##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Polymer Holdings LLC
 Commission file number 333-123749
 Delaware
(State or other jurisdiction of
incorporation)
    
    20-0411521
(I.R.S. Employer Identification No.)
 15710 John F. Kennedy Blvd. Suite 300Houston, TX 77032
    
    281-504-4700(Address of principal executive offices,
including zip code)
    
    (Registrants telephone number, including area code)
 Kraton Polymers LLC
 Commission file number 333-123747
 Delaware
    
    94-2805249(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 15710 John F. Kennedy Blvd. Suite 300Houston, TX 77032
    
    281-504-4700(Address of principal executive offices,
including zip code)
    
    (Registrants telephone number, including area code)
 Not applicable
  o þ
  o þ
 þ o
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ




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##### Table of Contents



TABLE OF CONTENTS
 PAGEPart I  Financial InformationItem 1. Financial Statements and Accompanying NotesPolymer Holdings LLC:Consolidated Balance Sheets  March 31, 2006 (Unaudited) and December 31, 2005
    
    
    4Consolidated Statements of Operations (Unaudited)  Three Months Ended March 31, 2006 and 2005
    
    
    5Consolidated Statements of Cash Flows (Unaudited)  Three Months Ended March 31, 2006 and 2005
    
    
    6Kraton Polymers LLC:Consolidated Balance Sheets  March 31, 2006 (Unaudited) and December 31, 2005
    
    
    7Consolidated Statements of Operations (Unaudited)  Three Months Ended March 31, 2006 and 2005
    
    
    8Consolidated Statements of Cash Flows (Unaudited)  Three Months Ended March 31, 2006 and 2005
    
    
    9Notes to Consolidated Financial Statements (Unaudited)
    
    
    10Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    46Item 4. Controls and Procedures
    
    
    46Part II  Other InformationItem 1. Legal Proceedings
    
    
    48Item 2. Changes in Securities and Use of Proceeds
    
    
    48Item 3. Defaults Upon Senior Securities
    
    
    48Item 4. Submission of Matters to a Vote of Securityholders
    
    
    48Item 5. Other Information
    
    
    48Item 6. Exhibits
    
    
    48First Supplemental IndentureAmendment No. 3 to Credit and Guaranty AgreementSales ContractAmendment No. 4 to Credit and Guaranty AgreementCertification of CEO pursuant to Section 302Certification of CFO pursuant to Section 302Certification Pursuant to Section 906
 2




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FORWARD LOOKING STATEMENTS
  PRESENTATION OF FINANCIAL STATEMENTS
  3




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PART I  Financial Information
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
 Polymer Holdings LLC
 
 
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    66,392
    
    
    $
    100,934Receivables, net of allowances of $1,094 and $1,013
    
    
    133,502
    
    
    
    107,586Inventories of products
    
    
    239,938
    
    
    
    192,595Inventories of materials and supplies
    
    
    9,612
    
    
    
    9,336Other current assets
    
    
    20,009
    
    
    
    23,511Deferred income taxes
    
    
    1,953
    
    
    
    1,953Total current assets
    
    
    471,406
    
    
    
    435,915Property, plant, and equipment, less accumulated depreciation
    
    
    393,493
    
    
    
    394,192Identifiable intangible assets, less accumulated amortization
    
    
    99,886
    
    
    
    101,848Investment in joint venture
    
    
    9,613
    
    
    
    10,542Deferred financing costs
    
    
    13,799
    
    
    
    14,399Other long-term assets
    
    
    9,413
    
    
    
    9,605Total assets
    
    $
    997,610
    
    
    $
    966,501Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    30,570
    
    
    $
    30,570Accounts payabletrade
    
    
    81,098
    
    
    
    64,345Other payables and accruals
    
    
    38,714
    
    
    
    48,758Due to related parties
    
    
    14,966
    
    
    
    13,119Insurance note payable
    
    
    7,392
    
    
    
    Total current liabilities
    
    
    172,740
    
    
    
    156,792Long-term debt, net of current portion
    
    
    539,893
    
    
    
    537,418Deferred income taxes
    
    
    30,239
    
    
    
    29,818Long-term liabilities
    
    
    30,536
    
    
    
    29,713Total liabilities
    
    
    773,408
    
    
    
    753,741Commitments
and contingencies (See Note 8)Members equity:Common equity
    
    
    220,416
    
    
    
    215,452Accumulated other comprehensive income (loss)
    
    
    3,786
    
    
    
    (2,692
    )Total members equity
    
    
    224,202
    
    
    
    212,760Total liabilities and members equity
    
    $
    997,610
    
    
    $
    966,501
  4




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Polymer Holdings LLC
 
 
 March 31, 2006
    
    
    March 31, 2005RevenuesSales
    
    $
    220,786
    
    
    $
    201,931Other
    
    
    8,603
    
    
    
    5,269Total revenues
    
    
    229,389
    
    
    
    207,200Costs and expenseCosts of goods sold
    
    
    176,944
    
    
    
    157,364Gross profit
    
    
    52,445
    
    
    
    49,836Research and development expenses
    
    
    5,941
    
    
    
    5,997Selling, general, and administrative expenses
    
    
    17,904
    
    
    
    18,072Depreciation and amortization of identifiable intangibles
    
    
    11,040
    
    
    
    10,982Earnings in joint venture
    
    
    (306
    )
    
    
    (557
    )Interest, net
    
    
    11,607
    
    
    
    11,319Income before income taxes
    
    
    6,259
    
    
    
    4,023Income tax provision
    
    
    (1,913
    )
    
    
    (952
    )Net income
    
    $
    4,346
    
    
    $
    3,071
  5




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Polymer Holdings LLC
 
 
 March 31, 2006
    
    
    March 31, 2005Cash flows provided by (used in) operating activities:Net income
    
    $
    4,346
    
    
    $
    3,071Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization of identifiable intangibles
    
    
    11,040
    
    
    
    10,982Amortization of deferred financing costs
    
    
    600
    
    
    
    600Accretion of discount on senior subordinated notes
    
    
    3,145
    
    
    
    2,793(Gain) loss on disposal of fixed assets
    
    
    34
    
    
    
    (18
    )Distributed (undistributed) earnings in joint venture
    
    
    959
    
    
    
    (96
    )Deferred tax provision (benefit)
    
    
    431
    
    
    
    (709
    )Non-cash compensation
    
    
    617
    
    
    
    206Decrease (increase) in working capital:Accounts receivable
    
    
    (22,696
    )
    
    
    (10,509
    )Due from related party
    
    
    1,726
    
    
    
    486Inventories
    
    
    (43,074
    )
    
    
    (30,283
    )Other assets
    
    
    4,751
    
    
    
    (5,518
    )Accounts
payable, other payables and accruals, and long-term liabilities
    
    
    4,684
    
    
    
    411Net cash used in operating activities
    
    
    (33,437
    )
    
    
    (28,584
    )Cash flows (used in) provided by investing activities:Purchase of property, plant and equipment
    
    
    (6,154
    )
    
    
    (1,791
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    122Net cash used in investing activities
    
    
    (6,154
    )
    
    
    (1,669
    )Cash flows (used in) provided by financing activities:Repayment of debt
    
    
    (670
    )
    
    
    (670
    )Net proceeds from insurance note payable
    
    
    7,392
    
    
    
    5,519Net cash provided by financing activities
    
    
    6,722
    
    
    
    4,849Effect of exchange rate differences on cash
    
    
    (1,673
    )
    
    
    2,146Net decrease in cash and cash equivalents
    
    
    (34,542
    )
    
    
    (23,258
    )Cash and cash equivalents, beginning of period
    
    
    100,934
    
    
    
    46,357Cash and cash equivalents, end of period
    
    $
    66,392
    
    
    $
    23,099Supplemental disclosure cash flow information:Cash paid during the period for income taxes, net of refunds received
    
    $
    814
    
    
    $
    217Cash paid during the period for interest
    
    
    12,769
    
    
    
    12,309
  6




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Kraton Polymers LLC
 
 
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    66,392
    
    
    $
    100,934Receivables, net of allowances of $1,094 and $1,013
    
    
    133,502
    
    
    
    107,586Inventories of products
    
    
    239,938
    
    
    
    192,595Inventories of materials and supplies
    
    
    9,612
    
    
    
    9,336Other current assets
    
    
    20,009
    
    
    
    23,511Deferred income taxes
    
    
    1,953
    
    
    
    1,953Total current assets
    
    
    471,406
    
    
    
    435,915Property, plant, and equipment, less accumulated depreciation
    
    
    393,493
    
    
    
    394,192Identifiable intangible assets, less accumulated amortization
    
    
    99,886
    
    
    
    101,848Investment in joint venture
    
    
    9,613
    
    
    
    10,542Deferred financing costs
    
    
    12,149
    
    
    
    12,711Other long-term assets
    
    
    9,413
    
    
    
    9,605Total assets
    
    $
    995,960
    
    
    $
    964,813Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    30,570
    
    
    $
    30,570Accounts payabletrade
    
    
    81,098
    
    
    
    64,345Other payables and accruals
    
    
    38,714
    
    
    
    48,758Due to related parties
    
    
    14,966
    
    
    
    13,119Insurance note payable
    
    
    7,392
    
    
    
    Total current liabilities
    
    
    172,740
    
    
    
    156,792Long-term debt, net of current portion
    
    
    431,423
    
    
    
    432,093Deferred income taxes
    
    
    35,466
    
    
    
    34,010Long-term liabilities
    
    
    30,536
    
    
    
    29,713Total liabilities
    
    
    670,165
    
    
    
    652,608Commitments
and contingencies (See Note 8)Members equity:Common equity
    
    
    322,009
    
    
    
    314,897Accumulated other comprehensive income (loss)
    
    
    3,786
    
    
    
    (2,692
    )Total members equity
    
    
    325,795
    
    
    
    312,205Total liabilities and members equity
    
    $
    995,960
    
    
    $
    964,813
  7




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Kraton Polymers LLC
 
 
 March 31, 2006
    
    
    March 31, 2005RevenuesSales
    
    $
    220,786
    
    
    $
    201,931Other
    
    
    8,603
    
    
    
    5,269Total revenues
    
    
    229,389
    
    
    
    207,200Costs and expenseCosts of goods sold
    
    
    176,944
    
    
    
    157,364Gross profit
    
    
    52,445
    
    
    
    49,836Research and development expenses
    
    
    5,941
    
    
    
    5,997Selling, general, and administrative expenses
    
    
    17,904
    
    
    
    18,072Depreciation and amortization of identifiable intangibles
    
    
    11,040
    
    
    
    10,982Earnings in joint venture
    
    
    (306
    )
    
    
    (557
    )Interest, net
    
    
    8,425
    
    
    
    8,493Income before income taxes
    
    
    9,441
    
    
    
    6,849Income tax (provision) benefit
    
    
    (2,946
    )
    
    
    (1,894
    )Net income
    
    $
    6,495
    
    
    $
    4,955
  8




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##### Table of Contents



Kraton Polymers LLC
 
 
 March 31,
    
    
    March 31,2006
    
    
    2005Cash flows (used in) provided by operating activities:Net income
    
    $
    6,495
    
    
    $
    4,955Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization of identifiable intangibles
    
    
    11,040
    
    
    
    10,982Amortization of deferred financing costs
    
    
    562
    
    
    
    567(Gain) loss on disposal of fixed assets
    
    
    34
    
    
    
    (18
    )Distributed (undistributed) earnings in joint venture
    
    
    959
    
    
    
    (96
    )Deferred tax provision
    
    
    1,465
    
    
    
    233Non-cash compensation
    
    
    617
    
    
    
    206Increase (decrease) in working capital:Accounts receivable
    
    
    (22,696
    )
    
    
    (10,509
    )Due from related party
    
    
    1,726
    
    
    
    486Inventories
    
    
    (43,074
    )
    
    
    (30,283
    )Other assets
    
    
    4,751
    
    
    
    (5,518
    )Accounts payable, other payables and accruals, and long-term liabilities
    
    
    4,684
    
    
    
    411Net cash (used in) operating activities
    
    
    (33,437
    )
    
    
    (28,584
    )Cash flows (used in) provided by investing activities:Purchase of property, plant and equipment
    
    
    (6,154
    )
    
    
    (1,791
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    122Net cash used in investing activities
    
    
    (6,154
    )
    
    
    (1,669
    )Cash flows (used in) provided by financing activities:Repayment of debt
    
    
    (670
    )
    
    
    (670
    )Net proceeds from insurance note payable
    
    
    7,392
    
    
    
    5,519Net cash provided by financing activities
    
    
    6,722
    
    
    
    4,849Effect of exchange rate differences on cash
    
    
    (1,673
    )
    
    
    2,146Net decrease increase in cash and cash equivalents
    
    
    (34,542
    )
    
    
    (23,258
    )Cash and cash equivalents, beginning of period
    
    
    100,934
    
    
    
    46,357Cash and cash equivalents, end of period
    
    $
    66,392
    
    
    $
    23,099Supplemental disclosure cash flow information:Cash paid during the period for income taxes, net of refunds received
    
    $
    814
    
    
    $
    217Cash paid during the period for interest
    
    
    12,769
    
    
    
    12,309
  9




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Polymer Holdings LLC and Kraton Polymers LLC
 
 
 (1) Summary of Significant Accounting Policies
 (a) Organization and Description of Business
   (b) Basis of Presentation
  a.
    
    Polymer Holdings and its wholly-owned subsidiaries, which include both Polymer
Holdings and Kraton and its wholly-owned subsidiaries.b.
    
    Kraton and its wholly-owned subsidiaries, which include only Kraton and its
wholly-owned subsidiaries.
     10




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Polymer Holdings LLC and Kraton Polymers LLC
 
 (2) Stock-Based Compensation
 Share-Based Payment,
    Year EndedDecember 31,
    
    Amount2006
    
    $
    2.42007
    
    
    2.42008
    
    
    2.42009
    
    
    1.32010
    
    
    0.5
  Three Months EndedMarch 31, 2005Risk-free interest rate
    
    
    3.75
    %Expected dividend yield
    
    
    0.0
    %Expected volatility
    
    
    0.998Expected term (in years)
    
    
    5.0
  11




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Polymer
Holdings LLC and Kraton Polymers LLC
 
  Three Months EndedMarch 31, 2005Polymer Holdings
    
    KratonReported net income
    
    $
    3,071
    
    
    $
    4,955Add: Stock
based employee compensation expense (1)
    
    
    
    

    
    
    Less: Total fair value computed stock-based compensation, net of tax
    
    
    (252
    )
    
    
    (252
    )Pro forma net income
    
    $
    2,819
    
    
    $
    4,703
 
 (1)
    
    Amount does not include stock-based compensation of $206 related to the Companys
restricted stock awards.  WeightedWeighted
    
    
    AverageNumber
    
    
    Average
    
    
    Remaining
    
    
    Aggregateof
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Term
    
    
    Value (1)Outstanding-beginning of year
    
    
    14,835
    
    
    $
    1.00
    
    
    
    Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    240
    
    
    
    1.00
    
    
    
    Outstanding at March 31, 2006
    
    
    14,595
    
    
    $
    1.00
    
    
    
    2.2
    
    
    
    Exercisable at March 31, 2006
    
    
    2,993
    
    
    $
    1.00
    
    
    
    
    
    
    
    
 
 (1)
    
    The intrinsic value of a stock option is the amount by which the market value of the
underlying stock exceeds the exercise price of the option. The market value of our stock
was estimated to be $0.89 at March 31, 2006.  Weighted
    
    
    WeightedRange of
    
    
    Number of
    
    
    Average
    
    
    AverageExercise Prices
    
    
    Options
    
    
    Exercise Price
    
    
    Remaining LifeOutstanding options:
    
    $
    1.00
    
    
    
    14,595
    
    
    $
    1.00
    
    
    
    2.2Exercisable options:
    
    $
    1.00
    
    
    
    2,993
    
    
    $
    1.00
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Polymer Holdings LLC and Kraton Polymers LLC
 
 (3) Detail of Certain Balance Sheet Accounts
  March 31,
    
    
    December 31,2006
    
    
    2005Inventories:Finished products
    
    $
    209,347
    
    
    $
    167,454Work in progress
    
    
    3,305
    
    
    
    2,615Raw materials
    
    
    27,286
    
    
    
    22,526$
    239,938
    
    
    $
    192,595Other payables and accruals:Employee related
    
    $
    8,304
    
    
    $
    16,217Interest
    
    
    3,844
    
    
    
    8,069Property and other taxes
    
    
    6,304
    
    
    
    5,095Customer rebates
    
    
    2,368
    
    
    
    4,382Income taxes payable
    
    
    279
    
    
    
    752Other
    
    
    17,615
    
    
    
    14,243$
    38,714
    
    
    $
    48,758
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Polymer Holdings LLC and Kraton Polymers LLC
 
 (4) Comprehensive Income (Loss)
  Three Months EndedMarch 312006
    
    
    2005Polymer HoldingsNet income
    
    $
    4,346
    
    
    $
    3,071Foreign currency adjustments
    
    
    6,273
    
    
    
    (11,603
    )Unrealized gain on interest rate swaps
    
    
    205
    
    
    
    1,544Total comprehensive income (loss)
    
    $
    10,824
    
    
    $
    (6,988
    )KratonNet income
    
    $
    6,495
    
    
    $
    4,955Foreign currency adjustments
    
    
    6,273
    
    
    
    (11,603
    )Unrealized gain on interest rate swaps
    
    
    205
    
    
    
    1,544Total comprehensive income (loss)
    
    $
    12,973
    
    
    $
    (5,104
    )
  March 31, 2006
    
    
    December 31, 2005Foreign currency adjustments
    
    $
    694
    
    
    $
    (5,579
    )Unrealized gain on interest rate swaps
    
    
    3,092
    
    
    
    2,887Total accumulated other comprehensive income (loss)
    
    $
    3,786
    
    
    $
    (2,692
    )
 (5) Long-Term Debt
  March 31, 2006
    
    
    December 31, 2005Kraton:Senior Secured Credit Facility:Term loans
    
    $
    261,993
    
    
    $
    262,663Revolver
    
    
    
    
    
    
    8.125% Senior Subordinated Notes
    
    
    200,000
    
    
    
    200,000Total long-term debt
    
    
    461,993
    
    
    
    462,663Less current portion of long-term debt
    
    
    30,570
    
    
    
    30,570Total Kraton
    
    
    431,423
    
    
    
    432,093Polymer Holdings:12.000% Senior Discount Notes
    
    
    108,470
    
    
    
    105,325Total Polymer Holdings
    
    $
    539,893
    
    
    $
    537,418
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Polymer Holdings LLC and Kraton Polymers LLC
 
 (a) Senior
Secured Credit Facility
  Maturity
  Interest
  Mandatory Prepayments
   Covenants
  15




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Polymer Holdings LLC and Kraton Polymers LLC
 
    (b) Senior
Subordinated Notes Due January 15, 2014
  Interest
  Optional Redemption
   Covenants
    (c) Senior
Discount Notes Due July 15, 2014
  16




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Polymer Holdings LLC and Kraton Polymers LLC
 
  Interest
  Optional Redemption
  Covenants
     (6) Financial Instruments
 (a) Interest
Rate Swap Agreements
  17




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Polymer Holdings LLC and Kraton Polymers LLC
 
 (b) Fair Value of Financial Instruments
  March 31, 2006Carrying Value
    
    Fair ValueTerm loans
    
    $
    261,993
    
    
    $
    261,9938.125% Notes
    
    
    200,000
    
    
    
    199,10012.000% Discount Notes
    
    
    108,470
    
    
    
    118,725
 December 31, 2005Carrying Value
    
    Fair ValueTerm loans
    
    $
    262,663
    
    
    $
    262,6638.125% Notes
    
    
    200,000
    
    
    
    192,00012.000% Discount Notes
    
    
    105,325
    
    
    
    108,375
  (7) Income Taxes
  (8) Commitments and Contingencies
 Legal Proceedings
  (9) Employee Benefits
 (a) Investment in Kraton Management LLC
  18




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Polymer Holdings LLC and Kraton Polymers LLC
 
 (b) TJ Chemical Holdings LLC 2004 Option Plan
      19




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Polymer Holdings LLC and Kraton Polymers LLC
 
 (c) Other Equity Awards
  (d) Kraton Polymers LLC Executive Deferred Compensation Plan
  (e) 2006 Incentive Compensation Plan
  20




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Polymer Holdings LLC and Kraton Polymers LLC
  
 (f) Retirement Plans
  Three Months EndedMarch 312006
    
    
    2005Components of net periodic benefit cost:Service cost
    
    $
    797
    
    
    $
    886Interest cost
    
    
    849
    
    
    
    779Expected return on plan assets
    
    
    (799
    )
    
    
    (736
    )Net periodic benefit cost
    
    $
    847
    
    
    $
    929
  Three Months EndedMarch 312006
    
    
    2005Components of net periodic benefit cost:Service cost
    
    $
    103
    
    
    $
    92Interest cost
    
    
    137
    
    
    
    119Recognized actuarial gain
    
    
    
    
    
    
    (1
    )Net periodic benefit cost
    
    $
    240
    
    
    $
    210
 (10) Industry Segment and Foreign Operations
  21




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##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
  Three Months Ended March 31,2006
    
    
    2005Net Revenues:United States
    
    $
    85,309
    
    
    $
    83,563Germany
    
    
    24,293
    
    
    
    21,712Japan
    
    
    16,107
    
    
    
    14,308Netherlands
    
    
    14,323
    
    
    
    10,118Italy
    
    
    13,289
    
    
    
    12,126United Kingdom
    
    
    9,326
    
    
    
    6,914China
    
    
    8,923
    
    
    
    3,710Brazil
    
    
    7,233
    
    
    
    6,186France
    
    
    6,993
    
    
    
    12,039Canada
    
    
    6,100
    
    
    
    5,844Thailand
    
    
    3,679
    
    
    
    2,759Taiwan
    
    
    3,634
    
    
    
    2,871Argentina
    
    
    3,125
    
    
    
    2,833Australia
    
    
    2,980
    
    
    
    2,086Turkey
    
    
    2,777
    
    
    
    1,977All other countries
    
    
    21,298
    
    
    
    18,154$
    229,389
    
    
    $
    207,200
 March 31,
    
    
    December 31,2006
    
    
    2005Long-lived Assets:United States
    
    $
    272,484
    
    
    $
    270,639France
    
    
    93,095
    
    
    
    91,593Brazil
    
    
    34,479
    
    
    
    30,008Germany
    
    
    26,805
    
    
    
    26,011Netherlands
    
    
    24,292
    
    
    
    23,732Japan
    
    
    3,346
    
    
    
    3,342All other countries
    
    
    12,965
    
    
    
    12,837467,466
    
    
    
        458,162Less accumulated depreciation
    
    
    (73,973
    )
    
    
    (63,970
    )$
    393,493
    
    
    $
        394,192
 22




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##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 (11) Subsequent Event
 Tender Offer
     Amendment to
Kratons Senior Secured Credit Facility
  Overview
  Interest and Fees
  Covenants
  Events of Default
  23




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##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 (12) Supplemental Guarantor Information  Polymer Holdings LLC
  Balance Sheet
 As of March 31, 2006Polymer
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorHoldings (1)
    
    
    Kraton (2)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    23,144
    
    
    $
    43,248
    
    
    $
    
    
    
    $
    66,392Receivables, net
    
    
    
    
    
    
    877
    
    
    
    53,062
    
    
    
    98,806
    
    
    
    (19,243
    )
    
    
    133,502Inventories of products
    
    
    
    
    
    
    
    
    
    
    134,661
    
    
    
    113,500
    
    
    
    (8,223
    )
    
    
    239,938Inventories of materials and supplies
    
    
    
    
    
    
    
    
    
    
    6,054
    
    
    
    3,558
    
    
    
    
    
    
    
    9,612Other current assets
    
    
    
    
    
    
    11,903
    
    
    
    827
    
    
    
    7,279
    
    
    
    
    
    
    
    20,009Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    6,027
    
    
    
    (4,074
    )
    
    
    
    
    
    
    1,953Total current assets
    
    
    
    
    
    
    12,780
    
    
    
    223,775
    
    
    
    262,317
    
    
    
    (27,466
    )
    
    
    471,406Property, plant, and equipment, less
accumulated depreciation
    
    
    
    
    
    
    125,071
    
    
    
    171,606
    
    
    
    96,816
    
    
    
    
    
    
    
    393,493Identifiable intangible assets
    
    
    
    
    
    
    51,075
    
    
    
    
    
    
    
    48,811
    
    
    
    
    
    
    
    99,886Investment in consolidated subsidiaries
    
    
    329,582
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (329,582
    )
    
    
    Investment in joint venture
    
    
    
    
    
    
    813
    
    
    
    
    
    
    
    8,800
    
    
    
    
    
    
    
    9,613Deferred financing costs
    
    
    1,650
    
    
    
    12,149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,799Other long-term assets
    
    
    
    
    
    
    118,125
    
    
    
    317,997
    
    
    
    3,954
    
    
    
    (430,663
    )
    
    
    9,413Total assets
    
    $
    331,232
    
    
    $
    320,013
    
    
    $
    713,378
    
    
    $
    420,698
    
    
    $
    (787,711
    )
    
    $
    997,610Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    30,570
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    30,570Accounts payable-trade
    
    
    
    
    
    
    2,900
    
    
    
    30,573
    
    
    
    47,625
    
    
    
    
    
    
    
    81,098Other payables and accruals
    
    
    
    
    
    
    3,844
    
    
    
    11,349
    
    
    
    23,521
    
    
    
    
    
    
    
    38,714Due to (from) related parties
    
    
    
    
    
    
    
    
    
    
    9,880
    
    
    
    24,329
    
    
    
    (19,243
    )
    
    
    14,966Insurance note payable
    
    
    
    
    
    
    7,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,392Total current liabilities
    
    
    
    
    
    
    44,706
    
    
    
    51,802
    
    
    
    95,475
    
    
    
    (19,243
    )
    
    
    172,740Long-term debt, net of current portion
    
    
    108,470
    
    
    
    431,423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    539,893Deferred income taxes
    
    
    (5,227
    )
    
    
    (13,517
    )
    
    
    46,591
    
    
    
    2,392
    
    
    
    
    
    
    
    30,239Long-term liabilities
    
    
    
    
    
    
    312,538
    
    
    
    29,998
    
    
    
    118,663
    
    
    
    (430,663
    )
    
    
    30,536Total liabilities
    
    
    103,243
    
    
    
    775,150
    
    
    
    128,391
    
    
    
    216,530
    
    
    
    (449,906
    )
    
    
    773,408Commitments
and Contingencies (See Note 8)Members equity:Common equity
    
    
    227,989
    
    
    
    (458,229
    )
    
    
    584,987
    
    
    
    203,474
    
    
    
    (337,805
    )
    
    
    220,416Accumulated other comprehensive income
    
    
    
    
    
    
    3,092
    
    
    
    
    
    
    
    694
    
    
    
    
    
    
    
    3,786Total members equity
    
    
    227,989
    
    
    
    (455,137
    )
    
    
    584,987
    
    
    
    204,168
    
    
    
    (337,805
    )
    
    
    224,202Total liabilities and members equity
    
    $
    331,232
    
    
    $
    320,013
    
    
    $
    713,378
    
    
    $
    420,698
    
    
    $
    (787,711
    )
    
    $
    997,610
 
 (1)
    
    Polymer Holdings LLC and Polymer Holdings Capital Corporation
are the Issuers of the 12.000%
Discount Notes. Polymer Holdings Capital Corporation has minimal assets and income. We do not
believe that separate financial information concerning the Issuers would provide information
that would be useful.(2)
    
    Kraton Polymers LLC and Kraton Polymers Capital Corporation
are the Issuers of the 8.125%
Notes. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe
that separate financial information concerning the Issuers would provide additional
information that would be useful. 24




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##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 Balance Sheet
 As of December 31, 2005Polymer
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorHoldings (1)
    
    
    Kraton (2)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    54,941
    
    
    $
    45,993
    
    
    $
    
    
    
    $
    100,934Receivables, net
    
    
    
    
    
    
    
    
    
    
    45,048
    
    
    
    69,950
    
    
    
    (7,412
    )
    
    
    107,586Inventories of products
    
    
    
    
    
    
    
    
    
    
    109,691
    
    
    
    88,697
    
    
    
    (5,793
    )
    
    
    192,595Inventories of materials and supplies
    
    
    
    
    
    
    
    
    
    
    5,935
    
    
    
    3,401
    
    
    
    
    
    
    
    9,336Other current assets
    
    
    
    
    
    
    4,729
    
    
    
    9,565
    
    
    
    9,217
    
    
    
    
    
    
    
    23,511Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    6,027
    
    
    
    (4,074
    )
    
    
    
    
    
    
    1,953Total current assets
    
    
    
    
    
    
    4,729
    
    
    
    231,207
    
    
    
    213,184
    
    
    
    (13,205
    )
    
    
    435,915Property, plant, and equipment, less
accumulated depreciation
    
    
    
    
    
    
    127,589
    
    
    
    173,900
    
    
    
    92,703
    
    
    
    
    
    
    
    394,192Identifiable intangible assets, less
accumulated amortization
    
    
    
    
    
    
    53,037
    
    
    
    
    
    
    
    48,811
    
    
    
    
    
    
    
    101,848Investment in consolidated subsidiaries
    
    
    329,582
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (329,582
    )
    
    
    Investment in joint venture
    
    
    
    
    
    
    813
    
    
    
    
    
    
    
    9,729
    
    
    
    
    
    
    
    10,542Deferred financing costs
    
    
    1,688
    
    
    
    12,711
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,399Other long-term assets
    
    
    
    
    
    
    105,385
    
    
    
    290,963
    
    
    
    4,127
    
    
    
    (390,870
    )
    
    
    9,605Total assets
    
    $
    331,270
    
    
    $
    304,264
    
    
    $
    696,070
    
    
    $
    368,554
    
    
    $
    (733,657
    )
    
    $
    966,501Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    30,570
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    30,570Accounts payable  trade
    
    
    
    
    
    
    2,900
    
    
    
    26,726
    
    
    
    34,719
    
    
    
    
    
    
    
    64,345Other payables and accruals
    
    
    
    
    
    
    8,069
    
    
    
    21,448
    
    
    
    19,241
    
    
    
    
    
    
    
    48,758Due to (from) related parties
    
    
    
    
    
    
    
    
    
    
    1,835
    
    
    
    18,696
    
    
    
    (7,412
    )
    
    
    13,119Total current liabilities
    
    
    
    
    
    
    41,539
    
    
    
    50,009
    
    
    
    72,656
    
    
    
    (7,412
    )
    
    
    156,792Long-term debt, net of current portion
    
    
    105,325
    
    
    
    432,093
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    537,418Deferred income taxes
    
    
    (4,192
    )
    
    
    (9,055
    )
    
    
    42,764
    
    
    
    301
    
    
    
    
    
    
    
    29,818Long-term liabilities
    
    
    
    
    
    
    285,485
    
    
    
    28,950
    
    
    
    106,148
    
    
    
    (390,870
    )
    
    
    29,713Total liabilities
    
    
    101,133
    
    
    
    750,062
    
    
    
    121,723
    
    
    
    179,105
    
    
    
    (398,282
    )
    
    
    753,741Commitments and contingencies (See Note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Members equity:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common equity
    
    
    230,137
    
    
    
    (448,685
    )
    
    
    574,347
    
    
    
    195,028
    
    
    
    (335,375
    )
    
    
    215,452Accumulated other comprehensive income
    
    
    
    
    
    
    2,887
    
    
    
    
    
    
    
    (5,579
    )
    
    
    
    
    
    
    (2,692
    )Total members equity
    
    
    230,137
    
    
    
    (445,798
    )
    
    
    574,347
    
    
    
    189,449
    
    
    
    (335,375
    )
    
    
    212,760Total liabilities and members equity
    
    $
    331,270
    
    
    $
    304,264
    
    
    $
    696,070
    
    
    $
    368,554
    
    
    $
    (733,657
    )
    
    $
    966,501
 
 (1)
    
    Polymer Holdings LLC and Polymer Holdings Capital Corporation
are the Issuers of the
12.000% Discount Notes. Polymer Holdings Capital Corporation has minimal assets and income. We do
not believe that separate financial information concerning the Issuers would provide
information that would be useful.(2)
    
    Kraton Polymers LLC and Kraton Polymers Capital Corporation
are the Issuers of the 8.125%
Notes. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe
that separate financial information concerning the Issuers would provide additional
information that would be useful. 25




---



##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 Statement of Operations
 Three Months Ended March 31, 2006Polymer
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorHoldings (1)
    
    
    Kraton (2)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    
    
    
    $
    121,514
    
    
    $
    147,276
    
    
    $
    (48,004
    )
    
    $
    220,786Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,603
    
    
    
    
    
    
    
    8,603Total revenues
    
    
    
    
    
    
    
    
    
    
    121,514
    
    
    
    155,879
    
    
    
    (48,004
    )
    
    
    229,389Costs and expenses:Cost of goods sold
    
    
    
    
    
    
    2,430
    
    
    
    91,635
    
    
    
    130,883
    
    
    
    (48,004
    )
    
    
    176,944Gross profit
    
    
    
    
    
    
    (2,430
    )
    
    
    29,879
    
    
    
    24,996
    
    
    
    
    
    
    
    52,445Research and development expenses
    
    
    
    
    
    
    
    
    
    
    3,170
    
    
    
    2,771
    
    
    
    
    
    
    
    5,941Selling, general, and
administrative expenses
    
    
    
    
    
    
    
    
    
    
    10,607
    
    
    
    7,297
    
    
    
    
    
    
    
    17,904Depreciation and amortization
    
    
    
    
    
    
    4,479
    
    
    
    4,562
    
    
    
    1,999
    
    
    
    
    
    
    
    11,040Earnings in joint venture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (306
    )
    
    
    
    
    
    
    (306
    )Interest expense (income)
    
    
    3,182
    
    
    
    9,637
    
    
    
    (2,130
    )
    
    
    1,098
    
    
    
    
    
    
    
    11,607Income (loss) before income taxes
    
    
    (3,182
    )
    
    
    (16,546
    )
    
    
    13,850
    
    
    
    12,137
    
    
    
    
    
    
    
    6,259Income tax (provision) benefit
    
    
    1,033
    
    
    
    4,573
    
    
    
    (3,828
    )
    
    
    (3,691
    )
    
    
    
    
    
    
    (1,913
    )Net income (loss)
    
    $
    (2,149
    )
    
    $
    (11,973
    )
    
    $
    10,022
    
    
    $
    8,446
    
    
    $
    
    
    
    $
    4,346
 Three Months Ended March 31, 2005Polymer
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorHoldings (1)
    
    
    Kraton (2)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    
    
    
    $
    108,628
    
    
    $
    124,964
    
    
    $
    (31,661
    )
    
    $
    201,931Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,269
    
    
    
    
    
    
    
    5,269Total revenues
    
    
    
    
    
    
    
    
    
    
    108,628
    
    
    
    130,233
    
    
    
    (31,661
    )
    
    
    207,200Costs and expenses:
    
    
    Cost of goods sold
    
    
    
    
    
    
    2,111
    
    
    
    80,019
    
    
    
    106,895
    
    
    
    (31,661
    )
    
    
    157,364Gross profit
    
    
    
    
    
    
    (2,111
    )
    
    
    28,609
    
    
    
    23,338
    
    
    
    
    
    
    
    49,836Research and development
expenses
    
    
    
    
    
    
    
    
    
    
    2,871
    
    
    
    3,126
    
    
    
    
    
    
    
    5,997Selling, general, and
administrative expenses
    
    
    
    
    
    
    
    
    
    
    11,132
    
    
    
    6,940
    
    
    
    
    
    
    
    18,072Depreciation and amortization
    
    
    
    
    
    
    4,363
    
    
    
    4,602
    
    
    
    2,017
    
    
    
    
    
    
    
    10,982Earnings in joint venture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (557
    )
    
    
    
    
    
    
    (557
    )Interest expense (income)
    
    
    2,826
    
    
    
    8,902
    
    
    
    (1,669
    )
    
    
    1,260
    
    
    
    
    
    
    
    11,319Income (loss) before income
taxes
    
    
    (2,826
    )
    
    
    (15,376
    )
    
    
    11,673
    
    
    
    10,552
    
    
    
    
    
    
    
    4,023Income tax (provision) benefit
    
    
    942
    
    
    
    4,254
    
    
    
    (3,229
    )
    
    
    (2,919
    )
    
    
    
    
    
    
    (952
    )Net income (loss)
    
    $
    (1,884
    )
    
    $
    (11,122
    )
    
    $
    8,444
    
    
    $
    7,633
    
    
    $
    
    
    
    $
    3,071
 
 (1)
    
    Polymer Holdings LLC and Polymer Holdings Capital Corporation
are the Issuers of the 12.000%
Discount Notes. Polymer Holdings Capital Corporation has minimal assets and income. We do
not believe that separate financial information concerning the Issuers would provide
information that would be useful. Neither Polymer Holdings nor Polymer Holdings Capital
Corporation is a guarantor of the 8.125% Notes.(2)
    
    Kraton Polymers LLC and Kraton Polymers Capital Corporation are the Issuers of the 8.125%
Notes. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe
that separate financial information concerning the Issuers would provide additional
information that would be useful. 26




---



##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 Statements of Cash Flows
 Three Months Ended March 31, 2006Polymer
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorHoldings (1)
    
    
    Kraton (2)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating
activities
    
    $
    
    
    
    $
    (46,515
    )
    
    $
    (2,412
    )
    
    $
    15,490
    
    
    $
    
    
    
    $
    (33,437
    )Cash flows used in investing activities:Purchase of plant and equipment, net of
proceeds from sales of equipment
    
    
    
    
    
    
    
    
    
    
    (2,332
    )
    
    
    (3,822
    )
    
    
    
    
    
    
    (6,154
    )Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    (2,332
    )
    
    
    (3,822
    )
    
    
    
    
    
    
    (6,154
    )Cash flows provided by (used in) financing
activities:Repayment of debt
    
    
    
    
    
    
    (670
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (670
    )Proceeds from (payments on) intercompany
loans
    
    
    
    
    
    
    39,793
    
    
    
    (27,053
    )
    
    
    (12,740
    )
    
    
    
    
    
    
    Net proceeds from insurance note payable
    
    
    
    
    
    
    7,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,392Net cash provided by (used in)
financing activities
    
    
    
    
    
    
    46,515
    
    
    
    (27,053
    )
    
    
    (12,740
    )
    
    
    
    
    
    
    6,722Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,673
    )
    
    
    
    
    
    
    (1,673
    )Net decrease in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (31,797
    )
    
    
    (2,745
    )
    
    
    
    
    
    
    (34,542
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    
    
    
    
    54,941
    
    
    
    45,993
    
    
    
    
    
    
    
    100,934Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    
    
    
    $
    23,144
    
    
    $
    43,248
    
    
    $
    
    
    
    $
    66,392
 Three Months Ended March 31, 2005Polymer
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorHoldings (1)
    
    
    Kraton (2)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in)
operating activities
    
    $
    
    
    
    $
    (17,357
    )
    
    $
    2,619
    
    
    $
    (13,846
    )
    
    $
    
    
    
    $
    (28,584
    )Cash flows used in investing activities:Purchase of plant and equipment,
net of proceeds from sales of
equipment
    
    
    
    
    
    
    
    
    
    
    (1,123
    )
    
    
    (546
    )
    
    
    
    
    
    
    (1,669
    )Net cash used in investing
activities
    
    
    
    
    
    
    
    
    
    
    (1,123
    )
    
    
    (546
    )
    
    
    
    
    
    
    (1,669
    )Cash flows provided by (used in)
financing activities:Repayment of debt
    
    
    
    
    
    
    (670
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (670
    )Net proceeds from insurance note payable
    
    
    
    
    
    
    5,519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,519Proceeds from (payments on)
intercompany loans
    
    
    
    
    
    
    12,508
    
    
    
    (14,907
    )
    
    
    2,399
    
    
    
    
    
    
    
    Net cash provided by
(used in) financing
activities
    
    
    
    
    
    
    17,357
    
    
    
    (14,907
    )
    
    
    2,399
    
    
    
    
    
    
    
    4,849Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,146
    
    
    
    
    
    
    
    2,146Net decrease in cash and
cash equivalents
    
    
    
    
    
    
    
    
    
    
    (13,411
    )
    
    
    (9,847
    )
    
    
    
    
    
    
    (23,258
    )Cash and cash equivalents at beginning of
period
    
    
    
    
    
    
    
    
    
    
    15,981
    
    
    
    30,376
    
    
    
    
    
    
    
    46,357Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    
    
    
    $
    2,570
    
    
    $
    20,529
    
    
    $
    
    
    
    $
    23,099
 
 (1)
    
    Polymer Holdings LLC and Polymer Holdings Capital Corporation
are the Issuers of the 12.000%
Discount Notes. Polymer Holdings Capital Corporation has minimal assets and income. We do
not believe that separate financial information concerning the Issuers would provide
information that would be useful. Neither Polymer Holdings nor Polymer Holdings Capital
Corporation is a guarantor of the 8.125% Notes.(2)
    
    Kraton Polymers LLC and Kraton Polymers Capital Corporation are the Issuers of the 8.125%
Notes. Kraton Polymers Capital Corporation has minimal assets and income. We do not believe
that separate financial information concerning the Issuers would provide additional
information that would be useful. 27




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##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 (12) Supplemental Guarantor Information  Kraton Polymers LLC
  Balance Sheet
 As of March 31, 2006Guarantor
    
    
    Non-GuarantorKraton (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    23,144
    
    
    $
    43,248
    
    
    $
    
    
    
    $
    66,392Receivables, net
    
    
    877
    
    
    
    53,062
    
    
    
    98,806
    
    
    
    (19,243
    )
    
    
    133,502Inventories of products
    
    
    
    
    
    
    134,661
    
    
    
    113,500
    
    
    
    (8,223
    )
    
    
    239,938Inventories of materials and supplies
    
    
    
    
    
    
    6,054
    
    
    
    3,558
    
    
    
    
    
    
    
    9,612Other current assets
    
    
    11,903
    
    
    
    827
    
    
    
    7,279
    
    
    
    
    
    
    
    20,009Deferred income taxes
    
    
    
    
    
    
    6,027
    
    
    
    (4,074
    )
    
    
    
    
    
    
    1,953Total current assets
    
    
    12,780
    
    
    
    223,775
    
    
    
    262,317
    
    
    
    (27,466
    )
    
    
    471,406Property, plant, and equipment, less
accumulated depreciation
    
    
    125,071
    
    
    
    171,606
    
    
    
    96,816
    
    
    
    
    
    
    
    393,493Identifiable intangible assets, less
accumulated amortization
    
    
    51,075
    
    
    
    
    
    
    
    48,811
    
    
    
    
    
    
    
    99,886Investment in joint venture
    
    
    813
    
    
    
    
    
    
    
    8,800
    
    
    
    
    
    
    
    9,613Deferred financing costs
    
    
    12,149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,149Other long-term assets
    
    
    118,125
    
    
    
    317,997
    
    
    
    3,954
    
    
    
    (430,663
    )
    
    
    9,413Total assets
    
    $
    320,013
    
    
    $
    713,378
    
    
    $
    420,698
    
    
    $
    (458,129
    )
    
    $
    995,960Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    30,570
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    30,570Accounts payable  trade
    
    
    2,900
    
    
    
    30,573
    
    
    
    47,625
    
    
    
    
    
    
    
    81,098Other payables and accruals
    
    
    3,844
    
    
    
    11,349
    
    
    
    23,521
    
    
    
    
    
    
    
    38,714Due to (from) related parties
    
    
    
    
    
    
    9,880
    
    
    
    24,329
    
    
    
    (19,243
    )
    
    
    14,966Insurance
note payable
    
    
    7,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,392Total current liabilities
    
    
    44,706
    
    
    
    51,802
    
    
    
    95,475
    
    
    
    (19,243
    )
    
    
    172,740Long-term debt, net of current portion
    
    
    431,423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    431,423Deferred income taxes
    
    
    (13,517
    )
    
    
    46,591
    
    
    
    2,392
    
    
    
    
    
    
    
    35,466Long-term liabilities
    
    
    312,538
    
    
    
    29,998
    
    
    
    118,663
    
    
    
    (430,663
    )
    
    
    30,536Total liabilities
    
    
    775,150
    
    
    
    128,391
    
    
    
    216,530
    
    
    
    (449,906
    )
    
    
    670,165Commitments
and contingencies (note 8)Members equity:Common equity
    
    
    (458,229
    )
    
    
    584,987
    
    
    
    203,474
    
    
    
    (8,223
    )
    
    
    322,009Accumulated other comprehensive income
    
    
    3,092
    
    
    
    
    
    
    
    694
    
    
    
    
    
    
    
    3,786Total members equity
    
    
    (455,137
    )
    
    
    584,987
    
    
    
    204,168
    
    
    
    (8,223
    )
    
    
    325,795Total liabilities and members equity
    
    $
    320,013
    
    
    $
    713,378
    
    
    $
    420,698
    
    
    $
    (458,129
    )
    
    $
    995,960
 
 (1)
    
    Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that
separate financial information concerning the Issuers would provide additional information
that would be useful.
 28




---



##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 Balance Sheet
 As of December 31, 2005Guarantor
    
    
    Non-GuarantorKraton (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    54,941
    
    
    $
    45,993
    
    
    $
    
    
    
    $
    100,934Receivables, net
    
    
    
    
    
    
    45,048
    
    
    
    69,950
    
    
    
    (7,412
    )
    
    
    107,586Inventories of products
    
    
    
    
    
    
    109,691
    
    
    
    88,697
    
    
    
    (5,793
    )
    
    
    192,595Inventories of materials and supplies
    
    
    
    
    
    
    5,935
    
    
    
    3,401
    
    
    
    
    
    
    
    9,336Other current assets
    
    
    4,729
    
    
    
    9,565
    
    
    
    9,217
    
    
    
    
    
    
    
    23,511Deferred income taxes
    
    
    
    
    
    
    6,027
    
    
    
    (4,074
    )
    
    
    
    
    
    
    1,953Total current assets
    
    
    4,729
    
    
    
    231,207
    
    
    
    213,184
    
    
    
    (13,205
    )
    
    
    435,915Property, plant, and equipment, less
accumulated depreciation
    
    
    127,589
    
    
    
    173,900
    
    
    
    92,703
    
    
    
    
    
    
    
    394,192Identifiable intangible assets
    
    
    53,037
    
    
    
    
    
    
    
    48,811
    
    
    
    
    
    
    
    101,848Investment in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment in joint venture
    
    
    813
    
    
    
    
    
    
    
    9,729
    
    
    
    
    
    
    
    10,542Deferred financing costs
    
    
    12,711
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,711Other long-term assets
    
    
    105,385
    
    
    
    290,963
    
    
    
    4,127
    
    
    
    (390,870
    )
    
    
    9,605Total assets
    
    $
    304,264
    
    
    $
    696,070
    
    
    $
    368,554
    
    
    $
    (404,075
    )
    
    $
    964,813Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    30,570
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    30,570Accounts payable  trade
    
    
    2,900
    
    
    
    26,726
    
    
    
    34,719
    
    
    
    
    
    
    
    64,345Other payables and accruals
    
    
    8,069
    
    
    
    21,448
    
    
    
    19,241
    
    
    
    
    
    
    
    48,758Due to (from) related parties
    
    
    
    
    
    
    1,835
    
    
    
    18,696
    
    
    
    (7,412
    )
    
    
    13,119Total current liabilities
    
    
    41,539
    
    
    
    50,009
    
    
    
    72,656
    
    
    
    (7,412
    )
    
    
    156,792Long-term debt, net of current portion
    
    
    432,093
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    432,093Deferred income taxes
    
    
    (9,055
    )
    
    
    42,764
    
    
    
    301
    
    
    
    
    
    
    
    34,010Long-term liabilities
    
    
    285,485
    
    
    
    28,950
    
    
    
    106,148
    
    
    
    (390,870
    )
    
    
    29,713Total liabilities
    
    
    750,062
    
    
    
    121,723
    
    
    
    179,105
    
    
    
    (398,282
    )
    
    
    652,608Commitments
and contingencies (See Note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Members equity:Common equity
    
    
    (448,685
    )
    
    
    574,347
    
    
    
    195,028
    
    
    
    (5,793
    )
    
    
    314,897Accumulated other comprehensive income
    
    
    2,887
    
    
    
    
    
    
    
    (5,579
    )
    
    
    
    
    
    
    (2,692
    )Total members equity
    
    
    (445,798
    )
    
    
    574,347
    
    
    
    189,449
    
    
    
    (5,793
    )
    
    
    312,205Total liabilities and members equity
    
    $
    304,264
    
    
    $
    696,070
    
    
    $
    368,554
    
    
    $
    (404,075
    )
    
    $
    964,813
 
 (1)
    
    Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that
separate financial information concerning the Issuers would provide additional information
that would be useful. 29




---



##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 Statement of Operations
 Three Months Ended March 31, 2006Guarantor
    
    
    Non-GuarantorKraton (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    121,514
    
    
    $
    147,276
    
    
    $
    (48,004
    )
    
    $
    220,786Other
    
    
    
    
    
    
    
    
    
    
    8,603
    
    
    
    
    
    
    
    8,603Total revenues
    
    
    
    
    
    
    121,514
    
    
    
    155,879
    
    
    
    (48,004
    )
    
    
    229,389Costs and expenses:Cost of goods sold
    
    
    2,430
    
    
    
    91,635
    
    
    
    130,883
    
    
    
    (48,004
    )
    
    
    176,944Gross profit
    
    
    (2,430
    )
    
    
    29,879
    
    
    
    24,996
    
    
    
    
    
    
    
    52,445Research and development expenses
    
    
    
    
    
    
    3,170
    
    
    
    2,771
    
    
    
    
    
    
    
    5,941Selling, general, and
administrative expenses
    
    
    
    
    
    
    10,607
    
    
    
    7,297
    
    
    
    
    
    
    
    17,904Depreciation and amortization
    
    
    4,479
    
    
    
    4,562
    
    
    
    1,999
    
    
    
    
    
    
    
    11,040Earnings in joint venture
    
    
    
    
    
    
    
    
    
    
    (306
    )
    
    
    
    
    
    
    (306
    )Interest expense (income)
    
    
    9,637
    
    
    
    (2,310
    )
    
    
    1,098
    
    
    
    
    
    
    
    8,425Income (loss) before income taxes
    
    
    (16,546
    )
    
    
    13,850
    
    
    
    12,137
    
    
    
    
    
    
    
    9,559Income tax (provision) benefit
    
    
    4,573
    
    
    
    (3,828
    )
    
    
    (3,691
    )
    
    
    
    
    
    
    (2,946
    )Net income (loss)
    
    $
    (11,973
    )
    
    $
    10,022
    
    
    $
    8,446
    
    
    $
    
    
    
    $
    6,495
 Three Months Ended March 31, 2005Guarantor
    
    
    Non-GuarantorKraton (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    108,628
    
    
    $
    124,964
    
    
    $
    (31,661
    )
    
    $
    201,931Other
    
    
    
    
    
    
    
    
    
    
    5,269
    
    
    
    
    
    
    
    5,269Total revenues
    
    
    
    
    
    
    108,628
    
    
    
    130,233
    
    
    
    (31,661
    )
    
    
    207,200Costs and expenses:Cost of goods sold
    
    
    2,111
    
    
    
    80,019
    
    
    
    106,895
    
    
    
    (31,661
    )
    
    
    157,364Gross profit
    
    
    (2,111
    )
    
    
    28,609
    
    
    
    23,338
    
    
    
    
    
    
    
    49,836Research and development expenses
    
    
    
    
    
    
    2,871
    
    
    
    3,126
    
    
    
    
    
    
    
    5,997Selling, general, and administrative expenses
    
    
    
    
    
    
    11,132
    
    
    
    6,940
    
    
    
    
    
    
    
    18,072Depreciation and amortization
    
    
    4,363
    
    
    
    4,602
    
    
    
    2,017
    
    
    
    
    
    
    
    10,982Earnings in joint venture
    
    
    
    
    
    
    
    
    
    
    (557
    )
    
    
    
    
    
    
    (557
    )Interest expense (income)
    
    
    8,902
    
    
    
    (1,669
    )
    
    
    1,260
    
    
    
    
    
    
    
    8,493Income (loss) before income taxes
    
    
    (15,376
    )
    
    
    11,673
    
    
    
    10,552
    
    
    
    
    
    
    
    6,849Income tax (provision) benefit
    
    
    4,254
    
    
    
    (3,229
    )
    
    
    (2,919
    )
    
    
    
    
    
    
    (1,894
    )Net income (loss)
    
    $
    (11,122
    )
    
    $
    8,444
    
    
    $
    7,633
    
    
    $
    
    
    
    $
    4,955
 
 (1)
    
    Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that
separate financial information concerning the Issuers would provide additional information
that would be useful. 30




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##### Table of Contents



Polymer Holdings LLC and Kraton Polymers LLC
 
 Statement of Cash Flows
 Three Months Ended March 31, 2006Guarantor
    
    
    Non-GuarantorKraton (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities
    
    $
    (46,515
    )
    
    $
    (2,412
    )
    
    $
    15,490
    
    
    $
    
    
    
    $
    (33,437
    )Cash flows used in investing activities:Purchase of plant and equipment, net of
proceeds from sales of equipment
    
    
    
    
    
    
    (2,332
    )
    
    
    (3,822
    )
    
    
    
    
    
    
    (6,154
    )Net cash used in investing activities
    
    
    
    
    
    
    (2,332
    )
    
    
    (3,822
    )
    
    
    
    
    
    
    (6,154
    )Cash flows provided by (used in) financing
activities:Repayment of debt
    
    
    (670
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (670
    )Proceeds from (payments on) intercompany
loans
    
    
    39,793
    
    
    
    (27,053
    )
    
    
    (12,740
    )
    
    
    
    
    
    
    Net proceeds
from insurance note payable
    
    
    7,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,392Net cash provided by (used in)
financing activities
    
    
    46,515
    
    
    
    (27,053
    )
    
    
    (12,740
    )
    
    
    
    
    
    
    6,722Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    (1,673
    )
    
    
    
    
    
    
    (1,673
    )Net decrease in cash and cash
equivalents
    
    
    
    
    
    
    (31,797
    )
    
    
    (2,745
    )
    
    
    
    
    
    
    (34,542
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    54,941
    
    
    
    45,993
    
    
    
    
    
    
    
    100,934Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    23,144
    
    
    $
    43,248
    
    
    $
    
    
    
    $
    66,392
 Three Months Ended March 31, 2005Guarantor
    
    
    Non-GuarantorKraton (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating
activities
    
    $
    (17,357
    )
    
    $
    2,619
    
    
    $
    (13,846
    )
    
    $
    
    
    
    $
    (28,584
    )Cash flows used in investing activities:Purchase of plant and equipment, net of
proceeds from sales of equipment
    
    
    
    
    
    
    (1,123
    )
    
    
    (546
    )
    
    
    
    
    
    
    (1,669
    )Net cash used in investing activities
    
    
    
    
    
    
    (1,123
    )
    
    
    (546
    )
    
    
    
    
    
    
    (1,669
    )Cash flows provided by (used in) financing
activities:Repayment of debt
    
    
    (670
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (670
    )Net proceeds
from insurance note payable
    
    
    5,519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,519Proceeds from (payments on) intercompany
loans
    
    
    12,508
    
    
    
    (14,907
    )
    
    
    2,399
    
    
    
    
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    17,357
    
    
    
    (14,907
    )
    
    
    2,399
    
    
    
    
    
    
    
    4,849Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    2,146
    
    
    
    
    
    
    
    2,146Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (13,411
    )
    
    
    (9,847
    )
    
    
    
    
    
    
    (23,258
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    15,981
    
    
    
    30,376
    
    
    
    
    
    
    
    46,357Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    2,570
    
    
    $
    20,529
    
    
    $
    
    
    
    $
    23,099
 
 (1)
    
    Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that
separate financial information concerning the Issuers would provide additional information
that would be useful. 31




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
   Overview
    Recent Developments
 Tender
Offer
     32




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##### Table of Contents



Amendment to
Kratons Senior Secured Credit Facility
  Overview
  Interest and Fees
  Covenants
  Events of Default
  Monomer Contracts
   Asia Pacific Expansion Plans
   33




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##### Table of Contents



New Products
  
    
    In our Packing and Film market we announced in January 2006 the availability of two additional grades which provide an alternative to plasticized PVC for numerous film-based, medical and packaging applications.
    
    In our Adhesive, Sealants and Coatings market we announced in February 2006 the availability of two additional grades suitable for pressure sensitive adhesive films that enable the key features of both coextruded and adhesive-coated protective films to be combined. Films based on these new grades, such as surface protective films, are highly elastic and conformable for thermo-forming and free from drawbacks typical of adhesive coated films such as residue transfer.
    
    In our Compounding Channels market we announced in April 2006 the availability of two additional grades which allow compounders to formulate compounds with higher flow, better transparency, enhanced overmold adhesion, yet retain the same strength and service temperature as compounds made with the industry standard Kraton G1651.
 Staff
  Critical Accounting Policies
  Revenue Recognition
  34




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##### Table of Contents



Inventories
  Property, Plant and Equipment
   Income Taxes
  Factors Affecting Our Results of Operations
 Raw Materials
  35




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##### Table of Contents



Seasonality
  Economic and Market Conditions
  36




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##### Table of Contents



International Operations and Currency Fluctuations
   U.S. $ per Euro
    
    U.S. $ per 10,000 Japanese Yen
    
    U.S. $ per Brazilian RealAverage
    
    Period End
    
    Average
    
    Period End
    
    Average
    
    Period EndQuarter Ended March 31, 2005
    
    
    1.312
    
    
    
    1.291
    
    
    
    95.73
    
    
    
    93.12
    
    
    
    0.376
    
    
    
    0.375Quarter Ended March 31, 2006
    
    
    1.202
    
    
    
    1.207
    
    
    
    85.50
    
    
    
    85.13
    
    
    
    0.456
    
    
    
    0.460
   37




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##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2006, Compared to Three Months Ended March 31, 2005
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005Revenues:Sales
    
    $
    220,786
    
    
    $
    201,931Other
    
    
    8,603
    
    
    
    5,269Total revenues
    
    
    229,389
    
    
    
    207,200Costs and expenses:Cost of goods sold
    
    
    176,944
    
    
    
    157,364Gross profit
    
    
    52,445
    
    
    
    49,836Research and development expenses
    
    
    5,941
    
    
    
    5,997Selling, general and administrative expenses
    
    
    17,904
    
    
    
    18,072Depreciation and amortization of identifiable intangibles
    
    
    11,040
    
    
    
    10,982Earnings in joint venture
    
    
    (306
    )
    
    
    (557
    )Interest, net
    
    
    11,607
    
    
    
    11,319Income before income taxes
    
    
    6,259
    
    
    
    4,023Income tax provision
    
    
    (1,913
    )
    
    
    (952
    )Net income
    
    $
    4,346
    
    
    $
    3,071
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005Revenues:Sales
    
    
    96.2
    %
    
    
    97.5
    %Other
    
    
    3.8
    
    
    
    2.5Total Revenues
    
    
    100.0
    
    
    
    100.0Costs and expenses:Cost of goods sold
    
    
    77.1
    
    
    
    75.9Gross profit
    
    
    22.9
    
    
    
    24.1Research and development expenses
    
    
    2.6
    
    
    
    2.9Selling, general and administrative expenses
    
    
    7.8
    
    
    
    8.7Depreciation and amortization of identifiable intangibles
    
    
    4.8
    
    
    
    5.3Earnings in joint venture
    
    
    (0.1
    )
    
    
    (0.3
    )Interest, net
    
    
    5.1
    
    
    
    5.5Income before income taxes
    
    
    2.7
    
    
    
    1.9Income tax provision
    
    
    (1.0
    )
    
    
    (0.5
    )Net income
    
    
    1.9
    %
    
    
    1.5
    %
 Total Revenues
  Sales
 38




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##### Table of Contents



Other revenue
 Cost of Goods Sold
  Gross Profit
  Operating Expenses
 Research and development expenses
 Selling, general and administrative expenses
 39




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##### Table of Contents



Depreciation and amortization of identifiable intangibles.
 Earnings in joint venture
 Interest expense  Polymer Holdings
 Interest expense  Kraton
 Income Tax Provision
 Income tax provision  Polymer Holdings.
 Income tax provision  Kraton .
 Net Income
 Net
income Polymer Holdings.
 Net income Kraton.
 Liquidity and Capital Resources
 Operating activities.
 Investing activities
 40




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##### Table of Contents



Financing activities.
 Sources of liquidity.
    Capital expenditures.
  41




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##### Table of Contents



Description of Our Indebtedness
 Senior Secured Credit Facility
   Structure
  
    
    a senior secured term loan of $360.0 million, which we refer to as the Term Facility,
and
    
    a senior secured revolving credit facility of up to $60.0 million,
which we refer to as the Revolving Facility.
  Maturity, Amortization and Prepayment.
  Interest and Fees.
 42




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##### Table of Contents



Guarantees.
 Security.
 Covenants.
   Events of Default.
 Kratons 8.125% Senior Subordinated Notes due 2014
  Maturity Date.
 Interest Payment Dates.
 Guarantees.
 Security and Ranking.
 43




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##### Table of Contents



Optional Redemption.
 Covenants.
   Polymer Holdings 12.000% Senior Discount Notes Due 2014
  Maturity Date.
 Accretion.
 Cash Interest Payment Dates.
 Guarantees.
 Holding Company Structure and Ranking.
 44




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##### Table of Contents



Optional Redemption.
 Covenants.
   Other Contingencies
       45




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##### Table of Contents



Off-Balance Sheet Transactions
  Market Risk
  Interest rate risk.
 Foreign currency risk
 Commodity price risk
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  46




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##### Table of Contents



47




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##### Table of Contents



PART II  Other Information
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 4.1
    
    First Supplemental Indenture dated as of May 9, 2006, by
and among Polymer Holdings, Polymer Holdings Capital Corporation and
Wells Fargo Bank, N.A.10.1
    
    Amendment No. 3 to Credit and Guaranty Agreement dated
as of February 16, 2006, by and among Kraton, each of the
Guarantors listed on the signature pages attached thereto, the
Lenders, and UBS AG, Stamford Branch.10.2
    
    Sales Contract dated April 25, 2006, between Kraton Polymers U.S. LLC and Shell Chemical LP.10.3
    
    Amendment No. 4 to Credit and Guaranty Agreement dated
as of May 12, 2006, by and among Kraton; Polymer Holdings and
certain subsidiary companies; Goldman Sachs Credit Partners L.P.; UBS
AG, Stamford Branch; Morgan Stanley Senior Funding Inc.; Credit
Suisse, Cayman Island Branch; and General Electric Capital
Corporation.31.1
    
    Certification of Chief Executive Officer under Section 302 of
SarbanesOxley Act of 200231.2
    
    Certification of Chief Financial Officer under Section 302 of
SarbanesOxley Act of 200232.1
    
    Certification Pursuant to Section 906 of SarbanesOxley Act of 2002
 48




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##### Table of Contents



Signatures
  Polymer Holdings LLCKraton Polymers LLCDate: May 15, 2006
    
    /s/ George B. GregoryGeorge B. GregoryChief Executive Officer/s/ Raymond K. GubaRaymond K. GubaVice President andChief Financial Officer
 49




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##### Table of Contents



Exhibit Index
 4.1
    
    First Supplemental Indenture dated as of May 9, 2006, by
and among Polymer Holdings, Polymer Holdings Capital Corporation and
Wells Fargo Bank, N.A.10.1
    
    Amendment No. 3 to Credit and Guaranty Agreement dated
as of February 16, 2006, by and among Kraton, each of the
Guarantors listed on the signature pages attached thereto, the
Lenders, and UBS AG, Stamford Branch.10.2
    
    Sales Contract dated April 25, 2006, between Kraton Polymers U.S. LLC and Shell Chemical LP.10.3
    
    Amendment No. 4 to Credit and Guaranty Agreement dated
as of May 12, 2006, by and among Kraton; Polymer Holdings and
certain subsidiary companies; Goldman Sachs Credit Partners L.P.; UBS
AG, Stamford Branch; Morgan Stanley Senior Funding Inc.; Credit
Suisse, Cayman Island Branch; and General Electric Capital
Corporation.31.1
    
    Certification of Chief Executive Officer under Section 302 of
SarbanesOxley Act of 200231.2
    
    Certification of Chief Financial Officer under Section 302 of
SarbanesOxley Act of 200232.1
    
    Certification Pursuant to Section 906 of SarbanesOxley Act of 2002
 50