Press Release
Kraton Announces
First Quarter 2005 Earnings
Total Revenue Increases 15%
versus First Quarter 2004
Gross Profit Improves As Price Increases
Offset High Raw Material Costs
2004 Results Restated - No Impact
to Bank Covenant EBITDA
HOUSTON – May 26, 2005 – Polymer Holdings LLC, parent company of Kraton Polymers LLC (Kraton) today announces its financial results for the first quarter 2005. Kraton has scheduled a conference call for Thursday, June 2, 2005 from 10:00-11:00 a.m. Central Time to discuss 1st quarter 2005 results.
What: Kraton 1st quarter 2005 Earnings Release Conference Call
When: Thursday, June 2, 2005 at 10:00 a.m. CT (11:00 a.m. ET)
Conference Call: (888) 889-1955 pass code is Earnings Call
International Callers: (517) 308-9010
If you are unable to participate during the live conference call, a replay will be available 24 hours a day beginning at approximately 1:00 p.m. CT June 2nd through 12:00 p.m. on June 16. To hear a telephonic replay of the call, dial (888) 562-4915 and International callers dial (402) 530-7672.
Kraton's total revenues for the quarter were $207.2 million compared with $180.8 million in the year ago period, an increase of nearly 15%. This improvement was driven by a 22% increase in average prices. Net Income for the quarter was $3.1 million, compared with a loss of $7.9 million in the year ago period.
Gross Profit for the first quarter increased $23.3 million to $49.8 million, as compared to $26.5 million in the year ago period. After adjusting for period to period differences in the amortization of the step-up in inventory value related to the acquisition of the company in December 2003, the improvement in gross profit was $9.8 million. At the end of the first quarter 2005, Last Twelve Months (LTM) Adjusted Bank Covenant EBITDA, a measure used to determine compliance with Kraton"s debt covenants, totaled $96.7 million, a decrease of $10.9 million from the year ago period. The decrease reflects higher raw material costs during the last nine months of 2004 that were not, as yet, being offset by our price increases, which began to take effect in the third quarter of 2004. A reconciliation of EBITDA and Adjusted Bank covenant EBITDA to net income or net loss, as applicable, prepared in accordance with US GAAP is set out in the attached statements.
Kraton ended the quarter with $23.1 million in cash and cash equivalents, a decrease of $23.3 million from December 31, 2004. The decrease was due to the seasonal, first quarter, build in inventories and our semi-annual interest payment on our 8.125% notes.
Our 2004 financial results have been restated due to a computational error in the calculation of the additional cost of sales related to the inventory step up associated with the December 2003 acquisition. The amortization of the step up, which is recorded to cost of sales, was understated by approximately $0.4 million for the three months ended March 31, 2004. The restatement did not change Adjusted Bank Covenant EBITDA, or cash.
George Gregory, President and Chief Executive Officer said, "Financial results in the first quarter 2005 were encouraging as revenue and gross profit improved from the same period last year. Our strong financial performance has resulted in the company being very comfortably in compliance with all debt covenants which allows us to focus on running the company and improving profitability. Concerning our top priorities, our "Price Right" initiative continues to bring value to the bottom line with the continuation of price increases in select markets to reflect the persistently high cost of our raw materials. From mid-last year to the end of March 2005, our "Cost Out" and Lean Six Sigma initiatives have achieved annual run rate savings of $15 million, $3.3 million of which was achieved in the first quarter 2005. On a very positive note, our plants ran at record production rates during the first quarter 2005. The production achievements are the direct result of applying Lean Six Sigma techniques to production unit operations on a Global basis. I want to recognize the employees of Kraton who have worked so hard to improve our performance."
About Kraton
Kraton Polymers LLC is a premier, global specialty chemicals company and is the world’s largest producer of styrenic block copolymers (“SBCs”), a family of products whose chemistry was pioneered by Kraton over forty years ago. SBCs are highly-engineered synthetic elastomers, which enhance the performance of products by delivering a variety of attributes, including greater flexibility, resilience, strength, durability and processability. Kraton polymers are used in a wide range of applications including road and roofing materials, numerous consumer products (e.g., diapers, tool handles and toothbrushes), tapes, labels, medical applications, packaging, automotive and footwear products. Kraton has the leading position in nearly all of its core markets and is the only producer of SBCs with global manufacturing capability. Its production facilities are located in the United States, The Netherlands, Germany, France, Brazil, and Japan.
Polymer Holdings LLC is the parent company of Kraton Polymers LLC and has no material assets other than its investment in Kraton Polymers LLC.
Kraton, the Kraton logo and design are trademarks of Kraton Polymers LLC.
Forward Looking Statements
This press release includes “forward-looking statements” as that term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements and are often characterized by the use of words such as “believes,” “expects,” “estimates,” “projects,” “may,” “will,” “intends,” “plans” or “anticipates,” or by discussions of strategy, plans or intentions. In this press release, forward-looking information relates to covenant compliance, pricing trends, cost savings, production rates. and other similar matters. All forward-looking statements in this press release are made based on management’s current expectations and estimates, which involve risks, uncertainties and other factors that could cause results to differ materially from those expressed in forward-looking statements. Among these factors are changes in overall economic conditions, the cyclical nature of the chemical industry, changes in demand for our products, changes in inventories at our customers and distributors, technological and product development risks, availability and cost of raw materials, competitors’ actions, pricing and gross margin pressures, loss of key customers, order cancellations or reduced bookings, the timing and cost of planned capital expenditures, changes in manufacturing yields, control of costs and expenses, significant litigation, risks associated with acquisitions and dispositions, risks associated with our substantial leverage and restrictive covenants in our debt agreements, risks associated with our international operations, the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally, risks and costs associated with increased and new regulation of corporate governance and disclosure standards (including pursuant to Section 404 of the Sarbanes-Oxley Act of 2002), and risks involving environmental or other governmental regulation. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information.
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