Kraton Performance Polymers, Inc. Announces Second Quarter 2010 Results
By Kraton Performance Polymers Inc., PRNETuesday, August 3, 2010
HOUSTON, August 4, 2010 - Kraton Performance Polymers, Inc. (NYSE: KRA), a leading global producer
of styrenic block copolymers, announces improved financial results for the
quarter ended June 30, 2010.
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2010 SECOND QUARTER HIGHLIGHTS
- Sales volume increased 21% year-on-year to 86 kilotons
- Sales revenues increased 42% year-on-year to US$332 million
- Earnings per diluted share were US$1.24 compared to a loss of US$0.22
per diluted share in the second quarter 2009
- Delivered record Adjusted EBITDA(1) ( 2) of US$63 million, reflecting a
margin of 19% of revenues
- Continued to implement our "price right" strategy in response to
volatility in raw material costs and other factors
- Isoprene Rubber and Isoprene Rubber Latex expansion projects on
schedule and on budget
"In our second full quarter as a public company, Kraton delivered strong
financial and operational results. The record profitability in the quarter
was primarily driven by higher sales volume, and the impact of several price
increases we implemented in response to changes in raw material costs,
increased demand for our products and other manufacturing considerations,"
said Kevin M. Fogarty, President and Chief Executive Officer. "While our
sales volume in the quarter includes the impact of a seasonal increase
attributable to our global Paving and Roofing business, it also reflects
improvement in demand across all of our end use markets as the worldwide
economy continued to recover from 2009 lows, continuing the year-on-year
growth trend we have now experienced for the past three quarters," added
Fogarty. "In addition, we are equally pleased with the continued success of
our innovation-led market development activities, particularly in China,
which contributed as well to the 21% growth in quarterly volume. We therefore
see the need, and have begun the review process, for additional HSBC capacity
in Asia, to meet the future growth needs of our global customers."
Three Months Ended
June 30,
(US $ in thousands, except ------------------
per share amounts) 2010 2009
---- ----
Revenues $332,086 $243,821
Adjusted EBITDA(1) ( 2) $63,025 $12,907
Net Income (Loss) $38,595 $(4,185)
Net Income (Loss) per diluted
share $1.24 $(0.22)
Net cash provided by (used
in) operating activities $21,799 $39,928
Six Months Ended
June 30,
(US $ in thousands, except ----------------------
per share amounts) 2010 2009
---- ----
Revenues $604,818 $428,779
Adjusted EBITDA(1) ( 2) $105,647 $3,189
Net Income (Loss) $58,390 $(20,646)
Net Income (Loss) per diluted
share $1.88 $(1.06)
Net cash provided by (used
in) operating activities $(51,037) $4,707
(1) A reconciliation of Adjusted EBITDA to Net Income (Loss) is
included in the accompanying financial tables.
(2) Adjusted EBITDA is EBITDA less restructuring and related
charges, non-cash expenses, sponsor fees and gains on the
extinguishment of debt.
Operating Highlights
Revenues in the second quarter 2010 were $332 million, an increase of
approximately 42% compared to second quarter 2009 and 22% compared to the
first quarter 2010. The increase in revenues compared to the second quarter
2009 and first quarter 2010 was primarily the result of the combined impact
of increased price and sales volume. Sales volume in the second quarter 2010
was 86 kilotons, an increase of 21% compared to second quarter 2009 and 18%
compared to the first quarter 2010.
Adjusted EBITDA in the second quarter 2010 was $63 million, or 19% of
revenue, compared to $13 million, or 6% of revenue, in the second quarter
2009 and $43 million or 16% of revenue in the first quarter 2010.
Second quarter 2010 net income was $39 million or $1.24 per diluted
share, compared with a second quarter 2009 net loss of $4 million or $0.22
per diluted share, and net income of $20 million or $0.64 per diluted share
in the first quarter 2010. During the second quarter of 2010 our effective
tax rate was 12%, compared to 18% in the first quarter of 2010. The lower
effective tax rate in the second quarter of 2010 was due to the geographic
mix of our pre-tax earnings in the quarter, which allowed a greater benefit
from the use of net operating loss carryforwards.
Cash Flow
In the first quarter of each year our operations typically consume cash
as we build inventories in advance of the second and third quarters, which
are the peak season for our Paving and Roofing end use market. During the
second quarter, net cash provided by operating activities was $22 million,
compared to net cash used in operating activities of $73 million in the first
quarter. Net capital expenditures in the second quarter 2010 were $12 million
versus $16 million in the second quarter 2009.
END USE MARKET INFORMATION
Revenue in our Adhesives, Sealants and Coatings end use market increased
$32 million or approximately 44% to $104 million in the second quarter 2010
compared to the second quarter 2009.
"In North America, revenue growth in our Adhesives, Sealants and Coatings
end use market was the result of higher sales in personal care, and specialty
tape applications, as well as increased demand for clear sealant
applications, driven by increased do-it-yourself home improvement activity,"
said Fogarty. "In Europe, increased sales reflected a recovery in non-woven
adhesives used in personal care products such as diapers, and an increased
demand for automotive sealants."
Revenue in our Advanced Materials end use market increased $30 million or
approximately 44% to $98 million in the second quarter 2010 compared to the
second quarter 2009.
"Volume growth for Advanced Materials was broad-based, with increases
across all regions," added Fogarty. "Revenue increases were driven by our
core business in automotive, consumer electronics, personal care, and medical
applications, all of which benefitted from an improving economic climate. We
continue to see positive innovation momentum, especially in applications for
personal care products and PVC alternatives for wire and cable and medical
applications."
Revenue in our Paving and Roofing end use market increased $37 million or
approximately 53% to $107 million in the second quarter 2010 compared to the
second quarter 2009.
"As expected, revenue from our Paving and Roofing end use market showed
the largest increase both year-on-year and sequentially as we entered into
the peak season for paving and roofing projects," said Fogarty. "The growth
reflects stronger sales in roofing applications, primarily in Europe. In
North America, a combination of poor weather conditions and constrained state
and local infrastructure spending resulted in essentially flat demand
compared to the second quarter of 2009."
Revenue in our Emerging Businesses end use market increased $5 million or
approximately 34% to $19 million in the second quarter 2010 compared to the
second quarter 2009.
"The revenue increase in our Emerging Business end use market reflects
the continued volume growth of our isoprene rubber latex products in
applications such as surgical gloves and condoms," said Fogarty. "During the
quarter, the expansion projects we announced for increased isoprene rubber
capacity at our Belpre, Ohio, facility and for debottlenecking of isoprene
rubber latex capacity at our Paulinia, Brazil, site continued to progress on
plan, and on budget. The incremental capacity will help us meet growing
demand which is being driven by our innovation projects."
SECOND QUARTER 2010 DEVELOPMENTS
- During the second quarter, we initiated a project assessment work plan
which includes site selection activities for additional HSBC capacity
in the Asia Pacific region. As a result of growth in Kraton's
differentiated grades of HSBC's globally, we see the need for
additional manufacturing capacity. We are continuing to expand and
strengthen our presence in Asia, and thus we believe Kraton's regional,
and global, business would benefit from such increased capacity. The
anticipated 30 kiloton HSBC manufacturing facility would employ
Kraton's latest state-of-the-art technology for producing HSBC's, and
we believe would set a new global standard for manufacturing cost and
product quality, demonstrating further our commitment to our business
and the region. Our site-selection team is expected to make its
recommendation to management by December 2010 at which time we will be
in a better position to render a final project decision. While it is
too early to estimate the expected cost of the new facility, we
anticipate that construction could commence in the first half of 2012
with start-up occurring as early as the second half of 2013.
- We have relocated our Shanghai, China, office to a facility that is
double the size of the previous location to better accommodate our
on-going increase in staff and in-house capabilities. Our Shanghai
staff has nearly doubled since 2006. The new facility also offers a
multi-functional customer service center and also includes a dedicated
training facility.
- During the quarter, we announced a number of price increases in
response to rising raw material costs and other factors.
OUTLOOK
"The rate of increase in raw material prices slowed in the second quarter
and has recently started to level off. We expect prices for our manufacturing
inputs to remain relatively stable for the balance of the year," said
Fogarty. "Based upon the solid volume growth we experienced in the second
quarter, we remain positive on the near-term outlook for our business. At
this time we expect third quarter sales volumes to be generally in line with
the second quarter. That said, we will continue to monitor the pace and
strength of the economic recovery for any material change that could
potentially impact demand in our end use markets."
USE OF NON-GAAP FINANCIAL MEASURES
This earnings release includes the use of both GAAP (generally accepted
accounting principles) and non-GAAP financial measures. The non-GAAP
financial measures are EBITDA and Adjusted EBITDA. In each case the most
directly comparable GAAP financial measure is net income/loss. A table
included in this earnings release reconciles these non-GAAP financial
measures with the most directly comparable GAAP financial measure.
We consider EBITDA and Adjusted EBITDA important supplemental measures of
our performance and believe they are frequently used by investors and other
interested parties in the evaluation of companies in our industry. EBITDA and
Adjusted EBITDA have limitations as analytical tools, and you should not
consider them in isolation, or as a substitute for analysis of our results
under GAAP in the United States. EBITDA and Adjusted EBITDA presented in this
earnings release may differ from EBITDA amounts calculated by us under our
debt instruments.
CONFERENCE CALL AND WEBCAST INFORMATION
Kraton has scheduled a conference call on Thursday August 5, 2010 at 9:00
a.m. (Eastern Time) to discuss second quarter 2010 financial results. Kraton
invites you to listen to the conference call, which will be broadcast live
over the internet at www.kraton.com, by selecting the "Investor Relations"
link at the top of the home page and then selecting "Events" from the
Investor Relations menu on the left side of the Investor Relations page.
Participating on the call from Kraton will be Kevin M. Fogarty, President and
Chief Executive Officer; Stephen E. Tremblay, Chief Financial Officer; and
David A. Bradley, Chief Operating Officer.
You may also listen to the conference call by telephone by contacting the
conference call operator 5 to 10 minutes prior to the scheduled start time
and asking for the "Kraton Conference Call - Passcode: Earnings Call."
U.S./Canada dial-in #: +1-888-577-8992. International dial-in #: +1-312-470-
7060.
For those unable to listen to the live call, a replay will be available
beginning at approximately 11:00 a.m. (Eastern Time) on August 5, 2010
through 5:00 p.m. Eastern Time on August 19, 2010. To hear a replay of the
call over the Internet, access Kraton's Website at www.kraton.com by
selecting the "Investor Relations" link at the top of the home page and then
selecting "Events" from the Investor Relations menu on the left side of the
Investor Relations page. To hear a telephonic replay of the call, dial
+1-866-415-8391 and International callers dial +1-203-369-0700.
ABOUT KRATON
Kraton Performance Polymers, Inc., through its operating subsidiary
Kraton Polymers LLC and its subsidiaries (collectively, "Kraton"), is a
leading global producer of engineered polymers and one of the world's largest
producers of styrenic block copolymers (SBCs), a family of products whose
chemistry was pioneered by Kraton almost 50 years ago. 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, roofing and footwear products. The company, offers
approximately 800 products to more than 700 customers in over 60 countries
worldwide, and is the only SBC producer with manufacturing and service
capabilities on four continents. We manufacture products at five plants
globally, including our flagship plant in Belpre, Ohio, the most diversified
SBC plant in the world, as well as plants in Germany, France, Brazil and
Japan. The plant in Japan is operated by an unconsolidated manufacturing
joint venture. For more information on the company, please visit
www.kraton.com.
Kraton, the Kraton logo and design, and the "Giving Innovators their
Edge" tagline are all trademarks of Kraton Polymers LLC.
Forward Looking Statements
This press release includes forward-looking statements 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 "believes," "estimates,"
"expects," "projects," "may," "intends," "plans" or "anticipates," or by
discussions of strategy, plans or intentions.
In this press release, forward-looking information relates to covenant
compliance, pricing trends, cost savings, production rates and other similar
matters. All forward-looking statements in this press release are made based
on management's current expectations and estimates, which involve risks,
uncertainties and other factors that could cause actual results to differ
materially from those expressed in forward-looking statements. These risks
and uncertainties are more fully described in "Part I. Item 1A. Risk Factors"
contained in our Annual Report on 10-K, as filed with the Securities and
Exchange Commission and as subsequently updated in our Quarterly Reports on
Form 10-Q, and include the following risk factors: conditions in the global
economy and capital markets; our reliance on LyondellBasell Industries for
the provision of significant operating and other services ; the failure of
our raw materials suppliers to perform their obligations under long-term
supply agreements, or our inability to replace or renew these agreements when
they expire; limitations in the availability of raw materials we need to
produce our products in the amounts or at the prices necessary for us to
effectively and profitably operate our business; competition in our end-use
markets, from other producers of SBCs and from producers of products that can
be substituted for our products; our ability to produce and commercialize
technological innovations; our ability to protect our intellectual property,
on which our business is substantially dependent; infringement of our
products on the intellectual property rights of others; seasonality in our
Paving and Roofing business; financial and operating constraints related to
our substantial level of indebtedness; product liability claims and other
lawsuits arising from environmental damage or personal injuries associated
with chemical manufacturing; political and economic risks in the various
countries in which we operate; the inherently hazardous nature of chemical
manufacturing; health, safety and environmental laws, including laws that
govern our employees' exposure to chemicals deemed harmful to humans;
regulation of our customers, which could affect the demand for our products
or result in increased compliance costs; international trade, export control,
antitrust, zoning and occupancy and labor and employment laws that could
require us to modify our current business practices and incur increased
costs; our relationship with our employees; loss of key personnel or our
inability to attract and retain new qualified personnel; fluctuations in
currency exchange rates ; the fact that we typically do not enter into
long-term contracts with our customers; a decrease in the fair value of our
pension assets, which could require us to materially increase future funding
of the pension plan; and concentration of ownership among our principal
stockholders, which may prevent new investors from influencing significant
corporate decisions and other risks and uncertainties described in this press
release and our other reports and documents. Readers are cautioned not to
place undue reliance on forward-looking statements. We assume no obligation
to update such information. Further information concerning issues that could
materially affect financial performance related to forward-looking statements
can be found in Kraton's periodic filings with the Securities and Exchange
Commission.
KRATON PERFORMANCE POLYMERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three months ended
June 30,
--------
2010 2009
---- ----
Operating Revenues
Sales $332,086 $233,741
Other - 10,080
--- ------
Total operating revenues 332,086 243,821
Cost of Goods Sold 242,973 208,060
------- -------
Gross Profit 89,113 35,761
------ ------
Operating Expenses
Research and development 5,572 5,071
Selling, general and administrative 21,772 18,052
Depreciation and amortization of identifiable
intangibles 11,969 12,542
------ ------
Total operating expenses 39,313 35,665
------ ------
Gain on Extinguishment of Debt - 4,340
Earnings of Unconsolidated Joint
Venture 162 102
Interest Expense, net 6,272 7,832
----- -----
Income (Loss) Before Income Taxes 43,690 (3,294)
Income Tax Expense 5,095 891
----- ---
Net Income (Loss) $38,595 $(4,185)
======= =======
Earnings (Loss) per common share
Basic $1.25 $(0.22)
Diluted $1.24 $(0.22)
Weighted average common shares outstanding
Basic 30,806 19,410
Diluted 31,244 19,410
KRATON PERFORMANCE POLYMERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Six months ended
June 30,
--------
2010 2009
---- ----
Operating Revenues
Sales $604,818 $411,607
Other - 17,172
--- ------
Total operating revenues 604,818 428,779
Cost of Goods Sold 446,578 384,085
------- -------
Gross Profit 158,240 44,694
------- ------
Operating Expenses
Research and development 11,556 10,040
Selling, general and administrative 43,834 36,303
Depreciation and amortization of identifiable
intangibles 23,015 25,106
------ ------
Total operating expenses 78,405 71,449
------ ------
Gain on Extinguishment of Debt - 23,831
Earnings of Unconsolidated Joint
Venture 236 176
Interest Expense, net 12,336 16,738
------ ------
Income (Loss) Before Income Taxes 67,735 (19,486)
Income Tax Expense 9,345 1,160
----- -----
Net Income (Loss) $58,390 $(20,646)
======= ========
Earnings (Loss) per common share
Basic $1.90 $(1.06)
Diluted $1.88 $(1.06)
Weighted average common shares outstanding
Basic 30,751 19,409
Diluted 31,023 19,409
KRATON PERFORMANCE POLYMERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value)
June 30, December 31,
2010 2009
---- ----
ASSETS
Current Assets
Cash and cash equivalents $39,405 $69,291
Receivables, net of allowances of $1,232
and $1,335 166,020 115,329
Inventories of products, net 304,364 284,258
Inventories of materials and supplies,
net 10,521 10,862
Deferred income taxes 3,107 3,107
Other current assets 19,478 16,770
------ ------
Total current assets 542,895 499,617
Property, plant and equipment, less
accumulated depreciation of $212,794 and
$236,558 342,143 354,860
Identifiable intangible assets, less
accumulated amortization of $46,836 and
$42,741 73,564 75,801
Investment in unconsolidated joint
venture 12,104 12,078
Deferred financing costs 6,272 7,318
Other long-term assets 20,201 24,825
------ ------
Total Assets $997,179 $974,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $2,304 $2,304
Accounts payable-trade 85,013 93,494
Other payables and accruals 56,790 68,271
Due to related party 16,833 19,006
Insurance note payable 2,566 -
----- ---
Total current liabilities 163,506 183,075
Long-term debt, net of current portion 381,523 382,675
Deferred income taxes 15,841 13,488
Other long-term liabilities 48,500 46,477
------ ------
Total Liabilities 609,370 625,715
------- -------
Stockholders' equity
Preferred stock, $0.01 par value; 100,000
shares authorized; none issued
Common stock, $0.01 par value; 500,000
shares authorized; 30,851 shares issued
and outstanding 309 297
Additional paid in capital 325,145 311,665
Retained earnings 58,376 (14)
Accumulated other comprehensive income 3,979 36,836
----- ------
Total stockholders' equity 387,809 348,784
------- -------
Total Liabilities and Stockholders'
Equity $997,179 $974,499
======== ========
KRATON PERFORMANCE POLYMERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six months ended
June 30,
--------
2010 2009
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $58,390 $(20,646)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization of
identifiable intangibles 23,015 25,106
Accretion of debt discount - 5
Inventory impairment - 669
Amortization of deferred financing
costs 1,036 1,582
Loss on disposal of fixed assets 3 431
Gain on extinguishment of debt - (23,831)
Change in fair value of interest
rate swaps (450) (842)
Distributed earnings in
unconsolidated joint venture 167 257
Deferred income tax expense 3,853 (910)
Non-cash compensation related to
equity awards 1,771 1,237
Decrease (increase) in
Accounts receivable (60,335) (29,542)
Inventories of products, materials
and supplies (39,002) 90,670
Other assets (30,167) (6,365)
(Decrease) in
Accounts payable-trade, other
payables and accruals, and other
long-term liabilities (6,444) (18,564)
Due to related party (2,874) (14,550)
Net cash provided by (used in)
operating activities (51,037) 4,707
------- -----
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant and
equipment (17,545) (19,972)
Purchase of software (1,857) (6,685)
Proceeds from sale of property,
plant and equipment - 3,833
Net cash used in investing
activities (19,402) (22,824)
------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from debt 69,000 53,000
Repayment of debt (70,152) (115,341)
Proceeds from issuance of common
stock 11,197 -
Costs associated with the issuance
of common stock (534) -
Proceeds from stock based
compensation 1,087 -
Proceeds from insurance note
payable 3,518 4,506
Repayment of insurance note
payable (952) (1,487)
Net cash provided by (used in)
financing activities 13,164 (59,322)
------ -------
Effect of exchange rate
differences on cash 27,389 (6,247)
------ ------
Net decrease in cash and cash
equivalents (29,886) (83,686)
Cash and cash equivalents,
beginning of period 69,291 101,396
Cash and cash equivalents, end of
period $39,405 $17,710
======= =======
Supplemental Disclosures
Cash paid during the period for
income taxes, net of refunds
received $2,026 $7,455
Cash paid during the period for
interest $12,192 $16,489
KRATON PERFORMANCE POLYMERS, INC.
EBITDA AND ADJUSTED EBITDA
(In thousands)
Three months ended Six months ended
June 30, June 30,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
(in thousands) (in thousands)
Net income /(Net Loss)
Plus $38,595 $(4,185) $58,390 $(20,646)
Interest
expense, net 6,272 7,832 12,336 16,738
Income tax
expense 5,095 891 9,345 1,160
Depreciation and
amortization
expenses 11,969 12,542 23,015 25,106
------ ------ ------ ------
EBITDA(a) $61,931 $17,080 $103,086 $22,358
======= ======= ======== =======
Three months ended Six months ended
June 30, June 30,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
(in thousands) (in thousands)
EBITDA(a) $61,931 $17,080 $103,086 $22,358
Add (Deduct)
Sponsor fees and
expenses - 500 - 1,000
Restructuring
and related
charges (b) 655 413 790 1,107
Other non-cash
expenses (c) 439 (746) 1,771 2,555
Gain on
extinguishment
of debt (d) - (4,340) - (23,831)
--- ------ --- -------
Adjusted
EBITDA(a) $63,025 $12,907 $105,647 $3,189
======= ======= ======== ======
(a) EBITDA and Adjusted EBITDA were positively impacted by
approximately $14.7 million and $21.9 million due to the sale of
inventory produced when raw material costs were lower than the then
current replacement cost in the three and six months ended June 30,
2010. Conversely EBITDA and Adjusted EBITDA were negatively impacted
by approximately $9.3 million and $43.6 million due to the sale of
inventory produced when raw material costs were higher than the then
current replacement cost in the three and six months ended June 30,
2009.
(b) 2010 costs consist primarily of legal and consulting fees
associated with the restructuring of our European organization and
2009 costs consist primarily of costs associated with evaluating
merger and acquisition transactions and potential debt refinancing.
(c) For all periods, consists primarily of non-cash compensation.
In 2009, also reflects the non-cash inventory impairment to lower
inventory from first-in first-out cost to market value and losses
on the sale of fixed assets.
(d) In 2009, reflects the non-recurring cash gain related to the
bond repurchase.
Restructuring and related charges discussed above were recorded in
the Condensed Consolidated Statements of Operations, as follows.
Three months ended Six months ended
June 30, June 30,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
(in thousands) (in thousands)
Cost of goods
sold $- $122 $- $200
Selling,
general and
administrative 655 291 790 907
--- --- --- ---
Total
restructuring
and related
charges $655 $413 $790 $1,107
==== ==== ==== ======
Investors, H. Gene Shiels, +1-281-504-4886, or Media, Richard A. Ott, +1-281-504-4720, both of Kraton Performance Polymers, Inc.
Tags: August 4, Houston, Kraton Performance Polymers Inc., texas, Western Europe
