|
|
|
ý
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
Delaware
|
20-0411521
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
|
|
15710 John F. Kennedy Blvd.
Suite 300
Houston, TX 77032
|
281-504-4700
|
(Address of principal executive offices, including zip code)
|
(Registrant’s telephone number, including area code)
|
|
Large accelerated filer:
|
ý
|
|
Accelerated filer:
|
¨
|
Non-accelerated filer:
|
¨
|
|
Smaller reporting company:
|
¨
|
|
|
|
Emerging growth company:
|
o
|
|
PART I. FINANCIAL INFORMATION
|
Page
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
PART II. OTHER INFORMATION
|
|
||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|
|
|
|
|||
|
|||
|
|
|
|
|
|
Item 1.
|
Condensed Consolidated Financial Statements.
|
|
March 31, 2017
|
|
December 31, 2016
|
||||
|
(unaudited)
|
|
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
104,066
|
|
|
$
|
121,749
|
|
Receivables, net of allowances of $929 and $814
|
216,330
|
|
|
200,860
|
|
||
Inventories of products
|
386,900
|
|
|
327,996
|
|
||
Inventories of materials and supplies
|
23,671
|
|
|
22,392
|
|
||
Prepaid expenses
|
36,628
|
|
|
35,851
|
|
||
Other current assets
|
39,267
|
|
|
37,658
|
|
||
Total current assets
|
806,862
|
|
|
746,506
|
|
||
Property, plant, and equipment, less accumulated depreciation of $438,005 and $411,418
|
921,411
|
|
|
906,722
|
|
||
Goodwill
|
770,525
|
|
|
770,012
|
|
||
Intangible assets, less accumulated amortization of $155,595 and $144,946
|
430,329
|
|
|
439,198
|
|
||
Investment in unconsolidated joint venture
|
11,003
|
|
|
11,195
|
|
||
Debt issuance costs
|
3,218
|
|
|
3,511
|
|
||
Deferred income taxes
|
7,113
|
|
|
6,907
|
|
||
Other long-term assets
|
24,752
|
|
|
22,594
|
|
||
Total assets
|
$
|
2,975,213
|
|
|
$
|
2,906,645
|
|
LIABILITIES AND EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Current portion of long-term debt
|
$
|
28,192
|
|
|
$
|
41,825
|
|
Accounts payable-trade
|
165,792
|
|
|
150,081
|
|
||
Other payables and accruals
|
112,122
|
|
|
130,398
|
|
||
Due to related party
|
20,895
|
|
|
14,669
|
|
||
Total current liabilities
|
327,001
|
|
|
336,973
|
|
||
Long-term debt, net of current portion
|
1,753,382
|
|
|
1,697,700
|
|
||
Deferred income taxes
|
211,380
|
|
|
211,396
|
|
||
Other long-term liabilities
|
171,687
|
|
|
170,339
|
|
||
Total liabilities
|
2,463,450
|
|
|
2,416,408
|
|
||
Commitments and contingencies (note 10)
|
|
|
|
||||
Equity:
|
|
|
|
||||
Kraton stockholders' equity:
|
|
|
|
||||
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value; 500,000 shares authorized; 31,176 shares issued and outstanding at March 31, 2017; 30,960 shares issued and outstanding at December 31, 2016
|
312
|
|
|
310
|
|
||
Additional paid in capital
|
364,194
|
|
|
361,682
|
|
||
Retained earnings
|
260,852
|
|
|
254,439
|
|
||
Accumulated other comprehensive loss
|
(145,593
|
)
|
|
(158,530
|
)
|
||
Total Kraton stockholders' equity
|
479,765
|
|
|
457,901
|
|
||
Noncontrolling interest
|
31,998
|
|
|
32,336
|
|
||
Total equity
|
511,763
|
|
|
490,237
|
|
||
Total liabilities and equity
|
$
|
2,975,213
|
|
|
$
|
2,906,645
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Revenue
|
$
|
458,125
|
|
|
$
|
419,923
|
|
Cost of goods sold
|
314,759
|
|
|
326,105
|
|
||
Gross profit
|
143,366
|
|
|
93,818
|
|
||
Operating expenses:
|
|
|
|
||||
Research and development
|
10,345
|
|
|
10,576
|
|
||
Selling, general, and administrative
|
40,555
|
|
|
49,862
|
|
||
Depreciation and amortization
|
33,143
|
|
|
30,154
|
|
||
Operating income
|
59,323
|
|
|
3,226
|
|
||
Disposition and exit of business activities
|
—
|
|
|
45,251
|
|
||
Loss on extinguishment of debt
|
(19,738
|
)
|
|
(13,423
|
)
|
||
Earnings of unconsolidated joint venture
|
127
|
|
|
78
|
|
||
Interest expense, net
|
(34,305
|
)
|
|
(33,838
|
)
|
||
Income before income taxes
|
5,407
|
|
|
1,294
|
|
||
Income tax benefit (expense)
|
(1,218
|
)
|
|
86,251
|
|
||
Consolidated net income
|
4,189
|
|
|
87,545
|
|
||
Net loss attributable to noncontrolling interest
|
2,224
|
|
|
542
|
|
||
Net income attributable to Kraton
|
$
|
6,413
|
|
|
$
|
88,087
|
|
Earnings per common share:
|
|
|
|
||||
Basic
|
$
|
0.21
|
|
|
$
|
2.87
|
|
Diluted
|
$
|
0.20
|
|
|
$
|
2.84
|
|
Weighted average common shares outstanding:
|
|
|
|
||||
Basic
|
30,430
|
|
|
30,026
|
|
||
Diluted
|
30,851
|
|
|
30,289
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Net income attributable to Kraton
|
$
|
6,413
|
|
|
$
|
88,087
|
|
Other comprehensive income:
|
|
|
|
||||
Foreign currency translation adjustments, net of tax of $0
|
12,135
|
|
|
25,567
|
|
||
Unrealized gain (loss) on cash flow hedges, net of tax expense of $450 and benefit of $1,000
|
843
|
|
|
(2,260
|
)
|
||
Reclassification of gain on cash flow hedge
|
(41
|
)
|
|
—
|
|
||
Other comprehensive income, net of tax
|
12,937
|
|
|
23,307
|
|
||
Comprehensive income attributable to Kraton
|
19,350
|
|
|
111,394
|
|
||
Comprehensive income (loss) attributable to noncontrolling interest
|
(338
|
)
|
|
204
|
|
||
Consolidated comprehensive income
|
$
|
19,012
|
|
|
$
|
111,598
|
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Loss
|
|
Total Kraton Stockholders' Equity
|
|
Noncontrolling Interest
|
|
Total Equity
|
||||||||||||||
Balance at December 31, 2015
|
$
|
306
|
|
|
$
|
349,871
|
|
|
$
|
147,131
|
|
|
$
|
(138,568
|
)
|
|
$
|
358,740
|
|
|
$
|
34,252
|
|
|
$
|
392,992
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
88,087
|
|
|
—
|
|
|
88,087
|
|
|
(542
|
)
|
|
87,545
|
|
|||||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
23,307
|
|
|
23,307
|
|
|
746
|
|
|
24,053
|
|
|||||||
Retired treasury stock from employee tax withholdings
|
(1
|
)
|
|
(953
|
)
|
|
—
|
|
|
—
|
|
|
(954
|
)
|
|
—
|
|
|
(954
|
)
|
|||||||
Exercise of stock options
|
—
|
|
|
169
|
|
|
—
|
|
|
—
|
|
|
169
|
|
|
—
|
|
|
169
|
|
|||||||
Non-cash compensation related to equity awards
|
3
|
|
|
3,080
|
|
|
—
|
|
|
—
|
|
|
3,083
|
|
|
—
|
|
|
3,083
|
|
|||||||
Balance at March 31, 2016
|
$
|
308
|
|
|
$
|
352,167
|
|
|
$
|
235,218
|
|
|
$
|
(115,261
|
)
|
|
$
|
472,432
|
|
|
$
|
34,456
|
|
|
$
|
506,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance at December 31, 2016
|
$
|
310
|
|
|
$
|
361,682
|
|
|
$
|
254,439
|
|
|
$
|
(158,530
|
)
|
|
$
|
457,901
|
|
|
$
|
32,336
|
|
|
$
|
490,237
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
6,413
|
|
|
—
|
|
|
6,413
|
|
|
(2,224
|
)
|
|
4,189
|
|
|||||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
12,937
|
|
|
12,937
|
|
|
1,886
|
|
|
14,823
|
|
|||||||
Retired treasury stock from employee tax withholdings
|
(1
|
)
|
|
(1,510
|
)
|
|
—
|
|
|
—
|
|
|
(1,511
|
)
|
|
—
|
|
|
(1,511
|
)
|
|||||||
Exercise of stock options
|
—
|
|
|
1,051
|
|
|
—
|
|
|
—
|
|
|
1,051
|
|
|
—
|
|
|
1,051
|
|
|||||||
Non-cash compensation related to equity awards
|
3
|
|
|
2,971
|
|
|
—
|
|
|
—
|
|
|
2,974
|
|
|
—
|
|
|
2,974
|
|
|||||||
Balance at March 31, 2017
|
$
|
312
|
|
|
$
|
364,194
|
|
|
$
|
260,852
|
|
|
$
|
(145,593
|
)
|
|
$
|
479,765
|
|
|
$
|
31,998
|
|
|
$
|
511,763
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
||||
Consolidated net income
|
$
|
4,189
|
|
|
$
|
87,545
|
|
Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities:
|
|
|
|
||||
Depreciation and amortization
|
33,143
|
|
|
30,154
|
|
||
Amortization of original issue discount
|
2,093
|
|
|
1,655
|
|
||
Amortization of debt issuance costs
|
2,381
|
|
|
1,959
|
|
||
(Gain) loss on disposal of property, plant, and equipment
|
(29
|
)
|
|
82
|
|
||
Disposition and exit of business activities
|
—
|
|
|
(45,251
|
)
|
||
Loss on extinguishment of debt
|
19,738
|
|
|
13,423
|
|
||
Earnings from unconsolidated joint venture, net of dividends received
|
309
|
|
|
369
|
|
||
Deferred income tax benefit
|
(1,177
|
)
|
|
(2,643
|
)
|
||
Release of valuation allowance
|
—
|
|
|
(86,631
|
)
|
||
Share-based compensation
|
2,974
|
|
|
3,083
|
|
||
Decrease (increase) in:
|
|
|
|
||||
Accounts receivable
|
(13,188
|
)
|
|
(15,551
|
)
|
||
Inventories of products, materials, and supplies
|
(56,818
|
)
|
|
26,478
|
|
||
Other assets
|
(1,584
|
)
|
|
(10,393
|
)
|
||
Increase (decrease) in:
|
|
|
|
||||
Accounts payable-trade
|
20,262
|
|
|
(10,272
|
)
|
||
Other payables and accruals
|
(14,122
|
)
|
|
(27,952
|
)
|
||
Other long-term liabilities
|
(157
|
)
|
|
6,176
|
|
||
Due to related party
|
5,427
|
|
|
1,154
|
|
||
Net cash provided by (used in) operating activities
|
3,441
|
|
|
(26,615
|
)
|
||
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
||||
Kraton purchase of property, plant, and equipment
|
(27,279
|
)
|
|
(18,502
|
)
|
||
KFPC purchase of property, plant, and equipment
|
(5,558
|
)
|
|
(8,325
|
)
|
||
Purchase of software and other intangibles
|
(1,514
|
)
|
|
(352
|
)
|
||
Acquisition, net of cash acquired
|
—
|
|
|
(1,317,252
|
)
|
||
Sale of assets
|
—
|
|
|
72,000
|
|
||
Net cash used in investing activities
|
(34,351
|
)
|
|
(1,272,431
|
)
|
||
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
||||
Proceeds from debt
|
415,000
|
|
|
1,782,965
|
|
||
Repayments of debt
|
(407,000
|
)
|
|
(430,133
|
)
|
||
KFPC proceeds from debt
|
13,244
|
|
|
12,100
|
|
||
Capital lease payments
|
(237
|
)
|
|
(35
|
)
|
||
Purchase of treasury stock
|
(1,511
|
)
|
|
(954
|
)
|
||
Proceeds from the exercise of stock options
|
1,051
|
|
|
169
|
|
||
Settlement of interest rate swap
|
—
|
|
|
(5,155
|
)
|
||
Debt issuance costs
|
(9,318
|
)
|
|
(57,116
|
)
|
||
Net cash provided by financing activities
|
11,229
|
|
|
1,301,841
|
|
||
Effect of exchange rate differences on cash
|
1,998
|
|
|
5,534
|
|
||
Net increase (decrease) in cash and cash equivalents
|
(17,683
|
)
|
|
8,329
|
|
||
Cash and cash equivalents, beginning of period
|
121,749
|
|
|
70,049
|
|
||
Cash and cash equivalents, end of period
|
$
|
104,066
|
|
|
$
|
78,378
|
|
Supplemental disclosures:
|
|
|
|
||||
Cash paid during the period for income taxes, net of refunds received
|
$
|
6,523
|
|
|
$
|
3,792
|
|
Cash paid during the period for interest, net of capitalized interest
|
$
|
17,741
|
|
|
$
|
19,690
|
|
Capitalized interest
|
$
|
1,215
|
|
|
$
|
797
|
|
Supplemental non-cash disclosures:
|
|
|
|
||||
Property, plant, and equipment accruals
|
$
|
23,796
|
|
|
$
|
15,121
|
|
•
|
the useful lives of long-lived assets;
|
•
|
estimates of fair value for assets acquired and liabilities assumed in business combinations;
|
•
|
allowances for doubtful accounts and sales returns;
|
•
|
the valuation of derivatives, deferred tax assets, property, plant and equipment, intangible assets, inventory, investments, and share-based compensation; and
|
•
|
liabilities for employee benefit obligations, environmental matters, asset retirement obligations, income tax uncertainties, and other contingencies.
|
|
March 31, 2017
|
|
December 31, 2016
|
||||
|
(In thousands)
|
||||||
Inventories of products:
|
|
|
|
||||
Finished products
|
$
|
281,597
|
|
|
$
|
237,698
|
|
Work in progress
|
7,643
|
|
|
5,648
|
|
||
Raw materials
|
97,660
|
|
|
84,650
|
|
||
Total inventories of products
|
$
|
386,900
|
|
|
$
|
327,996
|
|
Intangible assets:
|
|
|
|
||||
Contractual agreements
|
$
|
258,592
|
|
|
$
|
258,646
|
|
Technology
|
145,756
|
|
|
145,320
|
|
||
Customer relationships
|
59,972
|
|
|
59,977
|
|
||
Tradenames/trademarks
|
78,039
|
|
|
77,666
|
|
||
Software
|
43,565
|
|
|
42,535
|
|
||
Intangible assets
|
585,924
|
|
|
584,144
|
|
||
Less accumulated amortization:
|
|
|
|
||||
Contractual agreements
|
25,537
|
|
|
20,757
|
|
||
Technology
|
46,749
|
|
|
44,698
|
|
||
Customer relationships
|
32,775
|
|
|
31,863
|
|
||
Tradenames/trademarks
|
26,933
|
|
|
25,363
|
|
||
Software
|
23,601
|
|
|
22,265
|
|
||
Total accumulated amortization
|
155,595
|
|
|
144,946
|
|
||
Intangible assets, net of accumulated amortization
|
$
|
430,329
|
|
|
$
|
439,198
|
|
Other payables and accruals:
|
|
|
|
||||
Employee related
|
$
|
23,520
|
|
|
$
|
33,947
|
|
Interest payable
|
21,952
|
|
|
10,135
|
|
||
Property, plant, and equipment accruals
|
20,149
|
|
|
26,260
|
|
||
Other
|
46,501
|
|
|
60,056
|
|
||
Total other payables and accruals
|
$
|
112,122
|
|
|
$
|
130,398
|
|
Other long-term liabilities:
|
|
|
|
||||
Pension and other post-retirement benefits
|
$
|
138,630
|
|
|
$
|
138,188
|
|
Other
|
33,057
|
|
|
32,151
|
|
||
Total other long-term liabilities
|
$
|
171,687
|
|
|
$
|
170,339
|
|
|
Cumulative Foreign Currency Translation
|
|
Net Unrealized Gain (Loss) on Cash Flow Hedges
|
|
Net Unrealized Loss on Net Investment Hedges
|
|
Benefit Plans Liability, Net of Tax
|
|
Total
|
||||||||||
|
(In thousands)
|
||||||||||||||||||
December 31, 2015
|
$
|
(65,995
|
)
|
|
$
|
—
|
|
|
$
|
(1,926
|
)
|
|
$
|
(70,647
|
)
|
|
$
|
(138,568
|
)
|
Other comprehensive income (loss) before reclassifications
|
25,567
|
|
|
(2,260
|
)
|
|
—
|
|
|
—
|
|
|
23,307
|
|
|||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net other comprehensive income (loss) for the year
|
25,567
|
|
|
(2,260
|
)
|
|
—
|
|
|
—
|
|
|
23,307
|
|
|||||
March 31, 2016
|
$
|
(40,428
|
)
|
|
$
|
(2,260
|
)
|
|
$
|
(1,926
|
)
|
|
$
|
(70,647
|
)
|
|
$
|
(115,261
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
December 31, 2016
|
$
|
(72,731
|
)
|
|
$
|
515
|
|
|
$
|
(1,926
|
)
|
|
$
|
(84,388
|
)
|
|
$
|
(158,530
|
)
|
Other comprehensive income before reclassifications
|
12,135
|
|
|
843
|
|
|
—
|
|
|
—
|
|
|
12,978
|
|
|||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
—
|
|
|
(41
|
)
|
|||||
Net other comprehensive income for the year
|
12,135
|
|
|
802
|
|
|
—
|
|
|
—
|
|
|
12,937
|
|
|||||
March 31, 2017
|
$
|
(60,596
|
)
|
|
$
|
1,317
|
|
|
$
|
(1,926
|
)
|
|
$
|
(84,388
|
)
|
|
$
|
(145,593
|
)
|
|
Three Months Ended March 31, 2017
|
|
Three Months Ended March 31, 2016
|
||||||||||||||||||
|
Net Income Attributable to Kraton
|
|
Weighted Average Shares Outstanding
|
|
Earnings Per Share
|
|
Net Income Attributable to Kraton
|
|
Weighted Average Shares Outstanding
|
|
Earnings Per Share
|
||||||||||
|
(In thousands, except per share data)
|
||||||||||||||||||||
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
As reported
|
$
|
6,413
|
|
|
31,032
|
|
|
|
|
$
|
88,087
|
|
|
30,710
|
|
|
|
||||
Amounts allocated to unvested restricted shares
|
(124
|
)
|
|
(602
|
)
|
|
|
|
(1,962
|
)
|
|
(684
|
)
|
|
|
||||||
Amounts available to common stockholders
|
6,289
|
|
|
30,430
|
|
|
$
|
0.21
|
|
|
86,125
|
|
|
30,026
|
|
|
$
|
2.87
|
|
||
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Amounts allocated to unvested restricted shares
|
124
|
|
|
602
|
|
|
|
|
1,962
|
|
|
684
|
|
|
|
||||||
Non participating share units
|
—
|
|
|
187
|
|
|
|
|
—
|
|
|
216
|
|
|
|
||||||
Stock options added under the treasury stock method
|
—
|
|
|
234
|
|
|
|
|
—
|
|
|
47
|
|
|
|
||||||
Amounts reallocated to unvested restricted shares
|
(123
|
)
|
|
(602
|
)
|
|
|
|
(1,945
|
)
|
|
(684
|
)
|
|
|
||||||
Amounts available to stockholders and assumed conversions
|
$
|
6,290
|
|
|
30,851
|
|
|
$
|
0.20
|
|
|
$
|
86,142
|
|
|
30,289
|
|
|
$
|
2.84
|
|
|
March 31, 2017
|
|
December 31, 2016
|
||||||||||||||||||||||||||||
|
Principal
|
|
Discount
|
|
Debt Issuance Costs
|
|
Total
|
|
Principal
|
|
Premium
|
|
Debt Issuance Costs
|
|
Total
|
||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||||||||
Term Loan
|
$
|
886,000
|
|
|
$
|
(22,497
|
)
|
|
$
|
(22,269
|
)
|
|
$
|
841,234
|
|
|
$
|
1,278,000
|
|
|
$
|
(34,085
|
)
|
|
$
|
(31,662
|
)
|
|
$
|
1,212,253
|
|
10.5% Senior Notes
|
440,000
|
|
|
(14,595
|
)
|
|
(15,849
|
)
|
|
409,556
|
|
|
440,000
|
|
|
(15,038
|
)
|
|
(16,329
|
)
|
|
408,633
|
|
||||||||
7.0% Senior Notes
|
400,000
|
|
|
—
|
|
|
(7,789
|
)
|
|
392,211
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
KFPC Loan Agreement
|
136,001
|
|
|
—
|
|
|
(233
|
)
|
|
135,768
|
|
|
115,854
|
|
|
—
|
|
|
(257
|
)
|
|
115,597
|
|
||||||||
Capital lease obligation
|
2,805
|
|
|
—
|
|
|
—
|
|
|
2,805
|
|
|
3,042
|
|
|
—
|
|
|
—
|
|
|
3,042
|
|
||||||||
Total debt
|
1,864,806
|
|
|
(37,092
|
)
|
|
(46,140
|
)
|
|
1,781,574
|
|
|
1,836,896
|
|
|
(49,123
|
)
|
|
(48,248
|
)
|
|
1,739,525
|
|
||||||||
Less current portion of total debt
|
28,192
|
|
|
—
|
|
|
—
|
|
|
28,192
|
|
|
41,825
|
|
|
—
|
|
|
—
|
|
|
41,825
|
|
||||||||
Long-term debt
|
$
|
1,836,614
|
|
|
$
|
(37,092
|
)
|
|
$
|
(46,140
|
)
|
|
$
|
1,753,382
|
|
|
$
|
1,795,071
|
|
|
$
|
(49,123
|
)
|
|
$
|
(48,248
|
)
|
|
$
|
1,697,700
|
|
|
Principal Payments
|
||
|
(In thousands)
|
||
April 1, 2017 through March 31, 2018
|
$
|
28,192
|
|
April 1, 2018 through March 31, 2019
|
27,871
|
|
|
April 1, 2019 through March 31, 2020
|
81,772
|
|
|
April 1, 2020 through March 31, 2021
|
182
|
|
|
April 1, 2021 through March 31, 2022
|
886,193
|
|
|
Thereafter
|
840,596
|
|
|
Total debt
|
$
|
1,864,806
|
|
•
|
Level 1—Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
•
|
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:
|
•
|
Quoted prices for similar assets or liabilities in active markets
|
•
|
Quoted prices for identical or similar assets or liabilities in markets that are not active
|
•
|
Inputs other than quoted prices that are observable for the asset or liability
|
•
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
|
•
|
Level 3—Inputs that are unobservable and reflect our assumptions used in pricing the asset or liability based on the best information available under the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).
|
|
March 31, 2017
|
|
December 31, 2016
|
||||||||||||
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
||||||||
|
(In thousands)
|
||||||||||||||
Term Loan (significant other observable inputs – level 2)
|
$
|
886,000
|
|
|
$
|
900,951
|
|
|
$
|
1,278,000
|
|
|
$
|
1,293,975
|
|
10.5% Senior Notes (quoted prices in active market for identical assets – level 1)
|
$
|
440,000
|
|
|
$
|
505,019
|
|
|
$
|
440,000
|
|
|
$
|
501,600
|
|
7.0% Senior Notes (quoted prices in active market for identical assets – level 1)
|
$
|
400,000
|
|
|
$
|
405,368
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Capital lease obligation (significant other observable inputs – level 2)
|
$
|
2,805
|
|
|
$
|
2,805
|
|
|
$
|
3,042
|
|
|
$
|
3,042
|
|
KFPC Loan Agreement
|
$
|
136,001
|
|
|
$
|
136,001
|
|
|
$
|
115,854
|
|
|
$
|
115,854
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(In thousands)
|
||||||
Income taxes at the statutory rate
|
$
|
(1,892
|
)
|
|
$
|
(453
|
)
|
State taxes, net of federal benefit
|
(139
|
)
|
|
(41
|
)
|
||
Foreign tax rate differential
|
1,790
|
|
|
1,229
|
|
||
Permanent differences
|
(330
|
)
|
|
(925
|
)
|
||
Uncertain tax positions
|
(575
|
)
|
|
(295
|
)
|
||
Valuation allowance
|
(75
|
)
|
|
86,732
|
|
||
Return to provision adjustments
|
3
|
|
|
—
|
|
||
Other
|
—
|
|
|
4
|
|
||
Income tax benefit (expense)
|
$
|
(1,218
|
)
|
|
$
|
86,251
|
|
|
Three Months Ended March 31,
|
||||
|
2017
|
|
2016
|
||
Income taxes at the statutory rate
|
(35.0
|
)%
|
|
(35.0
|
)%
|
State taxes, net of federal benefit
|
(2.6
|
)
|
|
(3.2
|
)
|
Foreign tax rate differential
|
33.1
|
|
|
95.0
|
|
Permanent differences
|
(6.1
|
)
|
|
(71.5
|
)
|
Uncertain tax positions
|
(10.6
|
)
|
|
(22.8
|
)
|
Valuation allowance
|
(1.4
|
)
|
|
6,702.9
|
|
Return to provision adjustments
|
0.1
|
|
|
—
|
|
Other
|
—
|
|
|
0.1
|
|
Effective tax rate
|
(22.5
|
)%
|
|
6,665.5
|
%
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(In thousands)
|
||||||
Beginning balance
|
$
|
8,863
|
|
|
$
|
10,078
|
|
Obligations assumed in Arizona Chemical Acquisition
|
—
|
|
|
1,908
|
|
||
Accretion expense
|
73
|
|
|
112
|
|
||
Obligations settled
|
(177
|
)
|
|
(1,021
|
)
|
||
Foreign currency translation, net
|
61
|
|
|
190
|
|
||
Ending Balance
|
$
|
8,820
|
|
|
$
|
11,267
|
|
|
Three Months Ended March 31,
|
||||||||||||||
|
2017
|
|
2016
|
||||||||||||
|
U.S Plans
|
|
Non-U.S. Plans
|
|
U.S Plans
|
|
Non-U.S. Plans
|
||||||||
|
(In thousands)
|
||||||||||||||
Service cost
|
$
|
830
|
|
|
$
|
646
|
|
|
$
|
932
|
|
|
$
|
521
|
|
Interest cost
|
1,814
|
|
|
721
|
|
|
1,847
|
|
|
793
|
|
||||
Expected return on plan assets
|
(2,353
|
)
|
|
(827
|
)
|
|
(2,335
|
)
|
|
(920
|
)
|
||||
Amortization of prior service cost
|
907
|
|
|
56
|
|
|
763
|
|
|
6
|
|
||||
Net periodic benefit cost
|
$
|
1,198
|
|
|
$
|
596
|
|
|
$
|
1,207
|
|
|
$
|
400
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
2016
|
|||||
|
U.S Plans
|
|
U.S Plans
|
||||
|
(In thousands)
|
||||||
Service cost
|
$
|
145
|
|
|
$
|
143
|
|
Interest cost
|
340
|
|
|
335
|
|
||
Amortization of prior service cost
|
150
|
|
|
132
|
|
||
Net periodic benefit cost
|
$
|
635
|
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Three Months Ended March 31, 2016
|
||||||||||||||||||||
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
(1)
|
|
Total
|
||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
Revenue
|
$
|
270,948
|
|
|
$
|
187,177
|
|
|
$
|
458,125
|
|
|
$
|
243,043
|
|
|
$
|
176,880
|
|
|
$
|
419,923
|
|
Cost of goods sold
|
181,911
|
|
|
132,848
|
|
|
314,759
|
|
|
177,518
|
|
|
148,587
|
|
|
326,105
|
|
||||||
Gross profit
|
89,037
|
|
|
54,329
|
|
|
143,366
|
|
|
65,525
|
|
|
28,293
|
|
|
93,818
|
|
||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Research and development
|
7,513
|
|
|
2,832
|
|
|
10,345
|
|
|
7,852
|
|
|
2,724
|
|
|
10,576
|
|
||||||
Selling, general, and administrative
|
23,572
|
|
|
16,983
|
|
|
40,555
|
|
|
29,135
|
|
|
20,727
|
|
|
49,862
|
|
||||||
Depreciation and amortization
|
16,324
|
|
|
16,819
|
|
|
33,143
|
|
|
14,592
|
|
|
15,562
|
|
|
30,154
|
|
||||||
Operating income (loss)
|
$
|
41,628
|
|
|
$
|
17,695
|
|
|
59,323
|
|
|
$
|
13,946
|
|
|
$
|
(10,720
|
)
|
|
3,226
|
|
||
Disposition and exit of business activities
|
|
|
|
|
—
|
|
|
|
|
|
|
45,251
|
|
||||||||||
Loss on extinguishment of debt
|
|
|
|
|
(19,738
|
)
|
|
|
|
|
|
(13,423
|
)
|
||||||||||
Earnings of unconsolidated joint venture
|
|
|
|
|
127
|
|
|
|
|
|
|
78
|
|
||||||||||
Interest expense, net
|
|
|
|
|
(34,305
|
)
|
|
|
|
|
|
(33,838
|
)
|
||||||||||
Income before income taxes
|
|
|
|
|
$
|
5,407
|
|
|
|
|
|
|
$
|
1,294
|
|
|
March 31, 2017
|
|
December 31, 2016
|
||||||||||||||||||||
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
Property, plant, and equipment, net
|
$
|
559,700
|
|
|
$
|
361,711
|
|
|
$
|
921,411
|
|
|
$
|
548,994
|
|
|
$
|
357,728
|
|
|
$
|
906,722
|
|
Investment in unconsolidated joint venture
|
$
|
11,003
|
|
|
$
|
—
|
|
|
$
|
11,003
|
|
|
$
|
11,195
|
|
|
$
|
—
|
|
|
$
|
11,195
|
|
Goodwill
|
$
|
—
|
|
|
$
|
770,525
|
|
|
$
|
770,525
|
|
|
$
|
—
|
|
|
$
|
770,012
|
|
|
$
|
770,012
|
|
Total assets
|
$
|
1,189,163
|
|
|
$
|
1,786,050
|
|
|
$
|
2,975,213
|
|
|
$
|
1,127,273
|
|
|
$
|
1,779,372
|
|
|
$
|
2,906,645
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(In thousands)
|
||||||
Revenue:
|
|
|
|
||||
United States
|
$
|
168,302
|
|
|
$
|
163,044
|
|
Germany
|
46,951
|
|
|
41,121
|
|
||
All other countries
|
242,872
|
|
|
215,758
|
|
||
|
$
|
458,125
|
|
|
$
|
419,923
|
|
|
March 31, 2017
|
|
December 31, 2016
|
||||
|
(In thousands)
|
||||||
Cash and cash equivalents
|
$
|
17,932
|
|
|
$
|
14,150
|
|
Other current assets
|
16,300
|
|
|
13,385
|
|
||
Property, plant, and equipment, net
|
175,571
|
|
|
167,579
|
|
||
Intangible assets
|
9,969
|
|
|
9,403
|
|
||
Other long-term assets
|
2,740
|
|
|
2,495
|
|
||
Total assets
|
$
|
222,512
|
|
|
$
|
207,012
|
|
|
|
|
|
||||
Current portion of long-term debt
|
$
|
27,200
|
|
|
$
|
11,585
|
|
Current liabilities
|
22,748
|
|
|
26,743
|
|
||
Long-term debt
|
108,568
|
|
|
104,012
|
|
||
Total liabilities
|
$
|
158,516
|
|
|
$
|
142,340
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
||||||||||||
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
404
|
|
|
$
|
8,806
|
|
|
$
|
94,856
|
|
|
$
|
—
|
|
|
$
|
104,066
|
|
Receivables, net of allowances
|
—
|
|
|
673
|
|
|
90,673
|
|
|
124,984
|
|
|
—
|
|
|
216,330
|
|
||||||
Inventories of products
|
—
|
|
|
(5,600
|
)
|
|
214,447
|
|
|
178,053
|
|
|
—
|
|
|
386,900
|
|
||||||
Inventories of materials and supplies
|
—
|
|
|
—
|
|
|
13,612
|
|
|
10,059
|
|
|
—
|
|
|
23,671
|
|
||||||
Prepaid expenses
|
—
|
|
|
6,828
|
|
|
21,553
|
|
|
8,247
|
|
|
—
|
|
|
36,628
|
|
||||||
Other current assets
|
—
|
|
|
808
|
|
|
8,074
|
|
|
30,385
|
|
|
—
|
|
|
39,267
|
|
||||||
Total current assets
|
—
|
|
|
3,113
|
|
|
357,165
|
|
|
446,584
|
|
|
—
|
|
|
806,862
|
|
||||||
Property, plant, and equipment, less accumulated depreciation
|
—
|
|
|
25,375
|
|
|
458,393
|
|
|
437,643
|
|
|
—
|
|
|
921,411
|
|
||||||
Goodwill
|
—
|
|
|
—
|
|
|
740,391
|
|
|
30,134
|
|
|
—
|
|
|
770,525
|
|
||||||
Intangible assets, less accumulated amortization
|
—
|
|
|
31,035
|
|
|
343,463
|
|
|
55,831
|
|
|
—
|
|
|
430,329
|
|
||||||
Investment in consolidated subsidiaries
|
625,358
|
|
|
3,005,346
|
|
|
—
|
|
|
—
|
|
|
(3,630,704
|
)
|
|
—
|
|
||||||
Investment in unconsolidated joint venture
|
—
|
|
|
813
|
|
|
—
|
|
|
10,190
|
|
|
—
|
|
|
11,003
|
|
||||||
Debt issuance costs
|
—
|
|
|
—
|
|
|
3,218
|
|
|
—
|
|
|
—
|
|
|
3,218
|
|
||||||
Deferred income taxes
|
—
|
|
|
213
|
|
|
—
|
|
|
6,900
|
|
|
—
|
|
|
7,113
|
|
||||||
Other long-term assets
|
—
|
|
|
90,385
|
|
|
1,861,691
|
|
|
1,010,678
|
|
|
(2,938,002
|
)
|
|
24,752
|
|
||||||
Total assets
|
$
|
625,358
|
|
|
$
|
3,156,280
|
|
|
$
|
3,764,321
|
|
|
$
|
1,997,960
|
|
|
$
|
(6,568,706
|
)
|
|
$
|
2,975,213
|
|
LIABILITIES AND STOCKHOLDERS' AND MEMBER'S EQUITY
|
|||||||||||||||||||||||
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
992
|
|
|
$
|
27,200
|
|
|
$
|
—
|
|
|
$
|
28,192
|
|
Accounts payable-trade
|
—
|
|
|
4,810
|
|
|
80,070
|
|
|
80,912
|
|
|
—
|
|
|
165,792
|
|
||||||
Other payables and accruals
|
—
|
|
|
28,736
|
|
|
39,668
|
|
|
43,718
|
|
|
—
|
|
|
112,122
|
|
||||||
Due to related party
|
—
|
|
|
—
|
|
|
—
|
|
|
20,895
|
|
|
—
|
|
|
20,895
|
|
||||||
Total current liabilities
|
—
|
|
|
33,546
|
|
|
120,730
|
|
|
172,725
|
|
|
—
|
|
|
327,001
|
|
||||||
Long-term debt, net of current portion
|
—
|
|
|
1,643,001
|
|
|
1,813
|
|
|
108,568
|
|
|
—
|
|
|
1,753,382
|
|
||||||
Deferred income taxes
|
—
|
|
|
(108,005
|
)
|
|
279,749
|
|
|
39,636
|
|
|
—
|
|
|
211,380
|
|
||||||
Other long-term liabilities
|
—
|
|
|
962,946
|
|
|
1,126,731
|
|
|
1,020,012
|
|
|
(2,938,002
|
)
|
|
171,687
|
|
||||||
Total liabilities
|
—
|
|
|
2,531,488
|
|
|
1,529,023
|
|
|
1,340,941
|
|
|
(2,938,002
|
)
|
|
2,463,450
|
|
||||||
Commitments and contingencies (note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Stockholders' and member's equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Common stock, $0.01 par value; 500,000 shares authorized
|
312
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
312
|
|
||||||
Additional paid in capital
|
364,194
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
364,194
|
|
||||||
Member's equity
|
—
|
|
|
625,358
|
|
|
2,302,038
|
|
|
703,308
|
|
|
(3,630,704
|
)
|
|
—
|
|
||||||
Retained earnings
|
260,852
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
260,852
|
|
||||||
Accumulated other comprehensive loss
|
—
|
|
|
(566
|
)
|
|
(66,740
|
)
|
|
(78,287
|
)
|
|
—
|
|
|
(145,593
|
)
|
||||||
Kraton Corporation stockholders' and member's equity
|
625,358
|
|
|
624,792
|
|
|
2,235,298
|
|
|
625,021
|
|
|
(3,630,704
|
)
|
|
479,765
|
|
||||||
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
31,998
|
|
|
—
|
|
|
31,998
|
|
||||||
Total stockholders' and member's equity
|
625,358
|
|
|
624,792
|
|
|
2,235,298
|
|
|
657,019
|
|
|
(3,630,704
|
)
|
|
511,763
|
|
||||||
Total liabilities and stockholders' and member's equity
|
$
|
625,358
|
|
|
$
|
3,156,280
|
|
|
$
|
3,764,321
|
|
|
$
|
1,997,960
|
|
|
$
|
(6,568,706
|
)
|
|
$
|
2,975,213
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
||||||||||||
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
214
|
|
|
$
|
6,280
|
|
|
$
|
115,255
|
|
|
$
|
—
|
|
|
$
|
121,749
|
|
Receivables, net of allowances
|
—
|
|
|
468
|
|
|
95,398
|
|
|
104,994
|
|
|
—
|
|
|
200,860
|
|
||||||
Inventories of products
|
—
|
|
|
(1,634
|
)
|
|
176,301
|
|
|
153,329
|
|
|
—
|
|
|
327,996
|
|
||||||
Inventories of materials and supplies
|
—
|
|
|
—
|
|
|
13,521
|
|
|
8,871
|
|
|
—
|
|
|
22,392
|
|
||||||
Prepaid expenses
|
—
|
|
|
6,077
|
|
|
20,635
|
|
|
9,139
|
|
|
—
|
|
|
35,851
|
|
||||||
Other current assets
|
—
|
|
|
253
|
|
|
8,209
|
|
|
29,196
|
|
|
—
|
|
|
37,658
|
|
||||||
Total current assets
|
—
|
|
|
5,378
|
|
|
320,344
|
|
|
420,784
|
|
|
—
|
|
|
746,506
|
|
||||||
Property, plant, and equipment, less accumulated depreciation
|
—
|
|
|
27,123
|
|
|
457,031
|
|
|
422,568
|
|
|
—
|
|
|
906,722
|
|
||||||
Goodwill
|
—
|
|
|
—
|
|
|
740,394
|
|
|
29,618
|
|
|
—
|
|
|
770,012
|
|
||||||
Intangible assets, less accumulated amortization
|
—
|
|
|
32,493
|
|
|
351,155
|
|
|
55,550
|
|
|
—
|
|
|
439,198
|
|
||||||
Investment in consolidated subsidiaries
|
616,431
|
|
|
2,952,279
|
|
|
—
|
|
|
—
|
|
|
(3,568,710
|
)
|
|
—
|
|
||||||
Investment in unconsolidated joint venture
|
—
|
|
|
813
|
|
|
—
|
|
|
10,382
|
|
|
—
|
|
|
11,195
|
|
||||||
Debt issuance costs
|
—
|
|
|
—
|
|
|
3,511
|
|
|
—
|
|
|
—
|
|
|
3,511
|
|
||||||
Deferred income taxes
|
—
|
|
|
213
|
|
|
—
|
|
|
6,694
|
|
|
—
|
|
|
6,907
|
|
||||||
Other long-term assets
|
—
|
|
|
77,963
|
|
|
1,876,402
|
|
|
1,006,230
|
|
|
(2,938,001
|
)
|
|
22,594
|
|
||||||
Total assets
|
$
|
616,431
|
|
|
$
|
3,096,262
|
|
|
$
|
3,748,837
|
|
|
$
|
1,951,826
|
|
|
$
|
(6,506,711
|
)
|
|
$
|
2,906,645
|
|
LIABILITIES AND STOCKHOLDERS’ AND MEMBER’S EQUITY
|
|||||||||||||||||||||||
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
29,250
|
|
|
$
|
990
|
|
|
$
|
11,585
|
|
|
$
|
—
|
|
|
$
|
41,825
|
|
Accounts payable-trade
|
—
|
|
|
5,318
|
|
|
73,501
|
|
|
71,262
|
|
|
—
|
|
|
150,081
|
|
||||||
Other payables and accruals
|
—
|
|
|
22,266
|
|
|
51,488
|
|
|
56,644
|
|
|
—
|
|
|
130,398
|
|
||||||
Due to related party
|
—
|
|
|
—
|
|
|
—
|
|
|
14,669
|
|
|
—
|
|
|
14,669
|
|
||||||
Total current liabilities
|
—
|
|
|
56,834
|
|
|
125,979
|
|
|
154,160
|
|
|
—
|
|
|
336,973
|
|
||||||
Long-term debt, net of current portion
|
—
|
|
|
1,591,637
|
|
|
2,051
|
|
|
104,012
|
|
|
—
|
|
|
1,697,700
|
|
||||||
Deferred income taxes
|
—
|
|
|
(104,841
|
)
|
|
277,756
|
|
|
38,481
|
|
|
—
|
|
|
211,396
|
|
||||||
Other long-term liabilities
|
—
|
|
|
937,569
|
|
|
1,142,952
|
|
|
1,027,819
|
|
|
(2,938,001
|
)
|
|
170,339
|
|
||||||
Total liabilities
|
—
|
|
|
2,481,199
|
|
|
1,548,738
|
|
|
1,324,472
|
|
|
(2,938,001
|
)
|
|
2,416,408
|
|
||||||
Commitments and contingencies (note 10)
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Stockholders’ and member’s equity:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Preferred stock, $.01 par value; 100,000 shares authorized; none issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Common stock, $.01 par value; 500,000 shares authorized
|
310
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
310
|
|
||||||
Additional paid in capital
|
361,682
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
361,682
|
|
||||||
Member’s equity
|
—
|
|
|
616,431
|
|
|
2,266,840
|
|
|
685,439
|
|
|
(3,568,710
|
)
|
|
—
|
|
||||||
Retained earnings
|
254,439
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
254,439
|
|
||||||
Accumulated other comprehensive loss
|
—
|
|
|
(1,368
|
)
|
|
(66,741
|
)
|
|
(90,421
|
)
|
|
—
|
|
|
(158,530
|
)
|
||||||
Kraton Corporation stockholders’ and member’s equity
|
616,431
|
|
|
615,063
|
|
|
2,200,099
|
|
|
595,018
|
|
|
(3,568,710
|
)
|
|
457,901
|
|
||||||
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
32,336
|
|
|
—
|
|
|
32,336
|
|
||||||
Total stockholders’ and member’s equity
|
616,431
|
|
|
615,063
|
|
|
2,200,099
|
|
|
627,354
|
|
|
(3,568,710
|
)
|
|
490,237
|
|
||||||
Total liabilities and stockholders’ and member’s equity
|
$
|
616,431
|
|
|
$
|
3,096,262
|
|
|
$
|
3,748,837
|
|
|
$
|
1,951,826
|
|
|
$
|
(6,506,711
|
)
|
|
$
|
2,906,645
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
||||||||||||
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
220,817
|
|
|
$
|
277,194
|
|
|
$
|
(39,886
|
)
|
|
$
|
458,125
|
|
Cost of goods sold
|
—
|
|
|
(25,959
|
)
|
|
134,566
|
|
|
246,038
|
|
|
(39,886
|
)
|
|
314,759
|
|
||||||
Gross profit
|
—
|
|
|
25,959
|
|
|
86,251
|
|
|
31,156
|
|
|
—
|
|
|
143,366
|
|
||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and development
|
—
|
|
|
3,909
|
|
|
2,530
|
|
|
3,906
|
|
|
—
|
|
|
10,345
|
|
||||||
Selling, general, and administrative
|
—
|
|
|
15,181
|
|
|
13,610
|
|
|
11,764
|
|
|
—
|
|
|
40,555
|
|
||||||
Depreciation and amortization
|
—
|
|
|
5,581
|
|
|
18,380
|
|
|
9,182
|
|
|
—
|
|
|
33,143
|
|
||||||
Other (income) expense
|
—
|
|
|
16
|
|
|
11,557
|
|
|
(11,573
|
)
|
|
—
|
|
|
—
|
|
||||||
Operating income (expense)
|
—
|
|
|
1,272
|
|
|
40,174
|
|
|
17,877
|
|
|
—
|
|
|
59,323
|
|
||||||
Loss on extinguishment of debt
|
—
|
|
|
(19,738
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,738
|
)
|
||||||
Earnings in consolidated subsidiaries
|
4,189
|
|
|
52,909
|
|
|
—
|
|
|
—
|
|
|
(57,098
|
)
|
|
—
|
|
||||||
Earnings of unconsolidated joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
127
|
|
|
—
|
|
|
127
|
|
||||||
Interest expense, net
|
—
|
|
|
(34,046
|
)
|
|
(209
|
)
|
|
(50
|
)
|
|
—
|
|
|
(34,305
|
)
|
||||||
Income (loss) before income taxes
|
4,189
|
|
|
397
|
|
|
39,965
|
|
|
17,954
|
|
|
(57,098
|
)
|
|
5,407
|
|
||||||
Income tax benefit (expense)
|
—
|
|
|
3,792
|
|
|
(2,702
|
)
|
|
(2,308
|
)
|
|
—
|
|
|
(1,218
|
)
|
||||||
Consolidated net income
|
4,189
|
|
|
4,189
|
|
|
37,263
|
|
|
15,646
|
|
|
(57,098
|
)
|
|
4,189
|
|
||||||
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
2,224
|
|
|
—
|
|
|
2,224
|
|
||||||
Net income attributable to Kraton
|
$
|
4,189
|
|
|
$
|
4,189
|
|
|
$
|
37,263
|
|
|
$
|
17,870
|
|
|
$
|
(57,098
|
)
|
|
$
|
6,413
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
||||||||||||
Revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
211,040
|
|
|
$
|
247,495
|
|
|
$
|
(38,612
|
)
|
|
$
|
419,923
|
|
Cost of goods sold
|
—
|
|
|
2,239
|
|
|
160,825
|
|
|
201,653
|
|
|
(38,612
|
)
|
|
326,105
|
|
||||||
Gross profit
|
—
|
|
|
(2,239
|
)
|
|
50,215
|
|
|
45,842
|
|
|
—
|
|
|
93,818
|
|
||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and development
|
—
|
|
|
4,045
|
|
|
2,749
|
|
|
3,782
|
|
|
—
|
|
|
10,576
|
|
||||||
Selling, general, and administrative
|
—
|
|
|
21,676
|
|
|
14,874
|
|
|
13,312
|
|
|
—
|
|
|
49,862
|
|
||||||
Depreciation and amortization
|
—
|
|
|
5,591
|
|
|
18,926
|
|
|
5,637
|
|
|
—
|
|
|
30,154
|
|
||||||
Other (income) expense
|
—
|
|
|
(34,256
|
)
|
|
20,438
|
|
|
13,818
|
|
|
—
|
|
|
—
|
|
||||||
Operating income (loss)
|
—
|
|
|
705
|
|
|
(6,772
|
)
|
|
9,293
|
|
|
—
|
|
|
3,226
|
|
||||||
Disposition and exit of business activities
|
—
|
|
|
—
|
|
|
45,251
|
|
|
—
|
|
|
—
|
|
|
45,251
|
|
||||||
Loss on extinguishment of debt
|
—
|
|
|
(13,423
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,423
|
)
|
||||||
Earnings in consolidated subsidiaries
|
87,545
|
|
|
49,979
|
|
|
—
|
|
|
—
|
|
|
(137,524
|
)
|
|
—
|
|
||||||
Earnings of unconsolidated joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
78
|
|
||||||
Interest income (expense), net
|
—
|
|
|
(33,369
|
)
|
|
(741
|
)
|
|
272
|
|
|
—
|
|
|
(33,838
|
)
|
||||||
Income before income taxes
|
87,545
|
|
|
3,892
|
|
|
37,738
|
|
|
9,643
|
|
|
(137,524
|
)
|
|
1,294
|
|
||||||
Income tax benefit (expense)
|
—
|
|
|
83,653
|
|
|
3,154
|
|
|
(556
|
)
|
|
—
|
|
|
86,251
|
|
||||||
Consolidated net income
|
87,545
|
|
|
87,545
|
|
|
40,892
|
|
|
9,087
|
|
|
(137,524
|
)
|
|
87,545
|
|
||||||
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
542
|
|
|
—
|
|
|
542
|
|
||||||
Net income attributable to Kraton
|
$
|
87,545
|
|
|
$
|
87,545
|
|
|
$
|
40,892
|
|
|
$
|
9,629
|
|
|
$
|
(137,524
|
)
|
|
$
|
88,087
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
||||||||||||
Net income attributable to Kraton
|
$
|
4,189
|
|
|
$
|
4,189
|
|
|
$
|
37,263
|
|
|
$
|
17,870
|
|
|
$
|
(57,098
|
)
|
|
$
|
6,413
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign currency translation adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
12,135
|
|
|
—
|
|
|
12,135
|
|
||||||
Unrealized gain on cash flow hedges, net of tax
|
—
|
|
|
843
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
843
|
|
||||||
Reclassification of gain on cash flow hedge
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(41
|
)
|
||||||
Other comprehensive income, net of tax
|
—
|
|
|
802
|
|
|
—
|
|
|
12,135
|
|
|
—
|
|
|
12,937
|
|
||||||
Comprehensive income attributable to Kraton
|
4,189
|
|
|
4,991
|
|
|
37,263
|
|
|
30,005
|
|
|
(57,098
|
)
|
|
19,350
|
|
||||||
Comprehensive loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(338
|
)
|
|
—
|
|
|
(338
|
)
|
||||||
Consolidated comprehensive income
|
$
|
4,189
|
|
|
$
|
4,991
|
|
|
$
|
37,263
|
|
|
$
|
29,667
|
|
|
$
|
(57,098
|
)
|
|
$
|
19,012
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
||||||||||||
Net income attributable to Kraton
|
$
|
87,545
|
|
|
$
|
87,545
|
|
|
$
|
40,892
|
|
|
$
|
9,629
|
|
|
$
|
(137,524
|
)
|
|
$
|
88,087
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign currency translation adjustments, net of tax
|
—
|
|
|
—
|
|
|
76,424
|
|
|
(50,857
|
)
|
|
—
|
|
|
25,567
|
|
||||||
Unrealized loss on cash flow hedges, net of tax
|
—
|
|
|
(2,104
|
)
|
|
—
|
|
|
(156
|
)
|
|
—
|
|
|
(2,260
|
)
|
||||||
Other comprehensive income (loss), net of tax
|
—
|
|
|
(2,104
|
)
|
|
76,424
|
|
|
(51,013
|
)
|
|
—
|
|
|
23,307
|
|
||||||
Comprehensive income (loss) attributable to Kraton
|
87,545
|
|
|
85,441
|
|
|
117,316
|
|
|
(41,384
|
)
|
|
(137,524
|
)
|
|
111,394
|
|
||||||
Comprehensive income attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
204
|
|
|
—
|
|
|
204
|
|
||||||
Consolidated comprehensive income (loss)
|
$
|
87,545
|
|
|
$
|
85,441
|
|
|
$
|
117,316
|
|
|
$
|
(41,180
|
)
|
|
$
|
(137,524
|
)
|
|
$
|
111,598
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
||||||||||||
Cash flows provided by (used in) operating activities
|
$
|
—
|
|
|
$
|
(7,138
|
)
|
|
$
|
29,990
|
|
|
$
|
(19,411
|
)
|
|
$
|
—
|
|
|
$
|
3,441
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Proceeds from intercompany loans
|
—
|
|
|
11,482
|
|
|
—
|
|
|
—
|
|
|
(11,482
|
)
|
|
—
|
|
||||||
Kraton purchase of property, plant and equipment
|
—
|
|
|
(1,182
|
)
|
|
(15,218
|
)
|
|
(10,879
|
)
|
|
—
|
|
|
(27,279
|
)
|
||||||
KFPC purchase of property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,558
|
)
|
|
—
|
|
|
(5,558
|
)
|
||||||
Purchase of software and other intangibles
|
—
|
|
|
(1,194
|
)
|
|
(320
|
)
|
|
—
|
|
|
—
|
|
|
(1,514
|
)
|
||||||
Net cash provided by (used in) investing activities
|
—
|
|
|
9,106
|
|
|
(15,538
|
)
|
|
(16,437
|
)
|
|
(11,482
|
)
|
|
(34,351
|
)
|
||||||
Cash flows provided (used in) by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Proceeds from debt
|
—
|
|
|
400,000
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
|
415,000
|
|
||||||
Repayments of debt
|
—
|
|
|
(392,000
|
)
|
|
(15,000
|
)
|
|
—
|
|
|
—
|
|
|
(407,000
|
)
|
||||||
KFPC proceeds from debt
|
—
|
|
|
—
|
|
|
—
|
|
|
13,244
|
|
|
—
|
|
|
13,244
|
|
||||||
Capital lease payments
|
—
|
|
|
—
|
|
|
(237
|
)
|
|
—
|
|
|
—
|
|
|
(237
|
)
|
||||||
Purchase of treasury stock
|
(1,511
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,511
|
)
|
||||||
Cash contributions from member
|
—
|
|
|
(1,511
|
)
|
|
—
|
|
|
—
|
|
|
1,511
|
|
|
—
|
|
||||||
Cash distributions to member
|
460
|
|
|
1,051
|
|
|
—
|
|
|
—
|
|
|
(1,511
|
)
|
|
—
|
|
||||||
Proceeds from the exercise of stock options
|
1,051
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,051
|
|
||||||
Debt issuance costs
|
—
|
|
|
(9,318
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,318
|
)
|
||||||
Payments on intercompany loans
|
—
|
|
|
—
|
|
|
(11,689
|
)
|
|
207
|
|
|
11,482
|
|
|
—
|
|
||||||
Net cash provided by (used in) financing activities
|
—
|
|
|
(1,778
|
)
|
|
(11,926
|
)
|
|
13,451
|
|
|
11,482
|
|
|
11,229
|
|
||||||
Effect of exchange rate differences on cash
|
—
|
|
|
—
|
|
|
—
|
|
|
1,998
|
|
|
—
|
|
|
1,998
|
|
||||||
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
190
|
|
|
2,526
|
|
|
(20,399
|
)
|
|
—
|
|
|
(17,683
|
)
|
||||||
Cash and cash equivalents, beginning of period
|
—
|
|
|
214
|
|
|
6,280
|
|
|
115,255
|
|
|
—
|
|
|
121,749
|
|
||||||
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
404
|
|
|
$
|
8,806
|
|
|
$
|
94,856
|
|
|
$
|
—
|
|
|
$
|
104,066
|
|
|
Kraton Corporation
|
|
Kraton Polymers LLC
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
||||||||||||
Cash flows provided by (used in) operating activities
|
$
|
—
|
|
|
$
|
(37,824
|
)
|
|
$
|
31,765
|
|
|
$
|
(20,556
|
)
|
|
$
|
—
|
|
|
$
|
(26,615
|
)
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Proceeds from intercompany loans
|
—
|
|
|
149,939
|
|
|
—
|
|
|
—
|
|
|
(149,939
|
)
|
|
—
|
|
||||||
Kraton purchase of property, plant, and equipment
|
—
|
|
|
(309
|
)
|
|
(11,395
|
)
|
|
(6,798
|
)
|
|
—
|
|
|
(18,502
|
)
|
||||||
KFPC purchase of property, plant, and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,325
|
)
|
|
—
|
|
|
(8,325
|
)
|
||||||
Purchase of software and other intangibles
|
—
|
|
|
(352
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(352
|
)
|
||||||
Acquisition, net of cash acquired
|
—
|
|
|
(1,367,088
|
)
|
|
6,443
|
|
|
43,393
|
|
|
—
|
|
|
(1,317,252
|
)
|
||||||
Sale of assets
|
—
|
|
|
—
|
|
|
72,000
|
|
|
—
|
|
|
—
|
|
|
72,000
|
|
||||||
Net cash provided by (used in) investing activities
|
—
|
|
|
(1,217,810
|
)
|
|
67,048
|
|
|
28,270
|
|
|
(149,939
|
)
|
|
(1,272,431
|
)
|
||||||
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Proceeds from debt
|
—
|
|
|
1,732,890
|
|
|
50,075
|
|
|
—
|
|
|
—
|
|
|
1,782,965
|
|
||||||
Repayments of debt
|
—
|
|
|
(430,058
|
)
|
|
(75
|
)
|
|
—
|
|
|
—
|
|
|
(430,133
|
)
|
||||||
KFPC proceeds from debt
|
—
|
|
|
—
|
|
|
—
|
|
|
12,100
|
|
|
—
|
|
|
12,100
|
|
||||||
Capital lease payments
|
—
|
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
(35
|
)
|
||||||
Purchase of treasury stock
|
(954
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(954
|
)
|
||||||
Cash contributions from member
|
—
|
|
|
(954
|
)
|
|
—
|
|
|
—
|
|
|
954
|
|
|
—
|
|
||||||
Cash distributions to member
|
785
|
|
|
169
|
|
|
—
|
|
|
—
|
|
|
(954
|
)
|
|
—
|
|
||||||
Proceeds from the exercise of stock options
|
169
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
169
|
|
||||||
Settlement of interest rate swap
|
—
|
|
|
—
|
|
|
(5,155
|
)
|
|
—
|
|
|
—
|
|
|
(5,155
|
)
|
||||||
Debt issuance costs
|
—
|
|
|
(53,527
|
)
|
|
(3,589
|
)
|
|
—
|
|
|
—
|
|
|
(57,116
|
)
|
||||||
Payments on intercompany loans
|
—
|
|
|
—
|
|
|
(149,939
|
)
|
|
—
|
|
|
149,939
|
|
|
—
|
|
||||||
Net cash provided by (used in) financing activities
|
—
|
|
|
1,248,520
|
|
|
(108,718
|
)
|
|
12,100
|
|
|
149,939
|
|
|
1,301,841
|
|
||||||
Effect of exchange rate differences on cash
|
—
|
|
|
—
|
|
|
—
|
|
|
5,534
|
|
|
—
|
|
|
5,534
|
|
||||||
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
(7,114
|
)
|
|
(9,905
|
)
|
|
25,348
|
|
|
—
|
|
|
8,329
|
|
||||||
Cash and cash equivalents, beginning of period
|
—
|
|
|
7,256
|
|
|
11,595
|
|
|
51,198
|
|
|
—
|
|
|
70,049
|
|
||||||
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
142
|
|
|
$
|
1,690
|
|
|
$
|
76,546
|
|
|
$
|
—
|
|
|
$
|
78,378
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
|
Cumulative through
|
||||||
|
March 31, 2017
|
|
December 31, 2016
|
||||
|
|
||||||
General and administrative synergies
|
$
|
20,863
|
|
|
$
|
17,663
|
|
Operational improvements
|
27,007
|
|
|
19,223
|
|
||
Cost reduction
|
33,522
|
|
|
31,338
|
|
||
|
$
|
81,392
|
|
|
$
|
68,224
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Revenue by Geography:
|
(In thousands)
|
||||||
Americas
|
$
|
197,558
|
|
|
$
|
183,137
|
|
Europe, Middle East, and Africa
|
163,302
|
|
|
147,605
|
|
||
Asia Pacific
|
97,265
|
|
|
89,181
|
|
||
Total Revenue
|
$
|
458,125
|
|
|
$
|
419,923
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Revenue
|
$
|
458,125
|
|
|
$
|
419,923
|
|
Cost of goods sold
|
314,759
|
|
|
326,105
|
|
||
Gross profit
|
143,366
|
|
|
93,818
|
|
||
Operating expenses:
|
|
|
|
||||
Research and development
|
10,345
|
|
|
10,576
|
|
||
Selling, general, and administrative
|
40,555
|
|
|
49,862
|
|
||
Depreciation and amortization
|
33,143
|
|
|
30,154
|
|
||
Operating income
|
59,323
|
|
|
3,226
|
|
||
Disposition and exit of business activities
|
—
|
|
|
45,251
|
|
||
Loss on extinguishment of debt
|
(19,738
|
)
|
|
(13,423
|
)
|
||
Earnings of unconsolidated joint venture
|
127
|
|
|
78
|
|
||
Interest expense, net
|
(34,305
|
)
|
|
(33,838
|
)
|
||
Income before income taxes
|
5,407
|
|
|
1,294
|
|
||
Income tax benefit (expense)
|
(1,218
|
)
|
|
86,251
|
|
||
Consolidated net income
|
4,189
|
|
|
87,545
|
|
||
Net loss attributable to noncontrolling interest
|
2,224
|
|
|
542
|
|
||
Net income attributable to Kraton
|
$
|
6,413
|
|
|
$
|
88,087
|
|
Earnings per common share:
|
|
|
|
||||
Basic
|
$
|
0.21
|
|
|
$
|
2.87
|
|
Diluted
|
$
|
0.20
|
|
|
$
|
2.84
|
|
Weighted average common shares outstanding:
|
|
|
|
||||
Basic
|
30,430
|
|
|
30,026
|
|
||
Diluted
|
30,851
|
|
|
30,289
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Revenue
|
(In thousands)
|
||||||
Performance Products
|
$
|
141,718
|
|
|
$
|
119,919
|
|
Specialty Polymers
|
90,920
|
|
|
85,029
|
|
||
Cariflex
|
38,048
|
|
|
38,023
|
|
||
Other
|
262
|
|
|
72
|
|
||
|
$
|
270,948
|
|
|
$
|
243,043
|
|
|
|
|
|
||||
Operating income
|
$
|
41,628
|
|
|
$
|
13,946
|
|
Adjusted EBITDA (non-GAAP)
(1)
|
$
|
32,055
|
|
|
$
|
52,244
|
|
(1)
|
See Non-GAAP reconciliations included below for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.
|
•
|
Cariflex™
revenue was
$38.0 million
for the
three months ended March 31, 2017
and was unchanged compared to the
three months ended March 31, 2016
.
|
•
|
Specialty Polymers
revenue was
$90.9 million
for the
three months ended March 31, 2017
compared to
$85.0 million
for the
three months ended March 31, 2016
. The revenue increase reflects the
8.1%
increase
in sales volumes.
|
•
|
Performance Products
revenue was
$141.7 million
for the
three months ended March 31, 2017
compared to
$119.9 million
for the
three months ended March 31, 2016
. The
$21.8 million
increase
was primarily driven by higher average selling prices resulting from higher raw material costs.
|
|
|
Three Months Ended March 31, 2017
|
|
For the period January 6, 2016 through March 31, 2016
|
||||
Revenue
|
|
(In thousands)
|
||||||
Adhesives
|
|
$
|
64,372
|
|
|
$
|
62,943
|
|
Roads and Construction
|
|
10,766
|
|
|
10,670
|
|
||
Tires
|
|
11,719
|
|
|
8,981
|
|
||
Performance Chemicals
|
|
100,320
|
|
|
94,286
|
|
||
|
|
$
|
187,177
|
|
|
$
|
176,880
|
|
|
|
|
|
|
||||
Operating income (loss)
|
|
$
|
17,695
|
|
|
$
|
(10,720
|
)
|
Adjusted EBITDA (non-GAAP)
(1)
|
|
$
|
33,516
|
|
|
$
|
40,857
|
|
(1)
|
See Non-GAAP reconciliations included below for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.
|
•
|
Adhesives
revenue was
$64.4 million
for the
three months ended March 31, 2017
compared to
$62.9 million
for the
three months ended March 31, 2016
. A
14.3%
increase in sales volumes was largely offset by lower average selling prices.
|
•
|
Roads and Construction
revenue was
$10.8 million
for the
three months ended March 31, 2017
compared to
$10.7 million
for the
three months ended March 31, 2016
. A
10.8%
increase in sales volumes was offset by lower average selling prices.
|
•
|
Tires
revenue was
$11.7 million
for the
three months ended March 31, 2017
compared to
$9.0 million
for the
three months ended March 31, 2016
. A
24.6%
increase in sales volumes was largely offset by lower average selling prices.
|
•
|
Performance Chemicals
revenue was
$100.3 million
for the
three months ended March 31, 2017
compared to
$94.3 million
for the
three months ended March 31, 2016
. A
15.2%
increase in sales volumes was partially offset by lower average selling prices.
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(In thousands, except per share amounts)
|
||||||
EBITDA
(2)
|
$
|
72,855
|
|
|
$
|
65,286
|
|
Adjusted EBITDA
(1) (3)
|
$
|
65,571
|
|
|
$
|
93,101
|
|
Adjusted Diluted Earnings Per Share
(1)
|
$
|
(0.15
|
)
|
|
$
|
0.80
|
|
(1)
|
The majority of our consolidated inventory is measured using the FIFO basis of accounting. As part of our pricing strategy, we measure our business performance using the estimated current replacement cost (“ECRC”) of our inventory and cost of goods sold. Our ECRC is based on our current expectation of the current cost of our significant raw material inputs. ECRC is developed monthly based on actual market-based contracted rates and spot market purchase rates that are expected to occur in the period. We then adjust the value of the significant raw material inputs and their associated impact to finished goods to the current replacement cost to arrive at an ECRC value for inventory and cost of goods sold. The result of this revaluation from the GAAP carrying value creates the spread between GAAP and ECRC. We maintain our perpetual inventory in our global enterprise resource planning system, where the carrying value of our inventory is determined. With inventory valued under GAAP and ECRC, we then have the ability to report cost of goods sold and therefore Adjusted EBITDA and Adjusted Diluted Earnings Per Share under both our GAAP convention and ECRC.
|
(2)
|
On a consolidated basis, EBITDA represents net income before interest, taxes, depreciation and amortization. On a reporting segment basis, EBITDA represents segment operating income before depreciation and amortization, disposition and exit of business activities, loss on extinguishment of debt, and earnings of unconsolidated joint venture. Limitations for EBITDA as an analytical tool include the following:
|
•
|
EBITDA does not reflect the significant interest expense on our debt;
|
•
|
EBITDA does not reflect the significant depreciation and amortization expense associated with our long-lived assets;
|
•
|
EBITDA included herein should not be used for purposes of assessing compliance or non-compliance with financial covenants under our debt agreements. The calculation of EBITDA in the debt agreements includes adjustments, such as extraordinary, non-recurring or one-time charges, proforma cost savings, certain non-cash items, turnaround costs, and other items included in the definition of EBITDA in the debt agreements; and
|
•
|
other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
|
(3)
|
Adjusted EBITDA is EBITDA net of the impact of the spread between the FIFO basis of accounting and ECRC and net of the impact of items we do not consider indicative of our ongoing operating performance. We explain how each adjustment is derived and why we believe it is helpful and appropriate in the reconciliation below. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to the limitations applicable to EBITDA described above, as well as the following limitations:
|
•
|
due to volatility in raw material prices, Adjusted EBITDA may, and often does, vary substantially from EBITDA, net income and other performance measures, including net income calculated in accordance with GAAP; and
|
•
|
Adjusted EBITDA may, and often will, vary significantly from EBITDA calculations under the terms of our debt agreements and should not be used for assessing compliance or non-compliance with financial covenants under our debt agreements.
|
|
Three Months Ended March 31, 2017
|
|
Three Months Ended March 31, 2016
|
||||||||||||||||||||
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
Net income attributable to Kraton
|
|
|
|
|
$
|
6,413
|
|
|
|
|
|
|
$
|
88,087
|
|
||||||||
Net loss attributable to noncontrolling interest
|
|
|
|
|
(2,224
|
)
|
|
|
|
|
|
(542
|
)
|
||||||||||
Consolidated net income
|
|
|
|
|
4,189
|
|
|
|
|
|
|
87,545
|
|
||||||||||
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income tax (benefit) expense
|
|
|
|
|
1,218
|
|
|
|
|
|
|
(86,251
|
)
|
||||||||||
Interest expense, net
|
|
|
|
|
34,305
|
|
|
|
|
|
|
33,838
|
|
||||||||||
Earnings of unconsolidated joint venture
|
|
|
|
|
(127
|
)
|
|
|
|
|
|
(78
|
)
|
||||||||||
Loss on extinguishment of debt
|
|
|
|
|
19,738
|
|
|
|
|
|
|
13,423
|
|
||||||||||
Disposition and exit of business activities
|
|
|
|
|
—
|
|
|
|
|
|
|
(45,251
|
)
|
||||||||||
Operating income (loss)
|
$
|
41,628
|
|
|
$
|
17,695
|
|
|
59,323
|
|
|
$
|
13,946
|
|
|
$
|
(10,720
|
)
|
|
3,226
|
|
||
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Depreciation and amortization
|
16,324
|
|
|
16,819
|
|
|
33,143
|
|
|
14,592
|
|
|
15,562
|
|
|
30,154
|
|
||||||
Disposition and exit of business activities
|
—
|
|
|
—
|
|
|
—
|
|
|
45,251
|
|
|
—
|
|
|
45,251
|
|
||||||
Loss on extinguishment of debt
|
(19,738
|
)
|
|
—
|
|
|
(19,738
|
)
|
|
(13,423
|
)
|
|
—
|
|
|
(13,423
|
)
|
||||||
Earnings of unconsolidated joint venture
|
127
|
|
|
—
|
|
|
127
|
|
|
78
|
|
|
—
|
|
|
78
|
|
||||||
EBITDA
|
38,341
|
|
|
34,514
|
|
|
72,855
|
|
|
60,444
|
|
|
4,842
|
|
|
65,286
|
|
||||||
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Transaction, acquisition related costs, restructuring, and other costs (a)
|
4,674
|
|
|
220
|
|
|
4,894
|
|
|
6,477
|
|
|
5,199
|
|
|
11,676
|
|
||||||
Disposition and exit of business activities
|
—
|
|
|
—
|
|
|
—
|
|
|
(45,251
|
)
|
|
—
|
|
|
(45,251
|
)
|
||||||
Loss on extinguishment of debt
|
19,738
|
|
|
—
|
|
|
19,738
|
|
|
13,423
|
|
|
—
|
|
|
13,423
|
|
||||||
Effect of purchase price accounting on inventory valuation (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,719
|
|
|
24,719
|
|
||||||
KFPC startup costs (c)
|
2,821
|
|
|
—
|
|
|
2,821
|
|
|
840
|
|
|
—
|
|
|
840
|
|
||||||
Non-cash compensation expense
|
2,974
|
|
|
—
|
|
|
2,974
|
|
|
3,083
|
|
|
—
|
|
|
3,083
|
|
||||||
Spread between FIFO and ECRC
|
(36,493
|
)
|
|
(1,218
|
)
|
|
(37,711
|
)
|
|
13,228
|
|
|
6,097
|
|
|
19,325
|
|
||||||
Adjusted EBITDA
|
$
|
32,055
|
|
|
$
|
33,516
|
|
|
$
|
65,571
|
|
|
$
|
52,244
|
|
|
$
|
40,857
|
|
|
$
|
93,101
|
|
(a)
|
Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.
|
(b)
|
Higher costs of goods sold for our Chemical segment related to the fair value adjustment in purchase accounting for their inventory.
|
(c)
|
Startup costs related to the joint venture company, KFPC.
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Diluted earnings per share
|
$
|
0.20
|
|
|
$
|
2.84
|
|
Transaction, acquisition related costs, restructuring, and other costs (a)
|
0.12
|
|
|
0.33
|
|
||
Disposition and exit of business activities
|
—
|
|
|
(0.94
|
)
|
||
Loss on extinguishment of debt
|
0.41
|
|
|
0.28
|
|
||
Effect of purchase price accounting on inventory valuation (b)
|
—
|
|
|
0.63
|
|
||
KFPC startup costs (c)
|
0.06
|
|
|
0.01
|
|
||
Valuation allowance (d)
|
—
|
|
|
(2.80
|
)
|
||
Spread between FIFO and ECRC
|
(0.94
|
)
|
|
0.45
|
|
||
Adjusted diluted earnings (loss) per share
(non-GAAP)
|
$
|
(0.15
|
)
|
|
$
|
0.80
|
|
(a)
|
Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.
|
(b)
|
We had higher costs of goods sold for our Chemical segment related to the fair value adjustment in purchase accounting for their inventory.
|
(c)
|
Startup costs related to the joint venture company, KFPC.
|
(d)
|
Reduction of income tax valuation allowance related to the assessment of our ability to utilize net operating losses in future periods.
|
•
|
$83.3 million
decrease in cash flows associated with inventories of products, materials, and supplies, due to higher raw material costs; partially offset by
|
•
|
$30.5 million
increase in cash flows associated with trade accounts payable due to higher raw material costs and timing of payments;
|
•
|
$13.8 million
increase in cash flows associated with other payables and accruals primarily related to the timing of payments for transaction related costs; and
|
•
|
$9.1 million
net increase in cash flows due to the timing of payments of other items, including accounts receivable, related party transactions, taxes, and pension costs.
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk.
|
Item 4.
|
Controls and Procedures.
|
Item 1.
|
Legal Proceedings.
|
Item 1A.
|
Risk Factors.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
Item 3.
|
Default Upon Senior Securities.
|
Item 4.
|
Mine Safety Disclosures.
|
Item 5.
|
Other Information.
|
Item 6.
|
Exhibits.
|
Exhibit
Number
|
|
|
|
Indenture, dated as of March 24, 2017, among Kraton Polymers LLC and Kraton Polymers Capital Corporation, as Issuers, the Guarantors named therein and Wells Fargo Bank, National Association, as Trustee, relating to the 7.000% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 to Kraton Corporation’s Current Report on Form 8-K filed with the SEC on March 27, 2017)
|
|
|
Form of Global Note for the 7.000% Senior Notes due 2025 (incorporated by reference to Exhibit A of Exhibit 4.1 to Kraton Corporation’s Current Report on Form 8-K filed with the SEC on March 27, 2017)
|
|
|
Second Amendment to Credit and Guarantee Agreement, dated as of January 9, 2017, relating to the Credit and Guarantee Agreement dated as of January 6, 2016, among Kraton Polymers LLC, as the Borrower, Kraton Performance Polymers, Inc., as Parent, certain subsidiaries of Parent, as Guarantors, the Lenders party thereto from time to time, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and as Collateral Agent and Nomura Securities International, Inc. and Deutsche Bank Securities Inc., as Syndication Agents (incorporated by reference to Exhibit 10.1 to Kraton Corporation's Current Report on Form 8-K filed with the SEC on January 10, 2017)
|
|
|
Kraton Corporation 2016 Equity and Cash Incentive Plan (as amended and restated)
|
|
|
Certification of Chief Executive Officer under Section 302 of Sarbanes—Oxley Act of 2002
|
|
|
Certification of Chief Financial Officer under Section 302 of Sarbanes—Oxley Act of 2002
|
|
|
Certification Pursuant to Section 906 of Sarbanes—Oxley Act of 2002
|
|
|
The following materials from Kraton Corporation Quarterly Report on Form 10-Q for the three months ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016 (Unaudited), (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016 (Unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016 (Unaudited), (iv) Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2017 and 2016 (Unaudited), (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (Unaudited) and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited)
|
*
|
Filed herewith.
|
+
|
Denotes management contract or compensatory plan or arrangement.
|
|
|
KRATON CORPORATION
|
|
|
|
Date:
|
April 27, 2017
|
/s/
Kevin M. Fogarty
|
|
|
Kevin M. Fogarty
|
|
|
President and Chief Executive Officer
|
|
|
|
Date:
|
April 27, 2017
|
/s/
Stephen E. Tremblay
|
|
|
Stephen E. Tremblay
|
|
|
Executive Vice President and Chief Financial Officer
|
1.
|
Plan
. This Kraton Corporation 2016 Equity and Cash Incentive Plan (this “Plan”) was adopted by the Company to reward certain corporate officers, directors, independent contractors and key employees of the Company and its Subsidiaries by enabling them to acquire shares of common stock of the Company and/or through the provision of cash payments.
|
2.
|
Objectives
. This Plan is designed to promote the interests of the Company and its stockholders by providing the (i) employees and consultants of the Company and its Subsidiaries and (ii) non-employee directors of the Company, who are largely responsible for the management, growth, and protection of the business of the Company, with equity and cash incentives and rewards to encourage them to continue in the service of the Company. This Plan is designed to meet this intent by providing such employees, independent contractors, and non-employee directors with a proprietary interest in pursuing the long-term and short-term growth, profitability, and financial success of the Company. Annual cash performance awards under the Kraton Performance Polymers, Inc. 2013 Cash Incentive Plan, as effective January 1, 2013, shall cease to be made under that plan as of December 31, 2016 and future annual cash performance awards shall be granted under this Plan on and after January 1, 2017.
|
3.
|
Definitions
. As used herein, the terms set forth below shall have the following respective meanings:
|
4.
|
Eligibility
. The persons who shall be eligible to receive Awards pursuant to this Plan shall be (a) those Employees and Consultants whom the Committee shall select from time to time and (b) Directors whom the Board shall select from time to time.
|
5.
|
Common Stock Available for Awards; Plan and Award Limitations
.
|
(a)
|
Common Stock Available Under this Plan
. Subject to the provisions of the immediately following subsection (b), the maximum number of shares of Common Stock that may be subject to Awards under this Plan is 1,550,000 shares
|
(b)
|
Share Counting
. Each Stock Award shall be counted against the Maximum Share Limitation as two shares of Common Stock; each Option and SAR shall be counted against the Maximum Share Limitation as one share of Common Stock. The number of shares of Common Stock that are the subject of Awards under this Plan or the Prior Plan that are canceled, terminated, forfeited or expire unexercised shall again immediately become available for Awards hereunder as if such shares had never been the subject of an Award, and the Maximum Share Limitation shall be increased by the same amount as such Shares were counted against the Maximum Share Limitation (or with respect to Awards granted under the Prior Plan, as one share of Common Stock per share of Common Stock subject to the Award). The number of shares of Common Stock that are the subject of Awards under this Plan or the Prior Plan that are tendered, surrendered or withheld in connection with the exercise or settlement of an Award or the Company’s tax withholding obligations shall not again be available for Awards under this Plan. Notwithstanding the foregoing, Awards granted pursuant to an Award Agreement specifying that such Award will be settled in cash shall not be counted against the limit set forth in Section 5(a).
|
(c)
|
Incentive Option Shares
. All of the shares of Common Stock that are available for Awards under this Plan are available for grant as Incentive Options.
|
(d)
|
Award Limitations
. The following limitations shall apply to any Awards made hereunder:
|
(i)
|
No Employee or Consultant may be granted, during any calendar year, Awards consisting of Options or SARs that are exercisable for more than 1,000,000 shares of Common Stock, and no Director may be granted, during any calendar year, Awards consisting of Options or SARs that are exercisable for more than 100,000 shares of Common Stock;
|
(ii)
|
No Employee or Consultant may be granted, during any calendar year, Stock Awards covering or relating to more than 1,000,000 shares of Common Stock, and no Director may be granted, during any calendar year, Stock Awards covering or relating to more than 50,000 shares of Common Stock (the limitations set forth in this clause (ii), together with
|
(iii)
|
No Employee or Consultant may be granted Cash Awards in respect of any calendar year having a value determined on the date of grant in excess of $5,000,000.
|
(e)
|
Adjustments
. The limitations set forth in this Section 4 are subject to adjustment in accordance with Section 15 hereof.
|
(f)
|
Other Actions
. The Committee may from time to time adopt and observe such procedures concerning the counting of shares against this Plan maximum as it may deem appropriate. The Board, the Committee and the officers of the Company shall from time to time take whatever actions are necessary to file any required documents with governmental authorities, stock exchanges and transaction reporting systems to ensure that shares of Common Stock are available for issuance pursuant to Awards.
|
6.
|
Administration
.
|
(a)
|
Authority of the Committee
. Except as otherwise provided in this Plan with respect to actions or determinations by the Board, this Plan shall be administered by the Committee. Subject to the provisions hereof, the Committee shall have full and exclusive power and authority to administer this Plan and to take all actions that are specifically contemplated hereby or are necessary or appropriate in connection with the administration hereof. The Committee shall also have full and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as it may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan. Subject to Section 6(c) and Section 18 hereof, the Committee may, in its discretion, provide for (i) the extension of the exercisability of an Award, (ii) in the event of a Participant’s death, disability or retirement (in the case of disability and retirement, unless otherwise specified in the relevant grant agreement, as determined in accordance with the applicable policies and procedures of the Company as in effect from time to time) or in the event of a termination of employment by the Company without “Cause” or by the Participant with “Good Reason” (as such terms are defined in an Award Agreement, employment agreement or the Company’s Executive Severance Plan): (A) the acceleration of the date on which any such Award becomes vested or
|
(b)
|
Indemnity
. No member of the Board or the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of Section 7 of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Board or the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute.
|
(c)
|
Prohibition on Repricing of Options and Stock Appreciation Rights
. Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split‑up, spin‑off, combination, or exchange of shares), the terms of outstanding Options and SARs may not be amended to (i) reduce the exercise price of outstanding Options or SARs or (ii) cancel outstanding Options or SARs in exchange for cash, other Awards or Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs without stockholder approval.
|
7.
|
Delegation
. The Committee may delegate any of its authority to grant Awards to Employees who are not subject to Section 16(b) of the Exchange Act and Consultants, subject to Section 6(a) above, to a subcommittee of the Committee or to any other committee of the Board, provided such delegation is made in writing and specifically sets forth such delegated authority. Any such delegation hereunder shall only be made to the extent permitted by applicable law.
|
8.
|
Awards
. Except as otherwise provided in Section 9 hereof pertaining to Awards to Directors, the Committee shall determine the type or types of Awards to be made under this Plan and shall designate from time to time the Participants who are to be the recipients of such Awards. Each Award shall be embodied in an Award Agreement in such form as the Committee determines, which shall contain such terms, conditions and limitations as shall be determined by the Committee in its sole discretion, including any treatment upon a Change in Control, and shall be issued for and on behalf of the Company. Awards may consist of those listed in this Section 8 and may be granted singly, in combination or in tandem. Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under this Plan or any other plan of the Company or any of its Subsidiaries, including this Plan of any acquired entity; provided that, except as contemplated in Section 15 hereof, no Option or SAR may be issued in exchange for the cancellation of an Option or SAR, respectively, with a higher exercise price nor may the exercise price of any Option or SAR be reduced. Subject to accelerated vesting in the event of a Participant’s termination of employment due to death, disability or retirement as provided in Section 6(a) or following a Change in Control as provided in Section 15(c), all Awards shall have a minimum vesting period of one year from the date of grant; provided, however, that Awards with respect to up to five percent of the shares of Common Stock authorized for grant pursuant to this Plan may have a vesting period of less than one year. All or part of an Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Company and its Subsidiaries, achievement of specific business objectives, increases in specified indices, attainment of specified growth rates and other measurements of performance. Upon the termination of employment by a Participant who is an Employee or termination of service by a Participant who is a Consultant, any unexercised, deferred, unvested or unpaid Awards shall be treated as set forth in the applicable Award Agreement.
|
(a)
|
Option
. An Award may be in the form of an Option. An Option awarded pursuant to this Plan may consist of an Incentive Option or a Nonqualified Option. The price at which shares of Common Stock may be purchased upon the exercise of an Option shall be not less than the Fair Market Value of the Common Stock on the
|
(b)
|
Stock Appreciation Right
. An Award may be in the form of a SAR. The strike price for a SAR shall not be less than the Fair Market Value of the Common Stock on the date on which the SAR is granted. The term of a SAR shall not exceed ten years from the date of grant. Subject to the foregoing limitations, the terms, conditions and limitations applicable to any SARs awarded pursuant to this Plan, including the term of any SARs and the date or dates upon which such SARs become exercisable, shall be determined by the Committee. As of the date of grant of a SAR, the Committee may specifically designate that the Award will be paid (i) only in cash, (ii) only in Common Stock, or (iii) in such other form or combination of forms as the Committee may elect or permit at the time of exercise.
|
(c)
|
Stock Award
. An Award may be in the form of a Stock Award. The terms, conditions and limitations applicable to any Stock Awards granted pursuant to this Plan shall be determined by the Committee, subject to the limitations specified below.
|
(d)
|
Cash Award
. An Award may be in the form of a Cash Award. The terms, conditions and limitations applicable to any Cash Awards granted pursuant to this Plan shall be determined by the Committee.
|
(e)
|
Performance Award
. Without limiting the type or number of Awards that may be made under the other provisions of this Plan, an Award may be in the form of a Performance Award. The terms, conditions and limitations applicable to any Performance Awards granted to Participants pursuant to this Plan shall be determined by the Committee, subject to the limitations specified in this Plan. The Committee shall set Performance Goals in its discretion which, depending on the
|
(i)
|
Nonqualified Performance Awards
. Performance Awards granted to Employees, Consultants or Directors that are not intended to qualify as qualified performance‑based compensation under Code Section 162(m) shall be based on achievement of such Performance Goals and be subject to such terms, conditions and restrictions as the Committee or its delegate shall determine.
|
(ii)
|
Qualified Performance Awards
. Performance Awards granted to Employees under this Plan that are intended to qualify as qualified performance‑based compensation under Code Section 162(m) shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre‑established, objective Performance Goals established by the Committee prior to the earlier to occur of (1) 90 days after the commencement of the period of service to which the Performance Goal relates and (2) the lapse of 25% of the period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain. A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met. Such a Performance Goal may be based on one or more business criteria that apply to the Employee, one or more business units, divisions or sectors of the Company, or the Company as a whole, and if so desired by the Committee, by comparison with a peer group of companies. A Performance Goal may include one or more of the following: EBITDA; profit; corporate value measures (including, but not limited to, ethics, compliance, environmental and safety performance); innovation as a percent of total revenue; cost out and pricing initiatives before or after tax net income; earnings per share; book value per share; stock price; return on stockholder’s equity; expense measures (including, but not limited to, overhead cost and general and administrative expense); improvements in capital structure (including, but not limited to, debt to equity ratios, net debt and other leverage measures); profitability of an identifiable business unit or product (including return on investment on new business acquisitions or growth and expansion activities for the year); measures relating to acquisitions, dispositions or customer satisfaction; business growth (percent increase in revenue from year to year); before or
|
9.
|
Awards to Directors
. Subject to the limitations set forth in Section 5(d) hereof, the Board may grant a Director of the Company one or more Awards and establish the terms thereof in accordance with Section 8 and consistent with the provisions therein for the granting of Awards to Employees and Consultants by the Committee. Any such Award shall be subject to the applicable terms, conditions and limitations set forth in this Plan and the applicable Award Agreement. If the Board grants an Award to an individual whom it expects to become a Director within six months following the date of such Award is made, then such Award shall be subject to (among other terms and conditions) the individual actually becoming a Director. Upon the termination of service by a Participant who is a Director, any unexercised, deferred, unvested or unpaid Awards shall be treated as set forth in the applicable Award Agreement.
|
10.
|
Award Payment; Dividends and Dividend Equivalents
.
|
(a)
|
General
. Payment of Awards may be made in the form of cash or Common Stock, or a combination thereof, and may include such restrictions as the Committee shall determine, including, in the case of Common Stock, restrictions on transfer and forfeiture provisions. If payment of an Award is made in the form of Restricted Stock, the applicable Award Agreement relating to such shares shall specify whether such shares are to be issued at the beginning or end of the Restriction Period. In the event that shares of Restricted Stock are to be issued at the beginning of the Restriction Period, the certificates evidencing such shares (to the extent that such shares are so evidenced) shall contain appropriate legends and restrictions that describe the terms and conditions of the restrictions applicable thereto. In the event that shares of Restricted Stock are to be issued at the end of the Restriction Period, the right to receive such shares shall be evidenced by book entry registration or in such other manner as the Committee may determine.
|
(b)
|
Dividends, Dividend Equivalents and Interest
. Rights to dividends or Dividend Equivalents may be extended to and made part of any Award (other than Options and SARs) consisting of shares of Common Stock or units denominated in shares
|
(c)
|
Deferrals
. Amounts payable in respect of Cash Awards to be deferred and paid in accordance with the terms of the Company’s deferred compensation plan that may permit such deferrals (if any), subject to the terms and conditions of such plan as it may be amended from time to time, and provided the Participant is eligible to defer Cash Awards under such plan and such deferrals comply with Section 409A.
|
11.
|
Stock Option Exercise
. The price at which shares of Common Stock may be purchased under an Option shall be paid in full at the time of exercise in cash or, if permitted by the Committee and elected by the Participant, the Participant may purchase such shares by means of the Company withholding shares of Common Stock otherwise deliverable on exercise of the Award or tendering Common Stock or surrendering another Award, including Restricted Stock, valued at Fair Market Value on the date of exercise, or any combination thereof. The Committee, in its sole discretion, shall determine acceptable methods for Participants to tender Common Stock or other Awards. The Committee may provide for procedures to permit the exercise or purchase of such Awards by use of the proceeds to be received from the sale of Common Stock issuable pursuant to an Award (including cashless exercise involving a broker or dealer approved by the Committee or net-exercise both pursuant to procedures approved by the Committee). Unless otherwise provided in the applicable Award Agreement, in the event shares of Restricted Stock are tendered as consideration for the exercise of an Option, a number of the shares issued upon the exercise of the Option, equal to the number of shares of Restricted Stock used as consideration therefore, shall be subject to the same restrictions as the Restricted Stock so submitted as well as any additional restrictions that may be imposed by the Committee. The Committee may adopt additional rules and procedures regarding the exercise of Options from time to time, provided that such rules and procedures are not inconsistent with the provisions of this Section 11.
|
12.
|
Taxes
. The Company shall have the right to deduct applicable taxes from any Award payment and withhold an appropriate amount of cash or number of shares of Common Stock or a combination thereof for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee may also permit withholding to be satisfied by
|
13.
|
Amendment, Modification, Suspension or Termination
. The Board may amend, modify, suspend or terminate this Plan (and the Committee may amend or modify an Award Agreement) for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by applicable law, except that (i) no amendment or alteration that would materially adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant and (ii) no amendment or alteration shall be effective prior to its approval by the stockholders of the Company to the extent stockholder approval is otherwise required by applicable legal requirements or the requirements of the securities exchange on which the Company’s stock is listed, including any amendment that expands the types of Awards available under this Plan, materially increases the number of shares of Common Stock available for Awards under this Plan, materially expands the classes of persons eligible for Awards under this Plan, materially extends the term of this Plan, materially changes the method of determining the Exercise Price of Options or strike price of SARs, deletes or limits any provisions of this Plan that prohibit the repricing of Options or SARs or materially modifies the restrictions on the Committee’s authority pursuant to Section 6(a) and 15(c) hereof. Notwithstanding any provision in this Plan to the contrary, this Plan shall not be amended or terminated in such manner that would cause this Plan or any amounts or benefits payable hereunder to fail to comply with or be exempt from Section 409A, and any such amendment or termination that may reasonably be expected to result in such failure shall be of no force or effect.
|
14.
|
Assignability
. Unless otherwise determined by the Committee and provided in the Award Agreement, no Award or any other benefit under this Plan shall be assignable or otherwise transferable. Any attempted assignment of an Award or any other benefit under this Plan in violation of this Section 14 shall be null and void.
|
15.
|
Adjustments.
|
(a)
|
The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock
|
(b)
|
In the event of any subdivision or consolidation of outstanding shares of Common Stock, declaration of a dividend payable in shares of Common Stock or other stock split, then (i) the number of shares of Common Stock reserved under this Plan, (ii) the number of shares of Common Stock available under this Plan for Incentive Options and Stock Awards, (iii) the number of shares of Common Stock covered by outstanding Awards in the form of Common Stock or units denominated in Common Stock, (iv) the exercise or other price in respect of such Awards, (v) the Stock Based Award Limitations, and (vi) the appropriate Fair Market Value and other price determinations for such Awards shall each be proportionately adjusted by the Committee to reflect such transaction. In the event of any other recapitalization or capital reorganization of the Company, any consolidation or merger of the Company with another corporation or entity, the adoption by the Company of any plan of exchange affecting the Common Stock or any distribution to holders of Common Stock of securities or property (other than normal cash dividends or dividends payable in Common Stock), the Committee shall make appropriate adjustments to (1) the number of shares of Common Stock covered by Awards in the form of Common Stock or units denominated in Common Stock, (2) the exercise or other price in respect of such Awards, (3) the appropriate Fair Market Value and other price determinations for such Awards, (4) the number of shares of Common Stock available under this Plan for Incentive Options and Stock Awards, and (5) the Stock Based Award Limitations to give effect to such transaction; provided that such adjustments shall only be such as are necessary to maintain the proportionate interest of the holders of the Awards and preserve, without exceeding, the value of such Awards.
|
(c)
|
In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Committee may make such adjustments to Awards or other provisions for the disposition of Awards as it deems equitable, and shall (i) if available pursuant to the terms of the transaction, provide for the substitution of a new Award or other arrangement (which, if applicable, may be exercisable for such property or stock as the Committee determines) for an Award or the assumption of the Award (and for awards not granted under this Plan), regardless of whether in a transaction to which Code
|
(d)
|
No adjustment authorized by this Section 15 shall be made in such manner that would result in this Plan or any amounts or benefits payable hereunder to fail to comply with or be exempt from Section 409A, and any such adjustment that may reasonably be expected to result in such failure shall be of no force or effect.
|
16.
|
Restrictions
. No Common Stock or other form of payment shall be issued or made with respect to any Award unless the Company shall be satisfied based on the advice of its counsel that such issuance or other payment will be in compliance with all applicable federal and state securities laws. Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation and any applicable
|
17.
|
Unfunded Plan
. This Plan is unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights thereto under this Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto, nor shall this Plan be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to an Award of cash, Common Stock or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. None of the Company, the Board or the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan.
|
18.
|
Section 409A
.
|
(a)
|
Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under this Plan would result in the imposition of an additional tax under Section 409A, that Plan provision or Award will be reformed to avoid imposition of the additional tax, including that any Award subject to 409A held by a specified employee that is settled upon termination of employment (for reasons other than death) shall be delayed in payment until the expiration of six months, and no action taken to comply with Section 409A shall be deemed to adversely affect the Participant’s rights to an Award. Awards made under this Plan are intended to comply with or be exempt from Section 409A, and ambiguous provisions hereof, if any, shall be construed and interpreted in a manner consistent with such intent. No payment, benefit or consideration shall be substituted for an Award if such action would result in the imposition of taxes under Section 409A.
|
(b)
|
Unless the Committee provides otherwise in an Award Agreement, each Restricted Stock Unit Award or Cash Award (or portion thereof if the Award is subject to a vesting schedule) shall be settled no later than the 15th day of the third month after the end of the first calendar year in which the Award (or such portion thereof) is no longer subject to a “substantial risk of forfeiture” within the meaning of Section 409A. If the Committee determines that a Restricted Stock
|
(c)
|
If the Participant is identified by the Company as a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) on the date on which the Participant has a “separation from service” (other than due to death) within the meaning of Treasury Regulation Section 1.409A‑1(h), any Award payable or settled on account of a separation from service that is deferred compensation subject to Section 409A shall be paid or settled on the earliest of (1) the first business day following the expiration of six months from the Participant’s separation from service, (2) the date of the Participant’s death, or (3) such earlier date as complies with the requirements of Section 409A.
|
19.
|
Governing Law
. This Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, shall be governed by and construed in accordance with the laws of the State of Texas.
|
20.
|
Right to Continued Service or Employment
. Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate any Participant’s employment or other service relationship with the Company or its Subsidiaries at any time, nor confer upon any Participant any right to continue in the capacity in which he is employed or otherwise serves the Company or its Subsidiaries.
|
21.
|
Clawback Right
. Notwithstanding any other provisions in this Plan, any Award shall be subject to recovery or clawback by the Company under any clawback policy adopted by the Company whether before or after the date of grant of the Award.
|
22.
|
Usage
. Words used in this Plan in the singular shall include the plural and vice versa, and words of one gender shall be construed to include the other gender and the neuter, in each case as the context requires.
|
23.
|
Headings
. The headings in this Plan are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Plan.
|
24.
|
No Fractional Shares
. No fractional shares of Common Stock shall be issued or delivered pursuant to this Plan or any Award. The Committee shall determine whether cash, Awards, or other property shall be issued or paid in lieu of fractional shares of Common Stock or whether such fractional shares of Common Stock or any rights thereto shall be forfeited or otherwise eliminated.
|
25.
|
Participants Based Outside of the United States
. Notwithstanding any provision of this Plan to the contrary, in order to comply with the laws in other countries in which the Company operates or has Employees, Directors or Consultants, the Committee, in its sole discretion, shall have the power and authority to:
|
(a)
|
Determine which affiliates and Subsidiaries shall be covered by this Plan;
|
(b)
|
Determine which Employees, Directors, and/or Consultants outside the United States are eligible to participate in this Plan;
|
(c)
|
Modify the terms and conditions of any Award granted to Employees, Directors, and/or Consultants outside the United States to comply with applicable foreign laws;
|
(d)
|
Establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable. Any subplans and modifications to Plan terms and procedures established under this Section 25 by the Committee shall be attached to the Plan document as appendices; and
|
(e)
|
Take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals.
|
26.
|
Effective Date
. This Plan, as approved by the Board on April 4, 2016, shall be effective as of the Effective Date. This Plan shall continue in effect for a term of 10 years commencing on the Effective Date, unless earlier terminated by action of the Board, and no further Awards may be granted under this Plan after the tenth anniversary of the Effective Date or, if earlier, termination by action of the Board, except as to Awards then outstanding under this Plan. Such outstanding Awards shall remain in effect until they have been exercised or terminated, or have expired.
|
By:
|
/s/
Kevin M. Fogarty
|
|
Kevin M. Fogarty
|
|
President and Chief Executive Officer
|
By:
|
/s/
Stephen E. Tremblay
|
|
Stephen E. Tremblay
|
|
Executive Vice President and Chief Financial Officer
|
By:
|
/s/
Kevin M. Fogarty
|
|
Kevin M. Fogarty
|
|
President and Chief Executive Officer
|
|
|
By:
|
/s/
Stephen E. Tremblay
|
|
Stephen E. Tremblay
|
|
Executive Vice President and Chief Financial Officer
|