KapStone Reports Record Third Quarter Results

30 Oct, 2012, 17:00 ET from KapStone Paper and Packaging Corporation

NORTHBROOK, Ill., Oct. 30, 2012 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported results for the third quarter ended September 30, 2012.

  • Net sales of $310 million up $94 million, or 44 percent, versus prior year
  • Net income of $18 million up $2 million, or 13 percent, versus 2011
  • Adjusted EBITDA of $49 million up $7 million, or 17 percent, versus prior year
  • Diluted EPS of $0.38 up $0.03 per share, or 9 percent, versus 2011
  • Adjusted diluted EPS of $0.41 up $0.05 per share, or 14 percent, versus prior year

Roger W. Stone, Chairman and Chief Executive Officer, stated, "The announced $50 per ton containerboard price increase for mid-August shipments was implemented late in the third quarter and is expected to increase fourth quarter 2012 EBITDA by $7 million. Once fully implemented it should boost our EBITDA by approximately $45 million annually.

"Our mills produced 389,000 tons of paper for the quarter. Although this was below our expectations, our Roanoke Rapids mill was impacted by a flood in late August resulting from a rare deluge of rain which curtailed production and added flood clean-up and repair costs. In addition, our Charleston mill also encountered some productivity problems which temporarily impacted their operations.  Fortunately, our mills are now performing well, and Roanoke Rapids has had the best start-up from its annual planned maintenance outage since we have owned the mill."

Third Quarter Operating Highlights

Consolidated net sales of $309.5 million in the third quarter of 2012 increased by $93.7 million, or 43.4 percent compared to $215.8 million for the 2011 third quarter. The increase is primarily due to the USC acquisition which contributed $99.1 million of additional revenue based on selling 1.56 billion square feet of corrugated products compared to none in 2011. In 2012's third quarter, 329,000 tons of paper were sold compared to 327,000 tons a year earlier. The Company's average selling price increased by $2 per ton compared to the second quarter of 2012, but was $14 per ton lower than the third quarter of 2011 due to lower export containerboard prices and product mix.

Operating income of $31.1 million for the 2012 third quarter increased by $1.0 million, or 3.2 percent, compared to the 2011 third quarter. The improved financial performance primarily reflects benefits from the acquisition and the timing of annual planned maintenance outages, partially offset by lower selling prices, unplanned downtime at our Roanoke Rapids, NC mill and unfavorable foreign exchange rates.

Unfavorable foreign exchange rates resulting from the strengthening of the U.S. dollar compared to the euro reduced operating income by $1.5 million.

Interest expense, net was $1.9 million for the third quarter of 2012, up $1.3 million from a year ago as a result of a higher debt balance associated with the acquisition. At September 30, 2012, the interest rate on the term loan was 1.97 percent. Amortization of debt issuance costs of $0.9 million for the third quarter of 2012 increased by $0.5 million from a year ago due to costs associated with the Company's new credit agreement.

The effective tax rate for the third quarter of 2012 was 35.1 percent compared to 42.3 percent for the 2011 third quarter and increased diluted earnings per share by $0.04. The lower effective tax rate is due to a higher expected benefit from the domestic manufacturing deduction and $0.6 million of discrete tax adjustments related to prior years' tax returns. The 2011 effective tax rate included a discrete item for return to provision adjustment. For 2012, the Company estimates its cash tax rate to be about 10 percent reflecting utilization of net operating losses and the cellulosic biofuel tax credit.

Cash Flow and Working Capital

Cash and cash equivalents increased by $26.6 million in the quarter ended September 30, 2012, to $36.3 million reflecting $40.5 million of net cash provided by operating activities, $13.9 million of cash used by investing activities and $0.1 million of cash provided by financing activities.

Capital expenditures for the third quarter of 2012 totaled $13.9 million. The Company estimates $64.0 million of capital expenditures for the year.

At September 30, 2012, the Company had approximately $160.7 million of working capital and $142.8 million of revolver borrowing capacity.

Conclusion

In summary, Stone commented, "In September, we announced our plans to invest $29 million in our Charleston, South Carolina mill to improve our ability to produce ultra high performance lightweight linerboard grades positioning us well for future customer needs.  Our balance sheet and cash flow generation is very strong, and we are well-poised to continue to grow this company profitably."

Conference Call

KapStone will host a conference call at 11 a.m. EDT, Wednesday, October 31, 2012, to discuss the Company's financial results for the 2012 third 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: 866.543.6411 International: 617.213.8900 Participant Passcode: 27874399

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 (https://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 14 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, 2011 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)

Variance

Fav / (Unfav)

Variance

Quarter Ended September 30,

Nine Months Ended September 30,

2012

2011

%

2012

2011

%

Net sales 

$  309,544

$  215,842

43.4%

$  915,646

$  637,366

43.7%

Cost and expenses:

 Cost of sales, excluding

 depreciation and amortization

219,091

146,038

-50.0%

646,500

431,832

-49.7%

 Depreciation and amortization

15,605

11,960

-30.5%

46,108

36,529

-26.2%

 Freight and distribution expenses

27,945

19,319

-44.7%

81,624

56,829

-43.6%

 Selling, general and administrative

 expenses

16,039

8,720

-83.9%

51,047

26,892

-89.8%

Other operating income

200

292

-31.5%

628

870

-27.8%

Operating income 

31,064

30,097

3.2%

90,995

86,154

5.6%

Foreign exchange (loss)

(11)

(456)

97.6%

(399)

(121)

-229.8%

Interest expense, net

1,857

617

-201.0%

6,526

1,944

-235.7%

Amortization of debt issuance costs

936

419

-123.4%

2,739

1,266

-116.4%

Income before provision for income taxes

28,260

28,605

-1.2%

81,331

82,823

-1.8%

Provision for income taxes

9,915

12,110

18.1%

29,019

33,038

12.2%

Net income 

$    18,345

$    16,495

11.2%

$    52,312

$    49,785

5.1%

Net income per share:

Basic

$        0.39

$        0.36

$        1.12

$        1.08

Diluted

$        0.38

$        0.35

$        1.09

$        1.05

Weighted-average number of shares outstanding:        

Basic

46,747,095

46,379,537

46,619,692

46,241,251

Diluted

47,914,816

47,494,425

47,833,592

47,455,133

Effective tax rate

35.1%

42.3%

35.7%

39.9%

    

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)

September 30,

December 31,

2012

2011

(Unaudited)

Assets

Current assets:

   Cash and cash equivalents

$         36,304

$           8,062

   Trade accounts receivable, net of allowances

122,909

108,320

   Other receivables

7,788

11,247

   Inventories

105,146

110,054

   Prepaid expenses and other current assets

6,873

4,207

   Deferred income taxes

10,645

10,048

Total current assets

289,665

251,938

Plant, property and equipment, net

565,758

567,195

Other assets

4,692

4,313

Intangible assets, net

57,263

63,715

Goodwill

230,737

237,193

Total assets

$    1,148,115

$   1,124,354

Liabilities and Stockholders' Equity

Current liabilities:

   Current portion of long-term debt 

$                   –

$           6,094

   Other current borrowings 

622

  Accounts payable

77,354

81,051

  Accrued expenses

27,462

21,217

  Accrued compensation costs

23,522

27,445

Total current liabilities

128,960

135,807

Long-term debt, net of current portion

294,171

335,635

Pension and post-retirement benefits

10,521

10,676

Deferred income taxes

98,671

84,316

Other liabilities

10,662

11,642

Total other liabilities

414,025

442,269

Stockholders' equity:

Common stock $0.0001 par value

5

5

Additional paid-in capital

236,999

230,665

Retained earnings

370,380

318,068

Accumulated other comprehensive loss

(2,254)

(2,460)

Total stockholders' equity

605,130

546,278

Total liabilities and stockholders' equity

$    1,148,115

$   1,124,354

    

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows 

(In thousands)

(unaudited)

Quarter Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

Operating activities:

   Net income

$  18,345

$  16,495

$  52,312

$  49,785

   Adjustments to reconcile net income to

   net cash provided by operating activities:

   Depreciation and amortization

15,605

11,960

46,108

36,529

   Stock-based compensation expense

745

705

4,322

3,226

  Excess tax benefits from stock-based

  compensation

(382)

(423)

(1,878)

(1,181)

   Amortization of debt issuance costs

936

418

2,739

1,266

   Loss on disposal of fixed assets

282

441

873

623

   Deferred income taxes

7,851

15,924

22,579

30,215

   Changes in operating assets and liabilities

(2,930)

5,432

(9,603)

(16,419)

Net cash provided by operating activities

$  40,452

$  50,952

$117,452

$104,044

Investing activities:

   KPB acquisition earn-out payment

$           –

$           –

$           –

$ (49,700)

   USC acquisition

(314)

   Restricted cash

(15,000)

(15,000)

   Capital expenditures

(13,945)

(13,348)

(41,399)

(26,262)

Net cash used in investing activities

$(13,945)

$(28,348)

$ (41,713)

$ (90,962)

Financing activities:

Proceeds from revolving credit facility

$  40,000

$           –

$  79,400

$    7,600

Repayments on revolving credit facility

(40,000)

(79,400)

(7,600)

Repayments of long-term debt 

(4,709)

(50,000)

(14,127)

Proceeds from other current borrowings

3,398

2,273

Repayments on other current borrowings

(930)

(415)

(2,776)

(1,650)

Payment of withholding taxes on vested restricted stock awards

(86)

(1,179)

(952)

Proceeds from exercises of stock options

598

396

1,073

1,017

Proceeds from issuance of shares to ESPP

151

95

241

192

Loan amendment costs

(87)

(132)

(244)

Debt issuance costs for new credit facility

(788)

(788)

Excess tax benefits from stock-based compensation

382

423

1,878

1,181

Net cash provided by (used in) financing activities

$       114

$  (5,084)

$ (47,497)

$ (13,098)

Net increase / (decrease) in cash and cash equivalents 

26,621

17,520

28,242

(16)

Cash and cash equivalents-beginning of period

9,683

49,822

8,062

67,358

Cash and cash equivalents-end of period

$  36,304

$  67,342

$  36,304

$  67,342

    

KapStone Paper and Packaging Corporation

Supplemental Information

GAAP to Non-GAAP Reconciliations

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

(unaudited)

Quarter Ended Sept 30,

Nine Months Ended Sept 30,

2012

2011

2012

2011

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

Net income (GAAP)

$18,345

$16,495

$  52,312

$  49,785

   Interest expense, net

1,857

617

6,526

1,944

   Amortization of debt issuance costs

936

419

2,739

1,266

   Provision for income taxes

9,915

12,110

29,019

33,038

   Depreciation and amortization

15,605

11,960

46,108

36,529

EBITDA (Non-GAAP)

$46,658

$41,601

$136,704

$122,562

Acquisition start up expenses

1,353

3,958

Stock-based compensation expense

745

705

4,322

3,226

Adjusted EBITDA (Non-GAAP)

$48,756

$42,306

$144,984

$125,788

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

Net income (GAAP)

$18,345

$16,495

$  52,312

$  49,785

Acquisition start up expenses

878

2,546

Stock-based compensation expense

484

407

2,780

1,939

Adjusted Net Income (Non-GAAP)

$19,707

$16,902

$  57,638

$  51,724

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

Basic EPS (GAAP)

$    0.39

$    0.36

$      1.12

$      1.08

Acquisition start up expenses

0.02

0.05

Stock-based compensation expense

0.01

0.01

0.06

0.04

Adjusted Basic EPS (Non-GAAP)

$    0.42

$    0.37

$      1.23

$      1.12

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

Diluted earnings per share (GAAP)

$    0.38

$    0.35

$      1.09

$      1.05

Acquisition start up expenses

0.02

0.05

Stock-based compensation expense

0.01

0.01

0.06

0.04

Adjusted Diluted EPS (Non-GAAP) 

$    0.41

$    0.36

$      1.20

$      1.09

SOURCE KapStone Paper and Packaging Corporation



RELATED LINKS

http://www.kapstonepaper.com