Kraton Corporation Announces Third Quarter 2021 Results

Published: Oct. 18, 2021 at 7:00 AM EDT|Updated: Oct. 27, 2021 at 4:15 PM EDT

HOUSTON, Oct. 27, 2021 /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, 2021.

THIRD QUARTER 2021 SUMMARY

  • Consolidated net income of $55.2 million, compared to consolidated net loss of $402.6 million in the third quarter of 2020. The third quarter of 2020 results include a non-cash goodwill impairment charge of $400.0 million within the Chemical segment.
  • Adjusted EBITDA(2) of $88.1 million, up $27.8 million or 46.2%, compared to the third quarter of 2020.
  • Polymer segment operating income of $43.8 million, compared to an operating loss of $5.1 million in the third quarter of 2020, and Adjusted EBITDA(2) of $41.3 million, up $9.4 million or 29.3%, compared to $31.9 million in the third quarter of 2020.
  • Chemical segment operating income of $35.7 million, compared to an operating loss of $401.7 million in the third quarter of 2020, and Adjusted EBITDA(2) of $46.8 million, up 65.2%, compared to $28.3 million in the third quarter of 2020.
  • Reduced consolidated debt during the quarter by $18.0 million and consolidated net debt(2) by $50.0 million, including the favorable effect of foreign currency(2) of $11.1 million.

Three Months Ended September 30,


Nine Months Ended September 30,


2021


2020


2021


2020


(In thousands, except percentages and per share amounts)

Revenue

$

526,888



$

373,438



$

1,457,782



$

1,156,386


Polymer segment operating income (loss)

$

43,822



$

(5,090)



$

125,649



$

29,597


Chemical segment operating income (loss)

$

35,710



$

(401,681)



$

71,263



$

(395,296)


Consolidated net income (loss)(1)

$

55,206



$

(402,617)



$

128,150



$

(200,678)


Adjusted EBITDA (non-GAAP)(2)(4)

$

88,101



$

60,257



$

217,639



$

207,672


Adjusted EBITDA margin (non-GAAP)(3)(4)

16.7

%


16.1

%


14.9

%


18.0

%

Diluted earnings (loss) per share

$

1.62



$

(12.67)



$

3.76



$

(6.40)


Adjusted diluted earnings per share (non-GAAP)(2)

$

0.98



$

0.49



$

1.84



$

1.05





(1)

For the three and nine months ended September 30, 2020, includes the $400.0 million non-cash goodwill impairment charge in the Chemical segment.

(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. Adjusted EBITDA margin reflects approximately 135 basis points reduction for costs associated with the Berre turnaround for the nine months ended September 30, 2021.

(4)

For the nine months ended September 30, 2020, includes $10.3 million contribution from the Cariflex business prior to its sale in March 2020.

"During the third quarter of 2021 our Polymer and Chemical segments continued to benefit from positive global demand fundamentals across the majority of our end market exposures. While our consolidated financial results reflect ongoing inflation in the cost for raw materials and energy inputs, as well as in transportation and logistics costs, we continue to address the impact of this inflation through actions consistent with our Price Right strategy. In light of these factors, we are pleased to report third quarter 2021 Adjusted EBITDA of $88.1 million," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer.

Third quarter 2021 Adjusted EBITDA for the Polymer segment was $41.3 million, up $9.4 million or 29.3%, compared to the third quarter of 2020. Third quarter 2021 results for the Polymer segment reflect a 9.2% increase in sales volume, compared to the year-ago quarter. Specialty Polymers sales volume was up 17.2% versus the third quarter of 2020, benefiting from continued recovery in global demand and higher sales into lubricant additive applications, principally due to the timing of sales. Sales volume for Performance Products was up 6.4% compared to the third quarter of 2020, driven by higher sales into consumer and adhesive applications. As previously discussed, while unit margins have been adversely impacted by increases in raw material and energy costs, this largely reflects the lag effect associated with realization of price increases. As such, we view the margin pressures as transitory, and we expect unit margins and segment profitability to continue to benefit from ongoing implementation of further price increases.

Chemical segment Adjusted EBITDA for the third quarter of 2021 was $46.8 million, up $18.5 million or 65.2%, compared to the third quarter of 2021. Third quarter 2021 financial results for the Chemical segment reflect unit margin improvement, compared to the third quarter of 2020, as the benefit of strong demand fundamentals and higher average selling prices served to offset the impact of increased costs for raw materials. Sales volume for Adhesives was up 6.7%, compared to the third quarter of 2020, driven by favorable global adhesive demand. Sales volume for Performance Chemicals was down 2.5% versus the third quarter of 2020, principally due to lower opportunistic sales of raw materials, and sales volume for Tires was up 15.0%.

"While we expect inflationary pressures to persist for the balance of 2021, based upon our view of current demand trends, and our expectations for further price realizations to offset inflation, we continue to expect Adjusted EBITDA for the full year 2021 to fall in the range of $280 to $300 million," said Fogarty. "With respect to the previously announced Definitive Merger Agreement between Kraton and DL Chemical Co., Ltd., we continue to expect the closing to occur by the end of the first half of 2022," added Fogarty. 

Polymer Segment



Three Months Ended September 30,


Nine Months Ended September 30,


2021


2020


2021


2020


(In thousands, except percentages)

Performance Products

$

180,671



$

117,353



$

485,770



$

354,452


Specialty Polymers

110,673



78,629



308,481



232,851


Cariflex(1)







36,930


Isoprene Rubber(1)

5,261



1,833



21,191



17,436


Other

484



725



1,243



1,103


Polymer Segment Revenue

$

297,089



$

198,540



$

816,685



$

642,772










Operating income (loss)

$

43,822



$

(5,090)



$

125,649



$

29,597


Adjusted EBITDA (non-GAAP)(1)(2)

$

41,272



$

31,912



$

105,057



$

136,926


Adjusted EBITDA margin (non-GAAP)(3)

13.9

%


16.1

%


12.9

%


21.3

%




(1)

Our Cariflex revenue includes sales through March 6, 2020. We continue to sell Isoprene Rubber to DL Chemical Co., Ltd. ("DL Chemical") under the Isoprene Rubber Supply Agreement ("IRSA"). Sales under the IRSA are transacted at cost and include the amortization of non-cash deferred income of $2.4 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $10.0 million and $7.5 million for the nine months ended September 30, 2021 and 2020, respectively, which represents revenue deferred until the products are sold under the IRSA.

(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. Adjusted EBITDA margin reflects approximately 240 basis points reduction for costs associated with the Berre turnaround for the nine months ended September 30, 2021.

Q3 2021 VERSUS Q3 2020 RESULTS

Revenue for the Polymer segment was $297.1 million for the three months ended September 30, 2021 compared to $198.5 million for the three months ended September 30, 2020. The increase was driven by higher average sales prices implemented in response to inflationary factors, including significantly higher raw material costs, as well as strong demand fundamentals compared to the third quarter of 2020, driving higher sales volumes in our Specialty Polymers and Performance Products business lines. The positive effect from changes in currency exchange rates between the periods was $3.6 million.

Polymer Segment Sales Volume % Change

Three Months Ended September 30, 2021

Performance Products

6.4

%

Specialty Polymers

17.2

%

Isoprene Rubber

25.4

%

Total

9.2

%

Sales volumes of 82.2 kilotons for the three months ended September 30, 2021 increased 9.2% compared to the three months ended September 30, 2020. Specialty Polymers sales volumes increased 17.2% driven by strong demand across regions and most applications. Performance Products sales volumes increased 6.4%, driven by higher sales into consumer and adhesive applications associated with continued demand strength. Isoprene Rubber sales volumes increased 25.4% due to timing associated with sales.

For the three months ended September 30, 2021, the Polymer segment generated Adjusted EBITDA (non-GAAP) of $41.3 million compared to $31.9 million for the three months ended September 30, 2020. The higher Adjusted EBITDA is primarily a result of volume growth across all product lines. The contribution from higher sales volumes is partially offset by inflationary pressures resulting in higher raw material, logistics, utilities, and secondary costs, which we continue to address through increases in selling prices consistent with our Price Right strategy. The positive effect from changes in currency exchange rates between the periods was $1.1 million. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

Chemical Segment



Three Months Ended September 30,


Nine Months Ended September 30,


2021


2020


2021


2020


(In thousands, except percentages)

Adhesives

$

82,239



$

63,901



$

228,295



$

189,789


Performance Chemicals

131,300



99,919



368,639



295,509


Tires

16,260



11,078



44,163



28,316


Chemical Segment Revenue

$

229,799



$

174,898



$

641,097



$

513,614










Operating income (loss)(1)

$

35,710



$

(401,681)



$

71,263



$

(395,296)


Adjusted EBITDA (non-GAAP)(2)

$

46,829



$

28,345



$

112,582



$

70,746


Adjusted EBITDA margin (non-GAAP)(3)

20.4

%


16.2

%


17.6

%


13.8

%




(1)

For the three and nine months ended September 30, 2020, includes the $400.0 million non-cash goodwill impairment charge in the Chemical segment.

(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 2021 VERSUS Q3 2020 RESULTS

Revenue for the Chemical segment was $229.8 million for the three months ended September 30, 2021 compared to $174.9 million for the three months ended September 30, 2020. The increase in revenue was primarily attributable to higher average sales prices driven by the strong demand and improved product upgrades. The positive effect from changes in currency exchange rates between the periods was $1.0 million.

Chemical Segment Sales Volume % Change

Three Months Ended September 30, 2021

Adhesives

6.7

%

Performance Chemicals

(2.5)

%

Tires(1)

15.0

%

Total

0.9

%


(1)

Tires volumes are less than 5% of total Chemical segment volumes.

Sales volumes were 111.5 kilotons for the three months ended September 30, 2021, an increase of 1.0 kilotons, or 0.9%, related to higher TOR and related derivatives and Tire sales, due to continued strong demand trends across most end use markets including the recovery of automotive applications compared to the third quarter of 2020.

For the three months ended September 30, 2021, the Chemical segment generated $46.8 million of Adjusted EBITDA (non-GAAP) compared to $28.3 million for the three months ended September 30, 2020. The increase in Adjusted EBITDA was primarily driven by the expanded unit margins across all product groups, including continued favorability in the rosin chain, compared to the third quarter of 2020. These increases were partially offset by higher average raw material and other inflationary cost pressures. The effect from changes in currency exchange rates between the periods was immaterial. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

CASH FLOW AND CAPITAL STRUCTURE

During the third quarter of 2021, we reduced consolidated debt by $18.0 million and consolidated net debt by $50.0 million, including the favorable effect of foreign currency of $11.1 million. For the nine months ended September 30, 2021, we reduced our consolidated debt by $39.1 million and consolidated net debt by $43.4 million, including the favorable effect of foreign currency of $25.0 million. The nine months ended September 30, 2021 decrease in our consolidated net debt was driven primarily by favorable operating income, partially offset by increases in working capital, including the impacts of higher raw material costs due to the current inflationary environment and associated increases in accounts receivable as a result of higher sales prices. Further, we had approximately $344.3 million of available liquidity, comprised of $90.2 million of cash on hand and a remaining available borrowing base of $254.1 million on our ABL Facility as of September 30, 2021.

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, 2021


June 30, 2021


December 31, 2020


(In thousands)

Kraton debt

$

837,282



$

848,704



$

860,360


KFPC loans(1)(2)

73,718



80,255



89,733


Consolidated debt

911,000



928,959



950,093








Kraton cash

84,278



56,371



82,804


KFPC cash(1)

5,918



1,761



3,097


Consolidated cash

90,196



58,132



85,901








Consolidated net debt

$

820,804



$

870,827



$

864,192








Effect of foreign currency on consolidated net debt

25,031



13,918




Consolidated net debt, excluding effect of foreign currency

$

845,835



$

884,745







(1)

Kraton Formosa Polymers Corporation ("KFPC") joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements.

(2)

KFPC executed the KFPC Revolving 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

During the third quarter of 2021, we saw a continuation of favorable global demand fundamentals across the majority of our end markets. While we remain mindful of the potential for COVID-19 to adversely impact global demand for the balance of 2021, we currently expect demand trends to remain positive. In addition, although we expect inflationary pressures for raw materials, energy costs and for transportation & logistics costs, we expect to address these pressures through actions consistent with our Price Right strategy. As a result, we continue to expect Adjusted EBITDA for the full year to fall in the range of $280 - $300 million, inclusive of the $19.7 million of full year costs associated with the second quarter 2021 turnaround at our Berre, France, site.

We have not reconciled Adjusted EBITDA guidance to net income (loss) because we do not provide guidance for net income (loss) or for items that we do not consider indicative of our on-going performance, including, but not limited to, transaction and restructuring costs, costs associated with extinguishment of debt, and the spread between FIFO and ECRC, as certain of these items are out of our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the Adjusted EBITDA guidance to the corresponding U.S. GAAP measure is not available without unreasonable effort.

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, 2020.

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, Adjusted EBITDA excluding Cariflex, 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, 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 prepare Adjusted EBITDA excluding Cariflex by eliminating from Adjusted EBITDA Cariflex sales, cost of sales, and direct specific fixed costs incurred from January 1, 2020 through March 6, 2020. 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, Adjusted Gross Profit Per Ton, and Adjusted Gross Profit Per Ton, excluding the Berre turnaround: 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 further calculate Adjusted Gross Profit Per Ton, excluding the Berre turnaround, by deducting out of gross profit costs associated with the Berre turnaround. 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.

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.

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, 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, 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," "reflect," "remain," "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 national and global economy and on our customers, suppliers, employees, business and results of operations, our expectations for our business demand, margin improvements, and growth in 2021, market factors, inflationary pressures, and transportation and logistics trends, our 2021 Adjusted EBITDA, the impact of our diversified portfolio and broad geographic exposure, the impact of and expected realization of announced and future price increases, the inability to complete the proposed merger with DL Chemical Co. Ltd. due to the failure to obtain stockholder approval, or the failure to satisfy other conditions of the proposed transaction within the proposed timeframe or at all (including receipt of regulatory approvals), and the information and the matters described under the caption "Outlook," are forward-looking statements.

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 energy, transportation, 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,


2021


2020


2021


2020

Revenue

$

526,888



$

373,438



$

1,457,782



$

1,156,386


Cost of goods sold

360,197



304,684



1,015,533



875,388


Gross profit

166,691



68,754



442,249



280,998


Operating expenses:








Research and development

10,378



9,454



29,621



30,158


Selling, general, and administrative

44,927



35,285



120,243



122,745


Depreciation and amortization

31,674



31,313



94,947



93,828


(Gain) loss on disposal of fixed assets

180



(527)



526



(34)


Impairment of goodwill



400,000





400,000


Operating income (loss)

79,532



(406,771)



196,912



(365,699)


Other income (expense)

808



259



(877)



837


Disposition and exit of business activities







175,189


Loss on extinguishment of debt



(848)





(14,943)


Earnings of unconsolidated joint venture

89



81



344



310


Interest expense, net

(9,989)



(13,527)



(31,353)



(44,454)


Income (loss) before income taxes

70,440



(420,806)



165,026



(248,760)


Income tax benefit (expense)

(15,234)



18,189



(36,876)



48,082


Consolidated net income (loss)

55,206



(402,617)



128,150



(200,678)


Net income attributable to noncontrolling interest

(2,182)



(1,177)



(5,486)



(2,998)


Net income (loss) attributable to Kraton

$

53,024



$

(403,794)



$

122,664



$

(203,676)


Earnings (loss) per common share:








Basic

$

1.65



$

(12.67)



$

3.82



$

(6.40)


Diluted

$

1.62



$

(12.67)



$

3.76



$

(6.40)


Weighted average common shares outstanding:








Basic

32,148



31,787



32,075



31,728


Diluted

32,692



31,787



32,610



31,728


KRATON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value) 



September 30, 2021


December 31, 2020


(unaudited)



ASSETS




Current assets:




Cash and cash equivalents

$

90,196



$

85,901


Receivables, net of allowance for doubtful accounts of $764 and $598

263,234



180,258


Inventories of products, net

411,993



318,885


Inventories of materials and supplies, net

34,512



34,164


Prepaid expenses

13,953



11,844


Other current assets

17,843



15,338


Total current assets

831,731



646,390


Property, plant, and equipment, net of accumulated depreciation of $778,466 and $732,279

929,481



942,703


Goodwill

373,303



375,061


Intangible assets, net of accumulated amortization of $359,505 and $330,070

269,848



294,734


Investment in unconsolidated joint venture

12,050



12,723


Deferred income taxes

77,683



83,534


Long-term operating lease assets, net

95,100



84,042


Other long-term assets

20,113



21,770


Total assets

$

2,609,309



$

2,460,957


LIABILITIES AND EQUITY




Current liabilities:




Current portion of long-term debt

$

74,923



$

72,347


Accounts payable-trade

221,308



176,229


Other payables and accruals

203,206



167,364


Due to related party

14,619



17,147


Total current liabilities

514,056



433,087


Long-term debt, net of current portion

825,459



865,516


Deferred income taxes

123,700



125,559


Long-term operating lease liabilities

77,894



67,898


Deferred income

137,439



151,329


Other long-term liabilities

151,997



168,566


Total liabilities

1,830,545



1,811,955






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; 32,148 shares issued and outstanding at September 30, 2021; 31,873 shares issued and outstanding at December 31, 2020

321



319


Additional paid in capital

409,799



401,445


Retained earnings

362,062



240,464


Accumulated other comprehensive loss

(43,859)



(37,865)


Total Kraton stockholders' equity

728,323



604,363


Noncontrolling interest

50,441



44,639


Total equity

778,764



649,002


Total liabilities and equity

$

2,609,309



$

2,460,957


KRATON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



Nine Months Ended September 30,


2021


2020

CASH FLOWS FROM OPERATING ACTIVITIES




Consolidated net income (loss)

$

128,150



$

(200,678)


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




Depreciation and amortization

94,947



93,828


Lease amortization

18,138



18,463


Amortization of debt original issue discount



148


Amortization of debt issuance costs

1,893



2,426


Amortization of deferred income

(10,821)



(8,460)


(Gain) loss on disposal of property, plant, and equipment

526



(34)


Loss on extinguishment of debt



14,943


Impairment of goodwill



400,000


Earnings from unconsolidated joint venture, net of dividends received

123



197


Deferred income tax benefit

(3,040)



(64,576)


Release of uncertain tax positions



(3,316)


Gain on disposition and exit of business activities



(175,189)


Share-based compensation

8,129



7,011


Decrease (increase) in:




Accounts receivable

(88,336)



5,033


Inventories of products, materials, and supplies

(100,657)



10,083


Other assets

(4,811)



769


Increase (decrease) in:




Accounts payable-trade

50,371



(37,073)


Other payables and accruals

16,670



3,377


Other long-term liabilities

(13,395)



(3,567)


Due to related party

(1,493)



(1,032)


Net cash provided by operating activities

96,394



62,353


CASH FLOWS FROM INVESTING ACTIVITIES




Kraton purchase of property, plant, and equipment

(61,884)



(54,138)


KFPC purchase of property, plant, and equipment

(350)



(3,727)


Purchase of software and other intangibles

(8,657)



(6,118)


Cash proceeds (payments) from disposition and exit of business activities

(876)



510,500


Net cash provided by (used in) investing activities

(71,767)



446,517


CASH FLOWS FROM FINANCING ACTIVITIES




Proceeds from debt

103,000



77,000


Repayments of debt

(103,000)



(534,733)


KFPC proceeds from debt

54,889



63,559


KFPC repayments of debt

(71,654)



(76,555)


Finance lease payments

(559)



(134)


Purchase of treasury stock

(4,931)



(748)


Proceeds from the exercise of stock options

4,092




Settlement of interest rate swap



(1,295)


Debt issuance costs



(1,575)


Net cash used in financing activities

(18,163)



(474,481)


Effect of exchange rate differences on cash

(2,169)



(6,601)


Net increase in cash and cash equivalents

4,295



27,788


Cash and cash equivalents, beginning of period

85,901



35,033


Cash and cash equivalents, end of period

$

90,196



$

62,821


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, 2021


Three Months Ended September 30, 2020


Polymer


Chemical


Total


Polymer


Chemical


Total

Net income (loss) attributable to Kraton





$

53,024







$

(403,794)


Net income attributable to noncontrolling interest





2,182







1,177


Consolidated net income (loss)





55,206







(402,617)


Add (deduct):












Income tax (benefit) expense





15,234







(18,189)


Interest expense, net





9,989







13,527


Earnings of unconsolidated joint venture





(89)







(81)


Loss on extinguishment of debt











848


Other income





(808)







(259)


Operating income (loss)

$

43,822



$

35,710



79,532



$

(5,090)



$

(401,681)



(406,771)


Add (deduct):












Depreciation and amortization

12,794



18,880



31,674



13,042



18,271



31,313


Other income (expense)

287



521



808



(7)



266



259


Loss on extinguishment of debt







(848)





(848)


Earnings of unconsolidated joint venture

89





89



81





81


EBITDA (a)

56,992



55,111



112,103



7,178



(383,144)



(375,966)


Add (deduct):












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

4,790



(2)



4,788



1,531



150



1,681


Loss on extinguishment of debt







848





848


Gain on disposal of fixed assets









(1,316)



(1,316)


Impairment of goodwill









400,000



400,000


Loss on emissions credits

647





647








Non-cash compensation expense

2,610





2,610



2,266





2,266


Spread between FIFO and ECRC

(23,767)



(8,280)



(32,047)



20,089



12,655



32,744


Adjusted EBITDA

$

41,272



$

46,829



$

88,101



$

31,912



$

28,345



$

60,257





(a) 

Included in EBITDA are Isoprene Rubber sales to Daelim under the IRSA. Sales under the IRSA are transacted at cost and include the amortization of non-cash deferred income of $2.4 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, which represents revenue deferred until the products are sold under the IRSA.

(b) 

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.


Nine Months Ended September 30, 2021


Nine Months Ended September 30, 2020


Polymer


Chemical


Total


Polymer


Chemical


Total

Net income (loss) attributable to Kraton





$

122,664







$

(203,676)


Net income attributable to noncontrolling interest





5,486







2,998


Consolidated net income (loss)





128,150







(200,678)


Add (deduct):












Income tax (benefit) expense





36,876







(48,082)


Interest expense, net





31,353







44,454


Earnings of unconsolidated joint venture





(344)







(310)


Loss on extinguishment of debt











14,943


Other (income) expense





877







(837)


Disposition and exit of business activities











(175,189)


Operating income (loss)

$

125,649



$

71,263



196,912



$

29,597



$

(395,296)



(365,699)


Add (deduct):












Depreciation and amortization

38,394



56,553



94,947



39,337



54,491



93,828


Disposition and exit of business activities







175,189





175,189


Other income (expense)

(2,446)



1,569



(877)



32



805



837


Loss on extinguishment of debt







(14,943)





(14,943)


Earnings of unconsolidated joint venture

344





344



310





310


EBITDA (a)

161,941



129,385



291,326



229,522



(340,000)



(110,478)


Add (deduct):












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

7,017



2,750



9,767



13,230



1,380



14,610


Disposition and exit of business activities







(175,189)





(175,189)


Loss on extinguishment of debt







14,943





14,943


Gain on disposal of fixed assets









(1,316)



(1,316)


Impairment of goodwill









400,000



400,000


Loss on emissions credits

647





647








Non-cash compensation expense

8,129





8,129



7,011





7,011


Spread between FIFO and ECRC

(72,677)



(19,553)



(92,230)



47,409



10,682



58,091


Adjusted EBITDA

$

105,057



$

112,582



$

217,639



$

136,926



$

70,746



$

207,672


Adjusted EBITDA excluding Cariflex

$

105,057



$

112,582



$

217,639



$

126,582



$

70,746



$

197,328





(a) 

Included in EBITDA are Isoprene Rubber sales to Daelim under the IRSA. Sales under the IRSA are transacted at cost and include the amortization of non-cash deferred income of $10.0 million and $7.5 million for the nine months ended September 30, 2021 and 2020, respectively, which represents revenue deferred until the products are sold under the IRSA.

(b) 

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.

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,


2021


2020


2021


2020

Diluted Earnings (Loss) Per Share

$

1.62



$

(12.67)



$

3.76



$

(6.40)


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

0.11



0.03



0.23



0.34


Disposition and exit of business activities







(4.94)


Loss on extinguishment of debt



0.02





0.36


Gain on disposal of fixed assets



(0.03)





(0.03)


Impairment of goodwill



12.39





12.39


Tax restructuring







(2.03)


Loss on emissions credits

0.01





0.01




Spread between FIFO and ECRC

(0.76)



0.75



(2.16)



1.36


Adjusted Diluted Earnings Per Share (non-GAAP)

$

0.98



$

0.49



$

1.84



$

1.05





(a) 

Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.

POLYMER SEGMENT RECONCILIATION OF GROSS PROFIT TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In thousands)



Three Months Ended September 30,


Nine Months Ended September 30,


2021


2020


2021


2020

Gross profit

$

90,323



$

34,996



$

251,744



$

161,572










Add (deduct):








Transaction, acquisition related costs, restructuring, and other costs







387


Loss on emissions credits

647





647




Non-cash compensation expense

130



136



406



421


Spread between FIFO and ECRC

(23,767)



20,089



(72,677)



47,409


Adjusted gross profit (non-GAAP)

$

67,333



$

55,221



$

180,120



$

209,789










Sales volume (kilotons)

82.2



75.3



240.8



221.6


Adjusted gross profit per ton (non-GAAP)(a)

$

819



$

733



$

748



$

947





(a) 

Adjusted gross profit per ton for the nine months ended September 30, 2021, excluding $19.7 million of costs associated with the Berre turnaround ($82), would have been $830.

For further information:

H. Gene Shiels
Director of Investor Relations
281 504-4886

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