KapStone Reports Record First Quarter Results

NORTHBROOK, Ill., May 7, 2013 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported record results for the first quarter ended March 31, 2013.

  • Net sales of $319.8 million up $20.0 million, or 7 percent, versus prior year
  • Net income of $18.5 million up $2.9 million, or 19 percent, versus 2012
  • Adjusted EBITDA of $50.7 million up $4.4 million, or 9 percent, versus prior year
  • Diluted EPS of $0.38 up $0.05 per share, or 15 percent, versus 2012
  • Adjusted diluted EPS of $0.42 up $0.04 per share, or 11 percent, versus prior year

Roger W. Stone, Chairman and Chief Executive Officer, stated, "Our operations performed well during the quarter, propelling the Company to record first quarter results. Average mill selling prices of $653 per ton increased by $45 per ton compared to the first quarter of 2012.  In the first quarter of 2013, we realized 2012's domestic containerboard and corrugated price increases, and we benefitted from increasing prices of over $100 per ton on export containerboard sales compared to 2012's first quarter."

First Quarter Operating Highlights

Consolidated net sales of $319.8 million in the first quarter of 2013 increased by $20.0 million, or 6.7 percent, compared to $299.8 million for the 2012 first quarter, primarily due to full realization of the October 2012 $50 per ton containerboard price increase, higher box and sheet prices and continued recovery of export containerboard prices. Average mill selling prices per ton climbed to $653 from $608 a year ago. A better product mix in the 2013 quarter was partially offset by lower volume. 

Operating income of $30.8 million for the 2013 first quarter increased by $3.3 million, or 12.1%, compared to the 2012 first quarter. The improved financial performance primarily reflects benefits from higher prices, partially offset by inflation on input, labor and benefit costs, higher outage costs, increased depreciation charges resulting mainly from the 2012 investment in new information systems and start-up expenses for the Company's new manufacturing plant in Aurora, Illinois. The first quarter's operating income included $2.3 million of stock compensation expense.  We expect total stock compensation expense to approximate $1 million for each of the remaining three quarters of 2013.

Interest expense was $1.9 million for the first quarter of 2013, down $0.5 million from a year ago mainly due to lower interest rates. At March 31, 2013, the interest rate on the majority of the Company's debt was 1.95 percent down from 2.24 percent a year ago. Amortization of debt issuance costs of $0.7 million for the first quarter of 2013 decreased by $0.2 million from a year ago.

The effective income tax rate for the 2013 first quarter was 33.8 percent compared to 36.0 percent for the 2012 first quarter. The lower effective income tax rate is due to a higher expected benefit from the domestic manufacturing deduction and lower state income taxes. The 2013 rate also includes a favorable discrete benefit for a 2012 R&D tax credit. For 2013, the Company estimates its full year effective income tax rate to be 34.3 percent and its cash tax rate to be 10 percent.

Cash Flow and Working Capital

Cash and cash equivalents decreased by $8.9 million in the quarter ended March 31, 2013, to $7.6 million reflecting $15.6 million of net cash provided by operating activities, $16.8 million of cash used by investing activities and $7.7 million of cash used for financing activities.

Capital expenditures for the first quarter of 2013 totaled $16.8 million which included $7.4 million for the new manufacturing plant in Aurora, Illinois. The Company estimates $73.0 million of capital expenditures for the year.

At March 31, 2013, the Company had approximately $97.4 million of working capital and $95.1 million of revolver borrowing capacity.

Conclusion

In summary, Stone commented, "The April 2013 $50 per ton domestic containerboard price increase should be fully implemented late in the second quarter and should boost our EBITDA by approximately $50 million annually. Our new Aurora, Illinois manufacturing plant made its first shipment in April. With our strong cash flows and balance sheet KapStone is in an excellent position to continue growing profitably."

Conference Call

KapStone will host a conference call at 11 a.m. EDT, Wednesday, May 8, 2013, to discuss the Company's financial results for the 2013 first quarter. All interested parties are invited to listen and may do so by either accessing a simultaneous broadcast webcast on KapStone's website, http://www.kapstonepaper.com, or for those unable to access the webcast, the following dial-in numbers are available:

Domestic: 877.415.3178
International: 857.244.7321
Participant Passcode: 78657838

A presentation to be viewed in conjunction with the call will also be available on our website, http://www.kapstonepaper.com, in the "Investors" section.

The webcast is also being distributed through the Thomson StreetEvents Network. Individual investors can listen to the call at http://earnings.com, Thomson's individual investor portal, powered by StreetEvents. Institutional investors can access the call via Thomson StreetEvents (http://www.streetevents.com) a password-protected event management site.

Replay of the webcast will be available for 30 days on the Company's website following the call.

About the Company

Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is a leading North American producer of unbleached kraft paper and corrugated products. The Company is the parent company of KapStone Kraft Paper Corporation and KapStone Container Corporation which includes three paper mills and 15 converting plants across the eastern and midwestern US. The business employs approximately 2,700 people.

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures, including "EBITDA", "Adjusted EBITDA", "Adjusted Net Income", and "Adjusted Diluted EPS" to measure our operating performance. Management uses these measures to focus on the on-going operations, and believes it is useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The Company believes that EBITDA and Adjusted EBITDA provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency to key measures used to evaluate the performance and liquidity of the Company. Management uses EBITDA and Adjusted EBITDA for evaluating the Company's performance against competitors and as a primary measure for employees' incentive programs. Reconciliations of Net Income to EBITDA, EBITDA to Adjusted EBITDA, Net Income to Adjusted Net Income, Basic EPS to Adjusted Basic EPS, and Diluted EPS to Adjusted Diluted EPS are included in the financial schedules contained in this press release. However, these measures should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

Forward-Looking Statements

Statements in this news release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such as "may," "will," "should," "would,' "expect," "project," "anticipate," "intend," "plan," "believe," "estimate," "potential," "outlook," or "continue," the negative of these terms or other similar expressions. These statements reflect management's current views and are subject to risks, uncertainties and assumptions, many of which are beyond the Company's control that could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially include, but are not limited to: (1) industry conditions, including changes in cost, competition, changes in the Company's product mix and demand and pricing for the Company's products; (2) market and economic factors, including changes in raw material and healthcare costs, exchange rates and interest rates; (3) results of legal proceedings and compliance costs, including unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations; (4) the ability to achieve and effectively manage growth; (5) the ability to pay the Company's debt obligations; (6) the ability to carry out the Company's strategic initiatives and manage associated costs and (7) the income tax impact of the federal incentive program for cellulosic biofuel producers. Further information on these and other risks and uncertainties is provided under Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and elsewhere in reports that the Company files with the SEC. These filings can be found on KapStone's Web site at www.kapstonepaper.com and the SEC's Web site at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and the Company disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.

 

 

KapStone Paper and Packaging Corporation

Consolidated Statements of Income

(In thousands, except share and per share amounts)

(unaudited)












Fav / (Unfav)


Quarter Ended March 31,


Variance


2013


2012


%







Net sales 

$      319,813


$       299,843


6.7%







Cost and expenses:






 Cost of sales, excluding depreciation and amortization

224,946


214,074


-5.1%

 Depreciation and amortization

17,224


15,176


-13.5%

 Freight and distribution expenses

27,920


25,743


-8.5%

 Selling, general and administrative expenses

19,128


17,572


-8.9%

Other operating income

202


198


2.0%

Operating income 

30,797


27,476


12.1%







Foreign exchange gain / (loss)

(311)


120


-359.2%

Interest expense, net

1,875


2,373


21.0%

Amortization of debt issuance costs

726


906


19.9%

Income before provision for income taxes

27,885


24,317


14.7%

Provision for income taxes

9,426


8,754


-7.7%

Net income 

$        18,459


$         15,563


18.6%







Net income per share:






Basic

$            0.39


$             0.33



Diluted

$            0.38


$             0.33















Weighted-average number of shares outstanding:        






Basic

47,482,010


46,491,626



Diluted

48,226,209


47,841,371















Effective tax rate

33.8%


36.0%















Supplemental Information

GAAP to Non-GAAP Reconciliations

($ in thousands, except share and per share amounts)

(unaudited)








Quarter Ended March 31,




2013


2012



Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):






Net income (GAAP)

$        18,459


$         15,563



   Interest expense, net

1,875


2,373



   Amortization of debt issuance costs

726


906



   Provision for income taxes

9,426


8,754



   Depreciation and amortization

17,224


15,176



EBITDA (Non-GAAP)

$        47,710


$         42,772









Acquisition, start up and other expenses

611


1,223



Stock-based compensation expense

2,345


2,313



Adjusted EBITDA (Non-GAAP)

$        50,666


$         46,308









Net Income (GAAP) to Adjusted Net Income (Non-GAAP):






Net income (GAAP)

$        18,459


$         15,563



Acquisition, start up and other expenses

404


783



Stock-based compensation expense

1,552


1,480



Adjusted Net Income (Non-GAAP)

$        20,415


$         17,826









Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP): 






Basic EPS (GAAP)

$            0.39


$             0.33



Acquisition, start up and other expenses

0.01


0.02



Stock-based compensation expense

0.03


0.03



Adjusted Basic EPS (Non-GAAP)

$            0.43


$             0.38









Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): 






Diluted earnings per share (GAAP)

$            0.38


$             0.33



Acquisition, start up and other expenses

0.01


0.02



Stock-based compensation expense

0.03


0.03



Adjusted Diluted EPS (Non-GAAP) 

$            0.42


$             0.38



 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)










March 31,


December 31,


2013


2012


(Unaudited)



Assets




Current assets:




   Cash and cash equivalents

$          7,618


$        16,488

   Trade accounts receivable, net 

136,752


111,592

   Other receivables

6,263


10,061

   Inventories

110,699


113,511

   Prepaid expenses and other current assets

9,588


9,808

   Deferred income taxes

5,864


5,864

Total current assets

276,784


267,324





Plant, property and equipment, net

577,459


576,115

Other assets

4,484


4,412

Intangible assets, net

54,884


57,027

Goodwill

226,289


226,289

Total assets

$  1,139,900


$  1,131,167









Liabilities and Stockholders' Equity




Current liabilities:




   Short-term borrowings

$        52,200


$        63,500

   Other current borrowings 

2,719


  Accounts payable

82,033


89,638

  Accrued expenses

25,679


25,032

  Accrued compensation costs

16,334


20,421

  Accrued income taxes

446


Total current liabilities

179,411


198,591





Long-term debt, net of current portion

294,973


294,310

Accrued pension and post retirement benefits

13,313


13,193

Deferred income taxes

101,001


96,459

Other liabilities

11,507


10,666

Total other liabilities

420,794


414,628





Stockholders' equity:




Common stock $.0001 par value

5


5

Additional paid-in capital

239,285


236,034

Retained earnings

303,470


285,011

Accumulated other comprehensive loss

(3,065)


(3,102)

Total stockholders' equity

539,695


517,948

Total liabilities and stockholders' equity

$  1,139,900


$  1,131,167

 

KapStone Paper and Packaging Corporation

Consolidated Statement of Cash Flows 

(In thousands)

(unaudited)






Quarter Ended March 31,


2013


2012

Operating activities:




   Net income

$           18,459


$         15,563

   Adjustments to reconcile net income to net cash provided by




   operating activities:




   Depreciation and amortization

17,224


15,176

   Stock-based compensation expense

2,345


2,313

  Excess tax benefit for stock-based compensation

(386)


(445)

   Amortization of debt issuance costs

726


906

   Loss on disposal of fixed assets

18


68

   Deferred income taxes

4,906


6,202

   Changes in operating assets and liabilities

(27,655)


(19,992)

Net cash provided by operating activities

$           15,637


$         19,791





Investing activities:




   USC acquisition

$                     –


$            (314)

   Capital expenditures

(16,832)


(10,905)

Net cash used in investing activities

$          (16,832)


$       (11,219)









Financing activities:




Proceeds from revolving credit facility

$            49,500


$        38,000

Repayments on revolving credit facility

(60,800)


(38,000)

Proceeds from other current borrowings

3,731


3,398

Repayments on other current borrowings

(1,012)


(921)

Proceeds from exercises of stock options

362


420

Proceeds from issuance of shares to ESPP

170


90

Payment of withholding taxes on vested stock awards

(12)


Excess tax benefit for stock-based compensation

386


445

Net cash provided by (used in) financing activities

$            (7,675)


$          3,432





Net (decrease) / increase in cash and cash equivalents 

(8,870)


12,004

Cash and cash equivalents-beginning of period

16,488


8,062

Cash and cash equivalents-end of period

$             7,618


$        20,066

SOURCE KapStone Paper and Packaging Corporation



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