| LTM Adjusted Bank EBITDA Reconciliation ($MM) (1) The Kraton Adjusted EBITDA measure is used by management to evaluate operating performance. Management believes that EBITDA is useful to investors because it is frequently used by securities analysts, institutional investors and other interested parties in the evaluation of companies in our industry. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income (loss) as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. Because all companies do not use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies. Additionally, EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. (2) These adjustments are made pursuant to the Credit and Guaranty Agreement, dated December 23, 2003, as amended as of March 4, 2004, as further amended as of October 21, 2004, as further amended as of February 16, 2006 and as further amended as of May 12, 2006, among KRATON Polymers LLC, as Borrower, Polymer Holdings LLC, certain subsidiaries of KRATON Polymers LLC, as Guarantors, various lenders, Goldman Sachs Credit Partners L.P. and UBS Securities LLC, as Lead Arrangers, Goldman Sachs Credit Partners L.P., as Syndication Agent, UBS AG, Stanford Branch, as Administrative Agent and Collateral Agent (the "senior secured credit facility"). (3) LTM Adjusted Bank EBITDA is defined as EBITDA adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under the senior secured credit facility. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting LTM Adjusted Bank EBITDA are appropriate to provide additional information to investors to demonstrate compliance with the financing covenants contained in the senior secured credit facility. LTM December 31, LTM December 31, 2006 2005 Income before income taxes $20 $34 Add back: Interest 41 34 Depreciation and Amortization 45 44 Non-cash compensation expense 2 - Kraton Adjusted EBITDA1 $108 $112 Add back:2 Inventory step-up - 2 Sponsor fees and expenses 2 2 Normalized plant turnaround costs Permitted Acquisition Costs 4 1 - - Restructuring charges 11 3 Schedule 1.1 costs 3 - Other non-cash charges reducing consolidated net income (3) 5 LTM Adjusted Bank EBITDA3 $126 $124 |
