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EX-32.1 - EXHIBIT 32.1 - Kraton Corpkraexhibit321q12017.htm
EX-31.2 - EXHIBIT 31.2 - Kraton Corpkraexhibit312q12017.htm
EX-31.1 - EXHIBIT 31.1 - Kraton Corpkraexhibit311q12017.htm
EX-10.2 - EXHIBIT 10.2 - Kraton Corpkratoncorporation2016equit.htm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34581
kratonlogoa13.jpg
 
Kraton Corporation
(Exact Name of Registrant as Specified in its Charter)
 
 

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)
 
  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act. (Check one):
Large accelerated filer:
ý
 
Accelerated filer:
¨
Non-accelerated filer:
¨
 
Smaller reporting company:
¨
 
 
 
Emerging growth company:
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
Number of shares of Kraton Corporation Common Stock, $0.01 par value, outstanding as of April 24, 2017: 31,183,238.

 


Index to Quarterly Report
on Form 10-Q for
Quarter Ended March 31, 2017
 
 
PART I. FINANCIAL INFORMATION
Page
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  

2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Some of the statements and information in this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We may also make written forward-looking statements in our reports on Forms 10-K, 10-Q and 8-K, in press releases and other written materials as well as in oral statements made by our officers, directors or employees to third parties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward looking statements are often identified by words such as “outlook,” “believes,” “estimates,” “expects,” “projects,” “may,” “intends,” “plans,” “anticipates,” “forsees,” “future” or similar expressions or by discussions of strategy, plans or intentions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future-including statements related to: our ability to successfully identify, complete and integrate potential acquisitions, including our acquisition of Arizona Chemical Holdings Corporation (now known as AZ Chem Holdings LP, “Arizona Chemical”), and realize expected synergies and cost savings related thereto; our ability to generate sufficient cash flows to fund our working capital requirements and service our outstanding indebtedness; the availability, terms and deployment of indebtedness and equity capital, including our ability to fully access our senior secured credit facilities; our beliefs regarding the strengthening relationships with our customers; the anticipated benefits of, or performance of, our products; our beliefs regarding opportunities for new, differentiated applications and other innovations; our estimates and expectations related to the cost and availability of raw materials, ending inventory levels and related changes; our expectations regarding our counterparties’ ability perform their obligations under operating, service, supply and other similar agreements and our ability to replace or renew such agreements when they expire; our expectations regarding our investments in joint ventures, including Formosa Petrochemical Corporation (“FPCC”); our anticipated capital expenditures, health, safety, environmental, security and infrastructure and maintenance costs, projects to optimize the production capabilities of our manufacturing assets and to support our innovation platform; our expectations regarding effective tax rates and positions; our ability to realize deferred tax assets and expected expenses of repatriating cash and short-term investments related to foreign operation; our future reliance on third party providers, in particular LyondellBasell Industries, for operating and other services; our ability to address or manage corruption concerns in certain locations in which we operate; our ability to address and manage cyber-security risks; our ability to protect our intellectual property, on which our business is substantially dependent; our expectations regarding future divided payments; and our expectations regarding the impact of general economic conditions on our business are forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause the actual results, performance or our achievements, or industry results, to differ materially from historical results, any future results, or performance or achievements expressed or implied by such forward-looking statements. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this report. Important factors that could cause our actual results to differ materially from those expressed as forward-looking statements are set forth in this report, 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 (the “SEC”). There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements. In addition, to the extent any inconsistency or conflict exists between the information included in this report and the information included in our prior reports and other filings with the SEC, the information contained in this report updates and supersedes such information.
Forward-looking statements are based on current plans, estimates, assumptions and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.
Presentation of Financial Statements
The terms “Kraton,” “our company,” “we,” “our,” “ours” and “us” as used in this report refer collectively to Kraton Corporation and its consolidated subsidiaries.
This Form 10-Q includes financial statements and related notes that present the condensed consolidated financial position, results of operations, comprehensive income, and cash flows of Kraton. Kraton Corporation is a holding company whose only material asset is its investment in its wholly owned subsidiary, Kraton Polymers LLC. Kraton Polymers LLC and its subsidiaries own all of our consolidated operating assets.

3


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Kraton Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of Kraton Corporation and subsidiaries (the “Company”) as of March 31, 2017, the related condensed consolidated statements of operations, and comprehensive income, changes in equity, and cash flows for the three-month periods ended March 31, 2017 and 2016. These condensed consolidated financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Kraton Corporation and subsidiaries as of December 31, 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
Houston, Texas
April 27, 2017

4



PART I. FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements.
KRATON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value) 

 
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


See Notes to Condensed Consolidated Financial Statements
5



KRATON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 
 
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


See Notes to Condensed Consolidated Financial Statements
6



KRATON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
 
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


See Notes to Condensed Consolidated Financial Statements
7



KRATON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(In thousands)
 
 
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


See Notes to Condensed Consolidated Financial Statements
8



KRATON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
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


See Notes to Condensed Consolidated Financial Statements
9



KRATON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Description of our Business. We are a leading global specialty chemicals company that manufactures styrenic block copolymers (“SBCs”), other engineered polymers, and value-added specialty products primarily derived from pine wood pulping co-products. The operating results of Arizona Chemical have been included in these financial statements since January 6, 2016, the date of the acquisition of Arizona Chemical (the “Arizona Chemical Acquisition”).
SBCs are highly-engineered synthetic elastomers, which we invented and commercialized. Our SBCs enhance the performance of numerous products by imparting greater flexibility, resilience, strength, durability, and processability, and are used in a wide range of applications, including adhesives, coatings, consumer and personal care products, sealants, lubricants, medical, packaging, automotive, and paving and roofing products. We also manufacture and sell isoprene rubber and isoprene rubber latex which are non-SBC products primarily used in applications such as medical products, personal care, adhesives, tackifiers, paints, and coatings.
We also refine and further upgrade crude tall oil and crude sulfate turpentine, into value-added specialty chemicals. These pine-based specialty products are sold into adhesive, road and construction, and tire markets, and we produce and sell a broad range of performance chemicals (formerly chemical intermediates) into markets that include fuel additives, oilfield chemicals, coatings, metalworking fluids and lubricants, inks, flavors and fragrances, and mining.
References in this report to “Kraton,” “our company,” “we,” “our,” “ours” and “us” as used in this report refer collectively to Kraton Corporation and its consolidated subsidiaries.
Basis of Presentation. The accompanying unaudited Condensed Consolidated Financial Statements presented herein are for us and our consolidated subsidiaries, each of which is a wholly-owned subsidiary, except our 50% investment in our joint venture, Kraton Formosa Polymers Corporation (“KFPC”), located in Mailiao, Taiwan. KFPC is a variable interest entity for which we have determined that we are the primary beneficiary and, therefore, have consolidated into our financial statements. Our 50% investment in our joint venture located in Kashima, Japan, is accounted for under the equity method of accounting. All significant intercompany transactions have been eliminated. These interim financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly our results of operations and financial position. Amounts reported in our Condensed Consolidated Statements of Operations are not necessarily indicative of amounts expected for the respective annual periods or any other interim period, in particular due to the effect of seasonal changes and weather conditions that typically affect our sales into paving, roadmarking, roofing, and construction applications. In particular, sales volumes into these applications are generally higher in the second and third quarter of the calendar year as warm and dry weather is more conducive to paving and roofing activity.
Significant Accounting Policies. Our significant accounting policies have been disclosed in Note 1 Description of Business, Basis of Presentation, and Significant Accounting Policies in our most recent Annual Report on Form 10-K.
There have been no other changes to the accounting policies as disclosed in our most recent Annual Report on Form 10-K. The accompanying unaudited Condensed Consolidated Financial Statements we present in this report have been prepared in accordance with our policies.
Use of Estimates. The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant items subject to such estimates and assumptions include:
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.

10



Income Tax in Interim Periods. We conduct operations in separate legal entities in different jurisdictions. As a result, income tax amounts are reflected in these Condensed Consolidated Financial Statements for each of those jurisdictions. Tax laws and tax rates vary substantially in these jurisdictions and are subject to change based on the political and economic climate in those countries. We file our tax returns in accordance with our interpretations of each jurisdiction’s tax laws. We record our tax provision or benefit on an interim basis using the estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period.
Losses from jurisdictions for which no benefit can be realized and the income tax effects of unusual and infrequent items are excluded from the estimated annual effective tax rate. Valuation allowances are provided against the future tax benefits that arise from the losses in jurisdictions for which no benefit can be realized. The effects of unusual and infrequent items are recognized in the impacted interim period as discrete items.
The estimated annual effective tax rate may be significantly affected by nondeductible expenses and by our projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period during which such estimates are revised.
We have established valuation allowances against a variety of deferred tax assets, including net operating loss carryforwards, foreign tax credits and other income tax credits. Valuation allowances take into consideration our expected ability to realize these deferred tax assets and reduce the value of such assets to the amount that is deemed more likely than not to be recoverable. Our ability to realize these deferred tax assets is dependent on achieving our forecast of future taxable operating income over an extended period of time. We review our forecast in relation to actual results and expected trends on a quarterly basis. If we fail to achieve our operating income targets, we may change our assessment regarding the recoverability of our net deferred tax assets and such change could result in a valuation allowance being recorded against some or all of our net deferred tax assets. A change in our valuation allowance would impact our income tax benefit (expense) and our stockholders’ equity and could have a significant impact on our results of operations or financial condition in future periods.
2. New Accounting Pronouncements
Accounting Standards Adopted in the Current Period
We have implemented all new accounting pronouncements that are in effect and that management believes would materially affect our financial statements.
In July 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This standard changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value. ASU 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2016, with early adoption permitted. We adopted ASU 2015-11 as of January 1, 2017 and there was no material impact to our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 817). The ASU changes seven aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes; (6) practical expedient - expected term (nonpublic only); (7) intrinsic value (nonpublic only). The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We adopted ASU 2016-09 as of January 1, 2017 and there was no material impact to our consolidated financial statements.
New Accounting Standards to be Adopted in Future Periods
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, updated by ASU No. 2015-14 Deferral of the Effective Date, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. In August 2015, the effective date for the standard was deferred by one year and the standard is now effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted based on the original effective date. Our evaluation of this standard is currently ongoing and therefore, the effects of this standard on our financial position, results of operations and cash flows are not yet known.

11



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires that an entity must recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and early adoption is permitted. Our evaluation of this standard is currently ongoing and therefore, the effects of this standard on our financial position, results of operations and cash flows are not yet known.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. Our evaluation of this standard is currently ongoing and therefore, the effects of this standard on our financial position, results of operations and cash flows are not yet known.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017. Our evaluation of this standard is currently ongoing.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715)-Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted as of the beginning of a year for which financial statements (interim and annual) have not been issued. Our evaluation of this standard is currently ongoing and we will adopt January 1, 2018. Our service costs were $1.6 million for both the three months ended March 31, 2017 and 2016.
3. Share-Based Compensation
We account for share-based awards under the provisions of ASC 718, Compensation—Stock Compensation. Accordingly, share-based compensation cost is measured at the grant date based on the fair value of the award and we expense these costs using the straight-line method over the requisite service period. Share-based compensation expense was $3.0 million and $3.1 million for the three months ended March 31, 2017 and 2016, respectively.

12



4. Detail of Certain Balance Sheet Accounts
 
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



13



Changes in accumulated other comprehensive loss by component were as follows:
 
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
)
5. Earnings Per Share (“EPS”)
Basic EPS is computed by dividing net income attributable to Kraton by the weighted-average number of shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Kraton by the diluted weighted-average number of shares outstanding during the period and, accordingly, reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, were exercised, settled or converted into common stock and were dilutive. The diluted weighted-average number of shares used in our diluted EPS calculation is determined using the treasury stock method.
The calculations of basic and diluted EPS are as follows:
 
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


14



6. Long-Term Debt
Long-term debt consists of the following:
 
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

 
Debt Issuance Costs. We capitalize the debt issuance costs related to issuing long-term debt and amortize these costs using the effective interest method, except for costs related to revolving debt, which are amortized using the straight-line method. Amortization of debt issuance costs are recorded as a component of interest expense and the accelerated write-off of debt issuance costs in connection with refinancing activities are recorded as a component of loss on extinguishment of debt. In connection with our January 2017 repricing of our Term Loan Facility (as defined below) and our offering of new 7.0% Senior Notes (as defined below) in March 2017, we deferred $2.0 million and $7.8 million of debt issuance costs, respectively. We recorded a $19.7 million loss on extinguishment of debt related to previously capitalized deferred financing costs and original issue discount on our Term Loan Facility in connection with our $392.0 million pay down of our Term Loan Facility during the three months ended March 31, 2017.
We had net debt issuance cost of $50.5 million as of March 31, 2017, of which $4.4 million related to our ABL Facility (as defined below) is recorded as an asset (of which $1.2 million was included in other current assets) and $46.1 million is recorded as a reduction to long-term debt. We amortized $2.4 million and $2.0 million during the three months ended March 31, 2017 and 2016, respectively.
Senior Secured Term Loan Facility. In January 2016, Kraton Polymers LLC entered into a senior secured term loan facility in an aggregate principal amount equal to $1,350.0 million that matures on January 6, 2022 (the “Term Loan Facility”). Subject to compliance with certain covenants and other conditions, we have the option to borrow up to $350.0 million of incremental term loans plus an additional amount subject to a senior secured net leverage ratio.
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to an applicable margin, plus, at our option, either (a) an adjusted LIBOR rate (subject to a 1.0% floor) determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for statutory reserve requirements or (b) an alternate base rate (subject to a 2.0% floor) determined by reference to the highest of (1) the prime rate of Credit Suisse AG, (2) the federal funds effective rate plus 0.5% and (3) the one month adjusted LIBOR rate plus 1.0% per annum. In addition, we are required to pay customary agency fees. As of the date of this filing, the effective rate on the Term Loan Facility was 5.0% comprised of the 1.0% LIBOR floor plus a 4.0% applicable margin.
During the three months ended March 31, 2016, we used the $72.0 million received from the sale of compounding assets to prepay a portion of the Term Loan Facility. During the three months ended March 31, 2017, we prepaid $392.0 million of the Term Loan Facility from borrowings under the new 7.0% Senior Notes (see below description of borrowings). Voluntary prepayments on the Term Loan Facility may be made without premium or penalty other than customary “breakage” costs with respect to LIBOR loans and other than a 1.0% premium in connection with certain repricing transactions consummated within a certain period of time after the closing or subsequent repricing of the Term Loan Facility. In the event we have consolidated excess cash flow for any fiscal year, we are required to prepay an amount of borrowings under the Term Loan Facility equal to at least 50.0% of such cash flow by the 90th day after the end of the fiscal year. The prepayment percentage is reduced to 25.0% if our senior secured net leverage ratio is under 2.5:1.0 or 0% if our senior secured net leverage ratio is below 2.0:1.0.
The Term Loan Facility is a senior secured obligation that is guaranteed by Kraton Corporation and certain of its wholly-owned domestic subsidiaries. The Term Loan Facility contains a number of customary affirmative and negative covenants. These covenants include a senior secured net leverage ratio which shall not exceed, as of the last day of any fiscal

15



quarter, 4.00:1.00 through March 31, 2017, which will decrease to 3.75:1.00 through March 31, 2018, 3.50:1.00 through March 31, 2019, and 3.25:1.00 for each quarter thereafter. As of the date of this filing, we were in compliance with the covenants under the Term Loan Facility.
10.5% Senior Notes due 2023. Kraton Polymers LLC and its wholly-owned financing subsidiary Kraton Polymers Capital Corporation issued $440.0 million aggregate principal amount of 10.5% Senior Notes due 2023 (the “10.5% Senior Notes”) that mature on April 15, 2023. The 10.5% Senior Notes are general unsecured, senior obligations and are unconditionally guaranteed on a senior unsecured basis by each of Kraton Corporation and certain of our wholly-owned domestic subsidiaries. We pay interest on the Senior Notes at 10.5% per annum, semi-annually in arrears on April 15 and October 15 of each year. Prior to October 15, 2018, we may redeem up to 40.0% of the aggregate principal amount of the 10.5% Senior Notes with the net proceeds of certain equity offerings at a redemption price equal to 110.5% of the principal amount of the 10.5% Senior Notes plus accrued and unpaid interest, if any, to the date of redemption. At any time prior to October 15, 2018, we may redeem some or all of the 10.5% Senior Notes at a redemption price equal to 100.0% of the principal amount of the notes redeemed plus an applicable premium as of, plus accrued and unpaid interest, if any, to the redemption date. On and after October 15, 2018, 2019, 2020, and 2021 and thereafter, we may redeem all or a part of the 10.5% Senior Notes for 107.875%, 105.250%, 102.625%, and 100.0% of the principal amount, respectively.
7.0% Senior Notes due 2025. Kraton Polymers LLC and its wholly-owned financing subsidiary Kraton Polymers Capital Corporation issued $400.0 million aggregate principal amount of 7.0% Senior Notes due 2025 (the 7.0% Senior Notes”) in March 2017, which mature on April 15, 2025. The 7.0% Senior Notes are general unsecured, senior obligations and are unconditionally guaranteed on a senior unsecured basis by each of Kraton Corporation and certain of our wholly-owned domestic subsidiaries. We pay interest on the Senior Notes at 7.0% per annum, semi-annually in arrears on January 15 and July 15 of each year, with the first interest payment due on July 15, 2017. Prior to April 15, 2020, we may redeem up to 40.0% of the aggregate principal amount of the 7.0% Senior Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.0% of the principal amount of the 7.0% Senior Notes plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. At any time prior to April 15, 2020, we may redeem some or all of the 7.0% Senior Notes at a redemption price equal to 100.0% of the principal amount of the notes redeemed plus accrued and unpaid interest, if any, to, but not including, the redemption date and a “make-whole” premium. On and after April 15, 2020, 2021, and 2022 and thereafter, we may redeem all or a part of the 7.0% Senior Notes for 105.250%, 102.625%, and 100.0% of the principal amount, respectively.
ABL Facility. In January 2016, we entered into an amended and restated asset-based revolving credit facility that provides financing of up to $250.0 million (the “ABL Facility”). We did not have any borrowings drawn under this facility as of March 31, 2017. The ABL Facility is primarily secured by receivables and inventory, and borrowing availability under the ABL Facility is subject to borrowing base limitations based on the level of receivables and inventory available for security. Revolver commitments under the ABL Facility consist of U.S. and Dutch revolving credit facility commitments, and the terms of the ABL Facility require the U.S. revolver commitment comprises at least 60.0% of the commitments under the ABL Facility.
The ABL Facility provides that we have the right at any time to request up to $100.0 million of additional commitments under this facility, provided that we satisfy additional conditions described in the credit agreement and provided further that the U.S. revolver commitment comprises at least 60.0% of the commitments after giving effect to such increase. We cannot guarantee that all of the lending counterparties contractually committed to fund a revolving credit draw request will actually fund future requests, although we currently believe that each of the counterparties would meet their funding requirements. The ABL Facility terminates on January 6, 2021; however, we may, from time to time, request that the lenders extend the maturity of their commitments; provided among other things, that at no time shall there be more than four different maturity dates under the ABL Facility.
Borrowings under the ABL Facility bear interest at a rate per annum equal to the applicable margin plus (1) a base rate determined by reference to the prime rate of Bank of America, N.A. in the jurisdiction where the currency is being funded or (2) LIBOR for loans that bear interest based on LIBOR. The initial applicable margin for borrowings under the ABL Facility is 0.5% with respect to U.S. base rate borrowings and 1.5% with respect to LIBOR or borrowings made on a European base rate. The applicable margin ranges from 0.5% to 1.0% with respect to U.S. base rate borrowings and 1.5% to 2.0% for LIBOR or borrowings made on a European base rate per annum based on the average excess availability for the prior fiscal quarter. In addition to paying interest on outstanding principal amounts under the ABL Facility, we are required to pay a commitment fee in respect of the un-utilized commitments at an annual rate of 0.375%.

16



The ABL Facility contains a financial covenant requiring us to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 if availability under the ABL facility is below a specified amount. Our failure to comply with this financial covenant would give rise to a default under the ABL Facility. If factors arise that negatively impact our profitability, we may not be able to satisfy this covenant. In addition, the ABL Facility contains customary events of default, including, without limitation, a failure to make payments under the ABL facility, cross-default with respect to other indebtedness and cross-judgment default, if certain bankruptcy events and certain change of control events were to occur. As of the date of this filing, we were in compliance with the covenants under the ABL Facility.
KFPC Loan Agreement. On July 17, 2014, KFPC executed a syndicated loan agreement (the “KFPC Loan Agreement”) in the amount of 5.5 billion New Taiwan Dollars (“NTD”), or $181.1 million (converted at the March 31, 2017 exchange rate), to provide additional funding to construct the hydrogenated styrenic block copolymer (“HSBC”) facility in Taiwan and to provide funding for working capital requirements and/or general corporate purposes.
The KFPC Loan Agreement is comprised of a NTD 4.29 billion Tranche A, or $141.3 million (converted at the March 31, 2017 exchange rate), to fund KFPC’s capital expenditures, and a NTD 1.21 billion Tranche B, or $39.8 million (converted at the March 31, 2017 exchange rate), to fund working capital requirements and/or general corporate purposes. As of March 31, 2017, NTD 4.1 billion, or $136.0 million (converted at the March 31, 2017 exchange rate) was drawn on the KFPC Loan Agreement. The facility period of the KFPC Loan Agreement is five years from January 17, 2015 (the first drawdown date). KFPC may continue to draw on the KFPC Loan Agreement for the first 28 months following the first drawdown date. Subject to certain conditions, KFPC can request a two-year extension of the term of the KFPC Loan Agreement.
The total outstanding principal amount is payable in six semi-annual installments with the first payment due on July 17, 2017 and each subsequent payment due every six months thereafter. The first five installments shall be in an amount equal to 10% of the outstanding principal amount and the final installment shall be in an amount equal to the remaining 50% of the outstanding principal amount. In the event the extension period is granted, the final 50% of the outstanding principal amount shall be repaid in five equal semi-annual installments with the first installment due on the original final maturity date.
The KFPC Loan Agreement is subject to a variable interest rate composed of a fixed 0.8% margin plus the three-month or six-month fixing rate of the Taipei Interbank Offered Rate (depending on the interest period selected by KFPC in the drawdown request or the interest period notice), subject to a floor of 1.7%. Interest is payable on a monthly basis. For the three months ended March 31, 2017, our effective interest rate for borrowings on the KFPC Loan Agreement was 1.8%.
The KFPC Loan Agreement contains certain financial covenants that change during the term of the KFPC Loan Agreement. The financial covenants include a maximum debt to equity ratio of 2.0 to 1.0 in 2017 and 1.2 to 1.0 in 2018; a minimum tangible net worth requirement of $50.0 million through 2018, which will increase to $100.0 million in 2019; and a minimum interest coverage ratio requirement of 5.0 to 1.0 commencing in 2017. In each case, these covenants are calculated and tested on an annual basis at December 31st each year. Formosa Petrochemical Corporation and Kraton Polymers LLC are the guarantors of the KFPC Loan Agreement with each guarantor guaranteeing 50% of the indebtedness.
Debt Maturities. The remaining principal payments on our outstanding total debt as of March 31, 2017, are as follows:
 
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

See Note 7 Fair Value Measurements, Financial Instruments, and Credit Risk for fair value information related to our long-term debt.
7. Fair Value Measurements, Financial Instruments, and Credit Risk
ASC 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC 820 requires entities to, among other things, maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

17



ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.
In accordance with ASC 820, these two types of inputs have created the following fair value hierarchy:
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).
Recurring Fair Value Measurements. The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2017 and December 31, 2016. These financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, which judgment may affect the valuation of their fair value and placement within the fair value hierarchy levels.
 
 
 
 
 
Fair Value Measurements at Reporting Date Using
 
Balance Sheet Location
 
March 31, 2017
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
 
 
(In thousands)
Derivative asset – current
Other current assets
 
$
619

 
$

 
$
619

 
$

Derivative asset – noncurrent
Other long-term assets
 
1,445

 

 
1,445

 

Retirement plan asset – noncurrent
Other long-term asset
 
2,629

 
2,629

 

 

Total
 
 
$
4,693

 
$
2,629

 
$
2,064

 
$

 
 
 
 
 
Fair Value Measurements at Reporting Date Using
 
Balance Sheet Location
 
December 31, 2016
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
 
 
(In thousands)
Derivative asset – current
Other current assets
 
$
243

 
$

 
$
243

 
$

Derivative asset – noncurrent
Other long-term assets
 
568

 

 
568

 

Retirement plan asset – noncurrent
Other long-term assets
 
1,894

 
1,894

 

 

Total
 
 
$
2,705

 
$
1,894

 
$
811

 
$


18



The following table presents the carrying values and approximate fair values of our long-term debt.
 
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

Financial Instruments    
Interest Rate Swap Agreements. Periodically, we enter into interest rate swap agreements to hedge or otherwise protect against interest rate fluctuation on a portion of our variable rate debt. These interest rate swap agreements are designated as cash flow hedges on our exposure to the variability of future cash flows.
On February 18, 2016, we entered into a series of interest rate swap agreements in an effort to convert a substantial portion of our future interest payments pursuant to the Term Loan Facility to a fixed interest rate. On February 18, 2016, we entered into two interest rate swaps, each with a notional value of $323.9 million, an effective date of January 3, 2017 and a maturity date of December 31, 2020. We entered into two more interest rate swaps on March 21, 2016, each with a notional value of $138.8 million, an effective date of January 3, 2017 and a maturity date of December 31, 2020. On March 24, 2017, we exited out of $8.4 million of our interest rate swaps and during the three months ended March 31, 2017, an additional $31.0 million of our interest rate swaps expired without renewal. As a result, at March 31, 2017 the total notional value of our interest rate swaps was $886.0 million. We recorded an unrealized gain of $1.3 million and an unrealized loss of $3.1 million in accumulated other comprehensive income (loss) related to the effective portion of these interest rate swap agreements during the three months ended March 31, 2017 and 2016, respectively.
Foreign Currency Hedges. Periodically, we enter into foreign currency agreements to hedge or otherwise protect against fluctuations in foreign currency exchange rates. These agreements do not qualify for hedge accounting and gains/losses resulting from both the up-front premiums and/or settlement of the hedges at expiration of the agreements are recognized in the period in which they are incurred. For the three months ended March 31, 2017 and 2016, we settled these hedges and recorded a loss of $0.1 million and a gain of $2.1 million, respectively, which are recorded in cost of goods sold in the Condensed Consolidated Statements of Operations. These contracts are structured such that these gains/losses from the mark-to-market impact of the hedging instruments materially offset the underlying foreign currency exchange gains/losses to reduce the overall impact of foreign currency exchange movements throughout the period.
Credit Risk
The use of derivatives creates exposure to credit risk in the event that the counterparties to these instruments fail to perform their obligations under the contracts, which we seek to minimize by limiting our counterparties to major financial institutions with acceptable credit ratings and by monitoring the total value of positions with individual counterparties.
We analyze our counterparties’ financial condition prior to extending credit, and we establish credit limits and monitor the appropriateness of those limits on an ongoing basis. We also obtain cash, letters of credit, or other acceptable forms of security from customers to provide credit support, where appropriate, based on our financial analysis of the customer and the contractual terms and conditions applicable to each transaction.
8. Restructuring Charges
During the three months ended March 31, 2017, we announced plans to stop producing USBC product grades in Paulinia, Brazil, and streamline production for producing CariflexTM polyisoprene latex. We estimate that we will incur $1.0 million of severance, all of which was incurred during the three months ended March 31, 2017 and was primarily recorded in cost of goods sold.

19



9. Income Taxes
Income tax provision was an expense of $1.2 million and a benefit of $86.3 million for the three months ended March 31, 2017 and 2016, respectively. Our effective tax rate was 22.5% for the three months ended March 31, 2017. Given the level of our pre-tax book income for the three months ended March 31, 2016 and the release of a significant portion of our valuation allowance, our effective tax rate for the three months ended March 31, 2016 is not meaningful. Our effective tax rates differ from the U.S. corporate statutory tax rate of 35.0%, primarily due to the mix of our pretax income or loss generated in various jurisdictions, permanent items, uncertain tax positions, and changes in our valuation allowances. During the three months ended March 31, 2017 and 2016, our pretax earnings in the Netherlands, Sweden, and Finland decreased our effective tax rate due to the statutory rates of 25.0%, 22.0%, and 20.0%, respectively.
The provision for income taxes differs from the amount computed by applying the U.S. corporate statutory income tax rate to income (loss) before income taxes for the reasons set forth below.
 
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
 %
We record a valuation allowance when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. As of March 31, 2017 and December 31, 2016, we had recorded a valuation allowance of $44.8 million and $44.7 million, respectively, against our net operating loss carryforwards and other deferred tax assets. We increased our valuation allowances by $0.1 million for the three months ended March 31, 2017, primarily related to current period net operating losses in certain jurisdictions. During the three months ended March 31, 2016, we reversed $86.6 million of the valuation allowance recorded against our U.S. net operating loss carryforwards and other deferred tax assets, partially offset by $31.2 million of new valuation allowances assumed in connection with the Arizona Chemical Acquisition. We consider the reversal of deferred tax liabilities within the net operating loss carryforward period, projected future taxable income, and tax planning strategies in making this assessment.

20



As of March 31, 2017 and December 31, 2016, we had total unrecognized tax benefits of $24.8 million and $24.5 million, respectively, related to uncertain tax positions, all of which, if recognized, would impact our effective tax rate. During the three months ended March 31, 2017, we had an increase of $0.3 million primarily related to our uncertain tax positions in the U.S. and Europe. During the three months ended March 31, 2016, we had an increase of $9.1 million primarily related to assumed uncertain tax positions in the U.S. in connection with the Arizona Chemical Acquisition. We recorded interest and penalties related to unrecognized tax benefits within the provision for income taxes.
We file income tax returns in the U.S. and foreign jurisdictions. For our U.S. federal income tax returns, the statute of limitations has expired through the tax year ended December 31, 2003. As a result of net operating loss carryforwards from 2004, the statute of limitations remains open for all years subsequent to 2003. In addition, open tax years for state and foreign jurisdictions remain subject to examination.
10. Commitments and Contingencies
(a) Legal Proceedings
We received an initial notice from the tax authorities in Brazil during the fourth quarter of 2012 in connection with tax credits that were generated from the purchase of certain goods which were subsequently applied by us against taxes owed. The tax authorities are currently assessing R$6.1 million, or $2.0 million (converted at the March 31, 2017 exchange rate). We have appealed the assertion by the tax authorities in Brazil that the goods purchased were not eligible to earn the credits. While the outcome of this proceeding cannot be predicted with certainty, we do not expect this matter to have a material adverse effect upon our financial position, results of operations or cash flows.
On January 28, 2014, we executed a definitive agreement (the “Combination Agreement”) to combine with the SBC operations of Taiwan-based LCY Chemical Corp. (“LCY”). The Combination Agreement called for LCY to contribute its SBC business in exchange for newly issued shares in the combined company, such that our existing stockholders and LCY would each own 50% of the outstanding shares of the combined enterprise.  
On June 30, 2014, we notified LCY that our Board of Directors intended to withdraw its recommendation to our stockholders to approve the Combination Agreement unless the parties could agree upon mutually acceptable revised terms to the Combination Agreement. This notice cited the decline in operating results for LCY’s SBC business in the first quarter of 2014 and a related decline in forecasted results thereafter, together with the decline in our stock price and negative reactions from our stockholders. Following our notification of our Board’s intention to change its recommendation, the parties engaged in discussions to determine whether they could mutually agree to changes to the terms of the Combination Agreement that would enable our Board to continue to recommend that our stockholders approve the Combination Agreement. The parties engaged in numerous discussions subsequent to June 30, 2014 regarding possible revisions to the terms of the Combination Agreement.
On July 31, 2014, an explosion occurred in a pipeline owned by LCY in Kaohsiung, Taiwan, causing substantial property damage and loss of life, and numerous governmental and private investigations and claims have been initiated and asserted against LCY. On August 4, 2014, LCY notified us that it would no longer negotiate, and would not agree to, any revisions to the terms of the Combination Agreement. On August 6, 2014, our Board withdrew its recommendation that our stockholders approve the Combination Agreement. On August 8, 2014, we received notice from LCY that LCY had exercised its right to terminate the Combination Agreement.
The provisions of the Combination Agreement provide for us to pay LCY a $25.0 million break-up fee upon a termination of the Combination Agreement following a withdrawal of our Board’s recommendation, unless an LCY material adverse effect has occurred and is continuing at the time of the withdrawal of our Board’s recommendation. In LCY’s notice terminating the Combination Agreement, LCY requested payment of such $25.0 million termination fee. On October 6, 2014, LCY filed a lawsuit against us in connection with our refusal to pay the $25.0 million termination fee. We believe that the impact upon LCY of the July 31, 2014 explosion in a gas pipeline in Kaohsiung, Taiwan, constitutes an LCY material adverse effect as defined in the Combination Agreement, and we have notified LCY that accordingly we are not obligated to pay the termination fee. On July 23, 2015, LCY's lawsuit was dismissed from the Delaware federal court on jurisdictional grounds. LCY has the right to re-file its suit in Delaware state court. As of the date of this filing, they had not re-filed their suit. While the ultimate resolution of this matter cannot be predicted with certainty, we do not expect any material adverse effect upon our financial position, results of operations or cash flows from the ultimate outcome of this matter.
We and certain of our subsidiaries, from time to time, are parties to various other legal proceedings, claims and disputes that have arisen in the ordinary course of business. These claims may involve significant amounts, some of which would not be covered by insurance. A substantial settlement payment or judgment in excess of our accruals could have a material adverse effect on our financial position, results of operations or cash flows. While the outcome of these proceedings cannot be predicted with certainty, we do not expect any of these existing matters, individually or in the aggregate, to have a material adverse effect upon our financial position, results of operations or cash flows.

21



(b) Asset Retirement Obligations.
The changes in the aggregate carrying amount of our asset retirement obligations are as follows:
 
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

For a portion of our asset retirement obligations related to the decommissioning of the coal boilers at our Belpre, Ohio, facility, we have recorded a liability and corresponding receivable of $3.5 million and $3.7 million as of March 31, 2017 and 2016, respectively, pursuant to the indemnity included in the February 2001 separation agreement from Shell Chemicals.
(c) Environmental Obligations.
In connection with the Arizona Chemical Acquisition, we assumed environmental obligations associated with historical site matters. As of March 31, 2017 we have recorded a liability of $3.3 million and a corresponding receivable of $3.3 million relating from an indemnification agreement with International Paper, Arizona Chemical's former owner.
There have been no other material changes to our Commitments and Contingencies disclosed in our most recently filed Annual Report on Form 10-K.
11. Employee Benefits
The components of net periodic benefit costs related to pension benefits are as follows: 
 
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

We made contributions of $2.0 million and $2.9 million to our pension plans in the three months ended March 31, 2017 and 2016, respectively.
The components of net periodic benefit cost related to other post-retirement benefits are as follows:
 
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


22



12. Industry Segments and Foreign Operations
Our operations are managed through two operating segments: (i) Polymer segment and (ii) Chemical segment. In accordance with the provisions of ASC 280, “Segment Reporting,” our chief operating decision maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.
Polymer Segment. Our Polymer segment is comprised of our SBCs and other engineered polymers business.
Chemical Segment. Our Chemical segment is comprised of our pine-based specialty products business.
Our chief operating decision maker uses operating income (loss) as the primary measure of each segment's operating results in order to allocate resources and in assessing the company's performance. In accordance with ASC 280, Segment Reporting, we have presented operating income (loss) for each segment. The following table summarizes our operating results by segment. We do not have sales between segments.
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 ____________________________________________________
(1) Our Chemical segment operating results were impacted by $24.7 million of amortization of step-up to fair market value of their inventories.
The following table presents long-lived assets including goodwill and total assets.

 
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

For geographic reporting, revenue is attributed to the geographic location in which the customers’ facilities are located. Long-lived assets consist primarily of property, plant, and equipment, which are attributed to the geographic location in which they are located and are presented at historical cost.

23



Following is a summary of revenue by geographic region:
 
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

Following is a summary of long-lived assets by geographic region:
 
March 31, 2017
 
December 31, 2016
 
(In thousands)
Long-lived assets, at cost:
 
 
 
United States
$
803,008

 
$
789,067

Taiwan
177,739

 
167,907

France
120,680

 
117,965

Brazil
78,757

 
73,017

Germany
62,383

 
60,568

All other countries
116,849

 
109,616

 
$
1,359,416

 
$
1,318,140


Our capital expenditures for the Polymer segment, excluding capital expenditures by the KFPC joint venture, were $14.3 million and $8.0 million during the three months ended March 31, 2017 and 2016, respectively, and capital expenditures for our Chemical segment were $13.0 million and $10.5 million during the three months ended March 31, 2017 and 2016, respectively.
13. Related Party Transactions
We own a 50% equity investment in an SBC manufacturing joint venture in Kashima, Japan. Our “Due to related party” liability on the Condensed Consolidated Balance Sheets is related to this joint venture and purchases from the joint venture amounted to $12.8 million and $7.7 million for the three months ended March 31, 2017 and 2016, respectively.
We own a 50% variable interest in KFPC, an HSBC manufacturing joint venture in Mailiao, Taiwan. The KFPC joint venture is fully consolidated in our financial statements, and our joint venture partner, Formosa Petrochemical Corporation (“FPCC”), is a related party affiliate. Under the terms of the joint venture agreement, FPCC is to provide certain site services and raw materials to KFPC. Our total purchases during the three months ended March 31, 2017 were $1.3 million and our outstanding payable was $0.8 million as of March 31, 2017. See Note 14 Variable Interest Entity, for further discussion related to the KFPC joint venture.
In 2015, one of our board members was appointed the Chief Executive Officer of Jacobs Engineering Group, Inc. (“Jacobs”) which has historically supplied site maintenance and engineering services for our Belpre, Ohio, facility. Our total purchases from Jacobs during the three months ended March 31, 2017 and 2016 were $2.6 million and $2.7 million, respectively, and our outstanding payable was $1.2 million as of March 31, 2017.
14. Variable Interest Entity
We hold a variable interest in a joint venture with FPCC to build, own and operate a 30 kiloton HSBC plant at FPCC’s petrochemical site in Mailiao, Taiwan. Kraton and FPCC are each 50% owners of the joint venture company, KFPC. Under the provisions of an offtake agreement with KFPC, we have exclusive rights to purchase all production from KFPC. Additionally, the agreement requires us to purchase a minimum of eighty percent of the plant production capacity each year at a defined fixed margin. This offtake agreement represents a variable interest that provides us the power to direct the most significant activities of KFPC and exposes us to the economic variability of the joint venture. As such, we have determined that we are the primary beneficiary of this variable interest entity; and therefore, we have consolidated KFPC in our financial statements and reflected FPCC’s 50% ownership as a noncontrolling interest.

24



The following table summarizes the carrying amounts of assets and liabilities as of March 31, 2017 and December 31, 2016 for KFPC before intercompany eliminations. See Note 6 Long-Term Debt, for further discussion related to the KFPC Loan Agreement executed on July 17, 2014. 
 
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

15. Supplemental Guarantor Information
Prior to the consummation of the Arizona Chemical Acquisition, certain of our wholly-owned domestic subsidiaries became co-registrants on our shelf registration statement on Form S-3 that was filed in August 2015 (the “Form S-3”) pursuant to which such subsidiaries may in the future be issuers or guarantors of registered debt securities. As a result, we are required by the rules of the SEC to provide certain separate financial information with respect to the subsidiary issuers and guarantors that are co-registrants on the Form S-3 (which subsidiaries do not include any entities that became our subsidiary as a result of the subsequent consummation of the Arizona Chemical Acquisition). As of December 31, 2016, neither we nor any of our subsidiaries had any registered debt securities outstanding. Kraton Polymers LLC and its wholly-owned financing subsidiary Kraton Polymers Capital Corporation, issued the 10.5% Senior Notes in January 2016 and the 7.0% Senior Notes in March 2017, each in private offerings, and each of which is fully and unconditionally guaranteed on a joint and several basis by Kraton Corporation, our subsidiaries that are co-registrants on the Form S-3 and certain entities that became our wholly-owned domestic subsidiaries in connection with the Arizona Chemical Acquisition. Kraton Polymers Capital Corporation has minimal assets and income. Because we have no registered debt outstanding at this time, we are presenting the following condensed consolidating financial information for the subsidiary issuers and guarantors of each of the 10.5% Senior Notes and 7.0% Senior Notes, which are prepared in accordance with the requirements of Rule 3-10 under Regulation S-X, to allow investors to determine the nature of the assets held by, and the operations and cash flows of, the various consolidating groups. If in the future we are no longer required by the rules of the SEC to provide separate financial information with respect to any of our subsidiaries, we will not necessarily continue presenting the below information.

25




KRATON CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2017
(Unaudited)
(In thousands, except par value)
 
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