##### 



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 September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Kraton Polymers LLC
 (Exact name of Register as specified in its Charter)
 Delaware
    
    94-2805249(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)15710 John F. Kennedy Blvd. Suite 300Houston, TX 77032
    
    281-504-4700(Address of principal executive offices,
    
    (Registrants telephone number, including area code)including zip code)
 o þ
  o o þ
 o o




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TABLE OF CONTENTS
 PAGEPart I  Financial InformationItem 1. Financial Statements and Accompanying NotesKraton Polymers LLC:Consolidated Balance Sheets September 30, 2007 (Unaudited) and December 31, 2006
    
    
    4Consolidated Statements of Operations (Unaudited)  Three Months Ended September 30, 2007 and 2006
    
    
    5Consolidated Statements of Operations (Unaudited)  Nine months Ended September 30, 2007 and 2006
    
    
    6Consolidated Statements of Cash Flows (Unaudited)  Nine months Ended September 30, 2007 and 2006
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    38Part II  Other InformationItem 1. Legal Proceedings
    
    
    39Item 2. Changes in Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Securityholders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40
  2




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##### 



FORWARD LOOKING STATEMENTS
  3




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##### 



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 Kraton Polymers LLC
 
 Consolidated Balance Sheets
 September 30, 2007 and December 31, 2006
(In thousands of U.S. dollars)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    32,317
    
    
    $
    43,601Receivables, net of allowances of $1,982 and $2,157
    
    
    153,158
    
    
    
    135,937Inventories of products, net
    
    
    284,430
    
    
    
    256,785Inventories of materials and supplies, net
    
    
    12,214
    
    
    
    10,903Other current assets
    
    
    14,217
    
    
    
    13,308Deferred income taxes
    
    
    1,938
    
    
    
    1,931Total current assets
    
    
    498,274
    
    
    
    462,465Property, plant and equipment, less accumulated depreciation of $142,171 and $105,219
    
    
    403,320
    
    
    
    403,743Identifiable intangible assets, less accumulated amortization of $27,399 and $21,978
    
    
    81,210
    
    
    
    86,631Investment in unconsolidated joint venture
    
    
    10,102
    
    
    
    9,376Deferred financing costs
    
    
    10,825
    
    
    
    13,038Other long-term assets
    
    
    15,349
    
    
    
    13,900Total assets
    
    $
    1,019,080
    
    
    $
    989,153Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    3,445
    
    
    $
    3,850Accounts payable-trade
    
    
    117,388
    
    
    
    68,940Other payables and accruals
    
    
    51,736
    
    
    
    53,130Due to related party
    
    
    20,925
    
    
    
    9,351Insurance note payable
    
    
    1,977
    
    
    
    739Total current liabilities
    
    
    195,471
    
    
    
    136,010Long-term debt, net of current portion
    
    
    535,881
    
    
    
    578,263Deferred income taxes
    
    
    35,221
    
    
    
    40,107Other long-term liabilities
    
    
    36,366
    
    
    
    35,032Total liabilities
    
    
    802,939
    
    
    
    789,412Commitments and contingencies (note 9)Members equity:Common equity
    
    
    178,547
    
    
    
    184,111Accumulated other comprehensive income
    
    
    37,594
    
    
    
    15,630Total members equity
    
    
    216,141
    
    
    
    199,741Total liabilities and members equity
    
    $
    1,019,080
    
    
    $
    989,153
  4




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##### 



Kraton Polymers LLC
 
 Consolidated Statements of Operations
 Three Months Ended September 30, 2007 and 2006
(in thousands of U.S. dollars)
(Unaudited)
 September 30,
    
    
    September 30,2007
    
    
    2006RevenuesSales
    
    $
    284,498
    
    
    $
    278,409Other
    
    
    5,652
    
    
    
    9,745Total revenues
    
    
    290,150
    
    
    
    288,154Costs and expenses:Costs of goods sold
    
    
    243,699
    
    
    
    225,820Gross profit
    
    
    46,451
    
    
    
    62,334Research and development expenses
    
    
    5,452
    
    
    
    6,084Selling, general, and administrative expenses
    
    
    15,594
    
    
    
    18,884Depreciation and amortization of identifiable intangibles
    
    
    12,539
    
    
    
    11,187Loss (earnings) in joint venture
    
    
    (189
    )
    
    
    208Interest expense, net
    
    
    12,375
    
    
    
    10,932Income before income taxes
    
    
    680
    
    
    
    15,039Income tax provision
    
    
    (1,434
    )
    
    
    (3,404
    )Net (loss) income
    
    $
    (754
    )
    
    $
    11,635
  5




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##### 



Kraton Polymers LLC
 
 Consolidated Statements of Operations
 Nine Months Ended September 30, 2007 and 2006
(in thousands of U.S. dollars)
(Unaudited)
 September 30,
    
    
    September 30,2007
    
    
    2006Revenues:Sales
    
    $
    812,326
    
    
    $
    775,192Other
    
    
    19,546
    
    
    
    27,639Total revenue
    
    
    831,872
    
    
    
    802,831Costs and expenses:Costs of goods sold
    
    
    701,660
    
    
    
    635,552Gross profit
    
    
    130,212
    
    
    
    167,279Research and development expenses
    
    
    18,504
    
    
    
    19,150Selling, general and administrative expenses
    
    
    49,208
    
    
    
    56,872Depreciation and amortization
    
    
    36,417
    
    
    
    33,201Earnings in joint venture
    
    
    (514
    )
    
    
    (232
    )Interest expense, net
    
    
    32,507
    
    
    
    29,501(Loss) income before income taxes
    
    
    (5,910
    )
    
    
    28,787Income tax provision
    
    
    (1,822
    )
    
    
    (7,233
    )Net (loss) income
    
    $
    (7,732
    )
    
    $
    21,554
  6




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##### 



Kraton Polymers LLC
 
 Consolidated Statements of Cash Flows
 Nine Months Ended September 30, 2007 and 2006
(in thousands of U.S. dollars)
(Unaudited)
 September 30,
    
    
    September 30,2007
    
    
    2006Cash flows provided by (used in) operating activities:Net (loss) income
    
    $
    (7,732
    )
    
    $
    21,554Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of identifiable intangibles
    
    
    36,417
    
    
    
    33,201Amortization of deferred financing costs
    
    
    2,213
    
    
    
    1,801Loss on disposal of fixed assets
    
    
    279
    
    
    
    228(Undistributed) distributed earnings in joint venture
    
    
    (408
    )
    
    
    1,033Deferred tax (benefit) provision
    
    
    (3,937
    )
    
    
    1,239Non-cash compensation related to equity awards
    
    
    1,814
    
    
    
    1,881Gain on interest rate swaps
    
    
    (1,553
    )
    
    
    Decrease (increase) in working capital:Accounts receivable
    
    
    (8,550
    )
    
    
    (38,949
    )Due to related party
    
    
    11,048
    
    
    
    (1,553
    )Inventories of products, materials and supplies
    
    
    (16,217
    )
    
    
    (62,765
    )Other assets
    
    
    (2,891
    )
    
    
    2,931Accounts payable-trade, other payables and accruals, and other long-term liabilities
    
    
    41,597
    
    
    
    8,018Net cash provided by (used in) operating activities
    
    
    52,080
    
    
    
    (31,381
    )Cash flows (used in) provided by investing activities:Purchase of property, plant and equipment
    
    
    (19,861
    )
    
    
    (28,049
    )Proceeds from sale of property, plant and equipment
    
    
    43
    
    
    
    54Net cash used in investing activities
    
    
    (19,818
    )
    
    
    (27,995
    )Cash flows provided by (used in) financing activities:Proceeds from debt
    
    
    
    
    
    
    123,008Repayment of debt
    
    
    (42,787
    )
    
    
    (2,596
    )Cash dividend to parent
    
    
    
    
    
    
    (129,531
    )Deferred financing cost
    
    
    
    
    
    
    (2,678
    )Net proceeds from insurance note payable
    
    
    1,238
    
    
    
    2,957Net cash used in financing activities
    
    
    (41,549
    )
    
    
    (8,840
    )Effect of exchange rate differences on cash
    
    
    (1,997
    )
    
    
    (4,003
    )Net decrease in cash and cash equivalents
    
    
    (11,284
    )
    
    
    (72,219
    )Cash and cash equivalents, beginning of period
    
    
    43,601
    
    
    
    100,934Cash and cash equivalents, end of period
    
    $
    32,317
    
    
    $
    28,715Supplemental disclosure cash flow information:Cash paid during the period for income taxes, net of refunds received
    
    $
    8,105
    
    
    $
    3,856Cash paid during the period for interest
    
    $
    30,320
    
    
    $
    33,364
  7




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##### 



Kraton Polymers LLC
 
 Notes to Consolidated Financial Statements
(Unaudited)
 (1) Summary of Significant Accounting Policies
 (a) Organization and Description of Business
   (b) Basis of Presentation
     (c) Recently Issued Accounting Standards
 The Fair Value Option for Financial Assets and Financial Liabilities
 Including an Amendment of FASB Statement No. 115
 8




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##### 



Fair Value Measurements
 (2) Share-Based Compensation
 Share-Based Payment, ,
  WeightedNumber
    
    
    Averageof
    
    
    ExerciseOptions
    
    
    PriceOutstanding at December 31, 2006
    
    
    15,293
    
    
    $
    1.00Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (282
    )
    
    
    1.00Outstanding at September 30, 2007
    
    
    15,011
    
    
    $
    1.00
 (3) Restructuring Activities
     9




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##### 



Three Month Ended
    
    Nine Month EndedSeptember 30
    
    September 302007
    
    2006
    
    2007
    
    2006Cost of goods sold
    
    $
    1,850
    
    
    $
    1,459
    
    
    $
    1,850
    
    
    $
    6,468Research and development
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    585Selling, general and administrative
    
    $
    100
    
    
    $
    380
    
    
    $
    100
    
    
    $
    1,437
   Severance
    
    
    Exit ActivityCosts (1)
    
    
    Costs
    
    
    TotalReserve balance at December 31, 2006
    
    $
    2,042
    
    
    $
    935
    
    
    $
    2,977Accruals
    
    
    100
    
    
    
    2,100
    
    
    
    2,200Cash payments
    
    
    (2,000
    )
    
    
    (591
    )
    
    
    (2,591
    )Reserve balance at September 30, 2007
    
    $
    142
    
    
    $
    2,444
    
    
    $
    2,586
 
 (1)
    
    Excludes additional pension and other postretirement benefits expense of approximately $ 2.3
million. (4) Detail of Certain Balance Sheet Accounts
  September 30,
    
    
    December 31,2007
    
    
    2006Inventories of products, net:Finished products
    
    $
    236,605
    
    
    $
    215,623Work in progress
    
    
    3,339
    
    
    
    4,098Raw materials
    
    
    44,486
    
    
    
    37,064$
    284,430
    
    
    $
    256,785Other payables and accruals:Employee related
    
    $
    6,555
    
    
    $
    14,979Interest
    
    
    9,852
    
    
    
    7,604Property and other taxes
    
    
    4,902
    
    
    
    4,102Customer rebates
    
    
    6,888
    
    
    
    3,089Income taxes payable
    
    
    6,637
    
    
    
    8,504Other
    
    
    16,902
    
    
    
    14,852$
    51,736
    
    
    $
    53,130
 10




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##### 



(5) Comprehensive Income (Loss)
  Three Month Ended
    
    
    Nine Month EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    (754
    )
    
    $
    11,635
    
    
    $
    (7,732
    )
    
    $
    21,554Foreign currency adjustments
    
    
    15,819
    
    
    
    4,712
    
    
    
    23,828
    
    
    
    16,983Unrealized (loss) gain on interest rate swaps
    
    
    
    
    
    
    (699
    )
    
    
    (1,863
    )
    
    
    (532
    )Total comprehensive income
    
    $
    15,065
    
    
    $
    15,648
    
    
    $
    14,233
    
    
    $
    38,005
  September 30, 2007
    
    
    December 31, 2006Foreign currency adjustments
    
    $
    38,789
    
    
    $
    14,962Unrealized gain on interest rate swaps, net of tax
    
    
    
    
    
    
    1,863Pension adjustment, net of tax
    
    
    (1,195
    )
    
    
    (1,195
    )Total accumulated other comprehensive income
    
    $
    37,594
    
    
    $
    15,630
 (6) Long-Term Debt
  September 30,
    
    
    December 31,2007
    
    
    2006Senior Secured Credit Facilities:Term loans
    
    $
    339,326
    
    
    $
    382,113Revolver
    
    
    
    
    
    
    8.125% Notes
    
    
    200,000
    
    
    
    200,000Total debt
    
    
    539,326
    
    
    
    582,113Less current portion of long-term debt
    
    
    3,445
    
    
    
    3,850Total long-term debt
    
    $
    535,881
    
    
    $
    578,263
 (a) Senior Secured Credit Facilities
   11




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Maturity
   Interest
  Scheduled Payments
  Covenants
    12




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##### 



(b) Senior Subordinated Notes Due January 15, 2014
  Interest
  Optional Redemption
   Covenants
    (7) Financial Instruments
 (a) Interest Rate Swap Agreements
  13




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##### 



(b) Fair Value of Financial Instruments
  September 30, 2007Carrying Value
    
    Fair ValueTerm loans
    
    $
    339,326
    
    
    $
    339,3268.125% Notes
    
    
    200,000
    
    
    
    194,250
 December 31, 2006Carrying Value
    
    Fair ValueTerm loans
    
    $
    382,113
    
    
    $
    382,1138.125% Notes
    
    
    200,000
    
    
    
    200,000
  (8) Income Taxes
   Accounting for Uncertainty
in Income Taxes, an Interpretation of FASB Statement No. 109
  14




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##### 



Unrecognized
    
    InterestMillions of dollars
    
    Tax Benefits
    
    and PenaltiesBalance at January 1, 2007
    
    $
    2.4
    
    
    $
    0.3Increase (decrease) in prior year tax positions
    
    
    (1.7
    )
    
    
    (0.3
    )Balance at September 30, 2007
    
    $
    0.7
    
    
    $
    0.0
 (9) Commitments and Contingencies
 Legal Proceedings
  (10) Employee Benefits
 (a) Investment in Kraton Management LLC
  (b) TJ Chemical Holdings LLC 2004 Option Plan
    15




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##### 



(c) Other Equity Awards
  (d) Kraton Polymers LLC Executive Deferred Compensation Plan
  16




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##### 



(e) 2007 Incentive Compensation Plan
  (f) Retirement Plans
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic benefit cost:Service cost
    
    $
    644
    
    
    $
    563
    
    
    $
    1,934
    
    
    $
    2,157Interest cost
    
    
    969
    
    
    
    907
    
    
    
    2,907
    
    
    
    2,605Expected return on plan assets
    
    
    (908
    )
    
    
    (893
    )
    
    
    (2,726
    )
    
    
    (2,491
    )Restructuring costs (See Note 3)
    
    
    
    
    
    
    (148
    )
    
    
    
    
    
    
    624Net periodic benefit cost
    
    $
    705
    
    
    $
    429
    
    
    $
    2,115
    
    
    $
    2,895
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic benefit cost:Service cost
    
    $
    88
    
    
    $
    90
    
    
    $
    264
    
    
    $
    296Interest cost
    
    
    187
    
    
    
    187
    
    
    
    561
    
    
    
    461Recognized actuarial gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring costs (See Note 3)
    
    
    
    
    
    
    499
    
    
    
    
    
    
    
    1,900Net periodic benefit cost
    
    $
    275
    
    
    $
    776
    
    
    $
    825
    
    
    $
    2,657
 17




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##### 



(11) Industry Segment and Foreign Operations
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net Revenues:United States
    
    $
    97,397
    
    
    $
    104,887
    
    
    $
    285,417
    
    
    $
    295,886Germany
    
    
    37,558
    
    
    
    36,096
    
    
    
    112,491
    
    
    
    90,491Netherlands
    
    
    11,382
    
    
    
    15,235
    
    
    
    38,824
    
    
    
    43,898Italy
    
    
    12,601
    
    
    
    13,083
    
    
    
    38,152
    
    
    
    41,587Japan
    
    
    12,830
    
    
    
    14,175
    
    
    
    37,434
    
    
    
    45,323China
    
    
    11,457
    
    
    
    13,645
    
    
    
    31,059
    
    
    
    34,767United Kingdom
    
    
    10,979
    
    
    
    8,059
    
    
    
    30,036
    
    
    
    31,164Brazil
    
    
    10,143
    
    
    
    8,961
    
    
    
    26,851
    
    
    
    23,283Belgium
    
    
    8,945
    
    
    
    2,813
    
    
    
    23,374
    
    
    
    10,480France
    
    
    8,734
    
    
    
    7,007
    
    
    
    22,684
    
    
    
    19,730Poland
    
    
    8,177
    
    
    
    6,746
    
    
    
    16,536
    
    
    
    10,891Canada
    
    
    6,216
    
    
    
    7,160
    
    
    
    16,342
    
    
    
    20,286Taiwan
    
    
    5,151
    
    
    
    3,710
    
    
    
    15,384
    
    
    
    11,930Thailand
    
    
    4,498
    
    
    
    3,148
    
    
    
    12,054
    
    
    
    11,530Turkey
    
    
    4,172
    
    
    
    2,250
    
    
    
    11,187
    
    
    
    10,924Argentina
    
    
    3,836
    
    
    
    3,738
    
    
    
    10,601
    
    
    
    9,881Sweden
    
    
    3,667
    
    
    
    2,623
    
    
    
    10,025
    
    
    
    7,433Austria
    
    
    3,264
    
    
    
    3,008
    
    
    
    7,480
    
    
    
    5,338Mexico
    
    
    2,214
    
    
    
    2,481
    
    
    
    6,932
    
    
    
    6,981Denmark
    
    
    2,008
    
    
    
    1,374
    
    
    
    6,764
    
    
    
    4,541Australia
    
    
    2,547
    
    
    
    2,895
    
    
    
    6,264
    
    
    
    7,002All other countries
    
    
    22,374
    
    
    
    25,060
    
    
    
    65,981
    
    
    
    59,485$
    290,150
    
    
    $
    288,154
    
    
    $
    831,872
    
    
    $
    802,831
 September 30,
    
    
    December 31,2007
    
    
    2006Long-lived Assets:United States
    
    $
    293,878
    
    
    $
    283,171Germany
    
    
    38,511
    
    
    
    32,506Japan
    
    
    3,589
    
    
    
    3,225Italy
    
    
    27
    
    
    
    25France
    
    
    108,388
    
    
    
    100,476Netherlands
    
    
    32,141
    
    
    
    29,436Canada
    
    
    
    
    
    
    Brazil
    
    
    54,920
    
    
    
    48,485United Kingdom
    
    
    182
    
    
    
    133China
    
    
    1,970
    
    
    
    54All other countries
    
    
    11,885
    
    
    
    11,451$
    545,491
    
    
    $
    508,962
 18




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##### 



(12) Supplemental Guarantor Information
  Balance Sheet
 As of September 30, 2007Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    358
    
    
    $
    31,959
    
    
    $
    
    
    
    $
    32,317Receivables, net
    
    
    
    
    
    
    52,472
    
    
    
    100,686
    
    
    
    
    
    
    
    153,158Due from related parties
    
    
    (13
    )
    
    
    17,277
    
    
    
    3,064
    
    
    
    (20,328
    )
    
    
    Inventories of products, net
    
    
    
    
    
    
    138,454
    
    
    
    150,624
    
    
    
    (4,648
    )
    
    
    284,430Inventories of materials and supplies
    
    
    
    
    
    
    6,804
    
    
    
    5,410
    
    
    
    
    
    
    
    12,214Other current assets
    
    
    3,613
    
    
    
    1,078
    
    
    
    9,526
    
    
    
    
    
    
    
    14,217Deferred income taxes
    
    
    
    
    
    
    8,672
    
    
    
    (6,734
    )
    
    
    
    
    
    
    1,938Total current assets
    
    
    3,600
    
    
    
    225,115
    
    
    $
    294,535
    
    
    
    (24,976
    )
    
    
    498,274Property, plant and equipment, less
accumulated depreciation
    
    
    109,886
    
    
    
    165,102
    
    
    
    128,332
    
    
    
    
    
    
    
    403,320Identifiable intangible assets
    
    
    32,399
    
    
    
    
    
    
    
    48,811
    
    
    
    
    
    
    
    81,210Investment in unconsolidated joint venture
    
    
    813
    
    
    
    
    
    
    
    9,289
    
    
    
    
    
    
    
    10,102Deferred financing costs
    
    
    10,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,825Other long-term assets
    
    
    97,391
    
    
    
    397,096
    
    
    
    21,447
    
    
    
    (500,585
    )
    
    
    15,349Total assets
    
    $
    254,914
    
    
    $
    787,313
    
    
    $
    502,414
    
    
    $
    (525,561
    )
    
    $
    1,019,080Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    3,445
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,445Accounts payable-trade
    
    
    2,700
    
    
    
    52,987
    
    
    
    61,701
    
    
    
    
    
    
    
    117,388Other payables and accruals
    
    
    9,837
    
    
    
    10,591
    
    
    
    31,308
    
    
    
    
    
    
    
    51,736Due to (from) related parties
    
    
    
    
    
    
    3,064
    
    
    
    38,189
    
    
    
    (20,328
    )
    
    
    20,925Insurance note payable
    
    
    1,977
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,977Total current liabilities
    
    
    17,959
    
    
    
    66,642
    
    
    
    131,198
    
    
    
    (20,328
    )
    
    
    195,471Long-term debt, net of current portion
    
    
    535,881
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    535,881Deferred income taxes
    
    
    (47,589
    )
    
    
    71,882
    
    
    
    10,928
    
    
    
    
    
    
    
    35,221Long-term liabilities
    
    
    404,055
    
    
    
    35,495
    
    
    
    97,401
    
    
    
    (500,585
    )
    
    
    36,366Total liabilities
    
    
    910,306
    
    
    
    174,019
    
    
    
    239,527
    
    
    
    (520,913
    )
    
    
    802,939Commitments and contingencies (note 9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Members equity:Common equity
    
    
    (655,392
    )
    
    
    614,489
    
    
    
    224,098
    
    
    
    (4,648
    )
    
    
    178,547Accumulated other comprehensive income
    
    
    
    
    
    
    (1,195
    )
    
    
    38,789
    
    
    
    
    
    
    
    37,594Total members equity
    
    
    (655,392
    )
    
    
    613,294
    
    
    
    262,887
    
    
    
    (4,648
    )
    
    
    216,141Total liabilities and members equity
    
    $
    254,914
    
    
    $
    787,313
    
    
    $
    502,414
    
    
    $
    (525,561
    )
    
    $
    1,019,080
 
 (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. 19




---



##### 



Balance Sheet
 As of December 31, 2006Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    13,850
    
    
    $
    29,751
    
    
    $
    
    
    
    $
    43,601Receivables, net
    
    
    3,509
    
    
    
    47,194
    
    
    
    97,259
    
    
    
    (12,025
    )
    
    
    135,937Inventories of products, net
    
    
    
    
    
    
    141,164
    
    
    
    119,514
    
    
    
    (3,893
    )
    
    
    256,785Inventories of materials and supplies
    
    
    
    
    
    
    6,615
    
    
    
    4,288
    
    
    
    
    
    
    
    10,903Other current assets
    
    
    3,659
    
    
    
    1,022
    
    
    
    8,627
    
    
    
    
    
    
    
    13,308Deferred income taxes
    
    
    
    
    
    
    8,665
    
    
    
    (6,734
    )
    
    
    
    
    
    
    1,931Total current assets
    
    
    7,168
    
    
    
    218,510
    
    
    
    252,705
    
    
    
    (15,918
    )
    
    
    462,465Property, plant and equipment, less
accumulated depreciation
    
    
    117,519
    
    
    
    169,727
    
    
    
    116,497
    
    
    
    
    
    
    
    403,743Identifiable intangible assets
    
    
    37,820
    
    
    
    
    
    
    
    48,811
    
    
    
    
    
    
    
    86,631Investment in unconsolidated joint venture
    
    
    813
    
    
    
    
    
    
    
    8,563
    
    
    
    
    
    
    
    9,376Deferred financing costs
    
    
    13,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,038Other long-term assets
    
    
    97,657
    
    
    
    338,894
    
    
    
    7,314
    
    
    
    (429,965
    )
    
    
    13,900Total assets
    
    $
    274,015
    
    
    $
    727,131
    
    
    $
    433,890
    
    
    $
    (445,883
    )
    
    $
    989,153Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    3,850
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,850Accounts payable-trade
    
    
    2,900
    
    
    
    23,432
    
    
    
    42,608
    
    
    
    
    
    
    
    68,940Other payables and accruals
    
    
    7,605
    
    
    
    16,415
    
    
    
    29,110
    
    
    
    
    
    
    
    53,130Due to (from) related parties
    
    
    
    
    
    
    704
    
    
    
    20,672
    
    
    
    (12,025
    )
    
    
    9,351Insurance note payable
    
    
    739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739Total current liabilities
    
    
    15,094
    
    
    
    40,551
    
    
    
    92,390
    
    
    
    (12,025
    )
    
    
    136,010Long-term debt, net of current portion
    
    
    578,263
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    578,263Deferred income taxes
    
    
    (43,583
    )
    
    
    72,164
    
    
    
    11,526
    
    
    
    
    
    
    
    40,107Long-term liabilities
    
    
    333,435
    
    
    
    34,158
    
    
    
    97,404
    
    
    
    (429,965
    )
    
    
    35,032Total liabilities
    
    
    883,209
    
    
    
    146,873
    
    
    
    201,320
    
    
    
    (441,990
    )
    
    
    789,412Commitments and contingencies (note 9)Members equity:Common equity
    
    
    (611,057
    )
    
    
    581,453
    
    
    
    217,608
    
    
    
    (3,893
    )
    
    
    184,111Accumulated other comprehensive income
    
    
    1,863
    
    
    
    (1,195
    )
    
    
    14,962
    
    
    
    
    
    
    
    15,630Total members equity
    
    
    (609,194
    )
    
    
    580,258
    
    
    
    232,570
    
    
    
    (3,893
    )
    
    
    199,741Total liabilities and members equity
    
    $
    274,015
    
    
    $
    727,131
    
    
    $
    433,890
    
    
    $
    (445,883
    )
    
    $
    989,153
 
 (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. 20




---



##### 



Statement of Operations
 Three Months Ended September 30, 2007Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    141,096
    
    
    $
    174,961
    
    
    $
    (31,559
    )
    
    $
    284,498Other
    
    
    
    
    
    
    (108
    )
    
    
    5,760
    
    
    
    
    
    
    
    5,652Total revenues
    
    
    
    
    
    
    140,988
    
    
    
    180,721
    
    
    
    (31,559
    )
    
    
    290,150Costs and expenses:Cost of goods sold
    
    
    787
    
    
    
    114,486
    
    
    
    159,985
    
    
    
    (31,559
    )
    
    
    243,699Gross profit (loss)
    
    
    (787
    )
    
    
    26,502
    
    
    
    20,736
    
    
    
    
    
    
    
    46,451Research and development expenses
    
    
    
    
    
    
    2,205
    
    
    
    3,247
    
    
    
    
    
    
    
    5,452Selling, general, and administrative expenses
    
    
    (33
    )
    
    
    7,730
    
    
    
    7,897
    
    
    
    
    
    
    
    15,594Depreciation and amortization
    
    
    4,324
    
    
    
    5,036
    
    
    
    3,179
    
    
    
    
    
    
    
    12,539Earnings in joint venture
    
    
    
    
    
    
    
    
    
    
    (189
    )
    
    
    
    
    
    
    (189
    )Interest expense (income), net
    
    
    13,136
    
    
    
    (2,495
    )
    
    
    1,734
    
    
    
    
    
    
    
    12,375Income (loss) before income taxes
    
    
    (18,214
    )
    
    
    14,026
    
    
    
    4,868
    
    
    
    
    
    
    
    680Income tax benefit (provision)
    
    
    573
    
    
    
    295
    
    
    
    (2,302
    )
    
    
    
    
    
    
    (1,434
    )Net (loss) income
    
    $
    (17,641
    )
    
    $
    14,321
    
    
    $
    2,566
    
    
    $
    
    
    
    $
    (754
    )
 Three Months Ended September 30, 2006Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    142,454
    
    
    $
    170,368
    
    
    $
    (34,413
    )
    
    $
    278,409Other
    
    
    
    
    
    
    50
    
    
    
    9,695
    
    
    
    
    
    
    
    9,745Total revenues
    
    
    
    
    
    
    142,504
    
    
    
    180,063
    
    
    
    (34,413
    )
    
    
    288,154Costs and expenses:Cost of goods sold
    
    
    (2,567
    )
    
    
    112,903
    
    
    
    149,897
    
    
    
    (34,413
    )
    
    
    225,820Gross profit
    
    
    2,567
    
    
    
    29,601
    
    
    
    30,166
    
    
    
    
    
    
    
    62,334Research and development expenses
    
    
    
    
    
    
    3,980
    
    
    
    2,104
    
    
    
    
    
    
    
    6,084Selling, general, and administrative expenses
    
    
    
    
    
    
    10,718
    
    
    
    8,166
    
    
    
    
    
    
    
    18,884Depreciation and amortization
    
    
    4,479
    
    
    
    4,739
    
    
    
    1,969
    
    
    
    
    
    
    
    11,187Loss in joint venture
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    
    
    
    
    208Interest expense (income)
    
    
    11,917
    
    
    
    (2,220
    )
    
    
    1,235
    
    
    
    
    
    
    
    10,932Income (loss) before income taxes
    
    
    (13,829
    )
    
    
    12,384
    
    
    
    16,484
    
    
    
    
    
    
    
    15,039Income tax (provision) benefit
    
    
    2,609
    
    
    
    (2,575
    )
    
    
    (3,438
    )
    
    
    
    
    
    
    (3,404
    )Net income (loss)
    
    $
    (11,220
    )
    
    $
    9,809
    
    
    $
    13,046
    
    
    $
    
    
    
    $
    11,635
 
 (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. 21




---



##### 



Statement of Operations
 Nine Months Ended September 30, 2007Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    416,149
    
    
    $
    511,132
    
    
    $
    (114,955
    )
    
    $
    812,326Other
    
    
    
    
    
    
    
    
    
    
    19,546
    
    
    
    
    
    
    
    19,546Total revenues
    
    
    
    
    
    
    416,149
    
    
    
    530,678
    
    
    
    (114,955
    )
    
    
    831,872Costs and expenses:Cost of goods sold
    
    
    799
    
    
    
    345,970
    
    
    
    469,846
    
    
    
    (114,955
    )
    
    
    701,660Gross profit (loss)
    
    
    (799
    )
    
    
    70,179
    
    
    
    60,832
    
    
    
    
    
    
    
    130,212Research and development expenses
    
    
    
    
    
    
    4,936
    
    
    
    13,568
    
    
    
    
    
    
    
    18,504Selling, general, and administrative expenses
    
    
    (33
    )
    
    
    26,778
    
    
    
    22,463
    
    
    
    
    
    
    
    49,208Depreciation and amortization
    
    
    12,972
    
    
    
    15,023
    
    
    
    8,422
    
    
    
    
    
    
    
    36,417Earnings in joint venture
    
    
    
    
    
    
    
    
    
    
    (514
    )
    
    
    
    
    
    
    (514
    )Interest expense (income), net
    
    
    34,203
    
    
    
    (7,138
    )
    
    
    5,442
    
    
    
    
    
    
    
    32,507Income (loss) before income taxes
    
    
    (47,941
    )
    
    
    30,580
    
    
    
    11,451
    
    
    
    
    
    
    
    (5,910
    )Income tax (provision) benefit
    
    
    1,759
    
    
    
    295
    
    
    
    (3,876
    )
    
    
    
    
    
    
    (1,822
    )Net (loss) income
    
    $
    (46,182
    )
    
    $
    30,875
    
    
    $
    7,575
    
    
    $
    
    
    
    $
    (7,732
    )
 Nine Months Ended September 30, 2006Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    408,199
    
    
    $
    496,817
    
    
    $
    (129,824
    )
    
    $
    775,192Other
    
    
    
    
    
    
    185
    
    
    
    27,454
    
    
    
    
    
    
    
    27,639Total revenues
    
    
    
    
    
    
    408,384
    
    
    
    524,271
    
    
    
    (129,824
    )
    
    
    802,831Costs and expenses:Cost of goods sold
    
    
    (461
    )
    
    
    326,794
    
    
    
    439,043
    
    
    
    (129,824
    )
    
    
    635,552Gross profit
    
    
    461
    
    
    
    81,590
    
    
    
    85,228
    
    
    
    
    
    
    
    167,279Research and development expenses
    
    
    
    
    
    
    10,595
    
    
    
    8,555
    
    
    
    
    
    
    
    19,150Selling, general, and administrative expenses
    
    
    
    
    
    
    33,961
    
    
    
    22,911
    
    
    
    
    
    
    
    56,872Depreciation and amortization
    
    
    13,437
    
    
    
    13,849
    
    
    
    5,915
    
    
    
    
    
    
    
    33,201(Earnings) in joint venture
    
    
    
    
    
    
    
    
    
    
    (232
    )
    
    
    
    
    
    
    (232
    )Interest expense (income)
    
    
    32,624
    
    
    
    (6,790
    )
    
    
    3,667
    
    
    
    
    
    
    
    29,501Income (loss) before income taxes
    
    
    (45,600
    )
    
    
    29,975
    
    
    
    44,412
    
    
    
    
    
    
    
    28,787Income tax (provision) benefit
    
    
    10,963
    
    
    
    (7,210
    )
    
    
    (10,986
    )
    
    
    
    
    
    
    (7,233
    )Net income (loss)
    
    $
    (34,637
    )
    
    $
    22,765
    
    
    $
    33,426
    
    
    $
    
    
    
    $
    21,554
 
 (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. 22




---



##### 



Statement of Cash Flows
 Nine Months Ended September 30, 2007Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities
    
    $
    (29,070
    )
    
    $
    68,593
    
    
    $
    12,557
    
    
    $
    
    
    
    $
    52,080Cash flows used in investing activities:Purchase of plant and equipment, net of proceeds from
sales of equipment
    
    
    
    
    
    
    (11,466
    )
    
    
    (8,352
    )
    
    
    
    
    
    
    (19,818
    )Net cash used in investing activities
    
    
    
    
    
    
    (11,466
    )
    
    
    (8,352
    )
    
    
    
    
    
    
    (19,818
    )Cash flows provided by (used in) financing activities:Proceeds from (payments on) intercompany loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repayment of debt
    
    
    (42,787
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,787
    )Cash dividend to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred Financing cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from (payments on) Inter Group Debt
    
    
    70,619
    
    
    
    (70,619
    )
    
    
    
    
    
    
    
    
    
    
    Net proceeds from insurance note payable
    
    
    1,238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,238Net cash provided by (used in) financing activities
    
    
    29,070
    
    
    
    (70,619
    )
    
    
    
    
    
    
    
    
    
    
    (41,549
    )Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    (1,997
    )
    
    
    
    
    
    
    (1,997
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (13,492
    )
    
    
    2,208
    
    
    
    
    
    
    
    (11,284
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    13,850
    
    
    
    29,751
    
    
    
    
    
    
    
    43,601Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    358
    
    
    $
    31,959
    
    
    $
    
    
    
    $
    32,317
 Nine Months Ended September 30, 2006Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities
    
    $
    (47,273
    )
    
    $
    6,713
    
    
    $
    9,179
    
    
    $
    
    
    
    $
    (31,381
    )Cash flows used in investing activities:Purchase of plant and equipment, net of proceeds
from sales of equipment
    
    
    
    
    
    
    (10,328
    )
    
    
    (17,667
    )
    
    
    
    
    
    
    (27,995
    )Net cash used in investing activities
    
    
    
    
    
    
    (10,328
    )
    
    
    (17,667
    )
    
    
    
    
    
    
    (27,995
    )Cash flows provided by (used in) financing activities:Proceeds from debt
    
    
    123,008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,008Repayment of debt
    
    
    (2,596
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,596
    )Cash dividend to parent
    
    
    (129,531
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (129,531
    )Deferred financing costs
    
    
    (2,678
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,678
    )Net proceeds from insurance note payable
    
    
    2,957
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,957Proceeds from (payments on) intercompany loans
    
    
    56,113
    
    
    
    (51,897
    )
    
    
    (4,216
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    47,273
    
    
    
    (51,897
    )
    
    
    (4,216
    )
    
    
    
    
    
    
    (8,840
    )Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    (4,003
    )
    
    
    
    
    
    
    (4,003
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (55,512
    )
    
    
    (16,707
    )
    
    
    
    
    
    
    (72,219
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    54,941
    
    
    
    45,993
    
    
    
    
    
    
    
    100,934Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    (571
    )
    
    $
    29,286
    
    
    $
    
    
    
    $
    28,715
 
 (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. 23




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 Overview
    Recent Developments
 Pernis, The Netherlands
     24




---



##### 



Change in Board of Directors
  Board Committee Membership Changes
  Audit Committee
 
 Compensation Committee
 
 Executive Committee
 
 Compensatory Arrangements of Certain Officers
  Critical Accounting Policies
  25




---



##### 



Revenue Recognition
   Inventories
  Property, Plant and Equipment
   Pensions
 Employers Accounting for Pensions Employers Accounting for Defined Benefit Pension and Other Post
Retirement Plans.
  26




---



##### 



Income Taxes
  Factors Affecting Our Results of Operations
 Raw Materials
       27




---



##### 



Seasonality
  Economic and Market Conditions
   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 September 30, 2006
    
    
    1.275
    
    
    
    1.269
    
    
    
    86.10
    
    
    
    84.82
    
    
    
    0.459
    
    
    
    0.460Quarter Ended September 30, 2007
    
    
    1.373
    
    
    
    1.426
    
    
    
    84.85
    
    
    
    86.63
    
    
    
    0.512
    
    
    
    0.544Nine months Ended September 30,
2006
    
    
    1.243
    
    
    
    1.269
    
    
    
    86.30
    
    
    
    84.82
    
    
    
    0.459
    
    
    
    0.460Nine months Ended September 30,
2007
    
    
    1.343
    
    
    
    1.426
    
    
    
    83.74
    
    
    
    86.63
    
    
    
    0.496
    
    
    
    0.544
   28




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##### 



Results of Operations
 Three Months Ended September 30, 2007, Compared to Three Months Ended September 30, 2006
  Three Months Ended
    
    
    Three Months EndedSeptember 30, 2007
    
    
    September 30, 2006Revenues:Sales
    
    $
    284,498
    
    
    $
    278,409Other
    
    
    5,652
    
    
    
    9,745Total revenues
    
    
    290,150
    
    
    
    288,154Costs and expenses:Cost of goods sold
    
    
    243,699
    
    
    
    225,820Gross profit
    
    
    46,451
    
    
    
    62,334Research and development expenses
    
    
    5,452
    
    
    
    6,084Selling, general and administrative expenses
    
    
    15,594
    
    
    
    18,884Depreciation and amortization of identifiable intangibles
    
    
    12,539
    
    
    
    11,187Earnings in joint venture
    
    
    (189
    )
    
    
    208Interest expense, net
    
    
    12,375
    
    
    
    10,932Income before income taxes
    
    
    680
    
    
    
    15,039Income tax provision
    
    
    (1,434
    )
    
    
    (3,404
    )Net income
    
    $
    (754
    )
    
    $
    11,635
  Three Months Ended
    
    
    Three Months EndedSeptember 30, 2007
    
    
    September 30, 2006Revenues:Sales
    
    
    98.0
    %
    
    
    96.6
    %Other
    
    
    2.0
    
    
    
    3.4Total Revenues
    
    
    100.0
    
    
    
    100.0Costs and expenses:Cost of goods sold
    
    
    84.0
    
    
    
    78.4Gross profit
    
    
    16.0
    
    
    
    21.6Research and development expenses
    
    
    1.9
    
    
    
    2.1Selling, general and administrative expenses
    
    
    5.4
    
    
    
    6.6Depreciation and amortization of identifiable intangibles
    
    
    4.3
    
    
    
    3.8Earnings in joint venture
    
    
    (0.1
    )
    
    
    0.1Interest expense, net
    
    
    4.3
    
    
    
    3.8Income before income taxes
    
    
    0.2
    
    
    
    5.2Income tax provision
    
    
    (0.5
    )
    
    
    (1.2
    )Net income (loss)
    
    
    (0.3
    )%
    
    
    4.0
    %
 Total Revenues
  Sales
 29




---



##### 



Other revenue
 Cost of Goods Sold
  Gross Profit
  Operating Expenses
 Research and development expenses .
 Selling, general and administrative expenses .
 Depreciation and amortization of identifiable intangibles.
 30




---



##### 



Earnings in joint venture .
 Interest expense, net.
 Income tax provision. .
 Net income.
 Nine months Ended September 30, 2007, Compared to Nine Months Ended September 30, 2006
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006Revenues:Sales
    
    $
    812,326
    
    
    $
    775,192Other
    
    
    19,546
    
    
    
    27,639Total revenues
    
    
    831,872
    
    
    
    802,831Costs and expenses:Cost of goods sold
    
    
    701,660
    
    
    
    635,552Gross profit
    
    
    130,212
    
    
    
    167,279Research and development expenses
    
    
    18,504
    
    
    
    19,150Selling, general and administrative expenses
    
    
    49,208
    
    
    
    56,872Depreciation and amortization of identifiable intangibles
    
    
    36,417
    
    
    
    33,201Earnings in joint venture
    
    
    (514
    )
    
    
    (232
    )Interest expense, net
    
    
    32,507
    
    
    
    29,501(Loss) income before income taxes
    
    
    (5,910
    )
    
    
    28,787Income tax provision
    
    
    (1,822
    )
    
    
    (7,233
    )Net (loss) income
    
    $
    (7,732
    )
    
    $
    21,554
 31




---



##### 



Nine months Ended
    
    Nine months EndedSeptember 30, 2007
    
    September 30, 2006Revenues:Sales
    
    
    97.6
    %
    
    
    96.6
    %Other
    
    
    2.4
    
    
    
    3.4Total Revenues
    
    
    100.0
    
    
    
    100.0Costs and expenses:Cost of goods sold
    
    
    84.4
    
    
    
    79.2Gross profit
    
    
    15.6
    
    
    
    20.8Research and development expenses
    
    
    2.2
    
    
    
    2.4Selling, general and administrative expenses
    
    
    5.9
    
    
    
    7.1Depreciation and amortization of identifiable intangibles
    
    
    4.4
    
    
    
    4.1Earnings in joint venture
    
    
    (0.1
    )
    
    
    (0.0
    )Interest expense, net
    
    
    3.9
    
    
    
    3.7(Loss) income before income taxes
    
    
    (0.7
    )
    
    
    3.6Income tax provision
    
    
    (0.2
    )
    
    
    (0.9
    )Net (loss) income
    
    
    (0.9
    )%
    
    
    2.7
    %
 Total Revenues
  Sales
  Other revenue.
 Cost of Goods Sold
  32




---



##### 



Gross Profit
  Operating Expenses
 Research and development expenses .
 Selling, general and administrative expenses .
 Depreciation and amortization of identifiable intangibles.
 Earnings in joint venture .
 Interest expense, net.
 Income tax provision.
 33




---



##### 



.
 Net (loss) income.
 Liquidity and Capital Resources
 Operating
activities.
 Investing
activities .
 Financing activities.
 Sources of liquidity.
   Capital Expenditures .
   34




---



##### 



Description of Our Indebtedness
 Senior Secured Credit Facility
    Maturity.
 Interest.
 Mandatory Prepayments.
 35




---



##### 



Covenants.
   Kratons 8.125% Senior Subordinated Notes due 2014
  Maturity Date.
 Interest Payment Dates.
 Guarantees.
 Security and Ranking.
 Optional Redemption.
 Covenants.
   36




---



##### 



Other Contingencies
       Off-Balance Sheet Transactions
  Market Risk
  Interest rate risk.
 Foreign currency risk .
 37




---



##### 



Commodity price risk .
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
   38




---



##### 



PART II  Other Information
 
 ITEM 1. LEGAL PROCEEDINGS
   ITEM 1A. RISK FACTORS
  
 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
 39




---



##### 



ITEM 6. EXHIBITS
 10.1
    
    Agreement for Adjustment and Termination of Services under Kraton/SNC SUMFs and OMS
Agreements at Pernis dated as of June 28, 2017 by and among Shell Nederland Chemie B.V.
and Kraton Polymers Nederland B.V.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
 40




---



##### 



Signatures
  Kraton Polymers LLCDate: November 13, 2007
    /s/ George B. GregoryGeorge B. GregoryChief Executive Officer and President/s/ Nicholas G. DekkerNicholas G. DekkerChief Financial Officer and Vice President 41




---



##### 



Index to Exhibits
 EXHIBITS10.1
    
    Agreement for Adjustment and Termination of Services under Kraton/SNC SUMFs and OMS
Agreements at Pernis dated as of June 28, 2017 by and among Shell Nederland Chemie B.V.
and Kraton Polymers Nederland B.V.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