2014

KapStone Reports Record Second Quarter Results NET INCOME SURGES 14 PERCENT

NORTHBROOK, Ill., July 31, 2013 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported record results for the second quarter ended June 30, 2013.

  • Net sales of $326 million up $20 million, or 7 percent, versus prior year
  • Net income of $21 million up 14 percent versus 2012
  • Adjusted EBITDA of $56 million up $6 million, or 11 percent, versus prior year
  • Diluted EPS of $0.44 up $0.05 per share, or 13 percent, versus 2012
  • Adjusted diluted EPS of $0.48 up $0.06 per share, or 14 percent, versus prior year

Roger W. Stone, Chairman and Chief Executive Officer, stated, "Our mills produced a record 390,000 tons for the quarter. All-time record net sales and adjusted EBITDA were achieved despite the loss of approximately 9,400 production tons and $5.0 million of expense due to our Charleston mill's tri-annual planned maintenance outage. The increases in net sales and adjusted EBITDA were driven by our all-time record average selling prices for all mill products of $664 per ton which increased by $41 per ton compared to a year ago and $11 per ton compared to the first quarter of 2013, reflecting the impact of the 2012 and April 2013 containerboard price increases. The April price increase was fully implemented by June and partially realized in the second quarter of 2013.

"In addition to our legacy operations performing very well in the second quarter, we were equally delighted with the performance of Longview which we acquired on July 18, 2013. Together, KapStone and Longview create an even stronger and more diversified company."  

Second Quarter Operating Highlights

Consolidated net sales of $326 million in the second quarter of 2013 increased by $20 million, or 7 percent, compared to $306 million for the 2012 second quarter. The increase is primarily due to higher average selling prices as the $50 per ton 2012 containerboard price increase was fully realized and the April 2013 $50 per ton containerboard price increase was fully implemented by June and partially realized in the second quarter. The average mill selling price increased by $41 per ton compared to the second quarter of 2012.

In 2013's second quarter, 418,000 tons were sold compared to 423,000 tons a year earlier.  

Operating income of $35 million for the 2013 second quarter increased by $2 million, or 7 percent, compared to the 2012 second quarter. The improved financial performance primarily reflects benefits from higher selling prices partially offset by the tri-annual Charleston mill outage, inflation on input costs, lower volume, Longview acquisition related charges and the new Aurora manufacturing plant.

Interest expense, net, was $1.9 million for the second quarter of 2013, down $0.4 million from a year ago as a result of lower debt balances and lower interest rates. At June 30, 2013, the interest rate on the majority of the Company's debt was 1.95 percent.

The effective income tax rate for the 2013 second quarter was 34.5 percent compared to 36.0 percent for the 2012 second quarter. The lower effective income tax rate is due to a higher expected benefit from the domestic manufacturing deduction and lower state income taxes.

Cash Flow and Working Capital

Cash and cash equivalents increased by $0.8 million in the quarter ended June 30, 2013, to $8.4 million reflecting $55.0 million of net cash provided by operating activities, $15.9 million of cash used by investing activities and $38.4 million of cash used by financing activities.

Capital expenditures for the second quarter of 2013 totaled $15.9 million. The Company estimates $93.0 million of capital expenditures for the year.

At June 30, 2013, the Company had approximately $125.0 million of working capital and $133.6 million of revolver borrowing capacity.

Longview Acquisition

In conjunction with our consummation of the Longview acquisition on July 18, 2013, we entered into an Amended and Restated credit agreement with Bank of America, Wells Fargo and Barclays Bank. As we previously reported, the new credit agreement includes an $805.0 million five-year term loan, a $470.0 million seven-year term loan and a $400.0 million revolving credit facility. At closing, we retired our remaining $305.3 million term loan and $13.7 million of revolver borrowings due under our old credit agreement and paid $19.7 million in bank fees.

Conclusion

In summary, Stone commented, "Our legacy KapStone operations are performing very well, and we are now thoroughly engaged in welcoming and integrating Longview into the KapStone family." 

Conference Call

KapStone will host a conference call at 11 a.m. EDT, Thursday, August 1, 2013, to discuss the Company's financial results for the 2013 second 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: 866.730.5771
International: 857.350.1595
Participant Passcode: 87287078

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 a leading North American producer of containerboard, unbleached kraft paper products, and corrugated products. The Company operates four paper mills and 22 converting plants located throughout the United States. The business employs approximately 4,500 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)

(unaudited)



















Fav / (Unfav)







Fav / (Unfav)


Quarter Ended June 30,


Variance



Six Months Ended June 30,


Variance


2013


2012


%



2013


2012


%














Net sales 

$  326,321


$  306,259


6.6%



$  646,134


$  606,102


6.6%














Cost and expenses:













 Cost of sales, excluding depreciation and amortization

225,753


213,335


-5.8%



450,699


427,409


-5.4%

 Depreciation and amortization

17,253


15,327


-12.6%



34,477


30,503


-13.0%

 Freight and distribution expenses

27,849


27,936


0.3%



55,769


53,679


-3.9%

 Selling, general and administrative expenses

21,072


17,436


-20.9%



40,200


35,008


-14.8%

Other operating income

196


230


-14.8%



398


428


-7.0%

Operating income 

34,590


32,455


6.6%



65,387


59,931


9.1%














Foreign exchange gain / (loss)

89


(508)


117.5%



(222)


(388)


42.8%

Interest expense, net

1,909


2,296


16.9%



3,784


4,669


19.0%

Amortization of debt issuance costs

727


897


19.0%



1,453


1,803


19.4%

Income before provision for income taxes

32,043


28,754


11.4%



59,928


53,071


12.9%

Provision for income taxes

11,052


10,350


-6.8%



20,478


19,104


-7.2%

Net income 

$    20,991


$    18,404


14.1%



$    39,450


$    33,967


16.1%














Net income per share:













  Basic

$        0.44


$        0.39





$        0.83


$        0.73



  Diluted

$        0.44


$        0.39





$        0.82


$        0.71





























Weighted-average number of shares outstanding:        













  Basic

47,550,426


46,620,354





47,516,218


46,555,990



  Diluted

48,217,835


47,744,589





48,222,022


47,792,980





























Effective income tax rate

34.5%


36.0%





34.2%


36.0%

















































































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


























Net income (GAAP)

$    20,991


$    18,404


14.1%



$    39,450


$    33,967


16.1%

   Interest expense, net

1,909


2,296


16.9%



3,784


4,669


19.0%

   Amortization of debt issuance costs

727


897


19.0%



1,453


1,803


19.4%

   Provision for income taxes

11,052


10,350


-6.8%



20,478


19,104


-7.2%

   Depreciation and amortization

17,253


15,327


-12.6%



34,477


30,503


-13.0%

EBITDA (Non-GAAP)

$    51,932


$    47,274


9.9%



$    99,642


$    90,046


10.7%














Acquisition, start up and other expenses

2,673


1,382


-93.4%



3,284


2,605


-26.1%

Stock-based compensation expense

954


1,264


24.5%



3,299


3,577


7.8%

Adjusted EBITDA (Non-GAAP)

$    55,559


$    49,920


11.3%



$  106,225


$    96,228


10.4%








































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













Net income (GAAP)

$    20,991


$    18,404





$    39,450


$    33,967



Acquisition, start up and other expenses

1,751


885





2,151


1,667



Stock-based compensation expense

625


809





2,161


2,289



Adjusted Net Income (Non-GAAP)

$    23,367


$    20,098





$    43,762


$    37,923
















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













Basic EPS (GAAP)

$        0.44


$        0.39





$        0.83


$        0.73



Acquisition, start up and other expenses

0.04


0.02





0.04


0.04



Stock-based compensation expense

0.01


0.02





0.05


0.05



Adjusted Basic EPS (Non-GAAP)

$        0.49


$        0.43





$        0.92


$        0.82
















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













Diluted earnings per share (GAAP)

$        0.44


$        0.39





$        0.82


$        0.71



Acquisition, start up and other expenses

0.03


0.02





0.04


0.03



Stock-based compensation expense

0.01


0.01





0.05


0.05



Adjusted Diluted EPS (Non-GAAP) 

$        0.48


$        0.42





$        0.91


$        0.79



 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)












June 30,


December 31,



2013


2012



(unaudited)




Assets





Current assets:





   Cash and cash equivalents

$            8,404


$        16,488


   Trade accounts receivable, net of allowances

139,272


111,592


   Other receivables

6,189


10,061


   Inventories

114,065


113,511


   Prepaid expenses and other current assets

7,361


9,808


   Deferred income taxes

5,732


5,864


Total current assets

281,023


267,324







Plant, property and equipment, net

577,718


576,115


Other assets

4,450


4,412


Intangible assets, net

52,741


57,027


Goodwill

226,289


226,289


Total assets

$    1,142,221


$   1,131,167












Liabilities and Stockholders' Equity





Current liabilities:





  Current portion of long-term debt 

$            5,313


$                  –


  Short-term borrowings

13,700


63,500


  Other current borrowings

1,703



  Accounts payable

81,470


89,638


  Accrued expenses

31,179


25,032


  Accrued compensation costs

20,874


20,421


  Accrued income taxes

1,812



Total current liabilities

156,051


198,591







Long-term debt, net of current portion

290,323


294,310


Pension and post-retirement benefits

13,820


13,193


Deferred income taxes

108,068


96,459


Other liabilities

11,134


10,666


Total other liabilities

423,345


414,628







Stockholders' equity:





Common stock $0.0001 par value

5


5


Additional paid-in capital

241,386


236,034


Retained earnings

324,461


285,011


Accumulated other comprehensive loss

(3,027)


(3,102)


Total stockholders' equity

562,825


517,948


Total liabilities and stockholders' equity

$    1,142,221


$   1,131,167


 

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows 

(In thousands)

(unaudited)










Quarter Ended June 30,


Six Months Ended June 30,


2013


2012


2013


2012

Operating activities:








   Net income

$    20,991


$  18,404


$  39,450


$     33,967

   Adjustments to reconcile net income to net cash provided by








   operating activities:








   Depreciation and amortization

17,253


15,327


34,477


30,503

   Stock-based compensation expense

954


1,264


3,299


3,577

     Excess tax benefits from stock-based compensation

(1,344)


(1,051)


(1,730)


(1,496)

   Amortization of debt issuance costs

727


897


1,453


1,803

   Loss on disposal of fixed assets

124


523


142


591

   Deferred income taxes

8,520


8,526


13,426


14,728

   Changes in operating assets and liabilities

7,810


13,319


(19,845)


(6,673)

Net cash provided by operating activities

$    55,035


$  57,209


$  70,672


$     77,000









Investing activities:








   USC acquisition




(314)

   Capital expenditures

(15,881)


(16,549)


(32,713)


(27,454)

Net cash used in investing activities

$  (15,881)


$(16,549)


$(32,713)


$    (27,768)

















Financing activities:








  Proceeds from revolving credit facility

$    41,900


$    1,400


$  91,400


$     39,400

  Repayments on revolving credit facility

(80,400)


(1,400)


(141,200)


(39,400)

  Repayments of long-term debt 


(50,000)



(50,000)

  Proceeds from other current borrowings



3,731


3,398

  Repayments of other current borrowings

(1,016)


(925)


(2,028)


(1,846)

  Payment of withholding taxes on stock awards

(848)


(1,179)


(860)


(1,179)

  Proceeds from exercises of stock options

652


55


1,014


475

  Excess tax benefits from stock-based compensation

1,344


1,051


1,730


1,496

  Proceeds from issuance of shares to ESPP



170


90

  Loan amendment costs


(45)



(45)

Net cash provided by (used in) financing activities

$  (38,368)


$(51,043)


$(46,043)


$    (47,611)









Net increase / (decrease) in cash and cash equivalents 

786


(10,383)


(8,084)


1,621

Cash and cash equivalents-beginning of period

7,618


20,066


16,488


8,062

Cash and cash equivalents-end of period

$      8,404


$    9,683


$    8,404


$       9,683


SOURCE KapStone Paper and Packaging Corporation



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