10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-34581

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	KRA	New York Stock Exchange

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ☒    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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer:	☐
Non-accelerated filer:	☐	Smaller reporting company:	☐
		Emerging growth company:	☐

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  ☒

Number of shares of Kraton Corporation Common Stock, $0.01 par value, outstanding as of October 21, 2019: 31,703,716.

Index to Quarterly Report

on Form 10-Q for

Quarter Ended September 30, 2019

PART I. FINANCIAL INFORMATION		Page
	Report of KPMG LLP, Independent Registered Public Accounting Firm	4
Item 1	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	5
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	6
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018	7
	Condensed Consolidated Statement of Changes in Equity for the nine months ended September 30, 2019 and 2018	8
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	10
	Notes to the Condensed Consolidated Financial Statements	12
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3	Quantitative and Qualitative Disclosures about Market Risk	47
Item 4	Controls and Procedures	47
PART II. OTHER INFORMATION
Item 1	Legal Proceedings	48
Item 1A	Risk Factors	48
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3	Defaults Upon Senior Securities	48
Item 4	Mine Safety Disclosures	48
Item 5	Other Information	48
Item 6	Exhibits	50
	Signatures	51

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 or oral forward-looking statements in our reports on Forms 10-K, 10-Q, and 8-K, in press releases and other written materials and 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 characterized by the use of words such as “outlook,” “believes,” “estimates,” “expects,” “projects,” “may,” “intends,” “plans,” “anticipates,” “forsees,” “future,” or by discussions of strategy, plans, or intentions; conditions in, and risk associated with operating in, the global economy and capital markets; anticipated benefits of or performance of our products; beliefs regarding opportunities for new, differentiated applications, and other innovations; beliefs regarding strengthening relationships with customers; adequacy of cash flows to fund our working capital requirements; our investment in the joint venture with Formosa Petrochemical Corporation (“FPCC”); our expectations regarding indebtedness to be incurred by our joint venture with FPCC; debt payments, interest payments, benefit plan contributions, and income tax obligations; nonrealization of expected benefits from our acquisitions or business dispositions and our ability to timely execute and close such acquisitions and dispositions; our anticipated capital expenditures, health, safety, environmental, and security and infrastructure and maintenance projects, projects to optimize the production capabilities of our manufacturing assets and to support our innovation platform; our ability to fully access our senior secured credit facilities; expectations regarding future dividend payments; expectations regarding our counterparties’ ability to perform, including with respect to trade receivables; estimates regarding tax expense of repatriating certain cash and short-term investments related to foreign operations; expectations regarding differentiated applications; our ability to realize certain deferred tax assets and our beliefs with respect to tax positions; expectations regarding our full year effective tax rate; estimates related to the useful lives of certain assets for tax purposes; expectations regarding our pension contributions; estimates or expectations related to raw material costs or availability, ending inventory levels and related estimated charges; the outcome and financial impact of legal proceedings; expectations regarding the spread between FIFO and ECRC (each as defined herein) in future periods; expectations regarding the impact of natural disasters and replacement costs resulting therefrom; estimated impacts of changing tariff rates and logistics costs; the estimates and matters described in our latest Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” and projections regarding environmental costs and capital expenditures and related operational savings.

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 include, but are not limited to the factors 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 Quarterly Report on Form 10-Q includes financial statements and related notes that present the condensed consolidated financial position, results of operations, comprehensive income (loss), 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

To the Stockholders and Board of Directors

Kraton Corporation:

Results of Review of Interim Financial Information

We have reviewed the condensed consolidated balance sheet of Kraton Corporation and subsidiaries (the Company) as of September 30, 2019, the related condensed consolidated statements of operations and comprehensive income (loss) for the three and nine-month periods ended September 30, 2019 and 2018, the related condensed consolidated statements of changes in equity and cash flows for the nine-month periods ended September 30, 2019 and 2018, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, 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, 2019, 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, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated 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 PCAOB, 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.

/s/ KPMG LLP

Houston, Texas

October 24, 2019

4

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

KRATON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value) 

	September 30, 2019			December 31, 2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	83,260		$	85,891
Receivables, net of allowances of $614 and $784	212,387			198,046
Inventories of products, net	407,317			410,640
Inventories of materials and supplies, net	32,119			30,843
Prepaid expenses	12,253			10,156
Other current assets	23,651			29,980
Total current assets	770,987			765,556
Property, plant, and equipment, less accumulated depreciation of $646,242 and $597,785	932,649			941,476
Goodwill	771,739			772,886
Intangible assets, less accumulated amortization of $279,639 and $246,648	335,238			362,038
Investment in unconsolidated joint venture	11,577			12,070
Debt issuance costs	293			1,170
Deferred income taxes	5,955			10,434
Long-term operating lease assets, net	69,925			—
Other long-term assets	26,143			29,074
Total assets	$	2,924,506		$	2,894,704
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	56,784		$	45,321
Accounts payable-trade	161,848			182,153
Other payables and accruals	104,597			100,695
Due to related party	17,564			20,918
Total current liabilities	340,793			349,087
Long-term debt, net of current portion	1,417,794			1,487,298
Deferred income taxes	132,496			127,827
Long-term operating lease liabilities	52,594			—
Other long-term liabilities	161,063			182,893
Total liabilities	2,104,740			2,147,105
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; 31,707 shares issued and outstanding at September 30, 2019; 31,917 shares issued and outstanding at December 31, 2018	317			319
Additional paid in capital	390,207			385,921
Retained earnings	485,955			420,597
Accumulated other comprehensive loss	(94,209		)	(91,699		)
Total Kraton stockholders' equity	782,270			715,138
Noncontrolling interest	37,496			32,461
Total equity	819,766			747,599
Total liabilities and equity	$	2,924,506		$	2,894,704

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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue	$	444,221		$	523,105		$	1,395,912		$	1,563,892
Cost of goods sold	342,942			368,844			1,058,429			1,091,844
Gross profit	101,279			154,261			337,483			472,048
Operating expenses:
Research and development	10,367			10,597			31,091			31,868
Selling, general, and administrative	32,272			36,150			111,623			116,848
Depreciation and amortization	34,804			35,117			98,230			105,633
Gain on insurance proceeds	(14,250		)	—			(32,850		)	—
(Gain) loss on disposal of fixed assets	(17		)	3			(17		)	363
Operating income	38,103			72,394			129,406			217,336
Other income (expense)	4,235			(740		)	3,559			(2,960		)
Gain (loss) on extinguishment of debt	—			—			210			(79,921		)
Earnings of unconsolidated joint venture	102			100			363			357
Interest expense, net	(19,214		)	(20,143		)	(57,494		)	(74,835		)
Income before income taxes	23,226			51,611			76,044			59,977
Income tax benefit (expense)	(2,311		)	(8,334		)	1,881			(8,743		)
Consolidated net income	20,915			43,277			77,925			51,234
Net income attributable to noncontrolling interest	(2,222		)	(928		)	(5,356		)	(1,743		)
Net income attributable to Kraton	$	18,693		$	42,349		$	72,569		$	49,491
Earnings per common share:
Basic	$	0.59		$	1.33		$	2.28		$	1.55
Diluted	$	0.58		$	1.31		$	2.26		$	1.53
Weighted average common shares outstanding:
Basic	31,486			31,459			31,603			31,381
Diluted	31,823			31,834			31,914			31,810

See Notes to Condensed Consolidated Financial Statements

6

KRATON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income attributable to Kraton	$	18,693		$	42,349		$	72,569		$	49,491
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $0	(8,746		)	(3,492		)	(10,645		)	(14,448		)
Unrealized gain (loss) on cash flow hedges, net of tax benefit of $151, expense of $108, benefit of $1,135, and expense of $1,187, respectively	(511		)	346			(3,858		)	3,913
Reclassification of gain on cash flow hedge, net of tax benefit of $1 and expense of $588	—			3			—			(1,996		)
Unrealized gain on net investment hedge, net of tax expense of $3,192, $539, $3,482, and $1,364, respectively	10,844			1,725			11,830			4,366
Decrease in benefit plans liability, net of tax expense of $3,114 for 2018	163			9,969			163			9,969
Other comprehensive income (loss), net of tax	1,750			8,551			(2,510		)	1,804
Comprehensive income attributable to Kraton	20,443			50,900			70,059			51,295
Comprehensive income attributable to noncontrolling interest	2,233			984			5,035			909
Consolidated comprehensive income	$	22,676		$	51,884		$	75,094		$	52,204

See Notes to Condensed Consolidated Financial Statements

7

KRATON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

(In thousands)

	Common Stock			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Kraton Stockholders' Equity			Noncontrolling Interest			Total Equity
Balance at December 31, 2017	$	316		$	377,957		$	356,503		$	(98,295	)	$	636,481		$	30,038		$	666,519
Consolidated net income (loss)	—			—			22,072			—			22,072			(11		)	22,061
Other comprehensive income	—			—			—			4,513			4,513			533			5,046
Retired treasury stock from employee tax withholdings	(1		)	(3,020		)	(2,727		)	—			(5,748		)	—			(5,748		)
Exercise of stock options	1			1,367			—			—			1,368			—			1,368
Non-cash compensation related to equity awards	3			2,899			—			—			2,902			—			2,902
Balance at March 31, 2018	$	319		$	379,203		$	375,848		$	(93,782	)	$	661,588		$	30,560		$	692,148
Consolidated net income (loss)	$	—		$	—		$	(14,930	)	$	—		$	(14,930	)	$	826		$	(14,104	)
Other comprehensive loss	—			—			—			(11,260		)	(11,260		)	(1,423		)	(12,683		)
Retired treasury stock from employee tax withholdings	2			(123		)	(140		)	—			(261		)	—			(261		)
Cancelled stock from share repurchases	—			—			—			—			—			—			—
Exercise of stock options	—			264			—			—			264			—			264
Non-cash compensation related to equity awards	(2		)	2,225			—			—			2,223			—			2,223
Balance at June 30, 2018	$	319		$	381,569		$	360,778		$	(105,042	)	$	637,624		$	29,963		$	667,587
Consolidated net income	$	—		$	—		$	42,349		$	—		$	42,349		$	928		$	43,277
Other comprehensive income	—			—			—			8,551			8,551			56			8,607
Retired treasury stock from employee tax withholdings	—			(19		)	(23		)	—			(42		)	—			(42		)
Exercise of stock options	1			1,500			—			—			1,501			—			1,501
Non-cash compensation related to equity awards	—			2,495			—			—			2,495			—			2,495
Balance at September 30, 2018	$	320		$	385,545		$	403,104		$	(96,491	)	$	692,478		$	30,947		$	723,425

See Notes to Condensed Consolidated Financial Statements

8

	Common Stock			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Kraton Stockholders' Equity			Noncontrolling Interest			Total Equity
Balance at December 31, 2018	$	319		$	385,921		$	420,597		$	(91,699	)	$	715,138		$	32,461		$	747,599
Consolidated net income	—			—			12,668			—			12,668			944			13,612
Other comprehensive loss	—			—			—			(1,218		)	(1,218		)	(109		)	(1,327		)
Retired treasury stock from employee tax withholdings	—			(1,274		)	(1,410		)	—			(2,684		)	—			(2,684		)
Exercise of stock options	1			1,544			—			—			1,545			—			1,545
Non-cash compensation related to equity awards	—			3,309			—			—			3,309			—			3,309
Balance at March 31, 2019	$	320		$	389,500		$	431,855		$	(92,917	)	$	728,758		$	33,296		$	762,054
Consolidated net income	$	—		$	—		$	41,208		$	—		$	41,208		$	2,190		$	43,398
Other comprehensive loss	—			—			—			(3,042		)	(3,042		)	(223		)	(3,265		)
Retired treasury stock from employee tax withholdings	—			(40		)	(1		)	—			(41		)	—			(41		)
Cancelled stock from share repurchases	(1		)	(2,064		)	(2,935		)	—			(5,000		)	—			(5,000		)
Exercise of stock options	—			94			—			—			94			—			94
Non-cash compensation related to equity awards	—			2,190			—			—			2,190			—			2,190
Balance at June 30, 2019	$	319		$	389,680		$	470,127		$	(95,959	)	$	764,167		$	35,263		$	799,430
Consolidated net income	$	—		$	—		$	18,693		$	—		$	18,693		$	2,222		$	20,915
Other comprehensive income	—			—			—			1,750			1,750			11			1,761
Retired treasury stock from employee tax withholdings	—			(2		)	—			—			(2		)	—			(2		)
Cancelled stock from share repurchases	(2		)	(2,133		)	(2,865		)	—			(5,000		)	—			(5,000		)
Exercise of stock options	—			3			—			—			3			—			3
Non-cash compensation related to equity awards	—			2,659			—			—			2,659			—			2,659
Balance at September 30, 2019	$	317		$	390,207		$	485,955		$	(94,209	)	$	782,270		$	37,496		$	819,766

See Notes to Condensed Consolidated Financial Statements

9

KRATON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	77,925		$	51,234
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization	98,230			105,633
Lease amortization	17,164			—
Amortization of debt original issue discount	808			1,938
Amortization of debt issuance costs	3,501			4,571
(Gain) loss on disposal of property, plant, and equipment	(17		)	363
(Gain) loss on extinguishment of debt	(210		)	79,921
Earnings from unconsolidated joint venture, net of dividends received	80			188
Deferred income tax provision	8,604			3,581
Release of uncertain tax positions	(17,739		)	—
Gain on insurance proceeds for capital expenditures	(3,948		)	—
Share-based compensation	8,158			7,620
Decrease (increase) in:
Accounts receivable	(19,682		)	(63,068		)
Inventories of products, materials, and supplies	(5,550		)	(47,393		)
Other assets	4,295			8,065
Increase (decrease) in:
Accounts payable-trade	(16,187		)	5,869
Other payables and accruals	(20,715		)	(19,057		)
Other long-term liabilities	(12,317		)	(2,584		)
Due to related party	(3,634		)	(292		)
Net cash provided by operating activities	118,766			136,589
CASH FLOWS FROM INVESTING ACTIVITIES
Kraton purchase of property, plant, and equipment	(76,298		)	(66,047		)
KFPC purchase of property, plant, and equipment	(319		)	(1,592		)
Purchase of software and other intangibles	(7,274		)	(4,630		)
Insurance proceeds for capital expenditures	3,948			—
Net cash used in investing activities	(79,943		)	(72,269		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt	57,941			731,540
Repayments of debt	(67,251		)	(796,863		)
KFPC proceeds from debt	33,262			24,918
KFPC repayments of debt	(53,147		)	(48,084		)
Capital lease payments	(126		)	(785		)
Purchase of treasury stock	(12,727		)	(6,051		)
Proceeds from the exercise of stock options	1,642			3,133
Settlement of interest rate swap	—			2,584
Debt issuance costs	—			(11,113		)
Net cash used in financing activities	(40,406		)	(100,721		)
Effect of exchange rate differences on cash	(1,048		)	(1,143		)
Net decrease in cash and cash equivalents	(2,631		)	(37,544		)
Cash and cash equivalents, beginning of period	85,891			89,052
Cash and cash equivalents, end of period	$	83,260		$	51,508

See Notes to Condensed Consolidated Financial Statements

10

	Nine Months Ended September 30,
	2019			2018
Supplemental disclosures during the period:
Cash paid for income taxes, net of refunds received	$	9,351		$	2,398
Cash paid for interest, net of capitalized interest	$	41,689		$	78,067
Capitalized interest	$	3,112		$	2,733
Supplemental non-cash disclosures: increase (decrease) during the period
Property, plant, and equipment accruals	$	(1,564	)	$	(4,100	)
Operating leases	$	89,397		$	—

See Notes to Condensed Consolidated Financial Statements

11

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”), specialty polymers, and high-value performance products primarily derived from pine wood pulping co-products.

SBCs are highly-engineered synthetic elastomers, which we originally 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 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 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 and tire markets, and we produce and sell a broad range of performance chemicals (which we formerly referred to as chemical intermediates) into markets that include fuel additives, oilfield chemicals, coatings, metalworking fluids and lubricants, inks, flavors and fragrances, and mining.

Basis of Presentation. The accompanying unaudited Condensed Consolidated Financial Statements presented in this report 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, 2018 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.

Reclassifications. Certain amounts reported in the condensed consolidated financial statements and notes to the consolidated financial statements for the prior periods have been reclassified to conform to the current reporting presentation.

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. Except for the changes below, the Company has consistently applied the accounting policies presented in the Condensed Consolidated Financial Statements.

Leases. See Note 2 New Accounting Pronouncements, for the impact of ASC 842, Leases, adopted on January 1, 2019.

There have been no other changes to the accounting policies, which are 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 these Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”) 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.

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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 there is uncertainty that they may 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 February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application. The new standard provides a number of optional practical expedients in transition. We elected the following practical expedients: (1) “package of practical expedients”, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs; (2) the short-term lease recognition exemption for all leases that qualify; and (3) the practical expedient to not separate lease and non-lease components for all of our leases.

This standard had a material effect on our financial statements. The most significant effects relate to: (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our equipment, building, and vehicle operating leases; (2) the derecognition of existing assets and liabilities for straight line lease accounting under ASC 840, Leases; and (3) providing significant new disclosures about our leasing activities. On adoption, we recognized additional operating liabilities of $70.9 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of this ASU is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. This standard is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2017-12 was completed during 2018 and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2017-12 effective January 1, 2019.

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In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815)-Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This standard is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2018-16 was completed during 2018, and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2018-16 effective January 1, 2019.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2018-02 was completed during 2018, and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2018-02 effective January 1, 2019.

New Accounting Standards to be Adopted in Future Periods

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted for any interim period after issuance of the ASU. Our evaluation of this standard is currently ongoing, and we expect to adopt ASU 2016-13 effective on January 1, 2020.

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, and we expect to adopt ASU 2017-04 effective on January 1, 2020.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted for any interim period after issuance of the ASU. Our evaluation of this standard is currently ongoing, and we expect to adopt ASU 2018-18 effective on January 1, 2020.

3. Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs at a point in time when the transfer of risk and title to the product transfers to the customer. Our standard terms of delivery are included in our contracts of sale, order confirmation documents, and invoices. As such, all revenue is considered revenue recognized from contracts with customers, and we do not have other sources of revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Revenue is recognized net of sales tax, value-added taxes, and other taxes. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. We do not have any material significant payment terms as payment is received at or shortly after the point of sale. Certain customers may receive cash-based incentives (including rebates, price supports, and sales commission), which are accounted for as variable consideration. We estimate rebates and price supports based on the expected amount to be provided to customers and reduce revenues recognized once the performance obligation has been met. Sales commissions are recorded as an increase in cost of goods sold once the performance obligation has been met. We do not expect to have significant changes in our estimates for variable considerations.

We have deferred revenue of $12.4 million related to contractual commitments with customers for which the performance obligation will be satisfied over time, which will range from one to ten years. The revenue associated with these performance obligations is recognized as the obligation is satisfied, which occurs as a volume based metric over time when the transfer of risk and title of finished products transfer to the customer.

Occasionally, we enter into bill-and-hold contracts, where we invoice the customer for products even though we retain possession of the products until a point in time in the future when the products will be shipped to the customer. In these contracts, the primary performance obligation is satisfied at a point in time when the product is segregated from our general inventory, it is ready for shipment to customer, and we do not have the ability to use the product or direct it to another customer. Additionally, we have a secondary performance obligation related to custodial costs, including storage and freight, which is satisfied over time once the product has been delivered to the customer. During the nine months ended September 30, 2019 and 2018, we recognized $5.6 million and $4.5 million of revenue related to these arrangements, respectively.

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We disaggregate our revenue by segment product lines, which is how we market our products and review results of operations. The following tables disaggregate our segment revenue by major product lines:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Polymer Segment	(In thousands)
Performance Products	$	141,267	$	179,684	$	422,539	$	506,151
Specialty Polymers	70,986		99,349		256,483		311,657
Cariflex	49,241		41,818		141,117		130,319
Other	99		114		370		59
Polymer Product Line Revenue	$	261,593	$	320,965	$	820,509	$	948,186

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Chemical Segment	(In thousands)
Adhesives	$	64,391	$	73,781	$	198,785	$	220,907
Performance Chemicals	105,367		118,193		337,766		355,947
Tires	12,870		10,166		38,852		38,852
Chemical Product Line Revenue	$	182,628	$	202,140	$	575,403	$	615,706

	September 30, 2019		December 31, 2018
	(In thousands)
Contract receivables(1)	$	212,589	$	197,739
Contract liabilities(2)	$	12,409	$	13,906

____________________________________________________ 

(1) Contract receivables are recorded within receivables, net of allowances on our Condensed Consolidated Balance Sheets.

(2) Our contract liability decreased by $0.9 million, as a result of meeting the performance obligation, which was recognized in our Specialty Polymers product line revenue, and decreased approximately $0.6 million due to the change in currency exchange rates.

4. 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, generally three years. Share-based compensation expense was $2.7 million and $2.5 million for the three months ended September 30, 2019 and 2018, respectively, and $8.2 million and $7.6 million for the nine months ended September 30, 2019 and 2018, respectively.

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5. Detail of Certain Balance Sheet Accounts

	September 30, 2019			December 31, 2018
	(In thousands)
Inventories of products:
Finished products	$	317,401		$	315,361
Work in progress	4,158			5,781
Raw materials	95,795			97,550
Inventories of products, gross	417,354			418,692
Inventory reserves	(10,037		)	(8,052		)
Total inventories of products, net	$	407,317		$	410,640
Intangible assets:
Contractual agreements	$	260,974		$	262,624
Technology	145,293			145,698
Customer relationships	60,200			60,359
Tradenames/trademarks	80,456			80,557
Software	67,954			59,448
Intangible assets	614,877			608,686
Less accumulated amortization:
Contractual agreements	81,830			65,958
Technology	66,518			62,019
Customer relationships	38,408			37,409
Tradenames/trademarks	46,750			42,797
Software	46,133			38,465
Total accumulated amortization	279,639			246,648
Intangible assets, net of accumulated amortization	$	335,238		$	362,038
Other payables and accruals:
Employee related	$	24,856		$	35,015
Interest payable	13,585			2,201
Property, plant, and equipment accruals	9,571			10,982
Short-term operating lease liabilities	19,834			—
Other	36,751			52,497
Total other payables and accruals	$	104,597		$	100,695
Other long-term liabilities:
Pension and other post-retirement benefits	$	115,071		$	122,194
Other	45,992			60,699
Total other long-term liabilities	$	161,063		$	182,893

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Changes in accumulated other comprehensive income (loss) by component were as follows:

	Cumulative Foreign Currency Translation			Cash Flow Hedges, Net of Tax			Net Investment Hedges, Net of Tax			Benefit Plans Liability, Net of Tax			Total
	(In thousands)
December 31, 2017	$	(9,654	)	$	4,550		$	(1,926	)	$	(91,265	)	$	(98,295	)
Other comprehensive income (loss) before reclassifications	(14,448		)	3,913			4,366			9,969			3,800
Amounts reclassified from accumulated other comprehensive loss	—			(1,996		)	—			—			(1,996		)
Net other comprehensive income (loss) for the year	(14,448		)	1,917			4,366			9,969			1,804
September 30, 2018	$	(24,102	)	$	6,467		$	2,440		$	(81,296	)	$	(96,491	)
December 31, 2018	$	(24,093	)	$	3,922		$	6,153		$	(77,681	)	$	(91,699	)
Other comprehensive income (loss) before reclassifications	(10,645		)	(3,858		)	11,830			163			(2,510		)
Net other comprehensive income (loss) for the year	(10,645		)	(3,858		)	11,830			163			(2,510		)
September 30, 2019	$	(34,738	)	$	64		$	17,983		$	(77,518	)	$	(94,209	)

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6. Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net income attributable to Kraton by the weighted-average number of shares outstanding excluding non-vested restricted stock awards 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 September 30, 2019							Three Months Ended September 30, 2018
	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	$	18,693		31,710				$	42,349		31,896
Amounts allocated to unvested restricted shares	(132		)	(224	)			(580		)	(437	)
Amounts available to common stockholders	18,561			31,486		$	0.59	41,769			31,459		$	1.33
Diluted:
Amounts allocated to unvested restricted shares	132			224				580			437
Non participating share units	—			282				—			137
Stock options added under the treasury stock method	—			55				—			238
Amounts reallocated to unvested restricted shares	(131		)	(224	)			(573		)	(437	)
Amounts available to stockholders and assumed conversions	$	18,562		31,823		$	0.58	$	41,776		31,834		$	1.31

	Nine Months Ended September 30, 2019							Nine Months Ended September 30, 2018
	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	$	72,569		31,861				$	49,491		31,853
Amounts allocated to unvested restricted shares	(588		)	(258	)			(733		)	(472	)
Amounts available to common stockholders	71,981			31,603		$	2.28	48,758			31,381		$	1.55
Diluted:
Amounts allocated to unvested restricted shares	588			258				733			472
Non participating share units	—			252				—			180
Stock options added under the treasury stock method	—			59				—			249
Amounts reallocated to unvested restricted shares	(582		)	(258	)			(724		)	(472	)
Amounts available to stockholders and assumed conversions	$	71,987		31,914		$	2.26	$	48,767		31,810		$	1.53

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Share Repurchase Program. In February 2019, we announced a repurchase program for up to $50.0 million of the Company's common stock by March 2021. Repurchases may be made at management's discretion from time to time through privately-negotiated transactions, in the open market, or through broker-negotiated purchases in compliance with applicable securities law, including through a 10b5-1 Plan. The repurchase program may be suspended for periods or discontinued at any time, and the amount and timing of the repurchases are subject to a number of factors, including Kraton's stock price. During the three months ended September 30, 2019, we repurchased 158,166 shares of our common stock at an average price of $31.61 per share and a total cost of $5.0 million. From the inception of the program through September 30, 2019, we repurchased 311,152 shares of our common stock at an average price of $32.14 per share and a total cost of $10.0 million. We are not obligated to acquire any specific number of shares of our common stock.

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7. Long-Term Debt

Long-term debt consists of the following:

	September 30, 2019										December 31, 2018
	Principal		Discount			Debt Issuance Costs			Total		Principal		Discount			Debt Issuance Costs			Total
	(In thousands)
USD Tranche	$	362,000	$	(6,587	)	$	(9,088	)	$	346,325	$	362,000	$	(7,395	)	$	(10,171	)	$	344,434
Euro Tranche	327,060		—			(3,991		)	323,069		342,900		—			(4,711		)	338,189
7.0% Senior Notes	394,750		—			(6,040		)	388,710		399,060		—			(6,622		)	392,438
5.25% Senior Notes	316,159		—			(5,035		)	311,124		331,470		—			(5,503		)	325,967
ABL Facility	—		—			—			—		5,000		—			—			5,000
KFPC Loan Agreement	79,534		—			(36		)	79,498		112,489		—			(94		)	112,395
KFPC Revolving Facilities	24,794		—			—			24,794		13,012		—			—			13,012
Capital lease obligation	1,058		—			—			1,058		1,184		—			—			1,184
Total debt	1,505,355		(6,587		)	(24,190		)	1,474,578		1,567,115		(7,395		)	(27,101		)	1,532,619
Less current portion of total debt	56,784		—			—			56,784		45,321		—			—			45,321
Long-term debt	$	1,448,571	$	(6,587	)	$	(24,190	)	$	1,417,794	$	1,521,794	$	(7,395	)	$	(27,101	)	$	1,487,298

 

Senior Secured Term Loan Facility. As of September 30, 2019, we had outstanding borrowings under the U.S. dollar denominated tranche (the “USD Tranche”) of our senior secured term loan facility (the “Term Loan Facility”) of $362.0 million and outstanding borrowings under the Euro denominated tranche (the “Euro Tranche”) of the Term Loan Facility of €300.0 million (or approximately $327.1 million). Our USD Tranche interest rate applicable margin is 2.5% and our alternative base rate applicable margin is 1.5%. The Euro Tranche interest rate applicable margin is 2.0%. Our Term Loan Facility will mature on March 8, 2025. For a summary of additional terms of the Term Loan Facility, see Note 9 Long-Term Debt to the consolidated financial statements set forth in our most recently filed Annual Report on Form 10-K.

As of the date of this filing, the effective interest rate for the USD Tranche is 4.29% and the effective interest rate for the Euro Tranche is 2.75%. The Term Loan Facility contains a number of customary affirmative and negative covenants, and we were in compliance with those covenants as of the date of this filing.

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.

On December 6, 2018, we commenced a repurchase program for up to $20.0 million of our 7.0% Senior Notes. Purchases under the program took place from time to time in the open market and through privately negotiated transactions, including pursuant to a 10b5-1 Plan. During the nine months ended September 30, 2019, we repurchased $4.3 million of our 7.0% Senior Notes. We recorded a $0.2 million gain on extinguishment of debt during the nine months ended September 30, 2019, which includes a write off of $0.1 million related to previously capitalized deferred financing costs. The repurchase program ended March 4, 2019.

5.25% Senior Notes due 2026. Kraton Polymers LLC and its wholly-owned financing subsidiary Kraton Polymers Capital Corporation issued €290.0 million (or approximately $316.2 million as of September 30, 2019) aggregate principal amount of 5.25% Senior Notes due 2026 (the “5.25% Senior Notes”) in May 2018, which mature on May 15, 2026. The 5.25% 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 5.25% per annum, semi-annually in arrears on May 15 and November 15 of each year.

ABL Facility. Our asset-based revolving credit facility provides financing of up to $250.0 million (the “ABL Facility”). The ABL Facility also provides that we have the right at any time to request up to $100.0 million of additional commitments, provided that we satisfy certain additional conditions. We had no outstanding borrowings under the ABL Facility as of September 30, 2019. The ABL Facility matures on January 6, 2021.

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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 contains a number of customary affirmative and negative covenants, and we were in compliance with those covenants as of the date of this filing. For a summary of additional terms of the ABL Facility, see Note 9 Long-Term Debt to the consolidated financial statements set forth in our most recently filed Annual Report on Form 10-K.

KFPC Loan Agreement. As of September 30, 2019, NTD 2.5 billion (or approximately $79.5 million) was drawn on KFPC's syndicated loan agreement (the “KFPC Loan Agreement”). For the nine months ended September 30, 2019, the 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. KFPC was in compliance with those covenants as of the date of this filing. Additionally, due to a waiver received from the majority of lenders, we are no longer subject to the remaining 2019 financial covenants. In each case, these covenants are calculated and tested on an annual basis at December 31^st each year.

The KFPC Loan Agreement originally matured on January 17, 2020. During the third quarter 2019, in accordance with the terms of the KFPC Loan Agreement, KFPC elected and the lender syndicate approved an extension for an additional two years to January 17, 2022. For a summary of additional terms of the KFPC Loan Agreement, see Note 9 Long-Term Debt to the consolidated financial statements set forth in our most recently filed Annual Report on Form 10-K.

KFPC Revolving Facilities. KFPC also has four revolving credit facilities (the “KFPC Revolving Facilities”) to provide funding for working capital requirements and/or general corporate purposes, which allow for total borrowings of up to NTD 2.2 billion (or approximately $69.2 million). All of the KFPC Revolving Facilities are subject to variable interest rates. As of September 30, 2019, NTD 770.0 million (or approximately $24.8 million) was drawn on the KFPC Revolving Facilities.

Debt Issuance Costs. We had net debt issuance cost of $25.7 million as of September 30, 2019, of which $1.5 million related to the ABL Facility which is recorded as an asset (of which $1.2 million was included in other current assets) and $24.2 million is recorded as a reduction to long-term debt. We amortized $1.2 million and $1.2 million for the three months ended September 30, 2019, and 2018, respectively, and $3.5 million and $4.6 million during the nine months ended September 30, 2019 and 2018, respectively.

Debt Maturities. The remaining principal payments on our outstanding total debt as of September 30, 2019, are as follows:

	Principal Payments
	(In thousands)
October 1, 2019 through September 30, 2020	$	56,784
October 1, 2020 through September 30, 2021	32,002
October 1, 2021 through September 30, 2022	16,106
October 1, 2022 through September 30, 2023	211
October 1, 2023 through September 30, 2024	224
Thereafter	1,400,028
Total debt	$	1,505,355

See Note 8 Fair Value Measurements, Financial Instruments, and Credit Risk for fair value information related to our long-term debt.

8. 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.

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.

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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; and

• 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 September 30, 2019 and December 31, 2018. 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. As of September 30, 2019 and December 31, 2018, the Company has no assets or liabilities utilizing significant unobservable inputs (or Level 3) to derive its estimated fair values.

					Fair Value Measurements at Reporting Date Using
	Balance Sheet Location	September 30, 2019			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
		(In thousands)
Derivative asset – current	Other current assets	$	60		$	—	$	60
Derivative asset – noncurrent	Other long-term assets	139			—		139
Retirement plan asset – noncurrent	Other long-term asset	2,445			2,445		—
Derivative liability – current	Other payables and accruals	(1,379		)	—		(1,379		)
Total		$	1,265		$	2,445	$	(1,180	)

					Fair Value Measurements at Reporting Date Using
	Balance Sheet Location	December 31, 2018			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
		(In thousands)
Derivative asset – current	Other current assets	$	1,558		$	—	$	1,558
Derivative asset – noncurrent	Other long-term assets	3,635			—		3,635
Retirement plan asset – noncurrent	Other long-term assets	2,485			2,485		—
Derivative liability – current	Other payables and accruals	(13		)	—		(13		)
Total		$	7,665		$	2,485	$	5,180

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

	September 30, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
USD Tranche (significant other observable inputs – level 2)	$	362,000	$	361,776	$	362,000	$	352,498
Euro Tranche (significant other observable inputs – level 2)	$	327,060	$	328,901	$	342,900	$	338,830
7.0% Senior Notes (quoted prices in active market for identical assets – level 1)	$	394,750	$	413,899	$	399,060	$	369,561
5.25% Senior Notes (quoted prices in active market for identical assets – level 1)	$	316,159	$	333,355	$	331,470	$	299,125
ABL Facility	$	—	$	—	$	5,000	$	5,000
Capital lease obligation	$	1,058	$	1,058	$	1,184	$	1,184
KFPC Loan Agreement	$	79,534	$	79,534	$	112,489	$	112,489
KFPC Revolving Facilities	$	24,794	$	24,794	$	13,012	$	13,012

The ABL Facility, Capital lease obligation, KFPC Loan Agreement, and KFPC Revolving Facilities are variable rate instruments, and as such, the fair value approximates the carrying value.

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.

In an effort to convert a substantial portion of our future interest payments pursuant to the USD Tranche to a fixed interest rate, in February and March 2016 we entered into several interest rate swap agreements with an aggregate notional value of $925.4 million, effective dates of January 3, 2017 and maturity dates of December 31, 2020. In May 2018 we entered into an interest rate swap agreement with a notional value of $90.0 million, effective date of June 4, 2018 and maturity date of December 31, 2018. We exited out of $715.4 million of our interest rate swaps as of December 31, 2018, including the expiration of the notional value of $90.0 million interest rate swap agreement entered into in May 2018. As a result, at September 30, 2019, the total notional value of our interest rate swaps was $300.0 million, which effectively hedges the outstanding USD Tranche, fixing LIBOR at 1.608%. We recorded an unrealized loss of $0.7 million and an unrealized gain of $0.5 million for the three months ended September 30, 2019 and 2018, respectively, and an unrealized loss of $5.0 million and an unrealized gain of $5.1 million during the nine months ended September 30, 2019 and 2018, respectively, in other comprehensive income (loss) related to the effective portion of these interest rate swap agreements. In addition, we reclassified out of other comprehensive income (loss) the settlement of a portion of our interest rate swap that amounted to a $2.6 million gain for the nine months ended September 30, 2018.

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. We settled these hedges and recorded a loss of $1.2 million and a loss of $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and a loss of $3.0 million and a loss of $0.5 million for the nine months ended September 30, 2019 and 2018, 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.

Net Investment Hedge. During the year ended December 31, 2018, we designated €290.0 million of euro-denominated borrowing as a hedge against a portion of our net investment in the Company's European operations. The mark to market of this instrument was a gain of $14.0 million and $2.3 million for the three months ended September 30, 2019 and 2018, respectively, and a gain of $15.3 million and $5.7 million for the nine months ended September 30, 2019 and 2018, respectively, which is recorded within accumulated other comprehensive income (loss) in the Condensed Consolidated Balance Sheets.

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.

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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.

9. Income Taxes

Our income tax provision was an expense of $2.3 million and $8.3 million for the three months ended September 30, 2019 and 2018, respectively, and a benefit of $1.9 million and an expense of $8.7 million for the nine months ended September 30, 2019 and 2018, respectively. Our effective tax rate was 9.9% and 16.1% for the three months ended September 30, 2019 and 2018, respectively, and 2.5% and 14.6% for the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019, our effective tax rate differed from the U.S. corporate statutory tax rate of 21.0% primarily due to the mix of our pretax income or loss generated in various foreign jurisdictions, the tax impact of certain permanent items, and our uncertain tax positions, particularly the release from the closing of the U.S and foreign tax audits. During the nine months ended September 30, 2018, our effective tax rate differed from the U.S. corporate statutory tax rate of 21.0% primarily due to the mix of our pretax income or loss generated in various foreign jurisdictions, the tax impact of certain permanent items, and our uncertain tax positions.

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Income taxes at the statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.9		1.7		1.5		1.7
Foreign tax rate differential	(11.2	)	(10.2	)	(7.8	)	(15.7	)
Permanent differences	15.8		3.1		6.3		2.4
Uncertain tax positions	(16.9	)	1.1		(22.8	)	2.7
Valuation allowance	(0.7	)	(0.6	)	(0.8	)	0.2
Return to provision adjustments	—		—		0.1		2.3
Effective tax rate	9.9	%	16.1	%	(2.5	)%	14.6	%

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We consider all available material evidence, both positive and negative, in assessing the appropriateness of a valuation allowance for our deferred tax assets. In determining whether a valuation allowance is required during the period, we evaluate primarily (a) cumulative earnings and losses in recent years, (b) historical taxable income or losses as it relates to our ability to utilize operating loss and tax credit carryforwards within the expiration period, (c) trends indicating earnings or losses expected in future years along with our ability in prior years to reasonably project these future trends or operating results, (d) length of the carryback and carryforward period, and (e) prudent and feasible tax-planning strategies, particularly related to operational changes and the impact on the timing or taxability of relative amounts.

As of September 30, 2019 and December 31, 2018, we recorded a valuation allowance of $41.9 million and $42.5 million, respectively, against our net operating loss carryforwards and other deferred tax assets. We decreased our valuation allowances by $0.2 million and $0.6 million for the three and nine months ended September 30, 2019, respectively, primarily related to current period utilization of net operating loss carryforwards in certain jurisdictions. We decreased our valuation allowances by $0.3 million for the three months ended September 30, 2018 and increased by $0.1 million for the nine months ended September 30, 2018, primarily related to current period net operating losses in the U.S.

For the period ending September 30, 2019, a portion of the unremitted foreign earnings are permanently reinvested in the corresponding country of origin. Accordingly, we have not provided deferred taxes for the differences between the book basis and underlying tax basis in those subsidiaries or on the foreign currency translation adjustment amounts related to such operations.

We file income tax returns in the U.S. federal jurisdiction and in various state 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 remains open for all years subsequent to 2003. In addition, open tax years for state and foreign jurisdictions remain subject to examination.

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We recognize the tax impact of certain tax positions only when it is more likely than not those such positions are sustainable. The taxes are recorded in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes, which prescribes the minimum recognition threshold.

As of September 30, 2019 and December 31, 2018, we had total unrecognized tax benefits of $11.9 million and $29.6 million, respectively, related to uncertain tax positions, all of which, if recognized, would impact our effective tax rate. During the three and nine months ended September 30, 2019, we had a decrease of $4.3 million and $17.7 million, respectively, primarily related to the closing of the U.S. tax audit for the pre-acquisition tax return filing and foreign tax audits. During the three and nine months ended September 30, 2018, we had an increase of $0.5 million and $1.4 million, respectively, primarily related to our uncertain tax positions in the U.S. and Europe. We recorded interest and penalties related to unrecognized tax benefits within the provision for income taxes. For the year ending December 31, 2019, we expect to release $19.5 million in reserves, of which $14.0 million and $3.9 million was released as a result of the closing of certain U.S. and foreign tax audits, respectively, during the nine months ended September 30, 2019.

The Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”) introduced significant changes to U.S. income tax law. Effective 2018, the Tax Act reduced the U.S. statutory tax rate from 35.0% to 21.0% and created new taxes on certain foreign-sourced earnings and certain related-party payments.

One-time transition tax

The Tax Act required us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8.0% on the remaining earnings. Related to the 2017 tax year, we recorded a $15.7 million one-time transitional tax liability. Any legislative changes, including the final Section 965 transition tax regulations issued on January 15, 2019, whose impact is currently being assessed due to the complexity and interdependency of the legislative provisions, as well as any other new or proposed Treasury regulations, which have yet to be issued, may result in additional income tax impacts which could be material in the period any such changes are enacted.

Deferred tax effects

Due to the change in the statutory tax rate from the Tax Act, we remeasured our deferred taxes as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax benefit of $95.0 million, of which $68.9 million relates to the reduction of the U.S. statutory tax rate from 35.0% to 21.0% for years after 2017 and the remaining relates to changes in our investments in foreign subsidiaries. For the period ending December 31, 2018, we completed our analysis based on legislative updates relating to the Tax Act and made no adjustments to the provisional amounts previously recorded.

10. Commitments and Contingencies

(a) Lease Commitments - accounted for under ASC 842, Leases

All of our lease ROU assets and lease liabilities are related to operating leases, where the lease term exceeds one year. Our operating leases are generally for railcars, office space, and equipment used to conduct our operations. We currently have no finance leases as that term is defined under ASC 842. These leases were discounted using a rate of 3.125%, which is based on a weighted average borrowing rate of specific debt. Non-variable lease costs include the amortization of the asset recorded on a straight-line basis. Variable lease components are non-index based payments based on performance or usage of the underlying asset. We have no material lessor or sublease income.

The components of lease cost for operating leases are as follows:

	Nine Months Ended September 30, 2019
	(In thousands)
Lease cost	$	17,164
Variable lease cost	302
Operating lease expense	$	17,466

The operating lease liabilities arising from obtaining ROU assets as of September 30, 2019 were comprised as follows:

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Leased Asset Class	Polymer		Chemical		Percentage		Average Months Remaining on the Lease	Weighted Average in Months
	(in thousands)
Railcars	$	1,509	$	23,310	34.3	%	46	15.8
Buildings	12,465		8,816		29.4	%	32	9.4
Equipment	2,295		10,581		17.8	%	38	6.8
Land	6,677		41		9.3	%	383	35.5
Other	1,075		5,659		9.3	%	19	1.8
Total	$	24,021	$	48,407				69.3

The following tables show the undiscounted cash flows for the operating lease liabilities.

	September 30, 2019
	(In thousands)
October 1, 2019 through December 31, 2019	$	5,719
2020	21,084
2021	16,170
2022	10,513
2023	7,195
Thereafter	17,958
Total undiscounted operating lease liabilities	78,639
Present value discount	(6,980		)
Foreign currency and other	769
Total discounted operating lease liabilities	$	72,428

	December 31, 2018
	(In thousands)
2019	$	19,065
2020	16,891
2021	12,385
2022	8,284
2023	5,137
Thereafter	8,498
Total undiscounted operating lease liabilities	$	70,260

(b) 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$9.6 million, or approximately $2.3 million. 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.

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.

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(c) Asset Retirement Obligations.

The changes in the aggregate carrying amount of our asset retirement obligations are as follows:

	Nine Months Ended September 30,
	2019			2018
	(In thousands)
Beginning balance	$	5,703		$	5,712
Additional accruals	780			—
Accretion expense	262			253
Obligations settled	(206		)	(66		)
Foreign currency translation	(233		)	(186		)
Ending balance	$	6,306		$	5,713

Pursuant to the indemnity included in the February 2001 separation agreement from Shell Chemical, we have recorded a receivable of $0.2 million as of September 30, 2018.

Except for the presentation on the Condensed Consolidated Balance Sheets for the impact of ASC 842, there have been no other material changes to our Commitments and Contingencies disclosed in our most recently filed Annual Report on Form 10-K.

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11. Employee Benefits

The components of net periodic benefit costs related to pension benefits are as follows: 

	Three Months Ended September 30,												Nine Months Ended September 30,
	2019						2018						2019						2018
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans
	(In thousands)
Service cost	$	655		$	345		$	626		$	617		$	1,965		$	1,123		$	2,419		$	1,900
Interest cost	2,041			508			1,810			506			5,925			1,557			5,400			1,574
Expected return on plan assets	(2,515		)	(581		)	(2,453		)	(655		)	(7,545		)	(1,825		)	(7,358		)	(2,039		)
Amortization of prior service cost	—			8			—			3			—			25			—			10
Amortization of net actuarial loss	918			100			1,032			158			2,753			310			3,484			489
Curtailment income	—			(352		)	—			—			—			(352		)	—			—
Settlement cost	—			24			—			—			—			24			—			—
Net periodic benefit cost	$	1,099		$	52		$	1,015		$	629		$	3,098		$	862		$	3,945		$	1,934

During the three months ended September 30, 2019, we amended our Japan pension plan, which resulted in a pension curtailment. This plan amendment resulted in a $0.5 million reduction in pension liabilities during the three months ended September 30, 2019.

The components of net periodic benefit costs other than the service cost component are included in Other income (expense) on our Condensed Consolidated Statements of Operations.

We made contributions of $9.6 million and $10.7 million to our pension plans in the nine months ended September 30, 2019 and 2018, respectively.

The components of net periodic benefit cost related to other post-retirement benefits are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	U.S. Plans			U.S. Plans			U.S. Plans			U.S. Plans
	(In thousands)
Service cost	$	38		$	123		$	218		$	402
Interest cost	225			306			705			985
Amortization of prior service cost	(438		)	(146		)	(1,313		)	(146		)
Amortization of net actuarial loss	115			179			465			561
Net periodic benefit cost	$	(60	)	$	462		$	75		$	1,802

During the year ended December 31, 2018, we amended the post-retirement benefits plan for post-65 retirees to provide an annual subsidy based on years of service. The annual subsidy replaces a company-sponsored medical plan. This plan modification resulted in a $13.1 million reduction in pension and other post-retirement liabilities during the year ended December 31, 2018.

The components of net periodic benefit costs other than the service cost component are included in Other income (expense) on our Condensed Consolidated Statements of Operations.

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 our President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.

• Polymer Segment is comprised of our SBCs and other engineered polymers business.

• 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

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Reporting, we have presented operating income for each segment. The following table summarizes our operating results by segment. We do not have sales between segments.

	Three Months Ended September 30, 2019									Three Months Ended September 30, 2018
	Polymer			Chemical			Total			Polymer		Chemical		Total
	(In thousands)
Revenue	$	261,593		$	182,628		$	444,221		$	320,965	$	202,140	$	523,105
Cost of goods sold	203,115			139,827			342,942			230,760		138,084		368,844
Gross profit	58,478			42,801			101,279			90,205		64,056		154,261
Operating expenses:
Research and development	7,322			3,045			10,367			7,422		3,175		10,597
Selling, general, and administrative	17,922			14,350			32,272			20,327		15,823		36,150
Depreciation and amortization	14,982			19,822			34,804			17,554		17,563		35,117
Gain on insurance proceeds	—			(14,250		)	(14,250		)	—		—		—
Loss on disposal of fixed assets	(17		)	—			(17		)	3		—		3
Operating income	$	18,269		$	19,834		38,103			$	44,899	$	27,495	72,394
Other income (expense)							4,235							(740		)
Earnings of unconsolidated joint venture							102							100
Interest expense, net							(19,214		)					(20,143		)
Income (loss) before income taxes							$	23,226						$	51,611

	Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
	Polymer			Chemical			Total			Polymer		Chemical		Total
	(In thousands)
Revenue	$	820,509		$	575,403		$	1,395,912		$	948,186	$	615,706	$	1,563,892
Cost of goods sold	629,279			429,150			1,058,429			666,704		425,140		1,091,844
Gross profit	191,230			146,253			337,483			281,482		190,566		472,048
Operating expenses:
Research and development	22,227			8,864			31,091			22,255		9,613		31,868
Selling, general, and administrative	63,226			48,397			111,623			68,308		48,540		116,848
Depreciation and amortization	43,296			54,934			98,230			52,914		52,719		105,633
Gain on insurance proceeds	—			(32,850		)	(32,850		)	—		—		—
Loss on disposal of fixed assets	(17		)	—			(17		)	75		288		363
Operating income	$	62,498		$	66,908		129,406			$	137,930	$	79,406	217,336
Other income (expense)							3,559							(2,960		)
Gain (loss) on extinguishment of debt							210							(79,921		)
Earnings of unconsolidated joint venture							363							357
Interest expense, net							(57,494		)					(74,835		)
Income before income taxes							$	76,044						$	59,977

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The following table presents long-lived assets including goodwill and total assets.

	September 30, 2019						December 31, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)
Property, plant, and equipment, net	$	540,926	$	391,723	$	932,649	$	543,086	$	398,390	$	941,476
Investment in unconsolidated joint venture	$	11,577	$	—	$	11,577	$	12,070	$	—	$	12,070
Goodwill	$	—	$	771,739	$	771,739	$	—	$	772,886	$	772,886
Total assets	$	1,152,137	$	1,772,369	$	2,924,506	$	1,160,029	$	1,734,675	$	2,894,704

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.

Following is a summary of revenue by geographic region:

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)						(In thousands)
Revenue:
United States	$	78,640	$	78,516	$	157,156	$	111,996	$	87,256	$	199,252
Germany	29,970		13,282		43,252		41,219		13,496		54,715
All other countries	152,983		90,830		243,813		167,750		101,388		269,138
	$	261,593	$	182,628	$	444,221	$	320,965	$	202,140	$	523,105

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)						(In thousands)
Revenue:
United States	$	270,786	$	244,139	$	514,925	$	325,985	$	249,811	$	575,796
Germany	84,967		40,560		125,527		112,726		42,582		155,308
All other countries	464,756		290,704		755,460		509,475		323,313		832,788
	$	820,509	$	575,403	$	1,395,912	$	948,186	$	615,706	$	1,563,892

Our capital expenditures for the Polymer segment, excluding capital expenditures by the KFPC joint venture, were $44.5 million and $31.8 million during the nine months ended September 30, 2019 and 2018, respectively, and capital expenditures for our Chemical segment were $31.8 million and $34.2 million during the nine months ended September 30, 2019 and 2018, respectively.

Impact of Hurricane Michael

During the third quarter of 2019, we finalized our insurance claims with our carrier related to Hurricane Michael. As result, we received a final payment from our carrier of $14.3 million, which has been recorded as a gain on insurance proceeds within the Condensed Consolidated Statement of Operations. This brings our total insurance proceeds to $41.8 million, which offsets the lost margin and reimburses us for the direct costs and capital expenditures known to date.

13. Related Party Transactions

We own a 50% equity investment in an SBC manufacturing joint venture in Kashima, Japan. Our outstanding payables were $15.2 million and $20.1 million as of September 30, 2019 and December 31, 2018, respectively, which were recorded in “Due to related party” liability on the Condensed Consolidated Balance Sheets. Our total purchases from the joint venture were $7.0 million and $11.3 million for the three months ended September 30, 2019 and 2018, respectively, and $23.4 million and $27.6 million for the nine months ended September 30, 2019 and 2018, 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. Additionally, we purchase certain raw materials from FPCC for our other manufacturing locations. Our outstanding payables were $2.4 million and $0.8 million as of September 30, 2019 and December 31, 2018, respectively,

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which were recorded in “Due to related party” liability on the Condensed Consolidated Balance Sheets. Our total purchases from this joint venture were $15.8 million and $12.9 million for the three months ended September 30, 2019 and 2018, respectively, and $41.2 million and $35.0 million for the nine months ended September 30, 2019 and 2018, respectively. See Note 14 Variable Interest Entity, for further discussion related to the KFPC joint venture.

14. Variable Interest Entity

We hold a variable interest in a joint venture with FPCC to own and operate a 30 kiloton HSBC plant at FPCC’s petrochemical site in Mailiao, Taiwan. Included in the below assets and liabilities is a land lease with FPCC to support our operations at the HSBC plant. 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, following a ramp-up period, the agreement requires us to purchase a minimum of 80% 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. As a result, we have consolidated KFPC in our financial statements and reflected FPCC’s 50% ownership as a noncontrolling interest.

The following table summarizes the carrying amounts of assets and liabilities as of September 30, 2019 and December 31, 2018 for KFPC before intercompany eliminations.

	September 30, 2019		December 31, 2018
	(In thousands)
Cash and cash equivalents	$	6,213	$	6,640
Other current assets	17,885		18,363
Property, plant, and equipment, net	152,325		159,893
Intangible assets	8,015		8,590
Long-term operating lease assets, net	6,876		—
Other long-term assets	8,870		11,838
Total assets	$	200,184	$	205,324
Current portion of long-term debt	$	56,608	$	45,152
Current liabilities	14,524		14,996
Long-term debt	47,684		80,255
Long-term operating lease liabilities	6,375		—
Total liabilities	$	125,191	$	140,403

15. Subsequent Events

We have evaluated events and transactions that occurred after the balance sheet date and determined that there were no significant events or transactions, other than described above, that would require recognition or disclosure in our condensed consolidated financial statements for the period ended September 30, 2019.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

You should read the following discussion of our financial condition and results of operations together with our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. This discussion contains forward-looking statements and involves numerous risks, uncertainties, assumptions and other important factors that could cause the actual results, performance, or industry results, to differ materially from historical results, any future results, or performance, or industry results expressed or implied by such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information.”

OVERVIEW

We are a leading global specialty chemicals company that manufactures styrenic block copolymers (“SBCs”), specialty polymers, and high-value performance products primarily derived from pine wood pulping co-products. Our operations are managed through two operating segments: (i) Polymer segment; and (ii) Chemical segment.

Polymer Segment

SBCs are highly-engineered synthetic elastomers, which we invented and commercialized over 50 years ago. We developed the first unhydrogenated styrenic block copolymers (“USBC”) in 1964 and the first hydrogenated styrenic block copolymers (“HSBC”) in the late 1960s. 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, paving, roofing, and footwear products. We also sell isoprene rubber (“IR”) and isoprene rubber latex (“IRL”), which are non-SBC products primarily used in applications such as medical products, personal care, adhesives, tackifiers, paints, and coatings.

Our polymers are typically formulated or compounded with other products to achieve improved, customer-specific performance characteristics in a variety of applications. We seek to maximize the value of our product portfolio by emphasizing complex or specialized polymers and innovations that yield higher margins than more commoditized products. We sometimes refer to these complex or specialized polymers or innovations as being more “differentiated.”

Our paving and roofing applications provide durability, extending road and roof life. Our products are also found in medical applications, personal care products such as disposable diapers, oil additives, gels, and various other consumer goods. Our products are also used to impart tack and shear properties in a wide variety of adhesive products and to impart characteristics such as flexibility and durability in sealants and corrosion resistance in coatings.

We also produce Cariflex^TM isoprene rubber and isoprene rubber latex. Our Cariflex products are based on synthetic polyisoprene polymer and do not contain natural rubber latex or other natural rubber products, making them an ideal substitute for natural rubber latex, particularly in applications with high purity requirements such as medical, healthcare, personal care, and food contact. We believe the versatility of Cariflex provides opportunities for new, differentiated applications.

Chemical Segment

We manufacture and sell high value products primarily derived from pine wood pulping co-products. We refine and further upgrade two primary feedstocks, crude tall oil (“CTO”) and crude sulfate turpentine (“CST”), both of which are co-products of the wood pulping process, into value-added specialty chemicals. We refine CTO through a distillation process into four primary constituent fractions: tall oil fatty acids (“TOFA”); tall oil rosin (“TOR”); distilled tall oil (“DTO”); and tall oil pitch. We further upgrade TOFA, TOR, and DTO into derivatives such as dimer acids, polyamide resins, rosin resins, dispersions, and disproportionated resins. We refine CST into terpene fractions, which can be further upgraded into terpene resins. The various fractions and derivatives resulting from our CTO and CST refining process provide for distinct functionalities and properties, determining their respective applications and end markets.

We focus our resources on three product groups: Adhesives, Performance Chemicals, and Tires. Within our product groups, our products are sold into a diverse range of submarkets, including packaging, tapes and labels, pavement marking, high performance tires, fuel additives, oilfield and mining, coatings, metalworking fluids and lubricants, inks, and flavor and fragrances, among others.

While this business is based predominantly on the refining and upgrading of CTO and CST, we have the capacity to use both hydrocarbon-based raw materials, such as alpha-methyl-styrene, rosins, and gum rosins where appropriate and, accordingly, are able to offer tailored solutions for our customers.

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Factors Affecting Our Results of Operations

International Operations and Currency Fluctuations. We operate a geographically diverse business, serving customers in numerous countries from fourteen manufacturing facilities on four continents. Our sales and production costs are mainly denominated in U.S. dollars, Euro, Japanese Yen, Swedish Krona, and Brazilian Real. From time to time, we use hedging strategies to reduce our exposure to currency fluctuations.

We generated our revenue from customers located in the following regions:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue by Geography:	(In thousands)
Americas	$	179,616	$	225,548	$	581,345	$	667,188
Europe, Middle East, and Africa	156,613		183,663		476,388		551,197
Asia Pacific	107,992		113,894		338,179		345,507
Total revenue	$	444,221	$	523,105	$	1,395,912	$	1,563,892

Raw Materials. We use butadiene, styrene, and isoprene (collectively referred to as “monomers”) as our primary raw materials in our Polymer segment and CTO and CST in our Chemical segment. The cost of these raw materials has generally correlated with changes in energy prices and is generally influenced by supply and demand factors, and for our isoprene monomers, the prices of natural and synthetic rubber. Average purchase prices of our raw materials decreased for the Polymer segment and increased for the Chemical segment during the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Average purchase prices of our raw materials decreased for the Polymer segment and increased for the Chemical segment during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

Seasonality. Seasonal changes and weather conditions typically affect our sales of products in our paving, pavement marking, roofing, and construction applications, which generally results in higher sales volumes in the second and third quarters of the calendar year compared to the first and fourth quarters of the calendar year. Sales for our other product applications tend to show relatively little seasonality.

Recent Developments and Certain Known Trends

Our business is subject to a number of known risks and uncertainties, some of which are a result of recent developments.

Market Conditions. Market condition fundamentals and demand in our Specialty Polymer automotive and compounding applications saw continued deterioration within China and broader Asia, and more recently in Europe during the third quarter of 2019. In addition, results for Performance Polymers were affected by soft paving and roofing demand, reflecting elevated customer inventories following a weak second quarter 2019 and ample supply availability from market participants, which contributed to intensified competitive market conditions.

The Chemical segment was adversely impacted by an accelerated decline in pricing for certain upgraded products in its Crude Sulfate Turpentine chain, in conjunction with the decline in global gum turpentine pricing, which fell by over 40.0% during the quarter. The Company also saw weaker demand in rosin end markets such as adhesives and road markings. Rosin prices also decreased, in conjunction with softness in crude gum Asian pricing, which declined by over 20.0% in the third quarter of 2019.

Tariffs. Effective September 24, 2018, the Office of the U.S. Trade Representative enacted a 10.0% tariff on certain goods imported from China under Section 301 of the Trade Expansion Act of 1974, which increased up to 25.0% in 2019 on raw material imports of ours. In addition, China enacted tariffs on certain goods imported into China from the United States ranging from 0.0% to 25.0% during 2018, which increased up to 33.0% in 2019, impacting our sales into China. We have implemented certain mitigation efforts to minimize the effects of any pricing and supply conditions. These tariffs have impacted the Chinese economy and thus demand for certain products of ours in China; however, the direct financial impact of tariff costs to Kraton is not material.

Hurricane Michael. In October 2018, our Panama City, Florida, facility was damaged by Hurricane Michael. In November 2018, restoration of operations for the CTO refinery were complete. Our CST refinery was restored to full operational capacity during the first quarter of 2019.

During the third quarter of 2019, we finalized our insurance claims with our carrier related to Hurricane Michael. As result, we received a final payment from our carrier of $14.3 million, which has been recorded as a gain on insurance proceeds

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within the Condensed Consolidated Statement of Operations. This brings our total insurance proceeds to $41.8 million, which offsets the lost margin and reimburses us for the direct costs and capital expenditures known to date.

Strategic alternatives for Cariflex business. In February 2019, the Company's board of directors initiated a process to review strategic alternatives for our Cariflex business, which may result in a sale of that business. The process is still ongoing, and we are targeting completion of the review process during the fourth quarter of 2019. There can be no assurance that the strategic review of Cariflex will result in the completion of a transaction. As of September 30, 2019, no assets are classified as held for sale.

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RESULTS OF OPERATIONS

KRATON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue	$	444,221		$	523,105		$	1,395,912		$	1,563,892
Cost of goods sold	342,942			368,844			1,058,429			1,091,844
Gross profit	101,279			154,261			337,483			472,048
Operating expenses:
Research and development	10,367			10,597			31,091			31,868
Selling, general, and administrative	32,272			36,150			111,623			116,848
Depreciation and amortization	34,804			35,117			98,230			105,633
Gain on insurance proceeds	(14,250		)	—			(32,850		)	—
(Gain) loss on disposal of fixed assets	(17		)	3			(17		)	363
Operating income	38,103			72,394			129,406			217,336
Other income (expense)	4,235			(740		)	3,559			(2,960		)
Gain (loss) on extinguishment of debt	—			—			210			(79,921		)
Earnings of unconsolidated joint venture	102			100			363			357
Interest expense, net	(19,214		)	(20,143		)	(57,494		)	(74,835		)
Income before income taxes	23,226			51,611			76,044			59,977
Income tax benefit (expense)	(2,311		)	(8,334		)	1,881			(8,743		)
Consolidated net income	20,915			43,277			77,925			51,234
Net income attributable to noncontrolling interest	(2,222		)	(928		)	(5,356		)	(1,743		)
Net income attributable to Kraton	$	18,693		$	42,349		$	72,569		$	49,491
Earnings per common share:
Basic	$	0.59		$	1.33		$	2.28		$	1.55
Diluted	$	0.58		$	1.31		$	2.26		$	1.53
Weighted average common shares outstanding:
Basic	31,486			31,459			31,603			31,381
Diluted	31,823			31,834			31,914			31,810

Consolidated Results

Three Months Ended September 30, 2019 compared to Three Months Ended September 30, 2018

Revenue was $444.2 million for the three months ended September 30, 2019 compared to $523.1 million for the three months ended September 30, 2018, a decrease of $78.9 million or 15.1%. Revenue declined $59.4 million and $19.5 million for the Polymer and Chemical segments, respectively. For additional information regarding the changes in revenue, see our segment disclosures below.

Cost of goods sold was $342.9 million for the three months ended September 30, 2019 compared to $368.8 million for the three months ended September 30, 2018, a decrease of $25.9 million or 7.0%. Cost of goods sold decreased $27.6 million for the Polymer segment and increased $1.7 million for the Chemical segment. For additional information regarding the changes in cost of goods sold, see our segment disclosures below.

Selling, general, and administrative expenses were $32.3 million for the three months ended September 30, 2019 compared to $36.2 million for the three months ended September 30, 2018. The $3.9 million decrease is primarily attributable to lower employee related costs, partially offset by higher transaction, acquisition, and restructuring costs.

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Depreciation and amortization was $34.8 million for the three months ended September 30, 2019 compared to $35.1 million for the three months ended September 30, 2018. The decrease of $0.3 million was primarily attributable to certain assets being fully depreciated as of December 31, 2018, partially offset by accelerated depreciation on certain Chemical segment assets.

Other income was $4.2 million for the three months ended September 30, 2019 compared to other expense of $0.7 million for the three months ended September 30, 2018. During the three months ended September 30, 2019, we recorded a gain of $4.6 million related to the sale of emissions credits accumulated by our Swedish Chemical legal entity. The gain was partially offset by $0.1 million of net periodic pension expense.

Interest expense, net, was $19.2 million for the three months ended September 30, 2019 compared to $20.1 million for the three months ended September 30, 2018, a decrease of $0.9 million. The decrease is due to lower overall indebtedness.

Income tax provision was an expense of $2.3 million and $8.3 million for the three months ended September 30, 2019 and 2018, respectively. Our effective tax rate was 9.9% and 16.1% for the three months ended September 30, 2019 and 2018, respectively. During the three months ended September 30, 2019, our effective tax rate differed from the U.S. corporate statutory tax rate of 21.0% primarily due to the mix of our pretax income or loss generated in various foreign jurisdictions, the tax impact of certain permanent items, and our uncertain tax positions, particularly the release from the closing of foreign tax audits. During the three months ended September 30, 2018, our effective tax rate differed from the U.S. corporate statutory tax rate of 21.0% primarily due to the mix of our pretax income or loss generated in various jurisdictions and permanent items.

Net income attributable to Kraton was $18.7 million, or $0.58 per diluted share, for the three months ended September 30, 2019, a decrease of $23.7 million compared to net income of $42.3 million, or $1.31 per diluted share, for the three months ended September 30, 2018. Adjusted Diluted Earnings Per Share (non-GAAP) was $0.52 for the three months ended September 30, 2019 compared to Adjusted Diluted Earnings Per Share (non-GAAP) of $1.02 for the three months ended September 30, 2018. See a reconciliation of generally accepted accounting principles (“GAAP”) Diluted Earnings (Loss) Per Share to non-GAAP Adjusted Diluted Earnings (Loss) Per Share below.

Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018

Revenue was $1,395.9 million for the nine months ended September 30, 2019 compared to $1,563.9 million for the nine months ended September 30, 2018, a decrease of $168.0 million or 10.7%. Revenue decreased $127.7 million and $40.3 million for the Polymer and Chemical segments, respectively. For additional information regarding the changes in revenue, see our segment disclosures below.

Cost of goods sold was $1,058.4 million for the nine months ended September 30, 2019 compared to $1,091.8 million for the nine months ended September 30, 2018, a decrease of $33.4 million or 3.1%. Cost of goods sold decreased $37.4 million for the Polymer segment and increased $4.0 million for the Chemical segment. For additional information regarding the changes in cost of goods sold, see our segment disclosures below.

Selling, general, and administrative expenses were $111.6 million for the nine months ended September 30, 2019 compared to $116.8 million for the nine months ended September 30, 2018. The $5.2 million decrease is primarily attributable to lower employee related costs, partially offset by higher transaction, acquisition, and restructuring costs.

Depreciation and amortization was $98.2 million for the nine months ended September 30, 2019 compared to $105.6 million for the nine months ended September 30, 2018. The decrease of $7.4 million was primarily attributable to certain assets being fully depreciated as of December 31, 2018, partially offset by accelerated depreciation on certain Chemical segment assets.

Other income was $3.6 million for the nine months ended September 30, 2019 compared to other expense of $3.0 million for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we recorded a gain of $4.6 million related to the sale of emissions credits accumulated by our Swedish Chemical legal entity. The gain was partially offset by $0.7 million of net periodic pension expense.

We recorded a $79.9 million loss on extinguishment of debt during the nine months ended September 30, 2018, which includes the write off of previously capitalized deferred financing costs and original issue discount, the tender offer and subsequent redemption of our 10.5% Senior Notes due 2023, partially offset by a gain on the settlement of the ineffective portion of interest rate swaps. See Note 7 Long-Term Debt to the consolidated financial statement included in this Quarterly Report on Form 10-Q.

Interest expense, net, was $57.5 million for the nine months ended September 30, 2019 compared to $74.8 million for the nine months ended September 30, 2018, a decrease of $17.3 million. The decrease is due to previous refinancing activities and lower overall indebtedness.

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Our income tax provision was a benefit of $1.9 million and an expense $8.7 million for the nine months ended September 30, 2019 and 2018, respectively. Our effective tax rate was 2.5% and 14.6% for the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019, our effective tax rate differed from the U.S. corporate statutory tax rate of 21.0% primarily due to the mix of our pretax income or loss generated in various foreign jurisdictions, the tax impact of certain permanent items, and our uncertain tax positions, particularly the release from the closing of the U.S and foreign tax audits. During the nine months ended September 30, 2018, our effective tax rate differed from the U.S. corporate statutory tax rate of 21.0% primarily due to the mix of our pretax income or loss generated in various foreign jurisdictions, the tax impact of certain permanent items, and our uncertain tax positions.

Net income attributable to Kraton was $72.6 million, or $2.26 per diluted share, for the nine months ended September 30, 2019, an increase of $23.1 million compared to net income of $49.5 million, or $1.53 per diluted share, for the nine months ended September 30, 2018. Adjusted Diluted Earnings Per Share (non-GAAP) was $2.99 for the nine months ended September 30, 2019 compared to Adjusted Diluted Earnings Per Share (non-GAAP) of $2.49 for the nine months ended September 30, 2018. See a reconciliation of GAAP Diluted Earnings (Loss) Per Share to non-GAAP Adjusted Diluted Earnings (Loss) Per Share below.

Polymer Segment

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Performance Products	$	141,267		$	179,684		$	422,539		$	506,151
Specialty Polymers	70,986			99,349			256,483			311,657
Cariflex	49,241			41,818			141,117			130,319
Other	99			114			370			59
Polymer Segment Revenue	$	261,593		$	320,965		$	820,509		$	948,186
Operating income	$	18,269		$	44,899		$	62,498		$	137,930
Adjusted EBITDA (non-GAAP)(1)	$	50,304		$	57,008		$	158,635		$	170,469
Adjusted EBITDA margin (non-GAAP)(2)	19.2		%	17.8		%	19.3		%	18.0		%

 ____________________________________________________

(1) See non-GAAP reconciliations included below for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.

(2) Defined as Adjusted EBITDA as a percentage of revenue.

Three Months Ended September 30, 2019 compared to Three Months Ended September 30, 2018

Revenue for the Polymer segment was $261.6 million for the three months ended September 30, 2019 compared to $321.0 million for the three months ended September 30, 2018. The decrease was driven by lower sales volumes and lower average sales prices resulting from lower raw material costs. Sales volumes of 75.8 kilotons for the three months ended September 30, 2019 declined 10.0% compared to the three months ended September 30, 2018 sales volumes of 84.2 kilotons. Performance Products sales volumes decreased 9.8% due to weaker paving and roofing demand. Specialty Polymers sales volumes decreased 18.9% primarily from a previously announced inventory management program by a significant lubricant additives customer and lower demand in Asia and Europe, partially offset by higher innovation-led volume in North America. Cariflex sales volumes increased 18.9% primarily from higher latex sales into surgical glove applications. The negative effect from changes in currency exchange rates between the periods was $3.3 million.

Cost of goods sold was $203.1 million for the three months ended September 30, 2019 compared to $230.8 million for the three months ended September 30, 2018, a decrease of $27.6 million or 12.0%. The decrease in cost of goods sold reflects lower sales volumes, lower raw material costs, and improved operating performance. These decreases are partially offset by the cost of consumed raw materials, which has higher average costs on a first-in, first-out (“FIFO”) measurement basis of accounting. Additionally, changes in currency exchange rates between the periods resulted in a positive impact of $2.9 million.

For the three months ended September 30, 2019, the Polymer segment operating income was $18.3 million compared to $44.9 million for the three months ended September 30, 2018, a decrease of $26.6 million or 59.3%. This decrease is largely attributable to higher raw material costs on a FIFO basis and decreases in sales volumes.

For the three months ended September 30, 2019, the Polymer segment generated Adjusted EBITDA (non-GAAP) of $50.3 million compared to $57.0 million for the three months ended September 30, 2018. The decline in Adjusted EBITDA was due to lower sales volumes as noted in the aforementioned weaker paving and roofing season, a previously announced inventory management program by a significant lubricant additives customer, coupled with lower demand in Asia and Europe, partially offset by higher innovation-led volume in North America. This was partially offset by higher sales volumes in the

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Cariflex product group. The effect from changes in currency exchange rates between the periods was immaterial. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018

Revenue for the Polymer segment was $820.5 million for the nine months ended September 30, 2019 compared to $948.2 million for the nine months ended September 30, 2018. The decrease was driven by lower sales volumes and lower average sales prices resulting from lower raw material costs. Sales volumes of 229.8 kilotons for the nine months ended September 30, 2019 decreased 7.9% compared to the nine months ended September 30, 2018. The 8.3% decline in Performance Products sales volumes is largely associated with weaker paving and roofing demand and lower SIS sales into adhesives applications. Specialty Products sales volumes decreased 12.1% as a result of a previously announced inventory management program by a significant lubricant additives customer and lower demand in Asia and Europe, partially offset by higher innovation-led volume in North America. Cariflex sales volumes increased 11.4%, primarily from higher latex sales into surgical glove applications. The negative impact from changes in currency exchange rates between the periods was $18.3 million.

Cost of goods sold was $629.3 million for the nine months ended September 30, 2019 compared to $666.7 million for the nine months ended September 30, 2018, a decrease of $37.4 million or 5.6%. The decrease in cost of goods sold reflects lower sales volumes and lower raw material costs. These decreases are partially offset by the cost of consumed raw materials, which has higher average costs on a FIFO measurement basis of accounting. These higher costs were partially offset by overall improved operating performance at our manufacturing sites. The positive effect from changes in currency exchange rates between the periods was $11.8 million.

For the nine months ended September 30, 2019, the Polymer segment operating income was $62.5 million compared to $137.9 million for the nine months ended September 30, 2018, a decrease of $75.4 million or 54.7%. This decrease is largely attributable to higher raw material costs on a FIFO basis and decreases in sales volumes.

For the nine months ended September 30, 2019, the Polymer segment generated Adjusted EBITDA (non-GAAP) of $158.6 million compared to $170.5 million for the nine months ended September 30, 2018. The 6.9% decrease in Adjusted EBITDA is due to a previously announced inventory management program by a significant lubricant additives customer, the continuation of an economic slow down in China, greater Asia, and Europe impacting sales of Specialty Polymers, and weaker paving and roofing demand, coupled with competitive pressures from Asia. This was partially offset by overall improved operating performance and higher sales volumes in the Cariflex product group. The negative effect from changes in currency exchange rates between the periods was $4.0 million. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

Chemical Segment

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Adhesives	$	64,391		$	73,781		$	198,785		$	220,907
Performance Chemicals	105,367			118,193			337,766			355,947
Tires	12,870			10,166			38,852			38,852
Chemical Segment Revenue	$	182,628		$	202,140		$	575,403		$	615,706
Operating income	$	19,834		$	27,495		$	66,908		$	79,406
Adjusted EBITDA (non-GAAP)(1)	$	29,752		$	41,643		$	112,913		$	122,431
Adjusted EBITDA margin (non-GAAP)(2)(3)	16.3		%	20.6		%	19.6		%	19.9		%

 ____________________________________________________

(1) See non-GAAP reconciliations included below for the reconciliation of each non-GAAP measure to its most directly comparable GAAP measure.

(2) Defined as Adjusted EBITDA as a percentage of revenue.

(3) For the nine months ended September 30, 2019, Adjusted EBITDA margin adjusted for lost revenues from Hurricane Michael would be 19.3%.

Three Months Ended September 30, 2019 compared to Three Months Ended September 30, 2018

Revenue for the Chemical segment was $182.6 million for the three months ended September 30, 2019 compared to $202.1 million for the three months ended September 30, 2018. The decrease in revenue was attributable to lower sales volumes and pricing in rosin end markets such as adhesives and road marking. These results were related to softness in Asian gum rosin pricing, which declined by 20.0% in the third quarter of 2019. Sales volumes were 93.1 kilotons for the three months ended September 30, 2019, a decrease of 12.8 kilotons or 12.1%, due to a decline in the rosin and upgrade derivatives is

38

attributable to weak demand globally for adhesives and road markings applications. Price remained under pressure from competitive alternative pricing in gum rosin and hydrocarbons. In addition, sales in the TOFA and derivatives were negatively impacted by weakness in mining, oilfield demand, and automotive applications. The revenue decline resulted in a 15.0% and 7.5% decrease in Performance Chemicals and Adhesives sales volumes, respectively, partially offset by a 2.4% increase in Tires sales volumes. The negative effect from changes in currency exchange rates between the periods was $3.8 million.

Cost of goods sold was $139.8 million for the three months ended September 30, 2019 compared to $138.1 million for the three months ended September 30, 2018, an increase of $1.7 million or 1.3%. The increase was driven by higher average raw material costs partially offset by lower sales volumes and lower planned maintenance activities in 2019, when compared to the same period in 2018. The positive impact from changes in currency exchange rates between the periods of $3.5 million.

During the third quarter of 2019, we finalized our insurance claims with our carrier related to Hurricane Michael. During the three months ended September 30, 2019, we incurred an incremental $1.4 million of direct costs as we finalized the production ramp up back to operating capacity. Our insurance carrier provided an additional $14.3 million of reimbursements under our insurance policies, we recorded as a gain on insurance proceeds in the Condensed Consolidated Statement of Operations. This brings our total insurance proceeds to $41.8 million, which offsets the lost margin and reimburses us for the direct costs and capital expenditures known to date.

For the three months ended September 30, 2019, the Chemical segment operating income was $19.8 million compared $27.5 million for the three months ended September 30, 2018, a decrease of $7.7 million or 27.9%. This decrease was driven by lower sales volumes, and to a lesser degree, higher average raw material costs.

For the three months ended September 30, 2019, the Chemical segment generated $29.8 million of Adjusted EBITDA (non-GAAP) compared to $41.6 million for the three months ended September 30, 2018. The decrease in Adjusted EBITDA was primarily driven by lower sales volumes and rosin ester pricing, and to a lesser degree higher average raw material costs. The negative effect from changes in currency exchange rates between the periods was $0.1 million. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018

Revenue for the Chemical segment was $575.4 million for the nine months ended September 30, 2019 compared to $615.7 million for the nine months ended September 30, 2018. The decrease in Chemical segment revenue was primarily attributable to lower sales volumes and a decline in rosin pricing, partially offset by higher average selling prices for upgraded product streams. Sales volumes were 300.6 kilotons for the nine months ended September 30, 2019, a decrease of 32.1 kilotons or 9.6%, due to a decline in rosin demand, constrained availability of raw materials primarily in North America, and lower non-recurring raw materials sales when compared to the nine months ended September 30, 2018. In addition, we experienced lower operating rates during the nine months ended September 30, 2019 at our Panama City facility due to the impacts of Hurricane Michael. As a result, Performance Chemicals and Adhesives sales volumes decreased 12.9% and 3.7%, respectively, partially offset by an increase of 2.2% in Tires sales volumes. The negative effect from changes in currency exchange rates between the periods was $15.8 million.

Cost of goods sold was $429.2 million for the nine months ended September 30, 2019 compared to $425.1 million for the nine months ended September 30, 2018, an increase of $4.0 million or 0.9%. The increase was driven by higher average raw material costs partially offset by lower sales volumes and lower planned maintenance activities in 2019, when compared to the same period in 2018. The positive impact from changes in currency exchange rates between the periods was $14.5 million.

As of September 30, 2019, we finalized our insurance claims with our carrier related to Hurricane Michael. During the nine months ended September 30, 2019, we incurred an incremental $14.2 million of direct costs as we finalized the production ramp up back to operating capacity. Our insurance carrier provided an additional $32.9 million of reimbursements under our insurance policies, we recorded as a gain on insurance proceeds in the Condensed Consolidated Statement of Operations. This brings our total insurance proceeds to $41.8 million, which offsets the lost margin and reimburses us for the direct costs and capital expenditures known to date.

For the nine months ended September 30, 2019, the Chemical segment operating income was $66.9 million compared to $79.4 million for the nine months ended September 30, 2018.

For the nine months ended September 30, 2019, the Chemical segment generated $112.9 million of Adjusted EBITDA (non-GAAP) compared to $122.4 million for the nine months ended September 30, 2018. The 7.8% decrease in Adjusted EBITDA was primarily driven by lower sales volumes and rosin ester pricing, and to a lesser degree higher average raw material costs. The negative effect from changes in currency exchange rates between the periods was $0.5 million. See a reconciliation of GAAP operating income to non-GAAP Adjusted EBITDA below.

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NON-GAAP FINANCIAL MEASURES

EBITDA, Adjusted EBITDA, and Adjusted Diluted Earnings (Loss) Per Share

We consider EBITDA, Adjusted EBITDA, and Adjusted Diluted Earnings (Loss) Per Share to be important supplemental measures of our performance and believe they are frequently used by investors, securities analysts, and other interested parties in the evaluation of our performance and/or that of other companies in our industry, including period-to-period comparisons. Further, management uses these measures to evaluate operating performance, and our incentive compensation plan bases incentive compensation payments on our Adjusted EBITDA performance and attainment of net debt reduction, along with other factors. EBITDA, Adjusted EBITDA, and Adjusted Diluted Earnings (Loss) Per Share have limitations as analytical tools and in some cases can vary substantially from other measures of our performance. You should not consider any of them in isolation, or as substitutes for analysis of our results under GAAP.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(In thousands, except per share amounts)
EBITDA(2)(4)	$	77,244	$	106,871	$	231,768	$	240,445
Adjusted EBITDA(1)(3)(4)	$	80,056	$	98,651	$	271,548	$	292,900
Adjusted Diluted Earnings Per Share(1)(4)	$	0.52	$	1.02	$	2.99	$	2.49

____________________________________________________ 

(1) The majority of our consolidated inventory is measured using the FIFO basis of accounting. As part of our pricing strategy, we measure our business performance using the estimated current replacement cost (“ECRC”) of our inventory and cost of goods sold. Our ECRC is based on our current expectation of the current cost of our significant raw material inputs. ECRC is developed monthly based on actual market-based contracted rates and spot market purchase rates that are expected to occur in the period. We then adjust the value of the significant raw material inputs and their associated impact to finished goods to the current replacement cost to arrive at an ECRC value for inventory and cost of goods sold. The result of this revaluation from the GAAP carrying value creates the spread between GAAP and ECRC. We maintain our perpetual inventory in our global enterprise resource planning system, where the carrying value of our inventory is determined. With inventory valued under GAAP and ECRC, we then have the ability to report cost of goods sold and therefore Adjusted EBITDA and Adjusted Diluted Earnings (Loss) Per Share under both our GAAP convention and ECRC.

(2) On a consolidated basis, EBITDA represents net income before interest, taxes, depreciation, and amortization. On a reporting segment basis, EBITDA represents segment operating income before depreciation and amortization, loss on extinguishment of debt, and earnings of unconsolidated joint venture. Limitations for EBITDA as an analytical tool include the following:

• EBITDA does not reflect the significant interest expense on our debt;

• EBITDA does not reflect the significant depreciation and amortization expense associated with our long-lived assets;

• EBITDA included herein should not be used for purposes of assessing compliance or non-compliance with financial covenants under our debt agreements. The calculation of EBITDA in the debt agreements includes adjustments, such as extraordinary, non-recurring or one-time charges, proforma cost savings, certain non-cash items, turnaround costs, and other items included in the definition of EBITDA in the debt agreements; and

• other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

(3) Adjusted EBITDA is EBITDA net of the impact of the spread between the FIFO basis of accounting and ECRC and net of the impact of items we do not consider indicative of our ongoing operating performance. We explain how each adjustment is derived and why we believe it is helpful and appropriate in the reconciliation below. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to the limitations applicable to EBITDA described above, as well as the following limitations:

• due to volatility in raw material prices, Adjusted EBITDA may, and often does, vary substantially from EBITDA, net income, and other performance measures, including net income calculated in accordance with GAAP; and

• Adjusted EBITDA may, and often will, vary significantly from EBITDA calculations under the terms of our debt agreements and should not be used for assessing compliance or non-compliance with financial covenants under our debt agreements.

(4) Included in EBITDA, Adjusted EBITDA, and Adjusted Diluted Earnings (Loss) Per Share is $14.3 million and $32.9 million, which was recognized as a gain on insurance proceeds in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019, respectively, associated with Hurricane Michael.

Because of these and other limitations, EBITDA and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business.  

Our presentation of non-GAAP financial measures and the adjustments made therein should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items, and in the future we may incur expenses or charges similar to the adjustments made in the presentation of our non-GAAP financial measures.

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We compensate for the above limitations by relying primarily on our GAAP results and using EBITDA, Adjusted EBITDA, and Adjusted Diluted Earnings (Loss) Per Share only as supplemental measures. See our financial statements included in Part I of this Form 10-Q.

We reconcile consolidated net income (loss) and operating income to EBITDA and Adjusted EBITDA as follows:

	Three Months Ended September 30, 2019									Three Months Ended September 30, 2018
	Polymer			Chemical			Total			Polymer			Chemical			Total
	(In thousands)
Net income attributable to Kraton							$	18,693								$	42,349
Net income attributable to noncontrolling interest							2,222									928
Consolidated net income							20,915									43,277
Add (deduct):
Income tax expense							2,311									8,334
Interest expense, net							19,214									20,143
Earnings of unconsolidated joint venture							(102		)							(100		)
Other income (expense)							(4,235		)							740
Operating income	$	18,269		$	19,834		38,103			$	44,899		$	27,495		72,394
Add (deduct):
Depreciation and amortization	14,982			19,822			34,804			17,554			17,563			35,117
Other income (expense)	(502		)	4,737			4,235			(958		)	218			(740		)
Earnings of unconsolidated joint venture	102			—			102			100			—			100
EBITDA (a)	32,851			44,393			77,244			61,595			45,276			106,871
Add (deduct):
Transaction, acquisition related costs, restructuring, and other costs (b)	1,672			244			1,916			689			(177		)	512
Hurricane related costs (c)	—			2,220			2,220			—			—			—
Hurricane reimbursements (d)	—			(13,841		)	(13,841		)	—			—			—
KFPC startup costs (e)	3,019			—			3,019			—			—			—
Sale of emissions credits (f)	—			(4,601		)	(4,601		)	—			—			—
Non-cash compensation expense	2,659			—			2,659			2,495			—			2,495
Spread between FIFO and ECRC	10,103			1,337			11,440			(7,771		)	(3,456		)	(11,227		)
Adjusted EBITDA	$	50,304		$	29,752		$	80,056		$	57,008		$	41,643		$	98,651

_____________________________________________________

(a) We finalized our claim associated with Hurricane Michael during the third quarter of 2019. We received proceeds of $14.3 million, which is included in EBITDA as a gain on insurance.

(b) Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.

(c) Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. As we finalized our claim for reimbursement of incremental costs incurred, we have identified an additional $1.4 million of costs incurred during the three months ended September 30, 2019. Additionally, we incurred direct costs due to the impacts of Hurricane Dorian of $0.8 million which are recorded in cost of goods sold. The Hurricane Dorian direct costs are limited to the three months ended September 30, 2019 and will not continue into the fourth quarter of 2019.

(d) Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds.

(e) Startup costs related to the joint venture company, KFPC.

(f) We recorded a gain of $4.6 million in other income (expense) related to the sale of emissions credits accumulated by our Swedish Chemical legal entity.

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	Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
	Polymer			Chemical			Total			Polymer			Chemical			Total
	(In thousands)
Net income attributable to Kraton							$	72,569								$	49,491
Net income attributable to noncontrolling interest							5,356									1,743
Consolidated net income							77,925									51,234
Add (deduct):
Income tax (benefit) expense							(1,881		)							8,743
Interest expense, net							57,494									74,835
Earnings of unconsolidated joint venture							(363		)							(357		)
Gain (loss) on extinguishment of debt							(210		)							79,921
Other income (expense)							(3,559		)							2,960
Operating income	$	62,498		$	66,908		129,406			$	137,930		$	79,406		217,336
Add (deduct):
Depreciation and amortization	43,296			54,934			98,230			52,914			52,719			105,633
Other income (expense)	(1,547		)	5,106			3,559			(3,600		)	640			(2,960		)
Gain (loss) on extinguishment of debt	210			—			210			(79,921		)	—			(79,921		)
Earnings of unconsolidated joint venture	363			—			363			357			—			357
EBITDA (a)	104,820			126,948			231,768			107,680			132,765			240,445
Add (deduct):
Transaction, acquisition related costs, restructuring, and other costs (b)	4,781			808			5,589			2,062			(963		)	1,099
(Gain) loss on extinguishment of debt	(210		)	—			(210		)	79,921			—			79,921
Hurricane related costs (c)	—			15,025			15,025			—			—			—
Hurricane reimbursements (d)	—			(26,561		)	(26,561		)	—			—			—
KFPC startup costs (e)	3,019			—			3,019			897			—			897
Sale of emissions credits (f)	—			(4,601		)	(4,601		)	—			—			—
Non-cash compensation expense	8,158			—			8,158			7,620			—			7,620
Spread between FIFO and ECRC	38,067			1,294			39,361			(27,711		)	(9,371		)	(37,082		)
Adjusted EBITDA	$	158,635		$	112,913		$	271,548		$	170,469		$	122,431		$	292,900

_____________________________________________________

(a) Included in EBITDA is a $32.9 million gain on insurance, fully offsetting the lost margin in the first quarter of 2019, and reimbursement for a portion of the direct costs we have incurred to date related to Hurricane Michael.

(b) Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.

(c) Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. As we finalized our claim for reimbursement of incremental costs incurred, we have identified an additional $14.2 million of costs incurred during the nine months ended September 30, 2019. Additionally, we incurred direct costs due to the impacts of Hurricane Dorian of $0.8 million which are recorded in cost of goods sold. The Hurricane Dorian direct costs are limited to the three months ended September 30, 2019 and will not continue into the fourth quarter of 2019.

(d) Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds.

(e) Startup costs related to the joint venture company, KFPC.

(f) We recorded a gain of $4.6 million in other income (expense) related to the sale of emissions credits accumulated by our Swedish Chemical legal entity.

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We reconcile GAAP Diluted Earnings (Loss) Per Share to Adjusted Diluted Earnings (Loss) Per Share (non-GAAP) as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Diluted Earnings Per Share	$	0.58		$	1.31		$	2.26		$	1.53
Transaction, acquisition related costs, restructuring, and other costs (a)	0.04			0.02			0.13			0.03
(Gain) loss on extinguishment of debt	—			—			(0.01		)	1.89
Hurricane related costs (b)	0.15			—			0.55			—
Hurricane reimbursements (c)	(0.44		)	—			(0.83		)	—
KFPC startup costs (d)	0.04			—			0.04			0.01
Sale of emissions credits (e)	(0.14		)	—			(0.14		)	—
Spread between FIFO and ECRC	0.29			(0.31		)	0.99			(0.97		)
Adjusted Diluted Earnings Per Share (non-GAAP)	$	0.52		$	1.02		$	2.99		$	2.49

_____________________________________________________

(a) Charges related to the evaluation of acquisition transactions, severance expenses, and other restructuring related charges.

(b) Incremental costs related to Hurricane Michael, which are recorded in cost of goods sold. As we finalized our claim for reimbursement of incremental costs incurred, we have identified an additional $1.4 million and $14.2 million of costs incurred during the three and nine months ended September 30, 2019, respectively. Additionally, we incurred direct costs due to the impacts of Hurricane Dorian of $0.8 million which are recorded in cost of goods sold. The Hurricane Dorian direct costs are limited to the three months ended September 30, 2019 and will not continue into the fourth quarter of 2019.

(c) Reimbursement of incremental costs related to Hurricane Michael, which is recorded in gain on insurance proceeds.

(d) Startup costs related to the joint venture company, KFPC.

(e) We recorded a gain of $4.6 million in other income (expense) related to the sale of emissions credits accumulated by our Swedish Chemical legal entity.

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Critical Accounting Policies

For a discussion of our critical accounting policies and estimates that require the use of significant estimates and judgments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Leases. In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a ROU model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We elected the following practical expedients: (1) ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs; (2) the short-term lease recognition exemption for all leases that qualify; and (3) the practical expedient to not separate lease and non-lease components for all of our leases.

This standard had a material effect on our financial statements. The most significant effects relate to: (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our equipment, building, and vehicle operating leases; (2) the derecognition of existing assets and liabilities for straight line lease accounting under ASC 840 Leases; and (3) providing significant new disclosures about our leasing activities.

On adoption, we recognized additional operating liabilities of $70.9 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

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LIQUIDITY AND CAPITAL RESOURCES

Kraton Corporation is a holding company without any operations or assets other than the operations of its subsidiaries. Cash flows from operations of our subsidiaries, cash on hand, and available borrowings under the Term Loan Facility and ABL Facility are our principal sources of liquidity.

As of September 30, 2019, our outstanding borrowings included (i) $362.0 million and €300.0 million (or approximately $327.1 million) under the USD Tranche and Euro Tranche, respectively, of the Term Loan Facility, (ii) $394.8 million and €290.0 million (or approximately $316.2 million as of September 30, 2019) under the 7.0% Senior Notes and 5.25% Senior Notes, respectively. As of September 30, 2019, we had no outstanding borrowings under our ABL Facility.

In addition, as of September 30, 2019, KFPC had NTD 2.5 billion (or approximately $79.5 million) and NTD 770.0 million (or approximately $24.8 million) of borrowings under the KFPC Loan Agreement and KFPC Revolving Facilities, respectively. The KFPC Loan Agreement originally matured on January 17, 2020. During the third quarter 2019, in accordance with the terms of the KFPC Loan Agreement, KFPC elected and the lender syndicate approved an extension for an additional two years to January 17, 2022.

On December 6, 2018, we commenced a repurchase program for up to $20.0 million of our 7.0% Senior Notes. Purchases under the program may take place from time to time in the open market and through privately negotiated transactions, including pursuant to a 10b5-1 Plan. During the nine months ended September 30, 2019, we repurchased $4.3 million of our 7.0% Senior Notes. As of the date of this filing, we repurchased $5.3 million of our 7.0% Senior Notes. The repurchase program ended March 4, 2019.

See Note 7 Long-Term Debt to the consolidated financial statement included in this Quarterly Report on Form 10-Q and Note 9 Long-Term Debt to the consolidated financial statements set forth in our most recently filed Annual Report on Form 10-K.

Based upon current and anticipated levels of operations, we believe that cash flows from operations of our subsidiaries, cash on hand, and borrowings available to us will be sufficient to fund our expected financial obligations, planned capital expenditures, and anticipated liquidity requirements, including working capital requirements, our investment in the KFPC joint venture, debt payments, interest payments, benefit plan contributions, and income tax obligations.

Going forward there can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available under the Term Loan Facility and the ABL Facility or any new credit facilities or financing arrangements to fund liquidity needs and enable us to service our indebtedness. As of the date of this filing, our available borrowing capacity under the ABL Facility was $223.0 million, with no outstanding borrowings. 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. Our available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of cash invested in interest bearing funds and operating accounts. To date, we have not experienced any losses or lack of access to our invested cash or cash equivalents; however, we cannot provide any assurance that adverse conditions in the financial markets will not impact access to our invested cash and cash equivalents.

We made contributions of $9.6 million and $10.7 million to our pension plans during the nine months ended September 30, 2019 and 2018, respectively. We expect our total pension plan contributions for the year ended December 31, 2019 to be approximately $11.0 million. Our pension plan obligations are predicated on a number of factors, the primary ones being the return on our pension plan assets and the discount rate used in deriving our pension obligations. If the investment return on our pension plan assets does not meet or exceed expectations during 2019, and the discount rate decreases from the prior year, higher levels of contributions could be required in 2020 and beyond.

As of September 30, 2019, we had $63.3 million of cash and short-term investments related to foreign operations that management asserts are permanently reinvested. As a result of net operating loss carryforwards and the impact of recent tax reform, management estimates that no incremental cash tax expense would be incurred if this cash were repatriated.

In December 2017, the Tax Act was enacted and resulted in a one-time transition tax on accumulated foreign subsidiary earnings. As of September 30, 2019, the remaining long-term tax payable related to the Tax Act of $11.9 million is presented within income tax payable, on our Condensed Consolidated Balance Sheets. We will pay the transition tax in annual interest-free installments through 2025, as permitted by the Tax Act.

Operating Cash Flows

Net cash provided by operating activities totaled $118.8 million during the nine months ended September 30, 2019 compared to net cash provided by operating activities of $136.6 million during the nine months ended September 30, 2018. This represents a net decrease in operating cash flows of $17.8 million, which was primarily driven by decreases in operating income, partially offset by a decrease in working capital. The period-over-period changes in working capital are as follows:

45

• $43.4 million increase in cash flows associated with lower accounts receivables, largely due to lower selling prices and lower sales volumes; and

• $41.8 million increase in cash flows associated with lower inventories of products, materials, and supplies largely due to lower raw material costs in our Polymer segment, partially offset by higher inventory levels; partially offset by

• $22.1 million decrease in cash flows associated with lower accounts payable due to lower raw material costs and timing of payments;

• $9.7 million decrease in cash flows associated with lower other long term liabilities due to pension contributions; and

• $8.8 million decrease in cash flows associated with other items, including other assets, other payables and accruals, and due to related parties, primarily due to timing of transactions and payments.

Investing Cash Flows

Net cash used in investing activities totaled $79.9 million for the nine months ended September 30, 2019 and $72.3 million for the nine months ended September 30, 2018.

Expected Capital Expenditures

We currently expect 2019 capital expenditures in aggregate will be approximately $100.0 million, which excludes capitalized interest. Included in this estimate is $55.0 million for health, safety, environmental, and security and infrastructure and maintenance projects. We also anticipate spending approximately $25.0 million primarily associated with projects to optimize the production capabilities of our manufacturing assets, to support our innovation platform, and to upgrade our information technology systems. We are evaluating certain strategic capital activities, for which we expect to fund approximately $20.0 million of capital expenditures.

Financing Cash Flows

Our consolidated capital structure as of September 30, 2019 was approximately 33.6% equity, 64.8% debt and 1.6% noncontrolling interest compared to approximately 30.9% equity, 67.7% debt and 1.4% noncontrolling interest December 31, 2018.

On December 6, 2018, we commenced a repurchase program for up to $20.0 million of our 7.0% Senior Notes. During the nine months ended September 30, 2019, we repurchased $4.3 million of our 7.0% Senior Notes.

During the nine months ended September 30, 2019, we decreased indebtedness, excluding impacts on foreign currency, by $29.4 million, while decreasing cash on hand by approximately $2.6 million.

Share Repurchase Program. In February 2019, we announced a repurchase program for up to $50.0 million of the Company's common stock by March 2021. Repurchases may be made at management's discretion from time to time through privately-negotiated transactions, in the open market, or through broker-negotiated purchases in compliance with applicable securities law, including through a 10b5-1 Plan. The repurchase program may be suspended for periods or discontinued at any time, and the amount and timing of the repurchases are subject to a number of factors, including Kraton's stock price. During the nine months ended September 30, 2019, we repurchased 311,152 shares of our common stock at an average price of $32.14 per share and a total cost of $10.0 million. We are not obligated to acquire any specific number of shares of our common stock.

Contractual Commitments

Our contractual obligations are summarized in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. See Note 7 Long-Term Debt for changes to our debt maturity schedule. There have been no other material changes to the contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Off-Balance Sheet Arrangements

We are not involved in any material off-balance sheet arrangements as of September 30, 2019.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. There have been no material changes to the quantitative and qualitative disclosures about market risk disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. See Note 8 Fair Value Measurements, Financial Instruments, and Credit Risk for further discussion.

Item 4. Controls and Procedures.

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 or 15d-15 under the Securities Exchange Act of 1934) was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. As of September 30, 2019, based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.

Effective January 1, 2019, we implemented ASC 842, Leases. This standard had a material effect on our financial statements. The most significant effects relate to: (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our equipment, building, and vehicle operating leases; (2) the derecognition of existing assets and liabilities for straight line lease accounting under ASC 840 Leases; and (3) providing significant new disclosures about our leasing activities. We implemented changes to our processes related to lease accounting and the control activities related to leases. These included the development of new policies largely impacting lessee accounting in the new standard, training, ongoing contract review requirements, and gathering of information provided for disclosures.

There have been no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

47

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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.

For more information regarding legal proceedings, including environmental matters, see Note 10 Commitments and Contingencies to the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors.

Readers of this Quarterly Report on Form 10-Q should carefully consider the risks described in our other reports and filings filed with or furnished to the SEC, including our prior and subsequent reports on Forms 10-K, 10-Q and 8-K, in connection with any evaluation of our financial position, results of operations and cash flows.

The risks and uncertainties in our most recent Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not presently known or those that are currently deemed immaterial may also affect our operations. Any of the risks, uncertainties, events or circumstances described therein could cause our future financial condition, results of operations or cash flows to be adversely affected. There have been no material changes from the risk factors disclosed in our most recent Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Share Repurchase Program. In February 2019, we announced a repurchase program for up to $50.0 million of the Company's common stock by March 2021. Repurchases may be made at management's discretion from time to time through privately-negotiated transactions, in the open market, or through broker-negotiated purchases in compliance with applicable securities law, including through a 10b5-1 Plan. The repurchase program may be suspended for periods or discontinued at any time, and the amount and timing of the repurchases are subject to a number of factors, including Kraton's stock price. During the three months ended September 30, 2019, we repurchased 158,166 shares of our common stock at an average price of $31.61 per share and a total cost of $5.0 million. We are not obligated to acquire any specific number of shares of our common stock.

The Company repurchases treasury stock that is withheld to satisfy the tax obligation of holders of restricted stock awards when they vest. Our equity incentive plans provide that the value of shares delivered to us to pay the withholding tax obligations is calculated based on the average of the high and low sales price per share of our common stock on the day of vest.

	Issuer Purchases of Equity Securities
	(a) Total Number of Shares (or Units) Purchased(1)	(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(2)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans of Programs(2)
July 1, 2019 through July 31, 2019	158,166	$	31.61	158,166	$	40,000,036
August 1, 2019 through August 31, 2019	54	35.75		—	40,000,036
September 1, 2019 through September 30, 2019	—	—		—	40,000,036
Total	158,220	$	32.56	158,166	$	40,000,036

_____________________________________________________

(1) The total number of shares disclosed in this column includes 54 shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted stock awards which vested.

(2) This column contains repurchases under the Share Repurchase Program.

48

Item 3. Default Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

49

Item 6. Exhibits.

Exhibit Number
31.1*	Certification of Chief Executive Officer under Section 302 of Sarbanes—Oxley Act of 2002
31.2*	Certification of Chief Financial Officer under Section 302 of Sarbanes—Oxley Act of 2002
32.1*	Certification Pursuant to Section 906 of Sarbanes—Oxley Act of 2002
101*	The following materials from Kraton Corporation Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (Unaudited), (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (Unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 (Unaudited), (iv) Condensed Consolidated Statement of Changes in Equity for the nine months ended September 30, 2019 and 2018 (Unaudited), (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited), and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited)
104*	The cover page from Kraton Corporation Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, formatted in Inline XBRL (eXtensible Business Reporting Language)

_________________________________________________

* Filed herewith.

50

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		KRATON CORPORATION
Date:	October 24, 2019	/s/ Kevin M. Fogarty
		Kevin M. Fogarty
		President and Chief Executive Officer
Date:	October 24, 2019	/s/ Atanas H. Atanasov
		Atanas H. Atanasov
		Senior Vice President and Chief Financial Officer

51

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin M. Fogarty, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Kraton Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s boards of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2019

By:	/s/ Kevin M. Fogarty
	Kevin M. Fogarty
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Atanas H. Atanasov, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Kraton Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s boards of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2019

By:	/s/ Atanas H. Atanasov
	Atanas H. Atanasov
	Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF

TITLE 18, UNITED STATES CODE)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Kraton Corporation a Delaware corporation (the “Registrant”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2019 (“Form 10-Q”) of the Registrant fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: October 24, 2019

By:	/s/ Kevin M. Fogarty
	Kevin M. Fogarty
	President and Chief Executive Officer
By:	/s/ Atanas H. Atanasov
	Atanas H. Atanasov
	Senior Vice President and Chief Financial Officer

(A signed original of this written statement required by Section 906 has been provided to Kraton Corporation and will be retained by us and furnished to the Securities and Exchange Commission or its staff upon request.)

XML

Earnings Per Share ("EPS") (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Calculations of basic and diluted earnings per share

The calculations of basic and diluted EPS are as follows:

	Three Months Ended September 30, 2019							Three Months Ended September 30, 2018
	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	$	18,693		31,710				$	42,349		31,896
Amounts allocated to unvested restricted shares	(132		)	(224	)			(580		)	(437	)
Amounts available to common stockholders	18,561			31,486		$	0.59	41,769			31,459		$	1.33
Diluted:
Amounts allocated to unvested restricted shares	132			224				580			437
Non participating share units	—			282				—			137
Stock options added under the treasury stock method	—			55				—			238
Amounts reallocated to unvested restricted shares	(131		)	(224	)			(573		)	(437	)
Amounts available to stockholders and assumed conversions	$	18,562		31,823		$	0.58	$	41,776		31,834		$	1.31

	Nine Months Ended September 30, 2019							Nine Months Ended September 30, 2018
	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	$	72,569		31,861				$	49,491		31,853
Amounts allocated to unvested restricted shares	(588		)	(258	)			(733		)	(472	)
Amounts available to common stockholders	71,981			31,603		$	2.28	48,758			31,381		$	1.55
Diluted:
Amounts allocated to unvested restricted shares	588			258				733			472
Non participating share units	—			252				—			180
Stock options added under the treasury stock method	—			59				—			249
Amounts reallocated to unvested restricted shares	(582		)	(258	)			(724		)	(472	)
Amounts available to stockholders and assumed conversions	$	71,987		31,914		$	2.26	$	48,767		31,810		$	1.53

XML

Subsequent Events

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

We have evaluated events and transactions that occurred after the balance sheet date and determined that there were no significant events or transactions, other than described above, that would require recognition or disclosure in our condensed consolidated financial statements for the period ended September 30, 2019.

XML

Earnings Per Share ("EPS") (Details) - USD ($)	3 Months Ended		7 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2019	Sep. 30, 2018	Feb. 28, 2019
Net Income Attributable to Kraton, Basic:
As reported	$ 18,693,000	$ 42,349,000		$ 72,569,000	$ 49,491,000
Amounts allocated to unvested restricted shares	132,000	580,000		588,000	733,000
Amounts available to common stockholders	18,561,000	41,769,000		71,981,000	48,758,000
Net Income Attributable to Kraton, Diluted:
Amounts allocated to unvested restricted shares	132,000	580,000		588,000	733,000
Amounts reallocated to unvested restricted shares	(131,000)	(573,000)		(582,000)	(724,000)
Amounts available to stockholders and assumed conversions	$ 18,562,000	$ 41,776,000		$ 71,987,000	$ 48,767,000
Weighted Average Shares Outstanding, Basic:
As reported (in shares)	31,710,000	31,896,000		31,861,000	31,853,000
Amounts allocated to unvested restricted shares (in shares)	(224,000)	(437,000)		(258,000)	(472,000)
Amounts available to common stockholders (in shares)	31,486,000	31,459,000		31,603,000	31,381,000
Weighted Average Shares Outstanding, Diluted:
Amounts allocated to unvested restricted shares (in shares)	(224,000)	(437,000)		(258,000)	(472,000)
Non participating share units (in shares)	282,000	137,000		252,000	180,000
Stock options added under the treasury stock method (in shares)	55,000	238,000		59,000	249,000
Amounts available to stockholders and assumed conversions (in shares)	31,823,000	31,834,000		31,914,000	31,810,000
Earnings per share, basic (in dollars per share)	$ 0.59	$ 1.33		$ 2.28	$ 1.55
Earnings per share, diluted (in dollars per share)	$ 0.58	$ 1.31		$ 2.26	$ 1.53
Stock repurchase program, authorized amount						$ 50,000,000.0
Stock repurchased during period (in shares)	158,166		311,152
Stock repurchased during period (in dollars per share)	$ 31.61		$ 32.14
Stock repurchased during period	$ 5,000,000.0		$ 10,000,000.0

XML

Long-Term Debt - ABL Facility (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018	Jan. 31, 2016
Debt Instrument [Line Items]
Long-term Debt, Gross	$ 1,505,355,000	$ 1,567,115,000
ABL Facility
Debt Instrument [Line Items]
Long-term Debt, Gross	0	$ 5,000,000
Revolving Credit Facility | ABL Facility
Debt Instrument [Line Items]
Credit facility, borrowing capacity			$ 250,000,000.0
Right of maximum additional commitments			$ 100,000,000.0
Long-term Debt, Gross	$ 0
Minimum percent required of federal outstanding commitments			60.00%

XML

Industry Segments and Foreign Operations - Sales Revenue by Product Groups (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Segment Reporting Information [Line Items]
Revenue	$ 444,221	$ 523,105	$ 1,395,912	$ 1,563,892
Cost of goods sold	342,942	368,844	1,058,429	1,091,844
Gross profit	101,279	154,261	337,483	472,048
Operating expenses:
Research and development	10,367	10,597	31,091	31,868
Selling, general, and administrative	32,272	36,150	111,623	116,848
Depreciation and amortization	34,804	35,117	98,230	105,633
Gain on insurance proceeds	(14,250)	0	(32,850)	0
Loss on disposal of fixed assets	(17)	3	(17)	363
Operating income	38,103	72,394	129,406	217,336
Other income (expense)	4,235	(740)	3,559	(2,960)
Gain (loss) on extinguishment of debt	0	0	210	(79,921)
Earnings of unconsolidated joint venture	102	100	363	357
Interest expense, net	(19,214)	(20,143)	(57,494)	(74,835)
Income before income taxes	23,226	51,611	76,044	59,977
Polymer
Segment Reporting Information [Line Items]
Revenue	261,593	320,965	820,509	948,186
Cost of goods sold	203,115	230,760	629,279	666,704
Gross profit	58,478	90,205	191,230	281,482
Operating expenses:
Research and development	7,322	7,422	22,227	22,255
Selling, general, and administrative	17,922	20,327	63,226	68,308
Depreciation and amortization	14,982	17,554	43,296	52,914
Gain on insurance proceeds	0	0	0	0
Loss on disposal of fixed assets	(17)	3	(17)	75
Operating income	18,269	44,899	62,498	137,930
Chemical
Segment Reporting Information [Line Items]
Revenue	182,628	202,140	575,403	615,706
Cost of goods sold	139,827	138,084	429,150	425,140
Gross profit	42,801	64,056	146,253	190,566
Operating expenses:
Research and development	3,045	3,175	8,864	9,613
Selling, general, and administrative	14,350	15,823	48,397	48,540
Depreciation and amortization	19,822	17,563	54,934	52,719
Gain on insurance proceeds	(14,250)	0	(32,850)	0
Loss on disposal of fixed assets	0	0	0	288
Operating income	$ 19,834	$ 27,495	$ 66,908	$ 79,406

XML

Employee Benefits - Components of Net Periodic Benefit Cost Related to U.S Pension Benefits (Details) - Pension Plan - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
U.S. Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 655	$ 626	$ 1,965	$ 2,419
Interest cost	2,041	1,810	5,925	5,400
Expected return on plan assets	(2,515)	(2,453)	(7,545)	(7,358)
Amortization of prior service cost	0	0	0	0
Amortization of net actuarial loss	918	1,032	2,753	3,484
Curtailment income	0	0	0	0
Settlement cost	0	0	0	0
Net periodic benefit cost	1,099	1,015	3,098	3,945
Non-U.S. Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	345	617	1,123	1,900
Interest cost	508	506	1,557	1,574
Expected return on plan assets	(581)	(655)	(1,825)	(2,039)
Amortization of prior service cost	8	3	25	10
Amortization of net actuarial loss	100	158	310	489
Curtailment income	(352)	0	(352)	0
Settlement cost	24	0	24	0
Net periodic benefit cost	$ 52	$ 629	$ 862	$ 1,934

XML

Related Party Transactions (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Variable Interest Entity, Primary Beneficiary | KFPC
Related Party Transaction [Line Items]
Outstanding payables	$ 2.4		$ 2.4		$ 0.8
Variable interest entity, ownership percentage			50.00%
Purchases from related party	$ 15.8	$ 12.9	$ 41.2	$ 35.0
Styrenic Block Copolymer Joint Venture
Related Party Transaction [Line Items]
Percentage of equity investment	50.00%		50.00%
Outstanding payables	$ 15.2		$ 15.2		$ 20.1
Related party liability	$ 7.0	$ 11.3	$ 23.4	$ 27.6

XML

Commitments and Contingencies - Leased Assets Class (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Jan. 01, 2019
Lessee, Lease, Description [Line Items]
Operating Lease Liability	$ 72,428	$ 70,900
Weighted Average in Months	69 months 9 days
Railcars
Lessee, Lease, Description [Line Items]
Average Months Remaining on the Lease	46 months
Weighted Average in Months	15 months 24 days
Buildings
Lessee, Lease, Description [Line Items]
Average Months Remaining on the Lease	32 months
Weighted Average in Months	9 months 12 days
Equipment
Lessee, Lease, Description [Line Items]
Average Months Remaining on the Lease	38 months
Weighted Average in Months	6 months 24 days
Land
Lessee, Lease, Description [Line Items]
Average Months Remaining on the Lease	383 months
Weighted Average in Months	35 months 15 days
Other
Lessee, Lease, Description [Line Items]
Average Months Remaining on the Lease	19 months
Weighted Average in Months	1 month 24 days
Operating Lease, Concentration Risk | Operating Lease Liability | Railcars
Lessee, Lease, Description [Line Items]
Percentage	34.30%
Operating Lease, Concentration Risk | Operating Lease Liability | Buildings
Lessee, Lease, Description [Line Items]
Percentage	29.40%
Operating Lease, Concentration Risk | Operating Lease Liability | Equipment
Lessee, Lease, Description [Line Items]
Percentage	17.80%
Operating Lease, Concentration Risk | Operating Lease Liability | Land
Lessee, Lease, Description [Line Items]
Percentage	9.30%
Operating Lease, Concentration Risk | Operating Lease Liability | Other
Lessee, Lease, Description [Line Items]
Percentage	9.30%
Polymer
Lessee, Lease, Description [Line Items]
Operating Lease Liability	$ 24,021
Polymer | Railcars
Lessee, Lease, Description [Line Items]
Operating Lease Liability	1,509
Polymer | Buildings
Lessee, Lease, Description [Line Items]
Operating Lease Liability	12,465
Polymer | Equipment
Lessee, Lease, Description [Line Items]
Operating Lease Liability	2,295
Polymer | Land
Lessee, Lease, Description [Line Items]
Operating Lease Liability	6,677
Polymer | Other
Lessee, Lease, Description [Line Items]
Operating Lease Liability	1,075
Chemical
Lessee, Lease, Description [Line Items]
Operating Lease Liability	48,407
Chemical | Railcars
Lessee, Lease, Description [Line Items]
Operating Lease Liability	23,310
Chemical | Buildings
Lessee, Lease, Description [Line Items]
Operating Lease Liability	8,816
Chemical | Equipment
Lessee, Lease, Description [Line Items]
Operating Lease Liability	10,581
Chemical | Land
Lessee, Lease, Description [Line Items]
Operating Lease Liability	41
Chemical | Other
Lessee, Lease, Description [Line Items]
Operating Lease Liability	$ 5,659

XML

Income Taxes Income Taxes - Additional Information (Details) (Details) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Operating Loss Carryforwards [Line Items]
Income tax expense (benefit)	$ (2,311)	$ (8,334)	$ 1,881	$ (8,743)
Effective tax rate	9.90%	16.10%	(2.50%)	14.60%
Tax rate differed from U.S. corporate statutory tax rate	21.00%	21.00%	21.00%	21.00%
Valuation allowance for deferred tax assets	$ 41,900		$ 41,900			$ 42,500
Increase (decrease) in valuation allowance	200	$ 300	600	$ (100)
Unrecognized tax benefits	11,900		11,900			29,600
Increase (decrease) in uncertain tax positions	$ (4,300)	$ 500	(17,700)	1,400
Release of valuation allowance			17,739	$ 0
Transition tax on accumulated foreign earnings, percent							0.155
Transition tax on accumulated foreign earnings, remaining earnings, percent							8.00%
Transition tax for accumulated foreign earnings, provisional liability							$ 15,700
Change in tax rate, deferred tax asset, income tax expense (benefit)						95,000
Federal Tax Administration (FTA)
Operating Loss Carryforwards [Line Items]
Change in tax rate, deferred tax asset, income tax expense (benefit)						$ 68,900
Closing of US Tax Audits
Operating Loss Carryforwards [Line Items]
Release of valuation allowance			14,000
Closing of Foreign Tax Audits
Operating Loss Carryforwards [Line Items]
Release of valuation allowance			$ 3,900
Scenario, Forecast
Operating Loss Carryforwards [Line Items]
Release of valuation allowance					$ 19,500

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Variable Interest Entity - Additional Information (Details)	9 Months Ended
	Sep. 30, 2019 kt
KFPC | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Variable interest entity, ownership percentage	50.00%
Minimum purchase commitment of plant production (as a percent)	80.00%
Joint venture | Taiwan | Formosa Petrochemical Corporation
Variable Interest Entity [Line Items]
Capacity of HSBC plant	30

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Long-Term Debt

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Long-Term Debt

Long-Term Debt

Long-term debt consists of the following:

	September 30, 2019										December 31, 2018
	Principal		Discount			Debt Issuance Costs			Total		Principal		Discount			Debt Issuance Costs			Total
	(In thousands)
USD Tranche	$	362,000	$	(6,587	)	$	(9,088	)	$	346,325	$	362,000	$	(7,395	)	$	(10,171	)	$	344,434
Euro Tranche	327,060		—			(3,991		)	323,069		342,900		—			(4,711		)	338,189
7.0% Senior Notes	394,750		—			(6,040		)	388,710		399,060		—			(6,622		)	392,438
5.25% Senior Notes	316,159		—			(5,035		)	311,124		331,470		—			(5,503		)	325,967
ABL Facility	—		—			—			—		5,000		—			—			5,000
KFPC Loan Agreement	79,534		—			(36		)	79,498		112,489		—			(94		)	112,395
KFPC Revolving Facilities	24,794		—			—			24,794		13,012		—			—			13,012
Capital lease obligation	1,058		—			—			1,058		1,184		—			—			1,184
Total debt	1,505,355		(6,587		)	(24,190		)	1,474,578		1,567,115		(7,395		)	(27,101		)	1,532,619
Less current portion of total debt	56,784		—			—			56,784		45,321		—			—			45,321
Long-term debt	$	1,448,571	$	(6,587	)	$	(24,190	)	$	1,417,794	$	1,521,794	$	(7,395	)	$	(27,101	)	$	1,487,298

 

Senior Secured Term Loan Facility. As of September 30, 2019, we had outstanding borrowings under the U.S. dollar denominated tranche (the “USD Tranche”) of our senior secured term loan facility (the “Term Loan Facility”) of $362.0 million and outstanding borrowings under the Euro denominated tranche (the “Euro Tranche”) of the Term Loan Facility of €300.0 million (or approximately $327.1 million). Our USD Tranche interest rate applicable margin is 2.5% and our alternative base rate applicable margin is 1.5%. The Euro Tranche interest rate applicable margin is 2.0%. Our Term Loan Facility will mature on March 8, 2025. For a summary of additional terms of the Term Loan Facility, see Note 9 Long-Term Debt to the consolidated financial statements set forth in our most recently filed Annual Report on Form 10-K.

As of the date of this filing, the effective interest rate for the USD Tranche is 4.29% and the effective interest rate for the Euro Tranche is 2.75%. The Term Loan Facility contains a number of customary affirmative and negative covenants, and we were in compliance with those covenants as of the date of this filing.

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.

On December 6, 2018, we commenced a repurchase program for up to $20.0 million of our 7.0% Senior Notes. Purchases under the program took place from time to time in the open market and through privately negotiated transactions, including pursuant to a 10b5-1 Plan. During the nine months ended September 30, 2019, we repurchased $4.3 million of our 7.0% Senior Notes. We recorded a $0.2 million gain on extinguishment of debt during the nine months ended September 30, 2019, which includes a write off of $0.1 million related to previously capitalized deferred financing costs. The repurchase program ended March 4, 2019.

5.25% Senior Notes due 2026. Kraton Polymers LLC and its wholly-owned financing subsidiary Kraton Polymers Capital Corporation issued €290.0 million (or approximately $316.2 million as of September 30, 2019) aggregate principal amount of 5.25% Senior Notes due 2026 (the “5.25% Senior Notes”) in May 2018, which mature on May 15, 2026. The 5.25% 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 5.25% per annum, semi-annually in arrears on May 15 and November 15 of each year.

ABL Facility. Our asset-based revolving credit facility provides financing of up to $250.0 million (the “ABL Facility”). The ABL Facility also provides that we have the right at any time to request up to $100.0 million of additional commitments, provided that we satisfy certain additional conditions. We had no outstanding borrowings under the ABL Facility as of September 30, 2019. The ABL Facility matures on January 6, 2021.

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 contains a number of customary affirmative and negative covenants, and we were in compliance with those covenants as of the date of this filing. For a summary of additional terms of the ABL Facility, see Note 9 Long-Term Debt to the consolidated financial statements set forth in our most recently filed Annual Report on Form 10-K.

KFPC Loan Agreement. As of September 30, 2019, NTD 2.5 billion (or approximately $79.5 million) was drawn on KFPC's syndicated loan agreement (the “KFPC Loan Agreement”). For the nine months ended September 30, 2019, the 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. KFPC was in compliance with those covenants as of the date of this filing. Additionally, due to a waiver received from the majority of lenders, we are no longer subject to the remaining 2019 financial covenants. In each case, these covenants are calculated and tested on an annual basis at December 31^st each year.

The KFPC Loan Agreement originally matured on January 17, 2020. During the third quarter 2019, in accordance with the terms of the KFPC Loan Agreement, KFPC elected and the lender syndicate approved an extension for an additional two years to January 17, 2022. For a summary of additional terms of the KFPC Loan Agreement, see Note 9 Long-Term Debt to the consolidated financial statements set forth in our most recently filed Annual Report on Form 10-K.

KFPC Revolving Facilities. KFPC also has four revolving credit facilities (the “KFPC Revolving Facilities”) to provide funding for working capital requirements and/or general corporate purposes, which allow for total borrowings of up to NTD 2.2 billion (or approximately $69.2 million). All of the KFPC Revolving Facilities are subject to variable interest rates. As of September 30, 2019, NTD 770.0 million (or approximately $24.8 million) was drawn on the KFPC Revolving Facilities.

Debt Issuance Costs. We had net debt issuance cost of $25.7 million as of September 30, 2019, of which $1.5 million related to the ABL Facility which is recorded as an asset (of which $1.2 million was included in other current assets) and $24.2 million is recorded as a reduction to long-term debt. We amortized $1.2 million and $1.2 million for the three months ended September 30, 2019, and 2018, respectively, and $3.5 million and $4.6 million during the nine months ended September 30, 2019 and 2018, respectively.

Debt Maturities. The remaining principal payments on our outstanding total debt as of September 30, 2019, are as follows:

	Principal Payments
	(In thousands)
October 1, 2019 through September 30, 2020	$	56,784
October 1, 2020 through September 30, 2021	32,002
October 1, 2021 through September 30, 2022	16,106
October 1, 2022 through September 30, 2023	211
October 1, 2023 through September 30, 2024	224
Thereafter	1,400,028
Total debt	$	1,505,355

See Note 8 Fair Value Measurements, Financial Instruments, and Credit Risk for fair value information related to our long-term debt.

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 83,260	$ 85,891
Receivables, net of allowances of $614 and $784	212,387	198,046
Inventories of products, net	407,317	410,640
Inventories of materials and supplies, net	32,119	30,843
Prepaid expenses	12,253	10,156
Other current assets	23,651	29,980
Total current assets	770,987	765,556
Property, plant, and equipment, less accumulated depreciation of $646,242 and $597,785	932,649	941,476
Goodwill	771,739	772,886
Intangible assets, less accumulated amortization of $279,639 and $246,648	335,238	362,038
Investment in unconsolidated joint venture	11,577	12,070
Debt issuance costs	293	1,170
Deferred income taxes	5,955	10,434
Long-term operating lease assets, net	69,925
Other long-term assets	26,143	29,074
Total assets	2,924,506	2,894,704
Current liabilities:
Current portion of long-term debt	56,784	45,321
Accounts payable-trade	161,848	182,153
Other payables and accruals	104,597	100,695
Due to related party	17,564	20,918
Total current liabilities	340,793	349,087
Long-term debt, net of current portion	1,417,794	1,487,298
Deferred income taxes	132,496	127,827
Long-term operating lease liabilities	52,594
Other long-term liabilities	161,063	182,893
Total liabilities	2,104,740	2,147,105
Commitments and contingencies (note 10)
Kraton stockholders' equity:
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued	0	0
Common stock, $0.01 par value; 500,000 shares authorized; 31,707 shares issued and outstanding at September 30, 2019; 31,917 shares issued and outstanding at December 31, 2018	317	319
Additional paid in capital	390,207	385,921
Retained earnings	485,955	420,597
Accumulated other comprehensive loss	(94,209)	(91,699)
Total Kraton stockholders' equity	782,270	715,138
Noncontrolling interest	37,496	32,461
Total equity	819,766	747,599
Total liabilities and equity	$ 2,924,506	$ 2,894,704

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Foreign currency translation adjustments, tax effect	$ 0	$ 0	$ 0	$ 0
Unrealized gain (loss) on cash flow hedges, tax effect	(151)	108	(1,135)	1,187
Reclassification of (gain) loss on cash flow hedge, tax effect	0	1	0	588
Unrealized gain on net investment hedge, tax effect	3,192	539	3,482	1,364
Decrease in benefit plans liability, tax effect	$ 0	$ 3,114	$ 0	$ 3,114

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Revenue Recognition

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs at a point in time when the transfer of risk and title to the product transfers to the customer. Our standard terms of delivery are included in our contracts of sale, order confirmation documents, and invoices. As such, all revenue is considered revenue recognized from contracts with customers, and we do not have other sources of revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Revenue is recognized net of sales tax, value-added taxes, and other taxes. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. We do not have any material significant payment terms as payment is received at or shortly after the point of sale. Certain customers may receive cash-based incentives (including rebates, price supports, and sales commission), which are accounted for as variable consideration. We estimate rebates and price supports based on the expected amount to be provided to customers and reduce revenues recognized once the performance obligation has been met. Sales commissions are recorded as an increase in cost of goods sold once the performance obligation has been met. We do not expect to have significant changes in our estimates for variable considerations.

We have deferred revenue of $12.4 million related to contractual commitments with customers for which the performance obligation will be satisfied over time, which will range from one to ten years. The revenue associated with these performance obligations is recognized as the obligation is satisfied, which occurs as a volume based metric over time when the transfer of risk and title of finished products transfer to the customer.

Occasionally, we enter into bill-and-hold contracts, where we invoice the customer for products even though we retain possession of the products until a point in time in the future when the products will be shipped to the customer. In these contracts, the primary performance obligation is satisfied at a point in time when the product is segregated from our general inventory, it is ready for shipment to customer, and we do not have the ability to use the product or direct it to another customer. Additionally, we have a secondary performance obligation related to custodial costs, including storage and freight, which is satisfied over time once the product has been delivered to the customer. During the nine months ended September 30, 2019 and 2018, we recognized $5.6 million and $4.5 million of revenue related to these arrangements, respectively.

We disaggregate our revenue by segment product lines, which is how we market our products and review results of operations. The following tables disaggregate our segment revenue by major product lines:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Polymer Segment	(In thousands)
Performance Products	$	141,267	$	179,684	$	422,539	$	506,151
Specialty Polymers	70,986		99,349		256,483		311,657
Cariflex	49,241		41,818		141,117		130,319
Other	99		114		370		59
Polymer Product Line Revenue	$	261,593	$	320,965	$	820,509	$	948,186

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Chemical Segment	(In thousands)
Adhesives	$	64,391	$	73,781	$	198,785	$	220,907
Performance Chemicals	105,367		118,193		337,766		355,947
Tires	12,870		10,166		38,852		38,852
Chemical Product Line Revenue	$	182,628	$	202,140	$	575,403	$	615,706

	September 30, 2019		December 31, 2018
	(In thousands)
Contract receivables(1)	$	212,589	$	197,739
Contract liabilities(2)	$	12,409	$	13,906

____________________________________________________ 

(1) Contract receivables are recorded within receivables, net of allowances on our Condensed Consolidated Balance Sheets.

(2)

Our contract liability decreased by $0.9 million, as a result of meeting the performance obligation, which was recognized in our Specialty Polymers product line revenue, and decreased approximately $0.6 million due to the change in currency exchange rates.

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Employee Benefits

9 Months Ended

Sep. 30, 2019

Retirement Benefits [Abstract]

Employee Benefits

Employee Benefits

The components of net periodic benefit costs related to pension benefits are as follows: 

	Three Months Ended September 30,												Nine Months Ended September 30,
	2019						2018						2019						2018
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans
	(In thousands)
Service cost	$	655		$	345		$	626		$	617		$	1,965		$	1,123		$	2,419		$	1,900
Interest cost	2,041			508			1,810			506			5,925			1,557			5,400			1,574
Expected return on plan assets	(2,515		)	(581		)	(2,453		)	(655		)	(7,545		)	(1,825		)	(7,358		)	(2,039		)
Amortization of prior service cost	—			8			—			3			—			25			—			10
Amortization of net actuarial loss	918			100			1,032			158			2,753			310			3,484			489
Curtailment income	—			(352		)	—			—			—			(352		)	—			—
Settlement cost	—			24			—			—			—			24			—			—
Net periodic benefit cost	$	1,099		$	52		$	1,015		$	629		$	3,098		$	862		$	3,945		$	1,934

During the three months ended September 30, 2019, we amended our Japan pension plan, which resulted in a pension curtailment. This plan amendment resulted in a $0.5 million reduction in pension liabilities during the three months ended September 30, 2019.

The components of net periodic benefit costs other than the service cost component are included in Other income (expense) on our Condensed Consolidated Statements of Operations.

We made contributions of $9.6 million and $10.7 million to our pension plans in the nine months ended September 30, 2019 and 2018, respectively.

The components of net periodic benefit cost related to other post-retirement benefits are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	U.S. Plans			U.S. Plans			U.S. Plans			U.S. Plans
	(In thousands)
Service cost	$	38		$	123		$	218		$	402
Interest cost	225			306			705			985
Amortization of prior service cost	(438		)	(146		)	(1,313		)	(146		)
Amortization of net actuarial loss	115			179			465			561
Net periodic benefit cost	$	(60	)	$	462		$	75		$	1,802

During the year ended December 31, 2018, we amended the post-retirement benefits plan for post-65 retirees to provide an annual subsidy based on years of service. The annual subsidy replaces a company-sponsored medical plan. This plan modification resulted in a $13.1 million reduction in pension and other post-retirement liabilities during the year ended December 31, 2018.

The components of net periodic benefit costs other than the service cost component are included in Other income (expense) on our Condensed Consolidated Statements of Operations.

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Employee Benefits (Tables)

9 Months Ended

Sep. 30, 2019

Retirement Benefits [Abstract]

Components of net periodic benefit cost

The components of net periodic benefit cost related to other post-retirement benefits are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	U.S. Plans			U.S. Plans			U.S. Plans			U.S. Plans
	(In thousands)
Service cost	$	38		$	123		$	218		$	402
Interest cost	225			306			705			985
Amortization of prior service cost	(438		)	(146		)	(1,313		)	(146		)
Amortization of net actuarial loss	115			179			465			561
Net periodic benefit cost	$	(60	)	$	462		$	75		$	1,802

The components of net periodic benefit costs related to pension benefits are as follows: 

	Three Months Ended September 30,												Nine Months Ended September 30,
	2019						2018						2019						2018
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans
	(In thousands)
Service cost	$	655		$	345		$	626		$	617		$	1,965		$	1,123		$	2,419		$	1,900
Interest cost	2,041			508			1,810			506			5,925			1,557			5,400			1,574
Expected return on plan assets	(2,515		)	(581		)	(2,453		)	(655		)	(7,545		)	(1,825		)	(7,358		)	(2,039		)
Amortization of prior service cost	—			8			—			3			—			25			—			10
Amortization of net actuarial loss	918			100			1,032			158			2,753			310			3,484			489
Curtailment income	—			(352		)	—			—			—			(352		)	—			—
Settlement cost	—			24			—			—			—			24			—			—
Net periodic benefit cost	$	1,099		$	52		$	1,015		$	629		$	3,098		$	862		$	3,945		$	1,934

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New Accounting Pronouncements (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019
Accounting Changes and Error Corrections [Abstract]
Operating lease, right-of-use asset	$ 69,925	$ 70,900
Total discounted operating lease liabilities	$ 72,428	$ 70,900

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Commitments and Contingencies - Lease Cost (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Lease cost	$ 17,164
Variable lease cost	302
Operating lease expense	$ 17,466

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Fair Value Measurements, Financial Instruments, and Credit Risk - Additional Information (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 EUR (€)	Jun. 04, 2018 USD ($)	May 31, 2018 USD ($)	Jan. 03, 2017 USD ($)
Derivative [Line Items]
Reclassification of loss on cash flow hedge	$ 0	$ 3	$ 0	$ (1,996)
Europe
Derivative [Line Items]
Face amount | €						€ 290,000,000.0
Mark to market gain recorded in accumulated other comprehensive loss	14,000	2,300	15,300	5,700
Interest Rate Swap
Derivative [Line Items]
Notional amount	300,000		300,000				$ 90,000		$ 925,400
Unrealized gain (loss) on derivatives	$ (700)	500	$ (5,000)	5,100
Reclassification of loss on cash flow hedge				(2,600)
Interest Rate Swap | LIBOR Rate Plus
Derivative [Line Items]
Derivative, variable interest rate	1.608%		1.608%
Interest Rate Swap | Short
Derivative [Line Items]
Notional amount					$ 715,400			$ 90,000
Foreign Currency Hedges
Derivative [Line Items]
Aggregate gain (loss) on settlement of hedges	$ (1,200)	$ (200)	$ (3,000)	$ (500)

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Variable Interest Entity - Summary of Carrying Amounts of Assets and Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Noncontrolling Interest [Line Items]
Cash and cash equivalents	$ 83,260		$ 85,891
Other current assets	23,651		29,980
Property, plant, and equipment, net	932,649		941,476
Intangible assets	335,238		362,038
Long-term operating lease assets, net	69,925	$ 70,900
Other long-term assets	26,143		29,074
Total assets	2,924,506		2,894,704
Current portion of long-term debt	56,784		45,321
Current liabilities	340,793		349,087
Long-term debt	1,417,794		1,487,298
Long-term operating lease liabilities	52,594
Total liabilities	2,104,740		2,147,105
KFPC
Noncontrolling Interest [Line Items]
Cash and cash equivalents	6,213		6,640
Other current assets	17,885		18,363
Property, plant, and equipment, net	152,325		159,893
Intangible assets	8,015		8,590
Long-term operating lease assets, net	6,876
Other long-term assets	8,870		11,838
Total assets	200,184		205,324
Current portion of long-term debt	56,608		45,152
Current liabilities	14,524		14,996
Long-term debt	47,684		80,255
Long-term operating lease liabilities	6,375
Total liabilities	$ 125,191		$ 140,403

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

(a) Lease Commitments - accounted for under ASC 842, Leases

All of our lease ROU assets and lease liabilities are related to operating leases, where the lease term exceeds one year. Our operating leases are generally for railcars, office space, and equipment used to conduct our operations. We currently have no finance leases as that term is defined under ASC 842. These leases were discounted using a rate of 3.125%, which is based on a weighted average borrowing rate of specific debt. Non-variable lease costs include the amortization of the asset recorded on a straight-line basis. Variable lease components are non-index based payments based on performance or usage of the underlying asset. We have no material lessor or sublease income.

The components of lease cost for operating leases are as follows:

	Nine Months Ended September 30, 2019
	(In thousands)
Lease cost	$	17,164
Variable lease cost	302
Operating lease expense	$	17,466

The operating lease liabilities arising from obtaining ROU assets as of September 30, 2019 were comprised as follows:

Leased Asset Class	Polymer		Chemical		Percentage		Average Months Remaining on the Lease	Weighted Average in Months
	(in thousands)
Railcars	$	1,509	$	23,310	34.3	%	46	15.8
Buildings	12,465		8,816		29.4	%	32	9.4
Equipment	2,295		10,581		17.8	%	38	6.8
Land	6,677		41		9.3	%	383	35.5
Other	1,075		5,659		9.3	%	19	1.8
Total	$	24,021	$	48,407				69.3

The following tables show the undiscounted cash flows for the operating lease liabilities.

	September 30, 2019
	(In thousands)
October 1, 2019 through December 31, 2019	$	5,719
2020	21,084
2021	16,170
2022	10,513
2023	7,195
Thereafter	17,958
Total undiscounted operating lease liabilities	78,639
Present value discount	(6,980		)
Foreign currency and other	769
Total discounted operating lease liabilities	$	72,428

	December 31, 2018
	(In thousands)
2019	$	19,065
2020	16,891
2021	12,385
2022	8,284
2023	5,137
Thereafter	8,498
Total undiscounted operating lease liabilities	$	70,260

(b) 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$9.6 million, or approximately $2.3 million. 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.

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.

(c) Asset Retirement Obligations.

The changes in the aggregate carrying amount of our asset retirement obligations are as follows:

	Nine Months Ended September 30,
	2019			2018
	(In thousands)
Beginning balance	$	5,703		$	5,712
Additional accruals	780			—
Accretion expense	262			253
Obligations settled	(206		)	(66		)
Foreign currency translation	(233		)	(186		)
Ending balance	$	6,306		$	5,713

Pursuant to the indemnity included in the February 2001 separation agreement from Shell Chemical, we have recorded a receivable of $0.2 million as of September 30, 2018.

Except for the presentation on the Condensed Consolidated Balance Sheets for the impact of ASC 842, there have been no other material changes to our Commitments and Contingencies disclosed in our most recently filed Annual Report on Form 10-K.

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Earnings Per Share ("EPS")

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Share ("EPS")

Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net income attributable to Kraton by the weighted-average number of shares outstanding excluding non-vested restricted stock awards 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 September 30, 2019							Three Months Ended September 30, 2018
	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	$	18,693		31,710				$	42,349		31,896
Amounts allocated to unvested restricted shares	(132		)	(224	)			(580		)	(437	)
Amounts available to common stockholders	18,561			31,486		$	0.59	41,769			31,459		$	1.33
Diluted:
Amounts allocated to unvested restricted shares	132			224				580			437
Non participating share units	—			282				—			137
Stock options added under the treasury stock method	—			55				—			238
Amounts reallocated to unvested restricted shares	(131		)	(224	)			(573		)	(437	)
Amounts available to stockholders and assumed conversions	$	18,562		31,823		$	0.58	$	41,776		31,834		$	1.31

	Nine Months Ended September 30, 2019							Nine Months Ended September 30, 2018
	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	$	72,569		31,861				$	49,491		31,853
Amounts allocated to unvested restricted shares	(588		)	(258	)			(733		)	(472	)
Amounts available to common stockholders	71,981			31,603		$	2.28	48,758			31,381		$	1.55
Diluted:
Amounts allocated to unvested restricted shares	588			258				733			472
Non participating share units	—			252				—			180
Stock options added under the treasury stock method	—			59				—			249
Amounts reallocated to unvested restricted shares	(582		)	(258	)			(724		)	(472	)
Amounts available to stockholders and assumed conversions	$	71,987		31,914		$	2.26	$	48,767		31,810		$	1.53

Share Repurchase Program. In February 2019, we announced a repurchase program for up to $50.0 million of the Company's common stock by March 2021. Repurchases may be made at management's discretion from time to time through privately-negotiated transactions, in the open market, or through broker-negotiated purchases in compliance with applicable securities law, including through a 10b5-1 Plan. The repurchase program may be suspended for periods or discontinued at any time, and the amount and timing of the repurchases are subject to a number of factors, including Kraton's stock price. During the three months ended September 30, 2019, we repurchased 158,166 shares of our common stock at an average price of $31.61 per share and a total cost of $5.0 million. From the inception of the program through September 30, 2019, we repurchased 311,152 shares of our common stock at an average price of $32.14 per share and a total cost of $10.0 million. We are not obligated to acquire any specific number of shares of our common stock.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Receivables, allowances	$ 614	$ 784
Accumulated depreciation	646,242	597,785
Total accumulated amortization	$ 279,639	$ 246,648
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	100,000,000	100,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	31,707,000	31,917,000
Common stock, shares outstanding (in shares)	31,707,000	31,917,000

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total Kraton Stockholders' Equity	Noncontrolling Interest
Beginning balance at Dec. 31, 2017	$ 666,519	$ 316	$ 377,957	$ 356,503	$ (98,295)	$ 636,481	$ 30,038
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Consolidated net income (loss)	22,061			22,072		22,072	(11)
Other comprehensive income (loss)	5,046				4,513	4,513	533
Retired treasury stock from employee tax withholdings	(5,748)	(1)	(3,020)	(2,727)		(5,748)
Exercise of stock options	1,368	1	1,367			1,368
Non-cash compensation related to equity awards	2,902	3	2,899			2,902
Ending balance at Mar. 31, 2018	692,148	319	379,203	375,848	(93,782)	661,588	30,560
Beginning balance at Dec. 31, 2017	666,519	316	377,957	356,503	(98,295)	636,481	30,038
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Consolidated net income (loss)	51,234
Ending balance at Sep. 30, 2018	723,425	320	385,545	403,104	(96,491)	692,478	30,947
Beginning balance at Mar. 31, 2018	692,148	319	379,203	375,848	(93,782)	661,588	30,560
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Consolidated net income (loss)	(14,104)			(14,930)		(14,930)	826
Other comprehensive income (loss)	(12,683)				(11,260)	(11,260)	(1,423)
Retired treasury stock from employee tax withholdings	(261)	2	(123)	(140)		(261)
Cancelled stock from share repurchases	0	0	0	0		0
Exercise of stock options	264		264			264
Non-cash compensation related to equity awards	2,223	(2)	2,225			2,223
Ending balance at Jun. 30, 2018	667,587	319	381,569	360,778	(105,042)	637,624	29,963
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Consolidated net income (loss)	43,277			42,349		42,349	928
Other comprehensive income (loss)	8,607				8,551	8,551	56
Retired treasury stock from employee tax withholdings	(42)		(19)	(23)		(42)
Exercise of stock options	1,501	1	1,500			1,501
Non-cash compensation related to equity awards	2,495		2,495			2,495
Ending balance at Sep. 30, 2018	723,425	320	385,545	403,104	(96,491)	692,478	30,947
Beginning balance at Dec. 31, 2018	747,599	319	385,921	420,597	(91,699)	715,138	32,461
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Consolidated net income (loss)	13,612			12,668		12,668	944
Other comprehensive income (loss)	(1,327)				(1,218)	(1,218)	(109)
Retired treasury stock from employee tax withholdings	(2,684)		(1,274)	(1,410)		(2,684)
Exercise of stock options	1,545	1	1,544			1,545
Non-cash compensation related to equity awards	3,309		3,309			3,309
Ending balance at Mar. 31, 2019	762,054	320	389,500	431,855	(92,917)	728,758	33,296
Beginning balance at Dec. 31, 2018	747,599	319	385,921	420,597	(91,699)	715,138	32,461
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Consolidated net income (loss)	77,925
Ending balance at Sep. 30, 2019	819,766	317	390,207	485,955	(94,209)	782,270	37,496
Beginning balance at Mar. 31, 2019	762,054	320	389,500	431,855	(92,917)	728,758	33,296
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Consolidated net income (loss)	43,398			41,208		41,208	2,190
Other comprehensive income (loss)	(3,265)				(3,042)	(3,042)	(223)
Retired treasury stock from employee tax withholdings	(41)		(40)	(1)		(41)
Cancelled stock from share repurchases	(5,000)	(1)	(2,064)	(2,935)		(5,000)
Exercise of stock options	94		94			94
Non-cash compensation related to equity awards	2,190		2,190			2,190
Ending balance at Jun. 30, 2019	799,430	319	389,680	470,127	(95,959)	764,167	35,263
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Consolidated net income (loss)	20,915			18,693		18,693	2,222
Other comprehensive income (loss)	1,761				1,750	1,750	11
Retired treasury stock from employee tax withholdings	(2)		(2)			(2)
Cancelled stock from share repurchases	(5,000)	(2)	(2,133)	(2,865)		(5,000)
Exercise of stock options	3		3			3
Non-cash compensation related to equity awards	2,659		2,659			2,659
Ending balance at Sep. 30, 2019	$ 819,766	$ 317	$ 390,207	$ 485,955	$ (94,209)	$ 782,270	$ 37,496

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New Accounting Pronouncements

9 Months Ended

Sep. 30, 2019

Accounting Changes and Error Corrections [Abstract]

New Accounting Pronouncements

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 February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application. The new standard provides a number of optional practical expedients in transition. We elected the following practical expedients: (1) “package of practical expedients”, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs; (2) the short-term lease recognition exemption for all leases that qualify; and (3) the practical expedient to not separate lease and non-lease components for all of our leases.

This standard had a material effect on our financial statements. The most significant effects relate to: (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our equipment, building, and vehicle operating leases; (2) the derecognition of existing assets and liabilities for straight line lease accounting under ASC 840, Leases; and (3) providing significant new disclosures about our leasing activities. On adoption, we recognized additional operating liabilities of $70.9 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of this ASU is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. This standard is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2017-12 was completed during 2018 and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2017-12 effective January 1, 2019.

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815)-Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This standard is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2018-16 was completed during 2018, and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2018-16 effective January 1, 2019.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2018-02 was completed during 2018, and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2018-02 effective January 1, 2019.

New Accounting Standards to be Adopted in Future Periods

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted for any interim period after issuance of the ASU. Our evaluation of this standard is currently ongoing, and we expect to adopt ASU 2016-13 effective on January 1, 2020.

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, and we expect to adopt ASU 2017-04 effective on January 1, 2020.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted for any interim period after issuance of the ASU. Our evaluation of this standard is currently ongoing, and we expect to adopt ASU 2018-18 effective on January 1, 2020.

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Industry Segments and Foreign Operations (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Sales revenue for primary product lines

The following table summarizes our operating results by segment. We do not have sales between segments.

	Three Months Ended September 30, 2019									Three Months Ended September 30, 2018
	Polymer			Chemical			Total			Polymer		Chemical		Total
	(In thousands)
Revenue	$	261,593		$	182,628		$	444,221		$	320,965	$	202,140	$	523,105
Cost of goods sold	203,115			139,827			342,942			230,760		138,084		368,844
Gross profit	58,478			42,801			101,279			90,205		64,056		154,261
Operating expenses:
Research and development	7,322			3,045			10,367			7,422		3,175		10,597
Selling, general, and administrative	17,922			14,350			32,272			20,327		15,823		36,150
Depreciation and amortization	14,982			19,822			34,804			17,554		17,563		35,117
Gain on insurance proceeds	—			(14,250		)	(14,250		)	—		—		—
Loss on disposal of fixed assets	(17		)	—			(17		)	3		—		3
Operating income	$	18,269		$	19,834		38,103			$	44,899	$	27,495	72,394
Other income (expense)							4,235							(740		)
Earnings of unconsolidated joint venture							102							100
Interest expense, net							(19,214		)					(20,143		)
Income (loss) before income taxes							$	23,226						$	51,611

	Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
	Polymer			Chemical			Total			Polymer		Chemical		Total
	(In thousands)
Revenue	$	820,509		$	575,403		$	1,395,912		$	948,186	$	615,706	$	1,563,892
Cost of goods sold	629,279			429,150			1,058,429			666,704		425,140		1,091,844
Gross profit	191,230			146,253			337,483			281,482		190,566		472,048
Operating expenses:
Research and development	22,227			8,864			31,091			22,255		9,613		31,868
Selling, general, and administrative	63,226			48,397			111,623			68,308		48,540		116,848
Depreciation and amortization	43,296			54,934			98,230			52,914		52,719		105,633
Gain on insurance proceeds	—			(32,850		)	(32,850		)	—		—		—
Loss on disposal of fixed assets	(17		)	—			(17		)	75		288		363
Operating income	$	62,498		$	66,908		129,406			$	137,930	$	79,406	217,336
Other income (expense)							3,559							(2,960		)
Gain (loss) on extinguishment of debt							210							(79,921		)
Earnings of unconsolidated joint venture							363							357
Interest expense, net							(57,494		)					(74,835		)
Income before income taxes							$	76,044						$	59,977

Schedule of assets by segment

The following table presents long-lived assets including goodwill and total assets.

	September 30, 2019						December 31, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)
Property, plant, and equipment, net	$	540,926	$	391,723	$	932,649	$	543,086	$	398,390	$	941,476
Investment in unconsolidated joint venture	$	11,577	$	—	$	11,577	$	12,070	$	—	$	12,070
Goodwill	$	—	$	771,739	$	771,739	$	—	$	772,886	$	772,886
Total assets	$	1,152,137	$	1,772,369	$	2,924,506	$	1,160,029	$	1,734,675	$	2,894,704

Summary of revenue by geographic region

Following is a summary of revenue by geographic region:

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)						(In thousands)
Revenue:
United States	$	78,640	$	78,516	$	157,156	$	111,996	$	87,256	$	199,252
Germany	29,970		13,282		43,252		41,219		13,496		54,715
All other countries	152,983		90,830		243,813		167,750		101,388		269,138
	$	261,593	$	182,628	$	444,221	$	320,965	$	202,140	$	523,105

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)						(In thousands)
Revenue:
United States	$	270,786	$	244,139	$	514,925	$	325,985	$	249,811	$	575,796
Germany	84,967		40,560		125,527		112,726		42,582		155,308
All other countries	464,756		290,704		755,460		509,475		323,313		832,788
	$	820,509	$	575,403	$	1,395,912	$	948,186	$	615,706	$	1,563,892

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Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Disaggregation of Revenue [Line Items]
Liability, revenue recognized			$ 5,600	$ 4,500
Contract receivables	$ 212,589		212,589		$ 197,739
Contract liabilities	12,409		12,409		$ 13,906
Polymer
Disaggregation of Revenue [Line Items]
Revenue	261,593	$ 320,965	820,509	948,186
Polymer | Performance Products
Disaggregation of Revenue [Line Items]
Revenue	141,267	179,684	422,539	506,151
Polymer | Specialty Polymers
Disaggregation of Revenue [Line Items]
Liability, revenue recognized			900
Revenue	70,986	99,349	256,483	311,657
Effect of exchange rate differences on cash			600
Polymer | Cariflex
Disaggregation of Revenue [Line Items]
Revenue	49,241	41,818	141,117	130,319
Polymer | Other
Disaggregation of Revenue [Line Items]
Revenue	99	114	370	59
Chemical
Disaggregation of Revenue [Line Items]
Revenue	182,628	202,140	575,403	615,706
Chemical | Adhesives
Disaggregation of Revenue [Line Items]
Revenue	64,391	73,781	198,785	220,907
Chemical | Performance Chemicals
Disaggregation of Revenue [Line Items]
Revenue	105,367	118,193	337,766	355,947
Chemical | Tires
Disaggregation of Revenue [Line Items]
Revenue	$ 12,870	$ 10,166	$ 38,852	$ 38,852

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Detail of Certain Balance Sheet Accounts (Tables)

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Detail of certain balance sheet accounts

	September 30, 2019			December 31, 2018
	(In thousands)
Inventories of products:
Finished products	$	317,401		$	315,361
Work in progress	4,158			5,781
Raw materials	95,795			97,550
Inventories of products, gross	417,354			418,692
Inventory reserves	(10,037		)	(8,052		)
Total inventories of products, net	$	407,317		$	410,640
Intangible assets:
Contractual agreements	$	260,974		$	262,624
Technology	145,293			145,698
Customer relationships	60,200			60,359
Tradenames/trademarks	80,456			80,557
Software	67,954			59,448
Intangible assets	614,877			608,686
Less accumulated amortization:
Contractual agreements	81,830			65,958
Technology	66,518			62,019
Customer relationships	38,408			37,409
Tradenames/trademarks	46,750			42,797
Software	46,133			38,465
Total accumulated amortization	279,639			246,648
Intangible assets, net of accumulated amortization	$	335,238		$	362,038
Other payables and accruals:
Employee related	$	24,856		$	35,015
Interest payable	13,585			2,201
Property, plant, and equipment accruals	9,571			10,982
Short-term operating lease liabilities	19,834			—
Other	36,751			52,497
Total other payables and accruals	$	104,597		$	100,695
Other long-term liabilities:
Pension and other post-retirement benefits	$	115,071		$	122,194
Other	45,992			60,699
Total other long-term liabilities	$	161,063		$	182,893

Schedule of accumulated other comprehensive income (loss)

Changes in accumulated other comprehensive income (loss) by component were as follows:

	Cumulative Foreign Currency Translation			Cash Flow Hedges, Net of Tax			Net Investment Hedges, Net of Tax			Benefit Plans Liability, Net of Tax			Total
	(In thousands)
December 31, 2017	$	(9,654	)	$	4,550		$	(1,926	)	$	(91,265	)	$	(98,295	)
Other comprehensive income (loss) before reclassifications	(14,448		)	3,913			4,366			9,969			3,800
Amounts reclassified from accumulated other comprehensive loss	—			(1,996		)	—			—			(1,996		)
Net other comprehensive income (loss) for the year	(14,448		)	1,917			4,366			9,969			1,804
September 30, 2018	$	(24,102	)	$	6,467		$	2,440		$	(81,296	)	$	(96,491	)
December 31, 2018	$	(24,093	)	$	3,922		$	6,153		$	(77,681	)	$	(91,699	)
Other comprehensive income (loss) before reclassifications	(10,645		)	(3,858		)	11,830			163			(2,510		)
Net other comprehensive income (loss) for the year	(10,645		)	(3,858		)	11,830			163			(2,510		)
September 30, 2019	$	(34,738	)	$	64		$	17,983		$	(77,518	)	$	(94,209	)

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Variable Interest Entity

9 Months Ended

Sep. 30, 2019

Noncontrolling Interest [Abstract]

Variable Interest Entity

Variable Interest Entity

We hold a variable interest in a joint venture with FPCC to own and operate a 30 kiloton HSBC plant at FPCC’s petrochemical site in Mailiao, Taiwan. Included in the below assets and liabilities is a land lease with FPCC to support our operations at the HSBC plant. 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, following a ramp-up period, the agreement requires us to purchase a minimum of 80% 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. As a result, we have consolidated KFPC in our financial statements and reflected FPCC’s 50% ownership as a noncontrolling interest.

The following table summarizes the carrying amounts of assets and liabilities as of September 30, 2019 and December 31, 2018 for KFPC before intercompany eliminations.

	September 30, 2019		December 31, 2018
	(In thousands)
Cash and cash equivalents	$	6,213	$	6,640
Other current assets	17,885		18,363
Property, plant, and equipment, net	152,325		159,893
Intangible assets	8,015		8,590
Long-term operating lease assets, net	6,876		—
Other long-term assets	8,870		11,838
Total assets	$	200,184	$	205,324
Current portion of long-term debt	$	56,608	$	45,152
Current liabilities	14,524		14,996
Long-term debt	47,684		80,255
Long-term operating lease liabilities	6,375		—
Total liabilities	$	125,191	$	140,403

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Long-Term Debt - Schedule of Long-Term Debt (Details) $ in Thousands, $ in Millions	Sep. 30, 2019 USD ($)	Sep. 30, 2019 TWD ($)	Dec. 31, 2018 USD ($)	May 31, 2018	Mar. 31, 2017
Debt Instrument [Line Items]
Total debt	$ 1,505,355		$ 1,567,115
Discount	(6,587)		(7,395)
Debt Issuance Costs	(24,190)		(27,101)
Total	1,474,578		1,532,619
Capital lease obligation	1,058		1,184
Less current portion of total debt	56,784		45,321
Long-term debt, noncurrent maturities	1,448,571		1,521,794
Long-term debt	1,417,794		1,487,298
KFPC Loan Agreement
Debt Instrument [Line Items]
Total debt	79,534	$ 2,500.0	112,489
Discount	0		0
Debt Issuance Costs	(36)		(94)
Total	79,498		112,395
KFPC Revolving Facilities
Debt Instrument [Line Items]
Total debt	24,794	$ 770.0	13,012
Discount	0		0
Debt Issuance Costs	0		0
Total	24,794		13,012
5.25% Senior Notes
Debt Instrument [Line Items]
Debt instrument interest rate				5.25%
ABL Facility
Debt Instrument [Line Items]
Total debt	0		5,000
Discount	0		0
Debt Issuance Costs	0		0
Total	0		5,000
Term Loan | USD Tranche
Debt Instrument [Line Items]
Total debt	362,000		362,000
Discount	(6,587)		(7,395)
Debt Issuance Costs	(9,088)		(10,171)
Total	346,325		344,434
Term Loan | Euro Tranche
Debt Instrument [Line Items]
Total debt	327,060		342,900
Discount	0		0
Debt Issuance Costs	(3,991)		(4,711)
Total	323,069		338,189
Senior Notes | 7.0% Senior Notes
Debt Instrument [Line Items]
Total debt	394,750		399,060
Discount	0		0
Debt Issuance Costs	(6,040)		(6,622)
Total	388,710		392,438
Debt instrument interest rate					7.00%
Senior Notes | 5.25% Senior Notes
Debt Instrument [Line Items]
Total debt	316,159		331,470
Discount	0		0
Debt Issuance Costs	(5,035)		(5,503)
Total	$ 311,124		$ 325,967

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Long-Term Debt - KFPC Debt (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) facility	Sep. 30, 2019 TWD ($) facility	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Outstanding amount | $	$ 1,505,355		$ 1,567,115
KFPC Loan Agreement
Debt Instrument [Line Items]
Outstanding amount	$ 79,534	$ 2,500,000,000	112,489
Interest rate during period	1.80%
KFPC Revolving Facilities
Debt Instrument [Line Items]
Outstanding amount	$ 24,794	$ 770,000,000.0	$ 13,012
KFPC Loan Agreement | Revolving Credit Facility
Debt Instrument [Line Items]
Number of debt instruments | facility	4	4
Credit facility, borrowing capacity	$ 69,200	$ 2,200,000,000

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Industry Segments and Foreign Operations - Impact of Hurricane Michael (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Gain on insurance proceeds	$ 14,250	$ 0	$ 32,850	$ 0
Hurricane Michael
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Gain on insurance proceeds	14,300
Proceeds from insurance settlement	$ 41,800

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Industry Segments and Foreign Operations - Additional Information (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) segment	Sep. 30, 2018 USD ($)
Segment Reporting Information [Line Items]
Number of operating segments | segment	2
Capital expenditures	$ 76,298	$ 66,047
Polymer
Segment Reporting Information [Line Items]
Capital expenditures	44,500	31,800
Chemical
Segment Reporting Information [Line Items]
Capital expenditures	$ 31,800	$ 34,200

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Commitments and Contingencies - Changes in Aggregate Carrying Amount of Asset Retirement Obligation Liability (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Asset Retirement Obligation, Roll Forward Analysis [Roll Forward]
Beginning balance	$ 5,703	$ 5,712
Additional accruals	780	0
Accretion expense	262	253
Obligations settled	(206)	(66)
Foreign currency translation	(233)	(186)
Ending balance	$ 6,306	$ 5,713

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Income Taxes - Reconciliation of Effective Tax Rate, Percent (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Effective Income Tax Rate Reconciliation, Percent [Abstract]
Income taxes at the statutory rate	21.00%	21.00%	21.00%	21.00%
State taxes, net of federal benefit	1.90%	1.70%	1.50%	1.70%
Foreign tax rate differential	(11.20%)	(10.20%)	(7.80%)	(15.70%)
Permanent differences	15.80%	3.10%	6.30%	2.40%
Uncertain tax positions	(16.90%)	1.10%	(22.80%)	2.70%
Valuation allowance	(0.70%)	(0.60%)	(0.80%)	0.20%
Return to provision adjustments	0.00%	0.00%	0.10%	2.30%
Effective tax rate	9.90%	16.10%	(2.50%)	14.60%

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Fair Value Measurements, Financial Instruments, and Credit Risk - Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - Fair Value Measurements at Reporting Date Using - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total	$ 1,265	$ 7,665
Other current assets
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative asset – current	60	1,558
Other long-term assets
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative asset – noncurrent	139	3,635
Retirement plan asset – noncurrent	2,445	2,485
Other payables and accruals
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative liability – current	(1,379)	(13)
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total	2,445	2,485
Quoted Prices in Active Markets for Identical Assets (Level 1) | Other current assets
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative asset – current	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Other long-term assets
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative asset – noncurrent	0	0
Retirement plan asset – noncurrent	2,445	2,485
Quoted Prices in Active Markets for Identical Assets (Level 1) | Other payables and accruals
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative liability – current	0	0
Significant Other Observable Inputs (Level 2)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total	(1,180)	5,180
Significant Other Observable Inputs (Level 2) | Other current assets
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative asset – current	60	1,558
Significant Other Observable Inputs (Level 2) | Other long-term assets
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative asset – noncurrent	139	3,635
Retirement plan asset – noncurrent	0	0
Significant Other Observable Inputs (Level 2) | Other payables and accruals
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Derivative liability – current	$ (1,379)	$ (13)

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Commitments and Contingencies - Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019
Commitments and Contingencies Disclosure [Abstract]
October 1, 2019 through December 31, 2019	$ 5,719
2020	21,084
2021	16,170
2022	10,513
2023	7,195
Thereafter	17,958
Total undiscounted operating lease liabilities	78,639
Present value discount	(6,980)
Foreign currency and other	769
Total discounted operating lease liabilities	$ 72,428	$ 70,900

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Share-Based Compensation (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Payment Arrangement [Abstract]
Award requisite service period			3 years
Share-based compensation expense	$ 2.7	$ 2.5	$ 8.2	$ 7.6

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Lease, Cost

The components of lease cost for operating leases are as follows:

	Nine Months Ended September 30, 2019
	(In thousands)
Lease cost	$	17,164
Variable lease cost	302
Operating lease expense	$	17,466

Schedule Of Lease By Asset Type

The operating lease liabilities arising from obtaining ROU assets as of September 30, 2019 were comprised as follows:

Leased Asset Class	Polymer		Chemical		Percentage		Average Months Remaining on the Lease	Weighted Average in Months
	(in thousands)
Railcars	$	1,509	$	23,310	34.3	%	46	15.8
Buildings	12,465		8,816		29.4	%	32	9.4
Equipment	2,295		10,581		17.8	%	38	6.8
Land	6,677		41		9.3	%	383	35.5
Other	1,075		5,659		9.3	%	19	1.8
Total	$	24,021	$	48,407				69.3

Lessee, Operating Lease, Liability, Maturity

The following tables show the undiscounted cash flows for the operating lease liabilities.

	September 30, 2019
	(In thousands)
October 1, 2019 through December 31, 2019	$	5,719
2020	21,084
2021	16,170
2022	10,513
2023	7,195
Thereafter	17,958
Total undiscounted operating lease liabilities	78,639
Present value discount	(6,980		)
Foreign currency and other	769
Total discounted operating lease liabilities	$	72,428

Schedule of Future Minimum Rental Payments for Operating Leases

	December 31, 2018
	(In thousands)
2019	$	19,065
2020	16,891
2021	12,385
2022	8,284
2023	5,137
Thereafter	8,498
Total undiscounted operating lease liabilities	$	70,260

Changes in the aggregate carrying amount of ARO liability

The changes in the aggregate carrying amount of our asset retirement obligations are as follows:

	Nine Months Ended September 30,
	2019			2018
	(In thousands)
Beginning balance	$	5,703		$	5,712
Additional accruals	780			—
Accretion expense	262			253
Obligations settled	(206		)	(66		)
Foreign currency translation	(233		)	(186		)
Ending balance	$	6,306		$	5,713

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General (Details)	Sep. 30, 2019
KFPC
Schedule of Equity Method Investments [Line Items]
Percentage of investment in joint venture	50.00%
Styrenic Block Copolymer Joint Venture
Schedule of Equity Method Investments [Line Items]
Percentage of investment in joint venture	50.00%

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General

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

General

General

Description of our Business. We are a leading global specialty chemicals company that manufactures styrenic block copolymers (“SBCs”), specialty polymers, and high-value performance products primarily derived from pine wood pulping co-products.

SBCs are highly-engineered synthetic elastomers, which we originally 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 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 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 and tire markets, and we produce and sell a broad range of performance chemicals (which we formerly referred to as chemical intermediates) into markets that include fuel additives, oilfield chemicals, coatings, metalworking fluids and lubricants, inks, flavors and fragrances, and mining.

Basis of Presentation. The accompanying unaudited Condensed Consolidated Financial Statements presented in this report 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, 2018 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.

Reclassifications. Certain amounts reported in the condensed consolidated financial statements and notes to the consolidated financial statements for the prior periods have been reclassified to conform to the current reporting presentation.

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. Except for the changes below, the Company has consistently applied the accounting policies presented in the Condensed Consolidated Financial Statements.

Leases. See Note 2 New Accounting Pronouncements, for the impact of ASC 842, Leases, adopted on January 1, 2019.

There have been no other changes to the accounting policies, which are 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 these Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”) 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.

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 there is uncertainty that they may 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.

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Fair Value Measurements, Financial Instruments, and Credit Risk

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Value Measurements, Financial Instruments and Credit Risk

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.

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; and

• 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 September 30, 2019 and December 31, 2018. 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. As of September 30, 2019 and December 31, 2018, the Company has no assets or liabilities utilizing significant unobservable inputs (or Level 3) to derive its estimated fair values.

					Fair Value Measurements at Reporting Date Using
	Balance Sheet Location	September 30, 2019			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
		(In thousands)
Derivative asset – current	Other current assets	$	60		$	—	$	60
Derivative asset – noncurrent	Other long-term assets	139			—		139
Retirement plan asset – noncurrent	Other long-term asset	2,445			2,445		—
Derivative liability – current	Other payables and accruals	(1,379		)	—		(1,379		)
Total		$	1,265		$	2,445	$	(1,180	)

					Fair Value Measurements at Reporting Date Using
	Balance Sheet Location	December 31, 2018			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
		(In thousands)
Derivative asset – current	Other current assets	$	1,558		$	—	$	1,558
Derivative asset – noncurrent	Other long-term assets	3,635			—		3,635
Retirement plan asset – noncurrent	Other long-term assets	2,485			2,485		—
Derivative liability – current	Other payables and accruals	(13		)	—		(13		)
Total		$	7,665		$	2,485	$	5,180

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

	September 30, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
USD Tranche (significant other observable inputs – level 2)	$	362,000	$	361,776	$	362,000	$	352,498
Euro Tranche (significant other observable inputs – level 2)	$	327,060	$	328,901	$	342,900	$	338,830
7.0% Senior Notes (quoted prices in active market for identical assets – level 1)	$	394,750	$	413,899	$	399,060	$	369,561
5.25% Senior Notes (quoted prices in active market for identical assets – level 1)	$	316,159	$	333,355	$	331,470	$	299,125
ABL Facility	$	—	$	—	$	5,000	$	5,000
Capital lease obligation	$	1,058	$	1,058	$	1,184	$	1,184
KFPC Loan Agreement	$	79,534	$	79,534	$	112,489	$	112,489
KFPC Revolving Facilities	$	24,794	$	24,794	$	13,012	$	13,012

The ABL Facility, Capital lease obligation, KFPC Loan Agreement, and KFPC Revolving Facilities are variable rate instruments, and as such, the fair value approximates the carrying value.

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.

In an effort to convert a substantial portion of our future interest payments pursuant to the USD Tranche to a fixed interest rate, in February and March 2016 we entered into several interest rate swap agreements with an aggregate notional value of $925.4 million, effective dates of January 3, 2017 and maturity dates of December 31, 2020. In May 2018 we entered into an interest rate swap agreement with a notional value of $90.0 million, effective date of June 4, 2018 and maturity date of December 31, 2018. We exited out of $715.4 million of our interest rate swaps as of December 31, 2018, including the expiration of the notional value of $90.0 million interest rate swap agreement entered into in May 2018. As a result, at September 30, 2019, the total notional value of our interest rate swaps was $300.0 million, which effectively hedges the outstanding USD Tranche, fixing LIBOR at 1.608%. We recorded an unrealized loss of $0.7 million and an unrealized gain of $0.5 million for the three months ended September 30, 2019 and 2018, respectively, and an unrealized loss of $5.0 million and an unrealized gain of $5.1 million during the nine months ended September 30, 2019 and 2018, respectively, in other comprehensive income (loss) related to the effective portion of these interest rate swap agreements. In addition, we reclassified out of other comprehensive income (loss) the settlement of a portion of our interest rate swap that amounted to a $2.6 million gain for the nine months ended September 30, 2018.

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. We settled these hedges and recorded a loss of $1.2 million and a loss of $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and a loss of $3.0 million and a loss of $0.5 million for the nine months ended September 30, 2019 and 2018, 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.

Net Investment Hedge. During the year ended December 31, 2018, we designated €290.0 million of euro-denominated borrowing as a hedge against a portion of our net investment in the Company's European operations. The mark to market of this instrument was a gain of $14.0 million and $2.3 million for the three months ended September 30, 2019 and 2018, respectively, and a gain of $15.3 million and $5.7 million for the nine months ended September 30, 2019 and 2018, respectively, which is recorded within accumulated other comprehensive income (loss) in the Condensed Consolidated Balance Sheets.

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.

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Cover Page - shares	9 Months Ended
	Sep. 30, 2019	Oct. 21, 2019
Cover page.
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	001-34581
Entity Registrant Name	Kraton Corp
Entity Central Index Key	0001321646
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	20-0411521
Entity Address, Address Line One	15710 John F. Kennedy Blvd.
Entity Address, Address Line Two	Suite 300
Entity Address, City or Town	Houston,
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77032
City Area Code	281
Local Phone Number	504-4700
Title of 12(b) Security	Common Stock, par value $0.01
Trading Symbol	KRA
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		31,703,716

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income attributable to Kraton	$ 18,693	$ 42,349	$ 72,569	$ 49,491
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $0	(8,746)	(3,492)	(10,645)	(14,448)
Unrealized gain (loss) on cash flow hedges, net of tax benefit of $151, expense of $108, benefit of $1,135, and expense of $1,187, respectively	(511)	346	(3,858)	3,913
Reclassification of gain on cash flow hedge, net of tax benefit of $1 and expense of $588	0	3	0	(1,996)
Unrealized gain on net investment hedge, net of tax expense of $3,192, $539, $3,482, and $1,364, respectively	10,844	1,725	11,830	4,366
Decrease in benefit plans liability, net of tax expense of $3,114 for 2018	163	9,969	163	9,969
Other comprehensive income (loss), net of tax	1,750	8,551	(2,510)	1,804
Comprehensive income attributable to Kraton	20,443	50,900	70,059	51,295
Comprehensive income attributable to noncontrolling interest	2,233	984	5,035	909
Consolidated comprehensive income	$ 22,676	$ 51,884	$ 75,094	$ 52,204

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Share-Based Compensation

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

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, generally three years. Share-based compensation expense was $2.7 million and $2.5 million for the three months ended September 30, 2019 and 2018, respectively, and $8.2 million and $7.6 million for the nine months ended September 30, 2019 and 2018, respectively.

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General (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation. The accompanying unaudited Condensed Consolidated Financial Statements presented in this report 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, 2018 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.

Reclassifications

Reclassifications. Certain amounts reported in the condensed consolidated financial statements and notes to the consolidated financial statements for the prior periods have been reclassified to conform to the current reporting presentation.

Use of Estimates

Use of Estimates. The preparation of these Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”) 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.

Income Tax in Interim Periods

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 there is uncertainty that they may 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.

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 February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application. The new standard provides a number of optional practical expedients in transition. We elected the following practical expedients: (1) “package of practical expedients”, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs; (2) the short-term lease recognition exemption for all leases that qualify; and (3) the practical expedient to not separate lease and non-lease components for all of our leases.

This standard had a material effect on our financial statements. The most significant effects relate to: (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our equipment, building, and vehicle operating leases; (2) the derecognition of existing assets and liabilities for straight line lease accounting under ASC 840, Leases; and (3) providing significant new disclosures about our leasing activities. On adoption, we recognized additional operating liabilities of $70.9 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of this ASU is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. This standard is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2017-12 was completed during 2018 and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2017-12 effective January 1, 2019.

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815)-Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This standard is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2018-16 was completed during 2018, and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2018-16 effective January 1, 2019.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for any interim period after issuance of the ASU. Our analysis of ASU 2018-02 was completed during 2018, and there is no material change to our financial position, results of operations, and cash flows. We adopted ASU 2018-02 effective January 1, 2019.

New Accounting Standards to be Adopted in Future Periods

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted for any interim period after issuance of the ASU. Our evaluation of this standard is currently ongoing, and we expect to adopt ASU 2016-13 effective on January 1, 2020.

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, and we expect to adopt ASU 2017-04 effective on January 1, 2020.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted for any interim period after issuance of the ASU. Our evaluation of this standard is currently ongoing, and we expect to adopt ASU 2018-18 effective on January 1, 2020.

Revenue from Contract with Customers

Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs at a point in time when the transfer of risk and title to the product transfers to the customer. Our standard terms of delivery are included in our contracts of sale, order confirmation documents, and invoices. As such, all revenue is considered revenue recognized from contracts with customers, and we do not have other sources of revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Revenue is recognized net of sales tax, value-added taxes, and other taxes. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. We do not have any material significant payment terms as payment is received at or shortly after the point of sale. Certain customers may receive cash-based incentives (including rebates, price supports, and sales commission), which are accounted for as variable consideration. We estimate rebates and price supports based on the expected amount to be provided to customers and reduce revenues recognized once the performance obligation has been met. Sales commissions are recorded as an increase in cost of goods sold once the performance obligation has been met. We do not expect to have significant changes in our estimates for variable considerations.

We have deferred revenue of $12.4 million related to contractual commitments with customers for which the performance obligation will be satisfied over time, which will range from one to ten years. The revenue associated with these performance obligations is recognized as the obligation is satisfied, which occurs as a volume based metric over time when the transfer of risk and title of finished products transfer to the customer.

Occasionally, we enter into bill-and-hold contracts, where we invoice the customer for products even though we retain possession of the products until a point in time in the future when the products will be shipped to the customer. In these contracts, the primary performance obligation is satisfied at a point in time when the product is segregated from our general inventory, it is ready for shipment to customer, and we do not have the ability to use the product or direct it to another customer. Additionally, we have a secondary performance obligation related to custodial costs, including storage and freight, which is satisfied over time once the product has been delivered to the customer. During the nine months ended September 30, 2019 and 2018, we recognized $5.6 million and $4.5 million of revenue related to these arrangements, respectively.

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Industry Segments and Foreign Operations

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Industry Segment and Foreign Operations

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 our President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.

• Polymer Segment is comprised of our SBCs and other engineered polymers business.

• 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 for each segment. The following table summarizes our operating results by segment. We do not have sales between segments.

	Three Months Ended September 30, 2019									Three Months Ended September 30, 2018
	Polymer			Chemical			Total			Polymer		Chemical		Total
	(In thousands)
Revenue	$	261,593		$	182,628		$	444,221		$	320,965	$	202,140	$	523,105
Cost of goods sold	203,115			139,827			342,942			230,760		138,084		368,844
Gross profit	58,478			42,801			101,279			90,205		64,056		154,261
Operating expenses:
Research and development	7,322			3,045			10,367			7,422		3,175		10,597
Selling, general, and administrative	17,922			14,350			32,272			20,327		15,823		36,150
Depreciation and amortization	14,982			19,822			34,804			17,554		17,563		35,117
Gain on insurance proceeds	—			(14,250		)	(14,250		)	—		—		—
Loss on disposal of fixed assets	(17		)	—			(17		)	3		—		3
Operating income	$	18,269		$	19,834		38,103			$	44,899	$	27,495	72,394
Other income (expense)							4,235							(740		)
Earnings of unconsolidated joint venture							102							100
Interest expense, net							(19,214		)					(20,143		)
Income (loss) before income taxes							$	23,226						$	51,611

	Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
	Polymer			Chemical			Total			Polymer		Chemical		Total
	(In thousands)
Revenue	$	820,509		$	575,403		$	1,395,912		$	948,186	$	615,706	$	1,563,892
Cost of goods sold	629,279			429,150			1,058,429			666,704		425,140		1,091,844
Gross profit	191,230			146,253			337,483			281,482		190,566		472,048
Operating expenses:
Research and development	22,227			8,864			31,091			22,255		9,613		31,868
Selling, general, and administrative	63,226			48,397			111,623			68,308		48,540		116,848
Depreciation and amortization	43,296			54,934			98,230			52,914		52,719		105,633
Gain on insurance proceeds	—			(32,850		)	(32,850		)	—		—		—
Loss on disposal of fixed assets	(17		)	—			(17		)	75		288		363
Operating income	$	62,498		$	66,908		129,406			$	137,930	$	79,406	217,336
Other income (expense)							3,559							(2,960		)
Gain (loss) on extinguishment of debt							210							(79,921		)
Earnings of unconsolidated joint venture							363							357
Interest expense, net							(57,494		)					(74,835		)
Income before income taxes							$	76,044						$	59,977

The following table presents long-lived assets including goodwill and total assets.

	September 30, 2019						December 31, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)
Property, plant, and equipment, net	$	540,926	$	391,723	$	932,649	$	543,086	$	398,390	$	941,476
Investment in unconsolidated joint venture	$	11,577	$	—	$	11,577	$	12,070	$	—	$	12,070
Goodwill	$	—	$	771,739	$	771,739	$	—	$	772,886	$	772,886
Total assets	$	1,152,137	$	1,772,369	$	2,924,506	$	1,160,029	$	1,734,675	$	2,894,704

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.

Following is a summary of revenue by geographic region:

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)						(In thousands)
Revenue:
United States	$	78,640	$	78,516	$	157,156	$	111,996	$	87,256	$	199,252
Germany	29,970		13,282		43,252		41,219		13,496		54,715
All other countries	152,983		90,830		243,813		167,750		101,388		269,138
	$	261,593	$	182,628	$	444,221	$	320,965	$	202,140	$	523,105

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	Polymer		Chemical		Total		Polymer		Chemical		Total
	(In thousands)						(In thousands)
Revenue:
United States	$	270,786	$	244,139	$	514,925	$	325,985	$	249,811	$	575,796
Germany	84,967		40,560		125,527		112,726		42,582		155,308
All other countries	464,756		290,704		755,460		509,475		323,313		832,788
	$	820,509	$	575,403	$	1,395,912	$	948,186	$	615,706	$	1,563,892

Our capital expenditures for the Polymer segment, excluding capital expenditures by the KFPC joint venture, were $44.5 million and $31.8 million during the nine months ended September 30, 2019 and 2018, respectively, and capital expenditures for our Chemical segment were $31.8 million and $34.2 million during the nine months ended September 30, 2019 and 2018, respectively.

Impact of Hurricane Michael

During the third quarter of 2019, we finalized our insurance claims with our carrier related to Hurricane Michael. As result, we received a final payment from our carrier of $14.3 million, which has been recorded as a gain on insurance proceeds within the Condensed Consolidated Statement of Operations. This brings our total insurance proceeds to $41.8 million, which offsets the lost margin and reimburses us for the direct costs and capital expenditures known to date.

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Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Schedule of long-term debt

Long-term debt consists of the following:

	September 30, 2019										December 31, 2018
	Principal		Discount			Debt Issuance Costs			Total		Principal		Discount			Debt Issuance Costs			Total
	(In thousands)
USD Tranche	$	362,000	$	(6,587	)	$	(9,088	)	$	346,325	$	362,000	$	(7,395	)	$	(10,171	)	$	344,434
Euro Tranche	327,060		—			(3,991		)	323,069		342,900		—			(4,711		)	338,189
7.0% Senior Notes	394,750		—			(6,040		)	388,710		399,060		—			(6,622		)	392,438
5.25% Senior Notes	316,159		—			(5,035		)	311,124		331,470		—			(5,503		)	325,967
ABL Facility	—		—			—			—		5,000		—			—			5,000
KFPC Loan Agreement	79,534		—			(36		)	79,498		112,489		—			(94		)	112,395
KFPC Revolving Facilities	24,794		—			—			24,794		13,012		—			—			13,012
Capital lease obligation	1,058		—			—			1,058		1,184		—			—			1,184
Total debt	1,505,355		(6,587		)	(24,190		)	1,474,578		1,567,115		(7,395		)	(27,101		)	1,532,619
Less current portion of total debt	56,784		—			—			56,784		45,321		—			—			45,321
Long-term debt	$	1,448,571	$	(6,587	)	$	(24,190	)	$	1,417,794	$	1,521,794	$	(7,395	)	$	(27,101	)	$	1,487,298

 

Remaining principal payments on outstanding total debt

The remaining principal payments on our outstanding total debt as of September 30, 2019, are as follows:

	Principal Payments
	(In thousands)
October 1, 2019 through September 30, 2020	$	56,784
October 1, 2020 through September 30, 2021	32,002
October 1, 2021 through September 30, 2022	16,106
October 1, 2022 through September 30, 2023	211
October 1, 2023 through September 30, 2024	224
Thereafter	1,400,028
Total debt	$	1,505,355

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Industry Segments and Foreign Operations - Long-lived Assets Including Goodwill and Total Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Segment Reporting Information [Line Items]
Property, plant, and equipment, net	$ 932,649	$ 941,476
Investment in unconsolidated joint venture	11,577	12,070
Goodwill	771,739	772,886
Total assets	2,924,506	2,894,704
Polymer
Segment Reporting Information [Line Items]
Property, plant, and equipment, net	540,926	543,086
Investment in unconsolidated joint venture	11,577	12,070
Goodwill	0	0
Total assets	1,152,137	1,160,029
Chemical
Segment Reporting Information [Line Items]
Property, plant, and equipment, net	391,723	398,390
Investment in unconsolidated joint venture	0	0
Goodwill	771,739	772,886
Total assets	$ 1,772,369	$ 1,734,675

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Employee Benefits - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Retirement Benefits [Abstract]
Reduction in pension liabilities	$ 0.5
Employer contributions		$ 9.6	$ 10.7
Employees retirement age				65 years
Reduction in pension and other post-retirement liabilities				$ 13.1

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Long-Term Debt - Remaining Principal Payments on Outstanding Total Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Disclosure [Abstract]
October 1, 2019 through September 30, 2020	$ 56,784
October 1, 2020 through September 30, 2021	32,002
October 1, 2021 through September 30, 2022	16,106
October 1, 2022 through September 30, 2023	211
October 1, 2023 through September 30, 2024	224
Thereafter	1,400,028
Total debt	$ 1,505,355	$ 1,567,115

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Detail of Certain Balance Sheet Accounts - Changes in Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	$ 799,430	$ 667,587	$ 747,599	$ 666,519
Other comprehensive income (loss) before reclassifications			(2,510)	3,800
Amounts reclassified from accumulated other comprehensive loss				(1,996)
Other comprehensive income (loss), net of tax	1,750	8,551	(2,510)	1,804
Ending balance	819,766	723,425	819,766	723,425
Cumulative Foreign Currency Translation
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance			(24,093)	(9,654)
Other comprehensive income (loss) before reclassifications			(10,645)	(14,448)
Amounts reclassified from accumulated other comprehensive loss				0
Other comprehensive income (loss), net of tax			(10,645)	(14,448)
Ending balance	(34,738)	(24,102)	(34,738)	(24,102)
Cash Flow Hedges, Net of Tax
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance			3,922	4,550
Other comprehensive income (loss) before reclassifications			(3,858)	3,913
Amounts reclassified from accumulated other comprehensive loss				(1,996)
Other comprehensive income (loss), net of tax			(3,858)	1,917
Ending balance	64	6,467	64	6,467
Net Investment Hedges, Net of Tax
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance			6,153	(1,926)
Other comprehensive income (loss) before reclassifications			11,830	4,366
Amounts reclassified from accumulated other comprehensive loss				0
Other comprehensive income (loss), net of tax			11,830	4,366
Ending balance	17,983	2,440	17,983	2,440
Benefit Plans Liability, Net of Tax
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance			(77,681)	(91,265)
Other comprehensive income (loss) before reclassifications			163	9,969
Amounts reclassified from accumulated other comprehensive loss				0
Other comprehensive income (loss), net of tax			163	9,969
Ending balance	(77,518)	(81,296)	(77,518)	(81,296)
Accumulated Other Comprehensive Income (Loss)
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	(95,959)	(105,042)	(91,699)	(98,295)
Ending balance	$ (94,209)	$ (96,491)	$ (94,209)	$ (96,491)

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Long-Term Debt - Senior Notes (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 EUR (€)	Dec. 06, 2018 USD ($)	May 31, 2018	Mar. 31, 2017 USD ($)
Debt Instrument [Line Items]
Loss on extinguishment of debt	$ 0	$ 0	$ 210,000	$ (79,921,000)
5.25% Senior Notes
Debt Instrument [Line Items]
Debt instrument interest rate								5.25%
Face amount	$ 316,200,000		316,200,000
Senior Notes | 7.0% Senior Notes
Debt Instrument [Line Items]
Debt instrument interest rate									7.00%
Face amount									$ 400,000,000.0
Authorized amount to be repurchased							$ 20,000,000.0
Repurchase amount					$ 4,300,000
Loss on extinguishment of debt			(200,000)
Write off of previously capitalized deferred financing costs			$ 100,000
Europe
Debt Instrument [Line Items]
Face amount | €						€ 290,000,000.0

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Fair Value Measurements, Financial Instruments, and Credit Risk (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of financial assets and liabilities accounted for at fair value on a recurring basis

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 September 30, 2019 and December 31, 2018. 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. As of September 30, 2019 and December 31, 2018, the Company has no assets or liabilities utilizing significant unobservable inputs (or Level 3) to derive its estimated fair values.

					Fair Value Measurements at Reporting Date Using
	Balance Sheet Location	September 30, 2019			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
		(In thousands)
Derivative asset – current	Other current assets	$	60		$	—	$	60
Derivative asset – noncurrent	Other long-term assets	139			—		139
Retirement plan asset – noncurrent	Other long-term asset	2,445			2,445		—
Derivative liability – current	Other payables and accruals	(1,379		)	—		(1,379		)
Total		$	1,265		$	2,445	$	(1,180	)

					Fair Value Measurements at Reporting Date Using
	Balance Sheet Location	December 31, 2018			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
		(In thousands)
Derivative asset – current	Other current assets	$	1,558		$	—	$	1,558
Derivative asset – noncurrent	Other long-term assets	3,635			—		3,635
Retirement plan asset – noncurrent	Other long-term assets	2,485			2,485		—
Derivative liability – current	Other payables and accruals	(13		)	—		(13		)
Total		$	7,665		$	2,485	$	5,180

Schedule of carrying values and approximate fair values of long-term debt

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

	September 30, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
USD Tranche (significant other observable inputs – level 2)	$	362,000	$	361,776	$	362,000	$	352,498
Euro Tranche (significant other observable inputs – level 2)	$	327,060	$	328,901	$	342,900	$	338,830
7.0% Senior Notes (quoted prices in active market for identical assets – level 1)	$	394,750	$	413,899	$	399,060	$	369,561
5.25% Senior Notes (quoted prices in active market for identical assets – level 1)	$	316,159	$	333,355	$	331,470	$	299,125
ABL Facility	$	—	$	—	$	5,000	$	5,000
Capital lease obligation	$	1,058	$	1,058	$	1,184	$	1,184
KFPC Loan Agreement	$	79,534	$	79,534	$	112,489	$	112,489
KFPC Revolving Facilities	$	24,794	$	24,794	$	13,012	$	13,012

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Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Schedule of Disaggregation of Revenue

We disaggregate our revenue by segment product lines, which is how we market our products and review results of operations. The following tables disaggregate our segment revenue by major product lines:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Polymer Segment	(In thousands)
Performance Products	$	141,267	$	179,684	$	422,539	$	506,151
Specialty Polymers	70,986		99,349		256,483		311,657
Cariflex	49,241		41,818		141,117		130,319
Other	99		114		370		59
Polymer Product Line Revenue	$	261,593	$	320,965	$	820,509	$	948,186

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Chemical Segment	(In thousands)
Adhesives	$	64,391	$	73,781	$	198,785	$	220,907
Performance Chemicals	105,367		118,193		337,766		355,947
Tires	12,870		10,166		38,852		38,852
Chemical Product Line Revenue	$	182,628	$	202,140	$	575,403	$	615,706

Schedule of Contract with Customer, Asset and Liability

	September 30, 2019		December 31, 2018
	(In thousands)
Contract receivables(1)	$	212,589	$	197,739
Contract liabilities(2)	$	12,409	$	13,906

____________________________________________________ 

(1) Contract receivables are recorded within receivables, net of allowances on our Condensed Consolidated Balance Sheets.

(2)

Our contract liability decreased by $0.9 million, as a result of meeting the performance obligation, which was recognized in our Specialty Polymers product line revenue, and decreased approximately $0.6 million due to the change in currency exchange rates.

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Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

We own a 50% equity investment in an SBC manufacturing joint venture in Kashima, Japan. Our outstanding payables were $15.2 million and $20.1 million as of September 30, 2019 and December 31, 2018, respectively, which were recorded in “Due to related party” liability on the Condensed Consolidated Balance Sheets. Our total purchases from the joint venture were $7.0 million and $11.3 million for the three months ended September 30, 2019 and 2018, respectively, and $23.4 million and $27.6 million for the nine months ended September 30, 2019 and 2018, 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. Additionally, we purchase certain raw materials from FPCC for our other manufacturing locations. Our outstanding payables were $2.4 million and $0.8 million as of September 30, 2019 and December 31, 2018, respectively,

which were recorded in “Due to related party” liability on the Condensed Consolidated Balance Sheets. Our total purchases from this joint venture were $15.8 million and $12.9 million for the three months ended September 30, 2019 and 2018, respectively, and $41.2 million and $35.0 million for the nine months ended September 30, 2019 and 2018, respectively. See Note 14 Variable Interest Entity, for further discussion related to the KFPC joint venture.

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Industry Segments and Foreign Operations - Sales Revenue by Geographic Region (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	$ 444,221	$ 523,105	$ 1,395,912	$ 1,563,892
United States
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	157,156	199,252	514,925	575,796
Germany
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	43,252	54,715	125,527	155,308
All other countries
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	243,813	269,138	755,460	832,788
Polymer
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	261,593	320,965	820,509	948,186
Polymer | United States
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	78,640	111,996	270,786	325,985
Polymer | Germany
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	29,970	41,219	84,967	112,726
Polymer | All other countries
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	152,983	167,750	464,756	509,475
Chemical
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	182,628	202,140	575,403	615,706
Chemical | United States
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	78,516	87,256	244,139	249,811
Chemical | Germany
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	13,282	13,496	40,560	42,582
Chemical | All other countries
Segment Reporting Revenue Reconciling Item [Line Items]
Revenue	$ 90,830	$ 101,388	$ 290,704	$ 323,313

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Employee Benefits - Components of Net Periodic Cost Related to Other Post-Retirement Benefits (Details) - Other Postretirement Benefits Plan - U.S. Plans - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 38	$ 123	$ 218	$ 402
Interest cost	225	306	705	985
Amortization of prior service cost	(438)	(146)	(1,313)	(146)
Amortization of net actuarial loss	115	179	465	561
Net periodic benefit cost	$ (60)	$ 462	$ 75	$ 1,802

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Detail of Certain Balance Sheet Accounts - Balance Sheets (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Inventories of products:
Finished products	$ 317,401	$ 315,361
Work in progress	4,158	5,781
Raw materials	95,795	97,550
Inventories of products, gross	417,354	418,692
Inventory reserves	(10,037)	(8,052)
Total inventories of products, net	407,317	410,640
Other payables and accruals:
Employee related	24,856	35,015
Interest payable	13,585	2,201
Property, plant, and equipment accruals	9,571	10,982
Short-term operating lease liabilities	19,834	0
Other	36,751	52,497
Total other payables and accruals	104,597	100,695
Other long-term liabilities:
Pension and other post-retirement benefits	115,071	122,194
Other	45,992	60,699
Total other long-term liabilities	161,063	182,893
Supplemental Balance Sheet Information [Line Items]
Intangible assets	614,877	608,686
Less accumulated amortization	279,639	246,648
Intangible assets, net of accumulated amortization	335,238	362,038
Contractual agreements
Supplemental Balance Sheet Information [Line Items]
Intangible assets	260,974	262,624
Less accumulated amortization	81,830	65,958
Technology
Supplemental Balance Sheet Information [Line Items]
Intangible assets	145,293	145,698
Less accumulated amortization	66,518	62,019
Customer relationships
Supplemental Balance Sheet Information [Line Items]
Intangible assets	60,200	60,359
Less accumulated amortization	38,408	37,409
Tradenames/trademarks
Supplemental Balance Sheet Information [Line Items]
Intangible assets	80,456	80,557
Less accumulated amortization	46,750	42,797
Software
Supplemental Balance Sheet Information [Line Items]
Intangible assets	67,954	59,448
Less accumulated amortization	$ 46,133	$ 38,465

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Long-Term Debt - Senior Secured Term Loan Facility (Details) $ in Thousands, € in Millions	Mar. 08, 2018	Sep. 30, 2019 USD ($)	Sep. 30, 2019 EUR (€)	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Outstanding amount		$ 1,505,355		$ 1,567,115
Term Loan | USD Tranche
Debt Instrument [Line Items]
Outstanding amount		362,000		362,000
Term Loan | Euro Tranche
Debt Instrument [Line Items]
Outstanding amount		327,060		$ 342,900
Term Loan | Secured Debt | USD Tranche
Debt Instrument [Line Items]
Outstanding amount		362,000
Line of credit facility, fixed interest rate	4.29%
Term Loan | Secured Debt | USD Tranche | LIBOR Rate Plus
Debt Instrument [Line Items]
Percentage added to basis	2.50%
Term Loan | Secured Debt | USD Tranche | Base Rate
Debt Instrument [Line Items]
Variable rate floor	1.50%
Term Loan | Secured Debt | Euro Tranche
Debt Instrument [Line Items]
Outstanding amount		$ 327,100	€ 300.0
Line of credit facility, fixed interest rate	2.75%
Term Loan | Secured Debt | Euro Tranche | EURIBOR
Debt Instrument [Line Items]
Percentage added to basis	2.00%

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Long-Term Debt - Debt Issuance Cost (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Debt Instrument [Line Items]
Debt issuance costs	$ 25,700		$ 25,700
Debt issuance costs	24,190		24,190		$ 27,101
Amortization of debt issuance costs	1,200	$ 1,200	3,501	$ 4,571
ABL Facility
Debt Instrument [Line Items]
Debt issuance costs	1,500		1,500
Debt issuance costs	0		0		$ 0
ABL Facility | Other current assets
Debt Instrument [Line Items]
Debt issuance costs	$ 1,200		$ 1,200

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Commitments and Contingencies - Undiscounted operating Lease Liabilities (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2019	$ 19,065
2020	16,891
2021	12,385
2022	8,284
2023	5,137
Thereafter	8,498
Total undiscounted operating lease liabilities	$ 70,260

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Commitments and Contingencies - Additional Information (Details) R$ in Millions, $ in Millions	Sep. 30, 2019 USD ($)	Sep. 30, 2019 BRL (R$)	Sep. 30, 2018 USD ($)
Loss Contingencies [Line Items]
Discount rate, percent	3.125%	3.125%
Tax credits generated from purchase of certain goods	$ 2.3	R$ 9.6
Shell Chemicals
Loss Contingencies [Line Items]
Receivables			$ 0.2
Minimum
Loss Contingencies [Line Items]
Term of contract	1 year	1 year

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Fair Value Measurements, Financial Instruments, and Credit Risk - Carrying Values and Approximate Fair Values of Long-Term Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Carrying Value | KFPC Loan Agreement
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	$ 79,534	$ 112,489
Carrying Value | KFPC Revolving Facilities
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	24,794	13,012
Carrying Value | ABL Facility
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	0	5,000
Carrying Value | Capital lease obligation
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	1,058	1,184
Carrying Value | Significant Other Observable Inputs (Level 2) | Term Loan | USD Tranche
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	362,000	362,000
Carrying Value | Significant Other Observable Inputs (Level 2) | Term Loan | Euro Tranche
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	327,060	342,900
Carrying Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Senior Notes | 7.0% Senior Notes
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	394,750	399,060
Carrying Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Senior Notes | 5.25% Senior Notes
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	316,159	331,470
Fair Value | KFPC Loan Agreement
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	79,534	112,489
Fair Value | KFPC Revolving Facilities
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	24,794	13,012
Fair Value | ABL Facility
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	0	5,000
Fair Value | Capital lease obligation
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	1,058	1,184
Fair Value | Significant Other Observable Inputs (Level 2) | Term Loan | USD Tranche
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	361,776	352,498
Fair Value | Significant Other Observable Inputs (Level 2) | Term Loan | Euro Tranche
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	328,901	338,830
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Senior Notes | 7.0% Senior Notes
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	413,899	369,561
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Senior Notes | 5.25% Senior Notes
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term debt	$ 333,355	$ 299,125

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Reconciliation of effective tax rates

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Income taxes at the statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.9		1.7		1.5		1.7
Foreign tax rate differential	(11.2	)	(10.2	)	(7.8	)	(15.7	)
Permanent differences	15.8		3.1		6.3		2.4
Uncertain tax positions	(16.9	)	1.1		(22.8	)	2.7
Valuation allowance	(0.7	)	(0.6	)	(0.8	)	0.2
Return to provision adjustments	—		—		0.1		2.3
Effective tax rate	9.9	%	16.1	%	(2.5	)%	14.6	%

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Variable Interest Entity (Tables)

9 Months Ended

Sep. 30, 2019

Noncontrolling Interest [Abstract]

Summary of carrying amounts of assets and liabilities

The following table summarizes the carrying amounts of assets and liabilities as of September 30, 2019 and December 31, 2018 for KFPC before intercompany eliminations.

	September 30, 2019		December 31, 2018
	(In thousands)
Cash and cash equivalents	$	6,213	$	6,640
Other current assets	17,885		18,363
Property, plant, and equipment, net	152,325		159,893
Intangible assets	8,015		8,590
Long-term operating lease assets, net	6,876		—
Other long-term assets	8,870		11,838
Total assets	$	200,184	$	205,324
Current portion of long-term debt	$	56,608	$	45,152
Current liabilities	14,524		14,996
Long-term debt	47,684		80,255
Long-term operating lease liabilities	6,375		—
Total liabilities	$	125,191	$	140,403

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Revenue Recognition - Obligation (Details) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-07-01	Sep. 30, 2019
Minimum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Performance obligation	1 year
Maximum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Performance obligation	10 years

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our income tax provision was an expense of $2.3 million and $8.3 million for the three months ended September 30, 2019 and 2018, respectively, and a benefit of $1.9 million and an expense of $8.7 million for the nine months ended September 30, 2019 and 2018, respectively. Our effective tax rate was 9.9% and 16.1% for the three months ended September 30, 2019 and 2018, respectively, and 2.5% and 14.6% for the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019, our effective tax rate differed from the U.S. corporate statutory tax rate of 21.0% primarily due to the mix of our pretax income or loss generated in various foreign jurisdictions, the tax impact of certain permanent items, and our uncertain tax positions, particularly the release from the closing of the U.S and foreign tax audits. During the nine months ended September 30, 2018, our effective tax rate differed from the U.S. corporate statutory tax rate of 21.0% primarily due to the mix of our pretax income or loss generated in various foreign jurisdictions, the tax impact of certain permanent items, and our uncertain tax positions.

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Income taxes at the statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.9		1.7		1.5		1.7
Foreign tax rate differential	(11.2	)	(10.2	)	(7.8	)	(15.7	)
Permanent differences	15.8		3.1		6.3		2.4
Uncertain tax positions	(16.9	)	1.1		(22.8	)	2.7
Valuation allowance	(0.7	)	(0.6	)	(0.8	)	0.2
Return to provision adjustments	—		—		0.1		2.3
Effective tax rate	9.9	%	16.1	%	(2.5	)%	14.6	%

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We consider all available material evidence, both positive and negative, in assessing the appropriateness of a valuation allowance for our deferred tax assets. In determining whether a valuation allowance is required during the period, we evaluate primarily (a) cumulative earnings and losses in recent years, (b) historical taxable income or losses as it relates to our ability to utilize operating loss and tax credit carryforwards within the expiration period, (c) trends indicating earnings or losses expected in future years along with our ability in prior years to reasonably project these future trends or operating results, (d) length of the carryback and carryforward period, and (e) prudent and feasible tax-planning strategies, particularly related to operational changes and the impact on the timing or taxability of relative amounts.

As of September 30, 2019 and December 31, 2018, we recorded a valuation allowance of $41.9 million and $42.5 million, respectively, against our net operating loss carryforwards and other deferred tax assets. We decreased our valuation allowances by $0.2 million and $0.6 million for the three and nine months ended September 30, 2019, respectively, primarily related to current period utilization of net operating loss carryforwards in certain jurisdictions. We decreased our valuation allowances by $0.3 million for the three months ended September 30, 2018 and increased by $0.1 million for the nine months ended September 30, 2018, primarily related to current period net operating losses in the U.S.

For the period ending September 30, 2019, a portion of the unremitted foreign earnings are permanently reinvested in the corresponding country of origin. Accordingly, we have not provided deferred taxes for the differences between the book basis and underlying tax basis in those subsidiaries or on the foreign currency translation adjustment amounts related to such operations.

We file income tax returns in the U.S. federal jurisdiction and in various state 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 remains open for all years subsequent to 2003. In addition, open tax years for state and foreign jurisdictions remain subject to examination.

We recognize the tax impact of certain tax positions only when it is more likely than not those such positions are sustainable. The taxes are recorded in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes, which prescribes the minimum recognition threshold.

As of September 30, 2019 and December 31, 2018, we had total unrecognized tax benefits of $11.9 million and $29.6 million, respectively, related to uncertain tax positions, all of which, if recognized, would impact our effective tax rate. During the three and nine months ended September 30, 2019, we had a decrease of $4.3 million and $17.7 million, respectively, primarily related to the closing of the U.S. tax audit for the pre-acquisition tax return filing and foreign tax audits. During the three and nine months ended September 30, 2018, we had an increase of $0.5 million and $1.4 million, respectively, primarily related to our uncertain tax positions in the U.S. and Europe. We recorded interest and penalties related to unrecognized tax benefits within the provision for income taxes. For the year ending December 31, 2019, we expect to release $19.5 million in reserves, of which $14.0 million and $3.9 million was released as a result of the closing of certain U.S. and foreign tax audits, respectively, during the nine months ended September 30, 2019.

The Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”) introduced significant changes to U.S. income tax law. Effective 2018, the Tax Act reduced the U.S. statutory tax rate from 35.0% to 21.0% and created new taxes on certain foreign-sourced earnings and certain related-party payments.

One-time transition tax

The Tax Act required us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8.0% on the remaining earnings. Related to the 2017 tax year, we recorded a $15.7 million one-time transitional tax liability. Any legislative changes, including the final Section 965 transition tax regulations issued on January 15, 2019, whose impact is currently being assessed due to the complexity and interdependency of the legislative provisions, as well as any other new or proposed Treasury regulations, which have yet to be issued, may result in additional income tax impacts which could be material in the period any such changes are enacted.

Deferred tax effects

Due to the change in the statutory tax rate from the Tax Act, we remeasured our deferred taxes as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax benefit of $95.0 million, of which $68.9 million relates to the reduction of the U.S. statutory tax rate from 35.0% to 21.0% for years after 2017 and the remaining relates to changes in our investments in foreign subsidiaries. For the period ending December 31, 2018, we completed our analysis based on legislative updates relating to the Tax Act and made no adjustments to the provisional amounts previously recorded.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Revenue	$ 444,221	$ 523,105	$ 1,395,912	$ 1,563,892
Cost of goods sold	342,942	368,844	1,058,429	1,091,844
Gross profit	101,279	154,261	337,483	472,048
Operating expenses:
Research and development	10,367	10,597	31,091	31,868
Selling, general, and administrative	32,272	36,150	111,623	116,848
Depreciation and amortization	34,804	35,117	98,230	105,633
Gain on insurance proceeds	(14,250)	0	(32,850)	0
(Gain) loss on disposal of fixed assets	(17)	3	(17)	363
Operating income	38,103	72,394	129,406	217,336
Other income (expense)	4,235	(740)	3,559	(2,960)
Gain (loss) on extinguishment of debt	0	0	210	(79,921)
Earnings of unconsolidated joint venture	102	100	363	357
Interest expense, net	(19,214)	(20,143)	(57,494)	(74,835)
Income before income taxes	23,226	51,611	76,044	59,977
Income tax benefit (expense)	(2,311)	(8,334)	1,881	(8,743)
Consolidated net income	20,915	43,277	77,925	51,234
Net income attributable to noncontrolling interest	(2,222)	(928)	(5,356)	(1,743)
Net income attributable to Kraton	$ 18,693	$ 42,349	$ 72,569	$ 49,491
Earnings per common share:
Basic (in dollars per share)	$ 0.59	$ 1.33	$ 2.28	$ 1.55
Diluted (in dollars per share)	$ 0.58	$ 1.31	$ 2.26	$ 1.53
Weighted average common shares outstanding:
Basic (in shares)	31,486	31,459	31,603	31,381
Diluted (in share)	31,823	31,834	31,914	31,810

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Detail of Certain Balance Sheet Accounts

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Detail of Certain Balance Sheet Accounts

Detail of Certain Balance Sheet Accounts

	September 30, 2019			December 31, 2018
	(In thousands)
Inventories of products:
Finished products	$	317,401		$	315,361
Work in progress	4,158			5,781
Raw materials	95,795			97,550
Inventories of products, gross	417,354			418,692
Inventory reserves	(10,037		)	(8,052		)
Total inventories of products, net	$	407,317		$	410,640
Intangible assets:
Contractual agreements	$	260,974		$	262,624
Technology	145,293			145,698
Customer relationships	60,200			60,359
Tradenames/trademarks	80,456			80,557
Software	67,954			59,448
Intangible assets	614,877			608,686
Less accumulated amortization:
Contractual agreements	81,830			65,958
Technology	66,518			62,019
Customer relationships	38,408			37,409
Tradenames/trademarks	46,750			42,797
Software	46,133			38,465
Total accumulated amortization	279,639			246,648
Intangible assets, net of accumulated amortization	$	335,238		$	362,038
Other payables and accruals:
Employee related	$	24,856		$	35,015
Interest payable	13,585			2,201
Property, plant, and equipment accruals	9,571			10,982
Short-term operating lease liabilities	19,834			—
Other	36,751			52,497
Total other payables and accruals	$	104,597		$	100,695
Other long-term liabilities:
Pension and other post-retirement benefits	$	115,071		$	122,194
Other	45,992			60,699
Total other long-term liabilities	$	161,063		$	182,893

Changes in accumulated other comprehensive income (loss) by component were as follows:

	Cumulative Foreign Currency Translation			Cash Flow Hedges, Net of Tax			Net Investment Hedges, Net of Tax			Benefit Plans Liability, Net of Tax			Total
	(In thousands)
December 31, 2017	$	(9,654	)	$	4,550		$	(1,926	)	$	(91,265	)	$	(98,295	)
Other comprehensive income (loss) before reclassifications	(14,448		)	3,913			4,366			9,969			3,800
Amounts reclassified from accumulated other comprehensive loss	—			(1,996		)	—			—			(1,996		)
Net other comprehensive income (loss) for the year	(14,448		)	1,917			4,366			9,969			1,804
September 30, 2018	$	(24,102	)	$	6,467		$	2,440		$	(81,296	)	$	(96,491	)
December 31, 2018	$	(24,093	)	$	3,922		$	6,153		$	(77,681	)	$	(91,699	)
Other comprehensive income (loss) before reclassifications	(10,645		)	(3,858		)	11,830			163			(2,510		)
Net other comprehensive income (loss) for the year	(10,645		)	(3,858		)	11,830			163			(2,510		)
September 30, 2019	$	(34,738	)	$	64		$	17,983		$	(77,518	)	$	(94,209	)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$ 77,925	$ 51,234
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization	98,230	105,633
Lease amortization	17,164	0
Amortization of debt original issue discount	808	1,938
Amortization of debt issuance costs	3,501	4,571
(Gain) loss on disposal of property, plant, and equipment	(17)	363
(Gain) loss on extinguishment of debt	(210)	79,921
Earnings from unconsolidated joint venture, net of dividends received	80	188
Deferred income tax provision	8,604	3,581
Release of uncertain tax positions	(17,739)	0
Gain on insurance proceeds for capital expenditures	(3,948)	0
Share-based compensation	8,158	7,620
Decrease (increase) in:
Accounts receivable	(19,682)	(63,068)
Inventories of products, materials, and supplies	(5,550)	(47,393)
Other assets	4,295	8,065
Increase (decrease) in:
Accounts payable-trade	(16,187)	5,869
Other payables and accruals	(20,715)	(19,057)
Other long-term liabilities	(12,317)	(2,584)
Due to related party	(3,634)	(292)
Net cash provided by operating activities	118,766	136,589
CASH FLOWS FROM INVESTING ACTIVITIES
Kraton purchase of property, plant, and equipment	(76,298)	(66,047)
KFPC purchase of property, plant, and equipment	(319)	(1,592)
Purchase of software and other intangibles	(7,274)	(4,630)
Insurance proceeds for capital expenditures	3,948	0
Net cash used in investing activities	(79,943)	(72,269)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt	57,941	731,540
Repayments of debt	(67,251)	(796,863)
KFPC proceeds from debt	33,262	24,918
KFPC repayments of debt	(53,147)	(48,084)
Capital lease payments	(126)	(785)
Purchase of treasury stock	(12,727)	(6,051)
Proceeds from the exercise of stock options	1,642	3,133
Settlement of interest rate swap	0	2,584
Debt issuance costs	0	(11,113)
Net cash used in financing activities	(40,406)	(100,721)
Effect of exchange rate differences on cash	(1,048)	(1,143)
Net decrease in cash and cash equivalents	(2,631)	(37,544)
Cash and cash equivalents, beginning of period	85,891	89,052
Cash and cash equivalents, end of period	83,260	51,508
Supplemental disclosures during the period:
Cash paid for income taxes, net of refunds received	9,351	2,398
Cash paid for interest, net of capitalized interest	41,689	78,067
Capitalized interest	3,112	2,733
Supplemental non-cash disclosures: increase (decrease) during the period
Property, plant, and equipment accruals	(1,564)	(4,100)
Operating leases	$ 89,397	$ 0