KapStone Reports Record Fourth Quarter And Full Year Results Fourth Quarter Operating Cash Flows of $130 Million

NORTHBROOK, Ill., Feb. 10, 2014 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported preliminary record results for the fourth quarter and year ended December 31, 2013.

As compared to 2012's fourth quarter, results for 2013's fourth quarter are below:

  • Net sales of $563 million up $262 million, or 87 percent
  • Net income of $43 million up $33 million, or 330 percent
  • Adjusted net income of $44 million up $31 million, or 238 percent 
  • Adjusted EBITDA of $110 million up $72 million, or 189 percent
  • Adjusted EBITDA margin of 19.5 percent, up from 12.5 percent   
  • Diluted EPS of $0.45 up $0.34 per share, or 309 percent  
  • Adjusted diluted EPS of $0.45 up $0.31 per share, or 221 percent

As compared to the year ended December 31, 2012, results for the year ended December 31, 2013:

  • Net sales of $1,748 million up $531 million, or 44 percent
  • Net income of $127 million up $64 million, or 102 percent
  • Adjusted net income of $138 million up $67 million, or 94 percent
  • Adjusted EBITDA of $333 million up $150 million, or 82 percent
  • Adjusted EBITDA margin of 19.1 percent up from 15.0 percent
  • Diluted EPS of $1.32 up $0.67 per share, or 103 percent
  • Adjusted diluted EPS of $1.42 up $0.68 per share, or 92 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, "Almost every year has been transformational for KapStone, and 2013 was no exception with the successful acquisition of Longview.  Longview generated $62 million of adjusted EBITDA in the fourth quarter, continuing the strong performance we had anticipated, and the synergy benefits we identified began to yield positive results.

"Our legacy operations delivered a record fourth quarter and an all-time full-year record performance despite struggling with some temporary fourth quarter operational issues which negatively impacted our EBITDA by $6 million in the quarter. Last week, we successfully completed the $29 million capital project in the Charleston mill to upgrade one of the paper machines. 

"KapStone's growing strength is best evidenced by its robust operating cash flows which delivered $130 million in the fourth quarter.  We are particularly encouraged with the results this quarter due to the typical seasonality experienced that produces a less favorable product mix. We are already seeing improvements in our mix as we move further into this year and have a sound order backlog."

Fourth Quarter Operating Highlights

Consolidated net sales of $563 million in the fourth quarter of 2013 increased by $262 million, or 87 percent, compared to $301 million for the 2012 fourth quarter. The increase is primarily due to the Longview acquisition, which contributed $241 million of additional revenue, and higher average selling prices for the legacy operations. The Company sold 703,000 tons of paper during the fourth quarter of 2013 compared to 408,000 tons a year earlier. The Company's average mill selling price of $670 per ton in the fourth quarter of 2013 increased by $36 per ton compared to the fourth quarter of 2012 due to the combined impact of the 2012 and 2013 containerboard and corrugated product price increases and the inclusion of Longview.  However, average mill selling prices decreased $12 per ton from the third quarter of 2013, reflecting the seasonally less favorable product mix due to increased roll pulp shipments.

Operating income of $74 million for the 2013 fourth quarter increased by $55 million, or 289 percent, compared to the 2012 fourth quarter. The improved financial performance primarily reflects benefits from the Longview acquisition and higher containerboard and corrugated product prices, partially offset by higher fiber costs, lower production volumes, and less favorable mix.

Interest expense, net, was $9 million for the fourth quarter of 2013, up $7 million from a year ago as a result of a higher debt balance associated with the Longview acquisition. At December 31, 2013, the average interest rate on our term loans was 2.5 percent. Amortization of debt issuance costs of $1.5 million for the fourth quarter of 2013 increased by $0.7 million from a year ago due to costs associated with the Company's amended and restated credit agreement.

The effective income tax rate for the 2013 fourth quarter was 31.6 percent compared to 36.9 percent for the 2012 fourth quarter. The lower effective income tax rate in the 2013 fourth quarter is due to a reversal of an uncertain tax position reserve relating to alternative fuel mixture credits partially offset by higher state income taxes.

Full Year Operating Highlights

Consolidated net sales for the year ending December 31, 2013, were $1,748 million, an increase of 44 percent, compared to 2012 sales of $1,217 million.  The increase was primarily due to the Longview acquisition which contributed $440 million, as well as higher average selling prices.

Operating income of $220 million for the year ended December 31, 2013 was higher than the prior year by $110 million, or 100%.  The increase was due to the Longview acquisition and higher selling prices, partially offset by higher fiber and maintenance outage costs.

Interest expense for the year ended December 31, 2013 was $21 million, up $12 million from a year ago due to increased borrowings relating to the Longview acquisition.  Amortization of debt issuance costs of $4 million for 2013 increased by $1 million from the year prior due to amortization on the $20 million of debt issuance costs paid for the new credit agreement.

The effective income tax rate for the year ended December 31, 2013 was 34.7 percent compared to 35.9 percent for 2012.  The lower effective income tax rate in the 2013 is due to the reversal of an uncertain tax position reserve relating to alternative fuel mixture credits partially offset by higher state income taxes. For 2013, the Company estimates its cash tax rate to be approximately 2 percent reflecting utilization of cellulosic biofuel tax credits.

Cash Flow and Working Capital

Cash and cash equivalents increased by $1 million in the quarter ended December 31, 2013, from September 30, 2013 to $13 million.   The Company generated $130 million of net cash from operating activities during the fourth quarter and paid down $89 million of debt, including a voluntary prepayment of $40 million reducing the debt leverage ratio to 2.7 times, down from 3.8 times at the time of the Longview acquisition.  With this reduction in debt and leverage, the Company's interest margin spread on its bank loans will be reduced by 25 bps in early March. Capital expenditures in the fourth quarter reached $40 million and included $7 million for the Charleston paper machine upgrade. 

For the full year, cash provided by operating activities was $299 million, and capital expenditures were $97 million.

At December 31, 2013, the Company had approximately $210 million of working capital and $395 million of revolver borrowing capacity. 

Conclusion

In summary, Stone commented, "Our expectations for the Longview acquisition were high, but I am quite pleased with the additional benefits identified and generated through the teamwork of the combined companies." 

Conference Call

KapStone will host a conference call at 11 a.m. ET, Tuesday, February 11, 2014, to discuss the Company's financial results for the 2013 fourth 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:  866.202.0886
International:  617.213.8841
Participant Passcode:  21363407

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.

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 the fifth largest producer of containerboard and corrugated packaging products and is the largest kraft paper producer in the United States. The Company is the parent company of KapStone Kraft Paper Corporation and KapStone Container Corporation which includes four paper mills and 22 converting plants, respectively, across the US. The business employs approximately 4,600 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 integration of the Longview acquisition. 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 http://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)

(preliminary and unaudited)



















Fav / (Unfav)







Fav / (Unfav)


Quarter Ended December 31,


Variance



Year Ended December 31,


Variance


2013


2012


%



2013


2012


%














Net sales 

$  563,425


$  300,991


87.2%



$1,748,162


$1,216,637


43.7%














Cost and expenses:













 Cost of sales, excluding depreciation and amortization

383,885


219,624


-74.8%



1,186,930


866,124


-37.0%

 Depreciation and amortization

32,436


17,016


-90.6%



95,435


63,124


-51.2%

 Freight and distribution expenses

40,524


26,814


-51.1%



135,972


108,438


-25.4%

 Selling, general and administrative expenses

32,874


19,008


-72.9%



110,612


70,055


-57.9%

Other operating income

100


36


177.8%



675


664


1.7%

Operating income 

73,806


18,565


297.6%



219,888


109,560


100.7%














Foreign exchange gain / (loss)

95


96


1.0%



232


(303)


176.6%

Interest expense, net

8,823


1,769


-398.8%



20,641


8,295


-148.8%

Amortization of debt issuance costs

1,485


740


-100.7%



4,489


3,479


-29.0%

Income before provision for income taxes

63,593


16,152


293.7%



194,990


97,483


100.0%

Provision for income taxes

20,119


5,959


-237.6%



67,652


34,978


-93.4%

Net income 

$    43,474


$    10,193


326.5%



$   127,338


$     62,505


103.7%














Net income per share:













Basic

$        0.45


$        0.11


309.1%



$         1.34


$         0.67


100.0%

Diluted

$        0.45


$        0.11


309.1%



$         1.32


$         0.65


103.1%



























Weighted-average number of shares outstanding:        










Basic

95,552,335


93,989,494





95,258,756


93,426,912



Diluted

97,112,699


94,809,960





96,739,482


95,452,878





























Effective income tax rate

31.6%


36.9%





34.7%


35.9%




































































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


















Net income (GAAP)

$    43,474


$    10,193


326.5%



$   127,338


$     62,505


103.7%

   Interest expense, net

8,823


1,769


-398.8%



20,641


8,295


-148.8%

   Amortization of debt issuance costs

1,485


740


-100.7%



4,489


3,479


-29.0%

   Provision for income taxes

20,119


5,959


-237.6%



67,652


34,978


-93.4%

   Depreciation and amortization

32,436


17,016


-90.6%



95,435


63,124


-51.2%

EBITDA (Non-GAAP)

$  106,337


$    35,677


198.1%



$   315,555


$   172,381


83.1%














Acquisition, start up and other expenses

2,698


1,091


-147.3%



12,238


5,049


-142.4%

Stock-based compensation expense

932


920


-1.3%



5,203


5,242


0.7%

Adjusted EBITDA (Non-GAAP)

$  109,967


$    37,688


191.8%



$   332,996


$   182,672


82.3%








































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










Net income (GAAP)

$    43,474


$    10,193





$   127,338


$     62,505



Acquisition, start up and other expenses

1,740


685





7,894


3,171



Stock-based compensation expense

601


578





3,356


3,292



Reversal of uncertain tax position

(5,001)


-





(5,001)


-



Deferred tax adjustment due to tax rate change

2,296


-





2,296


-



Discrete tax adjustments

475


1,657





1,881


1,657



Adjusted Net Income (Non-GAAP)

$    43,585


$    13,113





$   137,764


$     70,625
















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










Basic EPS (GAAP)

$        0.45


$        0.11





$         1.34


$         0.67



Acquisition, start up and other expenses

0.02


0.01





0.08


0.03



Stock-based compensation expense

0.02


-





0.04


0.04



Reversal of uncertain tax position

( 0.05)


-





( 0.05)


-



Deferred tax adjustment due to tax rate change

0.02


-





0.02


-



Discrete tax adjustments

-


0.02





0.02


0.02



Adjusted Basic EPS (Non-GAAP)

$        0.46


$        0.14





$         1.45


$         0.76
















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










Diluted earnings per share (GAAP)

$        0.45


$        0.11





$         1.32


$         0.65



Acquisition, start up and other expenses

0.02


0.01





0.08


0.03



Stock-based compensation expense

0.01


-





0.03


0.04



Reversal of uncertain tax position

( 0.05)


-





( 0.05)


-



Deferred tax adjustment due to tax rate change

0.02


-





0.02


-



Discrete tax adjustments

-


0.02





0.02


0.02



Adjusted Diluted EPS (Non-GAAP) 

$        0.45


$        0.14





$         1.42


$         0.74



 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)










December 31,


December 31,


2013


2012


(preliminary and unaudited)



Assets




Current assets:




   Cash and cash equivalents

$          12,967


$          16,488

   Trade accounts receivable, net of allowances

232,347


116,285

   Other receivables

11,399


10,061

   Inventories

217,382


113,511

   Prepaid expenses and other current assets

6,405


9,808

   Deferred income taxes


5,864

Total current assets

480,500


272,017





Plant, property and equipment, net

1,389,609


576,115

Other assets

129,493


4,412

Intangible assets, net

123,745


57,027

Goodwill

528,515


226,289

Total assets

$    2,651,862


$     1,135,860









Liabilities and Stockholders' Equity




Current liabilities:




  Current portion of long-term debt 

$            4,950


$                    –

  Short-term borrowings


63,500

Accounts payable

159,127


89,638

Accrued expenses

45,885


29,725

Accrued compensation costs

54,871


20,421

Deferred income taxes

5,445


Total current liabilities

270,278


203,284





Long-term debt, net of current portion

1,192,413


294,310

Pension and post-retirement benefits

69,611


13,193

Deferred income taxes

444,672


96,459

Other liabilities

8,808


10,666

Total long-term liabilities

1,715,504


414,628





Stockholders' equity:




Common stock $0.0001 par value

5


5

Additional paid-in capital

246,191


236,034

Retained earnings

412,349


285,011

Accumulated other comprehensive income (loss)

7,535


(3,102)

Total stockholders' equity

666,080


517,948

Total liabilities and stockholders' equity

$    2,651,862


$     1,135,860

 

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows 

(In thousands)

(preliminary and unaudited)










Quarter Ended December 31,


Year Ended December 31,


2013


2012


2013


2012

Operating activities:








   Net income

$  43,474


$  10,193


$  127,338


$  62,505

   Adjustments to reconcile net income to net cash provided by








   operating activities:








   Depreciation and amortization

32,436


17,016


95,435


63,124

   Stock-based compensation expense

932


920


5,203


5,242

  Excess tax benefits from stock-based compensation

(984)


(6,159)


(3,531)


(8,037)

   Amortization of debt issuance costs

1,485


740


4,489


3,479

   Loss on disposal of fixed assets

622


329


1,012


1,202

   Pension and post retirement

(2,595)


1,216


(3,908)


1,489

   Deferred income taxes

25,352


549


59,865


23,128

   Changes in operating assets and liabilities

29,089


15,573


12,791


5,697

Net cash provided by operating activities

$129,811


$  40,377


$  298,694


$157,829









Investing activities:








   Longview acquisition, net of cash acquired 

(774)



(538,239)


   USC acquisition




(314)

   Capital expenditures

(40,435)


(25,838)


(96,706)


(67,237)

Net cash used in investing activities

$ (41,209)


$(25,838)


$(634,945)


$ (67,551)

















Financing activities:








Proceeds from revolving credit facility

$  32,500


$  63,500


$  311,613


$142,900

Repayments on revolving credit facility

(69,000)



(375,113)


(79,400)

Proceeds from long-term debt



1,275,000


Repayment of long-term debt 

(51,237)



(356,550)


(50,000)

Repayment of Longview senior notes



(507,520)


Payment of debt issuance costs



(19,654)


Proceeds from other current borrowings



5,115


3,398

Repayments of other current borrowings

(1,376)


(622)


(5,115)


(3,398)

Cash dividend paid


(94,910)



(94,910)

Payment of withholding taxes on stock awards


(8,317)


(860)


(9,496)

Proceeds from exercises of stock options

307


272


1,934


1,345

Excess tax benefits from stock-based compensation

984


6,159


3,531


8,037

Proceeds from issuance of shares to ESPP



349


241

Loan amendment costs


(437)



(569)

Net cash provided by (used in) financing activities

$ (87,822)


$(34,355)


$  332,730


$ (81,852)









Net increase / (decrease) in cash and cash equivalents 

780


(19,816)


(3,521)


8,426

Cash and cash equivalents-beginning of period

12,187


36,304


16,488


8,062

Cash and cash equivalents-end of period

$  12,967


$  16,488


$    12,967


$  16,488

 

 

SOURCE KapStone Paper and Packaging Corporation



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