KAPSTONE PAPER AND PACKAGING CORP. NORTHBROOK, Ill., Oct. 29, 2014 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE:KS) today reported record results for the third quarter ended September 30, 2014. As compared to 2013's third quarter, results for 2014's third quarter are below:
-- Net sales of $598 million up $59 million, or 11 percent
-- Net income of $54 million up $10 million, or 22 percent
-- Adjusted EBITDA of $132 million up $15 million, or 13 percent
-- Adjusted EBITDA margin of 22.0 percent, up from 21.7 percent
-- Diluted EPS of $0.56 up $0.10 per share, or 22 percent
-- Adjusted diluted EPS of $0.60 up $0.08 per share, or 15 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone continued the positive momentum from the second quarter of 2014 into the third quarter and achieved all-time record quarterly results.
"Productivity gains resulting from improved operations and synergy benefits have increased KapStone's EBITDA over the past year. Our capital expenditures are delivering the expected results, and we continue to prudently invest in our operations. During the third quarter, the $50 per ton Kraft paper price increase was fully implemented. At the end of the quarter, we implemented an accounts receivable securitization program which should reduce cash interest expense by $2 million over the next 12 months."
Third Quarter Operating Highlights
Consolidated net sales of $598 million in the third quarter of 2014 increased by $59 million, or 11 percent compared to $539 million for the 2013 third quarter. The increase is primarily due to the Longview acquisition, which contributed $43 million of additional revenue. Higher sales volumes and prices for the legacy operations also contributed to the increase in revenues. The Company sold 715,000 tons of products during the third quarter of 2014 compared to 634,000 tons a year earlier. The Company's average mill selling price of $689 per ton in the third quarter of 2014 increased by $7 per ton compared to the third quarter of 2013 primarily due to the impact of a $50 per ton kraft paper price increase announced in March of 2014 which was fully realized by the end of September.
Operating income of $94 million for the 2014 third quarter increased by $13 million, or 16 percent, compared to the 2013 third quarter. The improved financial performance primarily reflects benefits from significantly higher productivity improvements in mill operations, the Longview acquisition, higher prices and sales volumes partially offset by inflation on labor and input costs, the timing of annual maintenance outages and the cost associated with a voluntary separation plan.
Interest expense, net, was $7 million for the third quarter of 2014, down $1 million from a year ago as a result of lower interest rates. As of September 30, 2014, the average interest rate on our borrowings was 1.83 percent which is 67 basis points, or $8 million on an annualized basis, lower than at December 31, 2013 due to a recently amended credit facility agreement that reduced the borrowing rates, improved debt to EBITDA ratio that improved our position on the interest rate pricing grid and the receivables securitization program. Based on using the proceeds from the receivable securitization program to pay down our term loans, the Company wrote off $3.0 million of deferred debt issuance costs in the current quarter.
The effective income tax rate for the 2014 third quarter was 33.9 percent compared to 37.9 percent for the 2013 third quarter. The lower income tax rate reflects a benefit from additional R&D tax credits for prior years. The Company's cash tax rate is forecasted at 35 percent for 2014.
Cash Flow and Working Capital
Cash and cash equivalents increased by $56 million in the quarter ended September 30, 2014, from June 30, 2014 to $106 million. The Company generated $97 million of net cash from operating activities during the third quarter. At September 30, 2014 the debt leverage ratio was 2.65 times, down from 3.80 times at the time of the Longview acquisition. Capital expenditures in the third quarter were $39 million.
At September 30, 2014, the Company had approximately $345 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 third 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, October 30, 2014, to discuss the Company's financial results for the 2014 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: 877-299-4454
International: 617-597-5447
Participant Passcode: 84294908
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 September 30, Variance Nine Months Ended September 30, Variance
--------------------------- -------------------------------
2014 2013 % 2014 2013 %
---- ---- --- ---- ---- ---
Net sales $598,106 $538,603 11.0% $1,737,507 $1,184,737 46.7%
Cost and expenses:
Cost of sales, excluding
depreciation and
amortization 388,641 352,346 -10.3% 1,164,134 803,045 -45.0%
Depreciation and
amortization 34,997 28,522 -22.7% 101,580 62,999 -61.2%
Freight and distribution
expenses 46,173 39,679 -16.4% 131,829 95,448 -38.1%
Selling, general and
administrative expenses 34,133 37,538 9.1% 102,371 77,738 -31.7%
Other operating income - 177 -100.0% - 575 -100.0%
--- --- ------ --- --- ------
Operating income 94,162 80,695 16.7% 237,593 146,082 62.6%
Foreign exchange gain /
(loss) (960) 359 -367.4% (859) 137 -727.0%
Loss on debt
extinguishment 2,963 - n/a 2,963 - n/a
Interest expense, net 6,617 8,034 17.6% 20,884 11,818 -76.7%
Amortization of debt
issuance costs 1,482 1,551 4.4% 4,415 3,004 -47.0%
----- ----- --- ----- ----- -----
Income before provision
for income taxes 82,140 71,469 14.9% 208,472 131,397 58.7%
Provision for income taxes 27,886 27,055 -3.1% 70,660 47,533 -48.7%
------ ------ ---- ------ ------ -----
Net income $54,254 $44,414 22.2% $137,812 $83,864 64.3%
======= ======= ==== ======== ======= ====
Net income per share:
Basic $0.57 $0.47 $1.44 $0.88
===== ===== ===== =====
Diluted $0.56 $0.46 $1.41 $0.87
===== ===== ===== =====
Weighted-average number of shares outstanding:
Basic 95,958,877 95,457,816 95,857,079 95,200,896
========== ========== ========== ==========
Diluted 97,515,901 96,997,140 97,416,869 96,655,076
========== ========== ========== ==========
Effective income tax rate 33.9% 37.9% 33.9% 36.2%
==== ==== ==== ====
Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):
Net income (GAAP) $54,254 $44,414 22.2% $137,812 $83,864 64.3%
Interest expense, net 6,617 8,034 17.6% 20,884 11,818 -76.7%
Amortization of debt
issuance costs 1,482 1,551 4.4% 4,415 3,004 -47.0%
Provision for income taxes 27,886 27,055 -3.1% 70,660 47,533 -48.7%
Depreciation and
amortization 34,997 28,522 -22.7% 101,580 62,999 -61.2%
------ ------ ----- ------- ------ -----
EBITDA (Non-GAAP) $125,236 $109,576 14.3% $335,351 $209,218 60.3%
======== ======== ==== ======== ======== ====
Acquisition, start up and
other expenses 603 6,256 90.4% 3,350 9,540 64.9%
Voluntary separation plan 1,465 - - 6,283 - -
Stock-based compensation
expense 1,401 972 -44.1% 5,630 4,271 -31.8%
Loss on debt
extinguishment 2,963 - - 2,963 - -
Adjusted EBITDA (Non-GAAP) $131,668 $116,804 12.7% $353,577 $223,029 58.5%
======== ======== ==== ======== ======== ====
Net Income (GAAP) to Adjusted Net Income (Non-GAAP):
Net income (GAAP) $54,254 $44,414 $137,812 $83,864
Acquisition, start up and
other expenses 395 4,060 2,194 6,191
Voluntary separation plan 960 - 4,115 -
Stock-based compensation
expense 918 631 3,688 2,772
Loss on debt
extinguishment 1,941 - 1,941 -
Tax adjustment -Longview
acquisition (279) 1,606 (279) 1,406
---- ----- ---- -----
Adjusted Net Income (Non-
GAAP) $58,189 $50,711 $149,471 $94,233
======= ======= ======== =======
Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP):
Basic EPS (GAAP) $0.57 $0.47 $1.44 $0.88
Acquisition, start up and
other expenses - 0.05 0.02 0.07
Voluntary separation plan 0.01 - 0.04 -
Stock-based compensation
expense 0.01 - 0.04 0.03
Loss on debt
extinguishment 0.02 - 0.02 -
Tax adjustment -Longview
acquisition - 0.01 - 0.01
Adjusted Basic EPS (Non-
GAAP) $0.61 $0.53 $1.56 $0.99
===== ===== ===== =====
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP):
Diluted earnings per share
(GAAP) $0.56 $0.46 $1.41 $0.87
Acquisition, start up and
other expenses - 0.04 0.02 0.05
Voluntary separation plan 0.01 - 0.04 -
Stock-based compensation
expense 0.01 0.01 0.04 0.03
Loss on debt
extinguishment 0.02 - 0.02 -
Tax adjustment -Longview
acquisition - 0.01 - 0.02
Adjusted Diluted EPS (Non-
GAAP) $0.60 $0.52 $1.53 $0.97
===== ===== ===== =====
KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2014 2013
---- ----
(unaudited)
Assets
Current assets:
Cash and
cash
equivalents $105,649 $12,967
Trade
accounts
receivable,
net of
allowances 256,658 232,347
Other
receivables 10,400 11,399
Inventories 232,578 217,382
Prepaid
expenses
and other
current
assets 8,865 6,405
Total
current
assets 614,150 480,500
------- -------
Plant,
property
and
equipment,
net 1,399,309 1,389,609
Other
assets 135,443 129,493
Intangible
assets,
net 113,494 123,745
Goodwill 533,851 528,515
------- -------
Total
assets $2,796,247 $2,651,862
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current
portion
of long-
term debt $ - $4,950
Other
current
borrowings 1,162 -
Accounts
payable 154,703 159,127
Accrued
expenses 52,897 45,885
Accrued
compensation
costs 58,928 54,871
Accrued
income
taxes 930 -
Deferred
income
taxes 115 5,445
Total
current
liabilities 268,735 270,278
------- -------
Long-term
debt, net
of
current
portion 1,200,278 1,192,413
Pension
and post-
retirement
benefits 64,759 69,611
Deferred
income
taxes 441,317 444,672
Other
liabilities 9,105 8,808
----- -----
Total
other
liabilities 1,715,459 1,715,504
--------- ---------
Stockholders' equity:
Common
stock
$0.0001
par value 10 10
Additional
paid-in
capital 254,259 246,186
Retained
earnings 550,161 412,349
Accumulated
other
comprehensive
income 7,623 7,535
----- -----
Total
stockholders'
equity 812,053 666,080
Total
liabilities
and
stockholders'
equity $2,796,247 $2,651,862
========== ==========
KapStone Paper and Packaging Corporation
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2014 2013 2014 2013
---- ---- ---- ----
Operating activities:
Net income $54,254 $44,414 $137,812 $83,864
Adjustments to reconcile net income to net cash provided by operating activities:
operating activities:
Depreciation and
amortization 34,997 28,522 101,580 62,999
Stock-based
compensation expense 1,401 972 5,630 4,271
Pension and
postretirement (3,105) 506 (9,939) 1,216
Excess tax benefits
from stock-based
compensation (348) (817) (2,960) (2,547)
Amortization of debt
issuance costs 1,482 1,551 4,415 3,004
Loss on debt
extinguishment 2,963 - 2,963 -
Loss on disposal of
fixed assets 187 248 1,203 390
Deferred income taxes (3,102) 21,087 (1,059) 34,513
Changes in operating
assets and liabilities 8,666 1,728 (33,596) (18,827)
Net cash provided by
operating activities $97,395 $98,211 $206,049 $168,883
------- ------- -------- --------
Investing activities:
Longview acquisition,
net of cash acquired - (537,465) - (537,465)
Capital expenditures (38,691) (23,558) (112,367) (56,271)
Net cash used in
investing activities $(38,691) $(561,023) $(112,367) $(593,736)
-------- --------- --------- ---------
Financing activities:
Proceeds from revolving
credit facility $ - $197,713 $97,900 $289,113
Repayments on revolving
credit facility - (174,913) (97,900) (316,113)
Proceeds from
receivables credit
facility 175,000 - 175,000 -
Proceeds from long-
term debt - 1,275,000 - 1,275,000
Repayments on long-
term debt (176,175) (305,313) (178,525) (305,313)
Redemption of Longview
senior notes - (507,520) - (507,520)
Payment of loan
amendment and debt
issuance costs (375) (19,654) (1,081) (19,654)
Proceeds from other
current borrowings - 1,384 6,300 5,115
Repayments on other
current borrowings (1,736) (1,711) (5,138) (3,739)
Payment of withholding
taxes on stock awards (114) - (1,755) (860)
Proceeds from exercises
of stock options 250 613 639 1,627
Proceeds from issuance
of shares to ESPP 395 179 600 349
Excess tax benefits
from stock-based
compensation 348 817 2,960 2,547
Net cash provided by
(used in) financing
activities $(2,407) $466,595 $(1,000) $420,552
------- -------- ------- --------
Net increase /
(decrease) in cash and
cash equivalents 56,297 3,783 92,682 (4,301)
Cash and cash
equivalents-beginning
of period 49,352 8,404 12,967 16,488
Cash and cash
equivalents-end of
period $105,649 $12,187 $105,649 $12,187
======== ======= ======== =======
SOURCE KapStone Paper and Packaging Corporation
