NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Description of our Business.
We are a leading global specialty chemicals company that manufactures styrenic block copolymers (“SBCs”) and other engineered polymers. Effective with the
January 6, 2016
acquisition of Arizona Chemical (the “Arizona Chemical Acquisition”), we are now also a leading global producer of value-added specialty products primarily derived from pine wood pulping co-products. The operating results of Arizona Chemical have been included in these financial statements since January 6, 2016, the date of the Arizona Chemical Acquisition.
SBCs are highly-engineered synthetic elastomers, which we invented and commercialized over
50 years
ago. We developed the first unhydrogenated styrenic block copolymers (“USBC”) in 1964 and the first hydrogenated styrenic block copolymers (“HSBC”) in the late 1960s. Our SBCs enhance the performance of numerous products by imparting greater flexibility, resilience, strength, durability, and processability, and are used in a wide range of applications, including adhesives, coatings, consumer and personal care products, sealants, lubricants, medical, packaging, automotive, and paving and roofing products. We also manufacture and sell isoprene rubber (“IR”) and isoprene rubber latex (“IRL”) which are non-SBC products primarily used in applications such as medical products, personal care, adhesives, tackifiers, paints, and coatings.
We also refine and further upgrade two primary feedstocks, crude tall oil (“CTO”) and crude sulfate turpentine (“CST”), into value-added specialty chemicals. Our pine-based specialty products are sold into adhesive, road and construction, and tire markets, and we produce and sell a broad range of chemical intermediates into markets that include fuel additives, oilfield chemicals, coatings, metalworking fluids and lubricants, inks, flavors and fragrances, and mining.
References in this report to “Kraton,” “our company,” “we,” “our,” “ours” and “us” as used in this report refer collectively to Kraton Corporation and its consolidated subsidiaries. Furthermore, these references relate to the combined company including both the legacy Kraton and legacy Arizona Chemical businesses, except for historical financial information prior to the January 6, 2016 Arizona Chemical Acquisition.
Basis of Presentation.
The accompanying unaudited Condensed Consolidated Financial Statements presented herein are for us and our consolidated subsidiaries, each of which is a wholly-owned subsidiary, except our
50%
investment in our joint venture, Kraton Formosa Polymers Corporation (“KFPC”), located in Mailiao, Taiwan. KFPC is a variable interest entity for which we have determined that we are the primary beneficiary and, therefore, have consolidated into our financial statements. Our
50%
investment in our joint venture located in Kashima, Japan, is accounted for under the equity method of accounting. All significant intercompany transactions have been eliminated. These interim financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2015
and reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly our results of operations and financial position. Amounts reported in our Condensed Consolidated Statements of Operations are not necessarily indicative of amounts expected for the respective annual periods or any other interim period, in particular due to the effect of seasonal changes and weather conditions that typically affect our sales into paving, roadmarking, roofing and construction applications. In particular, sales volumes into these applications are generally higher in the second and third quarter of the calendar year as warm and dry weather is more conducive to paving and roofing activity.
Significant Accounting Policies.
Our significant accounting policies have been disclosed in Note 1
Description of Business, Basis of Presentation, and Significant Accounting Policies
in our most recent Annual Report on Form 10-K. In connection with the Arizona Chemical Acquisition, we updated our accounting policies as follows.
Goodwill and Other Intangible Assets.
We record goodwill when the purchase price of an acquired business exceeds the fair value of the net identifiable assets acquired. Goodwill and intangible assets are allocated to the reporting unit level based on the estimated fair value at the date of the Arizona Chemical Acquisition.
Goodwill and other indefinite-lived intangible assets are tested for impairment at the reporting unit level annually or more frequently as deemed necessary. Our annual measurement date for testing impairment is October 1st. The impairment test includes a comparison of the carrying value of net assets of our reporting units, including goodwill, with their estimated fair values. If the carrying value exceeds the estimated fair value, an impairment charge is recognized in the period in which the review is performed.
There have been no other changes to the accounting policies as disclosed in our most recent Annual Report on Form 10-K. The accompanying unaudited Condensed Consolidated Financial Statements we present in this report have been prepared in accordance with our policies.
Use of Estimates.
The preparation of the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant items subject to such estimates and assumptions include
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•
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the useful lives of long-lived assets;
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•
|
estimates of fair value for assets acquired and liabilities assumed in business combinations;
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•
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allowances for doubtful accounts and sales returns;
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•
|
the valuation of derivatives, deferred tax assets, property, plant and equipment, intangible assets, inventory, investments, and share-based compensation; and
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•
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liabilities for employee benefit obligations, environmental matters, asset retirement obligations (“ARO”), income tax uncertainties and other contingencies.
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Income Tax in Interim Periods.
We conduct operations in separate legal entities in different jurisdictions. As a result, income tax amounts are reflected in these Condensed Consolidated Financial Statements for each of those jurisdictions. Tax laws and tax rates vary substantially in these jurisdictions and are subject to change based on the political and economic climate in those countries. We file our tax returns in accordance with our interpretations of each jurisdiction’s tax laws. We record our tax provision or benefit on an interim basis using the estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period.
Losses from jurisdictions for which no benefit can be realized and the income tax effects of unusual and infrequent items are excluded from the estimated annual effective tax rate. Valuation allowances are provided against the future tax benefits that arise from the losses in jurisdictions for which no benefit can be realized. The effects of unusual and infrequent items are recognized in the impacted interim period as discrete items.
The estimated annual effective tax rate may be significantly affected by nondeductible expenses and by our projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period during which such estimates are revised.
We have established valuation allowances against a variety of deferred tax assets, including net operating loss carryforwards, foreign tax credits and other income tax credits. Valuation allowances take into consideration our expected ability to realize these deferred tax assets and reduce the value of such assets to the amount that is deemed more likely than not to be recoverable. Our ability to realize these deferred tax assets is dependent on achieving our forecast of future taxable operating income over an extended period of time. We review our forecast in relation to actual results and expected trends on a quarterly basis. If we fail to achieve our operating income targets, we may change our assessment regarding the recoverability of our net deferred tax assets and such change could result in a valuation allowance being recorded against some or all of our net deferred tax assets. A change in our valuation allowance would impact our income tax benefit (expense) and our stockholders’ equity and could have a significant impact on our results of operations or financial condition in future periods.
2. New Accounting Pronouncements
Adoption of Accounting Standards
We have implemented all new accounting pronouncements that are in effect and that management believes would materially affect our financial statements.
In February 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
. This standard changes the consolidation analysis currently required under U.S. generally accepted accounting principles (“GAAP”). This ASU modifies the process used to evaluate whether limited partnerships and similar entities are variable interest entities (“VIEs”) or voting interest entities; affects the analysis performed by reporting entities regarding VIEs, particularly those with fee arrangements and related party relationships; and provides a scope exception for certain investment funds. The amendments in this update are effective for annual and interim periods beginning after December 15, 2015 and early adoption is permitted. We adopted this standard in the first quarter of 2016 and there was no material impact on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03,
Interest-Imputation of Interest
. This standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of such debt liability. In adopting ASU 2015-03, companies must apply the guidance on a retrospective basis. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. We adopted this standard in the first quarter of 2016. As a result of retrospective application, the adoption of this standard resulted in reductions of approximately
$1.3 million
,
$12.1 million
, and
$13.5 million
of other current assets, debt issuance costs, and
long-term debt, respectively, as of December 31, 2015. Furthermore, we had a material change in debt issuance costs in association with the financing for the Arizona Chemical Acquisition in the first quarter of 2016. See Note 8
Long Term Debt
for further information about debt issuance costs as of
September 30, 2016
.
In September 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
. This standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This includes recording in the reporting period the effect on earnings of changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts as if the accounting had been completed at the acquisition date. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. We adopted this standard in the first quarter of 2016 and will apply such guidance on our recording of the Arizona Chemical Acquisition. See Note 3
Acquisition of Arizona Chemical
for further information about the measurement period for this acquisition.
New Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, updated by ASU No. 2015-14
Deferral of the Effective Date
, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. In August 2015, the effective date for the standard was deferred by one year and the standard is now effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted based on the original effective date. Our evaluation of this standard is currently ongoing and therefore, the effects of this standard on our financial position, results of operations and cash flows are not yet known.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
. This standard changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value. ASU 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2016, with early adoption permitted. We have evaluated this standard and we do not expect there to be a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842).
This standard requires that an entity must recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and early adoption is permitted. Our evaluation of this standard is currently ongoing and therefore, the effects of this standard on our financial position, results of operations and cash flows are not yet known.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting (Topic 817)
. The ASU changes seven aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes; (6) practical expedient - expected term (nonpublic only); (7) intrinsic value (nonpublic only). The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. Our evaluation of this standard is currently ongoing and therefore, the effects of this standard on our financial position, results of operations and cash flows are not yet known.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230)
. The ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. Our evaluation of this standard is currently ongoing and therefore, the effects of this standard on our financial position, results of operations and cash flows are not yet known.
3. Acquisition of Arizona Chemical
On
January 6, 2016
, we acquired all of the capital stock of Arizona Chemical for a purchase price of
$1,361.9 million
. In accordance with the sale and purchase agreement, we finalized the purchase price with the sellers and received
$5.1 million
of cash during the
nine months ended September 30, 2016
.
The
$1,361.9 million
purchase price for the Arizona Chemical Acquisition, the cash tender offer and redemption of all outstanding
6.75%
senior notes due 2019, and the related acquisition and financing expenses for the Arizona Chemical Acquisition were funded through the following transactions:
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•
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A
$1,350.0 million
six
-year senior secured first lien term loan facility,
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•
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A private offering of
$440.0 million
in aggregate principal amount of
10.5%
senior notes due 2023, and
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•
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An amended and restated
$250.0 million
five
-year asset-based revolving credit facility.
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Our previously outstanding indebtedness under the
6.75%
senior notes due 2019 and the former senior secured credit facilities were satisfied and canceled on
January 6, 2016
. See Note 8
Long-Term Debt
to the Condensed Consolidated Financial Statements for a further description of the debt issued to finance the Arizona Chemical Acquisition.
We have accounted for the Arizona Chemical Acquisition using the purchase method of accounting for business combinations. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill. Following the close of the Arizona Chemical Acquisition, the operating results of Arizona Chemical are reported as a separate operating segment, “Chemical segment”. See Note 13
Industry Segments and Foreign Operations
for further information.
For the
three and nine
months ended
September 30, 2016
, respectively, we recognized
$6.6 million
and
$25.1 million
of transaction and integration related costs which are included in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations.
The following table summarizes the preliminary purchase price allocation for the Arizona Chemical Acquisition. This allocation is based on management’s estimates, judgments, and assumptions which are subject to change upon final valuation and should be treated as preliminary values. We have not finalized the allocation of the purchase consideration to the estimated fair value of (1) property, plant, and equipment; (2) intangible assets; (3) deferred income taxes and uncertain tax positions, and we are continuing to review all of the working capital acquired.
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Weighted Average Amortization Period
|
Fair Value
|
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(In thousands)
|
Cash
|
|
$
|
49,835
|
|
Inventories
(1)
|
|
122,305
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|
Litigation asset
|
|
94,204
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|
Accounts receivable and other current assets
|
|
118,394
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|
Property, plant, and equipment
|
|
350,584
|
|
Intangible assets:
(2)
|
12.9 years
|
|
Contractual Agreements
|
12 years
|
260,400
|
|
Customer Relationships
|
17 years
|
25,000
|
|
Technology
|
16 years
|
100,000
|
|
Trade Name
|
10 years
|
50,000
|
|
Software
|
3-5 years
|
4,140
|
|
Goodwill
(3)
|
|
753,874
|
|
Other long-term assets
|
|
3,662
|
|
|
|
|
Current liabilities
|
|
(128,070
|
)
|
Income tax liabilities
|
|
(301,285
|
)
|
Leases
|
|
(422
|
)
|
Other long-term liabilities
|
|
(140,681
|
)
|
Purchase price
|
|
1,361,940
|
|
|
|
|
Cash
|
|
49,835
|
|
Purchase price, net of cash acquired
|
|
$
|
1,312,105
|
|
_______________________
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|
(1)
|
An adjustment of approximately
$24.7 million
was recorded to reflect Arizona Chemical's inventories at fair value and increased cost of sales by the same amount for the
nine months ended September 30, 2016
.
|
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(2)
|
Aggregate amortization expense was approximately
$26.8 million
from January 6, 2016 through
September 30, 2016
. Estimated amortization expense
2016
—
$35.1 million
;
2017
—
$35.6 million
;
2018
—
$35.4 million
;
2019
—
$35.4 million
; and
2020
—
$34.4 million
.
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(3)
|
During the third quarter of 2016, we adjusted the preliminary purchase price allocation based on further review of the assets acquired and liabilities assumed. Based on additional analysis of the underlying contracts, we decreased the customer relationship intangible asset by
$80.0 million
and increased the contractual agreement intangible asset by
$70.0 million
. The remaining adjustments related to various working capital accounts that required fair value modifications, primarily related to current liabilities and income tax liabilities. Each of these measurement period adjustments correspondingly increased goodwill.
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Goodwill has been calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. See Note 13
Industry Segments and Foreign Operations
for further information regarding our reportable segments. Goodwill recognized as a result of the acquisition is not deductible for tax purposes.
We are continuing to evaluate the option to apply pushdown accounting, which would result in recording the various assets acquired and liabilities assumed at their fair value at the date of the Arizona Chemical Acquisition in each domestic and foreign legal entity of Arizona Chemical for financial reporting purposes.
The fair value of acquired identifiable intangible assets was determined using the “income approach” on an individual project basis. In performing these valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected revenues, gross margin expectations, and operating cost estimates, when appropriate. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy.
The purchase price of Arizona Chemical exceeded the net acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Cash flows used to determine the purchase price included strategic and synergistic benefits specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. The purchase price also included the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value in addition to a going-concern element that represents the Company's ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process.
Arizona Chemical contributed revenue and net
income
of
$542.6 million
and
$37.1 million
, respectively, to the consolidated operating results of Kraton for the period from January 6, 2016 through
September 30, 2016
. The following unaudited pro forma information presents consolidated information as if the Arizona Chemical Acquisition had occurred on January 1, 2015:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands, except per share data)
|
Revenue
|
$
|
454,143
|
|
|
$
|
476,493
|
|
|
$
|
1,328,715
|
|
|
$
|
1,407,306
|
|
Net income (loss) attributable to Kraton
|
$
|
15,560
|
|
|
$
|
11,406
|
|
|
$
|
135,840
|
|
|
$
|
10,715
|
|
Earnings per share
|
|
|
|
|
|
|
|
Basic
|
$
|
0.50
|
|
|
$
|
0.37
|
|
|
$
|
4.41
|
|
|
$
|
0.34
|
|
Diluted
|
$
|
0.49
|
|
|
$
|
0.36
|
|
|
$
|
4.35
|
|
|
$
|
0.34
|
|
The unaudited pro forma information presented above is for information purposes only and is not necessarily indicative of the operating results that would have occurred had the Arizona Chemical Acquisition been consummated at the beginning of the period, nor is it necessarily indicative of future operating results. The unaudited pro forma amounts above have been calculated after applying Kraton's accounting policies and adjusting the Arizona Chemical results to reflect (1) the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment and intangible assets had been applied from January 1, 2015; (2) the elimination of historical interest expense for Arizona Chemical as this debt was paid off by the previous owners; (3) the additional interest expense resulting from the debt issued to fund the Arizona Chemical Acquisition; (4) the elimination of transaction-related costs; (5) the effect of purchase price accounting on inventory valuation; and (6) an adjustment to tax-effect the aforementioned unaudited pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdiction to which the above adjustments relate. The unaudited pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the Arizona Chemical Acquisition.
4. Disposition and Exit of Business Activities
Exit of NEXAR
TM
In June 2016, we exited our NEXAR
TM
product line due to the loss of certain key customers. We recorded a loss related to this exit activity of
$8.6 million
in the
nine months ended September 30, 2016
. This loss includes
$5.3 million
for the write off of inventory and associated disposal costs and
$3.2 million
for the write off of fixed assets.
Disposition of Joint Venture
In May 2016, as the result of a legal settlement with our joint venture partner BASF, S.A., we dissolved our joint venture in Paulinia, Brazil. As part of the settlement, we obtained 100% interests in the joint venture and the real estate, building, and other assets of the joint venture located at our Paulinia manufacturing facility. In accordance with ASC 323-10-35
Dissolution of a Joint Venture
, we recorded a gain of
$3.2 million
during the
nine months ended September 30, 2016
for the fair market value of these assets less the carrying value of our investment in the joint venture.
Sale of Belpre Compounding Unit
On January 29, 2016, we sold certain assets including intellectual property, inventory, equipment, and other intangible assets associated with our Belpre, Ohio, compounding unit (the “BCU”) for total proceeds of
$72.8 million
, of which
$72.0 million
was used to pay down existing indebtedness during the first quarter of 2016. The BCU is used to manufacture HSBC and USBC based compounds. We recognized a gain on the sale of
$45.4 million
during the
nine months ended September 30, 2016
. In connection with the sale, we entered into an exclusive polymer supply agreement with a
seven
year term and a compound manufacturing agreement for a transition period of up to
two years
with the purchaser. Our historical compound sales have primarily been directed into personal care, protective film, consumer, medical and automotive applications, with the compound sales primarily reported under the Specialty Polymers product group.
5. Share-Based Compensation
We account for share-based awards under the provisions of ASC 718,
Compensation—Stock Compensation
. Accordingly, share-based compensation cost is measured at the grant date based on the fair value of the award and we expense these costs using the straight-line method over the requisite service period. Share-based compensation expense was
$2.1 million
and
$2.0 million
for the
three months ended September 30, 2016
and
2015
, respectively, and
$7.3 million
and
$6.6 million
for the
nine months ended September 30, 2016
and
2015
, respectively.
6. Detail of Certain Balance Sheet Accounts
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|
September 30, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Inventories of products:
|
|
|
|
Finished products
|
$
|
230,932
|
|
|
$
|
211,273
|
|
Work in progress
|
4,618
|
|
|
4,501
|
|
Raw materials
|
86,295
|
|
|
48,333
|
|
Total inventories of products
|
$
|
321,845
|
|
|
$
|
264,107
|
|
|
|
|
|
Intangible assets:
|
|
|
|
Contractual agreements
|
$
|
261,051
|
|
|
$
|
—
|
|
Technology
|
145,965
|
|
|
45,553
|
|
Customer relationships
|
60,207
|
|
|
35,145
|
|
Tradenames/trademarks
|
77,390
|
|
|
26,562
|
|
Software
|
42,324
|
|
|
34,435
|
|
Intangible assets
|
586,937
|
|
|
141,695
|
|
Less accumulated amortization:
|
|
|
|
Contractual agreements
|
16,421
|
|
|
—
|
|
Technology
|
42,825
|
|
|
35,833
|
|
Customer relationships
|
31,031
|
|
|
28,170
|
|
Tradenames/trademarks
|
23,880
|
|
|
18,819
|
|
Software
|
21,204
|
|
|
17,271
|
|
Total accumulated amortization
|
135,361
|
|
|
100,093
|
|
Intangible assets, net of accumulated amortization
|
$
|
451,576
|
|
|
$
|
41,602
|
|
|
|
|
|
Other payables and accruals:
|
|
|
|
Employee related
|
$
|
31,240
|
|
|
$
|
23,850
|
|
Interest payable
|
40,176
|
|
|
8,004
|
|
Arizona Chemical transaction accrual
|
—
|
|
|
18,267
|
|
Property, plant, and equipment accruals
|
24,352
|
|
|
16,142
|
|
Other
|
61,562
|
|
|
24,748
|
|
Total other payables and accruals
|
$
|
157,330
|
|
|
$
|
91,011
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
Pension and other post-retirement benefits
|
$
|
120,100
|
|
|
$
|
85,997
|
|
Other
|
21,205
|
|
|
10,995
|
|
Total other long-term liabilities
|
$
|
141,305
|
|
|
$
|
96,992
|
|
Changes in accumulated other comprehensive loss by component were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Foreign Currency Translation
|
|
Net Unrealized Loss on Cash Flow Hedges
|
|
Net Unrealized Loss on Net Investment Hedges
|
|
Benefit Plans Liability, Net of Tax
|
|
Total
|
|
(In thousands)
|
December 31, 2014
|
$
|
(21,870
|
)
|
|
$
|
—
|
|
|
$
|
(1,926
|
)
|
|
$
|
(75,422
|
)
|
|
$
|
(99,218
|
)
|
Other comprehensive loss before reclassifications
|
(38,787
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38,787
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net other comprehensive loss for the year
|
(38,787
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38,787
|
)
|
September 30, 2015
|
(60,657
|
)
|
|
—
|
|
|
(1,926
|
)
|
|
(75,422
|
)
|
|
(138,005
|
)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(65,995
|
)
|
|
—
|
|
|
(1,926
|
)
|
|
(70,647
|
)
|
|
(138,568
|
)
|
Other comprehensive income (loss) before reclassifications
|
27,311
|
|
|
(5,354
|
)
|
|
—
|
|
|
—
|
|
|
21,957
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net other comprehensive income (loss) for the year
|
27,311
|
|
|
(5,354
|
)
|
|
—
|
|
|
—
|
|
|
21,957
|
|
September 30, 2016
|
$
|
(38,684
|
)
|
|
$
|
(5,354
|
)
|
|
$
|
(1,926
|
)
|
|
$
|
(70,647
|
)
|
|
$
|
(116,611
|
)
|
7. Earnings Per Share (“EPS”)
Basic EPS is computed by dividing net income attributable to Kraton by the weighted-average number of shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Kraton by the diluted weighted-average number of shares outstanding during the period and, accordingly, reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, were exercised, settled or converted into common stock and were dilutive. The diluted weighted-average number of shares used in our diluted EPS calculation is determined using the treasury stock method.
Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock awards, are considered to be participating securities, and therefore, the two-class method is used for purposes of calculating EPS. Under the two-class method, a portion of net income is allocated to these participating securities and is excluded from the calculation of EPS allocated to common stock. Our restricted stock awards are subject to forfeiture and restrictions on transfer until vested and have identical voting, income and distribution rights to the unrestricted common shares outstanding. Our weighted average restricted stock awards outstanding were
653,434
and
558,431
for the
three months ended September 30, 2016
and
2015
, respectively, and
671,722
and
553,400
for the
nine months ended September 30, 2016
and
2015
, respectively. We withheld shares of restricted stock of
55,580
and
27,947
for the
nine months ended September 30, 2016
and
2015
, respectively, to satisfy employee payroll tax withholding requirements and none withheld during the
three months ended September 30, 2016
and
2015
, respectively. We immediately retired all shares withheld and the transactions were reflected in additional paid in capital in the Condensed Consolidated Statements of Changes in Equity and as a purchase of treasury stock in the Condensed Consolidated Statements of Cash Flows.
The computation of diluted EPS includes weighted average restricted share units of
172,933
and
143,204
for the
three months ended September 30, 2016
and
2015
, respectively, and
175,798
for the
nine months ended September 30, 2016
. The computation of diluted EPS excludes weighted average restricted share units of
133,317
for the
nine months ended September 30, 2015
, as they are anti-dilutive due to a net loss attributable to Kraton for each period.
The computation of diluted EPS includes weighted average performance share units of
32,498
and
32,498
for the
three months ended September 30, 2016
and
2015
, respectively, and
32,498
for the
nine months ended September 30, 2016
. The computation of diluted EPS excludes weighted average performance share units of
33,564
for the
nine months ended September 30, 2015
, as they are anti-dilutive due to a net loss attributable to Kraton for each period. In addition, the computation of diluted EPS also excludes the effect of performance share units for which the performance contingencies had not been met as of the reporting date, amounting to
496,220
for the
three and nine
months ended
September 30, 2016
and
279,328
for the
three and nine
months ended
September 30, 2015
.
The computation of diluted EPS includes stock options added under the treasury method of
357,303
and
170,602
for the
three months ended September 30, 2016
and
2015
, respectively, and
212,005
for the
nine months ended September 30, 2016
. The computation of diluted EPS excludes the effect of the potential exercise of stock options that are anti-dilutive, amounting to
906,954
and
1,472,988
for the
three and nine
months ended
September 30, 2015
, respectively.
The calculations of basic and diluted EPS are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
Three Months Ended September 30, 2015
|
|
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
|
$
|
15,560
|
|
|
30,874
|
|
|
|
|
$
|
8,446
|
|
|
31,061
|
|
|
|
Amounts allocated to unvested restricted shares
|
(329
|
)
|
|
(653
|
)
|
|
|
|
(152
|
)
|
|
(558
|
)
|
|
|
Amounts available to common stockholders
|
15,231
|
|
|
30,221
|
|
|
$
|
0.50
|
|
|
8,294
|
|
|
30,503
|
|
|
$
|
0.27
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
329
|
|
|
653
|
|
|
|
|
152
|
|
|
558
|
|
|
|
Non participating share units
|
—
|
|
|
205
|
|
|
|
|
—
|
|
|
175
|
|
|
|
Stock options added under the treasury stock method
|
—
|
|
|
357
|
|
|
|
|
—
|
|
|
171
|
|
|
|
Amounts reallocated to unvested restricted shares
|
(323
|
)
|
|
(653
|
)
|
|
|
|
(150
|
)
|
|
(558
|
)
|
|
|
Amounts available to stockholders and assumed conversions
|
$
|
15,237
|
|
|
30,783
|
|
|
$
|
0.49
|
|
|
$
|
8,296
|
|
|
30,849
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
Nine Months Ended September 30, 2015
|
|
Net Income Attributable to Kraton
|
|
Weighted Average Shares Outstanding
|
|
Earnings Per Share
|
|
Net Loss Attributable to Kraton
|
|
Weighted Average Shares Outstanding
|
|
Loss Per Share
|
|
(In thousands, except per share data)
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
$
|
111,048
|
|
|
30,809
|
|
|
|
|
$
|
(6,574
|
)
|
|
31,332
|
|
|
|
Amounts allocated to unvested restricted shares
|
(2,422
|
)
|
|
(672
|
)
|
|
|
|
116
|
|
|
(553
|
)
|
|
|
Amounts available to common stockholders
|
108,626
|
|
|
30,137
|
|
|
$
|
3.60
|
|
|
(6,458
|
)
|
|
30,779
|
|
|
$
|
(0.21
|
)
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
2,422
|
|
|
672
|
|
|
|
|
(116
|
)
|
|
553
|
|
|
|
Non participating share units
|
—
|
|
|
208
|
|
|
|
|
—
|
|
|
—
|
|
|
|
Stock options added under the treasury stock method
|
—
|
|
|
212
|
|
|
|
|
—
|
|
|
—
|
|
|
|
Amounts reallocated to unvested restricted shares
|
(2,390
|
)
|
|
(672
|
)
|
|
|
|
116
|
|
|
(553
|
)
|
|
|
Amounts available to stockholders and assumed conversions
|
$
|
108,658
|
|
|
30,557
|
|
|
$
|
3.56
|
|
|
$
|
(6,458
|
)
|
|
30,779
|
|
|
$
|
(0.21
|
)
|
8. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Principal
|
|
Discount
|
|
Debt Issuance Costs
|
|
Total
|
|
Principal
|
|
Premium
|
|
Debt Issuance Costs
(1)
|
|
Total
|
|
(In thousands)
|
Term Loan
|
$
|
1,278,000
|
|
|
$
|
(35,708
|
)
|
|
$
|
(33,122
|
)
|
|
$
|
1,209,170
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,000
|
)
|
|
$
|
(6,000
|
)
|
10.5% Senior Notes
|
440,000
|
|
|
(16,509
|
)
|
|
(17,951
|
)
|
|
405,540
|
|
|
—
|
|
|
—
|
|
|
(2,819
|
)
|
|
(2,819
|
)
|
6.75% Senior Notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350,000
|
|
|
651
|
|
|
(4,268
|
)
|
|
346,383
|
|
KFPC Loan Agreement
|
106,128
|
|
|
—
|
|
|
(280
|
)
|
|
105,848
|
|
|
76,912
|
|
|
—
|
|
|
(378
|
)
|
|
76,534
|
|
Capital lease obligation
|
1,529
|
|
|
—
|
|
|
—
|
|
|
1,529
|
|
|
1,634
|
|
|
—
|
|
|
—
|
|
|
1,634
|
|
Total debt
|
1,825,657
|
|
|
(52,217
|
)
|
|
(51,353
|
)
|
|
1,722,087
|
|
|
428,546
|
|
|
651
|
|
|
(13,465
|
)
|
|
415,732
|
|
Less current portion of total debt
|
23,135
|
|
|
—
|
|
|
—
|
|
|
23,135
|
|
|
141
|
|
|
—
|
|
|
—
|
|
|
141
|
|
Long-term debt
|
$
|
1,802,522
|
|
|
$
|
(52,217
|
)
|
|
$
|
(51,353
|
)
|
|
$
|
1,698,952
|
|
|
$
|
428,405
|
|
|
$
|
651
|
|
|
$
|
(13,465
|
)
|
|
$
|
415,591
|
|
_____________________________________________
(1) Prior to the adoption of ASU No. 2015-03, debt issuance costs of
$1.3 million
and
$12.1 million
were previously recorded in other current assets and debt issuance costs, respectively in the Consolidated Balance Sheet as of December 31, 2015.
Debt Issuance Costs.
We capitalize the debt issuance costs related to issuing long-term debt and amortize these costs using the effective interest method, except for costs related to revolving debt, which are amortized using the straight-line method. Amortization of debt issuance costs are recorded as a component of interest expense and the accelerated write-off of debt issuance costs in connection with refinancing activities are recorded as a component of loss on extinguishment of debt. In conjunction with the closing of the Arizona Chemical Acquisition on January 6, 2016, we amended and restated our asset-based revolving credit facility (“ABL Facility”) and the debt issuance costs associated with these efforts were recorded within other current assets and debt issuance costs in the accompanying Condensed Consolidated Balance Sheets. We deferred
$61.3 million
of debt issuance costs related to the debt financing in conjunction with the Arizona Chemical Acquisition, of which
$8.8 million
was deferred in the fourth quarter of 2015,
$1.7 million
was carried over from our previous debt issuance costs and
$50.8 million
was deferred during the
nine months ended September 30, 2016
. In connection with our January 2016 refinancing, we charged to interest expense
$5.0 million
of unamortized debt issuance costs related to our previously existing indebtedness. We had net debt issuance cost of
$56.3 million
as of
September 30, 2016
, of which
$5.0 million
related to our ABL Facility is recorded as an asset (of which
$1.2 million
was included in other current assets) and
$51.4 million
is recorded as a reduction to long-term debt. We amortized
$1.8 million
and
$0.6 million
during the
three months ended September 30, 2016
and
2015
, respectively, and
$5.3 million
and
$1.7 million
during the
nine months ended September 30, 2016
and
2015
, respectively.
Senior Secured Term Loan Facility.
In January 2016, Kraton Polymers LLC entered into a senior secured term loan facility in an aggregate principal amount equal to
$1,350.0 million
that matures on
January 6, 2022
(the “Term Loan Facility”).
Subject to compliance with certain covenants and other conditions, we have the option to borrow up to
$350.0 million
of incremental term loans plus an additional amount subject to a senior secured net leverage ratio.
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to an applicable margin, plus, at our option, either (a) an adjusted LIBOR rate (subject to a
1.0%
floor) determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for statutory reserve requirements or (b) an alternate base rate (subject to a
2.0%
floor) determined by reference to the highest of (1) the prime rate of Credit Suisse AG, (2) the federal funds effective rate plus
0.5%
and (3) the one month adjusted LIBOR rate plus
1.0%
per annum. In addition, we are required to pay customary agency fees. As of the date of this filing, the effective rate on the Term Loan Facility was
6.0%
comprised of the
1.0%
LIBOR floor plus a
5.0%
applicable margin.
We are required to make scheduled quarterly payments on the Term Loan Facility of
2.5%
of the original principal amount per year through the end of the last quarter of 2016 and
5.0%
thereafter, with the balance expected to be due and payable in full on
January 6, 2022
. Voluntary prepayments on the Term Loan Facility may be made without premium or penalty other than customary “breakage” costs with respect to LIBOR loans and other than a
1.0%
premium in connection with certain repricing transactions consummated within a certain period of time after the closing of the Term Loan Facility. In the event we have consolidated excess cash flow for any fiscal year, we are required to prepay an amount of borrowings under the Term Loan Facility equal to at least
50.0%
of such cash flow by the
90
th day after the end of the fiscal year. The prepayment percentage is reduced to
25.0%
if our senior secured net leverage ratio is under
2.5
:1.0 or
0%
if our senior secured net leverage ratio is below
2.0
:1.0.
The Term Loan Facility is a senior secured obliga
tion that is guaranteed by Kraton Corporation and each of its wholly-owned domestic subsidiaries.
The Term Loan Facility contains a number of customary affirmative and negative covenants. These covenants include a senior secured net leverage ratio which shall not exceed, as of the last day of any fiscal quarter,
4.00
:1.00 through March 31, 2017, which will decrease to
3.75
:1.00 through March 31, 2018,
3.50
:1.00 through March 31, 2019, and
3.25
:1.00 thereafter. As of the date of this filing, we were in compliance with the covenants under the Term Loan Facility.
The
$72.0 million
received from the sale of compounding assets was used to pay down existing indebtedness under the Term Loan Facility. As a result, our next scheduled principal payment is not due until the third quarter of 2017.
10.5%
Senior Notes due 2023.
Kraton Polymers LLC and its wholly-owned financing subsidiary Kraton Polymers Capital Corporation issued
$440.0 million
aggregate principal amount of
10.5%
Senior Notes that mature on
April 15, 2023
(the “
10.5%
Senior Notes”). The
10.5%
Senior Notes are general unsecured, senior obligations and are unconditionally guaranteed on a senior unsecured basis by each of Kraton Corporation and each of our wholly-owned domestic subsidiaries. We pay interest on the notes at
10.5%
per annum, semi-annually in arrears on
April 15
and
October 15
of each year, and paid the first interest payment on October 14, 2016. Prior
to October 15, 2018, we may redeem up to
40.0%
of the aggregate principal amount of the
10.5%
Senior Notes
with the net proceeds of certain equity offerings at a redemption price equal to
110.5%
of the principal amount of the
10.5%
Senior Notes plus accrued and unpaid interest, if any, to the date of redemption.
After October 15, 2018, 2019, 2020, and 2021 and thereafter, we may redeem all or a part of the
10.5%
Senior Notes for
107.875%
,
105.250%
,
102.625%
, and
100.0%
of the principal amount, respectively.
ABL Facility.
In January 2016, we entered into an amended and restated ABL Facility which provides financing of up to
$250.0 million
. We did not have any borrowings drawn under this facility as of
September 30, 2016
. The ABL Facility is primarily secured by receivables and inventory, and borrowing availability under the ABL Facility is subject to borrowing base limitations based on the level of receivables and inventory available for security. Revolver commitments under the ABL Facility consist of U.S. and Dutch revolving credit facility commitments, and the terms of the ABL Facility require the U.S. revolver commitment comprises at least
60.0%
of the commitments under the facility.
The ABL Facility
provides that we have the right at any time to request up to
$100.0 million
of additional commitments under this facility, provided that we satisfy additional conditions described in the credit agreement and provided further that the U.S. revolver commitment comprises at least
60.0%
of the commitments after giving effect to such increase.
We cannot guarantee that all of the lending counterparties contractually committed to fund a revolving credit draw request will actually fund future requests, although we currently believe that each of the counterparties would meet their funding requirements. The ABL Facility terminates on
January 6, 2021
; however, we may, from time to time, request that the lenders extend the maturity of their commitments; provided that at no time shall there be more than four different maturity dates under the ABL Facility.
Borrowings under the ABL Facility bear interest at a rate per annum equal to the applicable margin plus (1) a base rate determined by reference to the prime rate of Bank of America, N.A. in the jurisdiction where the currency is being funded or (2) LIBOR for loans that bear interest based on LIBOR. The initial applicable margin for borrowings under the ABL Facility is
0.5%
with respect to U.S. base rate borrowings and
1.5%
with respect to LIBOR or borrowings made on a European base rate. The applicable margin ranges from
0.5%
to
1.0%
with respect to U.S. base rate borrowings and
1.5%
to
2.0%
for LIBOR or borrowings made on a European base rate per annum based on the average excess availability for the prior fiscal quarter. In addition to paying interest on outstanding principal amounts under the ABL Facility, we are required to pay a commitment fee in respect of the un-utilized commitments at an annual rate of
0.375%
.
The ABL Facility contains a financial covenant requiring us to maintain a minimum fixed charge coverage ratio of
1.0
to
1.0
if availability under the ABL facility is below a specified amount. Our failure to comply with this financial covenant would give rise to a default under the ABL Facility. If factors arise that negatively impact our profitability, we may not be able to satisfy this covenant. In addition, the ABL Facility contains customary events of default, including, without limitation, a failure to make payments under the ABL facility, cross-default with respect to other indebtedness and cross-judgment default, certain bankruptcy events and certain change of control events. If we are unable to satisfy the covenants or other provisions of the ABL Facility at any future time, we would need to seek an amendment or waiver of such covenants or other provisions. The respective lenders under the ABL Facility may elect not to consent to any amendment or waiver requests that we may make in the future, and, if they do consent, they may do so on terms that are not favorable to us. In the event that we are unable to obtain any such waiver or amendment and we are not able to refinance or repay the ABL Facility, our inability to meet the covenants or other provisions of the ABL Facility would constitute an event of default, which would permit the bank lenders to accelerate the ABL Facility. Such acceleration may in turn constitute an event of default under the Term Loan Facility,
10.5%
Senior Notes or other indebtedness. As of the date of this filing, we were in compliance with the covenants under the ABL Facility.
KFPC Loan Agreement.
On July 17, 2014, KFPC executed a syndicated loan agreement (the “KFPC Loan Agreement”) in the amount of
5.5 billion
New Taiwan Dollars (“NTD”), or
$175.3 million
(converted at the
September 30, 2016
exchange rate), to provide additional funding to construct the HSBC facility in Taiwan and to provide funding for working capital requirements and/or general corporate purposes.
The KFPC Loan Agreement is comprised of a NTD
4.29 billion
Tranche A, or
$136.7 million
(converted at the
September 30, 2016
exchange rate), to fund KFPC’s capital expenditures, and a NTD
1.21 billion
Tranche B, or
$38.6 million
(converted at the
September 30, 2016
exchange rate), to fund working capital requirements and/or general corporate purposes. As of
September 30, 2016
, NTD
3.3 billion
, or
$106.1 million
(converted at the
September 30, 2016
exchange rate) was drawn on the KFPC Loan Agreement. The facility period of the KFPC Loan Agreement is
five years
from January 17, 2015 (the first drawdown date). KFPC may continue to draw on the KFPC Loan Agreement for the first
28 months
following the first drawdown date. Subject to certain conditions, KFPC can request a
two
-year extension of the term of the KFPC Loan Agreement.
The total outstanding principal amount is payable in
six
semi-annual installments with the first payment due on July 17, 2017 and each subsequent payment due every
six months
thereafter. The first
five
installments shall be in an amount equal to
10%
of the outstanding principal amount and the final installment shall be in an amount equal to the remaining
50%
of the outstanding principal amount. In the event the extension period is granted, the final
50%
of the outstanding principal amount shall be repaid in
five
equal semi-annual installments with the first installment due on the original final maturity date.
The KFPC Loan Agreement is subject to a variable interest rate composed of a fixed
0.8%
margin plus the
three
-month or
six
-month fixing rate of the Taipei Interbank Offered Rate (depending on the interest period selected by KFPC in the drawdown request or the interest period notice), subject to a floor of
1.7%
. Interest is payable on a monthly basis. For the
three and nine
months ended
September 30, 2016
, our effective interest rate for borrowings on the KFPC Loan Agreement was
1.80%
.
The KFPC Loan Agreement contains certain financial covenants that change during the term of the KFPC Loan Agreement. The financial covenants include a maximum debt to equity ratio of
3.0
to 1.0 through 2016, which will decrease to
2.0
to 1.0 in 2017 and
1.2
to 1.0 in 2018; a minimum tangible net worth requirement of
$50.0 million
through 2018, which will increase to
$100.0 million
in 2019; and a minimum interest coverage ratio of
2.5
to 1.0 commencing at the end of the year of 2016, which will increase to
5.0
to 1.0 at the end of the year of 2017. In each case, these covenants are calculated and tested on an annual basis. Formosa Petrochemical Corporation and Kraton Polymers LLC are the guarantors of the KFPC Loan Agreement with each guarantor guaranteeing
50%
of the indebtedness.
Debt Maturities
. The remaining principal payments on our outstanding total debt as of
September 30, 2016
, are as follows:
|
|
|
|
|
|
Principal Payments
|
|
(In thousands)
|
October 1, 2016 through September 30, 2017
|
$
|
23,135
|
|
October 1, 2017 through September 30, 2018
|
88,882
|
|
October 1, 2018 through September 30, 2019
|
88,892
|
|
October 1, 2019 through September 30, 2020
|
120,741
|
|
October 1, 2020 through September 30, 2021
|
67,688
|
|
Thereafter
|
1,436,319
|
|
Total debt
|
$
|
1,825,657
|
|
See Note 9
Fair Value Measurements, Financial Instruments, and Credit Risk
for fair value information related to our long-term debt.
9. Fair Value Measurements, Financial Instruments, and Credit Risk
ASC 820,
“Fair Value Measurements and Disclosures”
defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC 820 requires entities to, among other things, maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.
In accordance with ASC 820, these two types of inputs have created the following fair value hierarchy:
|
|
•
|
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
|
|
|
•
|
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).
|
Recurring Fair Value Measurements
. The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of
September 30, 2016
and
December 31, 2015
. These financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, which judgment may affect the valuation of their fair value and placement within the fair value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Balance Sheet Location
|
|
September 30, 2016
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
(In thousands)
|
Derivative asset – current
|
Other current assets
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
Retirement plan asset – noncurrent
|
Other long-term assets
|
|
2,508
|
|
|
2,508
|
|
|
—
|
|
|
—
|
|
Derivative liability – current
|
Other payables and accruals
|
|
(2,409
|
)
|
|
—
|
|
|
(2,409
|
)
|
|
—
|
|
Derivative liability – noncurrent
|
Other long-term liability
|
|
(5,620
|
)
|
|
—
|
|
|
(5,620
|
)
|
|
—
|
|
Total
|
|
|
$
|
(5,488
|
)
|
|
$
|
2,508
|
|
|
$
|
(7,996
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Balance Sheet Location
|
|
December 31, 2015
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
(In thousands)
|
Retirement plan asset – current
|
Other current assets
|
|
$
|
272
|
|
|
$
|
272
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Retirement plan asset – noncurrent
|
Other long-term assets
|
|
1,636
|
|
|
1,636
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
$
|
1,908
|
|
|
$
|
1,908
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table presents the carrying values and approximate fair values of our long-term debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
(In thousands)
|
Term Loan (significant other observable inputs – level 2)
|
$
|
1,278,000
|
|
|
$
|
1,290,780
|
|
|
$
|
—
|
|
|
$
|
—
|
|
10.5% Senior Notes (quoted prices in active market for identical assets – level 1)
|
$
|
440,000
|
|
|
$
|
494,441
|
|
|
$
|
—
|
|
|
$
|
—
|
|
6.75% Senior Notes (quoted prices in active market for identical assets – level 1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
Capital lease obligation (significant other observable inputs – level 2)
|
$
|
1,529
|
|
|
$
|
1,529
|
|
|
$
|
1,634
|
|
|
$
|
1,634
|
|
KFPC Loan Agreement
|
$
|
106,128
|
|
|
$
|
106,128
|
|
|
$
|
76,912
|
|
|
$
|
76,912
|
|
Financial Instruments
Interest Rate Swap Agreements.
Periodically, we enter into interest rate swap agreements to hedge or otherwise protect against interest rate fluctuation on a portion of our variable rate debt. These interest rate swap agreements are designated as cash flow hedges on our exposure to the variability of future cash flows.
On February 18, 2016, we entered into a series of interest rate swap agreements in an effort to convert a substantial portion of our future interest payments pursuant to the Term Loan Facility to a fixed interest rate. On February 18, 2016, we entered into
two
interest rate swaps, each with a notional value of
$323.9 million
, an effective date of January 3, 2017 and a maturity date of December 31, 2020. We entered into
two
more interest rate swaps on March 21, 2016, each with a notional value of
$138.8 million
, an effective date of January 3, 2017 and a maturity date of December 31, 2020. We recorded an unrealized loss of
$8.0 million
in accumulated other comprehensive income (loss) related to the effective portion of these interest rate swap agreements for the
nine months ended September 30, 2016
.
Foreign Currency Hedges.
Periodically, we enter into foreign currency agreements to hedge or otherwise protect against fluctuations in foreign currency exchange rates. These agreements do not qualify for hedge accounting and gains/losses resulting from both the up-front premiums and/or settlement of the hedges at expiration of the agreements are recognized in the period in which they are incurred. For the
three months ended September 30, 2016
and
2015
, we settled these hedges and recorded a
loss
of
$0.1 million
and a
loss
of
$1.9 million
, respectively, and for the
nine months ended September 30, 2016
and
2015
, we settled these hedges and recorded a
gain
of
$1.4 million
and a
loss
of
$5.9 million
, respectively, which are recorded in cost of goods sold in the Condensed Consolidated Statements of Operations. These contracts are structured such that these gains/losses from the mark-to-market impact of the hedging instruments materially offset the underlying foreign currency exchange gains/losses to reduce the overall impact of foreign currency exchange movements throughout the period.
On January 6, 2016, we acquired several foreign currency forward contracts from Arizona Chemical, which are used to manage future cash flows with respect to exchange rate fluctuations. One of our subsidiaries, Arizona Chemical BV, a Netherlands based entity with a Euro functional currency, is a party to foreign currency forward contracts to purchase Swedish Krona and United States Dollars to hedge certain intercompany foreign exchange exposures. We have designated both of these forward contracts as a cash flow hedge. These contracts were entered into on various dates beginning in October 2015 through January 6, 2016 with various maturity dates from January 2016 through December 2016. The notional amount of these contracts was EUR
2.1 million
or
$1.8 million
(converted at the
September 30, 2016
exchange rate). We recorded an unrealized
loss
of
$0.1 million
in accumulated other comprehensive income (loss) related to the effective portion of these forward contracts for the
nine months ended September 30, 2016
.
Credit Risk
The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts, which we seek to minimize by limiting our counterparties to major financial institutions with acceptable credit ratings and by monitoring the total value of positions with individual counterparties. In the event of a default by one of our counterparties, we may not receive payments provided for under the terms of our derivatives.
We analyze our counterparties’ financial condition prior to extending credit and we establish credit limits and monitor the appropriateness of those limits on an ongoing basis. We also obtain cash, letters of credit, or other acceptable forms of security from customers to provide credit support, where appropriate, based on our financial analysis of the customer and the contractual terms and conditions applicable to each transaction.
10. Income Taxes
Income tax expense was
$2.2 million
and
$3.1 million
for the
three months ended September 30, 2016
and
2015
, respectively, and income tax benefit was
$83.0 million
and income tax expense was
$4.1 million
during the
nine months ended September 30, 2016
and
2015
, respectively. Our effective tax rate was an expense of
12.9%
and
27.7%
for the
three months ended September 30, 2016
and
2015
, respectively. Our effective tax rate was a benefit of
316.5%
and an expense of
115.5%
for the
nine months ended September 30, 2016
and
2015
, respectively. Our effective tax rates differ from the U.S. corporate statutory tax rate of
35.0%
, primarily due to the mix of our pretax income or loss generated in various jurisdictions, permanent items, uncertain tax positions, and changes in our valuation allowances. During the
nine months ended September 30, 2016
, our pretax earnings in the Netherlands, Sweden, and Finland decreased our effective tax rate due to the statutory rates of
25%
,
22%
, and
20%
, respectively. During the
nine months ended September 30, 2015
, our pretax earnings in the Netherlands decreased our effective tax rate as the statutory rate is
25%
and losses generated in Taiwan increased our effective tax rate as the statutory rate is
17%
.
The provision for income taxes differs from the amount computed by applying the U.S. corporate statutory income tax rate to income (loss) before income taxes for the reasons set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Income taxes at the statutory rate
|
$
|
5,964
|
|
|
$
|
3,883
|
|
|
$
|
9,181
|
|
|
$
|
(1,253
|
)
|
State taxes, net of federal benefit
|
1,114
|
|
|
—
|
|
|
521
|
|
|
—
|
|
Foreign tax rate differential
|
(2,436
|
)
|
|
(3,628
|
)
|
|
(6,018
|
)
|
|
(3,920
|
)
|
Permanent differences
|
(2,934
|
)
|
|
510
|
|
|
(265
|
)
|
|
1,547
|
|
Uncertain tax positions
|
292
|
|
|
178
|
|
|
928
|
|
|
490
|
|
Valuation allowance
|
176
|
|
|
2,696
|
|
|
(87,404
|
)
|
|
8,091
|
|
Return to provision adjustments
|
33
|
|
|
(521
|
)
|
|
33
|
|
|
(483
|
)
|
Other
|
(11
|
)
|
|
(41
|
)
|
|
—
|
|
|
(337
|
)
|
Income tax expense (benefit)
|
$
|
2,198
|
|
|
$
|
3,076
|
|
|
$
|
(83,024
|
)
|
|
$
|
4,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Income taxes at the statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
6.5
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
Foreign tax rate differential
|
(14.3
|
)
|
|
(32.7
|
)
|
|
(22.9
|
)
|
|
109.5
|
|
Permanent differences
|
(17.2
|
)
|
|
4.6
|
|
|
(1.0
|
)
|
|
(43.2
|
)
|
Uncertain tax positions
|
1.7
|
|
|
1.6
|
|
|
3.5
|
|
|
(13.7
|
)
|
Valuation allowance
|
1.0
|
|
|
24.3
|
|
|
(333.2
|
)
|
|
(226.0
|
)
|
Return to provision adjustments
|
0.2
|
|
|
(4.7
|
)
|
|
0.1
|
|
|
13.5
|
|
Other
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
9.4
|
|
Effective tax rate
|
12.9
|
%
|
|
27.7
|
%
|
|
(316.5
|
)%
|
|
(115.5
|
)%
|
We record a valuation allowance when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. As of
September 30, 2016
and
December 31, 2015
, we had recorded a valuation allowance of
$43.9 million
and
$100.1 million
, respectively, against our net operating loss carryforwards and other deferred tax assets. As part of the Arizona Chemical Acquisition, we reassessed the need for a valuation allowance against our net operating loss deferred tax assets. In our assessment, we consider the level of historical and projected future taxable income expected to be generated. We
increased
our valuation allowances by
$0.2 million
for the
three months ended September 30, 2016
, primarily related to current period net operating losses. We
increased
our valuation allowance by
$2.7 million
for the
three months ended September 30, 2015
, primarily related to current period net operating losses in the U.S. tax jurisdiction. During the
nine months ended September 30, 2016
, we released
$56.2 million
of the valuation allowances, of which
$87.4 million
primarily related to our U.S. net operating loss carryforwards and other deferred tax assets, partially offset by
$31.2 million
of new valuation allowances assumed in connection with the Arizona Chemical Acquisition. We
increased
our valuation allowances by
$7.0 million
for the
nine months ended September 30, 2015
, which included
$8.1 million
related to current period net operating losses, partially offset by a
$1.1 million
decrease related to changes in other comprehensive income (loss).
In purchase accounting, we recorded
$61.9 million
of deferred taxes on the U.S. parent’s inside basis differences of the acquired foreign assets of Arizona Chemical.
As of
September 30, 2016
and
December 31, 2015
, we had total unrecognized tax benefits of
$11.1 million
and
$4.3 million
, respectively, related to uncertain tax positions, all of which, if recognized, would impact our effective tax rate. During the
three months ended September 30, 2016
and
2015
, we had a
decrease
in uncertain foreign tax positions of
$2.5 million
and an
increase
of
$0.2 million
, respectively. We had an
increase
of
$6.8 million
during the
nine months ended September 30, 2016
, primarily related to assumed uncertain tax positions in the United States in connection with the Arizona Chemical Acquisition. We had a
$0.2 million
increase to uncertain foreign tax positions during the
nine months ended September 30, 2015
. We recorded interest and penalties related to unrecognized tax benefits within the provision for income taxes. During the next twelve months we anticipate decreasing our unrecognized tax benefits by
$1.9 million
related to certain of our European tax positions as a result of the expiration of the statute of limitations. We are continuing to evaluate the uncertain tax positions assumed in connection with the Arizona Chemical Acquisition.
We file income tax returns in the U.S. federal, state and foreign jurisdictions. For our U.S. federal income tax returns, the statute of limitations has expired through the tax year ended December 31, 2003. As a result of net operating loss carryforwards from 2004, the statute of limitations remains open for all years subsequent to 2003. In addition, open tax years for state and foreign jurisdictions remain subject to examination.
11. Commitments and Contingencies
(a) Lease Commitments
We have entered into various long-term non-cancelable operating leases. Future minimum lease commitments at
September 30, 2016
are as follows: 2016—
$7.6 million
; 2017—
$21.9 million
; 2018—
$15.3 million
; 2019—
$12.6 million
; 2020—
$10.9 million
; and 2021 and thereafter—
$15.3 million
.
(b) Legal Proceedings
In connection with the closing of the Arizona Chemical Acquisition on January 6, 2016, we assumed responsibility for an open legal proceeding related to a claim from a former customer of Arizona Chemical.
On March 21, 2011, Arizona Chemical received a claim from this former customer relating to an alleged breach of warranty and breach of contract regarding delivery of resin products during the period from 2005 through 2009. In March 2014, the jury returned a verdict against Arizona Chemical for
$70.1 million
. In addition, the trial court entered
two
separate judgments against Arizona Chemical in April 2015 for attorneys’ costs and interest. Arizona Chemical has filed appeals with the Florida First District Court of Appeal to dispute all three judgments. On May 20, 2016, the appellate court affirmed the jury's verdict on the merits in the underlying case. On July 18, 2016, the appellate court reversed and remanded the trial court’s judgment related to interest. On July 19, 2016, the appellate court affirmed the trial court’s judgment related to the attorneys’ costs. On August 26, 2016, the parties entered into a Mutual Release and Settlement Agreement resolving all matters between the parties. The judgment was fully satisfied by the insurance company in accordance with the terms of the agreement. On September 27, 2016, the Florida Supreme Court issued an order voluntarily dismissing all appeals filed in the matter.
We received an initial notice from the tax authorities in Brazil during the fourth quarter of 2012 in connection with tax credits that were generated from the purchase of certain goods which were subsequently applied by us against taxes owed. The tax authorities are currently assessing R
$6.1 million
, or
$1.9 million
(converted at the
September 30, 2016
exchange rate). We have appealed the assertion by the tax authorities in Brazil that the goods purchased were not eligible to earn the credits. While the outcome of this proceeding cannot be predicted with certainty, we do not expect this matter to have a material adverse effect upon our financial position, results of operations or cash flows.
On January 28, 2014, we executed a definitive agreement (the “Combination Agreement”) to combine with the SBC operations of Taiwan-based LCY Chemical Corp. (“LCY”). The Combination Agreement called for LCY to contribute its SBC business in exchange for newly issued shares in the combined company, such that our existing stockholders and LCY would each own
50%
of the outstanding shares of the combined enterprise.
On June 30, 2014, we notified LCY that our Board of Directors intended to withdraw its recommendation to our stockholders to approve the Combination Agreement unless the parties could agree upon mutually acceptable revised terms to the Combination Agreement. This notice cited the decline in operating results for LCY’s SBC business in the first quarter of 2014 and a related decline in forecasted results thereafter, together with the decline in our stock price and negative reactions from our stockholders. Following our notification of our Board’s intention to change its recommendation, the parties engaged in discussions to determine whether they could mutually agree to changes to the terms of the Combination Agreement that would enable our Board to continue to recommend that our stockholders approve the Combination Agreement. The parties engaged in numerous discussions subsequent to June 30, 2014 regarding possible revisions to the terms of the Combination Agreement.
On July 31, 2014, an explosion occurred in a pipeline owned by LCY in Kaohsiung, Taiwan, causing substantial property damage and loss of life, and numerous governmental and private investigations and claims have been initiated and asserted against LCY. On August 4, 2014, LCY notified us that it would no longer negotiate, and would not agree to, any revisions to the terms of the Combination Agreement. On August 6, 2014, our Board withdrew its recommendation that our stockholders approve the Combination Agreement. On August 8, 2014, we received notice from LCY that LCY had exercised its right to terminate the Combination Agreement.
The provisions of the Combination Agreement provide for us to pay LCY a
$25.0 million
break-up fee upon a termination of the Combination Agreement following a withdrawal of our Board’s recommendation, unless an LCY material adverse effect has occurred and is continuing at the time of the withdrawal of our Board’s recommendation. In LCY’s notice terminating the Combination Agreement, LCY requested payment of such
$25.0 million
termination fee. On October 6, 2014, LCY filed a lawsuit against us in connection with our refusal to pay the
$25.0 million
termination fee. We believe that the impact upon LCY of the July 31, 2014 explosion in a gas pipeline in Kaohsiung, Taiwan, constitutes an LCY material adverse effect as defined in the Combination Agreement, and we have notified LCY that accordingly we are not obligated to pay the termination fee. On July 23, 2015, LCY's lawsuit was dismissed from the Delaware federal court on jurisdictional grounds. LCY has the right to re-file its suit in Delaware state court. As of the date of this filing, they had not re-filed their suit. While the ultimate resolution of this matter cannot be predicted with certainty, we do not expect any material adverse effect upon our financial position, results of operations or cash flows from the ultimate outcome of this matter.
We and certain of our subsidiaries, from time to time, are parties to various other legal proceedings, claims and disputes that have arisen in the ordinary course of business. These claims may involve significant amounts, some of which would not be covered by insurance. A substantial settlement payment or judgment in excess of our accruals could have a material adverse effect on our financial position, results of operations or cash flows. While the outcome of these proceedings cannot be predicted with certainty, we do not expect any of these existing matters, individually or in the aggregate, to have a material adverse effect upon our financial position, results of operations or cash flows.
(c) Asset Retirement Obligations.
The changes in the aggregate carrying amount of our ARO liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Beginning balance
|
$
|
10,078
|
|
|
$
|
10,394
|
|
Obligations assumed in Arizona Chemical Acquisition
|
1,908
|
|
|
—
|
|
Additional accruals
|
2,146
|
|
|
—
|
|
Accretion expense
|
303
|
|
|
319
|
|
Obligations settled
|
(3,780
|
)
|
|
(25
|
)
|
Foreign currency translation, net
|
138
|
|
|
(306
|
)
|
Ending Balance
|
$
|
10,793
|
|
|
$
|
10,382
|
|
We assumed
$1.9 million
of an ARO liability from Arizona Chemical as of January 6, 2016 associated with the demolition and decommissioning of manufacturing facility assets. For a portion of our ARO liability related to the decommissioning of the coal boilers at our Belpre, Ohio, facility, we have recorded a liability and corresponding receivable of
$3.8 million
and
$3.6 million
as of
September 30, 2016
and
2015
, respectively, pursuant to the indemnity included in the February 2001 separation agreement from Shell Chemicals.
(d) Environmental Obligations.
In connection with the Arizona Chemical Acquisition, we assumed environmental obligations associated with historical site matters. As of
September 30, 2016
we have recorded a liability of
$3.1 million
and a corresponding receivable of
$3.1 million
relating from an indemnification agreement with International Paper, Arizona Chemical's former owner.
There have been no other material changes to our Commitments and Contingencies disclosed in our most recently filed Annual Report on Form 10-K.
12. Employee Benefits
Retirement Plans.
The components of net periodic benefit costs related to pension benefits are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
U.S Plans
|
|
Non-U.S. Plans
|
|
U.S Plans
|
|
Non-U.S. Plans
(1)
|
|
U.S Plans
|
|
Non-U.S. Plans
|
|
U.S Plans
|
|
Non-U.S. Plans
(1)
|
|
(In thousands)
|
Service cost
|
$
|
771
|
|
|
$
|
566
|
|
|
$
|
883
|
|
|
$
|
—
|
|
|
$
|
2,518
|
|
|
$
|
1,642
|
|
|
$
|
2,648
|
|
|
$
|
—
|
|
Interest cost
|
1,828
|
|
|
632
|
|
|
1,620
|
|
|
—
|
|
|
5,514
|
|
|
2,264
|
|
|
4,860
|
|
|
—
|
|
Expected return on plan assets
|
(2,344
|
)
|
|
(698
|
)
|
|
(2,115
|
)
|
|
—
|
|
|
(7,011
|
)
|
|
(2,593
|
)
|
|
(6,345
|
)
|
|
—
|
|
Amortization of prior service cost
|
648
|
|
|
5
|
|
|
1,060
|
|
|
—
|
|
|
2,048
|
|
|
17
|
|
|
3,180
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
903
|
|
|
$
|
505
|
|
|
$
|
1,448
|
|
|
$
|
—
|
|
|
$
|
3,069
|
|
|
$
|
1,330
|
|
|
$
|
4,343
|
|
|
$
|
—
|
|
___________________________________________________
|
|
(1)
|
Prior to the Arizona Chemical Acquisition our non-US plans were immaterial.
|
We made contributions of
$4.5 million
and
$1.1 million
to our pension plans in the
nine months ended September 30, 2016
and
2015
, respectively.
The components of net periodic benefit cost related to other post-retirement benefits are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
2015
|
|
U.S Plans
|
|
U.S Plans
|
|
U.S Plans
|
|
U.S Plans
|
|
(In thousands)
|
Service cost
|
$
|
135
|
|
|
$
|
150
|
|
|
$
|
405
|
|
|
$
|
450
|
|
Interest cost
|
350
|
|
|
318
|
|
|
1,050
|
|
|
953
|
|
Amortization of prior service cost
|
153
|
|
|
190
|
|
|
458
|
|
|
570
|
|
Net periodic benefit cost
|
$
|
638
|
|
|
$
|
658
|
|
|
$
|
1,913
|
|
|
$
|
1,973
|
|
13. Industry Segments and Foreign Operations
Historically, we have reported
one
segment for the manufacturing and marketing of engineered polymers. Commensurate with the acquisition on January 6, 2016, Arizona Chemical became a separate operating segment with our operations managed through
two
operating segments: (i) Polymer segment and (ii) Chemical segment. In accordance with the provisions of ASC 280, “
Segment Reporting
,” our chief operating decision-maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.
•
Polymer Segment
. Our Polymer segment is comprised of our SBCs and other engineered polymers business.
•
Chemical Segment
. Our Chemical segment is comprised of our pine-based specialty products business.
Our chief operating decision maker uses operating income (loss) as the primary measure of each segment's operating results in order to allocate resources and in assessing the company's performance. In accordance with ASC 280,
Segment Reporting
, we have presented operating income (loss) for each segment. The following table summarizes our operating results by segment. We currently do not have sales between segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
Three Months Ended September 30, 2015
|
|
Polymer
|
|
Chemical
(1)
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
|
(In thousands)
|
Revenue
|
$
|
272,970
|
|
|
$
|
181,173
|
|
|
$
|
454,143
|
|
|
$
|
269,012
|
|
|
$
|
—
|
|
|
$
|
269,012
|
|
Cost of goods sold
|
195,962
|
|
|
122,925
|
|
|
318,887
|
|
|
201,202
|
|
|
—
|
|
|
201,202
|
|
Gross profit
|
77,008
|
|
|
58,248
|
|
|
135,256
|
|
|
67,810
|
|
|
—
|
|
|
67,810
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
6,920
|
|
|
2,773
|
|
|
9,693
|
|
|
7,597
|
|
|
—
|
|
|
7,597
|
|
Selling, general, and administrative
|
26,383
|
|
|
16,386
|
|
|
42,769
|
|
|
26,917
|
|
|
—
|
|
|
26,917
|
|
Depreciation and amortization
|
14,977
|
|
|
17,000
|
|
|
31,977
|
|
|
16,145
|
|
|
—
|
|
|
16,145
|
|
Operating income
|
$
|
28,728
|
|
|
$
|
22,089
|
|
|
50,817
|
|
|
$
|
17,151
|
|
|
$
|
—
|
|
|
17,151
|
|
Earnings of unconsolidated joint venture
|
|
|
|
|
94
|
|
|
|
|
|
|
95
|
|
Interest expense, net
|
|
|
|
|
(33,870
|
)
|
|
|
|
|
|
(6,151
|
)
|
Income before income taxes
|
|
|
|
|
$
|
17,041
|
|
|
|
|
|
|
$
|
11,095
|
|
____________________________________________________
(1) Our Chemical segment operating results were impacted by
$10.8 million
of higher depreciation and amortization as a result of purchase accounting adjustments for property, plant, and equipment and intangibles.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
Nine Months Ended September 30, 2015
|
|
Polymer
|
|
Chemical
(1)
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
|
(In thousands)
|
Revenue
|
$
|
786,132
|
|
|
$
|
542,583
|
|
|
$
|
1,328,715
|
|
|
$
|
786,349
|
|
|
$
|
—
|
|
|
$
|
786,349
|
|
Cost of goods sold
|
576,358
|
|
|
391,386
|
|
|
967,744
|
|
|
624,542
|
|
|
—
|
|
|
624,542
|
|
Gross profit
|
209,774
|
|
|
151,197
|
|
|
360,971
|
|
|
161,807
|
|
|
—
|
|
|
161,807
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
22,008
|
|
|
8,375
|
|
|
30,383
|
|
|
23,345
|
|
|
—
|
|
|
23,345
|
|
Selling, general, and administrative
|
82,631
|
|
|
53,214
|
|
|
135,845
|
|
|
77,488
|
|
|
—
|
|
|
77,488
|
|
Depreciation and amortization
|
45,199
|
|
|
48,714
|
|
|
93,913
|
|
|
46,852
|
|
|
—
|
|
|
46,852
|
|
Operating income
|
$
|
59,936
|
|
|
$
|
40,894
|
|
|
100,830
|
|
|
$
|
14,122
|
|
|
$
|
—
|
|
|
14,122
|
|
Disposition and exit of business activities
|
|
|
|
|
40,001
|
|
|
|
|
|
|
—
|
|
Loss on extinguishment of debt
|
|
|
|
|
(13,423
|
)
|
|
|
|
|
|
—
|
|
Earnings of unconsolidated joint venture
|
|
|
|
|
274
|
|
|
|
|
|
|
273
|
|
Interest expense, net
|
|
|
|
|
(101,450
|
)
|
|
|
|
|
|
(17,975
|
)
|
Income (loss) before income taxes
|
|
|
|
|
$
|
26,232
|
|
|
|
|
|
|
$
|
(3,580
|
)
|
____________________________________________________
(1) Our Chemical segment operating results were impacted by
$24.7 million
of amortization of step-up to fair market value of their inventories, and
$30.4 million
of higher depreciation and amortization as a result of purchase accounting adjustments for property, plant, and equipment and intangibles.
The following table presents long-lived assets including goodwill and total assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
|
(In thousands)
|
Property, plant, and equipment, net
|
$
|
548,911
|
|
|
$
|
356,206
|
|
|
$
|
905,117
|
|
|
$
|
517,673
|
|
|
$
|
—
|
|
|
$
|
517,673
|
|
Investment in unconsolidated joint venture
|
$
|
11,608
|
|
|
$
|
—
|
|
|
$
|
11,608
|
|
|
$
|
11,628
|
|
|
$
|
—
|
|
|
$
|
11,628
|
|
Goodwill
|
$
|
—
|
|
|
$
|
753,928
|
|
|
$
|
753,928
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total assets
|
$
|
1,098,458
|
|
|
$
|
1,820,235
|
|
|
$
|
2,918,693
|
|
|
$
|
1,079,235
|
|
|
$
|
—
|
|
|
$
|
1,079,235
|
|
For geographic reporting, revenue is attributed to the geographic location in which the customers’ facilities are located. Long-lived assets consist primarily of property, plant, and equipment, which are attributed to the geographic location in which they are located and are presented at historical cost.
Following is a summary of revenue by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
United States
|
$
|
177,170
|
|
|
$
|
87,507
|
|
|
$
|
508,522
|
|
|
$
|
249,674
|
|
Germany
|
43,782
|
|
|
32,485
|
|
|
132,068
|
|
|
92,188
|
|
All other countries
|
233,191
|
|
|
149,020
|
|
|
688,125
|
|
|
444,487
|
|
|
$
|
454,143
|
|
|
$
|
269,012
|
|
|
$
|
1,328,715
|
|
|
$
|
786,349
|
|
Following is a summary of long-lived assets by geographic region:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Long-lived assets, at cost:
|
|
|
|
United States
|
$
|
780,582
|
|
|
$
|
497,653
|
|
Taiwan
|
166,840
|
|
|
135,410
|
|
France
|
125,615
|
|
|
112,767
|
|
Brazil
|
73,925
|
|
|
56,344
|
|
Germany
|
64,511
|
|
|
56,292
|
|
All other countries
|
114,551
|
|
|
41,364
|
|
|
$
|
1,326,024
|
|
|
$
|
899,830
|
|
Our capital expenditures for the Polymer segment, excluding capital expenditures by the KFPC joint venture, were
$35.4 million
and
$42.4 million
during the
nine months ended September 30, 2016
and
2015
, respectively, and capital expenditures for our Chemical segment were
$27.5 million
during the
nine months ended September 30, 2016
.
14. Related Party Transactions
We own a
50%
equity investment in a SBC manufacturing joint venture in Kashima, Japan. Our due to related party liability on the Condensed Consolidated Balance Sheets is related to this joint venture and purchases from the joint venture amounted to
$8.3 million
and
$7.6 million
for the
three months ended September 30, 2016
and
2015
, respectively, and
$22.2 million
and
$22.4 million
for the
nine months ended September 30, 2016
and
2015
, respectively.
We own a
50%
variable interest in KFPC, a HSBC manufacturing joint venture in Mailiao, Taiwan. The KFPC joint venture is fully consolidated in our financial statements, and our joint venture partner, Formosa Petrochemical Corporation (“FPCC”), is a related party affiliate. Under the terms of the joint venture agreement, FPCC is to provide certain site services and raw materials to KFPC. Charges from and amounts due to FPCC are immaterial through the period ended
September 30, 2016
. See Note 15
Variable Interest Entity,
for further discussion related to the KFPC joint venture.
In 2015, one of our board members was appointed the Chief Executive Officer of Jacobs Engineering Group, Inc. (“Jacobs”) which has historically supplied site maintenance and engineering services for our Belpre, Ohio, facility. Our total purchases from Jacobs during the
three and nine
months ended
September 30, 2016
were
$3.4 million
and
$8.5 million
, respectively, and our outstanding payable was
$1.0 million
as of
September 30, 2016
.
15. Variable Interest Entity
We hold a variable interest in a joint venture with FPCC to build, own and operate a
30
kiloton HSBC plant at FPCC’s petrochemical site in Mailiao, Taiwan. Kraton and FPCC are each
50%
owners of the joint venture company, KFPC. Under the provisions of an offtake agreement with KFPC, we have exclusive rights to purchase all production from KFPC. Additionally, the agreement requires us to purchase a minimum of
eighty
percent of the plant production capacity each year at a defined fixed margin. This offtake agreement represents a variable interest which provides us the power to direct the most significant activities of KFPC and exposes us to the economic variability of the joint venture. As such, we have determined that we are the primary beneficiary of this variable interest entity; and therefore, we have consolidated KFPC in our financial statements and reflected FPCC’s
50%
ownership as a noncontrolling interest.
The following table summarizes the carrying amounts of assets and liabilities as of
September 30, 2016
and
December 31, 2015
for KFPC before intercompany eliminations. See Note 8
Long-Term Debt
, for further discussion related to the KFPC Loan Agreement executed on July 17, 2014.
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Cash and cash equivalents
|
$
|
8,793
|
|
|
$
|
9,315
|
|
Other current assets
|
11,460
|
|
|
6,922
|
|
Property, plant, and equipment, net
|
166,547
|
|
|
135,230
|
|
Intangible assets
|
9,649
|
|
|
9,203
|
|
Other long-term assets
|
1,873
|
|
|
1,424
|
|
Total assets
|
$
|
198,322
|
|
|
$
|
162,094
|
|
|
|
|
|
Current liabilities
|
$
|
34,982
|
|
|
$
|
17,057
|
|
Long-term debt
|
95,235
|
|
|
76,534
|
|
Total liabilities
|
$
|
130,217
|
|
|
$
|
93,591
|
|
16. Supplemental Guarantor Information
Kraton Polymers LLC and its wholly-owned financing subsidiary, Kraton Polymers Capital Corporation (together, the “Issuers”), issued
$440.0 million
aggregate principal amount of
10.5%
Senior Notes. The
10.5%
Senior Notes are general unsecured, senior obligations of the Issuers and are unconditionally guaranteed on a senior unsecured basis by Kraton Corporation and each of its wholly-owned domestic subsidiaries, excluding the Issuers. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
KRATON CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2016
(Unaudited)
(In thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
22,161
|
|
|
$
|
121,366
|
|
|
$
|
—
|
|
|
$
|
143,548
|
|
Receivables, net of allowances
|
—
|
|
|
692
|
|
|
93,267
|
|
|
115,908
|
|
|
—
|
|
|
209,867
|
|
Inventories of products
|
—
|
|
|
1,203
|
|
|
176,063
|
|
|
144,579
|
|
|
—
|
|
|
321,845
|
|
Inventories of materials and supplies
|
—
|
|
|
—
|
|
|
12,680
|
|
|
8,037
|
|
|
—
|
|
|
20,717
|
|
Other current assets
|
—
|
|
|
6,539
|
|
|
27,302
|
|
|
34,293
|
|
|
—
|
|
|
68,134
|
|
Total current assets
|
—
|
|
|
8,455
|
|
|
331,473
|
|
|
424,183
|
|
|
—
|
|
|
764,111
|
|
Property, plant, and equipment, less accumulated depreciation
|
—
|
|
|
28,935
|
|
|
520,132
|
|
|
356,050
|
|
|
—
|
|
|
905,117
|
|
Goodwill
|
—
|
|
|
—
|
|
|
753,176
|
|
|
752
|
|
|
—
|
|
|
753,928
|
|
Intangible assets, less accumulated amortization
|
—
|
|
|
34,052
|
|
|
383,720
|
|
|
33,804
|
|
|
—
|
|
|
451,576
|
|
Investment in consolidated subsidiaries
|
617,286
|
|
|
2,936,770
|
|
|
—
|
|
|
—
|
|
|
(3,554,056
|
)
|
|
—
|
|
Investment in unconsolidated joint venture
|
—
|
|
|
813
|
|
|
—
|
|
|
10,795
|
|
|
—
|
|
|
11,608
|
|
Debt issuance costs
|
—
|
|
|
—
|
|
|
3,803
|
|
|
—
|
|
|
—
|
|
|
3,803
|
|
Deferred income taxes
|
—
|
|
|
310
|
|
|
(208
|
)
|
|
5,116
|
|
|
—
|
|
|
5,218
|
|
Other long-term assets
|
—
|
|
|
80,744
|
|
|
27,994
|
|
|
76,946
|
|
|
(162,352
|
)
|
|
23,332
|
|
Total assets
|
$
|
617,286
|
|
|
$
|
3,090,079
|
|
|
$
|
2,020,090
|
|
|
$
|
907,646
|
|
|
$
|
(3,716,408
|
)
|
|
$
|
2,918,693
|
|
LIABILITIES AND STOCKHOLDERS' AND MEMBER'S EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
12,374
|
|
|
$
|
148
|
|
|
$
|
10,613
|
|
|
$
|
—
|
|
|
$
|
23,135
|
|
Accounts payable-trade
|
—
|
|
|
3,364
|
|
|
64,210
|
|
|
66,986
|
|
|
—
|
|
|
134,560
|
|
Other payables and accruals
|
—
|
|
|
52,997
|
|
|
45,092
|
|
|
59,241
|
|
|
—
|
|
|
157,330
|
|
Due to related party
|
—
|
|
|
—
|
|
|
—
|
|
|
14,907
|
|
|
—
|
|
|
14,907
|
|
Total current liabilities
|
—
|
|
|
68,735
|
|
|
109,450
|
|
|
151,747
|
|
|
—
|
|
|
329,932
|
|
Long-term debt, net of current portion
|
—
|
|
|
1,602,336
|
|
|
1,381
|
|
|
95,235
|
|
|
—
|
|
|
1,698,952
|
|
Deferred income taxes
|
—
|
|
|
(84,031
|
)
|
|
287,723
|
|
|
10,084
|
|
|
—
|
|
|
213,776
|
|
Litigation payable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other long-term liabilities
|
—
|
|
|
894,807
|
|
|
(709,509
|
)
|
|
118,359
|
|
|
(162,352
|
)
|
|
141,305
|
|
Total liabilities
|
—
|
|
|
2,481,847
|
|
|
(310,955
|
)
|
|
375,425
|
|
|
(162,352
|
)
|
|
2,383,965
|
|
Commitments and contingencies (note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' and member's equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common stock, $0.01 par value; 500,000 shares authorized
|
309
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
309
|
|
Additional paid in capital
|
358,798
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
358,798
|
|
Member's equity
|
—
|
|
|
617,286
|
|
|
2,392,774
|
|
|
543,996
|
|
|
(3,554,056
|
)
|
|
—
|
|
Retained earnings
|
258,179
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
258,179
|
|
Accumulated other comprehensive loss
|
—
|
|
|
(9,054
|
)
|
|
(61,729
|
)
|
|
(45,828
|
)
|
|
—
|
|
|
(116,611
|
)
|
Kraton Corporation stockholders' and member's equity
|
617,286
|
|
|
608,232
|
|
|
2,331,045
|
|
|
498,168
|
|
|
(3,554,056
|
)
|
|
500,675
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
34,053
|
|
|
—
|
|
|
34,053
|
|
Total stockholders' and member's equity
|
617,286
|
|
|
608,232
|
|
|
2,331,045
|
|
|
532,221
|
|
|
(3,554,056
|
)
|
|
534,728
|
|
Total liabilities and stockholders' and member's equity
|
$
|
617,286
|
|
|
$
|
3,090,079
|
|
|
$
|
2,020,090
|
|
|
$
|
907,646
|
|
|
$
|
(3,716,408
|
)
|
|
$
|
2,918,693
|
|
________________________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2015
(In thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
7,256
|
|
|
$
|
11,595
|
|
|
$
|
51,198
|
|
|
$
|
—
|
|
|
$
|
70,049
|
|
Receivables, net of allowances
|
—
|
|
|
470
|
|
|
37,758
|
|
|
66,861
|
|
|
—
|
|
|
105,089
|
|
Inventories of products
|
—
|
|
|
(2,077
|
)
|
|
149,200
|
|
|
116,984
|
|
|
—
|
|
|
264,107
|
|
Inventories of materials and supplies
|
—
|
|
|
—
|
|
|
9,880
|
|
|
2,258
|
|
|
—
|
|
|
12,138
|
|
Other current assets
|
—
|
|
|
3,594
|
|
|
4,594
|
|
|
21,768
|
|
|
—
|
|
|
29,956
|
|
Total current assets
|
—
|
|
|
9,243
|
|
|
213,027
|
|
|
259,069
|
|
|
—
|
|
|
481,339
|
|
Property, plant, and equipment, less accumulated depreciation
|
—
|
|
|
35,923
|
|
|
256,663
|
|
|
225,087
|
|
|
—
|
|
|
517,673
|
|
Intangible assets, less accumulated amortization
|
—
|
|
|
38,721
|
|
|
2,053
|
|
|
828
|
|
|
—
|
|
|
41,602
|
|
Investment in consolidated subsidiaries
|
497,308
|
|
|
1,446,567
|
|
|
—
|
|
|
—
|
|
|
(1,943,875
|
)
|
|
—
|
|
Investment in unconsolidated joint venture
|
—
|
|
|
813
|
|
|
—
|
|
|
10,815
|
|
|
—
|
|
|
11,628
|
|
Debt issuance costs
|
—
|
|
|
226
|
|
|
721
|
|
|
390
|
|
|
—
|
|
|
1,337
|
|
Deferred income taxes
|
—
|
|
|
320
|
|
|
—
|
|
|
3,547
|
|
|
—
|
|
|
3,867
|
|
Other long-term assets
|
—
|
|
|
28,314
|
|
|
658,253
|
|
|
105,444
|
|
|
(770,222
|
)
|
|
21,789
|
|
Total assets
|
$
|
497,308
|
|
|
$
|
1,560,127
|
|
|
$
|
1,130,717
|
|
|
$
|
605,180
|
|
|
$
|
(2,714,097
|
)
|
|
$
|
1,079,235
|
|
LIABILITIES AND STOCKHOLDERS’ AND MEMBER’S EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141
|
|
Accounts payable-trade
|
—
|
|
|
2,030
|
|
|
25,450
|
|
|
31,857
|
|
|
—
|
|
|
59,337
|
|
Other payables and accruals
|
—
|
|
|
45,717
|
|
|
14,983
|
|
|
30,311
|
|
|
—
|
|
|
91,011
|
|
Due to related party
|
—
|
|
|
—
|
|
|
—
|
|
|
14,101
|
|
|
—
|
|
|
14,101
|
|
Total current liabilities
|
—
|
|
|
47,747
|
|
|
40,574
|
|
|
76,269
|
|
|
—
|
|
|
164,590
|
|
Long-term debt, net of current portion
|
—
|
|
|
337,560
|
|
|
1,493
|
|
|
76,538
|
|
|
—
|
|
|
415,591
|
|
Deferred income taxes
|
—
|
|
|
6,334
|
|
|
—
|
|
|
2,736
|
|
|
—
|
|
|
9,070
|
|
Other long-term liabilities
|
—
|
|
|
674,939
|
|
|
88,758
|
|
|
103,517
|
|
|
(770,222
|
)
|
|
96,992
|
|
Total liabilities
|
—
|
|
|
1,066,580
|
|
|
130,825
|
|
|
259,060
|
|
|
(770,222
|
)
|
|
686,243
|
|
Commitments and contingencies (note 11)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ and member’s equity:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 100,000 shares authorized; none issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common stock, $.01 par value; 500,000 shares authorized
|
306
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
306
|
|
Additional paid in capital
|
349,871
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
349,871
|
|
Member’s equity
|
—
|
|
|
497,308
|
|
|
1,061,621
|
|
|
384,946
|
|
|
(1,943,875
|
)
|
|
—
|
|
Retained earnings
|
147,131
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
147,131
|
|
Accumulated other comprehensive loss
|
—
|
|
|
(3,761
|
)
|
|
(61,729
|
)
|
|
(73,078
|
)
|
|
—
|
|
|
(138,568
|
)
|
Kraton Corporation stockholders’ and member’s equity
|
497,308
|
|
|
493,547
|
|
|
999,892
|
|
|
311,868
|
|
|
(1,943,875
|
)
|
|
358,740
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
34,252
|
|
|
—
|
|
|
34,252
|
|
Total stockholders’ and member’s equity
|
497,308
|
|
|
493,547
|
|
|
999,892
|
|
|
346,120
|
|
|
(1,943,875
|
)
|
|
392,992
|
|
Total liabilities and stockholders’ and member’s equity
|
$
|
497,308
|
|
|
$
|
1,560,127
|
|
|
$
|
1,130,717
|
|
|
$
|
605,180
|
|
|
$
|
(2,714,097
|
)
|
|
$
|
1,079,235
|
|
_____________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2016
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
227,916
|
|
|
$
|
268,179
|
|
|
$
|
(41,952
|
)
|
|
$
|
454,143
|
|
Cost of goods sold
|
—
|
|
|
(2,090
|
)
|
|
150,426
|
|
|
212,503
|
|
|
(41,952
|
)
|
|
318,887
|
|
Gross profit
|
—
|
|
|
2,090
|
|
|
77,490
|
|
|
55,676
|
|
|
—
|
|
|
135,256
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
—
|
|
|
1,011
|
|
|
2,432
|
|
|
6,250
|
|
|
—
|
|
|
9,693
|
|
Selling, general, and administrative
|
—
|
|
|
(32,042
|
)
|
|
24,230
|
|
|
50,581
|
|
|
—
|
|
|
42,769
|
|
Depreciation and amortization
|
—
|
|
|
5,610
|
|
|
21,492
|
|
|
4,875
|
|
|
—
|
|
|
31,977
|
|
Operating income (loss)
|
—
|
|
|
27,511
|
|
|
29,336
|
|
|
(6,030
|
)
|
|
—
|
|
|
50,817
|
|
Earnings in consolidated subsidiaries
|
14,843
|
|
|
21,259
|
|
|
—
|
|
|
—
|
|
|
(36,102
|
)
|
|
—
|
|
Earnings of unconsolidated joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
94
|
|
|
—
|
|
|
94
|
|
Interest income (expense), net
|
—
|
|
|
(34,163
|
)
|
|
(60
|
)
|
|
353
|
|
|
—
|
|
|
(33,870
|
)
|
Income (loss) before income taxes
|
14,843
|
|
|
14,607
|
|
|
29,276
|
|
|
(5,583
|
)
|
|
(36,102
|
)
|
|
17,041
|
|
Income tax benefit (expense)
|
—
|
|
|
236
|
|
|
288
|
|
|
(2,722
|
)
|
|
—
|
|
|
(2,198
|
)
|
Consolidated net income (loss)
|
14,843
|
|
|
14,843
|
|
|
29,564
|
|
|
(8,305
|
)
|
|
(36,102
|
)
|
|
14,843
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
717
|
|
|
—
|
|
|
717
|
|
Net income (loss) attributable to Kraton
|
$
|
14,843
|
|
|
$
|
14,843
|
|
|
$
|
29,564
|
|
|
$
|
(7,588
|
)
|
|
$
|
(36,102
|
)
|
|
$
|
15,560
|
|
_________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2015
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
140,767
|
|
|
$
|
167,777
|
|
|
$
|
(39,532
|
)
|
|
$
|
269,012
|
|
Cost of goods sold
|
—
|
|
|
2,814
|
|
|
113,186
|
|
|
124,734
|
|
|
(39,532
|
)
|
|
201,202
|
|
Gross profit (loss)
|
—
|
|
|
(2,814
|
)
|
|
27,581
|
|
|
43,043
|
|
|
—
|
|
|
67,810
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
—
|
|
|
1,713
|
|
|
1,128
|
|
|
4,756
|
|
|
—
|
|
|
7,597
|
|
Selling, general, and administrative
|
—
|
|
|
3,445
|
|
|
7,639
|
|
|
15,833
|
|
|
—
|
|
|
26,917
|
|
Depreciation and amortization
|
—
|
|
|
5,652
|
|
|
7,882
|
|
|
2,611
|
|
|
—
|
|
|
16,145
|
|
Operating income (loss)
|
—
|
|
|
(13,624
|
)
|
|
10,932
|
|
|
19,843
|
|
|
—
|
|
|
17,151
|
|
Earnings in consolidated subsidiaries
|
8,019
|
|
|
27,684
|
|
|
—
|
|
|
—
|
|
|
(35,703
|
)
|
|
—
|
|
Earnings of unconsolidated joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
95
|
|
|
—
|
|
|
95
|
|
Interest income (expense), net
|
—
|
|
|
(6,159
|
)
|
|
(101
|
)
|
|
109
|
|
|
—
|
|
|
(6,151
|
)
|
Income before income taxes
|
8,019
|
|
|
7,901
|
|
|
10,831
|
|
|
20,047
|
|
|
(35,703
|
)
|
|
11,095
|
|
Income tax benefit (expense)
|
—
|
|
|
118
|
|
|
—
|
|
|
(3,194
|
)
|
|
—
|
|
|
(3,076
|
)
|
Consolidated net income
|
8,019
|
|
|
8,019
|
|
|
10,831
|
|
|
16,853
|
|
|
(35,703
|
)
|
|
8,019
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
427
|
|
|
—
|
|
|
427
|
|
Net income attributable to Kraton
|
$
|
8,019
|
|
|
$
|
8,019
|
|
|
$
|
10,831
|
|
|
$
|
17,280
|
|
|
$
|
(35,703
|
)
|
|
$
|
8,446
|
|
_________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2016
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
658,995
|
|
|
$
|
788,826
|
|
|
$
|
(119,106
|
)
|
|
$
|
1,328,715
|
|
Cost of goods sold
|
—
|
|
|
(1,519
|
)
|
|
462,311
|
|
|
626,058
|
|
|
(119,106
|
)
|
|
967,744
|
|
Gross profit
|
—
|
|
|
1,519
|
|
|
196,684
|
|
|
162,768
|
|
|
—
|
|
|
360,971
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
—
|
|
|
2,196
|
|
|
7,864
|
|
|
20,323
|
|
|
—
|
|
|
30,383
|
|
Selling, general, and administrative
|
—
|
|
|
(33,164
|
)
|
|
72,297
|
|
|
96,712
|
|
|
—
|
|
|
135,845
|
|
Depreciation and amortization
|
—
|
|
|
16,811
|
|
|
63,626
|
|
|
13,476
|
|
|
—
|
|
|
93,913
|
|
Operating income
|
—
|
|
|
15,676
|
|
|
52,897
|
|
|
32,257
|
|
|
—
|
|
|
100,830
|
|
Disposition and exit of business activities
|
—
|
|
|
—
|
|
|
36,821
|
|
|
3,180
|
|
|
—
|
|
|
40,001
|
|
Loss on extinguishment of debt
|
—
|
|
|
(13,423
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,423
|
)
|
Earnings in consolidated subsidiaries
|
109,256
|
|
|
121,262
|
|
|
—
|
|
|
—
|
|
|
(230,518
|
)
|
|
—
|
|
Earnings of unconsolidated joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
274
|
|
|
—
|
|
|
274
|
|
Interest income (expense), net
|
—
|
|
|
(101,521
|
)
|
|
(952
|
)
|
|
1,023
|
|
|
—
|
|
|
(101,450
|
)
|
Income before income taxes
|
109,256
|
|
|
21,994
|
|
|
88,766
|
|
|
36,734
|
|
|
(230,518
|
)
|
|
26,232
|
|
Income tax benefit (expense)
|
—
|
|
|
87,262
|
|
|
(2,071
|
)
|
|
(2,167
|
)
|
|
—
|
|
|
83,024
|
|
Consolidated net income
|
109,256
|
|
|
109,256
|
|
|
86,695
|
|
|
34,567
|
|
|
(230,518
|
)
|
|
109,256
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
1,792
|
|
|
—
|
|
|
1,792
|
|
Net income attributable to Kraton
|
$
|
109,256
|
|
|
$
|
109,256
|
|
|
$
|
86,695
|
|
|
$
|
36,359
|
|
|
$
|
(230,518
|
)
|
|
$
|
111,048
|
|
_________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2015
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
426,787
|
|
|
$
|
489,124
|
|
|
$
|
(129,562
|
)
|
|
$
|
786,349
|
|
Cost of goods sold
|
—
|
|
|
13,680
|
|
|
352,599
|
|
|
387,825
|
|
|
(129,562
|
)
|
|
624,542
|
|
Gross profit (loss)
|
—
|
|
|
(13,680
|
)
|
|
74,188
|
|
|
101,299
|
|
|
—
|
|
|
161,807
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
—
|
|
|
2,906
|
|
|
2,993
|
|
|
17,446
|
|
|
—
|
|
|
23,345
|
|
Selling, general, and administrative
|
—
|
|
|
(3,090
|
)
|
|
30,200
|
|
|
50,378
|
|
|
—
|
|
|
77,488
|
|
Depreciation and amortization
|
—
|
|
|
16,897
|
|
|
21,863
|
|
|
8,092
|
|
|
—
|
|
|
46,852
|
|
Operating income (loss)
|
—
|
|
|
(30,393
|
)
|
|
19,132
|
|
|
25,383
|
|
|
—
|
|
|
14,122
|
|
Earnings (loss) in consolidated subsidiaries
|
(7,715
|
)
|
|
41,329
|
|
|
—
|
|
|
—
|
|
|
(33,614
|
)
|
|
—
|
|
Earnings of unconsolidated joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
273
|
|
|
—
|
|
|
273
|
|
Interest income (expense), net
|
—
|
|
|
(18,581
|
)
|
|
372
|
|
|
234
|
|
|
—
|
|
|
(17,975
|
)
|
Income (loss) before income taxes
|
(7,715
|
)
|
|
(7,645
|
)
|
|
19,504
|
|
|
25,890
|
|
|
(33,614
|
)
|
|
(3,580
|
)
|
Income tax benefit (expense)
|
—
|
|
|
(70
|
)
|
|
527
|
|
|
(4,592
|
)
|
|
—
|
|
|
(4,135
|
)
|
Consolidated net income (loss)
|
(7,715
|
)
|
|
(7,715
|
)
|
|
20,031
|
|
|
21,298
|
|
|
(33,614
|
)
|
|
(7,715
|
)
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
1,141
|
|
|
—
|
|
|
1,141
|
|
Net income (loss) attributable to Kraton
|
$
|
(7,715
|
)
|
|
$
|
(7,715
|
)
|
|
$
|
20,031
|
|
|
$
|
22,439
|
|
|
$
|
(33,614
|
)
|
|
$
|
(6,574
|
)
|
_________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2016
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net income (loss) attributable to Kraton
|
$
|
14,843
|
|
|
$
|
14,843
|
|
|
$
|
29,564
|
|
|
$
|
(7,588
|
)
|
|
$
|
(36,102
|
)
|
|
$
|
15,560
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
3,994
|
|
|
—
|
|
|
3,994
|
|
Unrealized loss on cash flow hedges, net of tax benefit of $27
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
(27
|
)
|
|
—
|
|
|
(48
|
)
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
3,967
|
|
|
—
|
|
|
3,946
|
|
Comprehensive income (loss) attributable to Kraton
|
14,843
|
|
|
14,822
|
|
|
29,564
|
|
|
(3,621
|
)
|
|
(36,102
|
)
|
|
19,506
|
|
Comprehensive income attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
339
|
|
|
—
|
|
|
339
|
|
Consolidated comprehensive income (loss)
|
$
|
14,843
|
|
|
$
|
14,822
|
|
|
$
|
29,564
|
|
|
$
|
(3,282
|
)
|
|
$
|
(36,102
|
)
|
|
$
|
19,845
|
|
_________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2015
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net income attributable to Kraton
|
$
|
8,019
|
|
|
$
|
8,019
|
|
|
$
|
10,831
|
|
|
$
|
17,280
|
|
|
$
|
(35,703
|
)
|
|
$
|
8,446
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax of $0
|
—
|
|
|
(75
|
)
|
|
—
|
|
|
(14,897
|
)
|
|
—
|
|
|
(14,972
|
)
|
Other comprehensive loss, net of tax
|
—
|
|
|
(75
|
)
|
|
—
|
|
|
(14,897
|
)
|
|
—
|
|
|
(14,972
|
)
|
Comprehensive income attributable to Kraton
|
8,019
|
|
|
7,944
|
|
|
10,831
|
|
|
2,383
|
|
|
(35,703
|
)
|
|
(6,526
|
)
|
Comprehensive loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,717
|
)
|
|
—
|
|
|
(2,717
|
)
|
Consolidated comprehensive income (loss)
|
$
|
8,019
|
|
|
$
|
7,944
|
|
|
$
|
10,831
|
|
|
$
|
(334
|
)
|
|
$
|
(35,703
|
)
|
|
$
|
(9,243
|
)
|
__________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Nine Months Ended September 30, 2016
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net income attributable to Kraton
|
$
|
109,256
|
|
|
$
|
109,256
|
|
|
$
|
86,695
|
|
|
$
|
36,359
|
|
|
$
|
(230,518
|
)
|
|
$
|
111,048
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
27,311
|
|
|
—
|
|
|
27,311
|
|
Unrealized loss on cash flow hedges, net of tax benefit of $2,737
|
—
|
|
|
(5,293
|
)
|
|
—
|
|
|
(61
|
)
|
|
—
|
|
|
(5,354
|
)
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
(5,293
|
)
|
|
—
|
|
|
27,250
|
|
|
—
|
|
|
21,957
|
|
Comprehensive income attributable to Kraton
|
109,256
|
|
|
103,963
|
|
|
86,695
|
|
|
63,609
|
|
|
(230,518
|
)
|
|
133,005
|
|
Comprehensive loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(199
|
)
|
|
—
|
|
|
(199
|
)
|
Consolidated comprehensive income
|
$
|
109,256
|
|
|
$
|
103,963
|
|
|
$
|
86,695
|
|
|
$
|
63,410
|
|
|
$
|
(230,518
|
)
|
|
$
|
132,806
|
|
_________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Nine Months Ended September 30, 2015
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net income (loss) attributable to Kraton
|
$
|
(7,715
|
)
|
|
$
|
(7,715
|
)
|
|
$
|
20,031
|
|
|
$
|
22,439
|
|
|
$
|
(33,614
|
)
|
|
$
|
(6,574
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax of $0
|
—
|
|
|
148
|
|
|
—
|
|
|
(38,935
|
)
|
|
—
|
|
|
(38,787
|
)
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
148
|
|
|
—
|
|
|
(38,935
|
)
|
|
—
|
|
|
(38,787
|
)
|
Comprehensive income (loss) attributable to Kraton
|
(7,715
|
)
|
|
(7,567
|
)
|
|
20,031
|
|
|
(16,496
|
)
|
|
(33,614
|
)
|
|
(45,361
|
)
|
Comprehensive loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,579
|
)
|
|
—
|
|
|
(2,579
|
)
|
Consolidated comprehensive income (loss)
|
$
|
(7,715
|
)
|
|
$
|
(7,567
|
)
|
|
$
|
20,031
|
|
|
$
|
(19,075
|
)
|
|
$
|
(33,614
|
)
|
|
$
|
(47,940
|
)
|
__________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2016
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities
|
$
|
—
|
|
|
$
|
(53,043
|
)
|
|
$
|
142,718
|
|
|
$
|
36,454
|
|
|
$
|
—
|
|
|
$
|
126,129
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from intercompany loans
|
—
|
|
|
167,868
|
|
|
—
|
|
|
—
|
|
|
(167,868
|
)
|
|
—
|
|
Kraton purchase of property, plant and equipment
|
—
|
|
|
(2,253
|
)
|
|
(38,082
|
)
|
|
(22,550
|
)
|
|
—
|
|
|
(62,885
|
)
|
KFPC purchase of property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,995
|
)
|
|
—
|
|
|
(16,995
|
)
|
Purchase of software and other intangibles
|
—
|
|
|
(3,280
|
)
|
|
(1,411
|
)
|
|
—
|
|
|
—
|
|
|
(4,691
|
)
|
Acquisition, net of cash acquired
|
—
|
|
|
(1,367,088
|
)
|
|
11,590
|
|
|
43,393
|
|
|
—
|
|
|
(1,312,105
|
)
|
Sale of assets
|
—
|
|
|
—
|
|
|
72,803
|
|
|
—
|
|
|
—
|
|
|
72,803
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(1,204,753
|
)
|
|
44,900
|
|
|
3,848
|
|
|
(167,868
|
)
|
|
(1,323,873
|
)
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
—
|
|
|
1,732,890
|
|
|
50,075
|
|
|
—
|
|
|
—
|
|
|
1,782,965
|
|
Repayments of debt
|
—
|
|
|
(430,058
|
)
|
|
(50,075
|
)
|
|
—
|
|
|
—
|
|
|
(480,133
|
)
|
KFPC proceeds from debt
|
—
|
|
|
—
|
|
|
—
|
|
|
24,368
|
|
|
—
|
|
|
24,368
|
|
Capital lease payments
|
—
|
|
|
—
|
|
|
(105
|
)
|
|
—
|
|
|
—
|
|
|
(105
|
)
|
Purchase of treasury stock
|
(967
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(967
|
)
|
Cash contributions from member
|
—
|
|
|
(967
|
)
|
|
—
|
|
|
—
|
|
|
967
|
|
|
—
|
|
Cash distributions to member
|
(1,658
|
)
|
|
2,625
|
|
|
—
|
|
|
—
|
|
|
(967
|
)
|
|
—
|
|
Proceeds from the exercise of stock options
|
2,625
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,625
|
|
Settlement of interest rate swap
|
—
|
|
|
—
|
|
|
(5,155
|
)
|
|
—
|
|
|
—
|
|
|
(5,155
|
)
|
Debt issuance costs
|
—
|
|
|
(53,929
|
)
|
|
(3,717
|
)
|
|
—
|
|
|
—
|
|
|
(57,646
|
)
|
Payments on intercompany loans
|
—
|
|
|
—
|
|
|
(168,075
|
)
|
|
207
|
|
|
167,868
|
|
|
—
|
|
Net cash provided by financing activities
|
—
|
|
|
1,250,561
|
|
|
(177,052
|
)
|
|
24,575
|
|
|
167,868
|
|
|
1,265,952
|
|
Effect of exchange rate differences on cash
|
—
|
|
|
—
|
|
|
—
|
|
|
5,291
|
|
|
—
|
|
|
5,291
|
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
(7,235
|
)
|
|
10,566
|
|
|
70,168
|
|
|
—
|
|
|
73,499
|
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
7,256
|
|
|
11,595
|
|
|
51,198
|
|
|
—
|
|
|
70,049
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
22,161
|
|
|
$
|
121,366
|
|
|
$
|
—
|
|
|
$
|
143,548
|
|
__________________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
KRATON CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2015
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
(1)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities
|
$
|
—
|
|
|
$
|
(16,074
|
)
|
|
$
|
73,706
|
|
|
$
|
23,941
|
|
|
$
|
—
|
|
|
$
|
81,573
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from intercompany loans
|
—
|
|
|
48,927
|
|
|
—
|
|
|
—
|
|
|
(48,927
|
)
|
|
—
|
|
Kraton purchase of property, plant, and equipment
|
—
|
|
|
(913
|
)
|
|
(29,257
|
)
|
|
(12,214
|
)
|
|
—
|
|
|
(42,384
|
)
|
KFPC purchase of property, plant, and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(46,097
|
)
|
|
—
|
|
|
(46,097
|
)
|
Purchase of software and other intangibles
|
—
|
|
|
(1,717
|
)
|
|
(46
|
)
|
|
—
|
|
|
—
|
|
|
(1,763
|
)
|
Net cash provided by (used in) investing activities
|
—
|
|
|
46,297
|
|
|
(29,303
|
)
|
|
(58,311
|
)
|
|
(48,927
|
)
|
|
(90,244
|
)
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
—
|
|
|
—
|
|
|
30,000
|
|
|
—
|
|
|
—
|
|
|
30,000
|
|
Repayments of debt
|
—
|
|
|
—
|
|
|
(30,000
|
)
|
|
—
|
|
|
—
|
|
|
(30,000
|
)
|
KFPC proceeds from debt
|
—
|
|
|
—
|
|
|
—
|
|
|
55,622
|
|
|
—
|
|
|
55,622
|
|
Capital lease payments
|
—
|
|
|
—
|
|
|
(99
|
)
|
|
—
|
|
|
—
|
|
|
(99
|
)
|
Purchase of treasury stock
|
(31,891
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,891
|
)
|
Cash contributions from member
|
—
|
|
|
(31,891
|
)
|
|
—
|
|
|
—
|
|
|
31,891
|
|
|
—
|
|
Cash distributions to member
|
30,869
|
|
|
1,022
|
|
|
—
|
|
|
—
|
|
|
(31,891
|
)
|
|
—
|
|
Proceeds from the exercise of stock options
|
1,022
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,022
|
|
Payments on intercompany loans
|
—
|
|
|
—
|
|
|
(48,927
|
)
|
|
—
|
|
|
48,927
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
—
|
|
|
(30,869
|
)
|
|
(49,026
|
)
|
|
55,622
|
|
|
48,927
|
|
|
24,654
|
|
Effect of exchange rate differences on cash
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,002
|
)
|
|
—
|
|
|
(6,002
|
)
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
(646
|
)
|
|
(4,623
|
)
|
|
15,250
|
|
|
—
|
|
|
9,981
|
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
646
|
|
|
5,881
|
|
|
47,291
|
|
|
—
|
|
|
53,818
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,258
|
|
|
$
|
62,541
|
|
|
$
|
—
|
|
|
$
|
63,799
|
|
___________________________________
|
|
(1)
|
The Issuers are co-issuers of the
10.5%
Senior Notes that mature on
April 15, 2023
. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that separate financial statements and other disclosures concerning the guarantors (other than Kraton Corporation) would provide any additional information that would be material to investors in making an investment decision.
|
17. Subsequent Events
We have evaluated events and transactions that occurred after the balance sheet date and determined that there were no significant events or transactions that would require recognition or disclosure in our condensed consolidated financial statements for the period ended
September 30, 2016
.