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KapStone Reports Record Second Quarter Results

NORTHBROOK, Ill., July 30, 2014 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported record results for the second quarter ended June 30, 2014. As compared to 2013's second quarter, results for 2014's second quarter are below:

  • Net sales of $590 million up $264 million, or 81 percent
  • Net income of $51 million up $30 million, or 143 percent
  • Adjusted net income of $56 million up $33 million, or 143 percent
  • Adjusted EBITDA of $126 million up $70 million, or 125 percent
  • Adjusted EBITDA margin of 21.4 percent, up from 17.0 percent
  • Diluted EPS of $0.53 up $0.31 per share, or 141 percent
  • Adjusted diluted EPS of $0.58 up $0.34 per share, or 142 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone recovered nicely in the second quarter from the severe winter, and we achieved outstanding all-time record results.  EBITDA and EPS are more than double the prior year's results.  

"During the second quarter, much progress was made on previously announced initiatives. The $50 per ton Kraft paper price was implemented by the end of the quarter.  In April, the major upgrade to the Longview paper machine was completed enabling us to produce ultra-high performance linerboard at our Longview mill while increasing efficiency. The voluntary separation plan at our legacy mills was well received, and we now expect the program to reduce annual personnel costs by approximately $5 million."

Second Quarter Operating Highlights

Consolidated net sales of $590 million in the second quarter of 2014 increased by $264 million, or 81 percent compared to $326 million for the 2013 second quarter. The increase is primarily due to the Longview acquisition, which contributed $240 million of additional revenue, and higher prices and sales volumes for the legacy operations. The Company sold 720,000 tons of products during the second quarter of 2014 compared to 418,000 tons a year earlier. The Company's average mill selling price of $685 per ton in the second quarter of 2014 increased by $21 per ton compared to the second quarter of 2013 due to the impact of the 2013 containerboard and corrugated product price increases, higher specialty paper prices and the inclusion of Longview. 

Operating income of $85 million for the 2014 second quarter increased by $50 million, or 143 percent, compared to the 2013 second quarter. The improved financial performance primarily reflects benefits from the Longview acquisition, higher prices and sales volumes from legacy operations and lower outage costs, partially offset by inflation on labor and input costs and the cost associated with a voluntary separation plan.      

Interest expense, net, was $6 million for the second quarter of 2014, up $4 million from a year ago as a result of a higher debt balance associated with the Longview acquisition. As of June 30, 2014, the average interest rate on our term loans was 2 percent which is 50 basis points, or $6 million on an annualized basis, lower than at December 31, 2013 due to a recently amended credit facility agreement that reduced the borrowing rates, as well as an improved debt to EBITDA ratio that improved our position on the interest rate pricing grid. 

The effective income tax rate for the 2014 second quarter was 33.6 percent compared to 34.5 percent for the 2013 second quarter.  The Company's cash tax rate is forecasted at 35 percent for 2014.

Cash Flow and Working Capital

Cash and cash equivalents increased by $25 million in the quarter ended June 30, 2014, from March 31, 2014 to $49 million. The Company generated $70 million of net cash from operating activities during the second quarter. At June 30, 2014 the debt leverage ratio was 2.7 times, down from 3.8 times at the time of the Longview acquisition. Capital expenditures in the second quarter were $41 million and include costs to upgrade a paper machine at Longview.

At June 30, 2014, the Company had approximately $266 million of working capital and $395 million of revolver borrowing capacity. 

Conclusion

In summary, Stone commented, "We continued our shift from integration to optimizing the enterprise during the second quarter. Our operating platform will continue to strengthen and provide improved results." 

Conference Call

KapStone will host a conference call at 11 a.m. ET, Thursday, July 31, 2014, to discuss the Company's financial results for the 2014 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: 866-713-8563
International: 617-597-5311
Participant Passcode: 77384976

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 is the parent company of KapStone Kraft Paper Corporation and KapStone Container Corporation which includes four paper mills and 21 converting plants, respectively, across the US. The business employs approximately 4,600 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, 2013 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)



















Fav / (Unfav)







Fav / (Unfav)


Quarter Ended June 30,


Variance



Six Months Ended June 30,


Variance


2014


2013


%



2014


2013


%














Net sales 

$  590,449


$  326,321


80.9%



$1,139,401


$  646,134


76.3%














Cost and expenses:













 Cost of sales, excluding depreciation and amortization

392,245


225,753


-73.7%



775,493


450,699


-72.1%

 Depreciation and amortization

33,874


17,253


-96.3%



66,583


34,477


-93.1%

 Freight and distribution expenses

44,924


27,849


-61.3%



85,656


55,769


-53.6%

 Selling, general and administrative expenses

34,093


21,072


-61.8%



68,238


40,200


-69.7%

Other operating income

-


196


-100.0%



-


398


-100.0%

Operating income 

85,313


34,590


146.6%



143,431


65,387


119.4%














Foreign exchange gain / (loss)

125


89


40.4%



101


(222)


145.5%

Interest expense, net

6,488


1,909


-239.9%



14,267


3,784


-277.0%

Amortization of debt issuance costs

1,483


727


-104.0%



2,933


1,453


-101.9%

Income before provision for income taxes

77,467


32,043


141.8%



126,332


59,928


110.8%

Provision for income taxes

26,008


11,052


-135.3%



42,774


20,478


-108.9%

Net income 

$    51,459


$    20,991


145.1%



$     83,558


$    39,450


111.8%














Net income per share:













Basic

$        0.54


$        0.22





$         0.87


$        0.41



Diluted

$        0.53


$        0.22





$         0.86


$        0.41





























Weighted-average number of shares outstanding:        













Basic

95,892,033


95,140,852





95,806,181


95,072,436



Diluted

97,418,941


96,475,670





97,367,354


96,484,044





























Effective income tax rate

33.6%


34.5%





33.9%


34.2%

















































































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














Net income (GAAP)

$    51,459


$    20,991


145.1%



$     83,558


$    39,450


111.8%

   Interest expense, net

6,488


1,909


-239.9%



14,267


3,784


-277.0%

   Amortization of debt issuance costs

1,483


727


-104.0%



2,933


1,453


-101.9%

   Provision for income taxes

26,008


11,052


-135.3%



42,774


20,478


-108.9%

   Depreciation and amortization

33,874


17,253


-96.3%



66,583


34,477


-93.1%

EBITDA (Non-GAAP)

$  119,312


$    51,932


129.7%



$   210,115


$    99,642


110.9%














Acquisition, start up and other expenses

933


2,673


65.1%



2,747


3,284


16.4%

Voluntary separation plan

4,818





4,818



Stock-based compensation expense

1,311


954


-37.4%



4,229


3,299


-28.2%

Adjusted EBITDA (Non-GAAP)

$  126,374


$    55,559


127.5%



$   221,909


$  106,225


108.9%








































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













Net income (GAAP)

$    51,459


$    20,991





$     83,558


$    39,450



Acquisition, start up and other expenses

611


1,751





1,799


2,151



Voluntary separation plan

3,156






3,156




Stock-based compensation expense

859


625





2,770


2,161



Adjusted Net Income (Non-GAAP)

$    56,085


$    23,367





$     91,283


$    43,762
















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













Basic EPS (GAAP)

$        0.54


$        0.22





$         0.87


$        0.41



Acquisition, start up and other expenses

-


0.02





0.02


0.02



Voluntary separation plan

0.03






0.03




Stock-based compensation expense

0.01


0.01





0.03


0.03



Adjusted Basic EPS (Non-GAAP)

$        0.58


$        0.25





$         0.95


$        0.46
















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













Diluted earnings per share (GAAP)

$        0.53


$        0.22





$         0.86


$        0.41



Acquisition, start up and other expenses

0.01


0.02





0.02


0.02



Voluntary separation plan

0.03






0.03




Stock-based compensation expense

0.01






0.03


0.02



Adjusted Diluted EPS (Non-GAAP) 

$        0.58


$        0.24





$         0.94


$        0.45



 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)










June 30,


December 31,


2014


2013


(unaudited)



Assets




Current assets:




   Cash and cash equivalents

$      49,352


$        12,967

   Trade accounts receivable, net of allowances

263,240


232,347

   Other receivables

8,829


11,399

   Inventories

225,020


217,382

   Prepaid expenses and other current assets

9,404


6,405

Total current assets

555,845


480,500





Plant, property and equipment, net

1,395,987


1,389,609

Other assets

132,904


129,493

Intangible assets, net

116,911


123,745

Goodwill

533,851


528,515

Total assets

$ 2,735,498


$   2,651,862









Liabilities and Stockholders' Equity




Current liabilities:




   Current portion of long-term debt 

$      25,075


$           4,950

   Other current borrowings

2,898


 Accounts payable

161,173


159,127

 Accrued expenses

49,436


45,885

 Accrued compensation costs

46,896


54,871

 Accrued income taxes

3,103


 Deferred income taxes

1,096


5,445

Total current liabilities

289,677


270,278





Long-term debt, net of current portion

1,172,073


1,192,413

Pension and post-retirement benefits

66,168


69,611

Deferred income taxes

443,576


444,672

Other liabilities

8,513


8,808

Total other liabilities

1,690,330


1,715,504





Stockholders' equity:




Common stock $0.0001 par value

10


10

Additional paid-in capital

251,980


246,186

Retained earnings

495,907


412,349

Accumulated other comprehensive income 

7,594


7,535

Total stockholders' equity

755,491


666,080

Total liabilities and stockholders' equity

$ 2,735,498


$   2,651,862

 

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows 

(In thousands)

(unaudited)










Quarter Ended June 30,


Six Months Ended June 30,


2014


2013


2014


2013

Operating activities:








    Net income

$  51,459


$  20,991


$  83,558


$  39,450

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















    Depreciation and amortization

33,874


17,253


66,583


34,477

    Stock-based compensation expense

1,311


954


4,229


3,299

    Pension and postretirement

(2,754)


506


(6,834)


709

      Excess tax benefits from stock-based compensation

(391)


(1,344)


(2,612)


(1,730)

    Amortization of debt issuance costs

1,483


727


2,933


1,453

    Loss on disposal of fixed assets

37


124


1,016


142

    Deferred income taxes

(1,144)


8,520


2,179


13,426

    Changes in operating assets and liabilities

(14,172)


7,304


(42,398)


(20,554)

Net cash provided by operating activities

$  69,703


$  55,035


$108,654


$  70,672









Investing activities:








   Capital expenditures

(41,256)


(15,881)


(73,676)


(32,713)

Net cash used in investing activities

$(41,256)


$(15,881)


$ (73,676)


$(32,713)

















Financing activities:








  Proceeds from revolving credit facility

$  41,400


$  41,900


$  97,900


$  91,400

  Repayments on revolving credit facility

(41,400)


(80,400)


(97,900)


(141,200)

  Repayments of long-term debt 

(1,175)



(2,350)


  Proceeds from other current borrowings



6,300


3,731

  Repayments of other current borrowings

(1,729)


(1,016)


(3,402)


(2,028)

  Payment of withholding taxes on vested stock awards


(848)


(1,641)


(860)

  Proceeds from exercises of stock options

175


652


389


1,014

  Proceeds from issuance of shares to ESPP



205


170

  Loan amendment costs

(706)



(706)


  Excess tax benefits from stock-based compensation

391


1,344


2,612


1,730

Net cash provided by (used in) financing activities

$  (3,044)


$(38,368)


$    1,407


$(46,043)









Net increase / (decrease) in cash and cash equivalents 

25,403


786


36,385


(8,084)

Cash and cash equivalents-beginning of period

23,949


7,618


12,967


16,488

Cash and cash equivalents-end of period

$  49,352


$    8,404


$  49,352


$    8,404

 

SOURCE KapStone Paper and Packaging Corporation

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