SOURCE: Kraton Polymers LLC

May 10, 2006 19:11 ET

Kraton Announces First Quarter 2006 Results

LTM Adjusted Bank Covenant EBITDA Rises 27% to $123 Million

Cash Balance Improves $43 Million to $66 Million

HOUSTON, TX -- (MARKET WIRE) -- May 10, 2006 -- Polymer Holdings LLC (Holdings), parent company of Kraton Polymers LLC (Kraton) announces its financial results for the first quarter 2006. Holdings' Total Revenues for the quarter were $229.4 million compared to $207.2 million in the comparable period of 2005, an increase of 10.7%. This improvement was primarily driven by an increase in average selling prices and an increase in sales volume. Holdings' Net Income for the quarter was $4.3 million, compared with $3.1 million in the comparable period of 2005.

Holdings' Gross Profit for the first quarter increased $2.6 million or 5.2% to $52.4 million, as compared to $49.8 million in the comparable period of 2005. Gross profit as percentage of total revenue declined from 24.1% to 22.9% as cost increased at a higher percentage than revenue. Holdings ended the quarter with $66.4 million in cash and cash equivalents, an increase of $43.3 million from March 31, 2005.

Kraton, the operating subsidiary of Holdings had Net Income for the quarter of $6.5 million as compared with $5.0 million in the comparable period of 2005. At the end of the first quarter 2006, Last Twelve Months (LTM) Adjusted Bank Covenant EBITDA, a measure used to determine compliance with Kraton's debt covenants, totaled $122.9 million, an increase of $26.3 million from the comparable period of 2005. A reconciliation of Kraton's EBITDA and Adjusted Bank Covenant EBITDA to Net Income or Net Loss, as applicable, is attached.

"Kraton delivered improved results in the first quarter 2006 -- consistent with our expectations. Our pricing, cost and operational initiatives launched in the past continue to drive positive results despite persistently high monomer and energy cost. This year we are also pushing for strong growth globally and introducing a number of exciting new innovations. We are beginning to see success in these initiatives during the first quarter," said George B. Gregory, Chief Executive Officer and President.

First Quarter 2006 Highlights:

--  First quarter 2006 vs. first quarter 2005 sales volumes increased
    approximately 2 kT to 76 kT.
--  Inventory volumes dropped by 17kT compared with March 31, 2005,
    however balances increased $6 MM due to inflation.
--  New innovations announced in KRATON's adhesives, sealants and
    coatings; and packaging and film business units.
    
Other Business Highlights:
--  Kraton announced plans to expand our presence in the Asia Pacific
    region.  The investment plans include a multi-functional customer service
    center and a proprietary HSBC manufacturing plant.
--  Kraton also announced the availability of two new grades of Kraton
    G® SBCs for TPE compounding applications in April.
--  Kraton signed a contract for butadiene supply to our facility located
    in the United States.
--  Holdings' made a cash tender offer for any and all of the $150,000,000
    outstanding aggregate principal amount at maturity 12.000% Senior Discount
    Notes.
--  To fund the tender offer, Kraton launched an amendment to increase our
    senior secured credit facilities.
    
Mr. Gregory added, "Looking forward, while raw material costs and supply of selected raw materials continue to challenge us, we remain optimistic about our ability to manage through these challenges, to deliver value for our customers, to continue to grow our business, and to generate solid financial results."

Kraton has scheduled an investor and analyst conference call for Thursday, May 11, 2006 to discuss the results of today's earnings announcement. The call will begin at 2:00 p.m. central time, 3:00 p.m. eastern time. To listen to the conference call and view the slide presentation, which will be broadcast live over the Internet, go to Kraton's website at www.kraton.com, click on Investor Relations and then go to Presentations and Papers and select "First Quarter 2006 Earnings Presentation Webcast." You may also listen to the analyst conference call by telephone by contacting the conference call operator 5-10 minutes prior to the scheduled start time and asking for the "Earnings Conference Call." US Dial-In #: (888) 552-9483. International Dial-In #: 210-234-0009. For those unable to listen to the live call, a replay will be available 24 hours a day beginning at approximately 6:00 p.m. CT May 11th through 5:00 p.m. CT on May 25th. To hear a telephonic replay of the call, dial 800-337-6538 or 203-369-3798 for international callers. To hear a replay of the call over the Internet, please access Kraton's website at www.kraton.com.

About Kraton

Kraton Polymers LLC is a premier, global specialty chemicals company and is the world's largest producer of styrenic block copolymers ("SBCs"), a family of products whose chemistry was pioneered by Kraton over forty years ago. SBCs are highly-engineered synthetic elastomers, which enhance the performance of products by delivering a variety of attributes, including greater flexibility, resilience, strength, durability and processability. Kraton polymers are used in a wide range of applications including road and roofing materials, numerous consumer products (diapers, tool handles, toothbrushes), tapes, labels, medical applications, packaging, automotive and footwear products. Kraton has the leading position in nearly all of its core markets and is the only producer of SBCs with global manufacturing capability. Its production facilities are located in the United States, The Netherlands, Germany, France, Brazil, and Japan.

Polymer Holdings LLC is the parent company of Kraton Polymers LLC and has no material assets other than its investment in Kraton Polymers LLC.

Forward-Looking Statements

This press release includes "forward-looking statements" as that term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements and are often characterized by the use of words such as "believes," "expects," "estimates," "projects," "may," "will," "intends," "plans" or "anticipates," or by discussions of strategy, plans or intentions. In this press release, forward-looking information relates to covenant compliance, pricing trends, cost savings, production rates and other similar matters. All forward-looking statements in this press release are made based on management's current expectations and estimates, which involve risks, uncertainties and other factors that could cause results to differ materially from those expressed in forward-looking statements. Among these factors are changes in overall economic conditions, the cyclical nature of the chemical industry, changes in demand for our products, changes in inventories at our customers and distributors, technological and product development risks, availability and cost of raw materials, competitors' actions, pricing and gross margin pressures, loss of key customers, order cancellations or reduced bookings, the timing and cost of planned capital expenditures, changes in manufacturing yields, control of costs and expenses, significant litigation, risks associated with acquisitions and dispositions, risks associated with our substantial leverage and restrictive covenants in our debt agreements, risks associated with our international operations, the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally, risks and costs associated with increased and new regulation of corporate governance and disclosure standards (including pursuant to Section 404 of the Sarbanes-Oxley Act of 2002), and risks involving environmental or other governmental regulation. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information.

                       Polymer Holdings LLC
             Consolidated Statements of Operations
           Three Months Ended March 31, 2006 and 2005
                 (In thousands of U.S. dollars)
                          (Unaudited)

                                             March 31, 2006  March 31, 2005
                                               ---------        ---------
Revenues
    Sales                                      $ 220,786        $ 201,931
    Other                                          8,603            5,269
                                               ---------        ---------
        Total revenues                           229,389          207,200
Costs and expense
    Costs of goods sold                          176,944          157,364
                                               ---------        ---------
        Gross profit                              52,445           49,836

Research and development expenses                  5,941            5,997
Selling, general, and administrative expenses     17,904           18,072
Depreciation and amortization of identifiable
 intangibles                                      11,040           10,982
Earnings in joint venture                           (306)            (557)
Interest, net                                     11,607           11,319
                                               ---------        ---------
        Income before income taxes                 6,259            4,023
Income tax provision                              (1,913)            (952)
                                               ---------        ---------
        Net income                             $   4,346        $   3,071
                                               =========        =========



                        Polymer Holdings LLC
                    Consolidated Balance Sheets
                March 31, 2006 and December 31, 2005
                  (In thousands of U.S. dollars)


                                               March 31,       December 31,
                                                  2006            2005
                                               ---------        ---------
                        Assets                (Unaudited)
Current assets:
  Cash and cash equivalents                    $  66,392        $ 100,934
  Receivables, net of allowances of
   $1,094 and $1,013                             133,502          107,586
  Inventories of products                        239,938          192,595
  Inventories of materials and supplies            9,612            9,336
  Other current assets                            20,009           23,511
  Deferred income taxes                            1,953            1,953
                                               ---------        ---------
    Total current assets                         471,406          435,915
Property, plant, and equipment,
 less accumulated depreciation                   393,493          394,192
Identifiable intangible assets,
 less accumulated amortization                    99,886          101,848
Investment in joint venture                        9,613           10,542
Deferred financing costs                          13,799           14,399
Other long-term assets                             9,413            9,605
                                               ---------        ---------
    Total assets                               $ 997,610        $ 966,501
                                               =========        =========

               Liabilities and Member's Equity
Current liabilities:
  Current portion of long-term debt            $  30,570        $  30,570
  Accounts payable-trade                          81,098           64,345
  Other payables and accruals                     38,714           48,758
  Due to related parties                          14,966           13,119
  Insurance bond payable                           7,392                -
                                               ---------        ---------
    Total current liabilities                    172,740          156,792
Long-term debt, net of current portion           539,893          537,418
Deferred income taxes                             30,239           29,818
Long-term liabilities                             30,536           29,713
                                               ---------        ---------
    Total liabilities                            773,408          753,741
                                               ---------        ---------
Commitments and contingencies (note 8)
Member's equity:
  Common equity                                  220,416          215,452
  Accumulated other comprehensive income (loss)    3,786           (2,692)
                                               ---------        ---------
    Total member's equity                        224,202          212,760
                                               ---------        ---------
    Total liabilities and member's equity      $ 997,610        $ 966,501
                                               =========        =========



                               Kraton Polymers LLC
                     Consolidated Statements of Operations
                  Three Months Ended March 31, 2006 and 2005
                        (In thousands of U.S. dollars)
                                   (Unaudited)

                                             March 31, 2006  March 31, 2005
                                               ---------        ---------
Revenues
    Sales                                      $ 220,786        $ 201,931
    Other                                          8,603            5,269
                                               ---------        ---------
        Total revenues                           229,389          207,200
Costs and expense
    Costs of goods sold                          176,944          157,364
                                               ---------        ---------
        Gross profit                              52,445           49,836

Research and development expenses                  5,941            5,997
Selling, general, and administrative expenses     17,904           18,072
Depreciation and amortization of identifiable
 intangibles                                      11,040           10,982
Earnings in joint venture                           (306)            (557)
Interest, net                                      8,425            8,493
                                               ---------        ---------
        Income before income taxes                 9,441            6,849
Income tax (provision) benefit                    (2,946)          (1,894)
                                               ---------        ---------
        Net income                             $   6,495        $   4,955
                                               =========        =========


                                Kraton Polymers LLC
                            Consolidated Balance Sheets
                        March 31, 2006 and December 31, 2005
                          (In thousands of U.S. dollars)

                                                 March 31,    December 31,
                                                   2006           2005
                                                -----------    -----------
                         Assets                 (Unaudited)
Current assets:
   Cash and cash equivalents                    $    66,392    $   100,934
   Receivables, net of allowances of
    $1,094 and $1,013                               133,502        107,586
   Inventories of products                          239,938        192,595
   Inventories of materials and supplies              9,612          9,336
   Other current assets                              20,009         23,511
   Deferred income taxes                              1,953          1,953
                                                -----------    -----------
      Total current assets                          471,406        435,915
Property, plant, and equipment,
 less accumulated depreciation                      393,493        394,192
Identifiable intangible assets,
 less accumulated amortization                       99,886        101,848
Investment in joint venture                           9,613         10,542
Deferred financing costs                             12,149         12,711
Other long-term assets                                9,413          9,605
                                                -----------    -----------
      Total assets                              $   995,960    $   964,813
                                                ===========    ===========

             Liabilities and Member's Equity
Current liabilities:
   Current portion of long-term debt            $    30,570    $    30,570
   Accounts payable -- trade                         81,098         64,345
   Other payables and accruals                       38,714         48,758
   Due to related parties                            14,966         13,119
   Insurance bond payable                             7,392              -
                                                -----------    -----------
      Total current liabilities                     172,740        156,792
Long-term debt, net of current portion              431,423        432,093
Deferred income taxes                                35,466         34,010
Long-term liabilities                                30,536         29,713
                                                -----------    -----------
      Total liabilities                             670,165        652,608
                                                -----------    -----------
Commitments and contingencies (note 8)
Member's equity:
   Common equity                                    322,009        314,897
   Accumulated other comprehensive income (loss)      3,786         (2,692)
                                                -----------    -----------
      Total member's equity                         325,795        312,205
                                                -----------    -----------
      Total liabilities and member's equity     $   995,960    $   964,813
                                                ===========    ===========



                                Kraton Polymers LLC
                              LTM Bank Adjusted EBITDA
                           (In thousands of U.S. dollars)


                         3 Mos ended 12 Mos ended  3 Mos ended 12 Mos ended
                            3/31/05     3/31/05       3/31/06     3/31/06
                           ---------   ---------     ---------   ---------

Net income (loss)          $   4,955   $ (22,993)    $   6,495   $  24,200
Income taxes                   1,894     (13,024)        2,946      12,571
Interest, net                  8,493      39,661         8,425      33,875
D D & A                       10,982      43,282        11,040      44,148
                           ---------   ---------     ---------   ---------

Financial Statement EBITDA    26,324      46,926        28,906     114,794

Sponsor fees and expenses                  1,989                     1,950
Plant turnaround costs                     6,000                        47
Increase in cost of goods
 sold related to inventory
 step-up in the period from
 December 23, 2003                        21,719                       612
Infrastructure improvement
 for explosion or fire repairs               651                       426
Severance related
 restructuring charges                     2,100
Specific cost savings expenses             2,973
Other nonrecurring items                   2,226                        48
Specified other
 restructuring charges                     5,281                     1,620
Other noncash items reducing
 Consolidated Net Income                   6,816                     3,353
                                       ---------                 ---------

Consolidated Adjusted
 Bank EBITDA                           $  96,681                 $ 122,850
                                       =========                 =========

(1) The EBITDA measure is used by management to evaluate operating
    performance. Management believes that EBITDA is useful to investors
    because it is frequently used by securities analysts, institutional
    investors and other interested parties in the evaluation of companies
    in our industry. EBITDA is not a recognized term under GAAP and does
    not purport to be an alternative to net income (loss) as an indicator
    of operating performance or to cash flows from operating activities as
    a measure of liquidity. Because all companies do not use identical
    calculations, this presentation of EBITDA may not be comparable to
    other similarly titled measures of other companies. Additionally,
    EBITDA is not intended to be a measure of free cash flow for
    management's discretionary use, as it does not consider certain cash
    requirements such as interest payments, tax payments and debt service
    requirements.

(2) These adjustments are made pursuant to the Credit and Guaranty
    Agreement, dated December 23, 2003, as amended as of March 4, 2004
    and as of October 21, 2004, among Kraton Polymers LLC, as Borrower,
    Polymer Holdings LLC, certain subsidiaries of Kraton Polymers LLC, as
    Guarantors, various lenders, Goldman Sachs Credit Partners L.P. and UBS
    Securities LLC, as Lead Arrangers, Goldman Sachs Credit Partners L.P.,
    as Syndication Agent, UBS AG, Stanford Branch, as Administrative Agent
    and Collateral Agent (the "senior secured credit facility").

(3) Adjusted Bank Covenant EBITDA is defined as EBITDA adjusted to exclude
    unusual items and other adjustments permitted in calculating covenant
    compliance under the senior secured credit facility. Management
    believes that the inclusion of supplementary adjustments to EBITDA
    applied in presenting Adjusted Bank Covenant EBITDA are appropriate to
    provide additional information to investors to demonstrate compliance
    with the financing covenants contained in the senior secured credit
    facility.

Contact Information

  • For Further Information:
    Kraton Polymers LLC
    Analyst and Media:
    Shari Mattern
    281-504-4780