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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Kraton Corporation | NYSE:KRA | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 46.49 | 0 | 01:00:00 |
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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20-0411521
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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15710 John F. Kennedy Blvd.
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Suite 300
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Houston,
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TX
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77032
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281
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504-4700
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(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, par value $0.01
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KRA
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New York Stock Exchange
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Large accelerated filer
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☒
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Accelerated filer:
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☐
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Non-accelerated filer:
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☐
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Smaller reporting company:
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☐
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Emerging growth company:
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☐
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PART I. FINANCIAL INFORMATION
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Page
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PART II. OTHER INFORMATION
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Item 1.
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Condensed Consolidated Financial Statements.
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March 31, 2020
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December 31, 2019
|
||||
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(unaudited)
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|
||||
ASSETS
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|
||||
Current assets:
|
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|
||||
Cash and cash equivalents
|
$
|
151,502
|
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$
|
35,033
|
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Receivables, net of allowances of $551 and $434
|
201,045
|
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|
169,603
|
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||
Inventories of products, net
|
341,981
|
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|
332,457
|
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||
Inventories of materials and supplies, net
|
31,991
|
|
|
32,211
|
|
||
Prepaid expenses
|
9,088
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|
|
6,991
|
|
||
Other current assets
|
17,149
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|
|
22,385
|
|
||
Current assets held for sale
|
—
|
|
|
51,356
|
|
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Total current assets
|
752,756
|
|
|
650,036
|
|
||
Property, plant, and equipment, less accumulated depreciation of $652,077 and $639,197
|
907,150
|
|
|
925,940
|
|
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Goodwill
|
772,045
|
|
|
772,418
|
|
||
Intangible assets, less accumulated amortization of $296,010 and $285,819
|
315,966
|
|
|
325,877
|
|
||
Investment in unconsolidated joint venture
|
11,390
|
|
|
11,971
|
|
||
Deferred income taxes
|
70,091
|
|
|
8,863
|
|
||
Long-term operating lease assets, net
|
86,204
|
|
|
85,003
|
|
||
Other long-term assets
|
21,131
|
|
|
25,219
|
|
||
Long-term assets held for sale
|
—
|
|
|
27,058
|
|
||
Total assets
|
$
|
2,936,733
|
|
|
$
|
2,832,385
|
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LIABILITIES AND EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Current portion of long-term debt
|
$
|
62,816
|
|
|
$
|
53,139
|
|
Accounts payable-trade
|
171,797
|
|
|
168,541
|
|
||
Other payables and accruals
|
173,041
|
|
|
112,645
|
|
||
Due to related party
|
20,228
|
|
|
17,470
|
|
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Current liabilities held for sale
|
—
|
|
|
14,849
|
|
||
Total current liabilities
|
427,882
|
|
|
366,644
|
|
||
Long-term debt, net of current portion
|
936,572
|
|
|
1,311,486
|
|
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Deferred income taxes
|
125,770
|
|
|
125,240
|
|
||
Long-term operating lease liabilities
|
67,162
|
|
|
66,624
|
|
||
Deferred income
|
160,779
|
|
|
11,049
|
|
||
Other long-term liabilities
|
153,569
|
|
|
161,911
|
|
||
Long-term liabilities held for sale
|
—
|
|
|
3
|
|
||
Total liabilities
|
1,871,734
|
|
|
2,042,957
|
|
||
Commitments and contingencies (note 11)
|
|
|
|
||||
Equity:
|
|
|
|
||||
Kraton stockholders' equity:
|
|
|
|
||||
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value; 500,000 shares authorized; 31,855 shares issued and outstanding at March 31, 2020; 31,751 shares issued and outstanding at December 31, 2019
|
319
|
|
|
318
|
|
||
Additional paid in capital
|
393,128
|
|
|
392,208
|
|
||
Retained earnings
|
674,047
|
|
|
464,712
|
|
||
Accumulated other comprehensive loss
|
(41,007
|
)
|
|
(105,795
|
)
|
||
Total Kraton stockholders' equity
|
1,026,487
|
|
|
751,443
|
|
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Noncontrolling interest
|
38,512
|
|
|
37,985
|
|
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Total equity
|
1,064,999
|
|
|
789,428
|
|
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Total liabilities and equity
|
$
|
2,936,733
|
|
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$
|
2,832,385
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Revenue
|
$
|
427,269
|
|
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$
|
456,411
|
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Cost of goods sold
|
308,069
|
|
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349,409
|
|
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Gross profit
|
119,200
|
|
|
107,002
|
|
||
Operating expenses:
|
|
|
|
||||
Research and development
|
10,792
|
|
|
10,551
|
|
||
Selling, general, and administrative
|
49,058
|
|
|
40,894
|
|
||
Depreciation and amortization
|
31,173
|
|
|
31,522
|
|
||
Gain on insurance proceeds
|
—
|
|
|
(11,100
|
)
|
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Gain on disposal of fixed assets
|
(64
|
)
|
|
—
|
|
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Operating income
|
28,241
|
|
|
35,135
|
|
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Other income (expense)
|
327
|
|
|
(259
|
)
|
||
Disposition and exit of business activities
|
175,214
|
|
|
—
|
|
||
Gain (loss) on extinguishment of debt
|
(13,954
|
)
|
|
210
|
|
||
Earnings of unconsolidated joint venture
|
101
|
|
|
121
|
|
||
Interest expense, net
|
(17,461
|
)
|
|
(18,941
|
)
|
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Income before income taxes
|
172,468
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|
16,266
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Income tax benefit (expense)
|
36,552
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(2,654
|
)
|
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Consolidated net income
|
209,020
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|
13,612
|
|
||
Net income attributable to noncontrolling interest
|
(934
|
)
|
|
(944
|
)
|
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Net income attributable to Kraton
|
$
|
208,086
|
|
|
$
|
12,668
|
|
Earnings per common share:
|
|
|
|
||||
Basic
|
$
|
6.55
|
|
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$
|
0.40
|
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Diluted
|
$
|
6.47
|
|
|
$
|
0.39
|
|
Weighted average common shares outstanding:
|
|
|
|
||||
Basic
|
31,587
|
|
|
31,633
|
|
||
Diluted
|
31,949
|
|
|
31,901
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Net income attributable to Kraton
|
$
|
208,086
|
|
|
$
|
12,668
|
|
Other comprehensive income (loss):
|
|
|
|
||||
Foreign currency translation adjustments, net of tax of $0
|
(15,557
|
)
|
|
(4,496
|
)
|
||
Reclassification of foreign currency translation adjustments from disposition and exit of business activities, net of tax of $0
|
66,533
|
|
|
—
|
|
||
Unrealized gain (loss) on cash flow hedges, net of tax expense of $458 and benefit of $387, respectively
|
1,387
|
|
|
(1,316
|
)
|
||
Reclassification of loss on cash flow hedge, net of tax benefit of $293
|
1,002
|
|
|
—
|
|
||
Unrealized gain on net investment hedge, net of tax expense of $4,412 and $1,352, respectively
|
12,322
|
|
|
4,594
|
|
||
Reclassification of gain on net investment hedge, net of tax expense of $0
|
(899
|
)
|
|
—
|
|
||
Other comprehensive income (loss), net of tax
|
64,788
|
|
|
(1,218
|
)
|
||
Comprehensive income attributable to Kraton
|
272,874
|
|
|
11,450
|
|
||
Comprehensive income attributable to noncontrolling interest
|
527
|
|
|
835
|
|
||
Consolidated comprehensive income
|
$
|
273,401
|
|
|
$
|
12,285
|
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total Kraton Stockholders' Equity
|
|
Noncontrolling Interest
|
|
Total Equity
|
||||||||||||||
Balance at December 31, 2018
|
$
|
319
|
|
|
$
|
385,921
|
|
|
$
|
420,597
|
|
|
$
|
(91,699
|
)
|
|
$
|
715,138
|
|
|
$
|
32,461
|
|
|
$
|
747,599
|
|
Consolidated net income
|
—
|
|
|
—
|
|
|
12,668
|
|
|
—
|
|
|
12,668
|
|
|
944
|
|
|
13,612
|
|
|||||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,218
|
)
|
|
(1,218
|
)
|
|
(109
|
)
|
|
(1,327
|
)
|
|||||||
Retired treasury stock from employee tax withholdings
|
—
|
|
|
(1,274
|
)
|
|
(1,410
|
)
|
|
—
|
|
|
(2,684
|
)
|
|
—
|
|
|
(2,684
|
)
|
|||||||
Exercise of stock options
|
1
|
|
|
1,544
|
|
|
—
|
|
|
—
|
|
|
1,545
|
|
|
—
|
|
|
1,545
|
|
|||||||
Non-cash compensation related to equity awards
|
—
|
|
|
3,309
|
|
|
—
|
|
|
—
|
|
|
3,309
|
|
|
—
|
|
|
3,309
|
|
|||||||
Balance at March 31, 2019
|
$
|
320
|
|
|
$
|
389,500
|
|
|
$
|
431,855
|
|
|
$
|
(92,917
|
)
|
|
$
|
728,758
|
|
|
$
|
33,296
|
|
|
$
|
762,054
|
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total Kraton Stockholders' Equity
|
|
Noncontrolling Interest
|
|
Total Equity
|
||||||||||||||
Balance at December 31, 2019
|
$
|
318
|
|
|
$
|
392,208
|
|
|
$
|
464,712
|
|
|
$
|
(105,795
|
)
|
|
$
|
751,443
|
|
|
$
|
37,985
|
|
|
$
|
789,428
|
|
Consolidated net income
|
—
|
|
|
—
|
|
|
208,086
|
|
|
—
|
|
|
208,086
|
|
|
934
|
|
|
209,020
|
|
|||||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
64,788
|
|
|
64,788
|
|
|
(407
|
)
|
|
64,381
|
|
|||||||
Retired treasury stock from employee tax withholdings
|
—
|
|
|
(1,927
|
)
|
|
1,249
|
|
|
—
|
|
|
(678
|
)
|
|
—
|
|
|
(678
|
)
|
|||||||
Non-cash compensation related to equity awards
|
1
|
|
|
2,847
|
|
|
—
|
|
|
—
|
|
|
2,848
|
|
|
—
|
|
|
2,848
|
|
|||||||
Balance at March 31, 2020
|
$
|
319
|
|
|
$
|
393,128
|
|
|
$
|
674,047
|
|
|
$
|
(41,007
|
)
|
|
$
|
1,026,487
|
|
|
$
|
38,512
|
|
|
$
|
1,064,999
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
||||
Consolidated net income
|
$
|
209,020
|
|
|
$
|
13,612
|
|
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
31,173
|
|
|
31,522
|
|
||
Lease amortization
|
6,164
|
|
|
4,767
|
|
||
Amortization of debt original issue discount
|
148
|
|
|
267
|
|
||
Amortization of debt issuance costs
|
1,031
|
|
|
1,110
|
|
||
Amortization of deferred income
|
(3,497
|
)
|
|
—
|
|
||
Gain on disposal of property, plant, and equipment
|
(64
|
)
|
|
—
|
|
||
(Gain) loss on extinguishment of debt
|
13,954
|
|
|
(210
|
)
|
||
Earnings from unconsolidated joint venture, net of dividends received
|
406
|
|
|
410
|
|
||
Deferred income tax provision
|
(64,319
|
)
|
|
(595
|
)
|
||
Gain on disposition and exit of business activities
|
(175,214
|
)
|
|
—
|
|
||
Share-based compensation
|
2,848
|
|
|
3,309
|
|
||
Decrease (increase) in:
|
|
|
|
||||
Accounts receivable
|
(32,359
|
)
|
|
(63,164
|
)
|
||
Inventories of products, materials, and supplies
|
(18,914
|
)
|
|
(5,877
|
)
|
||
Other assets
|
2,808
|
|
|
861
|
|
||
Increase (decrease) in:
|
|
|
|
||||
Accounts payable-trade
|
5,023
|
|
|
(1,134
|
)
|
||
Other payables and accruals
|
24,561
|
|
|
(9,397
|
)
|
||
Other long-term liabilities
|
(4,206
|
)
|
|
(2,177
|
)
|
||
Due to related party
|
2,619
|
|
|
(3,508
|
)
|
||
Net cash provided by (used in) operating activities
|
1,182
|
|
|
(30,204
|
)
|
||
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
||||
Kraton purchase of property, plant, and equipment
|
(17,446
|
)
|
|
(22,327
|
)
|
||
KFPC purchase of property, plant, and equipment
|
(52
|
)
|
|
(783
|
)
|
||
Purchase of software and other intangibles
|
(2,089
|
)
|
|
(3,287
|
)
|
||
Cash proceeds from disposition and exit of business activities
|
510,500
|
|
|
—
|
|
||
Net cash provided by (used in) investing activities
|
490,913
|
|
|
(26,397
|
)
|
||
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
||||
Proceeds from debt
|
76,000
|
|
|
19,500
|
|
||
Repayments of debt
|
(436,174
|
)
|
|
(4,310
|
)
|
||
KFPC proceeds from debt
|
34,873
|
|
|
14,600
|
|
||
KFPC repayments of debt
|
(40,990
|
)
|
|
(19,594
|
)
|
||
Capital lease payments
|
(44
|
)
|
|
(41
|
)
|
||
Purchase of treasury stock
|
(678
|
)
|
|
(2,684
|
)
|
||
Proceeds from the exercise of stock options
|
—
|
|
|
1,545
|
|
||
Settlement of interest rate swap
|
(1,295
|
)
|
|
—
|
|
||
Net cash provided by (used in) financing activities
|
(368,308
|
)
|
|
9,016
|
|
||
Effect of exchange rate differences on cash
|
(7,318
|
)
|
|
(1,145
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
116,469
|
|
|
(48,730
|
)
|
||
Cash and cash equivalents, beginning of period
|
35,033
|
|
|
85,891
|
|
||
Cash and cash equivalents, end of period
|
$
|
151,502
|
|
|
$
|
37,161
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Supplemental disclosures during the period:
|
|
|
|
||||
Cash paid for income taxes, net of refunds received
|
$
|
1,987
|
|
|
$
|
4,137
|
|
Cash paid for interest, net of capitalized interest
|
$
|
19,699
|
|
|
$
|
6,009
|
|
Capitalized interest
|
$
|
404
|
|
|
$
|
1,205
|
|
Supplemental non-cash disclosures: increase (decrease) during the period
|
|
|
|
||||
Property, plant, and equipment accruals
|
$
|
(2,110
|
)
|
|
$
|
(7,197
|
)
|
Operating leases
|
$
|
6,870
|
|
|
$
|
70,878
|
|
•
|
the useful lives of long-lived assets;
|
•
|
allowances for doubtful accounts and sales returns;
|
•
|
the valuation of derivatives, deferred taxes, property, plant and equipment, inventory, share-based compensation, and deferred income; and
|
•
|
liabilities for employee benefit obligations, environmental matters, asset retirement obligations, income tax uncertainties, and other contingencies.
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Polymer Segment
|
(In thousands)
|
||||||
Performance Products
|
$
|
118,760
|
|
|
$
|
138,092
|
|
Specialty Polymers
|
77,917
|
|
|
82,010
|
|
||
Cariflex(1)
|
36,930
|
|
|
40,867
|
|
||
Isoprene Rubber
|
6,859
|
|
|
—
|
|
||
Other
|
(86
|
)
|
|
86
|
|
||
Polymer Product Line Revenue
|
$
|
240,380
|
|
|
$
|
261,055
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Chemical Segment
|
(In thousands)
|
||||||
Adhesives
|
$
|
64,895
|
|
|
$
|
65,576
|
|
Performance Chemicals
|
110,742
|
|
|
116,753
|
|
||
Tires
|
11,252
|
|
|
13,027
|
|
||
Chemical Product Line Revenue
|
$
|
186,889
|
|
|
$
|
195,356
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
|
(In thousands)
|
||||||
Contract receivables(1)
|
$
|
200,853
|
|
|
$
|
190,093
|
|
Contract liabilities(2)
|
$
|
183,950
|
|
|
$
|
12,456
|
|
(1)
|
Contract receivables are recorded within receivables, net of allowances on our Condensed Consolidated Balance Sheets. This includes $20.4 million of contract receivables related to the Cariflex business recorded as current assets held for sale for the year ended December 31, 2019.
|
(2)
|
Our contract liability consists of $172.8 million of non-cash deferred income related to the IRSA and $12.4 million of non-cash deferred income related to a supply agreement with a significant lubricant additive customer, partially offset by a negative impact of $1.2 million related to the impact of currency exchange rates.
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
|
(In thousands)
|
||||||
Inventories of products:
|
|
|
|
||||
Finished products
|
$
|
265,357
|
|
|
$
|
255,406
|
|
Work in progress
|
4,499
|
|
|
4,589
|
|
||
Raw materials
|
79,907
|
|
|
80,647
|
|
||
Inventories of products, gross
|
349,763
|
|
|
340,642
|
|
||
Inventory reserves
|
(7,782
|
)
|
|
(8,185
|
)
|
||
Total inventories of products, net
|
$
|
341,981
|
|
|
$
|
332,457
|
|
Intangible assets:
|
|
|
|
||||
Contractual agreements
|
$
|
261,178
|
|
|
$
|
261,923
|
|
Technology
|
145,373
|
|
|
145,663
|
|
||
Customer relationships
|
60,220
|
|
|
60,291
|
|
||
Tradenames/trademarks
|
81,756
|
|
|
80,638
|
|
||
Software
|
63,449
|
|
|
63,181
|
|
||
Intangible assets
|
611,976
|
|
|
611,696
|
|
||
Less accumulated amortization:
|
|
|
|
||||
Contractual agreements
|
92,760
|
|
|
87,576
|
|
||
Technology
|
69,613
|
|
|
68,132
|
|
||
Customer relationships
|
39,096
|
|
|
38,760
|
|
||
Tradenames/trademarks
|
49,480
|
|
|
48,162
|
|
||
Software
|
45,061
|
|
|
43,189
|
|
||
Total accumulated amortization
|
296,010
|
|
|
285,819
|
|
||
Intangible assets, net of accumulated amortization
|
$
|
315,966
|
|
|
$
|
325,877
|
|
Other payables and accruals:
|
|
|
|
||||
Employee related
|
$
|
26,555
|
|
|
$
|
25,233
|
|
Short-term operating lease liabilities
|
21,627
|
|
|
20,908
|
|
||
Interest payable
|
12,916
|
|
|
16,289
|
|
||
Capital project accruals
|
10,332
|
|
|
13,259
|
|
||
Customer related
|
5,596
|
|
|
10,329
|
|
||
Short-term deferred income
|
23,171
|
|
|
1,407
|
|
||
Income tax payable
|
31,741
|
|
|
3,372
|
|
||
Other
|
41,103
|
|
|
21,848
|
|
||
Total other payables and accruals
|
$
|
173,041
|
|
|
$
|
112,645
|
|
Other long-term liabilities:
|
|
|
|
||||
Pension and other post-retirement benefits
|
$
|
121,599
|
|
|
$
|
126,386
|
|
Long-term tax liability
|
$
|
18,174
|
|
|
$
|
21,022
|
|
Other
|
13,796
|
|
|
14,503
|
|
||
Total other long-term liabilities
|
$
|
153,569
|
|
|
$
|
161,911
|
|
|
Cumulative Foreign Currency Translation
|
|
Cash Flow Hedges, Net of Tax
|
|
Net Investment Hedges, Net of Tax
|
|
Benefit Plans Liability, Net of Tax
|
|
Total
|
||||||||||
|
(In thousands)
|
||||||||||||||||||
December 31, 2018
|
$
|
(24,093
|
)
|
|
$
|
3,922
|
|
|
$
|
6,153
|
|
|
$
|
(77,681
|
)
|
|
$
|
(91,699
|
)
|
Other comprehensive income (loss) before reclassifications
|
(4,496
|
)
|
|
(1,316
|
)
|
|
4,594
|
|
|
—
|
|
|
(1,218
|
)
|
|||||
Net other comprehensive income (loss) for the year
|
(4,496
|
)
|
|
(1,316
|
)
|
|
4,594
|
|
|
—
|
|
|
(1,218
|
)
|
|||||
March 31, 2019
|
$
|
(28,589
|
)
|
|
$
|
2,606
|
|
|
$
|
10,747
|
|
|
$
|
(77,681
|
)
|
|
$
|
(92,917
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
December 31, 2019
|
$
|
(29,389
|
)
|
|
$
|
(2,389
|
)
|
|
$
|
13,624
|
|
|
$
|
(87,641
|
)
|
|
$
|
(105,795
|
)
|
Other comprehensive income (loss) before reclassifications
|
(15,557
|
)
|
|
1,387
|
|
|
12,322
|
|
|
—
|
|
|
(1,848
|
)
|
|||||
Amounts reclassified to (income) expense from accumulated other comprehensive loss (1)
|
66,533
|
|
|
1,002
|
|
|
(899
|
)
|
|
—
|
|
|
66,636
|
|
|||||
Net other comprehensive income for the year
|
50,976
|
|
|
2,389
|
|
|
11,423
|
|
|
—
|
|
|
64,788
|
|
|||||
March 31, 2020
|
$
|
21,587
|
|
|
$
|
—
|
|
|
$
|
25,047
|
|
|
$
|
(87,641
|
)
|
|
$
|
(41,007
|
)
|
(1)
|
Amounts reclassified to (income) expense from accumulated other comprehensive loss are related to cumulative foreign currency translation, the settlement of interest rate swaps, and settlement of a net investment hedge in connection with the sale of our Cariflex business and subsequent repayments of debt. These costs are recorded in disposition and exit of business activities and loss on extinguishment of debt in the Consolidated Statement of Operations.
|
|
Three Months Ended March 31, 2020
|
|
Three Months Ended March 31, 2019
|
||||||||||||||||||
|
Net Income Attributable to Kraton
|
|
Weighted Average Shares Outstanding
|
|
Earnings Per Share
|
|
Net Income Attributable to Kraton
|
|
Weighted Average Shares Outstanding
|
|
Earnings Per Share
|
||||||||||
|
(In thousands, except per share data)
|
||||||||||||||||||||
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
As reported
|
$
|
208,086
|
|
|
31,783
|
|
|
|
|
$
|
12,668
|
|
|
31,956
|
|
|
|
||||
Amounts allocated to unvested restricted shares
|
(1,283
|
)
|
|
(196
|
)
|
|
|
|
(128
|
)
|
|
(323
|
)
|
|
|
||||||
Amounts available to common stockholders
|
206,803
|
|
|
31,587
|
|
|
$
|
6.55
|
|
|
12,540
|
|
|
31,633
|
|
|
$
|
0.40
|
|
||
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Amounts allocated to unvested restricted shares
|
1,283
|
|
|
196
|
|
|
|
|
128
|
|
|
323
|
|
|
|
||||||
Non participating share units
|
—
|
|
|
362
|
|
|
|
|
—
|
|
|
205
|
|
|
|
||||||
Stock options added under the treasury stock method
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
63
|
|
|
|
||||||
Amounts reallocated to unvested restricted shares
|
(1,269
|
)
|
|
(196
|
)
|
|
|
|
(127
|
)
|
|
(323
|
)
|
|
|
||||||
Amounts available to stockholders and assumed conversions
|
$
|
206,817
|
|
|
31,949
|
|
|
$
|
6.47
|
|
|
$
|
12,541
|
|
|
31,901
|
|
|
$
|
0.39
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||||||||||||||||||
|
Principal
|
|
Discount
|
|
Debt Issuance Costs
|
|
Total
|
|
Principal
|
|
Discount
|
|
Debt Issuance Costs
|
|
Total
|
||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||||||||
USD Tranche
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
290,000
|
|
|
$
|
(5,057
|
)
|
|
$
|
(6,985
|
)
|
|
$
|
277,958
|
|
Euro Tranche
|
186,949
|
|
|
—
|
|
|
(2,075
|
)
|
|
184,874
|
|
|
277,134
|
|
|
—
|
|
|
(3,237
|
)
|
|
273,897
|
|
||||||||
7.0% Senior Notes
|
394,750
|
|
|
—
|
|
|
(5,614
|
)
|
|
389,136
|
|
|
394,750
|
|
|
—
|
|
|
(5,846
|
)
|
|
388,904
|
|
||||||||
5.25% Senior Notes
|
318,913
|
|
|
—
|
|
|
(4,715
|
)
|
|
314,198
|
|
|
325,378
|
|
|
—
|
|
|
(4,879
|
)
|
|
320,499
|
|
||||||||
ABL Facility
|
15,000
|
|
|
—
|
|
|
—
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
KFPC Loan Agreement
|
65,208
|
|
|
—
|
|
|
(29
|
)
|
|
65,179
|
|
|
82,375
|
|
|
—
|
|
|
(33
|
)
|
|
82,342
|
|
||||||||
KFPC Revolving Facilities
|
30,030
|
|
|
—
|
|
|
—
|
|
|
30,030
|
|
|
20,010
|
|
|
—
|
|
|
—
|
|
|
20,010
|
|
||||||||
Capital lease obligation
|
971
|
|
|
—
|
|
|
—
|
|
|
971
|
|
|
1,015
|
|
|
—
|
|
|
—
|
|
|
1,015
|
|
||||||||
Total debt
|
1,011,821
|
|
|
—
|
|
|
(12,433
|
)
|
|
999,388
|
|
|
1,390,662
|
|
|
(5,057
|
)
|
|
(20,980
|
)
|
|
1,364,625
|
|
||||||||
Less current portion of total debt
|
62,816
|
|
|
—
|
|
|
—
|
|
|
62,816
|
|
|
53,139
|
|
|
—
|
|
|
—
|
|
|
53,139
|
|
||||||||
Long-term debt
|
$
|
949,005
|
|
|
$
|
—
|
|
|
$
|
(12,433
|
)
|
|
$
|
936,572
|
|
|
$
|
1,337,523
|
|
|
$
|
(5,057
|
)
|
|
$
|
(20,980
|
)
|
|
$
|
1,311,486
|
|
|
Principal Payments
|
||
|
(In thousands)
|
||
April 1, 2020 through March 31, 2021
|
$
|
62,816
|
|
April 1, 2021 through March 31, 2022
|
47,797
|
|
|
April 1, 2022 through March 31, 2023
|
205
|
|
|
April 1, 2023 through March 31, 2024
|
218
|
|
|
April 1, 2024 through March 31, 2025
|
173
|
|
|
Thereafter
|
900,612
|
|
|
Total debt
|
$
|
1,011,821
|
|
•
|
Level 1—Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
•
|
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:
|
•
|
Quoted prices for similar assets or liabilities in active markets;
|
•
|
Quoted prices for identical or similar assets or liabilities in markets that are not active;
|
•
|
Inputs other than quoted prices that are observable for the asset or liability; and
|
•
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
|
•
|
Level 3—Inputs that are unobservable and reflect our assumptions used in pricing the asset or liability based on the best information available under the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
||||||||
|
(In thousands)
|
||||||||||||||
USD Tranche (significant other observable inputs – level 2)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
290,000
|
|
|
$
|
290,183
|
|
Euro Tranche (significant other observable inputs – level 2)
|
$
|
186,949
|
|
|
$
|
159,841
|
|
|
$
|
277,134
|
|
|
$
|
277,827
|
|
7.0% Senior Notes (quoted prices in active market for identical assets – level 1)
|
$
|
394,750
|
|
|
$
|
338,881
|
|
|
$
|
394,750
|
|
|
$
|
406,214
|
|
5.25% Senior Notes (quoted prices in active market for identical assets – level 1)
|
$
|
318,913
|
|
|
$
|
250,905
|
|
|
$
|
325,378
|
|
|
$
|
338,364
|
|
ABL Facility
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Capital lease obligation
|
$
|
971
|
|
|
$
|
971
|
|
|
$
|
1,015
|
|
|
$
|
1,015
|
|
KFPC Loan Agreement
|
$
|
65,208
|
|
|
$
|
65,208
|
|
|
$
|
82,375
|
|
|
$
|
82,375
|
|
KFPC Revolving Facilities
|
$
|
30,030
|
|
|
$
|
30,030
|
|
|
$
|
20,010
|
|
|
$
|
20,010
|
|
|
Three Months Ended March 31,
|
||||
|
2020
|
|
2019
|
||
Income taxes at the statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
State taxes, net of federal benefit
|
0.1
|
|
|
1.4
|
|
Foreign tax rate differential
|
4.4
|
|
|
0.4
|
|
Permanent differences
|
0.7
|
|
|
(9.4
|
)
|
Cariflex disposition
|
(7.9
|
)
|
|
—
|
|
Dutch transfer of assets
|
(36.4
|
)
|
|
—
|
|
Uncertain tax positions
|
(1.6
|
)
|
|
3.8
|
|
Valuation allowance
|
(0.1
|
)
|
|
(0.8
|
)
|
Return to provision adjustments
|
(1.4
|
)
|
|
(0.1
|
)
|
Effective tax rate
|
(21.2
|
)%
|
|
16.3
|
%
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
|
(In thousands)
|
||||||
Lease cost
|
$
|
6,164
|
|
|
$
|
4,576
|
|
Variable lease cost
|
88
|
|
|
191
|
|
||
Operating lease expense
|
$
|
6,252
|
|
|
$
|
4,767
|
|
Leased Asset Class
|
|
Polymer
|
|
Chemical
|
|
Percentage
|
|
Average Months Remaining on the Lease
|
|
Weighted Average in Months
|
|||||
|
|
(in thousands)
|
|
|
|
|
|
|
|||||||
Railcars
|
|
$
|
3,039
|
|
|
$
|
25,330
|
|
|
32.0
|
%
|
|
43
|
|
13.7
|
Buildings
|
|
28,039
|
|
|
7,858
|
|
|
40.4
|
%
|
|
32
|
|
12.9
|
||
Equipment
|
|
2,597
|
|
|
9,007
|
|
|
13.1
|
%
|
|
35
|
|
4.6
|
||
Land
|
|
6,843
|
|
|
40
|
|
|
7.8
|
%
|
|
373
|
|
28.9
|
||
Other
|
|
628
|
|
|
5,408
|
|
|
6.8
|
%
|
|
17
|
|
1.2
|
||
Total
|
|
$
|
41,146
|
|
|
$
|
47,643
|
|
|
|
|
|
|
61.3
|
|
March 31, 2020
|
||
|
(In thousands)
|
||
April 1, 2020 through December 31, 2020
|
$
|
18,717
|
|
2021
|
19,203
|
|
|
2022
|
14,598
|
|
|
2023
|
11,075
|
|
|
2024
|
7,612
|
|
|
Thereafter
|
27,950
|
|
|
Total undiscounted operating lease liabilities
|
99,155
|
|
|
|
|
||
Present value discount
|
(10,346
|
)
|
|
Foreign currency and other
|
(20
|
)
|
|
Total discounted operating lease liabilities
|
$
|
88,789
|
|
|
December 31, 2019
|
||
|
(In thousands)
|
||
2020
|
$
|
23,310
|
|
2021
|
17,629
|
|
|
2022
|
13,087
|
|
|
2023
|
9,665
|
|
|
2024
|
6,264
|
|
|
Thereafter
|
27,860
|
|
|
Total undiscounted operating lease liabilities
|
$
|
97,815
|
|
|
|
||
Present value discount
|
(10,400
|
)
|
|
Foreign currency and other
|
117
|
|
|
Total discounted operating lease liabilities
|
$
|
87,532
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
|
(In thousands)
|
||||||
Beginning balance
|
$
|
6,523
|
|
|
$
|
5,703
|
|
Accretion expense
|
78
|
|
|
91
|
|
||
Obligations settled
|
(302
|
)
|
|
(206
|
)
|
||
Foreign currency translation
|
(102
|
)
|
|
(82
|
)
|
||
Ending balance
|
$
|
6,197
|
|
|
$
|
5,506
|
|
|
Three Months Ended March 31,
|
||||||||||||||
|
2020
|
|
2019
|
||||||||||||
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
||||||||
|
(In thousands)
|
||||||||||||||
Service cost
|
$
|
65
|
|
|
$
|
442
|
|
|
$
|
753
|
|
|
$
|
389
|
|
Interest cost
|
1,648
|
|
|
420
|
|
|
1,938
|
|
|
533
|
|
||||
Expected return on plan assets
|
(2,328
|
)
|
|
(682
|
)
|
|
(2,517
|
)
|
|
(633
|
)
|
||||
Amortization of prior service cost
|
—
|
|
|
4
|
|
|
—
|
|
|
9
|
|
||||
Amortization of net actuarial loss
|
388
|
|
|
253
|
|
|
845
|
|
|
106
|
|
||||
Net periodic benefit cost
|
$
|
(227
|
)
|
|
$
|
437
|
|
|
$
|
1,019
|
|
|
$
|
404
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
|
U.S. Plans
|
|
U.S. Plans
|
||||
|
(In thousands)
|
||||||
Service cost
|
$
|
85
|
|
|
$
|
90
|
|
Interest cost
|
195
|
|
|
240
|
|
||
Amortization of prior service cost
|
(438
|
)
|
|
(437
|
)
|
||
Amortization of net actuarial loss
|
213
|
|
|
175
|
|
||
Net periodic benefit cost
|
$
|
55
|
|
|
$
|
68
|
|
•
|
Polymer Segment is comprised of our SBCs and other engineered polymers business.
|
•
|
Chemical Segment is comprised of our pine-based specialty products business.
|
|
Three Months Ended March 31, 2020
|
|
Three Months Ended March 31, 2019
|
||||||||||||||||||||
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
Revenue
|
$
|
240,380
|
|
|
$
|
186,889
|
|
|
$
|
427,269
|
|
|
$
|
261,055
|
|
|
$
|
195,356
|
|
|
$
|
456,411
|
|
Cost of goods sold
|
171,649
|
|
|
136,420
|
|
|
308,069
|
|
|
207,169
|
|
|
142,240
|
|
|
349,409
|
|
||||||
Gross profit
|
68,731
|
|
|
50,469
|
|
|
119,200
|
|
|
53,886
|
|
|
53,116
|
|
|
107,002
|
|
||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Research and development
|
7,725
|
|
|
3,067
|
|
|
10,792
|
|
|
7,567
|
|
|
2,984
|
|
|
10,551
|
|
||||||
Selling, general, and administrative
|
29,933
|
|
|
19,125
|
|
|
49,058
|
|
|
23,098
|
|
|
17,796
|
|
|
40,894
|
|
||||||
Depreciation and amortization
|
13,347
|
|
|
17,826
|
|
|
31,173
|
|
|
13,971
|
|
|
17,551
|
|
|
31,522
|
|
||||||
Gain on insurance proceeds
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,100
|
)
|
|
(11,100
|
)
|
||||||
(Gain) loss on disposal of fixed assets
|
(199
|
)
|
|
135
|
|
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Operating income
|
$
|
17,925
|
|
|
$
|
10,316
|
|
|
28,241
|
|
|
$
|
9,250
|
|
|
$
|
25,885
|
|
|
35,135
|
|
||
Other income (expense)
|
|
|
|
|
327
|
|
|
|
|
|
|
(259
|
)
|
||||||||||
Disposition and exit of business activities
|
|
|
|
|
175,214
|
|
|
|
|
|
|
—
|
|
||||||||||
Gain (loss) on extinguishment of debt
|
|
|
|
|
(13,954
|
)
|
|
|
|
|
|
210
|
|
||||||||||
Earnings of unconsolidated joint venture
|
|
|
|
|
101
|
|
|
|
|
|
|
121
|
|
||||||||||
Interest expense, net
|
|
|
|
|
(17,461
|
)
|
|
|
|
|
|
(18,941
|
)
|
||||||||||
Income before income taxes
|
|
|
|
|
$
|
172,468
|
|
|
|
|
|
|
$
|
16,266
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||||||||||
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
Property, plant, and equipment, net
|
$
|
515,481
|
|
|
$
|
391,669
|
|
|
$
|
907,150
|
|
|
$
|
526,692
|
|
|
$
|
399,248
|
|
|
$
|
925,940
|
|
Investment in unconsolidated joint venture
|
$
|
11,390
|
|
|
$
|
—
|
|
|
$
|
11,390
|
|
|
$
|
11,971
|
|
|
$
|
—
|
|
|
$
|
11,971
|
|
Goodwill
|
$
|
—
|
|
|
$
|
772,045
|
|
|
$
|
772,045
|
|
|
$
|
—
|
|
|
$
|
772,418
|
|
|
$
|
772,418
|
|
Total assets
|
$
|
1,190,558
|
|
|
$
|
1,746,175
|
|
|
$
|
2,936,733
|
|
|
$
|
1,097,691
|
|
|
$
|
1,734,694
|
|
|
$
|
2,832,385
|
|
|
Three Months Ended March 31, 2020
|
|
Three Months Ended March 31, 2019
|
||||||||||||||||||||
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
||||||||||||
|
(In thousands)
|
|
(In thousands)
|
||||||||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
United States
|
$
|
85,394
|
|
|
$
|
80,581
|
|
|
$
|
165,975
|
|
|
$
|
87,968
|
|
|
$
|
80,357
|
|
|
$
|
168,325
|
|
Germany
|
24,433
|
|
|
12,668
|
|
|
37,101
|
|
|
25,911
|
|
|
14,981
|
|
|
40,892
|
|
||||||
All other countries
|
130,553
|
|
|
93,640
|
|
|
224,193
|
|
|
147,176
|
|
|
100,018
|
|
|
247,194
|
|
||||||
|
$
|
240,380
|
|
|
$
|
186,889
|
|
|
$
|
427,269
|
|
|
$
|
261,055
|
|
|
$
|
195,356
|
|
|
$
|
456,411
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
|
(In thousands)
|
||||||
Cash and cash equivalents
|
$
|
3,151
|
|
|
$
|
10,402
|
|
Other current assets
|
17,412
|
|
|
14,847
|
|
||
Property, plant, and equipment, net
|
151,163
|
|
|
155,153
|
|
||
Intangible assets
|
7,881
|
|
|
8,133
|
|
||
Long-term operating lease assets, net
|
6,894
|
|
|
7,044
|
|
||
Other long-term assets
|
6,632
|
|
|
2,147
|
|
||
Total assets
|
$
|
193,133
|
|
|
$
|
197,726
|
|
|
|
|
|
||||
Current portion of long-term debt
|
$
|
62,634
|
|
|
$
|
52,961
|
|
Current liabilities
|
14,366
|
|
|
12,801
|
|
||
Long-term debt
|
32,575
|
|
|
49,391
|
|
||
Long-term operating lease liabilities
|
6,534
|
|
|
6,603
|
|
||
Total liabilities
|
$
|
116,109
|
|
|
$
|
121,756
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Revenue by Geography:
|
(In thousands)
|
||||||
Americas
|
$
|
186,158
|
|
|
$
|
190,273
|
|
Europe, Middle East, and Africa
|
138,032
|
|
|
159,381
|
|
||
Asia Pacific
|
103,079
|
|
|
106,757
|
|
||
Total revenue
|
$
|
427,269
|
|
|
$
|
456,411
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Revenue
|
$
|
427,269
|
|
|
$
|
456,411
|
|
Cost of goods sold
|
308,069
|
|
|
349,409
|
|
||
Gross profit
|
119,200
|
|
|
107,002
|
|
||
Operating expenses:
|
|
|
|
||||
Research and development
|
10,792
|
|
|
10,551
|
|
||
Selling, general, and administrative
|
49,058
|
|
|
40,894
|
|
||
Depreciation and amortization
|
31,173
|
|
|
31,522
|
|
||
Gain on insurance proceeds
|
—
|
|
|
(11,100
|
)
|
||
Gain on disposal of fixed assets
|
(64
|
)
|
|
—
|
|
||
Operating income
|
28,241
|
|
|
35,135
|
|
||
Other income (expense)
|
327
|
|
|
(259
|
)
|
||
Disposition and exit of business activities
|
175,214
|
|
|
—
|
|
||
Gain (loss) on extinguishment of debt
|
(13,954
|
)
|
|
210
|
|
||
Earnings of unconsolidated joint venture
|
101
|
|
|
121
|
|
||
Interest expense, net
|
(17,461
|
)
|
|
(18,941
|
)
|
||
Income before income taxes
|
172,468
|
|
|
16,266
|
|
||
Income tax benefit (expense)
|
36,552
|
|
|
(2,654
|
)
|
||
Consolidated net income
|
209,020
|
|
|
13,612
|
|
||
Net income attributable to noncontrolling interest
|
(934
|
)
|
|
(944
|
)
|
||
Net income attributable to Kraton
|
$
|
208,086
|
|
|
$
|
12,668
|
|
Earnings per common share:
|
|
|
|
||||
Basic
|
$
|
6.55
|
|
|
$
|
0.40
|
|
Diluted
|
$
|
6.47
|
|
|
$
|
0.39
|
|
Weighted average common shares outstanding:
|
|
|
|
||||
Basic
|
31,587
|
|
|
31,633
|
|
||
Diluted
|
31,949
|
|
|
31,901
|
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
|
(In thousands)
|
||||||
Performance Products
|
$
|
118,760
|
|
|
$
|
138,092
|
|
Specialty Polymers
|
77,917
|
|
|
82,010
|
|
||
Cariflex(1)
|
36,930
|
|
|
40,867
|
|
||
Isoprene Rubber(1)
|
6,859
|
|
|
—
|
|
||
Other
|
(86
|
)
|
|
86
|
|
||
Polymer Segment Revenue
|
$
|
240,380
|
|
|
$
|
261,055
|
|
|
|
|
|
||||
Operating income
|
$
|
17,925
|
|
|
$
|
9,250
|
|
Adjusted EBITDA (non-GAAP)(1)(2)
|
$
|
51,169
|
|
|
$
|
48,153
|
|
Adjusted EBITDA margin (non-GAAP)(3)(4)
|
21.3
|
%
|
|
18.4
|
%
|
(1)
|
Our Cariflex revenue represents sales through March 6, 2020. Following the completion of our Cariflex business sale to Daelim, subsequent to March 6, 2020, we commenced 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 $3.4 million, which represents revenue deferred until the products are sold under the IRSA.
|
(2)
|
See non-GAAP reconciliations included below 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.
|
(4)
|
For the three months ended March 31, 2020, Adjusted EBITDA margin adjusted for the IRSA would be 20.5%.
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
|
(In thousands)
|
||||||
Adhesives
|
$
|
64,895
|
|
|
$
|
65,576
|
|
Performance Chemicals
|
110,742
|
|
|
116,753
|
|
||
Tires
|
11,252
|
|
|
13,027
|
|
||
Chemical Segment Revenue
|
$
|
186,889
|
|
|
$
|
195,356
|
|
|
|
|
|
||||
Operating income
|
$
|
10,316
|
|
|
$
|
25,885
|
|
Adjusted EBITDA (non-GAAP)(1)
|
$
|
26,710
|
|
|
$
|
41,279
|
|
Adjusted EBITDA margin (non-GAAP)(2)(3)
|
14.3
|
%
|
|
21.1
|
%
|
(1)
|
See non-GAAP reconciliations included below for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.
|
(2)
|
Defined as Adjusted EBITDA as a percentage of revenue.
|
(3)
|
For the three months ended March 31, 2019, Adjusted EBITDA margin adjusted for lost revenues from Hurricane Michael would be 20.2%.
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
|
(In thousands, except per share amounts)
|
||||||
EBITDA(2)(4)
|
$
|
221,102
|
|
|
$
|
66,729
|
|
Adjusted EBITDA(1)(3)(4)
|
$
|
77,879
|
|
|
$
|
89,432
|
|
Adjusted Diluted Earnings Per Share(1)(4)
|
$
|
0.27
|
|
|
$
|
0.88
|
|
(1)
|
The majority of our consolidated inventory is measured using the FIFO basis of accounting. As part of our pricing strategy, we measure our business performance using the estimated current replacement cost (“ECRC”) of our inventory and cost of goods sold. Our ECRC is based on our current expectation of the current cost of our significant raw material inputs. ECRC is developed monthly based on actual market-based contracted rates and spot market purchase rates that are expected to occur in the period. We then adjust the value of the significant raw material inputs and their associated impact to finished goods to the current replacement cost to arrive at an ECRC value for inventory and cost of goods sold. The result of this revaluation from the GAAP carrying value creates the spread between GAAP and ECRC. We maintain our perpetual inventory in our global enterprise resource planning system, where the carrying value of our inventory is determined. With inventory valued under GAAP and ECRC, we then have the ability to report cost of goods sold and therefore Adjusted EBITDA and Adjusted Diluted Earnings (Loss) Per Share under both our GAAP convention and ECRC.
|
(2)
|
On a consolidated basis, EBITDA represents net income before interest, taxes, depreciation, and amortization. On a reporting segment basis, EBITDA represents segment operating income before depreciation and amortization, loss on extinguishment of debt, and earnings of unconsolidated joint venture. Limitations for EBITDA as an analytical tool include the following:
|
•
|
EBITDA does not reflect the significant interest expense on our debt;
|
•
|
EBITDA does not reflect the significant depreciation and amortization expense associated with our long-lived assets;
|
•
|
EBITDA included herein should not be used for purposes of assessing compliance or non-compliance with financial covenants under our debt agreements. The calculation of EBITDA in the 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; and
|
•
|
other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
|
(3)
|
Adjusted EBITDA is EBITDA net of the impact of the spread between the FIFO basis of accounting and ECRC and net of the impact of items we do not consider indicative of our ongoing operating performance. We explain how each adjustment is derived and why we believe it is helpful and appropriate in the reconciliation below. You are encouraged to evaluate each adjustment and
|
•
|
due to volatility in raw material prices, Adjusted EBITDA may, and often does, vary substantially from EBITDA, net income, and other performance measures, including net income calculated in accordance with GAAP; and
|
•
|
Adjusted EBITDA may, and often will, vary significantly from EBITDA calculations under the terms of our debt agreements and should not be used for assessing compliance or non-compliance with financial covenants under our debt agreements.
|
(4)
|
Included in EBITDA, Adjusted EBITDA, and Adjusted Diluted Earnings (Loss) Per Share is $11.1 million, which was recognized as a gain on insurance proceeds in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2019, associated with Hurricane Michael. 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 $3.4 million, which represents revenue deferred until the products are sold under the IRSA.
|
|
Three Months Ended March 31, 2020
|
|
Three Months Ended March 31, 2019
|
||||||||||||||||||||
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
Net income attributable to Kraton
|
|
|
|
|
$
|
208,086
|
|
|
|
|
|
|
$
|
12,668
|
|
||||||||
Net income attributable to noncontrolling interest
|
|
|
|
|
934
|
|
|
|
|
|
|
944
|
|
||||||||||
Consolidated net income
|
|
|
|
|
209,020
|
|
|
|
|
|
|
13,612
|
|
||||||||||
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income tax (benefit) expense
|
|
|
|
|
(36,552
|
)
|
|
|
|
|
|
2,654
|
|
||||||||||
Interest expense, net
|
|
|
|
|
17,461
|
|
|
|
|
|
|
18,941
|
|
||||||||||
Earnings of unconsolidated joint venture
|
|
|
|
|
(101
|
)
|
|
|
|
|
|
(121
|
)
|
||||||||||
(Gain) loss on extinguishment of debt
|
|
|
|
|
13,954
|
|
|
|
|
|
|
(210
|
)
|
||||||||||
Other (income) expense
|
|
|
|
|
(327
|
)
|
|
|
|
|
|
259
|
|
||||||||||
Disposition and exit of business activities
|
|
|
|
|
(175,214
|
)
|
|
|
|
|
|
—
|
|
||||||||||
Operating income
|
$
|
17,925
|
|
|
$
|
10,316
|
|
|
28,241
|
|
|
$
|
9,250
|
|
|
$
|
25,885
|
|
|
35,135
|
|
||
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Depreciation and amortization
|
13,347
|
|
|
17,826
|
|
|
31,173
|
|
|
13,971
|
|
|
17,551
|
|
|
31,522
|
|
||||||
Disposition and exit of business activities
|
175,214
|
|
|
—
|
|
|
175,214
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Other income (expense)
|
55
|
|
|
272
|
|
|
327
|
|
|
(427
|
)
|
|
168
|
|
|
(259
|
)
|
||||||
Gain (loss) on extinguishment of debt
|
(13,954
|
)
|
|
—
|
|
|
(13,954
|
)
|
|
210
|
|
|
—
|
|
|
210
|
|
||||||
Earnings of unconsolidated joint venture
|
101
|
|
|
—
|
|
|
101
|
|
|
121
|
|
|
—
|
|
|
121
|
|
||||||
EBITDA (a)
|
192,688
|
|
|
28,414
|
|
|
221,102
|
|
|
23,125
|
|
|
43,604
|
|
|
66,729
|
|
||||||
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Transaction, acquisition related costs, restructuring, and other costs (b)
|
10,148
|
|
|
762
|
|
|
10,910
|
|
|
714
|
|
|
398
|
|
|
1,112
|
|
||||||
Disposition and exit of business activities
|
(175,214
|
)
|
|
—
|
|
|
(175,214
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
(Gain) loss on extinguishment of debt
|
13,954
|
|
|
—
|
|
|
13,954
|
|
|
(210
|
)
|
|
—
|
|
|
(210
|
)
|
||||||
Hurricane related costs (c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,861
|
|
|
5,861
|
|
||||||
Hurricane reimbursements (d)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,220
|
)
|
|
(5,220
|
)
|
||||||
Non-cash compensation expense
|
2,848
|
|
|
—
|
|
|
2,848
|
|
|
3,309
|
|
|
—
|
|
|
3,309
|
|
||||||
Spread between FIFO and ECRC
|
6,745
|
|
|
(2,466
|
)
|
|
4,279
|
|
|
21,215
|
|
|
(3,364
|
)
|
|
17,851
|
|
||||||
Adjusted EBITDA
|
$
|
51,169
|
|
|
$
|
26,710
|
|
|
$
|
77,879
|
|
|
$
|
48,153
|
|
|
$
|
41,279
|
|
|
$
|
89,432
|
|
(a)
|
Included in EBITDA is a $11.1 million gain on insurance for the three months ended March 31, 2019, fully offsetting the lost margin in the first quarter of 2019, and reimbursement for a portion of the direct costs we have incurred to date related to Hurricane Michael.
|
(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.
|
|
Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
Diluted Earnings Per Share
|
$
|
6.47
|
|
|
$
|
0.39
|
|
Transaction, acquisition related costs, restructuring, and other costs (a)
|
0.26
|
|
|
0.03
|
|
||
Disposition and exit of business activities
|
(4.96
|
)
|
|
—
|
|
||
(Gain) loss on extinguishment of debt
|
0.34
|
|
|
(0.01
|
)
|
||
Tax restructuring
|
(1.95
|
)
|
|
—
|
|
||
Hurricane related costs (b)
|
—
|
|
|
0.18
|
|
||
Hurricane reimbursements (c)
|
—
|
|
|
(0.16
|
)
|
||
Spread between FIFO and ECRC
|
0.11
|
|
|
0.45
|
|
||
Adjusted Diluted Earnings Per Share (non-GAAP)
|
$
|
0.27
|
|
|
$
|
0.88
|
|
(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.
|
(c)
|
Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds.
|
|
March 31, 2020
|
|
December 31, 2019
|
||||
|
(In thousands)
|
||||||
Kraton debt
|
$
|
916,583
|
|
|
$
|
1,288,277
|
|
KFPC(1)(2) loans
|
95,238
|
|
|
102,385
|
|
||
Consolidated debt
|
1,011,821
|
|
|
1,390,662
|
|
||
|
|
|
|
||||
Kraton cash
|
148,351
|
|
|
24,631
|
|
||
KFPC(1) cash
|
3,151
|
|
|
10,402
|
|
||
Consolidated cash
|
151,502
|
|
|
35,033
|
|
||
|
|
|
|
||||
Consolidated net debt
|
$
|
860,319
|
|
|
$
|
1,355,629
|
|
|
|
|
|
||||
Effect of foreign currency on consolidated net debt
|
10,740
|
|
|
|
|||
Consolidated net debt excluding effect of foreign currency
|
$
|
871,059
|
|
|
|
(1)
|
KFPC joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements.
|
(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.
|
•
|
$34.0 million increase in other payable and accruals due to timing of income tax accruals; and
|
•
|
$30.8 million increase in cash flows associated with lower accounts receivables in our Chemical segment, largely due to lower selling prices and lower days sales outstanding, partially offset by higher sales volumes; and
|
•
|
$8.1 million increase in cash flows associated with other items, including due to related parties and other assets, primarily due to timing of transactions and payments; and
|
•
|
$6.2 million increase in cash flows associated with higher accounts payable due to higher raw material purchases and timing of payments; partially offset by
|
•
|
$13.0 million decrease in cash flows associated with inventories of products, materials, and supplies in our Polymer segment due to higher volumes of finished goods and raw materials, partially offset by lower raw material costs; and
|
•
|
$2.0 million decrease in cash flows associated with lower other long term liabilities largely due to pension contributions.
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk.
|
Item 4.
|
Controls and Procedures.
|
Item 1.
|
Legal Proceedings.
|
Item 1A.
|
Risk Factors.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
|
Issuer Purchases of Equity Securities
|
||||||||||||
|
(a) Total Number of Shares (or Units) Purchased(1)
|
|
(b) Average Price Paid Per Share (or Unit)
|
|
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(2)
|
|
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans of Programs(2)
|
||||||
January 1, 2020 through January 31, 2020
|
213
|
|
|
$
|
23.26
|
|
|
—
|
|
|
40,000,036
|
|
|
February 1, 2020 through February 29, 2020
|
—
|
|
|
—
|
|
|
—
|
|
|
40,000,036
|
|
||
March 1, 2020 through March 31, 2020
|
32,379
|
|
|
10.21
|
|
|
—
|
|
|
40,000,036
|
|
||
Total
|
32,592
|
|
|
$
|
10.30
|
|
|
—
|
|
|
$
|
40,000,036
|
|
(1)
|
The total number of shares disclosed in this column includes 32,592 shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted stock awards which vested.
|
(2)
|
This column contains repurchases under the Share Repurchase Program.
|
Item 3.
|
Default Upon Senior Securities.
|
Item 4.
|
Mine Safety Disclosures.
|
Item 5.
|
Other Information.
|
Item 6.
|
Exhibits.
|
Exhibit
Number
|
|
|
|
Second Amended and Restated Bylaws of Kraton Corporation (incorporated by reference to Exhibit 3.1 to Kraton Corporation’s Current Report on Form 8-K filed with the SEC on February 12, 2020)
|
|
|
Second Amended and Restated Loan, Security and Guarantee Agreement, dated as of April 15, 2020, among Kraton Polymers U. S. LLC and Kraton Chemical, LLC, as U.S. Borrowers and Guarantors, Kraton Polymers Nederland B.V., as Initial Dutch Kraton Borrower, Kraton Corporation, as Parent, certain subsidiaries of Parent, as Guarantors, the financial institutions from time to time party there to, as Lenders, and Bank of America, N.A., in its capacity as Administrative Agent, Collateral Agent and Security Trustee (incorporated by reference to Exhibit 10.1 to Kraton Corporation's Current Report on Form 8-K filed with the SEC on April 15, 2020)
|
|
|
Certification of Chief Executive Officer under Section 302 of Sarbanes—Oxley Act of 2002
|
|
|
Certification of Chief Financial Officer under Section 302 of Sarbanes—Oxley Act of 2002
|
|
|
Certification Pursuant to Section 906 of Sarbanes—Oxley Act of 2002
|
|
101*
|
|
The following materials from Kraton Corporation Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (Unaudited), (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (Unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019 (Unaudited), (iv) Condensed Consolidated Statement of Changes in Equity for the three months ended March 31, 2020 and 2019 (Unaudited), (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited), and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited)
|
104*
|
|
The cover page from Kraton Corporation Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language)
|
*
|
Filed herewith.
|
|
|
KRATON CORPORATION
|
|
|
|
Date:
|
April 30, 2020
|
/s/ Kevin M. Fogarty
|
|
|
Kevin M. Fogarty
|
|
|
President and Chief Executive Officer
|
|
|
|
Date:
|
April 30, 2020
|
/s/ Atanas H. Atanasov
|
|
|
Atanas H. Atanasov
|
|
|
Senior Vice President, Chief Financial Officer, and Treasurer
|
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