Kraton Corporation Announces Third Quarter 2020 Results
Kraton Corporation (NYSE: KRA) reported significant financial results for Q3 2020, highlighting a consolidated net loss of $402.6 million, compared to a net income of $20.9 million in Q3 2019. The loss includes a non-cash goodwill impairment charge of $400 million within the Chemical segment. Despite a 24.7% drop in Adjusted EBITDA to $60.3 million, the Polymer segment showed improved sales volume, particularly in Asia, and an 18.7% rise in overall sales volume. The company reduced consolidated debt by $75.5 million during the quarter, reflecting ongoing cost discipline efforts.
- Polymer segment sales volume increased by 8% after excluding the Cariflex business.
- 18.7% rise in sales volume in the Chemical segment compared to Q3 2019.
- Reduced consolidated debt by $75.5 million during Q3 2020.
- Sales volume for Specialty Polymers surged by 23.0% due to stronger demand.
- Consolidated net loss of $402.6 million, significantly down from net income of $20.9 million in Q3 2019.
- Significant non-cash goodwill impairment charge of $400 million in the Chemical segment.
- Adjusted EBITDA dropped 24.7% compared to Q3 2019.
HOUSTON, Oct. 28, 2020 /PRNewswire/ -- Kraton Corporation (NYSE: KRA), a leading global sustainable producer of specialty polymers and high-value biobased products derived from pine wood pulping co-products, announces financial results for the quarter ended September 30, 2020.
THIRD QUARTER 2020 SUMMARY
- Results reflect improved sequential demand fundamentals in many end markets, resulting in favorable sales volume growth relative to the third quarter of 2019.
- Consolidated net loss of
$402.6 million , compared to consolidated net income of$20.9 million in the third quarter of 2019. The results include a non-cash goodwill impairment charge of$400.0 million within the Chemical segment, recorded as of September 30, 2020. - Consolidated Adjusted EBITDA(1) of
$60.3 million , down24.7% compared to the third quarter of 2019. - Polymer segment operating loss of
$5.1 million , down127.9% compared to the third quarter of 2019, and Adjusted EBITDA(1) of$31.9 million , down36.6% compared to$50.3 million in the third quarter of 2019. - Excluding the Cariflex business, which was sold in early 2020, Adjusted EBITDA(1) down
$4.6 million compared to the third quarter of 2019. - Adjusted EBITDA decline (excluding Cariflex) was primarily associated with the timing of deferred maintenance and lower fixed cost absorption associated with planned inventory reduction, offsetting the benefit of higher sales volume compared to the third quarter of 2019.
- Chemical segment operating loss of
$401.7 million , down over100% compared to the third quarter of 2019, and Adjusted EBITDA(1) of$28.3 million , down4.7% compared to$29.8 million in the third quarter of 2019. - Operating results include the aforementioned non-cash goodwill impairment charge of
$400.0 million . - Adjusted EBITDA decline reflects lower unit margins associated with lower average selling prices for Crude Sulfate Turpentine ("CST") refinery products and for rosin esters, partially offset by an
18.7% increase in sales volume and lower cost of raw materials compared to the third quarter of 2019. - Reduced Consolidated Debt by
$75.5 million and reduced Consolidated Net Debt, excluding the effect of foreign currency(1), by$25.8 million during the third quarter of 2020.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(In thousands, except percentages and per share amounts) | |||||||||||||||
Revenue | $ | 373,438 | $ | 444,221 | $ | 1,156,386 | $ | 1,395,912 | |||||||
Polymer segment operating income (loss) | $ | (5,090) | $ | 18,269 | $ | 29,597 | $ | 62,498 | |||||||
Chemical segment operating income (loss) | $ | (401,681) | $ | 19,834 | $ | (395,296) | $ | 66,908 | |||||||
Consolidated net income (loss)(1) | $ | (402,617) | $ | 20,915 | $ | (200,678) | $ | 77,925 | |||||||
Adjusted EBITDA (non-GAAP)(2) | $ | 60,257 | $ | 80,056 | $ | 207,672 | $ | 271,548 | |||||||
Adjusted EBITDA margin (non-GAAP)(3) | 16.1 | % | 18.0 | % | 18.0 | % | 19.5 | % | |||||||
Diluted earnings (loss) per share | $ | (12.67) | $ | 0.58 | $ | (6.40) | $ | 2.26 | |||||||
Adjusted diluted earnings per share (non-GAAP)(3) | $ | 0.49 | $ | 0.52 | $ | 1.05 | $ | 2.99 | |||||||
__________________________________________________ | |
(1) | For the three and nine months ended September 30, 2020, includes the |
(2) | 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. |
(3) | Defined as Adjusted EBITDA as a percentage of revenue. |
"We continue to effectively manage our business despite COVID-19 having an ongoing adverse effect on global demand fundamentals. During the third quarter of 2020, we benefited once again from our diverse end market exposure, and specifically from improved demand fundamentals, as we delivered solid operational and financial results and Adjusted EBITDA of
For the third quarter of 2020, Polymer segment Adjusted EBITDA was
Chemical segment Adjusted EBITDA for the third quarter of 2020 was
"In light of the positive demand trends we experienced in the third quarter, we remain optimistic about the outlook for the balance of 2020 and as we move into 2021. We plan to remain focused on execution, sustainable innovation and cost discipline, including our efforts to deliver
Polymer Segment
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(In thousands, except percentages) | |||||||||||||||
Performance Products | $ | 117,353 | $ | 141,267 | $ | 354,452 | $ | 422,539 | |||||||
Specialty Polymers | 78,629 | 70,986 | 232,851 | 256,483 | |||||||||||
Cariflex(1) | — | 49,241 | 36,930 | 141,117 | |||||||||||
Isoprene Rubber(1) | 1,833 | — | 17,436 | — | |||||||||||
Other | 725 | 99 | 1,103 | 370 | |||||||||||
Polymer Segment Revenue | $ | 198,540 | $ | 261,593 | $ | 642,772 | $ | 820,509 | |||||||
Operating income (loss) | $ | (5,090) | $ | 18,269 | $ | 29,597 | $ | 62,498 | |||||||
Operating income (loss) margin | (2.6) | % | 7.0 | % | 4.6 | % | 7.6 | % | |||||||
Adjusted EBITDA (non-GAAP)(1)(2) | $ | 31,912 | $ | 50,304 | $ | 136,926 | $ | 158,635 | |||||||
Adjusted EBITDA margin (non-GAAP)(3) | 16.1 | % | 19.2 | % | 21.3 | % | 19.3 | % | |||||||
__________________________________________________ | |
(1) | Our Cariflex revenue includes sales through March 6, 2020. We continue to sell Isoprene Rubber to Daelim Industrial Co, Ltd. ("Daelim") under an Isoprene Rubber Supply Agreement ("IRSA"). Sales under the IRSA are transacted at cost. Included in Adjusted EBITDA is the amortization of non-cash deferred income of |
(2) | 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. |
(3) | Defined as Adjusted EBITDA as a percentage of revenue. |
Q3 2020 VERSUS Q3 2019 RESULTS
Revenue for the Polymer segment was
Polymer Segment Sales Volume % Change | Three Months Ended September 30, 2020 | |
Performance Products | 3.3 | % |
Specialty Polymers | 23.0 | % |
Isoprene Rubber | — | % |
Subtotal | 8.4 | % |
Cariflex | (100.0) | % |
Total | (0.6) | % |
Sales volumes of 75.3 kilotons for the three months ended September 30, 2020 declined
For the three months ended September 30, 2020, the Polymer segment generated Adjusted EBITDA (non-GAAP) of
Chemical Segment
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(In thousands, except percentages) | |||||||||||||||
Adhesives | $ | 63,901 | $ | 64,391 | $ | 189,789 | $ | 198,785 | |||||||
Performance Chemicals | 99,919 | 105,367 | 295,509 | 337,766 | |||||||||||
Tires | 11,078 | 12,870 | 28,316 | 38,852 | |||||||||||
Chemical Segment Revenue | $ | 174,898 | $ | 182,628 | $ | 513,614 | $ | 575,403 | |||||||
Operating income (loss)(1) | $ | (401,681) | $ | 19,834 | $ | (395,296) | $ | 66,908 | |||||||
Operating income (loss) margin | (229.7) | % | 10.9 | % | (77.0) | % | 11.6 | % | |||||||
Adjusted EBITDA (non-GAAP)(2) | $ | 28,345 | $ | 29,752 | $ | 70,746 | $ | 112,913 | |||||||
Adjusted EBITDA margin (non-GAAP)(3) | 16.2 | % | 16.3 | % | 13.8 | % | 19.6 | % | |||||||
__________________________________________________ | |
(1) | For the three and nine months ended September 30, 2020, includes the |
(2) | 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. |
(3) | Defined as Adjusted EBITDA as a percentage of revenue. |
Q3 2020 VERSUS Q3 2019 RESULTS
Revenue for the Chemical segment was
Chemical Segment Sales Volume % Change | Three Months Ended September 30, 2020 | |
Adhesives | 5.8 | % |
Performance Chemical | 25.7 | % |
Tires(1) | 14.2 | % |
Total | 18.7 | % |
____________________________________________________ | |
(1) | Tires volumes are less than |
Sales volumes were 110.5 kilotons for the three months ended September 30, 2020, an increase of 17.4 kilotons, or
For the three months ended September 30, 2020, the Chemical segment generated
CASH FLOW AND CAPITAL STRUCTURE
During the nine months ended September 30, 2020, we reduced Kraton indebtedness by approximately
On March 6, 2020, we completed the sale of our Cariflex business to Daelim for gross proceeds of
We used the
Summary of principal amounts for indebtedness and a reconciliation of Kraton debt to consolidated net debt (non-GAAP) and consolidated net debt, excluding the effect of foreign currency (non-GAAP):
September 30, 2020 | December 31, 2019 | ||||||
(In thousands) | |||||||
Kraton debt | $ | 852,905 | $ | 1,288,277 | |||
KFPC(1)(2) loans | 92,583 | 102,385 | |||||
Consolidated debt | 945,488 | 1,390,662 | |||||
Kraton cash | 59,907 | 24,631 | |||||
KFPC(1) cash | 2,914 | 10,402 | |||||
Consolidated cash | 62,821 | 35,033 | |||||
Consolidated net debt | $ | 882,667 | $ | 1,355,629 | |||
Effect of foreign currency on consolidated net debt | (26,947) | ||||||
Consolidated net debt excluding effect of foreign currency | $ | 855,720 | |||||
__________________________________________________ | |
(1) | Kraton Formosa Polymers Corporation ("KFPC") joint venture, located in Mailiao, Taiwan, which we own a |
(2) | KFPC executed 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. |
CHEMICAL SEGMENT - GOODWILL IMPAIRMENT
During the third quarter of 2020 we completed our review of our annual long-term plan. Specifically with regard to our Chemical segment, the plan took into consideration factors including the continued availability of low-cost hydrocarbon based tackifiers which has adversely impacted market pricing for Rosin Esters within our adhesive business, a continuation of lower CST margins resulting from the decline of gum turpentine pricing in the second half of 2019, and the demand impact associated with COVID-19. These and other factors were considered by us to be an indicator of impairment of our Chemical segment's goodwill. We performed an interim impairment test of goodwill as of September 30, 2020. As a result, we recorded a non-cash impairment charge of
OUTLOOK
In light of the positive demand trends we experienced in the third quarter, we remain optimistic about the outlook for the balance of 2020 and as we move into 2021. Nevertheless, the potential for continued market disruption associated with COVID-19 still exists.
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 used are EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Diluted Earnings per Share, Consolidated Net Debt (including as adjusted to exclude the effect of foreign currency), Adjusted Gross Profit, and Adjusted Gross Profit Per Ton. 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 first-in-first-out ("FIFO") 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, 2019.
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 based incentive compensation payments on our Adjusted EBITDA performance and attainment of net debt reduction, along with other factors. These non-GAAP financial measures have limitations as analytical tools and in some cases can vary substantially from other measures of our performance. You should not consider them in isolation, or as a substitute for analysis of our results under U.S. GAAP in the United States.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin: For our consolidated results, EBITDA represents net income (loss) before interest, taxes, depreciation, and amortization. For each reporting segment, EBITDA represents operating income (loss) before depreciation and amortization, and earnings of unconsolidated joint ventures. Among other limitations EBITDA does not: reflect the significant interest expense on our debt or reflect the significant depreciation and amortization expense associated with our long-lived assets; and EBITDA included herein should not be used for purposes of assessing compliance or non-compliance with financial covenants under our debt agreements, which can vary from the terms used herein. 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 and the material impairment charge, 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 Gross Profit and Adjusted Gross Profit Per Ton: We define Adjusted Gross Profit Per Ton as Adjusted Gross Profit divided by total sales volume (for each reporting segment or on a consolidated basis, as applicable). We define Adjusted Gross Profit as gross profit excluding certain charges and expenses. Adjusted Gross Profit is limited because it often varies substantially from gross profit calculated in accordance with U.S. GAAP due to volatility in raw material prices.
Adjusted Diluted Earnings Per Share: We prepare Adjusted Diluted Earnings per Share by eliminating from Diluted Earnings 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 and the material impairment charge.
Consolidated Net Debt and Consolidated Net Debt excluding the effect of foreign currency: We define Consolidated Net Debt as total consolidated debt (including debt of KFPC) less consolidated cash and cash equivalents. Management uses Consolidated 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 Consolidated Net Debt is useful to investors in determining our leverage since we could choose to use cash and cash equivalents to retire debt. We also present Consolidated Net Debt, as adjusted for foreign exchange impact accounts for the foreign exchange effect on our foreign currency denominated debt agreements.
CONFERENCE CALL AND WEBCAST INFORMATION
Kraton has scheduled a conference call on Thursday, October 29, 2020 at 9:00 a.m. (Eastern Time) to discuss third quarter 2020 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: 8680118. 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 29, 2020 through 1:59 a.m. (Eastern Time) on November 12, 2020. 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 800-879-3386 (toll free) or 402-220-4713 (toll).
ABOUT KRATON CORPORATION
Kraton Corporation (NYSE: KRA) is a leading global sustainable producer of specialty polymers and high-value biobased 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 and tire markets, and it produces and sells a broad range of performance chemicals into markets that include fuel additives, oilfield chemicals, coatings, roads, construction, metalworking fluids and lubricants, inks, and mining. Kraton offers its products to a diverse customer base in numerous countries worldwide.
Kraton, the Kraton logo and design, BIAXAM™, REvolution and CirKular+ are all trademarks of Kraton Polymers LLC or its affiliates.
FORWARD LOOKING STATEMENTS
This press release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 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", "forsees", "future," or "anticipates," or by discussions of strategy, plans, or intentions. The statements in this press release that are not historical statements, including, but not limited to, statements regarding our expectations as to the continued impact of the COVID-19 pandemic (including governmental and regulatory actions) on demand for our products, on the economy and on our customers, suppliers, employees, business and results of operations, our expectations for our business and volume recovery for the remainder of 2020 and 2021, our ability to execute our innovation pipeline and deliver innovative and sustainable products and whether the expected benefits of those products will be realized,, our plans for operation improvements, our ability to obtain necessary regulatory approvals for BIAXAM on our anticipated timeline, or at all, and whether the expected benefits of the product will be realized, our expectations with respect to debt reduction and consolidated net debt leverage ratio, our expectations regarding the call premium of our
All forward-looking statements in this press release are made based on management's current expectations and estimates, which involve known and unknown risks, uncertainties, assumptions and other important factors that could cause actual results to differ materially from those expressed in forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those expressed in forward-looking statements is contained in our most recently filed Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and in other filings made by us with the U.S. Securities and Exchange Commission (the "SEC"), and include, but are not limited to, risks related to: our ability to repay or re-finance indebtedness and risk associated with incurring additional indebtedness; our reliance on third parties for the provision of significant operating and other services; the impact of extraordinary events, including health epidemics or pandemics such as COVID-19 (including governmental and regulatory actions relating thereto), natural disasters and other weather conditions and terrorist attacks; conditions in the global economy and capital markets; fluctuations in raw material costs; limitations in the availability of raw materials; competition in our end-use markets; fluctuations in global tariffs and logistics costs; the potential for charges related to our goodwill or other assets; and other factors of which we are currently unaware or deem immaterial. Many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic. To the extent any inconsistency or conflict exists between the information included in this press release and the information included in our prior reports and other filings with the SEC, the information contained in this press release updates and supersede such information. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements contained herein speak only as of the date of this press release, and we assume no obligation to publicly update or revise such forward-looking statements 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, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenue | $ | 373,438 | $ | 444,221 | $ | 1,156,386 | $ | 1,395,912 | |||||||
Cost of goods sold | 304,684 | 342,942 | 875,388 | 1,058,429 | |||||||||||
Gross profit | 68,754 | 101,279 | 280,998 | 337,483 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 9,454 | 10,367 | 30,158 | 31,091 | |||||||||||
Selling, general, and administrative | 35,285 | 32,272 | 122,745 | 111,623 | |||||||||||
Depreciation and amortization | 31,313 | 34,804 | 93,828 | 98,230 | |||||||||||
Gain on insurance proceeds | — | (14,250) | — | (32,850) | |||||||||||
Gain on disposal of fixed assets | (527) | (17) | (34) | (17) | |||||||||||
Impairment of goodwill | 400,000 | — | 400,000 | — | |||||||||||
Operating income (loss) | (406,771) | 38,103 | (365,699) | 129,406 | |||||||||||
Other income | 259 | 4,235 | 837 | 3,559 | |||||||||||
Disposition and exit of business activities | — | — | 175,189 | — | |||||||||||
Gain (loss) on extinguishment of debt | (848) | — | (14,943) | 210 | |||||||||||
Earnings of unconsolidated joint venture | 81 | 102 | 310 | 363 | |||||||||||
Interest expense, net | (13,527) | (19,214) | (44,454) | (57,494) | |||||||||||
Income (loss) before income taxes | (420,806) | 23,226 | (248,760) | 76,044 | |||||||||||
Income tax benefit (expense) | 18,189 | (2,311) | 48,082 | 1,881 | |||||||||||
Consolidated net income (loss) | (402,617) | 20,915 | (200,678) | 77,925 | |||||||||||
Net income attributable to noncontrolling interest | (1,177) | (2,222) | (2,998) | (5,356) | |||||||||||
Net income (loss) attributable to Kraton | $ | (403,794) | $ | 18,693 | $ | (203,676) | $ | 72,569 | |||||||
Earnings (loss) per common share: | |||||||||||||||
Basic | $ | (12.67) | $ | 0.59 | $ | (6.40) | $ | 2.28 | |||||||
Diluted | $ | (12.67) | $ | 0.58 | $ | (6.40) | $ | 2.26 | |||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 31,787 | 31,486 | 31,728 | 31,603 | |||||||||||
Diluted | 31,787 | 31,823 | 31,728 | 31,914 | |||||||||||
KRATON CORPORATION | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(In thousands, except par value) | |||||||
September 30, 2020 | December 31, 2019 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 62,821 | $ | 35,033 | |||
Receivables, net of allowances of | 169,519 | 169,603 | |||||
Inventories of products, net | 322,292 | 332,457 | |||||
Inventories of materials and supplies, net | 33,143 | 32,211 | |||||
Prepaid expenses | 13,961 | 6,991 | |||||
Other current assets | 16,054 | 22,385 | |||||
Current assets held for sale | — | 51,356 | |||||
Total current assets | 617,790 | 650,036 | |||||
Property, plant, and equipment, less accumulated depreciation of | 921,528 | 925,940 | |||||
Goodwill | 373,845 | 772,418 | |||||
Intangible assets, less accumulated amortization of | 301,541 | 325,877 | |||||
Investment in unconsolidated joint venture | 12,160 | 11,971 | |||||
Deferred income taxes | 75,799 | 8,863 | |||||
Long-term operating lease assets, net | 86,839 | 85,003 | |||||
Other long-term assets | 20,535 | 25,219 | |||||
Long-term assets held for sale | — | 27,058 | |||||
Total assets | $ | 2,410,037 | $ | 2,832,385 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 75,717 | $ | 53,139 | |||
Accounts payable-trade | 131,747 | 168,541 | |||||
Other payables and accruals | 153,534 | 112,645 | |||||
Due to related party | 16,805 | 17,470 | |||||
Current liabilities held for sale | — | 14,849 | |||||
Total current liabilities | 377,803 | 366,644 | |||||
Long-term debt, net of current portion | 859,030 | 1,311,486 | |||||
Deferred income taxes | 120,797 | 125,240 | |||||
Long-term operating lease liabilities | 70,786 | 66,624 | |||||
Deferred income | 161,351 | 11,049 | |||||
Other long-term liabilities | 157,480 | 161,911 | |||||
Long-term liabilities held for sale | — | 3 | |||||
Total liabilities | 1,747,247 | 2,042,957 | |||||
Equity: | |||||||
Kraton stockholders' equity: | |||||||
Preferred stock, | — | — | |||||
Common stock, | 319 | 318 | |||||
Additional paid in capital | 397,121 | 392,208 | |||||
Retained earnings | 262,385 | 464,712 | |||||
Accumulated other comprehensive loss | (39,439) | (105,795) | |||||
Total Kraton stockholders' equity | 620,386 | 751,443 | |||||
Noncontrolling interest | 42,404 | 37,985 | |||||
Total equity | 662,790 | 789,428 | |||||
Total liabilities and equity | $ | 2,410,037 | $ | 2,832,385 | |||
KRATON CORPORATION | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Unaudited) | |||||||
(In thousands) | |||||||
Nine Months Ended September 30, | |||||||
2020 | 2019 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Consolidated net income (loss) | $ | (200,678) | $ | 77,925 | |||
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 93,828 | 98,230 | |||||
Lease amortization | 18,463 | 17,164 | |||||
Amortization of debt original issue discount | 148 | 808 | |||||
Amortization of debt issuance costs | 2,426 | 3,501 | |||||
Amortization of deferred income | (8,460) | — | |||||
Gain on disposal of property, plant, and equipment | (34) | (17) | |||||
(Gain) loss on extinguishment of debt | 14,943 | (210) | |||||
Impairment of goodwill | 400,000 | — | |||||
Earnings from unconsolidated joint venture, net of dividends received | 197 | 80 | |||||
Deferred income tax (benefit) provision | (64,576) | 8,604 | |||||
Release of uncertain tax positions | (3,316) | (17,739) | |||||
Gain on disposition and exit of business activities | (175,189) | — | |||||
Gain on insurance proceeds for capital expenditures | — | (3,948) | |||||
Share-based compensation | 7,011 | 8,158 | |||||
Decrease (increase) in: | |||||||
Accounts receivable | 5,033 | (19,682) | |||||
Inventories of products, materials, and supplies | 10,083 | (5,550) | |||||
Other assets | 769 | 4,295 | |||||
Increase (decrease) in: | |||||||
Accounts payable-trade | (37,073) | (16,187) | |||||
Other payables and accruals | 3,377 | (20,715) | |||||
Other long-term liabilities | (3,567) | (12,317) | |||||
Due to related party | (1,032) | (3,634) | |||||
Net cash provided by operating activities | 62,353 | 118,766 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Kraton purchase of property, plant, and equipment | (54,138) | (76,298) | |||||
KFPC purchase of property, plant, and equipment | (3,727) | (319) | |||||
Purchase of software and other intangibles | (6,118) | (7,274) | |||||
Insurance proceeds for capital expenditures | — | 3,948 | |||||
Cash proceeds from disposition and exit of business activities | 510,500 | — | |||||
Net cash provided by (used in) investing activities | 446,517 | (79,943) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Proceeds from debt | 77,000 | 57,941 | |||||
Repayments of debt | (534,733) | (67,251) | |||||
KFPC proceeds from debt | 63,559 | 33,262 | |||||
KFPC repayments of debt | (76,555) | (53,147) | |||||
Capital lease payments | (134) | (126) | |||||
Purchase of treasury stock | (748) | (12,727) | |||||
Proceeds from the exercise of stock options | — | 1,642 | |||||
Settlement of interest rate swap | (1,295) | — | |||||
Debt issuance costs | (1,575) | — | |||||
Net cash used in financing activities | (474,481) | (40,406) | |||||
Effect of exchange rate differences on cash | (6,601) | (1,048) | |||||
Net increase (decrease) in cash and cash equivalents | 27,788 | (2,631) | |||||
Cash and cash equivalents, beginning of period | 35,033 | 85,891 | |||||
Cash and cash equivalents, end of period | $ | 62,821 | $ | 83,260 | |||
KRATON CORPORATION | |||||||||||||||||||||||
RECONCILIATION OF NET INCOME ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO NON-GAAP FINANCIAL MEASURES | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | ||||||||||||||||||||||
Polymer | Chemical | Total | Polymer | Chemical | Total | ||||||||||||||||||
Net income (loss) attributable to Kraton | $ | (403,794) | $ | 18,693 | |||||||||||||||||||
Net income attributable to noncontrolling interest | 1,177 | 2,222 | |||||||||||||||||||||
Consolidated net income (loss) | (402,617) | 20,915 | |||||||||||||||||||||
Add (deduct): | |||||||||||||||||||||||
Income tax expense (benefit) | (18,189) | 2,311 | |||||||||||||||||||||
Interest expense, net | 13,527 | 19,214 | |||||||||||||||||||||
Earnings of unconsolidated joint venture | (81) | (102) | |||||||||||||||||||||
Gain (loss) on extinguishment of debt | 848 | — | |||||||||||||||||||||
Other income | (259) | (4,235) | |||||||||||||||||||||
Operating income (loss) | $ | (5,090) | $ | (401,681) | $ | (406,771) | $ | 18,269 | $ | 19,834 | $ | 38,103 | |||||||||||
Add (deduct): | |||||||||||||||||||||||
Depreciation and amortization | 13,042 | 18,271 | 31,313 | 14,982 | 19,822 | 34,804 | |||||||||||||||||
Other income (expense) | (7) | 266 | 259 | (502) | 4,737 | 4,235 | |||||||||||||||||
Gain (loss) on extinguishment of debt | (848) | — | (848) | — | — | — | |||||||||||||||||
Earnings of unconsolidated joint venture | 81 | — | 81 | 102 | — | 102 | |||||||||||||||||
EBITDA (a) | 7,178 | (383,144) | (375,966) | 32,851 | 44,393 | 77,244 | |||||||||||||||||
Add (deduct): | |||||||||||||||||||||||
Transaction, acquisition related costs, restructuring, and other costs (b) | 1,531 | 150 | 1,681 | 1,672 | 244 | 1,916 | |||||||||||||||||
Loss on extinguishment of debt | 848 | — | 848 | — | — | — | |||||||||||||||||
Gain on disposal of fixed assets | (1,316) | (1,316) | — | — | — | ||||||||||||||||||
Impairment of goodwill | — | 400,000 | 400,000 | — | — | — | |||||||||||||||||
Hurricane related costs (c) | — | — | — | — | 2,220 | 2,220 | |||||||||||||||||
Hurricane reimbursements (d) | — | — | — | — | (13,841) | (13,841) | |||||||||||||||||
KFPC startup costs (e) | — | — | — | 3,019 | — | 3,019 | |||||||||||||||||
Sale of emissions credits (f) | — | — | — | — | (4,601) | (4,601) | |||||||||||||||||
Non-cash compensation expense | 2,266 | — | 2,266 | 2,659 | — | 2,659 | |||||||||||||||||
Spread between FIFO and ECRC | 20,089 | 12,655 | 32,744 | 10,103 | 1,337 | 11,440 | |||||||||||||||||
Adjusted EBITDA | $ | 31,912 | $ | 28,345 | $ | 60,257 | $ | 50,304 | $ | 29,752 | $ | 80,056 | |||||||||||
Adjusted EBITDA excluding Cariflex | $ | 31,912 | $ | 28,345 | $ | 60,257 | $ | 36,529 | $ | 29,752 | $ | 66,281 | |||||||||||
__________________________________________________ | |
(a) | Included in EBITDA is a |
Also included in EBITDA are Isoprene Rubber sales to Daelim under the IRSA. Sales under the IRSA are transacted at cost. Included in Adjusted EBITDA is the amortization of non-cash deferred income of | |
(b) | Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges. |
(c) | Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. |
(d) | Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds. |
(e) | Startup costs related to the joint venture company, KFPC. |
(f) | We recorded a gain of |
Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | ||||||||||||||||||||||
Polymer | Chemical | Total | Polymer | Chemical | Total | ||||||||||||||||||
Net income (loss) attributable to Kraton | $ | (203,676) | $ | 72,569 | |||||||||||||||||||
Net income attributable to noncontrolling interest | 2,998 | 5,356 | |||||||||||||||||||||
Consolidated net income (loss) | (200,678) | 77,925 | |||||||||||||||||||||
Add (deduct): | |||||||||||||||||||||||
Income tax (benefit) expense | (48,082) | (1,881) | |||||||||||||||||||||
Interest expense, net | 44,454 | 57,494 | |||||||||||||||||||||
Earnings of unconsolidated joint venture | (310) | (363) | |||||||||||||||||||||
(Gain) loss on extinguishment of debt | 14,943 | (210) | |||||||||||||||||||||
Other income | (837) | (3,559) | |||||||||||||||||||||
Disposition and exit of business activities | (175,189) | — | |||||||||||||||||||||
Operating income (loss) | $ | 29,597 | $ | (395,296) | $ | (365,699) | $ | 62,498 | $ | 66,908 | $ | 129,406 | |||||||||||
Add (deduct): | |||||||||||||||||||||||
Depreciation and amortization | 39,337 | 54,491 | 93,828 | 43,296 | 54,934 | 98,230 | |||||||||||||||||
Disposition and exit of business activities | 175,189 | — | 175,189 | — | — | — | |||||||||||||||||
Other income (expense) | 32 | 805 | 837 | (1,547) | 5,106 | 3,559 | |||||||||||||||||
Gain (loss) on extinguishment of debt | (14,943) | — | (14,943) | 210 | — | 210 | |||||||||||||||||
Earnings of unconsolidated joint venture | 310 | — | 310 | 363 | — | 363 | |||||||||||||||||
EBITDA (a) | 229,522 | (340,000) | (110,478) | 104,820 | 126,948 | 231,768 | |||||||||||||||||
Add (deduct): | |||||||||||||||||||||||
Transaction, acquisition related costs, restructuring, and other costs (b) | 13,230 | 1,380 | 14,610 | 4,781 | 808 | 5,589 | |||||||||||||||||
Disposition and exit of business activities | (175,189) | — | (175,189) | — | — | — | |||||||||||||||||
(Gain) loss on extinguishment of debt | 14,943 | — | 14,943 | (210) | — | (210) | |||||||||||||||||
Gain on disposal of fixed assets | — | (1,316) | (1,316) | — | — | — | |||||||||||||||||
Impairment of goodwill | — | 400,000 | 400,000 | — | — | — | |||||||||||||||||
Hurricane related costs (c) | — | — | — | — | 15,025 | 15,025 | |||||||||||||||||
Hurricane reimbursements (d) | — | — | — | — | (26,561) | (26,561) | |||||||||||||||||
KFPC startup costs (e) | — | — | — | 3,019 | — | 3,019 | |||||||||||||||||
Sale of emissions credits (f) | — | — | — | — | (4,601) | (4,601) | |||||||||||||||||
Non-cash compensation expense | 7,011 | — | 7,011 | 8,158 | — | 8,158 | |||||||||||||||||
Spread between FIFO and ECRC | 47,409 | 10,682 | 58,091 | 38,067 | 1,294 | 39,361 | |||||||||||||||||
Adjusted EBITDA | $ | 136,926 | $ | 70,746 | $ | 207,672 | $ | 158,635 | $ | 112,913 | $ | 271,548 | |||||||||||
Adjusted EBITDA excluding Cariflex | $ | 126,582 | $ | 70,746 | $ | 197,328 | $ | 119,949 | $ | 112,913 | $ | 232,862 | |||||||||||
__________________________________________________ | |
(a) | Included in EBITDA is an |
Also included in EBITDA are Isoprene Rubber sales to Daelim under the IRSA. Sales under the IRSA are transacted at cost. Included in Adjusted EBITDA is the amortization of non-cash deferred income of | |
(b) | Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges. |
(c) | Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. |
(d) | Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds. |
(e) | Startup costs related to the joint venture company, KFPC. |
(f) | We recorded a gain of |
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, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Diluted Earnings (Loss) Per Share | $ | (12.67) | $ | 0.58 | $ | (6.40) | $ | 2.26 | |||||||
Transaction, acquisition related costs, restructuring, and other costs (a) | 0.03 | 0.04 | 0.34 | 0.13 | |||||||||||
Disposition and exit of business activities | — | — | (4.94) | — | |||||||||||
(Gain) loss on extinguishment of debt | 0.02 | — | 0.36 | (0.01) | |||||||||||
Gain on disposal of fixed assets | (0.03) | — | (0.03) | — | |||||||||||
Impairment of goodwill | 12.39 | — | 12.39 | — | |||||||||||
Tax restructuring | — | — | (2.03) | — | |||||||||||
Hurricane related costs (b) | — | 0.15 | — | 0.55 | |||||||||||
Hurricane reimbursements (c) | — | (0.44) | — | (0.83) | |||||||||||
KFPC startup costs (d) | — | 0.04 | — | 0.04 | |||||||||||
Sale of emissions credits (e) | — | (0.14) | — | (0.14) | |||||||||||
Spread between FIFO and ECRC | 0.75 | 0.29 | 1.36 | 0.99 | |||||||||||
Adjusted Diluted Earnings Per Share (non-GAAP) | $ | 0.49 | $ | 0.52 | $ | 1.05 | $ | 2.99 | |||||||
__________________________________________________ | |
(a) | Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges. |
(b) | Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. As we finalized our claim for reimbursement of incremental costs incurred, we have identified an additional |
(c) | Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds. |
(d) | Startup costs related to the joint venture company, KFPC. |
(e) | We recorded a gain of |
POLYMER SEGMENT RECONCILIATION OF GROSS PROFIT TO ADJUSTED GROSS PROFIT | |||||||||||||||
(Unaudited) | |||||||||||||||
(In thousands) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Gross profit | $ | 34,996 | $ | 58,478 | $ | 161,572 | $ | 191,230 | |||||||
Add (deduct): | |||||||||||||||
Transaction, acquisition related costs, restructuring, and other costs | — | 3,019 | 387 | 3,019 | |||||||||||
Non-cash compensation expense | 136 | 159 | 421 | 489 | |||||||||||
Spread between FIFO and ECRC | 20,089 | 10,103 | 47,409 | 38,067 | |||||||||||
Adjusted gross profit (non-GAAP) | $ | 55,221 | $ | 71,759 | $ | 209,789 | $ | 232,805 | |||||||
Sales volume (kilotons) | 75.3 | 75.8 | 221.6 | 229.8 | |||||||||||
Adjusted gross profit per ton | $ | 733 | $ | 947 | $ | 947 | $ | 1,013 | |||||||
For further information:
H. Gene Shiels – (281) 504-4886
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SOURCE Kraton Corporation
FAQ
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