Exhibit 99.2
Summary of Unaudited Pro Forma Financial Information
On October 30, 2019, Kraton Polymers LLC and Kraton Polymers Holdings B.V., each a wholly owned subsidiary of Kraton Corporation (the “Company”), entered into an asset and stock purchase and sale agreement to sell the assets that are primarily used, primarily held for use, or intended to be primarily used in the Company's Cariflex™ business (the “Business”) to Daelim Industrial Co, Ltd. (“Daelim”) for gross proceeds of $530.0 million in cash. The transaction closed on March 6, 2020.
The transaction constitutes a significant disposition for purposes of Item 2.01 of Form 8-K. As a result, the following unaudited financial information has been prepared to reflect the pro forma consolidated statement of operations for the year ended December 31, 2019 and the related pro forma consolidated balance sheet as of December 31, 2019 of the Company, giving effect to the sale of the Business.
The unaudited pro forma consolidated statements of operations for the year ended December 31, 2019 give effect to the sale as if the sale transaction occurred at the beginning of the period presented. The unaudited pro forma consolidated balance sheet as of December 31, 2019 assumes the sale occurred on December 31, 2019. The amount of proceeds presented in the pro forma balance sheet as of December 31, 2019 reflects the estimated net proceeds received upon closing of $530.0 million, adjusted for incremental working capital of $5.8 million, less contractual capital contributions of $25.3 million. The net proceeds do not reflect a customary post-closing working capital adjustment nor the contractual capital contributions post-closing adjustment.
The pro forma information is not necessarily indicative of the financial position or results of operations of future periods or indicative of results that would have actually occurred had the transaction been completed as of the date of, or as of the beginning of the periods presented.
The unaudited pro forma consolidated financial statements have been derived from historical financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are presented based upon information currently available and certain assumptions the Company believes are reasonable. The unaudited pro forma consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes and “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in the Company's Form 10-K for the year ended December 31, 2019.
KRATON CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except par value)
December 31, 2019 | |||||||||||
Kraton Corporation | Pro Forma Adjustments | Pro Forma | |||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 35,033 | $ | 135,816 | (a) | $ | 170,849 | ||||
Receivables, net of allowances of $434 | 169,603 | — | 169,603 | ||||||||
Inventories of products | 332,457 | — | 332,457 | ||||||||
Inventories of materials and supplies | 32,211 | — | 32,211 | ||||||||
Prepaid expense | 6,991 | — | 6,991 | ||||||||
Other current assets | 22,385 | — | 22,385 | ||||||||
Current assets held for sale | 51,356 | (51,356 | ) | (b) | — | ||||||
Total current assets | 650,036 | 84,460 | 734,496 | ||||||||
Property, plant, and equipment, less accumulated depreciation of $639,197 | 925,940 | — | 925,940 | ||||||||
Goodwill | 772,418 | — | 772,418 | ||||||||
Intangible assets, less accumulated amortization of $285,819 | 325,877 | — | 325,877 | ||||||||
Investment in unconsolidated joint venture | 11,971 | — | 11,971 | ||||||||
Debt issuance costs | — | — | — | ||||||||
Deferred income taxes | 8,863 | — | 8,863 | ||||||||
Long-term operating lease assets, net | 85,003 | — | 85,003 | ||||||||
Other long-term assets | 25,219 | — | 25,219 | ||||||||
Long-term assets held for sale | 27,058 | (27,058 | ) | (b) | — | ||||||
Total assets | $ | 2,832,385 | $ | 57,402 | $ | 2,889,787 | |||||
LIABILITIES AND EQUITY | |||||||||||
Current liabilities: | |||||||||||
Current portion of long-term debt | $ | 53,139 | $ | — | $ | 53,139 | |||||
Accounts payable-trade | 168,541 | — | 168,541 | ||||||||
Other payables and accruals | 112,645 | 22,351 | (c) | 134,996 | |||||||
Due to related party | 17,470 | — | 17,470 | ||||||||
Current liabilities held for sale | 14,849 | (14,849 | ) | (b) | — | ||||||
Total current liabilities | 366,644 | 7,502 | 374,146 | ||||||||
Long-term debt, net of current portion | 1,311,486 | (374,692 | ) | (a) | 936,794 | ||||||
Deferred income taxes | 125,240 | — | 125,240 | ||||||||
Long-term operating lease liabilities | 66,624 | — | 66,624 | ||||||||
Other long-term liabilities | 172,960 | 158,248 | (c) | 331,208 | |||||||
Long-term liabilities held for sale | 3 | (3 | ) | (b) | — | ||||||
Total liabilities | 2,042,957 | (208,945 | ) | 1,834,012 | |||||||
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; 31,751 shares issued and outstanding at December 31, 2019 | 318 | — | 318 | ||||||||
Additional paid in capital | 392,208 | — | 392,208 |
Retained earnings | 464,712 | 266,347 | (d) | 731,059 | |||||||
Accumulated other comprehensive loss | (105,795 | ) | — | (105,795 | ) | ||||||
Total Kraton stockholders’ equity | 751,443 | 266,347 | 1,017,790 | ||||||||
Noncontrolling interest | 37,985 | — | 37,985 | ||||||||
Total equity | 789,428 | 266,347 | 1,055,775 | ||||||||
Total liabilities and equity | $ | 2,832,385 | $ | 57,402 | $ | 2,889,787 |
Notes to Pro Forma Adjustments
(a) | Reflects net proceeds received upon closing of $510.5 million, less repayments of debt of $374.7 million, which debt repayments include (i) the repayment of the full outstanding balance of $290.0 million under the U.S. dollar denominated tranche of the Company's senior secured term loan facility (the “Term Loan Facility”) and (ii) a repayment in the amount of €75.0 million, or approximately $84.7 million during March 2020, of borrowings under the Euro dollar denominated tranche of the Term Loan Facility. We may use the remaining proceeds in accordance with the terms of the Term Loan Facility to make additional repayments of debt, invest in strategic assets of the Company, and pay transaction costs. |
(b) | Reflects the disposition of the assets and liabilities of the Cariflex business (see Assets Held for Sale schedule below). |
(c) | Reflects the deferred gain on a long term supply agreement (“LTSA”) entered into as part of the transaction. We entered into this agreement pursuant to the asset and stock purchase and sale agreement in conjunction with the closing of the transaction, pursuant to which we will supply certain inventory to Daelim for a period of five years, with an optional extension for an additional five years, following the date of closing. |
(d) | Reflects the preliminary gain on sale of approximately $266.3 million. |
Assets Held for Sale
December 31, 2019 | |||
(In thousands) | |||
ASSETS | |||
Receivables, net of allowances of $51 | $ | 20,397 | |
Inventories of products, net | 27,030 | ||
Inventories of materials and supplies, net | 965 | ||
Prepaid expenses | 1,913 | ||
Other current assets | 1,051 | ||
Property, plant, and equipment, less accumulated depreciation of $27,146 | 26,891 | ||
Other long-term assets | 93 | ||
Long-term operating lease assets, net | 74 | ||
Total assets | $ | 78,414 | |
LIABILITIES | |||
Accounts payable-trade | $ | 9,180 | |
Other payables and accruals | 5,669 | ||
Long-term operating lease liabilities | 3 | ||
Total liabilities | $ | 14,852 | |
Net assets | $ | 63,562 |
KRATON CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Years Ended December 31, 2019 | |||||||||||
Kraton Corporation | Pro Forma Adjustments | Pro Forma | |||||||||
Revenue | $ | 1,804,436 | $ | (151,948 | ) | (a) | $ | 1,652,488 | |||
Cost of goods sold | 1,390,007 | (118,552 | ) | (a) | 1,271,455 | ||||||
Gross profit | 414,429 | (33,396 | ) | 381,033 | |||||||
Operating expenses: | |||||||||||
Research and development | 41,073 | (2,578 | ) | (a) | 38,495 | ||||||
Selling, general, and administrative | 149,800 | (2,409 | ) | (a) | 147,391 | ||||||
Depreciation and amortization | 136,171 | (2,601 | ) | (a) | 133,570 | ||||||
Gain on insurance proceeds | (32,850 | ) | — | (32,850 | ) | ||||||
Loss on disposal of fixed assets | 773 | — | 773 | ||||||||
Operating income | 119,462 | (25,808 | ) | 93,654 | |||||||
Other income | 3,339 | — | 3,339 | ||||||||
Loss on extinguishment of debt | (3,521 | ) | — | (3,521 | ) | ||||||
Earnings of unconsolidated joint venture | 506 | — | 506 | ||||||||
Interest expense, net | (75,782 | ) | 14,741 | (b) | (61,041 | ) | |||||
Income before income taxes | 44,004 | (11,067 | ) | 32,937 | |||||||
Income tax benefit | 11,813 | 2,324 | (c) | 14,137 | |||||||
Consolidated net income | 55,817 | (8,743 | ) | 47,074 | |||||||
Net income attributable to noncontrolling interest | (4,512 | ) | — | (4,512 | ) | ||||||
Net income attributable to Kraton | $ | 51,305 | $ | (8,743 | ) | $ | 42,562 | ||||
Earnings per common share: | |||||||||||
Basic | $ | 1.61 | $ | (0.27 | ) | $ | 1.34 | ||||
Diluted | $ | 1.60 | $ | (0.27 | ) | $ | 1.33 | ||||
Weighted average common shares outstanding: | |||||||||||
Basic | 31,581 | 31,581 | 31,581 | ||||||||
Diluted | 31,881 | 31,881 | 31,881 |
Notes to Pro Forma Adjustments
(a) | Reflects sales, cost of goods sold, and deferred income under the LTSA and the disposition of the Cariflex business as a result of the sale transaction. |
Revenue | Cost of Goods Sold | |||||||
Kraton Corporation | $ | 1,804,436 | Kraton Corporation | $ | 1,390,007 | |||
LTSA contract | 34,318 | LTSA contract | 11,967 | |||||
Cariflex | (186,266 | ) | Cariflex | (130,519 | ) | |||
Pro Forma | $ | 1,652,488 | Pro Forma | $ | 1,271,455 |
(b) | Reflects the repayments of debt on our Term Loan Facility and the resulting impact to interest expense on an annualized basis. |
(c) | Reflects the income tax expense recorded at the U.S. statutory rate of 21.0% related to the operations of the Business that were disposed of as a result of the sale transaction. |
The above proforma statement of operations does not reflect the one time gain on sale of approximately $266.3 million and loss on extinguishment of debt of $13.0 million (related to the Term Loan Facility repayments), as these are one time non-recurring charges.