



4,903



2,668


Net income (loss) attributable to Kraton

$

69,608



$

(3,740)



$

97,549



$

107,308


Earnings (loss) per common share:








Basic

$

2.21



$

(0.12)



$

3.12



$

3.48


Diluted

$

2.17



$

(0.12)



$

3.07



$

3.43


Weighted average common shares outstanding:








Basic

30,944



30,306



30,654



30,180


Diluted

31,454



30,306



31,140



30,621


 

KRATON CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)



December 31, 2017


December 31, 2016

ASSETS




Current assets:




Cash and cash equivalents

$

89,052



$

121,749


Receivables, net of allowances of $824 and $814

196,683



200,860


Inventories of products

367,796



327,996


Inventories of materials and supplies

25,643



22,392


Prepaid expense

13,963



35,851


Other current assets

36,615



37,658


Total current assets

729,752



746,506


Property, plant, and equipment, less accumulated depreciation of $526,759 and $411,418

958,723



906,722


Goodwill

774,319



770,012


Intangible assets, less accumulated amortization of $197,318 and $144,946

406,863



439,198


Investment in unconsolidated joint venture

12,380



11,195


Debt issuance costs

2,340



3,511


Deferred income taxes

8,462



6,907


Other long-term assets

39,688



22,594


Total assets

$

2,932,527



$

2,906,645


LIABILITIES AND EQUITY




Current liabilities:




Current portion of long-term debt

$

42,647



$

41,825


Accounts payable-trade

169,265



150,081


Other payables and accruals

119,624



130,398


Due to related party

19,176



14,669


Total current liabilities

350,712



336,973


Long-term debt, net of current portion

1,574,881



1,697,700


Deferred income taxes

148,148



211,396


Other long-term liabilities

192,267



170,339


Total liabilities

2,266,008



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; 31,605 shares issued and outstanding at December 31, 2017; 30,960 shares issued and outstanding at December 31, 2016

316



310


Additional paid in capital

377,957



361,682


Retained earnings

356,503



254,439


Accumulated other comprehensive loss

(98,295)



(158,530)


Total Kraton stockholders' equity

636,481



457,901


Noncontrolling interest

30,038



32,336


Total equity

666,519



490,237


Total liabilities and equity

$

2,932,527



$

2,906,645


 

KRATON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



Years Ended December 31,


2017


2016

CASH FLOWS FROM OPERATING ACTIVITIES




Consolidated net income

$

92,646



$

104,640


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




Depreciation and amortization

137,162



125,658


Amortization of debt premium and original issue discount

6,169



7,987


Amortization of debt issuance costs

8,420



8,741


Loss on disposal of property, plant, and equipment

514



665


Disposition and exit of business activities



(28,416)


Loss on extinguishment of debt

35,389



13,423


Earnings (loss) from unconsolidated joint venture, net of dividends received

(49)



15


Deferred income tax benefit

(66,004)



(12,609)


Release of valuation allowance



(86,273)


Share-based compensation

7,627



8,334


Decrease (increase) in:




Accounts receivable

19,237



(17,526)


Inventories of products, materials, and supplies

(22,269)



26,252


Other assets

12,941



(8,181)


Increase (decrease) in:




Accounts payable-trade

8,275



13,177


Other payables and accruals

13,463



(23,455)


Other long-term liabilities

(1,802)



5,881


Due to related party

3,721



155


Net cash provided by operating activities

255,440



138,468


CASH FLOWS FROM INVESTING ACTIVITIES




Kraton purchase of property, plant, and equipment

(99,223)



(99,205)


KFPC purchase of property, plant, and equipment

(17,103)



(20,386)


Purchase of software and other intangibles

(6,265)



(5,862)


Acquisition, net of cash acquired



(1,312,105)


Sale of assets



72,803


Net cash used in investing activities

(122,591)



(1,364,755)


CASH FLOWS FROM FINANCING ACTIVITIES




Proceeds from debt

739,167



1,787,965


Repayments of debt

(938,006)



(485,133)


KFPC proceeds from debt

48,207



36,896


KFPC repayments of debt

(16,244)




Capital lease payments

(964)



(272)


Purchase of treasury stock

(2,298)



(975)


Proceeds from the exercise of stock options

10,952



4,456


Settlement of interest rate swap

(879)



(5,155)


Settlement of foreign currency hedges

(716)




Debt issuance costs

(14,330)



(57,646)


Net cash provided by (used in) financing activities

(175,111)



1,280,136


Effect of exchange rate differences on cash

9,565



(2,149)


Net increase in cash and cash equivalents

(32,697)



51,700


Cash and cash equivalents, beginning of period

121,749



70,049


Cash and cash equivalents, end of period

$

89,052



$

121,749


Supplemental disclosures:




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

$

(5,395)



$

10,723


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

$

103,995



$

115,706


Capitalized interest

$

4,042



$

5,825


Supplemental non-cash disclosures:




Property, plant, and equipment accruals

$

19,720



$

31,677


Asset acquired through capital lease

$



$

1,679










The following results of operations for the Chemical segment have been included in our consolidated results effective as of the date of the acquisition, January 6, 2016.

KRATON CORPORATION

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO ADJUSTED EBITDA (NON-GAAP)

(Unaudited)

(In thousands)



Three Months Ended December 31, 2017


Three Months Ended December 31, 2016


Polymer


Chemical


Total


Polymer


Chemical


Total

Net income (loss) attributable to Kraton





$

69,608







$

(3,740)


Net income (loss) attributable to noncontrolling interest





275







(876)


Consolidated net income (loss)





69,883







(4,616)


Add (deduct):












Income tax expense





(60,791)







(8,930)


Interest expense, net





30,693







37,502


Earnings of unconsolidated joint venture





(116)







(120)


Loss on extinguishment of debt





19








Disposition and exit of business activities











11,585


Operating income

21,830



17,858



39,688



17,955



17,466



35,421


Add:












Depreciation and amortization

17,559



17,563



35,122



14,731



17,014



31,745


Disposition and exit of business activities







(7,225)



(4,360)



(11,585)


Loss on extinguishment of debt

(19)





(19)








Earnings of unconsolidated joint venture

116





116



120





120


EBITDA

39,486



35,421



74,907



25,581



30,120



55,701


Add (deduct):












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

1,507



344



1,851



5,780



756



6,536


Disposition and exit of business activities







7,225



4,360



11,585


Loss on extinguishment of debt

19





19








Weather related costs (b)

3,385





3,385








KFPC startup costs (c)

4,954





4,954



2,899





2,899


Non-cash compensation expense

261





261



1,062





1,062


Spread between FIFO and ECRC

1,170



(1,086)



84



(483)



(79)



(562)


Adjusted EBITDA (non-GAAP)

$

50,782



$

34,679



$

85,461



$

42,064



$

35,157



$

77,221















(a)

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges, which are primarily recorded in selling, general, and administrative expenses.

(b)

2017 costs are related to Hurricane Harvey and Hurricane Irma, which are recorded in cost of goods sold. 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.

(c)

Startup costs related to the joint venture company, KFPC, which are recorded in cost of goods sold in 2017 and selling, general, and administrative expenses in 2016.

 

KRATON CORPORATION

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO ADJUSTED EBITDA (NON-GAAP)

(Unaudited)

(In thousands)



Year Ended December 31, 2017


Year Ended December 31, 2016


Polymer


Chemical


Total


Polymer


Chemical


Total

Net income attributable to Kraton





$

97,549







$

107,308


Net loss attributable to noncontrolling interest





(4,903)







(2,668)


Consolidated net income





92,646







104,640


Add (deduct):












Income tax benefit





(57,884)







(91,954)


Interest expense, net





132,459







138,952


Earnings of unconsolidated joint venture





(486)







(394)


Loss on extinguishment of debt





35,389







13,423


Disposition and exit of business activities











(28,416)


Operating income

117,402



84,722



202,124



77,891



58,360



136,251


Add:












Depreciation and amortization

67,998



69,164



137,162



59,930



65,728



125,658


Disposition and exit of business activities







32,776



(4,360)



28,416


Loss on extinguishment of debt

(35,389)





(35,389)



(13,423)





(13,423)


Earnings of unconsolidated joint venture

486





486



394





394


EBITDA

150,497



153,886



304,383



157,568



119,728



277,296


Add (deduct):












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

13,000



(165)



12,835



25,035



8,529



33,564


Disposition and exit of business activities (b)







(32,776)



4,360



(28,416)


Loss on extinguishment of debt

35,389





35,389



13,423





13,423


Effect of purchase price accounting on inventory valuation (c)









24,719



24,719


Weather related costs (d)

4,145



1,320



5,465








KFPC startup costs (e)

14,618





14,618



6,179





6,179


Non-cash compensation expense

7,627





7,627



8,334





8,334


Spread between FIFO and ECRC

(2,261)



(3,857)



(6,118)



5,324



13,709



19,033


Adjusted EBITDA (non-GAAP)

$

223,015



$

151,184



$

374,199



$

183,087



$

171,045



$

354,132















(a)

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges, which are recorded primarily in selling, general, and administrative expenses.

(b)

Includes $38.2 million gain on sale of BCU, $3.2 million gain on disposition of joint venture, $4.4 million loss on exit of our Solution Resinates product line, and $8.6 million loss of exit of our NEXAR product line.

(c)

Higher costs of goods sold for our Chemical segment related to the fair value adjustment in purchase accounting for their inventory.

(d)

2017 costs are related to Hurricane Harvey and Hurricane Irma, which are recorded in cost of goods sold. 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.

(e)

Startup costs related to the joint venture company, KFPC, which are recorded in costs of goods sold in 2017 and selling, general, and administrative expenses in 2016.



We reconcile Diluted Earnings (Loss) Per Share to Adjusted Diluted Earnings Per Share (non-GAAP) as follows:


Three Months Ended December 31,


Years Ended December 31,


2017


2016


2017


2016


(Unaudited)

Diluted earnings (loss) per share

$

2.17



$

(0.12)



$

3.07



$

3.43


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

0.05



0.18



0.31



0.90


Disposition and exit of business activities (b)



0.23





(0.59)


Loss on extinguishment of debt

0.14





0.87



0.27


Weather related costs (c)

0.09





0.13




Effect of purchase price accounting on inventory valuation (d)







0.63


KFPC startup costs (e)

0.09



0.04



0.26



0.08


Tax reform repatriation (g)

1.46





1.46




Tax reform deferred tax rate change (g)

(3.06)





(3.06)




Valuation Allowance (f)







(2.75)


Spread between FIFO and ECRC

(0.27)



(0.04)



(0.19)



0.39


Adjusted diluted earnings per share (non-GAAP)

$

0.67



$

0.29



$

2.85



$

2.36















(a)

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges, which are recorded primarily in selling, general, and administrative expenses.

(b)

Includes $38.2 million gain on sale of BCU, $3.2 million gain on disposition of joint venture, $4.4 million loss on exit of our Solution Resinates product line, and $8.6 million loss of exit of our NEXAR product line.

(c)

2017 costs are related to Hurricane Harvey and Hurricane Irma, which are recorded in cost of goods sold. 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.

(d)

Higher costs of goods sold for our Chemical segment related to the fair value adjustment in purchase accounting for their inventory.

(e)

Startup costs related to the joint venture company, KFPC, which are recorded in costs of goods sold in 2017 and selling, general, and administrative expenses in 2016.

(f)

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

(g)

Tax repatriation and deferred tax rate change relating to the 2017 U.S. Tax Cuts and Jobs Act.



For Further Information:
H. Gene Shiels 281-504-4886

Kraton Corporation Logo (PRNewsFoto/)

 

View original content with multimedia:http://www.prnewswire.com/news-releases/kraton-corporation-announces-fourth-quarter-and-full-year-2017-results-300601504.html

SOURCE Kraton Corporation

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