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.
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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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