KapStone Reports First Quarter Results
Q1 2016 OPERATING CASH FLOW UP $63 MILLION OVER PRIOR YEAR
NORTHBROOK, Ill., April 27, 2016 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported results for the first quarter ended March 31, 2016. As compared to 2015's first quarter, results for 2016's first quarter are below:
- Net sales of $738 million up $192 million, or 35 percent
- Net income of $16 million down $10 million, or 38 percent
- Adjusted net income of $22 million down $7 million, or 24 percent
- Adjusted EBITDA of $88 million up $1 million, or 2 percent
- Diluted EPS of $0.17 down $0.10 per share, or 37 percent
- Adjusted diluted EPS of $0.23 down $0.07 per share, or 23 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone's operations performed very well in the first quarter with our mills recording record first quarter production. Our strong operating performance and benefits from Victory, though, were mostly offset by lower prices and less favorable product mix. Although first quarter cash flows are typically weak, our operating cash flow this quarter improved $63 million over the prior year benefitting from lower cash taxes and Victory. We continue to make good progress on integrating Victory's packaging needs into our mill and plant system."
First Quarter Operating Highlights
Consolidated net sales of $738 million in the first quarter of 2016 increased by $192 million, or 35 percent compared to $546 million for the 2015 first quarter. The increase is primarily due to $218 million reflecting the Victory Packaging acquisition which occurred in June 2015 and higher sales volume, offset by lower domestic and export containerboard and export kraft paper prices. The Company sold 692,000 tons of paper during the first quarter of 2016 compared to 661,000 tons a year earlier. The Company's average mill selling price of $625 per ton in the first quarter of 2016 decreased by $58 per ton, or about 8 percent compared to the first quarter of 2015 due to lower domestic and export containerboard prices, lower export kraft paper prices and a less favorable product mix.
Operating income of $35 million for the 2016 first quarter decreased by $13 million, or 27 percent, compared to the 2015 first quarter. The lower operating earnings primarily reflect lower domestic and export containerboard and export kraft paper prices, inflation on salary and certain benefit costs, an increase of the fair value of the Victory contingent consideration liability and higher severance charges partially offset by the Victory Packaging acquisition and related synergies, lower fuel costs, and lower management incentives.
Interest expense, net, was $10 million for the first quarter of 2016, up $3 million from a year ago as a result of borrowings associated with the Victory Packaging acquisition and higher interest rates. Our weighted average interest rate as of March 31, 2016 is 2.1 percent compared to 1.8 percent as of March 31, 2015.
The effective income tax rate for the 2016 first quarter was 34.5 percent compared to 34.8 percent for the 2015 first quarter.
Cash Flow and Working Capital
Cash and cash equivalents of $7 million as of March 31, 2016, remained consistent with balances at December 31, 2015. Operating activities provided $59 million during the first quarter while investing and financing activities used $32 and $27 million, respectively. Capital expenditures in the first quarter were $36 million.
On March 10, 2016, our Board of Directors approved a regular $0.10 per share cash dividend which was paid in April.
At March 31, 2016, the Company had approximately $417 million of working capital and $473 million of revolver borrowing capacity.
Conclusion
In summary, Stone commented, "I expect to see our operations continue to perform better and as Victory moves into its strongest seasonal period, the integration of Victory's corrugated packaging needs should accelerate."
Conference Call
KapStone will host a conference call at 10:00 a.m. CDT, Thursday, April 28, 2016, to discuss the Company's financial results for the 2016 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: 888-608-7946
International: 484-747-6633
Participant Passcode: 86874247
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 has four paper mills, 20 converting plants and 60 distribution centers. The business has approximately 6,400 employees.
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; (2) market and economic factors; (3) results of legal proceedings and compliance costs; (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; (7) managing labor relations and (8) realizing the synergies and benefits of the Victory Packaging 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, 2015 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) |
|||||
| Quarter Ended March 31, |
|||||
| 2016 |
2015 |
||||
| Net sales |
$ 738,215 |
$ 546,289 |
|||
| Cost and expenses: |
|||||
| Cost of sales, excluding depreciation and amortization |
533,277 |
382,198 |
|||
| Depreciation and amortization |
44,539 |
35,121 |
|||
| Freight and distribution expenses |
65,059 |
43,427 |
|||
| Selling, general and administrative expenses |
60,740 |
38,194 |
|||
| Operating income |
34,600 |
47,349 |
|||
| Foreign exchange (loss) |
(103) |
(885) |
|||
| Interest expense, net |
9,811 |
6,413 |
|||
| Income before provision for income taxes |
24,686 |
40,051 |
|||
| Provision for income taxes |
8,512 |
13,951 |
|||
| Net income |
$ 16,174 |
$ 26,100 |
|||
| Net income per share: |
|||||
| Basic |
$ 0.17 |
$ 0.27 |
|||
| Diluted |
$ 0.17 |
$ 0.27 |
|||
| Weighted-average number of shares outstanding: |
|||||
| Basic |
96,399,351 |
96,123,351 |
|||
| Diluted |
97,509,528 |
97,662,608 |
|||
| Effective income tax rate |
34.5% |
34.8% |
|||
| Supplemental Information |
|||||
| GAAP to Non-GAAP Reconciliations |
|||||
| ($ in thousands, except share and per share amounts) |
|||||
| (unaudited) |
|||||
| Quarter Ended March 31, |
|||||
| 2016 |
2015 |
||||
| Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP): |
|||||
| Net income (GAAP) |
$ 16,174 |
$ 26,100 |
|||
| Interest expense, net |
9,811 |
6,413 |
|||
| Provision for income taxes |
8,512 |
13,951 |
|||
| Depreciation and amortization |
44,539 |
35,121 |
|||
| EBITDA (Non-GAAP) |
$ 79,036 |
$ 81,585 |
|||
| Integration, casualty and other expenses |
1,229 |
568 |
|||
| Change in fair value of contingent consideration liability |
1,526 |
– |
|||
| Severance expenses |
3,048 |
639 |
|||
| Stock-based compensation expense |
3,421 |
3,780 |
|||
| Adjusted EBITDA (Non-GAAP) |
$ 88,260 |
$ 86,572 |
|||
| Net Income (GAAP) to Adjusted Net Income (Non-GAAP): |
|||||
| Net income (GAAP) |
$ 16,174 |
$ 26,100 |
|||
| Integration, casualty and other expenses |
807 |
373 |
|||
| Change in fair value of contingent consideration liability |
1,003 |
- |
|||
| Severance expenses |
2,003 |
421 |
|||
| Stock-based compensation expense |
2,248 |
2,485 |
|||
| Adjusted Net Income (Non-GAAP) |
$ 22,235 |
$ 29,379 |
|||
| Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP): |
|||||
| Basic EPS (GAAP) |
$ 0.17 |
$ 0.27 |
|||
| Integration, casualty and other expenses |
0.01 |
- |
|||
| Change in fair value of contingent consideration liability |
0.01 |
- |
|||
| Severance expenses |
0.02 |
0.01 |
|||
| Stock-based compensation expense |
0.02 |
0.03 |
|||
| Adjusted Basic EPS (Non-GAAP) |
$ 0.23 |
$ 0.31 |
|||
| Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): |
|||||
| Diluted earnings per share (GAAP) |
$ 0.17 |
$ 0.27 |
|||
| Integration, casualty and other expenses |
0.01 |
- |
|||
| Victory Packaging acquisition expenses |
0.01 |
- |
|||
| Severance expenses |
0.02 |
- |
|||
| Stock-based compensation expense |
0.02 |
0.03 |
|||
| Adjusted Diluted EPS (Non-GAAP) |
$ 0.23 |
$ 0.30 |
|||
| KapStone Paper and Packaging Corporation |
||||
| Consolidated Balance Sheets |
||||
| (In thousands) |
||||
| March 31, |
December 31, |
|||
| 2016 |
2015 |
|||
| (Unaudited) |
||||
| Assets |
||||
| Current assets: |
||||
| Cash and cash equivalents |
$ 7,084 |
$ 6,821 |
||
| Trade accounts receivable, net of allowances |
372,038 |
363,869 |
||
| Other receivables |
17,274 |
18,732 |
||
| Inventories |
335,056 |
335,903 |
||
| Prepaid expenses and other current assets |
19,298 |
28,932 |
||
| Total current assets |
750,750 |
754,257 |
||
| Plant, property and equipment, net |
1,412,379 |
1,406,146 |
||
| Other assets |
9,298 |
12,532 |
||
| Intangible assets, net |
335,647 |
344,583 |
||
| Goodwill |
704,592 |
704,592 |
||
| Total assets |
$3,212,666 |
$ 3,222,110 |
||
| Liabilities and Stockholders' Equity |
||||
| Current liabilities: |
||||
| Short-term borrowings |
$ 10,000 |
$ 6,400 |
||
| Dividend payable |
9,859 |
9,862 |
||
| Accounts payable |
198,486 |
196,491 |
||
| Accrued expenses |
65,329 |
73,138 |
||
| Accrued compensation costs |
48,829 |
64,149 |
||
| Accrued income taxes |
1,544 |
15 |
||
| Total current liabilities |
334,047 |
350,055 |
||
| Long-term debt, net of current portion |
1,523,961 |
1,543,748 |
||
| Pension and post-retirement benefits |
39,235 |
40,510 |
||
| Deferred income taxes |
420,803 |
418,479 |
||
| Other liabilities |
39,099 |
24,038 |
||
| Total other liabilities |
2,023,098 |
2,026,775 |
||
| Stockholders' equity: |
||||
| Common stock $0.0001 par value |
10 |
10 |
||
| Additional paid-in capital |
269,482 |
266,220 |
||
| Retained earnings |
648,768 |
642,306 |
||
| Accumulated other comprehensive (loss) income |
(62,739) |
(63,256) |
||
| Total stockholders' equity |
855,521 |
845,280 |
||
| Total liabilities and stockholders' equity |
$3,212,666 |
$ 3,222,110 |
||
| KapStone Paper and Packaging Corporation |
|||||
| Consolidated Statement of Cash Flows |
|||||
| (In thousands) |
|||||
| (Unaudited) |
|||||
| Quarter Ended March 31, |
|||||
| 2016 |
2015 |
||||
| Operating activities: |
|||||
| Net income |
$ 16,174 |
$ 26,100 |
|||
| Adjustments to reconcile net income to net cash provided by |
|||||
| operating activities: |
|||||
| Depreciation of plant and equipment |
35,603 |
31,705 |
|||
| Amortization of intangible assets |
8,936 |
3,416 |
|||
| Stock-based compensation expense |
3,421 |
3,780 |
|||
| Pension and postretirement |
(448) |
(2,892) |
|||
| Excess tax (deficiency) / benefit from stock-based compensation |
140 |
(1,391) |
|||
| Amortization of debt issuance costs |
1,124 |
1,007 |
|||
| (Gain) / Loss on disposal of fixed assets |
(62) |
178 |
|||
| Deferred income taxes |
1,064 |
1,864 |
|||
| Change in fair value of contingent consideration liability |
1,526 |
– |
|||
| Changes in operating assets and liabilities |
(8,873) |
(67,679) |
|||
| Net cash provided by / (used in) operating activities |
$ 58,605 |
$ (3,912) |
|||
| Investing activities: |
|||||
| Purchase of intangible assets |
(500) |
– |
|||
| Capital expenditures |
(36,163) |
(28,762) |
|||
| Proceeds from sales of assets |
4,856 |
– |
|||
| Net cash used in investing activities |
$ (31,807) |
$(28,762) |
|||
| Financing activities: |
|||||
| Proceeds from revolving credit facility |
$ 134,600 |
$ 86,400 |
|||
| Repayments on revolving credit facility |
(131,000) |
(76,400) |
|||
| Proceeds from receivables credit facility |
6,670 |
12,962 |
|||
| Repayments on receivables credit facility |
(24,700) |
(4,962) |
|||
| Cash dividend paid |
(9,696) |
(9,838) |
|||
| Payment of loan amendment costs |
(2,250) |
– |
|||
| Proceeds from other current borrowings |
– |
6,615 |
|||
| Payment of withholding taxes on vested stock awards |
(692) |
(2,322) |
|||
| Proceeds from exercises of stock options |
209 |
491 |
|||
| Proceeds from issuance of shares to ESPP |
464 |
415 |
|||
| Excess tax (deficiency) / benefit from stock-based compensation |
(140) |
1,391 |
|||
| Net cash (used in) / provided by financing activities |
$ (26,535) |
$ 14,752 |
|||
| Net (decrease) / increase in cash and cash equivalents |
263 |
(17,922) |
|||
| Cash and cash equivalents-beginning of period |
6,821 |
28,467 |
|||
| Cash and cash equivalents-end of period |
$ 7,084 |
$ 10,545 |
|||
| KapStone Paper and Packaging Corporation |
|||||||||||||
| Operating Segment Information |
|||||||||||||
| (In thousands) |
|||||||||||||
| (Unaudited) |
|||||||||||||
| Net Sales |
|||||||||||||
| Three Months Ended March 31, 2016 |
Trade |
Inter-segment |
Total |
Operating Income (Loss) |
Depreciation and Amortization |
Capital Expenditures |
Total Assets at March 31, 2016 |
||||||
| Paper and Packaging |
$ 520,040 |
$ 16,469 |
$ 536,509 |
$ 46,241 |
$ 37,136 |
$ 32,355 |
$ 2,501,605 |
||||||
| Distribution (a) |
218,175 |
- |
218,175 |
1,381 |
5,661 |
2,066 |
665,458 |
||||||
| Corporate |
- |
- |
- |
(13,022) |
1,742 |
1,742 |
45,603 |
||||||
| Intersegment eliminations |
- |
(16,469) |
(16,469) |
- |
- |
- |
- |
||||||
| $ 738,215 |
$ - |
$ 738,215 |
$ 34,600 |
$ 44,539 |
$ 36,163 |
$ 3,212,666 |
|||||||
| Net Sales |
|||||||||||||
| Three Months Ended March 31, 2015 |
Trade |
Inter-segment |
Total |
Operating Income (Loss) |
Depreciation and Amortization |
Capital Expenditures |
Total Assets at March 31, 2015 |
||||||
| Paper and Packaging |
$ 546,289 |
$ - |
$ 546,289 |
$ 58,399 |
$ 34,477 |
$ 26,250 |
$ 2,544,235 |
||||||
| Distribution (a) |
- |
- |
- |
- |
- |
- |
- |
||||||
| Corporate |
- |
- |
- |
(11,050) |
644 |
2,512 |
43,440 |
||||||
| Intersegment eliminations |
- |
- |
- |
- |
- |
- |
- |
||||||
| $ 546,289 |
$ - |
$ 546,289 |
$ 47,349 |
$ 35,121 |
$ 28,762 |
$ 2,587,675 |
|||||||
| (a) Reflects results of Victory Packaging which KapStone acquired on June 1, 2015 |
| KapStone Paper and Packaging Corporation |
|||||
| Operating Segment EBITDA and Adjusted EBITDA |
|||||
| (In thousands) |
|||||
| (Unaudited) |
|||||
| Quarter Ended March 31, |
|||||
| Paper and Packaging |
2016 |
2015 |
|||
| Segment income* |
$ 46,528 |
$ 57,514 |
|||
| Depreciation and amortization |
37,136 |
34,477 |
|||
| EBITDA |
83,664 |
91,991 |
|||
| Severance expenses |
2,262 |
639 |
|||
| Integration, casualty and other expenses |
884 |
131 |
|||
| Adjusted EBITDA |
$ 86,810 |
$ 92,761 |
|||
| Adjusted EBITDA margin |
16.7% |
17.0% |
|||
| Quarter Ended March 31, |
|||||
| Distribution |
2016 |
2015 |
|||
| Segment income* |
$ 991 |
$ - |
|||
| Depreciation and amortization |
5,661 |
- |
|||
| EBITDA |
6,652 |
- |
|||
| Integration, casualty and other expenses |
263 |
- |
|||
| Severance expenses |
391 |
- |
|||
| Adjusted EBITDA |
$ 7,306 |
$ - |
|||
| Adjusted EBITDA margin |
3.3% |
- |
|||
| Quarter Ended March 31, |
|||||
| Corporate |
2016 |
2015 |
|||
| Segment (loss) |
$ (13,022) |
$ (11,050) |
|||
| Depreciation and amortization |
1,742 |
644 |
|||
| EBITDA |
(11,280) |
(10,406) |
|||
| Stock-based compensation expense |
3,421 |
3,780 |
|||
| Integration, casualty and other expenses |
82 |
437 |
|||
| Change in fair value of contingent consideration liability |
1,526 |
- |
|||
| Severance expenses |
395 |
- |
|||
| Adjusted EBITDA |
$ (5,856) |
$ (6,189) |
|||
| Quarter Ended March 31, |
|||||
| Consolidated |
2016 |
2015 |
|||
| Segment income* |
$ 34,497 |
$ 46,464 |
|||
| Depreciation and amortization |
44,539 |
35,121 |
|||
| EBITDA |
79,036 |
81,585 |
|||
| Stock-based compensation expense |
3,421 |
3,780 |
|||
| Integration, casualty and other expenses |
1,229 |
568 |
|||
| Change in fair value of contingent consideration liability |
1,526 |
- |
|||
| Severance expenses |
3,048 |
639 |
|||
| Adjusted EBITDA |
$ 88,260 |
$ 86,572 |
|||
| * Includes foreign exchange losses |
SOURCE KapStone Paper and Packaging Corporation
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