Kraton Polymers LLC Announces Second Quarter 2006 Results
Total Revenue Increased 6% to $285.3 Million; LTM Adjusted Bank Covenant EBITDA Increased 2% to $115.6 Million
Aug. 9, 2006 11:26 PM
HOUSTON, TX -- (MARKET WIRE) -- 08/09/06 -- Kraton Polymers LLC (Kraton), a leading global
performance polymer producer, announces its financial results for the
quarter and six months ended June 30, 2006. Total Revenues for the quarter
were $285.3 million compared to $269.0 million in the comparable period of
2005, an increase of 6%. These increases were driven by increased volumes
and prices. Through the first six months of 2006, Total Revenues increased
8% to $514.7 million.
Gross Profit for the quarter decreased $13.6 million or 21% to $52.5
million, as compared to $66.1 million in the comparable period of 2005, as
raw material inflation outpaced price increases and Kraton incurred several
one-time restructuring charges. Gross Profit for the first half decreased
$11.0 million to $104.9 million.
Last Twelve Months (LTM) Adjusted Bank Covenant EBITDA, a measure used to
determine compliance with our debt covenants, totaled $115.6 million, an
increase of $2.3 million from the comparable period of 2005. A
reconciliation of EBITDA and Adjusted Bank Covenant EBITDA to Net Income is
attached. Cash and cash equivalents at June 30, 2006 were $32.4 million,
an increase of $14.0 million from June 30, 2005.
Net Income for the quarter was $3.4 million, compared with $16.2 million in
the comparable period of 2005. During the first six months of 2006, net
income was $9.9 million versus $21.2 million for the same period of 2005.
"Kraton is responding to the increased cost of monomers by raising prices,
driving increases in productivity, and improving service to our customers,"
said George B. Gregory, President and Chief Executive Officer. "We also
continue to make investments toward satisfying our long-term commitment to
our customers of delivering the highest quality products, bringing them
exciting new innovations, and making capacity available for their growth
worldwide. Our many recent successes in these areas and plans for more to
come give us confidence for the future."
Other Quarterly Business 2006 Highlights:
-- Second quarter sales volumes increased 1 kT over prior year to 97 kT.
First half sales volumes increased 3 kT to 173 kT.
-- Inventory volumes dropped by 15 kT as compared with June 30, 2005.
-- Available liquidity increased to $108 million driven by higher cash
balances and an increase to our revolver.
-- New innovations announced in Kraton's adhesives, sealants and
coatings; compounding channels; and personal care end-use markets.
-- As part of our ongoing efforts to improve efficiencies and increase
productivity, Kraton has implemented a number of restructuring projects
across the globe that will deliver benefits in the range of $8-11 million
annually.
-- Initial engineering for our new China Technical and Distribution
Center has been completed.
-- A new 20kT debottleneck project for 2007 in our European operations
was announced.
-- Our new logo, brand identity and website were launched.
-- We successfully completed a tender offer for our holding company's
Senior Discount Notes and amendments to our bank facilities.
Kraton has scheduled an investor and analyst conference call for Thursday,
August 10, 2006 to discuss the results of today's earnings announcement.
The call will begin at 2:00 p.m. central time, 3:00 p.m. eastern time. To
listen to the conference call and view the slide presentation, which will
be broadcast live over the Internet, go to Kraton's website at
www.kraton.com, click on Investor Relations and then go to Presentations
and Papers and select "Second Quarter 2006 Earnings Presentation Webcast."
You may also listen to the analyst conference call by telephone by
contacting the conference call operator 5-10 minutes prior to the scheduled
start time and asking for the "Earnings Conference Call." US Dial-In #:
(888)552-9483. International Dial-In #: 210-234-0009. For those unable to
listen to the live call, a replay will be available 24 hours a day
beginning at approximately 6:00 p.m. CT August 10th through 5:00 p.m. CT on
August 24th. To hear a telephonic replay of the call, dial 800-388-9075 or
203-369-3665 for international callers. To hear a replay of the call over
the Internet, please access Kraton's website at www.kraton.com.
About Kraton
Kraton is a leading global performance polymer company and is the world's
largest producer of styrenic block copolymers (SBCs), a family of products
whose chemistry was pioneered by us over forty years ago. SBCs are
highly-engineered thermoplastic elastomers, which enhance the performance
of numerous products by delivering a variety of attributes, including
greater flexibility, resilience, strength, durability and processability.
Kraton polymers are used in a wide range of applications including
adhesives, coatings, consumer and personal care products, sealants,
lubricants, medical, packaging, automotive, paving, roofing, and footwear
products. Kraton has the leading position in nearly all of its core
markets and is the only producer of SBCs with global manufacturing
capability. Its production facilities are located in the United States, The
Netherlands, Germany, France, Brazil, and Japan.
Kraton, the Kraton logo and design, and "Giving Innovators their Edge"
tagline are trademarks of Kraton Polymers LLC.
Forward-Looking Statements
This press release includes "forward-looking statements" as that term is
defined in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements other than statements of
historical fact are statements that could be deemed forward-looking
statements and are often characterized by the use of words such as
"believes," "expects," "estimates," "projects," "may," "will," "intends,"
"plans" or "anticipates," or by discussions of strategy, plans or
intentions. In this press release, forward-looking information relates to
covenant compliance, pricing trends, cost savings, production rates and
other similar matters. All forward-looking statements in this press
release are made based on management's current expectations and estimates,
which involve risks, uncertainties and other factors that could cause
results to differ materially from those expressed in forward-looking
statements. Among these factors are changes in overall economic
conditions, the cyclical nature of the chemical industry, changes in demand
for our products, changes in inventories at our customers and distributors,
technological and product development risks, availability and cost of raw
materials, competitors' actions, pricing and gross margin pressures, loss
of key customers, order cancellations or reduced bookings, the timing and
cost of planned capital expenditures, changes in manufacturing yields,
control of costs and expenses, significant litigation, risks associated
with acquisitions and dispositions, risks associated with our substantial
leverage and restrictive covenants in our debt agreements, risks associated
with our international operations, the threat or occurrence of
international armed conflict and terrorist activities both in the United
States and internationally, risks and costs associated with increased and
new regulation of corporate governance and disclosure standards (including
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002), and risks
involving environmental or other governmental regulation. Readers are
cautioned not to place undue reliance on forward-looking statements. We
assume no obligation to update such information.
Kraton Polymers LLC
Consolidated Statements of Operations
Three Months Ended June 30, 2006 and 2005
(In thousands of U.S. dollars)
(Unaudited)
June 30, June 30,
2006 2005
========= =========
Revenues
Sales $ 275,997 $ 261,390
Other 9,291 7,561
--------- ---------
Total revenues 285,288 268,951
Costs and expense
Costs of goods sold 232,788 202,836
--------- ---------
Gross profit 52,500 66,115
Research and development expenses 7,125 6,803
Selling, general, and administrative expenses 20,084 17,490
Depreciation and amortization of identifiable
intangibles 10,974 11,230
Earnings in joint venture (134) (311)
Interest, net 10,144 8,657
--------- ---------
Income before income taxes 4,307 22,246
Income tax (provision) benefit (883) (6,027)
--------- ---------
Net income $ 3,424 $ 16,219
--------- ---------
Kraton Polymers LLC
Consolidated Balance Sheets
June 30, 2006 and December 31, 2005
(In thousands of U.S. dollars)
June 30, December 31,
2006 2005
----------- ----------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 32,399 $ 100,934
Receivables, net of allowances of $1,241 and
$1,013 164,045 107,586
Inventories of products 248,636 192,595
Inventories of materials and supplies 9,888 9,336
Other current assets 17,969 23,511
Deferred income taxes 1,953 1,953
----------- ----------
Total current assets 474,890 435,915
Property, plant, and equipment, less accumulated
depreciation 398,998 394,192
Identifiable intangible assets, less accumulated
amortization 97,924 101,848
Investment in joint venture 9,909 10,542
Deferred financing costs 13,677 12,711
Other long-term assets 13,101 9,605
----------- ----------
Total assets $ 1,008,499 $ 964,813
=========== ==========
Liabilities and Member's Equity
Current liabilities:
Current portion of long-term debt $ 3,850 $ 30,570
Accounts payable -- trade 82,027 64,345
Other payables and accruals 45,465 48,758
Due to related parties 15,021 13,119
Insurance bond payable 5,174 -
----------- ----------
Total current liabilities 151,537 156,792
Long-term debt, net of current portion 580,188 432,093
Deferred income taxes 34,307 34,010
Long-term liabilities 33,467 29,713
----------- ----------
Total liabilities 799,499 652,608
----------- ----------
Commitments and contingencies (See Note 8)
Member's equity:
Common equity 196,562 314,897
Accumulated other comprehensive income (loss) 12,438 (2,692)
----------- ----------
Total member's equity 209,000 312,205
----------- ----------
Total liabilities and member's equity $ 1,008,499 $ 964,813
=========== ==========
Kraton Polymers LLC
LTM Bank Adjusted EBITDA
(In thousands of U.S. dollars)
6 Mos 12 Mos 6 Mos 12 Mos
ended ended ended ended
6/30/05 6/30/05 6/30/06 6/30/06
--------- --------- --------- ---------
Net income $ 21,174 $ 3,270 $ 9,919 $ 11,405
Income taxes 7,921 (2,572) 3,829 7,427
Interest, net 17,150 40,116 18,569 35,362
D D & A 22,212 44,178 22,014 43,892
--------- --------- --------- ---------
Financial Statement EBITDA 68,457 84,992 54,331 98,086
Sponsor fees and expenses 1,940 1,950
Plant turnaround costs 4,704 2,257
Increase in cost of goods sold
related to inventory step-up
in the period from December
23, 2003 10,732 148
Infrastructure improvement for
explosion or fire repairs (349) 426
Permitted acquisition costs 1,266
Severance related restructuring
charges 1,600 5,577
Specific cost savings expenses 1,471 304
Other nonrecurring items 1,575
Specified other restructuring
charges 5,386 907
Other non-cash items reducing
Consolidated Net Income 1,254 4,692
--------- ---------
Consolidated Adjusted Bank
EBITDA $ 113,305 $ 115,613
========= =========
(1) The EBITDA measure is used by management to evaluate operating
performance. Management believes that EBITDA is useful to investors
because it is frequently used by securities analysts, institutional
investors and other interested parties in the evaluation of companies
in our industry. EBITDA is not a recognized term under GAAP and does
not purport to be an alternative to net income (loss) as an indicator
of operating performance or to cash flows from operating activities as
a measure of liquidity. Because all companies do not use identical
calculations, this presentation of EBITDA may not be comparable to
other similarly titled measures of other companies. Additionally,
EBITDA is not intended to be a measure of free cash flow for
management's discretionary use, as it does not consider certain cash
requirements such as interest payments, tax payments and debt service
requirements.
(2) These adjustments are made pursuant to the Credit and Guaranty
Agreement, dated as of December 23, 2003, as amended as of March 4,
2004, as further amended as of October 21, 2004, as further amended as
of February 16, 2006 and as further amended as of May 12, 2006, among
Kraton Polymers LLC, as Borrower, Polymer Holdings LLC, certain
subsidiaries of Kraton Polymers LLC, as Guarantors, various lenders,
Goldman Sachs Credit Partners L.P. and UBS Securities LLC, as Lead
Arrangers, Goldman Sachs Credit Partners L.P., as Syndication Agent,
UBS AG, Stanford Branch, as Administrative Agent and Collateral Agent
(the "senior secured credit facility").
(3) Adjusted Bank Covenant EBITDA is defined as EBITDA adjusted to exclude
unusual items and other adjustments permitted in calculating covenant
compliance under the senior secured credit facility. Management
believes that the inclusion of supplementary adjustments to EBITDA
applied in presenting Adjusted Bank Covenant EBITDA are appropriate to
provide additional information to investors to demonstrate compliance
with the financing covenants contained in the senior secured
credit facility.
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