KapStone Reports Fourth Quarter And Full Year Results

Feb 09, 2016, 16:15 ET from KapStone Paper and Packaging Corporation

NORTHBROOK, Ill., Feb. 9, 2016 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported preliminary results for the fourth quarter and year ended December 31, 2015.

As compared to 2014's fourth quarter, results for 2015's fourth quarter are below:

  • Net sales of $764 million up $201 million, or 36 percent
  • Net income of $12 million down $22 million, or 65 percent
  • Diluted EPS of $0.12 down $0.23 per share, or 66 percent
  • Adjusted EBITDA of $82 million down $20 million, or 20 percent
  • Adjusted net income of $16 million down $24 million, or 60 percent
  • Adjusted diluted EPS of $0.17 down $0.24 per share, or 59 percent

As compared to the year ended December 31, 2014, results for the year ended December 31, 2015:

  • Net sales of $2,789 million up $488 million, or 21 percent
  • Net income of $106 million down $66 million, or 38 percent
  • Diluted EPS of $1.09 down $0.67 per share, or 38 percent
  • Adjusted EBITDA of $404 million down $52 million, or 11 percent
  • Adjusted net income of $137 million down $52 million, or 28 percent
  • Adjusted diluted EPS of $1.41 down $0.53 per share, or 27 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, "2015 was another transformational year for KapStone with the successful integration of Victory Packaging, and we are right on target for achieving our synergies. Our corrugated products volume grew over three percent year-over-year.  However, the year also provided many challenges for us, including the impact of a stronger U.S. dollar resulting in lower export containerboard and extensible grade paper prices with increased competition in certain export markets.

"Fourth quarter was particularly disappointing due primarily to December's results.  Seasonally weaker demand resulted in an eight-day market shutdown at our Longview mill and box plant, and product mix deteriorated.  Our results were further negatively impacted by poor start-ups after Longview's outage and at Charleston after completion of a machine upgrade. Together, the market and maintenance downtimes resulted in a loss of 41,000 tons in the fourth quarter with an estimated EBITDA impact of $10 to $12 million.   Although operationally our Charleston mill weathered the 1,000-year storm very well, fiber prices in the region soared but are expected to gradually be reduced as the region dries out.

"KapStone's strength continues to be its operating free cash flows which generated $54 million in the fourth quarter despite economic and operational challenges.  The strong cash flows were used to make a $52 million debt prepayment."

Fourth Quarter Operating Highlights

Consolidated net sales of $764 million in the fourth quarter of 2015 were over $200 million higher than 2014, reflecting $242 million of revenues for Victory Packaging which we acquired in June 2015. During the current quarter, we experienced continued price pressure on exports and increased competition which resulted in our decision to take 27,000 tons of market-related downtime at our Longview mill. The Company sold 658,000 tons of paper during the fourth quarter of 2015 compared to 687,000 tons a year earlier. The Company's average mill selling price of $646 per ton in the fourth quarter of 2015 decreased by $31 per ton compared to the fourth quarter of 2014 due to the combined impact of lower export and domestic containerboard prices, a weaker Euro and a less favorable product mix.  Average mill selling prices decreased $25 per ton from the third quarter of 2015, reflecting the seasonally less favorable product mix and continued lower export containerboard prices and the partial impact of a west coast domestic containerboard price reduction.

Operating income of $29 million for the 2015 fourth quarter decreased by $33 million, or 54 percent, compared to the 2014 fourth quarter. Financial performance in the current quarter was down from 2014 mainly due to lower export and domestic containerboard prices, the weaker Euro, higher planned maintenance outage costs, market-related downtime at the Longview mill, lower mill productivity, and higher depreciation charges offset by the Victory Packaging acquisition and related synergy benefits from increased integration with our mill and plant system.

Interest expense was $9 million for the fourth quarter of 2015, up $2 million from a year ago as a result of additional borrowings to finance the Victory Packaging acquisition and higher interest rates. At December 31, 2015, the average interest rate on our debt was 2.0 percent compared to 1.8 percent at the end of 2014 with the increase driven by the recent increase in interest rates. Due to a $52 million debt prepayment in December 2015, the Company incurred a $0.6 million loss on debt extinguishment. In the fourth quarter of 2014, $150 million of debt prepayments resulted in a loss on debt extinguishment of $3 million.

The effective income tax rate for both the 2015 and 2014 fourth quarters was 34.6 percent.

Full Year Operating Highlights

Consolidated net sales for the year ended December 31, 2015, were $2,789 million, an increase of 21 percent, compared to 2014 sales of $2,301 million.  The increase was primarily due to the seven months of Victory Packaging results as the acquisition occurred on June 1, 2015, partially offset by lower volume and selling prices and a stronger U.S. dollar.

Operating income of $199 million for the year ended December 31, 2015 was lower than 2014's $300 million by 34%.  The decrease was due to lower selling prices, a less favorable product mix, a stronger U.S. dollar, lower productivity, inflation on compensation and benefits and fiber prices, and higher depreciation charges partially offset by seven months of operating results for Victory Packaging and related synergies with KapStone's mill and plant system, and lower incentive compensation.

Interest expense for the year ended December 31, 2015 was $34 million, up $2 million from a year ago mainly due to the partial-year effect of borrowings relating to the Victory Packaging acquisition. Interest rates in both years were about 1.8 percent.  Amortization of debt issuance costs were about $6 million for 2015 and 2014. Loss on debt extinguishment totaled $1 million in 2015 compared to $6 million in 2014 reflecting lower voluntary debt prepayments in 2015.

The effective income tax rate for the year ended December 31, 2015 was 34.2 percent compared to 34.0 percent for 2014.  The effective cash tax rate in 2015 was approximately 35 percent.  

Cash Flow and Working Capital

Cash and cash equivalents decreased by $1 million in the quarter ended December 31, 2015, from September 30, 2015 to $7 million.   The Company generated $86 million of net cash from operating activities during the fourth quarter and made a $52 million voluntary debt prepayment. Capital expenditures in the fourth quarter reached $32 million.   

For the year ended December 31, 2015, cash and cash equivalents decreased by $22 million from December 31, 2014 reflecting cash provided by operating activities of $262 million, cash used for capital expenditures of $127 million, $617 million paid for the Victory Packaging acquisition and $460 million of cash provided by financing activities. Major capital expenditure projects for 2015 included paper machine upgrades at the Charleston and Longview mills, a new corrugator at the Company's Aurora, Illinois box plant and other corrugating plant upgrades.  

At December 31, 2015, the Company had approximately $404 million of working capital and $477 million of revolver borrowing capacity. 

Conclusion

In summary, Stone commented, "Our cash flow generation is strong. We are well-poised and determined to achieve our synergy target with Victory and to steer through the global economic issues facing us in order to grow profitably." 

Conference Call

KapStone will host a conference call at 11 a.m. ET, Wednesday, February 10, 2016, to discuss the Company's financial results for the 2015 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:  866-515-2910

International: 617-399-5124 Participant Passcode:  74069294

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, 21 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 Part I, Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, under Part II, Item 1.A. "Risk Factors" in the Company's Quarterly Reports on Form 10-Q for the quarters ended June 30, 2015 and September 30, 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)

(Preliminary and unaudited)

Quarter Ended December 31,

Year Ended December 31,

2015

2014

2015

2014

Net sales 

$  764,238

$  563,413

$2,789,345

$2,300,920

Cost and expenses:

 Cost of sales, excluding depreciation and amortization

560,743

387,397

1,982,686

1,551,531

 Depreciation and amortization

47,562

34,968

162,179

136,548

 Freight and distribution expenses

66,528

44,072

234,469

175,901

 Selling, general and administrative expenses

60,592

34,638

210,844

137,009

Operating income 

28,813

62,338

199,167

299,931

Foreign exchange gain / (loss)

(852)

(363)

(2,556)

(1,222)

Loss on debt extinguishment

590

2,654

1,218

5,617

Interest expense, net

9,303

7,192

33,759

32,491

Income before provision for income taxes

18,068

52,129

161,634

260,601

Provision for income taxes

6,244

18,026

55,248

88,686

Net income 

$    11,824

$    34,103

$   106,386

$   171,915

Net income per share:

Basic

$        0.12

$        0.36

$         1.11

$         1.79

Diluted

$        0.12

$        0.35

$         1.09

$         1.76

Weighted-average number of shares outstanding:        

Basic

96,321,138

96,025,480

96,257,749

95,900,179

Diluted

97,663,564

97,562,816

97,635,539

97,459,184

Effective income tax rate

34.6%

34.6%

34.2%

34.0%

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

Net income (GAAP)

$    11,824

$    34,103

$   106,386

$   171,915

   Interest expense, net

9,303

7,192

33,759

32,491

   Provision for income taxes

6,244

18,026

55,248

88,686

   Depreciation and amortization

47,562

34,968

162,179

136,548

EBITDA (Non-GAAP)

$    74,933

$    94,289

$   357,572

$   429,640

Stock-based compensation expense

1,713

1,326

9,835

6,956

Longview integration expenses

946

3,174

2,520

6,524

Victory Packaging acquisition expenses

2,690

13,062

Voluntary separation plan and severance

102

563

5,076

6,846

Longview work stoppage

673

15,137

Loss on debt extinguishment

590

2,654

1,218

5,617

Adjusted EBITDA (Non-GAAP)

$    81,647

$  102,006

$   404,420

$   455,583

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

Net income (GAAP)

$    11,824

$    34,103

$   106,386

$   171,915

Stock-based compensation expense

1,120

869

6,432

4,556

Longview integration and other expenses

619

2,079

1,648

4,273

Victory Packaging acquisition expenses

1,759

8,543

Voluntary separation plan and severance

67

369

3,320

4,484

Longview work stoppage

440

9,900

Acquisition tax adjustments

830

398

551

Loss on debt extinguishment

386

1,738

797

3,679

Adjusted Net Income (Non-GAAP)

$    16,215

$    39,988

$   137,424

$   189,458

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

Basic EPS (GAAP)

$        0.12

$        0.36

$         1.11

$         1.79

Stock-based compensation expense

0.01

0.01

0.07

0.05

Longview integration and other expenses

0.01

0.02

0.02

0.04

Victory Packaging acquisition expenses

0.02

0.09

Voluntary separation plan and severance

0.03

0.05

Longview work stoppage

0.01

0.11

Acquisition tax adjustments

0.01

0.01

Loss on debt extinguishment

0.02

0.04

Adjusted Basic EPS (Non-GAAP)

$        0.17

$        0.42

$         1.43

$         1.98

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

Diluted earnings per share (GAAP)

$        0.12

$        0.35

$         1.09

$         1.76

Stock-based compensation expense

0.01

0.01

0.07

0.05

Longview integration and other expenses

0.01

0.02

0.02

0.04

Victory Packaging acquisition expenses

0.02

0.09

Voluntary separation plan and severance

0.03

0.05

Longview work stoppage

0.01

0.11

Acquisition tax adjustments

0.01

Loss on debt extinguishment

0.02

0.04

Adjusted Diluted EPS (Non-GAAP) 

$        0.17

$        0.41

$         1.41

$         1.94

 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)

December 31,

December 31,

2015

2014

(Preliminary and unaudited)

Assets

Current assets:

   Cash and cash equivalents

$                6,821

$          28,467

   Trade accounts receivable, net of allowances

363,869

228,740

   Other receivables

18,732

12,833

   Inventories

335,903

238,329

   Prepaid expenses and other current assets

28,932

7,172

Total current assets

754,257

515,541

Plant, property and equipment, net

1,406,146

1,386,670

Other assets

12,532

10,135

Intangible assets, net

344,583

110,077

Goodwill

704,592

533,851

Total assets

$         3,222,110

$     2,556,274

Liabilities and Stockholders' Equity

Current liabilities:

Short-term borrowings 

$                6,400

$                   –

Dividend payable

9,862

9,911

Accounts payable

196,491

149,600

Accrued expenses

73,138

48,340

Accrued compensation costs

64,149

62,491

Accrued income taxes

15

6,477

Total current liabilities

350,055

276,819

Long-term debt, net of current portion

1,543,748

1,046,063

Pension and post-retirement benefits

40,510

32,800

Deferred income taxes

418,479

414,283

Other liabilities

24,038

8,182

Total other liabilities

2,026,775

1,501,328

Stockholders' equity:

Common stock $0.0001 par value

10

10

Additional paid-in capital

266,220

255,505

Retained earnings

642,306

574,601

Accumulated other comprehensive (loss) income 

(63,256)

(51,989)

Total stockholders' equity

845,280

778,127

Total liabilities and stockholders' equity

$         3,222,110

$     2,556,274

 

 

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows 

(In thousands)

(Preliminary and unaudited)

Quarter Ended December 31,

Year Ended December 31,

2015

2014

2015

2014

Operating activities:

   Net income

$  11,824

$    34,103

$  106,386

$  171,915

   Adjustments to reconcile net income to net cash provided by operating activities:

   Depreciation and amortization

47,562

34,968

162,179

136,548

   Stock-based compensation expense

1,713

1,326

9,835

6,956

   Pension and postretirement

(2,803)

(1,584)

(11,182)

(11,523)

   Excess tax benefits from stock-based compensation

(131)

311

(1,649)

(2,649)

   Amortization of debt issuance costs

1,182

1,281

5,546

5,696

   Loss on debt extinguishment

590

2,654

1,218

5,617

   Loss on disposal of fixed assets

946

3,049

951

4,252

   Inventory step-up expense

5,800

   Deferred income taxes

4,601

3,622

11,042

2,455

   Changes in operating assets and liabilities

20,325

27,419

(27,669)

(6,069)

Net cash provided by operating activities

$  85,809

$  107,149

$  262,457

$  313,198

Investing activities:

   Victory Packaging acquisition

(617,046)

   Capital expenditures

(31,861)

(24,865)

(126,756)

(137,232)

Net cash used in investing activities

$(31,861)

$  (24,865)

$(743,802)

$(137,232)

Financing activities:

Proceeds from revolving credit facility

$  81,800

$             –

$  350,000

$    97,900

Repayments on revolving credit facility

(77,400)

(343,600)

(97,900)

Proceeds from receivables credit facility

21,740

134,701

175,000

Repayments on receivables credit facility

(17,639)

(8,000)

(36,088)

(8,000)

Repayments of long-term debt 

(51,750)

(150,000)

(116,438)

(328,525)

Proceeds from long-term debt

519,763

Payment of debt issuance and loan amendment costs

(10,790)

(1,081)

Proceeds from other current borrowings

6,615

6,300

Repayments of other current borrowings

(2,214)

(1,162)

(6,615)

(6,300)

Cash dividends paid

(9,631)

(223)

(38,729)

(223)

Payment of withholding taxes on vested stock awards

(48)

(2,508)

(1,755)

Proceeds from exercises of stock options

118

230

896

869

Proceeds from issuance of shares to ESPP

(1)

843

600

Excess tax benefits from stock-based compensation

131

(311)

1,649

2,649

Net cash provided by (used in) financing activities

$(54,894)

$(159,466)

$  459,699

$(160,466)

Net increase / (decrease) in cash and cash equivalents 

(946)

(77,182)

(21,646)

15,500

Cash and cash equivalents-beginning of period

7,767

105,649

28,467

12,967

Cash and cash equivalents-end of period

$    6,821

$    28,467

$      6,821

$    28,467

 

 

KapStone Paper and Packaging Corporation

Operating Segment Information

(In thousands)

(Preliminary and unaudited)

Net Sales

Three Months Ended December 31, 2015

Trade

Inter-segment

Total

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Total Assets at Dec. 31, 2015

Paper and Packaging

$   522,815

$13,864

$   536,679

$  32,491

$       40,640

$       26,627

$ 2,489,683

Distribution (a)

241,423

-

241,423

7,860

5,641

1,664

675,204

Corporate 

-

-

-

(11,538)

1,281

3,570

57,223

Intersegment eliminations

-

(13,864)

(13,864)

-

-

-

-

$   764,238

$       -

$   764,238

$  28,813

$       47,562

$       31,861

$ 3,222,110

Net Sales

Three Months Ended December 31, 2014 

Trade

Inter-segment

Total

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Total Assets at Dec. 31, 2014

Paper and Packaging

$   563,413

$       -

$   563,413

$  70,620

$       34,199

$       21,534

$ 2,505,896

Distribution (a)

-

-

-

-

-

-

-

Corporate 

-

-

-

(8,282)

769

3,331

50,378

Intersegment eliminations

-

-

-

-

-

-

-

$   563,413

$       -

$   563,413

$  62,338

$       34,968

$       24,865

$ 2,556,274

Net Sales

Year Ended December 31, 2015

Trade

Inter-segment

Total

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Paper and Packaging

$2,206,396

$22,280

$2,228,676

$ 222,812

$     145,363

$      108,599

Distribution (a)

582,949

-

582,949

20,719

13,108

3,190

Corporate 

-

-

-

(44,364)

3,708

14,967

Intersegment eliminations

-

(22,280)

(22,280)

-

-

-

$2,789,345

$       -

$2,789,345

$ 199,167

$     162,179

$      126,756

Net Sales

Year Ended December 31, 2014

Trade

Inter-segment

Total

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Paper and Packaging

$2,300,920

$       -

$2,300,920

$ 334,753

$     133,302

$      128,593

Distribution (a)

-

-

-

-

-

-

Corporate

-

-

-

(34,822)

3,246

8,639

Intersegment eliminations

-

-

-

-

-

-

$2,300,920

$       -

$2,300,920

$ 299,931

$     136,548

$      137,232

(a) Reflects Victory Packaging acquisition as of June 1, 2015

 

 

KapStone Paper and Packaging Corporation

Operating Segment EBITDA and Adjusted EBITDA

(In thousands)

(Preliminary and unaudited)

Quarter Ended December 31,

Year Ended December 31,

Paper and Packaging

2015

2014

2015

2014

Segment income*

$ 32,025

$  70,257

$221,644

$333,531

Depreciation and amortization

40,640

34,199

145,363

133,302

EBITDA

72,665

104,456

367,007

466,833

Longview work stoppage

673

-

15,137

-

Voluntary separation and severance

102

563

5,076

6,846

Longview integration expenses

946

3,174

2,520

6,524

Adjusted EBITDA

$ 74,386

$108,193

$389,740

$480,203

Adjusted EBITDA margin

13.9%

19.2%

17.5%

20.9%

Quarter Ended December 31,

Year Ended December 31,

Distribution

2015

2014

2015

2014

Segment income*

$   7,474

$         -

$  19,331

$         -

Depreciation and amortization

5,641

-

13,108

-

EBITDA

13,115

-

32,439

-

Inventory step-up expense

440

-

5,800

-

Acquisition expenses

620

-

620

-

Severance

65

-

168

-

Adjusted EBITDA

$ 14,240

$         -

$  39,027

$         -

Adjusted EBITDA margin

5.9%

-

6.7%

-

Quarter Ended December 31,

Year Ended December 31,

Corporate

2015

2014

2015

2014

Segment income / (loss) **

$(12,128)

$ (10,936)

$ (45,582)

$ (40,439)

Depreciation and amortization

1,281

769

3,708

3,246

EBITDA

(10,847)

(10,167)

(41,874)

(37,193)

Stock-based compensation expense

1,713

1,326

9,835

6,956

Victory Packaging acquisition expenses

2,070

-

6,642

-

Loss on debt extinguishment

590

2,654

1,218

5,617

Adjusted EBITDA

$  (6,474)

$   (6,187)

$ (24,179)

$ (24,620)

* Includes foreign exchange losses

** Includes loss on debt extinguishment

 

SOURCE KapStone Paper and Packaging Corporation



RELATED LINKS

http://www.kapstonepaper.com