Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - Kraton Corp | kra0428168-kearnpresen.htm |
Kraton Performance Polymers First Quarter 2016 Earnings Presentation April 28, 2016
Disclaimers 1 Forward Looking Statements Some of the statements in this presentation contain forward‐looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This presentation includes forward‐looking statements that reflect our plans, beliefs, expectations, and current views with respect to, among other things, future events and financial performance. Forward‐looking statements are often characterized by the use of words such as “outlook,” “believes,” “estimates,” “expects,” “projects,” “may,” “intends,” “plans”, “on track”, or “anticipates,” or by discussions of strategy, plans or intentions, including all matters described on the slide titled “2016 Modeling Assumptions” including, but not limited to, expectations for revenue, adjusted EBITDA, depreciation and amortization, non‐cash compensation expense, interest expense, tax provision, capital expenditures, spread between FIFO and ECRC, net debt, anticipated synergies and cost reset savings. All forward‐looking statements in this presentation are made based on management's current expectations and estimates, which involve known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from those expressed in forward‐looking statements. These risks and uncertainties are more fully described in our latest Annual Report on Form 10‐K, including but not limited to “Part I, Item 1A. Risk Factors” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” therein, and in our other filings with the Securities and Exchange Commission, and include, but are not limited to, risks related to: the integration of Arizona Chemical (now, AZ Chem Holdings LP); Kraton's ability to repay its indebtedness; Kraton's reliance on third parties for the provision of significant operating and other services; conditions in the global economy and capital markets; fluctuations in raw material costs; limitations in the availability of raw materials; competition in Kraton's end‐use markets; and other factors of which we are currently unaware or deem immaterial. Readers are cautioned not to place undue reliance on our forward‐looking statements. Forward‐looking statements speak only as of the date they are made, and we assume no obligation to update such information in light of new information or future events. Pro Forma Financial Information The unaudited pro forma information presented herein is for information purposes only and is not necessarily indicative of the operating results that would have occurred had the Arizona Chemical Acquisition been consummated at the beginning of the period, nor is it necessarily indicative of future operating results. The unaudited pro forma amounts above have been calculated after applying Kraton's accounting policies and adjusting the Arizona Chemical results to reflect (1) the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment and intangible assets had been applied from January 1, 2015; (2) the elimination of historical interest expense for Arizona Chemical as this debt was paid off by the previous owners; (3) the additional interest expense resulting from the debt issued to fund the Arizona Chemical Acquisition; (4) the elimination of transaction‐related costs; and (5) an adjustment to tax‐effect the aforementioned unaudited pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdiction to which that above adjustments relate. The unaudited pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the Arizona Chemical Acquisition Kraton First Quarter 2016 Earnings Call
Disclaimers GAAP Disclaimer This presentation includes the use of both GAAP and non‐GAAP financial measures. The non‐GAAP financial measures are EBITDA, Adjusted EBITDA, Adjusted Gross Profit and Adjusted Net Income attributable to Kraton (or earnings per share). Tables included in this presentation and our earnings release reconcile each of these non‐GAAP financial measures with the most directly comparable GAAP financial measure. For additional information on the impact of the spread between the FIFO basis of accounting and estimated current replacement cost (“ECRC”), see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10‐K for the fiscal year ended December 31, 2015. We consider these non‐GAAP financial measures to be important supplemental measures of our performance and believe they are frequently used by investors, securities analysts and other interested parties in the evaluation of our performance including period‐to‐period comparisons and/or that of other companies in our industry. Further, management uses these measures to evaluate operating performance, and our incentive compensation plan bases incentive compensation payments on our Adjusted EBITDA performance, along with other factors. These non‐GAAP financial measures have limitations as analytical tools and in some cases can vary substantially from other measures of our performance. You should not consider them in isolation, or as a substitute for analysis of our results under GAAP in the United States. For EBITDA, which represents net income before interest, taxes, depreciation and amortization, these limitations include: 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; and EBITDA included herein should not be used for purposes of assessing compliance or non‐compliance with financial covenants under our debt agreements. The calculation of EBITDA in our debt agreements includes adjustments, such as extraordinary, non‐recurring or one‐time charges, pro forma cost savings, certain non‐cash items, turnaround costs, and other items included in the definition of EBITDA in our debt agreements. Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure. As an analytical tool, Adjusted EBITDA is subject to all the limitations applicable to EBITDA. We prepare Adjusted EBITDA by eliminating from EBITDA the impact of a number of items we do not consider indicative of our on‐going performance, including the spread between FIFO and ECRC, but you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non‐recurring items. In addition, due to volatility in raw material prices, Adjusted EBITDA may, and often does, vary substantially from EBITDA and other performance measures, including net income calculated in accordance with U.S. GAAP; 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. Because of these and other limitations, EBITDA and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. As a measure of our performance, Adjusted Gross Profit is limited because it often will vary substantially from gross profit calculated in accordance with U.S. GAAP due to volatility in raw material prices. Finally, we prepare Adjusted Net Income attributable to Kraton by eliminating from net income the impact of a number of items we do not consider indicative of our on‐going performance, including the spread between FIFO and ECRC. Our presentation of non‐GAAP financial measures and the adjustments made therein should not be construed as an inference that our future results will be unaffected by unusual or non‐recurring items, and in the future we may incur expenses or charges similar to the adjustments made in the presentation of our non‐GAAP financial measures. 2Kraton First Quarter 2016 Earnings Call
First Quarter Overview Polymer segment achieved record Q1 Adjusted EBITDA(1) of $52.2 million Arizona Chemical acquisition closed, accretive to Q1 Adjusted EBITDA(1) by $40.9 million Strong Q1 with record earnings in our Polymer Segment Cost reduction and synergy capture on track Cost reduction programs are on track to deliver $25‐$28 million in 2016 and $70 million by 2018 $3.7 million incremental achieved in Q1 Arizona integration synergies are anticipated to drive savings of $21‐$27 million in 2016, with a plan to hit $65 million by 2018 $2.9 million achieved in Q1 Clear path for continued debt reduction Sale of compounding assets reduced debt by $72 million Expect $500 million reduction in net debt by 12/31/2018 3Kraton First Quarter 2016 Earnings Call (1) See non‐GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non‐GAAP measure to its most directly comparable GAAP measure.
Polymer Segment Achieved Record Q1 Adjusted EBITDA (1) See non‐GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non‐GAAP measure to its most directly comparable GAAP measure. ($ millions) Q1’16 Q1’15 Change Volume (kT) 75.1 74.4 0.7 Revenues: Cariflex $38.0 $34.8 $3.2 Specialty Polymers 85.0 91.7 (6.6) Performance Products 119.9 134.8 (14.8) Other 0.1 0.1 0.0 Total $243.0 $261.4 $(18.4) Adjusted EBITDA (1) $52.2 $49.2 $3.0 Margin 21.5% 18.8% 270 bps Q1 2016 Adjusted EBITDA a record Q1 and second highest quarterly Adjusted EBITDA in company history Cariflex ‐ volume up 11.8% on higher sales into surgical glove applications Specialty Polymers ‐ volume up 1.2% due to increase in automotive and medical applications net of lower sales into lubricant additive and personal care applications Performance Products ‐ volume flat, with higher sales into paving & personal care applications offset by lower volume into adhesive and roofing applications 59% of the portfolio comprised of differentiated grades as of the TTM period ended March 31, 2016, compared to 57% in the TTM period ended March 31, 2015 4Kraton First Quarter 2016 Earnings Call Note: May not foot due to rounding
(1) See non‐GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non‐GAAP measure to its most directly comparable GAAP measure. (2) Chemical segment results for the the period January 6, 2016 (the date of the Acquisition Chemical acquisition) through March 31, 2016. Chemical Segment Generated Margin of 23% in Q1 2016 Adhesives ‐ sales volume down 5.1% vs. particularly strong Q1’15 which benefited from competitor outage Roads & Construction – volume up 3.5% on higher sales in Americas due to weather conditions and the passage of the U.S. highway bill, more than offsetting lower sales in Europe Tires ‐ volume up 1.5% with new qualifications across North America, Europe and Asia compensating for lower sales in South America Chemical Intermediates ‐ sales volume down 1.2%. Lower pricing on competitive materials, product mix and unfavorable exchange rates led to lower average selling prices which were largely offset by lower cost of goods sold 5Kraton First Quarter 2016 Earnings Call ($ millions) Q1’16 Q1’15 Change Volume (kT) 98.2 100.2 (2.0) Stub adjustment(2) (3.3) ‐ (3.3) As reported (stub adjusted) 94.9 100.2 (5.3) Revenues: Adhesives $66.0 $71.5 $(5.5) Roads & Construction 10.7 $10.6 0.1 Tires 9.2 9.7 (0.5) Chemical Intermediates 97.8 112.1 (14.2) Total $183.8 $204.0 $(20.2) Stub adjustment(2) $6.9 ‐ $6.9 As reported (stub adjusted) $176.9 $204.0 $(27.1) Adjusted EBITDA (1) (2) $40.9 Margin 23.1% Note: May not foot due to rounding
First Quarter 2016 Operating Results $ in millions 6Kraton First Quarter 2016 Earnings Call (1) Chemical segment results for the the period January 6, 2016 (the date of the Acquisition Chemical acquisition) through March 31, 2016. (2) See non‐GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non‐GAAP measure to its most directly comparable GAAP measure. Polymer Segment Despite a challenging comparison given the Q1 2015 raw material environment, Polymer adjusted gross profit per ton(1) of $1,052 is the second highest in company history A record first quarter and second highest quarterly Adjusted EBITDA in company history – margin of 21.5% Achieved $3.7 million of earnings growth through the cost reduction initiatives – $23.1 million cumulative since inception Chemical Segment Adjusted gross profit per ton(1) of $625 in Q1 2016 Adjusted EBITDA(2) margin of 23.1% in Q1’2016 Adjusted EBITDA includes turnaround costs and currency headwind of $2.1 million and $1.8 million, respectively Operational synergies of $1.1 million Consolidated Adjusted EBITDA margin of 22.2%, accretion from Chemicals segment of 70 basis points Adjusted EPS(1) of $0.80, up 5.3% from Q1 2015 $2.9 million of synergies and $3.7 million of cost outs achieved in the first quarter 2016
Reconciliation of Net Income and EPS to Adjusted Net Income and EPS ($ in thousands, except per share amounts) 7Kraton First Quarter 2016 Earnings Call a) Restructuring and other charges. b) Transaction and acquisition related costs. c) Loss on extinguishment of debt. d) Effect of purchase price accounting on inventory valuation. e) Gain on sale of assets. f) KFPC startup costs. g) Spread between FIFO and ECRC. h) Valuation allowance. Three Months Ended March 31, 2016 As Reported Adjustments Adjusted (a) (b) (c) (d) (e) (f) (g) (h) Revenue $ 419,923 $ — $ — $ — $ — $ — $ — $ — $ — $ 419,923 Cost of goods sold 326,105 (180) — — (24,719) — — (19,325) — 281,881 Gross profit 93,818 180 — — 24,719 — — 19,325 — 138,042 Operating expenses: Research and development 10,576 — — — — — — — — 10,576 Selling, general, and administrative 49,862 (4,281) (7,215) — — — (840) — — 37,526 Depreciation and amortization 30,154 — — — — — — — 30,154 Total operating income 3,226 4,461 7,215 — 24,719 — 840 19,325 — 59,786 Gain on sale of assets 45,251 — — — — (45,251) — — — — Loss on extinguishment of debt (13,423) — — 13,423 — — — — — — Earnings of unconsolidated joint venture 78 — — — — — — — — 78 Interest expense, net (33,838) — — — — — — — — (33,838) Income (loss) before income taxes 1,294 4,461 7,215 13,423 24,719 (45,251) 840 19,325 — 26,026 Income tax benefit (expense) 86,251 (550) (1,229) (4,795) (5,086) 16,164 (142) (5,295) (86,631) (1,313) Consolidated net income (loss) 87,545 3,911 5,986 8,628 19,633 (29,087) 698 14,030 (86,631) 24,713 Net loss attributable to noncontrolling interest 542 — — — — — (349) — 193 Net income (loss) attributable to Kraton $ 88,087 $ 3,911 $ 5,986 $ 8,628 $ 19,633 $ (29,087) $ 349 $ 14,030 $ (86,631) $ 24,906 Earnings (loss) per common share: Basic $ 2.87 $ 0.13 $ 0.20 $ 0.28 $ 0.64 $ (0.95) $ 0.01 $ 0.46 $ (2.82) $ 0.82 Diluted $ 2.84 $ 0.13 $ 0.20 $ 0.28 $ 0.63 $ (0.94) $ 0.01 $ 0.45 $ (2.80) $ 0.80 Weighted average common shares outstanding: Basic 30,026 30,026 30,026 30,026 30,026 30,026 30,026 30,026 30,026 30,026 Diluted 30,289 30,289 30,289 30,289 30,289 30,289 30,289 30,289 30,289 30,289
Cost Reduction Initiatives Are Progressing According To Plan Manufacturing Optimization HSBC facility in Mailiao nearing mechanical completion in Q2’16 with anticipated startup late 2016 Berre expansion design expected to be complete Q3’16 with anticipated mechanical completion by Q4’17 Asset Productivity Belpre boilers operational and we expect to exceed the $10 million annual cost savings target Multiple other manufacturing projects Complexity Reduction Cariflex “direct connect” design underway with expected mechanical completion by Q4’17 Approximately 50 SKU’s eliminated to date Other inventory reduction initiatives underway Total cost to achieve estimated at $90‐$95 million 8Kraton First Quarter 2016 Earnings Call 2015 Boiler Other 2016 2017 2018 $19 $25‐$28 $70 $37‐$47 $ in millions
We Are On Track to Deliver Integration Synergies Banked $1.8 million in Q1’16 Tracking towards more than $12 million in 2016 Duplicate C‐Suite Back office consolidation underway Office space consolidation underway Lower indirect overhead costs Banked $1.1 million in Q1’16 Tracking towards $9 ‐ $12 million in 2016 New gas boiler startup (Panama City) New tank/logistics improvements (Finland) Yield improvements 2016 2017 2018 Expected G&A Synergies $12‐$15 $20‐$25 $25 2016 2017 2018 Expected Operational Synergies $9‐$12 $22‐$28 $40 2016 2017 2018 Expected Total Synergies $21‐$27 $42‐$53 $65 Total cost to achieve estimated at $50‐ $55 million 9Kraton First Quarter 2016 Earnings Call $ in millions
Proceeds From Compounding Sale Applied to Debt Reduction ($ millions) ABL Term Loan Notes Capital Lease 6.75% Notes KRA Cash KRA Net Debt JV Debt JV Cash Consol. Net Debt At December 31, 2015 $ ‐ $ ‐ $ ‐ $ 1.6 $350.0 $ 60.7 $ 290.9 $ 76.9 $ 9.3 $ 358.5 Acquisition of Arizona 37.1 1,350.0 440.0 ‐ (350.0) 36.7 1,440.4 ‐ ‐ 1,440.4 Pro forma for Arizona 37.1 1,350.0 440.0 1.6 ‐ 97.4 1,731.3 76.9 9.3 1,798.9 Sale – Compounding Assets ‐ ‐ ‐ ‐ 72.0 (72.0) ‐ ‐ (72.0) Borrowings / (repayments) 12.9 (72.0) ‐ ‐ (59.1) ‐ 14.2 14.2 ‐ Other changes in cash (net) ‐ ‐ ‐ ‐ (42.4) 42.4 ‐ (13.0) 55.4 At March 31, 2016 $ 50.0 $ 1,278.0 $440.0 $ 1.6 $ 67.9 $ 1,701.7 $ 91.1 $ 10.5 $ 1,782.3 10Kraton First Quarter 2016 Earnings Call First quarter 2016 includes the following cash outlays: $18 million ‐ transaction and integration costs $15 million ‐ payment of variable compensation earned in 2015 $ 3 million ‐ cost to achieve synergies Capex of $18.9 million in Q1 2016 (excluding capex associated with the KFPC JV)
Free Cash Flow ‐ Illustration In addition to steady earnings, there are four key levers to delivering cash: Deliver cost reductions Deliver integration synergies Reduced capital spending requirements Ability to shield taxes by utilizing net operating loss carryforwards We expect that we will reduce Kraton’s net debt by $500 million by December 31, 2018 $1,265 $500 $(3) $(360) $(90) $(224) $(160) $72 Adjusted EBITDA Interest Taxes Base Capex Cost to Achieve Working Capital Compounding Sale Avail. For Debt Reduction Mid‐point of 2016 guidance range x 3 years + benefits of synergies and cost reset Includes tax leakage on compounding sale Capex Opex Synergy $27 $25 Cost Reset $65 $24 Integration $19 $50 million benefit from complexity reduction $(53) provision for inflation 11Kraton First Quarter 2016 Earnings Call
2016 Modeling Assumptions(1) ($ in millions) Revenue $1,800 Adjusted EBITDA(2) $370 ‐ $390 Non‐cash compensation expense $11 Depreciation & amortization $125 ‐ $130 Interest expense Includes estimated amortization of DFC and accretion of OID totaling approximately $14.0 million $135 ‐ $140 Effective tax rate excluding release of valuation allowance in Q1 2016 20% – 25% Capex Excludes KFPC capex of approximately $70 million Excludes capitalized interest of $5 million $100 ‐ $110 Estimated second quarter 2016 negative spread between FIFO and ECRC $15 Estimated net debt at December 31, 2016 Excludes estimated KFPC net debt of approximately $145 million $1,600 Anticipated synergies from Arizona Chemical Acquisition in 2016 $21 ‐ $27 Cost reset initiative savings in 2016 $25 ‐ $28 (1) Management's estimates. These estimates are forward‐looking statements and speak only as of April 28, 2016. Management assumes no obligation to update these estimates in light of new information or future events. (2) We have not reconciled Adjusted EBITDA guidance to net income (loss) because we do not provide guidance for net income (loss) or for items that we do not consider indicative of our on‐going performance, including the gain on sale of assets and the spread between FIFO and ECRC, as certain of these items are out of our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non‐GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort. Note: Non‐cash compensation expense is excluded in determining Adjusted EBITDA and included in determining Adjusted EPS. 12Kraton First Quarter 2016 Earnings Call
Appendix
Asia Pacific 9% EMEA 45% Americas 46% Asia Pacific 33% EMEA 26% Americas 41% Asia Pacific 92% EMEA 7% Americas 1% Polymers – Revenue by Geography and Product Group TTM March 31, 2016 CARIFLEX R e v e n u e b y G e o g r a p h y R e v e n u e b y P r o d u c t G r o u p SPECIALTY POLYMERS PERFORMANCE PRODUCTS 14Kraton First Quarter 2016 Earnings Call Note: May not foot due to rounding
Americas 54% EMEA 31% Asia Pacific 15% Americas 44% EMEA 55% Asia Pacific 1% Chemicals – Revenue by Geography TTM March 31, 2016 ADHESIVES TIRES 15Kraton First Quarter 2016 Earnings Call ROADS & CONSTRUCTION CHEMICAL INTERMEDIATES Americas 57% EMEA 35% Asia Pacific 8% Americas 33% EMEA 41% Asia Pacific 26%
Reconciliation of Gross Profit to Adjusted Gross Profit Columns may not foot due to rounding. 16Kraton First Quarter 2016 Earnings Call ($ in thousands) Three Months Ended March 31, 2016 Three Months Ended March 31, 2015 Polymer Chemical Total Polymer Gross profit $ 65,525 $ 28,293 $ 93,818 $ 46,561 Add (deduct): Restructuring and other charges (a) 31 149 180 28 Effect of purchase price accounting on inventory valuation (b) — 24,719 24,719 — Production downtime — — — (157 Non‐cash compensation expense 185 — 185 157 Spread between FIFO and ECRC 13,228 6,097 19,325 33,408 Adjusted gross profit $ 78,969 $ 59,258 $ 138,227 $ 79,997 Sales volume (Kilotons) 75.1 94.9 170.0 74.4 Adjusted gross profit per ton $1,052 $625 $813 $1,075
Reconciliation of Net Loss and EPS to Adjusted Net Income and EPS 17Kraton First Quarter 2016 Earnings Call Three Months Ended March 31, 2015 As Reported Restructuring Transaction and Acquisition Production Downtime KFPC Startup Costs FIFO TO ECRC Adjustment Adjusted Revenue $ 261,429 $ — $ — $ — $ — $ — $ 261,429 Cost of goods sold 214,868 (28) — 156 — (33,408) 181,588 Gross profit 46,561 28 — (156) — 33,408 79,841 Operating expenses: Research and development 7,947 — — — — — 7,947 Selling, general, and administrative 26,949 (791) (328) (48) (452) — 25,330 Depreciation and amortization 15,296 — — — — 15,296 Total operating income (3,631) 819 328 (108) 452 33,408 31,268 Gain on sale of assets — — — — — — — Loss on extinguishment of debt — — — — — — — Earnings of unconsolidated joint venture 76 — — — — — 76 Interest expense, net (6,120) — — — — — (6,120) Income (loss) before income taxes (9,675) 819 328 (108) 452 33,408 25,224 Income tax benefit (expense) (66) (26) (7) 2 (76) (984) (1,157) Consolidated net income (loss) (9,741) 793 321 (106) 376 32,424 24,067 Net loss attributable to noncontrolling interest 285 — — — (188) — 97 Net income (loss) attributable to Kraton $ (9,456) $ 793 $ 321 $ (106) $ 188 $ 32,424 $ 24,164 Earnings (loss) per common share: Basic (0.30) 0.03 0.01 — 0.01 1.03 0.78 Diluted (0.30) 0.02 0.01 — 0.01 1.02 0.76 Weighted average common shares outstanding: Basic 31,067 31,067 31,067 31,067 31,067 31,067 31,067 Diluted 31,067 31,371 31,371 31,371 31,371 31,371 31,371 ($ in thousands, except per share amounts)
Reconciliation of Operating Income (Loss) to EBITDA and Adjusted EBITDA 18Kraton First Quarter 2016 Earnings Call ($ thousands) Three Months Ended March 31, 2016 Three Months Ended March 31, 2015 Polymers Chemicals Total Polymers Operating income (loss) 13,946 (10,720) 3,226 (3,631) Add (deduct): Depreciation and amortization 14,592 15,562 30,154 15,296 Gain on sale of assets 45,251 — 45,251 — Loss on extinguishment of debt (13,423) — (13,423) — Earnings of unconsolidated joint venture 78 78 76 EBITDA 60,444 4,842 65,286 11,741 Add (deduct): Restructuring and other charges (a) 165 4,296 4,461 819 Transaction and acquisition related costs (b) 6,312 903 7,215 328 Gain on sale of assets (45,251) — (45,251) — Loss on extinguishment of debt 13,423 — 13,423 — Effect of purchase price accounting on inventory valuation 24,719 24,719 — Production downtime (c) — — — (108) KFPC startup costs (d) 840 — 840 452 Non‐cash compensation expense (e) 3,083 — 3,083 2,609 Spread between FIFO and ECRC 13,228 6,097 19,325 33,408 Adjusted EBITDA $ 52,244 $ 40,857 $ 93,101 $ 49,249 a) Severance expenses, professional fees, and other restructuring related charges which are primarily recorded in selling, general, and administrative expenses. b) Charges related to the evaluation of acquisition transactions which are recorded in selling, general, and administrative expenses. c) In 2015, the reduction in costs is due to additional insurance recovery related to the Belpre, Ohio, production downtime, which is primarily recorded in cost of goods sold. d) Startup costs related to the joint venture company, KFPC, which are recorded in selling, general, and administrative expenses. e) For the three months ended March 31, 2016 and 2015, respectively, $2.7 million and $2.2 million is recorded in selling, general and administrative expenses, $0.2 million and $0.2 million is recorded in research and development expenses, and $0.2 million and $0.2 million is recorded in cost of goods sold.