2014

KapStone Reports Record Third Quarter Results

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

More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.