HOUSTON--(BUSINESS WIRE)--
Kraton Polymers LLC (Kraton), a leading global producer of engineered polymers, announces financial results for the three and twelve months ended December 31, 2008.
Total operating revenues amounted to $232 million for the three months ended December 31, 2008, a decline of $26 million, or 10%, compared to total operating revenues of $258 million in the three months ended December 31, 2007. For the twelve months ended December 31, 2008, total operating revenues amounted to $1.226 billion, representing an increase of $136 million, or 12%, from $1.090 billion for the twelve months ended December 31, 2007.
Gross profit amounted to $49 million for the three months ended December 31, 2008, an increase of $28 million, or 133%, compared to gross profit of $21 million in the three months ended December 31, 2007. For the twelve months ended December 31, 2008, gross profit amounted to $255 million, representing an increase of $104 million, or 69%, from $151 million for the twelve months ended December 31, 2007. In the fourth quarter of 2008, we recorded a non-cash lower-of-cost-or-market adjustment to our inventory of $8 million which is included in the 2008 gross profit amounts noted above.
Net (loss) of $(7) million for the three months ended December 31, 2008 is an improvement of $29 million compared to the net (loss) of $(36) million in the three months ended December 31, 2007. For the twelve months ended December 31, 2008, net income amounted to $28 million, an increase of $72 million from a net (loss) of $(44) million for the twelve months ended December 31, 2007.
“We are generally pleased with our improved financial performance in 2008, especially in light of the headwinds associated with rising feedstock and energy costs that we faced for most of the year,” said Kevin M. Fogarty, Kraton’s President and Chief Executive Officer. “Although our fourth quarter results exceeded the comparable 2007 period, Kraton is not insulated from global economic market conditions. In fact, each of Kraton’s end-use markets recorded a decline in sales volume in the fourth quarter as customers aggressively reduced inventories, resulting in an aggregate 36% decline in sales volume compared to the fourth quarter of 2007.”
The demand softness in the fourth quarter of 2008 has continued into 2009. Kraton currently estimates first quarter 2009 sales volume could be approximately 40% below first quarter 2008 sales volume. In addition, the first quarter 2009 results will reflect lower FIFO margins commensurate with selling higher-cost inventory produced when feedstock prices were above our current replacement cost, the negative effect of which could be in the range of $35 to $40 million. Conversely, first quarter 2008 margins were positively affected by more than $5 million uplift commensurate with selling lower cost inventory produced when feedstock prices were below the then current replacement cost.
At December 31, 2008, Kraton had more than $101 million of cash-on-hand and net debt of $474 million, compared to net debt of $490 million at December 31, 2007. In addition to scheduled maturities, Kraton voluntarily reduced term debt by $10 million in the second quarter of 2008.
Last Twelve Months (LTM) Bank EBITDA, a measure used to determine compliance with our debt covenants, of $149 million for the twelve months ended December 31, 2008, represents an increase of $50 million, or 51%, from $99 million at December 31, 2007. With respect to financial covenants, leverage and interest coverage ratios of 3.87x and 4.15x, respectively, were both well within the requirements of 4.95x and 2.50x, respectively.
Mr. Fogarty also noted, “It remains difficult to predict the full impact the current economic downturn will have on global demand for our products. That said, however, after excluding the large negative effect on margins in the first quarter of 2009 and the positive effect on margins in 2008 resulting from the aforementioned FIFO measurements, we currently anticipate that earnings in the first quarter of 2009 will be in-line with the first quarter of 2008 earnings, and we expect to be in full compliance with our debt covenants at the close of the first quarter. In addition, in 2009 we do expect to exceed our $10 million fixed cost reduction target, announced in November, as we continue to aggressively pursue new options to reduce cost, improve productivity and manage cash. We believe these steps will allow us to endure this down trend and become even more competitive in responding to our innovative customers’ demanding needs when an economic recovery takes hold.”
Recent Developments
- In December 2008 we announced our latest breakthrough technology. MD9150 and MD9200 are Sulfonated block copolymers, which are selectively Sulfonated in the mid block. Sulfonated block copolymers are designed for applications in desalination, electrodeionization, electrodialysis, humidification and dehumidification, breathable protective clothing, battery separators, fuel cell membranes, sensors and actuators, reverse osmosis, medical devices, filtration, gas separation, performance outerwear and apparel, energy recovery and antifouling.
- Kraton was awarded the 2009 Frost & Sullivan North American Technology Leadership of the Year Award in the field of elastic nonwovens. The award cited Kraton’s intense R&D efforts driving innovation in pioneering the development of styrenic block copolymers, particularly noting MD6705, G1643, and MD6717 grades, which are suitable for a wide variety of applications that demand superior qualities of softness, breathability and elasticity.
- In March 2009 we purchased and retired $30 million face value of our 8.125% Notes for cash consideration of approximately $11 million, which included accrued interest.
About Kraton
Kraton is a leading global producer of engineered polymers and, we believe, 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 and lubricants and 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, Germany, France, The Netherlands, Brazil and Japan.
Kraton, the Kraton logo and design, and the "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 held by 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.
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KRATON POLYMERS LLC CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands) Three Months Ended December 31, 2008 and 2007 |
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December 31, |
December 31, |
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| Operating Revenues | ||||||||
| Sales | $ | 223,328 | $ | 253,718 | ||||
| Other | 8,308 | 3,997 | ||||||
| Total operating revenues | 231,636 | 257,715 | ||||||
| Cost of Goods Sold | 182,665 | 236,896 | ||||||
| Gross Profit | 48,971 | 20,819 | ||||||
| Operating Expenses | ||||||||
| Research and development | 5,920 | 6,361 | ||||||
| Selling, general, and administrative | 27,853 | 19,812 | ||||||
| Depreciation and amortization of identifiable intangibles | 12,282 | 15,500 | ||||||
| Total operating expenses | 46,055 | 41,673 | ||||||
| Equity in Earnings of Unconsolidated Joint Venture | 123 | 112 | ||||||
| Interest Expense, net | 8,993 | 10,953 | ||||||
| Loss Before Income Taxes | (5,954 | ) | (31,695 | ) | ||||
| Income Tax Expense | 1,035 | 4,316 | ||||||
| Net Loss | $ | (6,989 | ) | $ | (36,011 | ) | ||
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KRATON POLYMERS LLC CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands) Twelve Months Ended December 31, 2008 and 2007 |
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December 31, |
December 31, |
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| Operating Revenues | |||||||
| Sales | $ | 1,171,253 | $ | 1,066,044 | |||
| Other | 54,780 | 23,543 | |||||
| Total operating revenues | 1,226,033 | 1,089,587 | |||||
| Cost of Goods Sold | 971,283 | 938,556 | |||||
| Gross Profit | 254,750 | 151,031 | |||||
| Operating Expenses | |||||||
| Research and development | 27,049 | 24,865 | |||||
| Selling, general, and administrative | 101,431 | 69,020 | |||||
| Depreciation and amortization of identifiable intangibles | 53,162 | 51,917 | |||||
| Total operating expenses | 181,642 | 145,802 | |||||
| Equity in Earnings of Unconsolidated Joint Venture | 437 | 626 | |||||
| Interest Expense, net | 36,671 | 43,460 | |||||
| Income (Loss) Before Income Taxes | 36,874 | (37,605 | ) | ||||
| Income Tax Expense | 8,440 | 6,138 | |||||
| Net Income (Loss) | $ | 28,434 | $ | (43,743 | ) | ||
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KRATON POLYMERS LLC CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) |
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December 31, |
December 31, |
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| ASSETS | ||||||
| Current Assets | ||||||
| Cash and cash equivalents | $ | 101,396 | $ | 48,277 | ||
| Receivables, net of allowances of $2,512 and $1,542 | 95,443 | 140,321 | ||||
| Inventories of products, net | 324,193 | 256,323 | ||||
| Inventories of materials and supplies, net | 11,055 | 12,170 | ||||
| Deferred income taxes | 14,778 | — | ||||
| Other current assets | 6,769 | 12,404 | ||||
| Total current assets | 553,634 | 469,495 | ||||
| Property, plant and equipment, less accumulated depreciation of $182,252 and $157,643 | 372,008 | 402,270 | ||||
| Identifiable intangible assets, less accumulated amortization of $36,169 and $29,205 | 67,051 | 76,356 | ||||
| Investment in unconsolidated joint venture | 12,371 | 10,326 | ||||
| Deferred financing costs | 8,184 | 10,323 | ||||
| Other long-term assets | 18,626 | 16,124 | ||||
| Total Assets | $ | 1,031,874 | $ | 984,894 | ||
| LIABILITIES AND MEMBER’S EQUITY | ||||||
| Current Liabilities | ||||||
| Current portion of long-term debt | $ | 3,343 | $ | 3,445 | ||
| Accounts payable-trade | 75,177 | 102,952 | ||||
| Other payables and accruals | 69,349 | 55,816 | ||||
| Due to related party | 25,585 | 24,505 | ||||
| Deferred income taxes | — | 9,827 | ||||
| Insurance note payable | — | 494 | ||||
| Total current liabilities | 173,454 | 197,039 | ||||
| Long-term debt, net of current portion | 571,728 | 535,020 | ||||
| Deferred income taxes | 34,985 | 39,443 | ||||
| Long-term liabilities | 63,117 | 30,682 | ||||
| Total Liabilities | 843,284 | 802,184 | ||||
| Commitments and contingencies | ||||||
| Member’s Equity | ||||||
| Common equity | 182,767 | 143,149 | ||||
| Accumulated other comprehensive income | 5,823 | 39,561 | ||||
| Total member’s equity | 188,590 | 182,710 | ||||
| Total Liabilities and Member’s Equity | $ | 1,031,874 | $ | 984,894 | ||
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KRATON POLYMERS LLC LTM Bank EBITDA (In thousands) |
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3 Mos |
12 Mos |
3 Mos |
12 Mos |
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| Net income (loss) | $ | (6,989 | ) | $ | 28,434 | $ | 34,617 | $ | (588 | ) | ||||
| Income tax provision | 1,035 | 8,440 | 4,910 | 11,721 | ||||||||||
| Interest expense, net | 8,993 | 36,671 | 7,875 | 38,631 | ||||||||||
| Depreciation and amortization | 12,282 | 53,162 | 13,118 | 56,380 | ||||||||||
| EBITDA (1) | $ | 15,321 | 126,707 | $ | 60,520 | 106,144 | ||||||||
| LTM Bank EBITDA adjustments (2) | ||||||||||||||
| Sponsor fees and expenses | 2,000 | 2,001 | ||||||||||||
| Plant turnaround costs | 3,587 | 3,536 | ||||||||||||
| Permitted acquisition costs | 2,064 | 3,000 | ||||||||||||
| Severance related restructuring charges | 5,895 | 3,220 | ||||||||||||
| Specific cost savings expenses | 1,350 | 6,483 | ||||||||||||
| Schedule 1.1 cost | 3,000 | 3,000 | ||||||||||||
| Equity Investment (3) | --- | 9,588 | ||||||||||||
| Other non-cash items increasing | ||||||||||||||
| Net Income (loss) | 4,129 | 9,065 | ||||||||||||
| LTM Bank EBITDA (4) | $ | 148,732 | $ | 146,037 | ||||||||||
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(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. | |
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(2) |
These adjustments are made pursuant to the Credit and Guaranty Agreement, amended as of May 12, 2006. | |
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(3) |
On January 14, 2008, we received an equity investment of $10.0 million of which $9.6 million was included in LTM Bank EBITDA as provided under the terms of the senior credit facility. | |
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(4) |
LTM Bank EBITDA is defined in the senior credit facility and is used to determine compliance with certain covenants included in the senior credit facility. |
Contacts
Kraton Polymers, LLC
Analysts: Stephen E. Tremblay, 281-504-4760
or
Media: Richard A. Ott, 281-504-4720