Kraton Polymers LLC Announces 35% Improvement in Gross Profit on 12% Revenue Growth...

Kraton Polymers LLC Announces 35% Improvement in Gross Profit on 12% Revenue Growth Through May 31, 2008

HOUSTON--(Business Wire)--
Kraton Polymers LLC (Kraton), a leading global producer of
engineered polymers, announces interim 2008 preliminary results for
the two and five months ended May 31, 2008.

Total revenues amounted to $225 million for the two months ended
May 31, 2008, an increase of $32 million, or, 17%, from $193 million
in the two months ended May 31, 2007. For the five months ended May
31, 2008, revenue amounted to $492 million, an increase of $52
million, or 12%, from $440 million through May 31, 2007.

Gross profit amounted to $40 million for the two months ended May
31, 2008, an increase of $7 million or 21% from $33 million in 2007.
For the five months ended May 31, 2008, gross profit amounted to $89
million compared to $66 million in 2007, an increase of $23 million,
or 35%.

Net income (loss) for the two and five months ended May 31, 2008
was $6 million and $(3) million, respectively, compared to $2 million
and $(11) million for the comparable periods in 2007.

Through May 31, 2008 we incurred approximately $7.3 million of
costs associated with previously announced senior executive and other
management changes, and the cost associated with the realignment of
our research and technical service organizations. In the comparable
2007 period, we incurred $0.3 million of similar charges associated
with 2007 initiatives.

Last Twelve Months (LTM) Bank EBITDA, a measure used to determine
compliance with our debt covenants, totaled $111 million for the
period ended May 31, 2008, an increase of $7 million and $13 million
from the LTM periods ended March 31, 2008 and December 31, 2007,
respectively. A reconciliation of net loss to LTM Bank EBITDA is
attached. Kraton currently expects that its $75.5 million revolving
credit facility will be undrawn at June 30, 2008 and that it will be
in compliance with its financial covenants, taking into account our
previously disclosed $9.6 million equity cure. Kraton is, however,
exploring refinancing options to improve financial flexibility.

"While our improved financial results indicate progress relative
to the comparable periods, our organization globally is committed to
continue implementing previously communicated actions to improve
pricing and margins, optimize our production assets, and enhance
organizational productivity, to mitigate the headwinds associated with
unprecedented rising energy and feedstock costs," said Kevin M.
Fogarty, President and Chief Executive Officer. "By doing so, we will
continue to provide industry-leading solutions to our innovative
customers, to propel our respective growth expectations."

Recent Developments

-- Announced June 1 and July 1 price increases in Asia and North
America, and July 1 price increases in Europe.

-- On June 20, 2008, received $4.6 million of proceeds associated
with the sale of its interest rate swap secured in the first
quarter.

-- Experienced allocation from our butadiene suppliers that we
believe is affecting the industry in general. The significant
factors causing the shortfall are the continued run-up in the
cost of crude oil and planned and unplanned outages by certain
producers of butadiene. As a result, as of June 2008, we have
had to allocate certain products among our customers. We are
currently unable to estimate how long this situation will
continue or if or when it might improve.

About Kraton

Kraton is a leading global producer of engineered polymers and, we
believe, the world's largest producer of styrenic block copolymers
(SBCs), a family of products whose chemistry was pioneered by us over
forty years ago. SBCs are highly-engineered thermoplastic elastomers,
which enhance the performance of numerous products by delivering a
variety of attributes, including greater flexibility, resilience,
strength, durability and processability. Kraton polymers are used in a
wide range of applications including adhesives, coatings, consumer and
personal care products, sealants, lubricants, medical, packaging,
automotive, paving, roofing, and footwear products. Kraton has the
leading position in nearly all of its core markets and is the only
producer of SBCs with global manufacturing capability. Its production
facilities are located in the United States, Germany, France, The
Netherlands, Brazil, and Japan.

Kraton, the Kraton logo and design, and "Giving Innovators their
Edge" tagline are trademarks of Kraton Polymers LLC.

Forward Looking Statements

This press release includes "forward-looking statements" as that
term is defined in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements
other than statements of historical fact are statements that could be
deemed forward-looking statements and are often characterized by the
use of words such as "believes," "expects," "estimates," "projects,"
"may," "will," "intends," "plans" or "anticipates," or by discussions
of strategy, plans or intentions. In this press release,
forward-looking information relates to covenant compliance, pricing
trends, cost savings, production rates and other similar matters. All
forward-looking statements in this press release are made based on
management's current expectations and estimates, which involve risks,
uncertainties and other factors that could cause results to differ
materially from those expressed in forward-looking statements. Among
these factors are changes in overall economic conditions, the cyclical
nature of the chemical industry, changes in demand for our products,
changes in inventories at our customers and distributors,
technological and product development risks, availability and cost of
raw materials, competitors' actions, pricing and gross margin
pressures, loss of key customers, order cancellations or reduced
bookings, the timing and cost of planned capital expenditures, changes
in manufacturing yields, control of costs and expenses, significant
litigation, risks associated with acquisitions and dispositions, risks
associated with our substantial leverage and restrictive covenants in
our debt agreements, risks associated with our international
operations, the threat or occurrence of international armed conflict
and terrorist activities both in the United States and
internationally, risks and costs associated with increased and new
regulation of corporate governance and disclosure standards (including
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002), and risks
involving environmental or other governmental regulation. Readers are
cautioned not to place undue reliance on forward-looking statements.
We assume no obligation to update such information.

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Kraton Polymers LLC
Consolidated Statements of Operations
For the Two Months Ended
May 31, 2008 and 2007
(In thousands of U.S. dollars)
(Unaudited)

For the Two For the Two
Months Ended Months Ended
May 31, 2008 May 31, 2007
------------- -------------
Revenues
Sales $ 211,747 $ 187,033
Other 12,899 6,051
------------- -------------
Total revenue 224,646 193,084

Costs and expenses
Cost of goods sold 184,164 159,740
------------- -------------
Gross profit 40,482 33,344

Research and development expenses 2,765 4,294
Selling, general and administrative
expenses 16,753 11,526
Depreciation and amortization of
identifiable intangibles 8,749 7,876
Earnings in joint venture (121) (112)
Interest, net 6,284 7,743
------------- -------------
Income before income taxes 6,052 2,017
Income tax benefit 74 275
------------- -------------
Net income $ 6,126 $ 2,292
============= =============
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Kraton Polymers LLC
Consolidated Statements of Operations
For the Five Months Ended
May 31, 2008 and 2007
(In thousands of U.S. dollars)
(Unaudited)

Five Months Five Months
Ended Ended
May 31, 2008 May 31, 2007
------------ ------------
Revenues
Sales $ 468,035 $ 427,535
Other 23,472 12,375
------------ ------------
Total revenue 491,507 439,910

Costs and expenses
Cost of goods sold 402,240 374,241
------------ ------------
Gross profit 89,267 65,669

Research and development expenses 10,683 10,817
Selling, general and administrative
expenses 42,208 28,535
Depreciation and amortization of
identifiable intangibles 23,401 19,926
Earnings in joint venture (182) (342)
Interest, net 16,669 18,473
------------ ------------
Loss before income taxes (3,512) (11,740)
Income tax benefit 228 836
------------ ------------
Net loss $ (3,284) $ (10,904)
============ ============
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Kraton Polymers LLC
Consolidated Balance Sheets
May 31, 2008 and December 31, 2007
(In thousands of U.S. dollars)

May 31, December 31,
2008 2007
----------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 7,594 $ 48,277
Receivables, net of allowances 187,043 140,321
Inventories of products, net 274,320 256,323
Inventories of materials and supplies 13,001 12,170
Other current assets 17,060 12,404
----------- ------------
Total current assets 499,018 469,495

Property, plant and equipment, at cost, net
of accumulated depreciation 397,043 402,270
Intangible assets, at cost, net of
accumulated amortization 73,454 76,356
Investment in unconsolidated joint venture 10,630 10,326
Deferred financing costs 9,488 10,323
Other long-term assets 17,063 16,124
----------- ------------
Total assets $ 1,006,696 $ 984,894
=========== ============

Liabilities and member's equity
Current liabilities:
Revolving line of credit $ 29,500 $ ---
Current portion of long-term debt 3,445 3,445
Accounts payable - trade 84,464 102,952
Other payables and accruals 43,878 55,816
Due to related parties 17,385 24,505
Deferred income taxes 9,015 9,827
Insurance bond payable 3,549 494
----------- ------------
Total current liabilities 191,236 197,039
----------- ------------

Term debt 334,159 335,020
Senior subordinated notes 8.125% 200,000 200,000
Deferred income taxes 40,601 39,443
Long-term liabilities 30,761 30,682
----------- ------------
Total liabilities 796,757 802,184
----------- ------------

Member's equity:
Member's equity 151,040 143,149
Accumulated other comprehensive income 58,899 39,561
----------- ------------
Total member's equity 209,939 182,710
----------- ------------
Total liabilities and member's equity $ 1,006,696 $ 984,894
=========== ============
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Kraton Polymers LLC

LTM Bank EBITDA
(In thousands of U.S. dollars)

12 Mos 12 Mos 12 Mos
ended Ended Ended
12/31/07 03/31/08 05/31/08
--------- --------- ---------

Net loss $(43,743) $(39,957) $(36,123)

Income tax provision 6,138 6,545 6,726
Interest expense, net 43,460 43,115 41,656
Depreciation and Amortization 51,917 54,519 55,392
--------- --------- ---------

Financial Statement EBITDA (1) 57,772 64,222 67,651
--------- --------- ---------
LTM Bank EBITDA addbacks (2)

Sponsor fees and expenses 2,000 2,000 2,000
Plant turnaround costs 3,986 4,007 3,978
Permitted acquisition costs 2,515 2,548 2,548
Severance related restructuring charges 667 2,529 3,029
Specific cost savings expenses 10,000 10,000 9,786
Schedule 1.1 cost 3,000 3,000 3,000
Specified other restructuring charges 364 --- ---
Equity Investment (3) 9,588 9,588 9,588
Other non-cash items increasing Net
Income (loss) 9,000 6,238 9,911
--------- --------- ---------

LTM Bank EBITDA (4) $ 98,892 $104,132 $111,491
========= ========= =========
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(1) The EBITDA measure is used by management to evaluate operating
performance. Management believes that EBITDA is useful to investors
because it is frequently used by securities analysts, institutional
investors and other interested parties in the evaluation of companies
in our industry. EBITDA is not a recognized term under GAAP and does
not purport to be an alternative to net income (loss) as an indicator
of operating performance or to cash flows from operating activities as
a measure of liquidity. Because all companies do not use identical
calculations, this presentation of EBITDA may not be comparable to
other similarly titled measures of other companies. Additionally,
EBITDA is not intended to be a measure of free cash flow for
management's discretionary use, as it does not consider certain cash
requirements such as interest payments, tax payments and debt service
requirements.

(2) These adjustments are made pursuant to the Credit and Guaranty
Agreement, amended as of May 12, 2006. The Credit and Guaranty
Agreement requires the calculation of LTM Bank EBITDA on an LTM fiscal
quarter basis and does not require presentation of LTM Bank EBITDA for
the LTM period ended May 31, 2008. Such LTM May 31, 2008 information
is being provided solely as an update on the Company's performance,
and information as of June 30, 2008 may differ.

(3) On January 14, 2008, we received an equity investment of $10.0
million of which $9.6 million was included in LTM Bank EBITDA as
provided under the terms of the senior credit facility.

(4) LTM Bank EBITDA is defined in the Credit and Guaranty
Agreement and is used to determine compliance with certain covenants
included in the Credit and Guaranty Agreement.

Kraton Polymers LLC
Analyst: Stephen E. Tremblay, 281-504-4760
Media: Richard A. Ott, 281-504-4720

Copyright Business Wire 2008