Kraton Corporation Announces First Quarter 2019 Results

Published

HOUSTON, April 24, 2019 /PRNewswire/ -- Kraton Corporation (NYSE: KRA), a leading global specialty chemicals company that manufactures styrenic block copolymers ("SBCs"), specialty polymers, and high-value performance products primarily derived from pine wood pulping co-products, announces financial results for the quarter ended March 31, 2019.


FIRST QUARTER 2019 SUMMARY

  • First quarter consolidated net income attributable to Kraton of $12.7 million, compared to $22.1 million in the first quarter of 2018.
  • First quarter consolidated Adjusted EBITDA(1) of $89.4 million, up 0.9% compared to the first quarter of 2018.
  • Polymer segment operating income of $9.3 million, down 71.8%, and Adjusted EBITDA(1) of $48.2 million, up 7.6% compared to $44.8 million in the first quarter of 2018.
    • Adjusted EBITDA margin(2) of 18.4%, up 290 basis points compared to the first quarter of 2018.
  • Chemical segment operating income of $25.9 million, down 11.8%, and Adjusted EBITDA(1) of $41.3 million, down 5.9% compared to $43.9 million in the first quarter of 2018.
    • Adjusted EBITDA margin(2) of 21.1%, or 20.2% adjusting for lost revenues associated with the Hurricane Michael related outage at our Panama City, Florida site.

 

Three Months Ended March 31,
2019 2018
(In thousands, except percentages and per share amounts)
Revenue $ 456,411 $ 502,392
Polymer segment operating income $ 9,250 $ 32,800
Chemical segment operating income $ 25,885 $ 29,355
Net income attributable to Kraton $ 12,668 $ 22,072
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 %
Diluted earnings (loss) per share $ 0.39 $ 0.68
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019.
Revenue $ 456,411 $ 502,392
Polymer segment operating income $ 9,250 $ 32,800
Chemical segment operating income $ 25,885 $ 29,355
Net income attributable to Kraton $ 12,668 $ 22,072
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 %
Diluted earnings (loss) per share $ 0.39 $ 0.68
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58

"First quarter 2019 consolidated Adjusted EBITDA of $89.4 million reflects improved margins and profitability in our Polymer segment, compared to the first quarter 2018, and stable unit margins in our Chemical segment as we worked to return to full operational capability at our Panama City, Florida, site," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer.  "Polymer segment Adjusted EBITDA of $48.2 million for the first quarter 2019 was up nearly 8% compared to the first quarter 2018, despite lower sales in our Specialty Polymer business associated with the impact of the previously disclosed inventory management program by a large lubricant additive customer and softer demand fundamentals in China and broader Asia.  While sales volume in our Performance Products business was unchanged relative to the first quarter 2018, we did see improved activity in non-core paving markets such as Australia, and favorable SBS sales in North America in advance of the typical second and third quarter paving season, which has seen a slow start given poor weather conditions in our core North American and European markets," Fogarty said.  "Continued growth in our differentiated CariflexTM business, with sales volume up 5% compared to the first quarter 2018, as well as improved plant utilization and overall operating metrics associated with higher production levels at our Mailiao, Paulina, and Berre facilities relative to the first quarter 2018 contributed to the improvement in overall segment profitability.  As a result, the Adjusted EBITDA margin for the Polymer segment was 18.4%, up 290 basis points compared to the year-ago quarter and up 220 basis points compared to the fourth quarter of 2018."

"First quarter 2019 Adjusted EBITDA for the Chemical segment was $41.3 million, down 5.9% compared to the year-ago quarter.  During the quarter we recognized a gain on insurance proceeds which served to offset the impact of lost revenue and associated margin at our Panama City site, given that full operational capability of our Crude Sulfate Turpentine refinery was not restored until late in the quarter.  The decrease in Adjusted EBITDA compared to the first quarter 2018 is largely attributable to lower sales of Tall Oil Rosin and related derivatives, which contributed to less favorable sales mix relative to the year-ago quarter," said Fogarty.  "Overall, first quarter 2019 market conditions for the Chemical segment reflected relative stability in our Adhesives business and continued favorable market fundamentals for TOFA and upgraded derivative products, which in combination with tightness in the Crude Tall Oil feedstock market supports the global price increase we implemented effective March 1st," added Fogarty.

"As previously communicated, debt reduction remains a primary strategic focus in 2019.  While the first quarter of the year is not historically a period of cash generation for Kraton due to factors including a seasonal inventory build in advance of the paving season, given our current outlook for the year, we still expect to reduce consolidated net debt, excluding the effect of foreign currency, by $170 - $190 million in 2019," Fogarty said.  "With respect to the strategic review process for Cariflex, we are encouraged by the high level of indicated interest.  However, given the expected timeline for the formal review process, we do not anticipate providing further updates until later in the year."

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31,
Revenue $ 456,411 $ 502,392 2019 2018
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages)
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202)
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58
Operating income $ 9,250 $ 32,800
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 %

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31,
Revenue $ 456,411 $ 502,392 2019 2018
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages)
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202)
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58
Operating income $ 9,250 $ 32,800
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 %

Q1 2019 VERSUS Q1 2018 RESULTS

Revenue for the Polymer segment was $261.1 million for the three months ended March 31, 2019 compared to $289.1 million for the three months ended March 31, 2018. The decrease was driven by lower volumes for Specialty Polymers and lower average sales prices in all product groups associated with lower average raw material costs. Sales volumes of 73.8 kilotons for the three months ended March 31, 2019 decreased 4.9% compared to the three months ended March 31, 2018. The decline is largely attributable to lower Specialty Polymers sales volumes due to a previously announced inventory management program by a significant lubricant additives customer, and to a lesser extent, lower sales into Asia. Our Cariflex volumes increased 5.0%, primarily from higher latex sales into surgical glove applications. The negative impact from changes in currency exchange rates between the periods was $15.3 million.

For the three months ended March 31, 2019, the Polymer segment generated Adjusted EBITDA (non-GAAP) of $48.2 million compared to $44.8 million for the three months ended March 31, 2018. The 7.6% increase in Adjusted EBITDA is due to the improved operating performance, partially offset by lower sales volumes. The negative effect from changes in currency exchange rates between the periods was $1.4 million. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

Chemical Segment

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31,
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages)
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 %
Operating income $ 9,250 $ 32,800
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 %

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019.
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 %
Operating income $ 9,250 $ 32,800
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 %

Q1 2019 VERSUS Q1 2018 RESULTS

Revenue for the Chemical segment was $195.4 million for the three months ended March 31, 2019 compared to $213.3 million for the three months ended March 31, 2018. The decrease in Chemical segment revenue was primarily attributable to lower sales volumes due to Hurricane Michael and the sale of excess raw materials in the three months ended March 31, 2018, partially offset by higher average selling prices. Sales volumes were 103.6 kilotons for the three months ended March 31, 2019, a decrease of 12.3 kilotons or 10.6%, largely related to timing of raw material sales and lost CST and derivatives sales resulting from Hurricane Michael. As a result, Performance Chemicals and Adhesives sales volumes decreased 14.6% and 1.7%, respectively. The negative effect from changes in currency exchange rates between the periods was $9.0 million.

For the three months ended March 31, 2019, the Chemical segment generated $41.3 million of Adjusted EBITDA (non-GAAP) compared to $43.9 million for the three months ended March 31, 2018. The 5.9% decrease in Adjusted EBITDA was due to lower rosin and rosin derivative sales volumes, which was partially offset by lower operating costs driven by the timing of planned maintenance activities. The negative effect from changes in currency exchange rates between the periods was $0.4 million. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

CASH FLOW AND CAPITAL STRUCTURE

During the three months ended March 31, 2019, consolidated net debt (total debt less cash) increased by $46.4 million compared to December 31, 2018.

Summary of principal amounts for indebtedness and a reconciliation of Kraton debt to Kraton net debt (non-GAAP) and consolidated net debt (non-GAAP):

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands)
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224
Operating income $ 9,250 $ 32,800
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements.
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224
Operating income $ 9,250 $ 32,800
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114

OUTLOOK

At the time of our fourth quarter earnings release we highlighted a possible timing difference between lost sales and associated margin in the first quarter 2019 and the reimbursement by our insurance carriers in a subsequent quarter. However, during the first quarter 2019 we recognized a gain on insurance which offset the lost margin of $5.9 million, eliminating the previously anticipated timing difference. We continue to anticipate that 2019 Adjusted EBITDA will be in a range of $370 - $390 million.

Consistent with the aforementioned 2019 Adjusted EBITDA range, and excluding any activity under the previously announced share buyback program, we currently anticipate reducing consolidated net debt (excluding the effects of foreign currency) by $170 - $190 million in 2019.

We have not reconciled Adjusted EBITDA guidance to net income (loss) because we do not provide guidance for net income (loss) or for items that we do not consider indicative of our on-going performance, including, but not limited to, transaction costs and production downtime, as certain of these items are out of our control and/or cannot be reasonably predicted. We have not reconciled consolidated net debt guidance to debt due to high variability and difficulty in making accurate forecasts and projections that are impacted by future decisions and actions. The actual amount of such reconciling items will have a significant impact if they were included in our Adjusted EBITDA and net debt. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding U.S. GAAP measures is not available without unreasonable effort.

USE OF NON-GAAP FINANCIAL MEASURES

This press release includes the use of both GAAP and non-GAAP financial measures. The non-GAAP financial measures are EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Diluted Earnings per Share, Consolidated Net Debt Leverage Ratio, Consolidated Net Debt, and Net Debt. Tables included in this earnings release reconcile each of these non-GAAP financial measures with the most directly comparable U.S. GAAP financial measure. For additional information on the impact of the spread between the first-in, first-out ("FIFO") basis of accounting and estimated current replacement cost ("ECRC"), see Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

We consider these non-GAAP financial measures to be important supplemental measures of our performance and believe they are frequently used by investors, securities analysts, and other interested parties in the evaluation of our performance including period-to-period comparisons and/or that of other companies in our industry. Further, management uses these measures to evaluate operating performance, and our incentive compensation plan bases incentive compensation payments on our Adjusted EBITDA performance and attainment of net debt reduction, along with other factors. These non-GAAP financial measures have limitations as analytical tools and in some cases can vary substantially from other measures of our performance. You should not consider them in isolation, or as a substitute for analysis of our results under U.S. GAAP in the United States.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin: For our consolidated results, EBITDA represents net income (loss) before interest, taxes, depreciation, and amortization. For each reporting segment, EBITDA represents operating income before depreciation and amortization, and earnings of unconsolidated joint ventures. Among other limitations EBITDA does not: reflect the significant interest expense on our debt or reflect the significant depreciation and amortization expense associated with our long-lived assets; and EBITDA included herein should not be used for purposes of assessing compliance or non-compliance with financial covenants under our debt agreements. The calculation of EBITDA in our debt agreements includes adjustments, such as extraordinary, non-recurring or one-time charges, proforma cost savings, certain non-cash items, turnaround costs, and other items included in the definition of EBITDA in the debt agreements. Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure. As an analytical tool, Adjusted EBITDA is subject to all the limitations applicable to EBITDA. We prepare Adjusted EBITDA by eliminating from EBITDA the impact of a number of items we do not consider indicative of our on-going performance, including the spread between FIFO and ECRC, but you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, due to volatility in raw material prices, Adjusted EBITDA may, and often does, vary substantially from EBITDA and other performance measures, including net income calculated in accordance with U.S. GAAP. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of revenue (for each reporting segment or on a consolidated basis, if applicable). Because of these and other limitations, EBITDA and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business.

Adjusted Diluted Earnings Per Share: We prepare Adjusted Diluted Earnings per Share by eliminating from Diluted Earnings (loss) per Share the impact of a number of non-recurring items we do not consider indicative of our on-going performance, including the spread between FIFO and ECRC.

Consolidated Net Debt and Net Debt: We define net debt for Kraton as total debt (excluding debt of KFPC) less cash and cash equivalents. We define consolidated net debt as Kraton net debt plus debt of KFPC less KFPC's cash and cash equivalents. Management uses net debt to determine our outstanding debt obligations that would not readily be satisfied by its cash and cash equivalents on hand. Management believes that using net debt is useful to investors in determining our leverage since we could choose to use cash and cash equivalents to retire debt. In addition, management believes that presenting Kraton's net debt excluding KFPC is useful because KFPC has its own capital structure.

Consolidated Net Debt Leverage Ratio: The consolidated net debt leverage ratio is defined as consolidated net debt as of the balance sheet date divided by Adjusted EBITDA for the twelve months then ended. Our use of this term may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

CONFERENCE CALL AND WEBCAST INFORMATION

Kraton has scheduled a conference call on Thursday, April 25, 2019 at 9:00 a.m. (Eastern Time) to discuss first quarter 2019 financial results. Kraton invites you to listen to the conference call, which will be broadcast live over the internet at www.kraton.com, by selecting the "Investor Relations" link at the top of the home page and then selecting "Events" from the Investor Relations menu on the Investor Relations page.

You may also listen to the conference call by telephone by contacting the conference call operator 5 to 10 minutes prior to the scheduled start time and asking for the "Kraton Conference Call – Passcode: Earnings Call." U.S./Canada dial-in 800-857-6511. International dial-in #: 210-839-8886.

For those unable to listen to the live call, a replay will be available beginning at approximately 11:00 a.m. (Eastern Time) on April 25, 2019 through 1:59 a.m. (Eastern Time) on May 9, 2019. To hear a replay of the call over the Internet, access Kraton's Website at www.kraton.com by selecting the "Investor Relations" link at the top of the home page and then selecting "Events" from the Investor Relations menu on the Investor Relations page. To hear a telephonic replay of the call, dial 800-455-0167 or 402-344-6834.

ABOUT KRATON CORPORATION

Kraton Corporation (NYSE: KRA) is a leading global specialty chemicals company that manufactures styrenic block copolymers, specialty polymers, and high-value performance products primarily derived from pine wood pulping co-products. Kraton's polymers are used in a wide range of applications, including adhesives, coatings, consumer and personal care products, sealants and lubricants, and medical, packaging, automotive, paving and roofing applications. As the largest global provider in the pine chemicals industry, the company's pine-based specialty products are sold into adhesives and tire markets, and it produces and sells a broad range of performance chemicals into markets that include fuel additives, oilfield chemicals, coatings, roads, construction, metalworking fluids and lubricants, inks, and mining. Kraton offers its products to a diverse customer base in numerous countries worldwide.

Kraton, the Kraton logo and design, and Cariflex are all trademarks of Kraton Polymers LLC or its affiliates.

FORWARD LOOKING STATEMENTS

Some of the statements in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This press release includes forward-looking statements that reflect our plans, beliefs, expectations, and current views with respect to, among other things, future events and financial performance. Forward-looking statements are often characterized by the use of words such as "outlook," "believes," "target," "estimates," "expects," "projects," "may," "intends," "plans", "on track", or "anticipates," or by discussions of strategy, plans or intentions, including, but not limited to, our expectations with respect to full-year 2019 Adjusted EBITDA results, 2019 consolidated net debt reduction, and our beliefs with respect to the impact of global market conditions.

All forward-looking statements in this press release are made based on management's current expectations and estimates, which involve known and unknown risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from those expressed in forward-looking statements. These risks and uncertainties are more fully described in our latest Annual Report on Form 10-K, including but not limited to "Part I, Item 1A. Risk Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" therein, and in our other filings with the Securities and Exchange Commission, and include, but are not limited to, risks related to: Kraton's ability to repay its indebtedness and risk associated with incurring additional indebtedness; Kraton's reliance on third parties for the provision of significant operating and other services; conditions in, and risk associated with operating in, the global economy and capital markets; fluctuations in raw material costs; natural disasters and weather conditions; limitations in the availability of raw materials; competition in Kraton's end-use markets; and other factors of which we are currently unaware or deem immaterial. In addition, to the extent any inconsistency or conflict exists between the information included in this report and the information included in our prior reports and other filings with the SEC, the information contained in this report updates and supersede such information. Readers are cautioned not to place undue reliance on our forward-looking statements. Forward-looking statements speak only as of the date they are made, and we assume no obligation to update such information in light of new information or future events.

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614 Three Months Ended March 31,
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251 2019 2018
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363 Revenue $ 456,411 $ 502,392
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232 Cost of goods sold 349,409 355,314
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501 Gross profit 107,002 147,078
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640 Operating expenses:
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861 Research and development 10,551 10,797
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859 Selling, general, and administrative 40,894 38,723
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224 Depreciation and amortization 31,522 35,376
Operating income $ 9,250 $ 32,800 Gain on insurance proceeds (11,100)
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524 Loss on disposal of fixed assets 27
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114 Operating income 35,135 62,155
Other expense (259) (1,113)
(Gain) loss on extinguishment of debt 210 (7,591)
Earnings of unconsolidated joint venture 121 137
Interest expense, net (18,941) (29,276)
Income before income taxes 16,266 24,312
Income tax expense (2,654) (2,251)
Consolidated net income 13,612 22,061
Net (income) loss attributable to noncontrolling interest (944) 11
Net income attributable to Kraton $ 12,668 $ 22,072
Earnings per common share:
Basic $ 0.40 $ 0.69
Diluted $ 0.39 $ 0.68
Weighted average common shares outstanding:
Basic 31,633 31,241
Diluted 31,901 31,851

 

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) KRATON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value)
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614 Three Months Ended March 31, March 31, 2019 December 31, 2018
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251 2019 2018 (unaudited)
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363 Revenue $ 456,411 $ 502,392 ASSETS
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232 Cost of goods sold 349,409 355,314 Current assets:
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501 Gross profit 107,002 147,078 Cash and cash equivalents $ 37,161 $ 85,891
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640 Operating expenses: Receivables, net of allowances of $873 and $784 258,211 198,046
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861 Research and development 10,551 10,797 Inventories of products, net 413,700 410,640
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859 Selling, general, and administrative 40,894 38,723 Inventories of materials and supplies, net 31,002 30,843
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224 Depreciation and amortization 31,522 35,376 Prepaid expenses 11,124 10,156
Operating income $ 9,250 $ 32,800 Gain on insurance proceeds (11,100) Other current assets 27,691 29,980
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524 Loss on disposal of fixed assets 27 Total current assets 778,889 765,556
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114 Operating income 35,135 62,155 Property, plant, and equipment, less accumulated depreciation of $614,451 and $597,785 937,301 941,476
Other expense (259) (1,113) Goodwill 772,462 772,886
(Gain) loss on extinguishment of debt 210 (7,591) Intangible assets, less accumulated amortization of $257,331 and $246,648 353,749 362,038
Earnings of unconsolidated joint venture 121 137 Investment in unconsolidated joint venture 11,500 12,070
Interest expense, net (18,941) (29,276) Debt issuance costs 878 1,170
Income before income taxes 16,266 24,312 Deferred income taxes 9,906 10,434
Income tax expense (2,654) (2,251) Long-term operating lease assets, net 64,309
Consolidated net income 13,612 22,061 Other long-term assets 27,944 29,074
Net (income) loss attributable to noncontrolling interest (944) 11 Total assets $ 2,956,938 $ 2,894,704
Net income attributable to Kraton $ 12,668 $ 22,072 LIABILITIES AND EQUITY
Earnings per common share: Current liabilities:
Basic $ 0.40 $ 0.69 Current portion of long-term debt $ 120,255 $ 45,321
Diluted $ 0.39 $ 0.68 Accounts payable-trade 180,374 182,153
Weighted average common shares outstanding: Other payables and accruals 108,489 100,695
Basic 31,633 31,241 Due to related party 17,238 20,918
Diluted 31,901 31,851 Total current liabilities 426,356 349,087
Long-term debt, net of current portion 1,411,252 1,487,298
Deferred income taxes 126,851 127,827
Long-term operating lease liabilities 49,907
Other long-term liabilities 180,518 182,893
Total liabilities 2,194,884 2,147,105
Equity:
Kraton stockholders' equity:
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued
Common stock, $0.01 par value; 500,000 shares authorized; 32,019 shares issued and outstanding at March 31, 2019; 31,917 shares issued and outstanding at December 31, 2018 320 319
Additional paid in capital 389,500 385,921
Retained earnings 431,855 420,597
Accumulated other comprehensive loss (92,917) (91,699)
Total Kraton stockholders' equity 728,758 715,138
Noncontrolling interest 33,296 32,461
Total equity 762,054 747,599
Total liabilities and equity $ 2,956,938 $ 2,894,704

 

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) KRATON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614 Three Months Ended March 31, March 31, 2019 December 31, 2018 Three Months Ended March 31,
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251 2019 2018 (unaudited) 2019 2018
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363 Revenue $ 456,411 $ 502,392 ASSETS CASH FLOWS FROM OPERATING ACTIVITIES
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232 Cost of goods sold 349,409 355,314 Current assets: Consolidated net income $ 13,612 $ 22,061
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501 Gross profit 107,002 147,078 Cash and cash equivalents $ 37,161 $ 85,891 Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640 Operating expenses: Receivables, net of allowances of $873 and $784 258,211 198,046 Depreciation and amortization 31,522 35,376
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861 Research and development 10,551 10,797 Inventories of products, net 413,700 410,640 Lease amortization 4,767
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859 Selling, general, and administrative 40,894 38,723 Inventories of materials and supplies, net 31,002 30,843 Amortization of debt original issue discount 267 1,090
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224 Depreciation and amortization 31,522 35,376 Prepaid expenses 11,124 10,156 Amortization of debt issuance costs 1,110 1,945
Operating income $ 9,250 $ 32,800 Gain on insurance proceeds (11,100) Other current assets 27,691 29,980 Loss on disposal of property, plant, and equipment 27
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524 Loss on disposal of fixed assets 27 Total current assets 778,889 765,556 (Gain) loss on extinguishment of debt (210) 7,591
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114 Operating income 35,135 62,155 Property, plant, and equipment, less accumulated depreciation of $614,451 and $597,785 937,301 941,476 Earnings from unconsolidated joint venture, net of dividends received 410 408
Other expense (259) (1,113) Goodwill 772,462 772,886 Deferred income tax provision (benefit) (595) (91)
(Gain) loss on extinguishment of debt 210 (7,591) Intangible assets, less accumulated amortization of $257,331 and $246,648 353,749 362,038 Share-based compensation 3,309 2,902
Earnings of unconsolidated joint venture 121 137 Investment in unconsolidated joint venture 11,500 12,070 Decrease (increase) in:
Interest expense, net (18,941) (29,276) Debt issuance costs 878 1,170 Accounts receivable (63,164) (43,428)
Income before income taxes 16,266 24,312 Deferred income taxes 9,906 10,434 Inventories of products, materials, and supplies (5,877) 1,932
Income tax expense (2,654) (2,251) Long-term operating lease assets, net 64,309 Other assets 861 10,813
Consolidated net income 13,612 22,061 Other long-term assets 27,944 29,074 Increase (decrease) in:
Net (income) loss attributable to noncontrolling interest (944) 11 Total assets $ 2,956,938 $ 2,894,704 Accounts payable-trade (1,134) (1,684)
Net income attributable to Kraton $ 12,668 $ 22,072 LIABILITIES AND EQUITY Other payables and accruals (9,397) (19,235)
Earnings per common share: Current liabilities: Other long-term liabilities (2,177) (1,958)
Basic $ 0.40 $ 0.69 Current portion of long-term debt $ 120,255 $ 45,321 Due to related party (3,508) 2,403
Diluted $ 0.39 $ 0.68 Accounts payable-trade 180,374 182,153 Net cash provided by (used in) operating activities (30,204) 20,152
Weighted average common shares outstanding: Other payables and accruals 108,489 100,695 CASH FLOWS FROM INVESTING ACTIVITIES
Basic 31,633 31,241 Due to related party 17,238 20,918 Kraton purchase of property, plant, and equipment (22,327) (23,373)
Diluted 31,901 31,851 Total current liabilities 426,356 349,087 KFPC purchase of property, plant, and equipment (783) (201)
Long-term debt, net of current portion 1,411,252 1,487,298 Purchase of software and other intangibles (3,287) (437)
Deferred income taxes 126,851 127,827 Net cash used in investing activities (26,397) (24,011)
Long-term operating lease liabilities 49,907 CASH FLOWS FROM FINANCING ACTIVITIES
Other long-term liabilities 180,518 182,893 Proceeds from debt 19,500 211,614
Total liabilities 2,194,884 2,147,105 Repayments of debt (4,310) (212,000)
KFPC proceeds from debt 14,600 10,197
Equity: KFPC repayments of debt (19,594) (25,337)
Kraton stockholders' equity: Capital lease payments (41) (258)
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued Purchase of treasury stock (2,684) (5,748)
Common stock, $0.01 par value; 500,000 shares authorized; 32,019 shares issued and outstanding at March 31, 2019; 31,917 shares issued and outstanding at December 31, 2018 320 319 Proceeds from the exercise of stock options 1,545 1,368
Additional paid in capital 389,500 385,921 Settlement of interest rate swap 2,587
Retained earnings 431,855 420,597 Debt issuance costs (3,110)
Accumulated other comprehensive loss (92,917) (91,699) Net cash provided by (used in) financing activities 9,016 (20,687)
Total Kraton stockholders' equity 728,758 715,138 Effect of exchange rate differences on cash (1,145) 347
Noncontrolling interest 33,296 32,461 Net decrease in cash and cash equivalents (48,730) (24,199)
Total equity 762,054 747,599 Cash and cash equivalents, beginning of period 85,891 89,052
Total liabilities and equity $ 2,956,938 $ 2,894,704 Cash and cash equivalents, end of period $ 37,161 $ 64,853

 

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) KRATON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) KRATON CORPORATION RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO NON-GAAP FINANCIAL MEASURES (Unaudited) (In thousands)
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614 Three Months Ended March 31, March 31, 2019 December 31, 2018 Three Months Ended March 31, Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251 2019 2018 (unaudited) 2019 2018 Polymer Chemical Total Polymer Chemical Total
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363 Revenue $ 456,411 $ 502,392 ASSETS CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to Kraton $ 12,668 $ 22,072
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232 Cost of goods sold 349,409 355,314 Current assets: Consolidated net income $ 13,612 $ 22,061 Net income (loss) attributable to noncontrolling interest 944 (11)
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501 Gross profit 107,002 147,078 Cash and cash equivalents $ 37,161 $ 85,891 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Consolidated net income 13,612 22,061
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640 Operating expenses: Receivables, net of allowances of $873 and $784 258,211 198,046 Depreciation and amortization 31,522 35,376 Add (deduct):
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861 Research and development 10,551 10,797 Inventories of products, net 413,700 410,640 Lease amortization 4,767 Income tax expense 2,654 2,251
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859 Selling, general, and administrative 40,894 38,723 Inventories of materials and supplies, net 31,002 30,843 Amortization of debt original issue discount 267 1,090 Interest expense, net 18,941 29,276
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224 Depreciation and amortization 31,522 35,376 Prepaid expenses 11,124 10,156 Amortization of debt issuance costs 1,110 1,945 Earnings of unconsolidated joint venture (121) (137)
Operating income $ 9,250 $ 32,800 Gain on insurance proceeds (11,100) Other current assets 27,691 29,980 Loss on disposal of property, plant, and equipment 27 (Gain) loss on extinguishment of debt (210) 7,591
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524 Loss on disposal of fixed assets 27 Total current assets 778,889 765,556 (Gain) loss on extinguishment of debt (210) 7,591 Other expense 259 1,113
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114 Operating income 35,135 62,155 Property, plant, and equipment, less accumulated depreciation of $614,451 and $597,785 937,301 941,476 Earnings from unconsolidated joint venture, net of dividends received 410 408 Operating income $ 9,250 $ 25,885 $ 35,135 $ 32,800 $ 29,355 $ 62,155
Other expense (259) (1,113) Goodwill 772,462 772,886 Deferred income tax provision (benefit) (595) (91) Add (deduct):
(Gain) loss on extinguishment of debt 210 (7,591) Intangible assets, less accumulated amortization of $257,331 and $246,648 353,749 362,038 Share-based compensation 3,309 2,902 Depreciation and amortization 13,971 17,551 31,522 17,762 17,614 35,376
Earnings of unconsolidated joint venture 121 137 Investment in unconsolidated joint venture 11,500 12,070 Decrease (increase) in: Other income (expense) (427) 168 (259) (1,324) 211 (1,113)
Interest expense, net (18,941) (29,276) Debt issuance costs 878 1,170 Accounts receivable (63,164) (43,428) Gain (loss) on extinguishment of debt 210 210 (7,591) (7,591)
Income before income taxes 16,266 24,312 Deferred income taxes 9,906 10,434 Inventories of products, materials, and supplies (5,877) 1,932 Earnings of unconsolidated joint venture 121 121 137 137
Income tax expense (2,654) (2,251) Long-term operating lease assets, net 64,309 Other assets 861 10,813 EBITDA (a) 23,125 43,604 66,729 41,784 47,180 88,964
Consolidated net income 13,612 22,061 Other long-term assets 27,944 29,074 Increase (decrease) in: Add (deduct):
Net (income) loss attributable to noncontrolling interest (944) 11 Total assets $ 2,956,938 $ 2,894,704 Accounts payable-trade (1,134) (1,684) Transaction, acquisition related costs, restructuring, and other costs (b) 714 398 1,112 605 (1,259) (654)
Net income attributable to Kraton $ 12,668 $ 22,072 LIABILITIES AND EQUITY Other payables and accruals (9,397) (19,235) Loss on extinguishment of debt (210) (210) 7,591 7,591
Earnings per common share: Current liabilities: Other long-term liabilities (2,177) (1,958) Hurricane related costs (c) 5,861 5,861
Basic $ 0.40 $ 0.69 Current portion of long-term debt $ 120,255 $ 45,321 Due to related party (3,508) 2,403 Hurricane reimbursements (d) (5,220) (5,220)
Diluted $ 0.39 $ 0.68 Accounts payable-trade 180,374 182,153 Net cash provided by (used in) operating activities (30,204) 20,152 Non-cash compensation expense 3,309 3,309 2,902 2,902
Weighted average common shares outstanding: Other payables and accruals 108,489 100,695 CASH FLOWS FROM INVESTING ACTIVITIES Spread between FIFO and ECRC 21,215 (3,364) 17,851 (8,116) (2,062) (10,178)
Basic 31,633 31,241 Due to related party 17,238 20,918 Kraton purchase of property, plant, and equipment (22,327) (23,373) Adjusted EBITDA $ 48,153 $ 41,279 $ 89,432 $ 44,766 $ 43,859 $ 88,625
Diluted 31,901 31,851 Total current liabilities 426,356 349,087 KFPC purchase of property, plant, and equipment (783) (201)
Long-term debt, net of current portion 1,411,252 1,487,298 Purchase of software and other intangibles (3,287) (437)
Deferred income taxes 126,851 127,827 Net cash used in investing activities (26,397) (24,011)
Long-term operating lease liabilities 49,907 CASH FLOWS FROM FINANCING ACTIVITIES
Other long-term liabilities 180,518 182,893 Proceeds from debt 19,500 211,614
Total liabilities 2,194,884 2,147,105 Repayments of debt (4,310) (212,000)
KFPC proceeds from debt 14,600 10,197
Equity: KFPC repayments of debt (19,594) (25,337)
Kraton stockholders' equity: Capital lease payments (41) (258)
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued Purchase of treasury stock (2,684) (5,748)
Common stock, $0.01 par value; 500,000 shares authorized; 32,019 shares issued and outstanding at March 31, 2019; 31,917 shares issued and outstanding at December 31, 2018 320 319 Proceeds from the exercise of stock options 1,545 1,368
Additional paid in capital 389,500 385,921 Settlement of interest rate swap 2,587
Retained earnings 431,855 420,597 Debt issuance costs (3,110)
Accumulated other comprehensive loss (92,917) (91,699) Net cash provided by (used in) financing activities 9,016 (20,687)
Total Kraton stockholders' equity 728,758 715,138 Effect of exchange rate differences on cash (1,145) 347
Noncontrolling interest 33,296 32,461 Net decrease in cash and cash equivalents (48,730) (24,199)
Total equity 762,054 747,599 Cash and cash equivalents, beginning of period 85,891 89,052
Total liabilities and equity $ 2,956,938 $ 2,894,704 Cash and cash equivalents, end of period $ 37,161 $ 64,853

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) KRATON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) KRATON CORPORATION RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO NON-GAAP FINANCIAL MEASURES (Unaudited) (In thousands) (a) Included in EBITDA is an $11.1 million gain on insurance, fully offsetting the lost margin in the first quarter of 2019, and reimbursement for a portion of the direct costs we have incurred to date.
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement. (b) Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614 Three Months Ended March 31, March 31, 2019 December 31, 2018 Three Months Ended March 31, Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 (c) Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold.
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251 2019 2018 (unaudited) 2019 2018 Polymer Chemical Total Polymer Chemical Total (d) Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363 Revenue $ 456,411 $ 502,392 ASSETS CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to Kraton $ 12,668 $ 22,072
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232 Cost of goods sold 349,409 355,314 Current assets: Consolidated net income $ 13,612 $ 22,061 Net income (loss) attributable to noncontrolling interest 944 (11)
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501 Gross profit 107,002 147,078 Cash and cash equivalents $ 37,161 $ 85,891 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Consolidated net income 13,612 22,061
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640 Operating expenses: Receivables, net of allowances of $873 and $784 258,211 198,046 Depreciation and amortization 31,522 35,376 Add (deduct):
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861 Research and development 10,551 10,797 Inventories of products, net 413,700 410,640 Lease amortization 4,767 Income tax expense 2,654 2,251
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859 Selling, general, and administrative 40,894 38,723 Inventories of materials and supplies, net 31,002 30,843 Amortization of debt original issue discount 267 1,090 Interest expense, net 18,941 29,276
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224 Depreciation and amortization 31,522 35,376 Prepaid expenses 11,124 10,156 Amortization of debt issuance costs 1,110 1,945 Earnings of unconsolidated joint venture (121) (137)
Operating income $ 9,250 $ 32,800 Gain on insurance proceeds (11,100) Other current assets 27,691 29,980 Loss on disposal of property, plant, and equipment 27 (Gain) loss on extinguishment of debt (210) 7,591
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524 Loss on disposal of fixed assets 27 Total current assets 778,889 765,556 (Gain) loss on extinguishment of debt (210) 7,591 Other expense 259 1,113
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114 Operating income 35,135 62,155 Property, plant, and equipment, less accumulated depreciation of $614,451 and $597,785 937,301 941,476 Earnings from unconsolidated joint venture, net of dividends received 410 408 Operating income $ 9,250 $ 25,885 $ 35,135 $ 32,800 $ 29,355 $ 62,155
Other expense (259) (1,113) Goodwill 772,462 772,886 Deferred income tax provision (benefit) (595) (91) Add (deduct):
(Gain) loss on extinguishment of debt 210 (7,591) Intangible assets, less accumulated amortization of $257,331 and $246,648 353,749 362,038 Share-based compensation 3,309 2,902 Depreciation and amortization 13,971 17,551 31,522 17,762 17,614 35,376
Earnings of unconsolidated joint venture 121 137 Investment in unconsolidated joint venture 11,500 12,070 Decrease (increase) in: Other income (expense) (427) 168 (259) (1,324) 211 (1,113)
Interest expense, net (18,941) (29,276) Debt issuance costs 878 1,170 Accounts receivable (63,164) (43,428) Gain (loss) on extinguishment of debt 210 210 (7,591) (7,591)
Income before income taxes 16,266 24,312 Deferred income taxes 9,906 10,434 Inventories of products, materials, and supplies (5,877) 1,932 Earnings of unconsolidated joint venture 121 121 137 137
Income tax expense (2,654) (2,251) Long-term operating lease assets, net 64,309 Other assets 861 10,813 EBITDA (a) 23,125 43,604 66,729 41,784 47,180 88,964
Consolidated net income 13,612 22,061 Other long-term assets 27,944 29,074 Increase (decrease) in: Add (deduct):
Net (income) loss attributable to noncontrolling interest (944) 11 Total assets $ 2,956,938 $ 2,894,704 Accounts payable-trade (1,134) (1,684) Transaction, acquisition related costs, restructuring, and other costs (b) 714 398 1,112 605 (1,259) (654)
Net income attributable to Kraton $ 12,668 $ 22,072 LIABILITIES AND EQUITY Other payables and accruals (9,397) (19,235) Loss on extinguishment of debt (210) (210) 7,591 7,591
Earnings per common share: Current liabilities: Other long-term liabilities (2,177) (1,958) Hurricane related costs (c) 5,861 5,861
Basic $ 0.40 $ 0.69 Current portion of long-term debt $ 120,255 $ 45,321 Due to related party (3,508) 2,403 Hurricane reimbursements (d) (5,220) (5,220)
Diluted $ 0.39 $ 0.68 Accounts payable-trade 180,374 182,153 Net cash provided by (used in) operating activities (30,204) 20,152 Non-cash compensation expense 3,309 3,309 2,902 2,902
Weighted average common shares outstanding: Other payables and accruals 108,489 100,695 CASH FLOWS FROM INVESTING ACTIVITIES Spread between FIFO and ECRC 21,215 (3,364) 17,851 (8,116) (2,062) (10,178)
Basic 31,633 31,241 Due to related party 17,238 20,918 Kraton purchase of property, plant, and equipment (22,327) (23,373) Adjusted EBITDA $ 48,153 $ 41,279 $ 89,432 $ 44,766 $ 43,859 $ 88,625
Diluted 31,901 31,851 Total current liabilities 426,356 349,087 KFPC purchase of property, plant, and equipment (783) (201)
Long-term debt, net of current portion 1,411,252 1,487,298 Purchase of software and other intangibles (3,287) (437)
Deferred income taxes 126,851 127,827 Net cash used in investing activities (26,397) (24,011)
Long-term operating lease liabilities 49,907 CASH FLOWS FROM FINANCING ACTIVITIES
Other long-term liabilities 180,518 182,893 Proceeds from debt 19,500 211,614
Total liabilities 2,194,884 2,147,105 Repayments of debt (4,310) (212,000)
KFPC proceeds from debt 14,600 10,197
Equity: KFPC repayments of debt (19,594) (25,337)
Kraton stockholders' equity: Capital lease payments (41) (258)
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued Purchase of treasury stock (2,684) (5,748)
Common stock, $0.01 par value; 500,000 shares authorized; 32,019 shares issued and outstanding at March 31, 2019; 31,917 shares issued and outstanding at December 31, 2018 320 319 Proceeds from the exercise of stock options 1,545 1,368
Additional paid in capital 389,500 385,921 Settlement of interest rate swap 2,587
Retained earnings 431,855 420,597 Debt issuance costs (3,110)
Accumulated other comprehensive loss (92,917) (91,699) Net cash provided by (used in) financing activities 9,016 (20,687)
Total Kraton stockholders' equity 728,758 715,138 Effect of exchange rate differences on cash (1,145) 347
Noncontrolling interest 33,296 32,461 Net decrease in cash and cash equivalents (48,730) (24,199)
Total equity 762,054 747,599 Cash and cash equivalents, beginning of period 85,891 89,052
Total liabilities and equity $ 2,956,938 $ 2,894,704 Cash and cash equivalents, end of period $ 37,161 $ 64,853

 

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) KRATON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) KRATON CORPORATION RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO NON-GAAP FINANCIAL MEASURES (Unaudited) (In thousands) (a) Included in EBITDA is an $11.1 million gain on insurance, fully offsetting the lost margin in the first quarter of 2019, and reimbursement for a portion of the direct costs we have incurred to date. KRATON CORPORATION RECONCILIATION OF DILUTED EARNINGS (LOSS) PER SHARE TO ADJUSTED DILUTED EARNINGS PER SHARE (Unaudited)
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement. (b) Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614 Three Months Ended March 31, March 31, 2019 December 31, 2018 Three Months Ended March 31, Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 (c) Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. Three Months Ended March 31,
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251 2019 2018 (unaudited) 2019 2018 Polymer Chemical Total Polymer Chemical Total (d) Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds 2019 2018
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363 Revenue $ 456,411 $ 502,392 ASSETS CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to Kraton $ 12,668 $ 22,072 Diluted Earnings Per Share $ 0.39 $ 0.68
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232 Cost of goods sold 349,409 355,314 Current assets: Consolidated net income $ 13,612 $ 22,061 Net income (loss) attributable to noncontrolling interest 944 (11) Transaction, acquisition related costs, restructuring, and other costs (a) 0.03 (0.02)
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501 Gross profit 107,002 147,078 Cash and cash equivalents $ 37,161 $ 85,891 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Consolidated net income 13,612 22,061 Loss on extinguishment of debt (0.01) 0.18
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640 Operating expenses: Receivables, net of allowances of $873 and $784 258,211 198,046 Depreciation and amortization 31,522 35,376 Add (deduct): Hurricane related costs, net (b) 0.02
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861 Research and development 10,551 10,797 Inventories of products, net 413,700 410,640 Lease amortization 4,767 Income tax expense 2,654 2,251 Spread between FIFO and ECRC 0.45 (0.26)
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859 Selling, general, and administrative 40,894 38,723 Inventories of materials and supplies, net 31,002 30,843 Amortization of debt original issue discount 267 1,090 Interest expense, net 18,941 29,276 Adjusted Diluted Earnings Per Share (non-GAAP) $ 0.88 $ 0.58
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224 Depreciation and amortization 31,522 35,376 Prepaid expenses 11,124 10,156 Amortization of debt issuance costs 1,110 1,945 Earnings of unconsolidated joint venture (121) (137)
Operating income $ 9,250 $ 32,800 Gain on insurance proceeds (11,100) Other current assets 27,691 29,980 Loss on disposal of property, plant, and equipment 27 (Gain) loss on extinguishment of debt (210) 7,591
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524 Loss on disposal of fixed assets 27 Total current assets 778,889 765,556 (Gain) loss on extinguishment of debt (210) 7,591 Other expense 259 1,113
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114 Operating income 35,135 62,155 Property, plant, and equipment, less accumulated depreciation of $614,451 and $597,785 937,301 941,476 Earnings from unconsolidated joint venture, net of dividends received 410 408 Operating income $ 9,250 $ 25,885 $ 35,135 $ 32,800 $ 29,355 $ 62,155
Other expense (259) (1,113) Goodwill 772,462 772,886 Deferred income tax provision (benefit) (595) (91) Add (deduct):
(Gain) loss on extinguishment of debt 210 (7,591) Intangible assets, less accumulated amortization of $257,331 and $246,648 353,749 362,038 Share-based compensation 3,309 2,902 Depreciation and amortization 13,971 17,551 31,522 17,762 17,614 35,376
Earnings of unconsolidated joint venture 121 137 Investment in unconsolidated joint venture 11,500 12,070 Decrease (increase) in: Other income (expense) (427) 168 (259) (1,324) 211 (1,113)
Interest expense, net (18,941) (29,276) Debt issuance costs 878 1,170 Accounts receivable (63,164) (43,428) Gain (loss) on extinguishment of debt 210 210 (7,591) (7,591)
Income before income taxes 16,266 24,312 Deferred income taxes 9,906 10,434 Inventories of products, materials, and supplies (5,877) 1,932 Earnings of unconsolidated joint venture 121 121 137 137
Income tax expense (2,654) (2,251) Long-term operating lease assets, net 64,309 Other assets 861 10,813 EBITDA (a) 23,125 43,604 66,729 41,784 47,180 88,964
Consolidated net income 13,612 22,061 Other long-term assets 27,944 29,074 Increase (decrease) in: Add (deduct):
Net (income) loss attributable to noncontrolling interest (944) 11 Total assets $ 2,956,938 $ 2,894,704 Accounts payable-trade (1,134) (1,684) Transaction, acquisition related costs, restructuring, and other costs (b) 714 398 1,112 605 (1,259) (654)
Net income attributable to Kraton $ 12,668 $ 22,072 LIABILITIES AND EQUITY Other payables and accruals (9,397) (19,235) Loss on extinguishment of debt (210) (210) 7,591 7,591
Earnings per common share: Current liabilities: Other long-term liabilities (2,177) (1,958) Hurricane related costs (c) 5,861 5,861
Basic $ 0.40 $ 0.69 Current portion of long-term debt $ 120,255 $ 45,321 Due to related party (3,508) 2,403 Hurricane reimbursements (d) (5,220) (5,220)
Diluted $ 0.39 $ 0.68 Accounts payable-trade 180,374 182,153 Net cash provided by (used in) operating activities (30,204) 20,152 Non-cash compensation expense 3,309 3,309 2,902 2,902
Weighted average common shares outstanding: Other payables and accruals 108,489 100,695 CASH FLOWS FROM INVESTING ACTIVITIES Spread between FIFO and ECRC 21,215 (3,364) 17,851 (8,116) (2,062) (10,178)
Basic 31,633 31,241 Due to related party 17,238 20,918 Kraton purchase of property, plant, and equipment (22,327) (23,373) Adjusted EBITDA $ 48,153 $ 41,279 $ 89,432 $ 44,766 $ 43,859 $ 88,625
Diluted 31,901 31,851 Total current liabilities 426,356 349,087 KFPC purchase of property, plant, and equipment (783) (201)
Long-term debt, net of current portion 1,411,252 1,487,298 Purchase of software and other intangibles (3,287) (437)
Deferred income taxes 126,851 127,827 Net cash used in investing activities (26,397) (24,011)
Long-term operating lease liabilities 49,907 CASH FLOWS FROM FINANCING ACTIVITIES
Other long-term liabilities 180,518 182,893 Proceeds from debt 19,500 211,614
Total liabilities 2,194,884 2,147,105 Repayments of debt (4,310) (212,000)
KFPC proceeds from debt 14,600 10,197
Equity: KFPC repayments of debt (19,594) (25,337)
Kraton stockholders' equity: Capital lease payments (41) (258)
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued Purchase of treasury stock (2,684) (5,748)
Common stock, $0.01 par value; 500,000 shares authorized; 32,019 shares issued and outstanding at March 31, 2019; 31,917 shares issued and outstanding at December 31, 2018 320 319 Proceeds from the exercise of stock options 1,545 1,368
Additional paid in capital 389,500 385,921 Settlement of interest rate swap 2,587
Retained earnings 431,855 420,597 Debt issuance costs (3,110)
Accumulated other comprehensive loss (92,917) (91,699) Net cash provided by (used in) financing activities 9,016 (20,687)
Total Kraton stockholders' equity 728,758 715,138 Effect of exchange rate differences on cash (1,145) 347
Noncontrolling interest 33,296 32,461 Net decrease in cash and cash equivalents (48,730) (24,199)
Total equity 762,054 747,599 Cash and cash equivalents, beginning of period 85,891 89,052
Total liabilities and equity $ 2,956,938 $ 2,894,704 Cash and cash equivalents, end of period $ 37,161 $ 64,853

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) KRATON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) KRATON CORPORATION RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO NON-GAAP FINANCIAL MEASURES (Unaudited) (In thousands) (a) Included in EBITDA is an $11.1 million gain on insurance, fully offsetting the lost margin in the first quarter of 2019, and reimbursement for a portion of the direct costs we have incurred to date. KRATON CORPORATION RECONCILIATION OF DILUTED EARNINGS (LOSS) PER SHARE TO ADJUSTED DILUTED EARNINGS PER SHARE (Unaudited) (a) Charges related to the evaluation of acquisition transactions, severances expenses, and other restructuring related charges.
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement. (b) Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges. (b) Costs and reimbursements related to Hurricane Michael, which are recorded in cost of goods sold.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614 Three Months Ended March 31, March 31, 2019 December 31, 2018 Three Months Ended March 31, Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 (c) Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. Three Months Ended March 31,
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251 2019 2018 (unaudited) 2019 2018 Polymer Chemical Total Polymer Chemical Total (d) Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds 2019 2018
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363 Revenue $ 456,411 $ 502,392 ASSETS CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to Kraton $ 12,668 $ 22,072 Diluted Earnings Per Share $ 0.39 $ 0.68
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232 Cost of goods sold 349,409 355,314 Current assets: Consolidated net income $ 13,612 $ 22,061 Net income (loss) attributable to noncontrolling interest 944 (11) Transaction, acquisition related costs, restructuring, and other costs (a) 0.03 (0.02)
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501 Gross profit 107,002 147,078 Cash and cash equivalents $ 37,161 $ 85,891 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Consolidated net income 13,612 22,061 Loss on extinguishment of debt (0.01) 0.18
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640 Operating expenses: Receivables, net of allowances of $873 and $784 258,211 198,046 Depreciation and amortization 31,522 35,376 Add (deduct): Hurricane related costs, net (b) 0.02
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861 Research and development 10,551 10,797 Inventories of products, net 413,700 410,640 Lease amortization 4,767 Income tax expense 2,654 2,251 Spread between FIFO and ECRC 0.45 (0.26)
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859 Selling, general, and administrative 40,894 38,723 Inventories of materials and supplies, net 31,002 30,843 Amortization of debt original issue discount 267 1,090 Interest expense, net 18,941 29,276 Adjusted Diluted Earnings Per Share (non-GAAP) $ 0.88 $ 0.58
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224 Depreciation and amortization 31,522 35,376 Prepaid expenses 11,124 10,156 Amortization of debt issuance costs 1,110 1,945 Earnings of unconsolidated joint venture (121) (137)
Operating income $ 9,250 $ 32,800 Gain on insurance proceeds (11,100) Other current assets 27,691 29,980 Loss on disposal of property, plant, and equipment 27 (Gain) loss on extinguishment of debt (210) 7,591
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524 Loss on disposal of fixed assets 27 Total current assets 778,889 765,556 (Gain) loss on extinguishment of debt (210) 7,591 Other expense 259 1,113
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114 Operating income 35,135 62,155 Property, plant, and equipment, less accumulated depreciation of $614,451 and $597,785 937,301 941,476 Earnings from unconsolidated joint venture, net of dividends received 410 408 Operating income $ 9,250 $ 25,885 $ 35,135 $ 32,800 $ 29,355 $ 62,155
Other expense (259) (1,113) Goodwill 772,462 772,886 Deferred income tax provision (benefit) (595) (91) Add (deduct):
(Gain) loss on extinguishment of debt 210 (7,591) Intangible assets, less accumulated amortization of $257,331 and $246,648 353,749 362,038 Share-based compensation 3,309 2,902 Depreciation and amortization 13,971 17,551 31,522 17,762 17,614 35,376
Earnings of unconsolidated joint venture 121 137 Investment in unconsolidated joint venture 11,500 12,070 Decrease (increase) in: Other income (expense) (427) 168 (259) (1,324) 211 (1,113)
Interest expense, net (18,941) (29,276) Debt issuance costs 878 1,170 Accounts receivable (63,164) (43,428) Gain (loss) on extinguishment of debt 210 210 (7,591) (7,591)
Income before income taxes 16,266 24,312 Deferred income taxes 9,906 10,434 Inventories of products, materials, and supplies (5,877) 1,932 Earnings of unconsolidated joint venture 121 121 137 137
Income tax expense (2,654) (2,251) Long-term operating lease assets, net 64,309 Other assets 861 10,813 EBITDA (a) 23,125 43,604 66,729 41,784 47,180 88,964
Consolidated net income 13,612 22,061 Other long-term assets 27,944 29,074 Increase (decrease) in: Add (deduct):
Net (income) loss attributable to noncontrolling interest (944) 11 Total assets $ 2,956,938 $ 2,894,704 Accounts payable-trade (1,134) (1,684) Transaction, acquisition related costs, restructuring, and other costs (b) 714 398 1,112 605 (1,259) (654)
Net income attributable to Kraton $ 12,668 $ 22,072 LIABILITIES AND EQUITY Other payables and accruals (9,397) (19,235) Loss on extinguishment of debt (210) (210) 7,591 7,591
Earnings per common share: Current liabilities: Other long-term liabilities (2,177) (1,958) Hurricane related costs (c) 5,861 5,861
Basic $ 0.40 $ 0.69 Current portion of long-term debt $ 120,255 $ 45,321 Due to related party (3,508) 2,403 Hurricane reimbursements (d) (5,220) (5,220)
Diluted $ 0.39 $ 0.68 Accounts payable-trade 180,374 182,153 Net cash provided by (used in) operating activities (30,204) 20,152 Non-cash compensation expense 3,309 3,309 2,902 2,902
Weighted average common shares outstanding: Other payables and accruals 108,489 100,695 CASH FLOWS FROM INVESTING ACTIVITIES Spread between FIFO and ECRC 21,215 (3,364) 17,851 (8,116) (2,062) (10,178)
Basic 31,633 31,241 Due to related party 17,238 20,918 Kraton purchase of property, plant, and equipment (22,327) (23,373) Adjusted EBITDA $ 48,153 $ 41,279 $ 89,432 $ 44,766 $ 43,859 $ 88,625
Diluted 31,901 31,851 Total current liabilities 426,356 349,087 KFPC purchase of property, plant, and equipment (783) (201)
Long-term debt, net of current portion 1,411,252 1,487,298 Purchase of software and other intangibles (3,287) (437)
Deferred income taxes 126,851 127,827 Net cash used in investing activities (26,397) (24,011)
Long-term operating lease liabilities 49,907 CASH FLOWS FROM FINANCING ACTIVITIES
Other long-term liabilities 180,518 182,893 Proceeds from debt 19,500 211,614
Total liabilities 2,194,884 2,147,105 Repayments of debt (4,310) (212,000)
KFPC proceeds from debt 14,600 10,197
Equity: KFPC repayments of debt (19,594) (25,337)
Kraton stockholders' equity: Capital lease payments (41) (258)
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued Purchase of treasury stock (2,684) (5,748)
Common stock, $0.01 par value; 500,000 shares authorized; 32,019 shares issued and outstanding at March 31, 2019; 31,917 shares issued and outstanding at December 31, 2018 320 319 Proceeds from the exercise of stock options 1,545 1,368
Additional paid in capital 389,500 385,921 Settlement of interest rate swap 2,587
Retained earnings 431,855 420,597 Debt issuance costs (3,110)
Accumulated other comprehensive loss (92,917) (91,699) Net cash provided by (used in) financing activities 9,016 (20,687)
Total Kraton stockholders' equity 728,758 715,138 Effect of exchange rate differences on cash (1,145) 347
Noncontrolling interest 33,296 32,461 Net decrease in cash and cash equivalents (48,730) (24,199)
Total equity 762,054 747,599 Cash and cash equivalents, beginning of period 85,891 89,052
Total liabilities and equity $ 2,956,938 $ 2,894,704 Cash and cash equivalents, end of period $ 37,161 $ 64,853

 

Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Polymer Segment (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Three Months Ended March 31, (1) See non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. March 31, 2019 December 31, 2018 (1) Kraton Formosa Polymers Corporation (KFPC) joint venture, located in Mailiao, Taiwan, which we own a 50% stake in and consolidate within our financial statements. KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) KRATON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) KRATON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) KRATON CORPORATION RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO NON-GAAP FINANCIAL MEASURES (Unaudited) (In thousands) (a) Included in EBITDA is an $11.1 million gain on insurance, fully offsetting the lost margin in the first quarter of 2019, and reimbursement for a portion of the direct costs we have incurred to date. KRATON CORPORATION RECONCILIATION OF DILUTED EARNINGS (LOSS) PER SHARE TO ADJUSTED DILUTED EARNINGS PER SHARE (Unaudited) (a) Charges related to the evaluation of acquisition transactions, severances expenses, and other restructuring related charges. POLYMER RECONCILIATION OF GROSS PROFIT TO ADJUSTED GROSS PROFIT(Unaudited) (In thousands)
2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (2) Defined as Adjusted EBITDA as a percentage of revenue. 2019 2018 (2) Defined as Adjusted EBITDA as a percentage of revenue. (In thousands) (2) KFPC executed revolving credit facilities to provide funding for working capital requirements and/or general corporate purposes. These are in addition to the 5.5 billion NTD KFPC Loan Agreement. (b) Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges. (b) Costs and reimbursements related to Hurricane Michael, which are recorded in cost of goods sold.
(In thousands, except percentages and per share amounts) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 19.2% for the three months ended March 31, 2019. Three Months Ended March 31, (In thousands, except percentages) (3) Adjusting for lost revenues associated with Hurricane Michael, Adjusted EBITDA margin would have been 20.2% for the three months ended March 31, 2019. Kraton debt $ 1,444,667 $ 1,441,614 Three Months Ended March 31, March 31, 2019 December 31, 2018 Three Months Ended March 31, Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 (c) Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. Three Months Ended March 31, Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
Revenue $ 456,411 $ 502,392 2019 2018 Adhesives $ 65,576 $ 73,148 Kraton cash 32,154 79,251 2019 2018 (unaudited) 2019 2018 Polymer Chemical Total Polymer Chemical Total (d) Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds 2019 2018 Gross profit $ 53,886 $ 81,431
Polymer segment operating income $ 9,250 $ 32,800 (In thousands, except percentages) Performance Chemicals 116,753 122,941 Kraton net debt 1,412,513 1,362,363 Revenue $ 456,411 $ 502,392 ASSETS CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to Kraton $ 12,668 $ 22,072 Diluted Earnings Per Share $ 0.39 $ 0.68
Chemical segment operating income $ 25,885 $ 29,355 Performance Products $ 138,092 $ 145,730 Tires 13,027 17,232 Cost of goods sold 349,409 355,314 Current assets: Consolidated net income $ 13,612 $ 22,061 Net income (loss) attributable to noncontrolling interest 944 (11) Transaction, acquisition related costs, restructuring, and other costs (a) 0.03 (0.02) Add (deduct):
Net income attributable to Kraton $ 12,668 $ 22,072 Specialty Polymers 82,010 104,018 Chemical Segment Revenue $ 195,356 $ 213,321 KFPC(1)(2) loans 120,084 125,501 Gross profit 107,002 147,078 Cash and cash equivalents $ 37,161 $ 85,891 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Consolidated net income 13,612 22,061 Loss on extinguishment of debt (0.01) 0.18 Non-cash compensation expense 199 174
Adjusted EBITDA (non-GAAP)(1) $ 89,432 $ 88,625 Cariflex 40,867 39,525 KFPC(1) cash 5,007 6,640 Operating expenses: Receivables, net of allowances of $873 and $784 258,211 198,046 Depreciation and amortization 31,522 35,376 Add (deduct): Hurricane related costs, net (b) 0.02 Spread between FIFO and ECRC 21,215 (8,116)
Adjusted EBITDA margin (non-GAAP)(2)(3) 19.6 % 17.6 % Other 86 (202) Operating income $ 25,885 $ 29,355 KFPC(1) net debt 115,077 118,861 Research and development 10,551 10,797 Inventories of products, net 413,700 410,640 Lease amortization 4,767 Income tax expense 2,654 2,251 Spread between FIFO and ECRC 0.45 (0.26) Adjusted gross profit (non-GAAP) $ 75,300 $ 73,489
Diluted earnings (loss) per share $ 0.39 $ 0.68 Polymer Segment Revenue $ 261,055 $ 289,071 Adjusted EBITDA (non-GAAP)(1) $ 41,279 $ 43,859 Selling, general, and administrative 40,894 38,723 Inventories of materials and supplies, net 31,002 30,843 Amortization of debt original issue discount 267 1,090 Interest expense, net 18,941 29,276 Adjusted Diluted Earnings Per Share (non-GAAP) $ 0.88 $ 0.58
Adjusted diluted earnings per share (non-GAAP)(1) $ 0.88 $ 0.58 Adjusted EBITDA margin (non-GAAP)(2)(3) 21.1 % 20.6 % Consolidated net debt $ 1,527,590 $ 1,481,224 Depreciation and amortization 31,522 35,376 Prepaid expenses 11,124 10,156 Amortization of debt issuance costs 1,110 1,945 Earnings of unconsolidated joint venture (121) (137) Sales volume (kilotons) 73.8 77.6
Operating income $ 9,250 $ 32,800 Gain on insurance proceeds (11,100) Other current assets 27,691 29,980 Loss on disposal of property, plant, and equipment 27 (Gain) loss on extinguishment of debt (210) 7,591 Adjusted gross profit per ton $ 1,021 $ 948
Adjusted EBITDA (non-GAAP)(1) $ 48,153 $ 44,766 Effect of foreign currency on consolidated net debt 12,524 Loss on disposal of fixed assets 27 Total current assets 778,889 765,556 (Gain) loss on extinguishment of debt (210) 7,591 Other expense 259 1,113
Adjusted EBITDA margin (non-GAAP)(2) 18.4 % 15.5 % Consolidated net debt excluding effect of foreign currency $ 1,540,114 Operating income 35,135 62,155 Property, plant, and equipment, less accumulated depreciation of $614,451 and $597,785 937,301 941,476 Earnings from unconsolidated joint venture, net of dividends received 410 408 Operating income $ 9,250 $ 25,885 $ 35,135 $ 32,800 $ 29,355 $ 62,155
Other expense (259) (1,113) Goodwill 772,462 772,886 Deferred income tax provision (benefit) (595) (91) Add (deduct):
(Gain) loss on extinguishment of debt 210 (7,591) Intangible assets, less accumulated amortization of $257,331 and $246,648 353,749 362,038 Share-based compensation 3,309 2,902 Depreciation and amortization 13,971 17,551 31,522 17,762 17,614 35,376
Earnings of unconsolidated joint venture 121 137 Investment in unconsolidated joint venture 11,500 12,070 Decrease (increase) in: Other income (expense) (427) 168 (259) (1,324) 211 (1,113)
Interest expense, net (18,941) (29,276) Debt issuance costs 878 1,170 Accounts receivable (63,164) (43,428) Gain (loss) on extinguishment of debt 210 210 (7,591) (7,591)
Income before income taxes 16,266 24,312 Deferred income taxes 9,906 10,434 Inventories of products, materials, and supplies (5,877) 1,932 Earnings of unconsolidated joint venture 121 121 137 137
Income tax expense (2,654) (2,251) Long-term operating lease assets, net 64,309 Other assets 861 10,813 EBITDA (a) 23,125 43,604 66,729 41,784 47,180 88,964
Consolidated net income 13,612 22,061 Other long-term assets 27,944 29,074 Increase (decrease) in: Add (deduct):
Net (income) loss attributable to noncontrolling interest (944) 11 Total assets $ 2,956,938 $ 2,894,704 Accounts payable-trade (1,134) (1,684) Transaction, acquisition related costs, restructuring, and other costs (b) 714 398 1,112 605 (1,259) (654)
Net income attributable to Kraton $ 12,668 $ 22,072 LIABILITIES AND EQUITY Other payables and accruals (9,397) (19,235) Loss on extinguishment of debt (210) (210) 7,591 7,591
Earnings per common share: Current liabilities: Other long-term liabilities (2,177) (1,958) Hurricane related costs (c) 5,861 5,861
Basic $ 0.40 $ 0.69 Current portion of long-term debt $ 120,255 $ 45,321 Due to related party (3,508) 2,403 Hurricane reimbursements (d) (5,220) (5,220)
Diluted $ 0.39 $ 0.68 Accounts payable-trade 180,374 182,153 Net cash provided by (used in) operating activities (30,204) 20,152 Non-cash compensation expense 3,309 3,309 2,902 2,902
Weighted average common shares outstanding: Other payables and accruals 108,489 100,695 CASH FLOWS FROM INVESTING ACTIVITIES Spread between FIFO and ECRC 21,215 (3,364) 17,851 (8,116) (2,062) (10,178)
Basic 31,633 31,241 Due to related party 17,238 20,918 Kraton purchase of property, plant, and equipment (22,327) (23,373) Adjusted EBITDA $ 48,153 $ 41,279 $ 89,432 $ 44,766 $ 43,859 $ 88,625
Diluted 31,901 31,851 Total current liabilities 426,356 349,087 KFPC purchase of property, plant, and equipment (783) (201)
Long-term debt, net of current portion 1,411,252 1,487,298 Purchase of software and other intangibles (3,287) (437)
Deferred income taxes 126,851 127,827 Net cash used in investing activities (26,397) (24,011)
Long-term operating lease liabilities 49,907 CASH FLOWS FROM FINANCING ACTIVITIES
Other long-term liabilities 180,518 182,893 Proceeds from debt 19,500 211,614
Total liabilities 2,194,884 2,147,105 Repayments of debt (4,310) (212,000)
KFPC proceeds from debt 14,600 10,197
Equity: KFPC repayments of debt (19,594) (25,337)
Kraton stockholders' equity: Capital lease payments (41) (258)
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued Purchase of treasury stock (2,684) (5,748)
Common stock, $0.01 par value; 500,000 shares authorized; 32,019 shares issued and outstanding at March 31, 2019; 31,917 shares issued and outstanding at December 31, 2018 320 319 Proceeds from the exercise of stock options 1,545 1,368
Additional paid in capital 389,500 385,921 Settlement of interest rate swap 2,587
Retained earnings 431,855 420,597 Debt issuance costs (3,110)
Accumulated other comprehensive loss (92,917) (91,699) Net cash provided by (used in) financing activities 9,016 (20,687)
Total Kraton stockholders' equity 728,758 715,138 Effect of exchange rate differences on cash (1,145) 347
Noncontrolling interest 33,296 32,461 Net decrease in cash and cash equivalents (48,730) (24,199)
Total equity 762,054 747,599 Cash and cash equivalents, beginning of period 85,891 89,052
Total liabilities and equity $ 2,956,938 $ 2,894,704 Cash and cash equivalents, end of period $ 37,161 $ 64,853

For further information:

H. Gene Shiels
Director of Investor Relations

(281) 504-4886

 

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