KAPSTONE PAPER AND PACKAGING CORP. NORTHBROOK, Ill., Oct. 28, 2015 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE:KS) ("KapStone", or the "Company") today reported results for the third quarter ended September 30, 2015. As compared to 2014's third quarter, results for 2015's third quarter are below:
-- Net sales of $808 million up $209 million, or 35 percent
-- Net income of $34 million down $20 million, or 37 percent
-- Adjusted net income of $49 million down $9 million, or 15 percent
-- Adjusted EBITDA of $126 million down $6 million, or 4 percent
-- Diluted EPS of $0.35 down $0.21 per share, or 38 percent
-- Adjusted diluted EPS of $0.51 down $0.09 per share, or 15 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, "The strength of our operations generated third quarter free cash flow of $73 million, up 24 percent over the prior year. The increase in cash flow includes $17 million generated by Victory, while our legacy operations also performed very well despite a 12 day work stoppage by our union at the Longview mill. No one wins in a strike, and this strike was no exception. The strike cost KapStone approximately $14 million, and our Longview union employees lost approximately $2 million of wages and benefits.
"Our Charleston and Roanoke Rapids mills set all-time production records for the third quarter, and our corrugated products shipments year-to-date were up 4 percent on an average weekly basis over 2014. The stronger dollar, however, continues to negatively impact our export sales, resulting in lower sales prices for saturating kraft, export containerboard, and extensible grade kraft paper and a less favorable product mix.
"We are making strong progress at integrating Victory Packaging, and we are on target to realize the $30 million run rate of synergies by mid-2016. We are aggressively working on realizing the benefits of increased integration that Victory provides."
Third Quarter Operating Highlights
Consolidated net sales of $808 million in the third quarter of 2015 increased by $209 million, or 35 percent compared to $598 million for the 2014 third quarter. The increase is primarily due to $248 million from the Victory Packaging acquisition, partially offset by $24 million of lower shipments due to the Longview work stoppage, $3 million due to a stronger U.S. dollar compared to the Euro which impacted sales in Europe and some exports, and lower selling prices. The Company sold 678,000 tons of paper during the third quarter of 2015 compared to 715,000 tons a year earlier. The Company's average mill selling price of $671 per ton in the third quarter of 2015 decreased by $18 per ton compared to the third quarter of 2014, due to the stronger U.S. dollar and lower domestic and export containerboard prices.
Operating income of $62 million for the 2015 third quarter decreased by $33 million, or 35 percent, compared to the 2014 third quarter. The lower operating earnings primarily reflects lower sales volume and higher costs due to the work stoppage at Longview, lower average mill selling prices, higher fiber costs, inflation on compensation and benefit costs, and the stronger U.S. dollar which impacted prices in Europe and for some exports. On the positive side, Victory Packaging generated $18 million of earnings in the third quarter of 2015 prior to acquisition-related expenses of $2 million for a non-cash inventory step-up charge and $5 million of amortization expense of identified intangible assets.
Interest expense, net, of $10 million for the third quarter of 2015, was about $2 million higher than a year ago, reflecting the additional borrowings in June 2015 to finance the Victory Packaging acquisition. Our weighted average interest rate as of September 30, 2015 is 1.8 percent which is about the same as last year. Loss on debt extinguishment was about $2 million lower in 2015 compared to 2014 based on a lower amount of debt prepayments. In the quarter ended September 30, 2015, the Company made a $52 million debt prepayment compared to a $175 million prepayment in the period a year earlier.
The effective income tax rate for the 2015 third quarter was 32.5 percent compared to 33.9 percent for the 2014 third quarter. The decrease reflects a discrete benefit from a state tax law change enacted in the third quarter of 2015.
Cash Flow and Working Capital
Cash and cash equivalents decreased by $21 million to $8 million in the quarter ended September 30, 2015, from June 30, 2015. Operating activities generated $104 million during the third quarter while investing and financing activities used $32 million and $93 million, respectively. Capital expenditures in the third quarter were $31 million including the start-up of a new corrugator at the Company's Aurora Illinois box plant. Financing activities included a $52 million debt prepayment.
At September 30, 2015, the Company had approximately $431 million of working capital and $480 million of revolver borrowing capacity.
Conclusion
In summary, Stone commented, "Having now worked together with the team from Victory, I am even more optimistic regarding the opportunities available to KapStone. These insights coupled with the strength of our industry, provide strong assurance that KapStone is well positioned for the future."
Conference Call
KapStone will host a conference call at 10:00 a.m. CDT, Thursday, October 29, 2015, to discuss the Company's financial results for the 2015 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: 800-510-0219
International: 617-614-3451
Participant Passcode: 99597247
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 65 distribution centers. The business has approximately 6,200 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)
(unaudited)
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2015 2014 2015 2014
---- ---- ---- ----
Net sales $807,563 $598,106 $2,025,107 $1,737,507
Cost and expenses:
Cost of sales, excluding
depreciation and
amortization 569,267 388,641 1,421,943 1,164,134
Depreciation and
amortization 42,500 34,997 114,617 101,580
Freight and distribution
expenses 70,623 46,173 167,941 131,829
Selling, general and
administrative expenses 63,577 34,133 150,252 102,371
------ ------ ------- -------
Operating income 61,596 94,162 170,354 237,593
Foreign exchange gain /
(loss) (766) (960) (1,704) (859)
Loss on debt
extinguishment 628 2,963 628 2,963
Interest expense, net 9,528 8,099 24,456 25,299
----- ----- ------ ------
Income before provision
for income taxes 50,674 82,140 143,566 208,472
Provision for income taxes 16,468 27,886 49,004 70,660
------ ------ ------ ------
Net income $34,206 $54,254 $94,562 $137,812
======= ======= ======= ========
Net income per share:
Basic $0.36 $0.57 $0.98 $1.44
===== ===== ===== =====
Diluted $0.35 $0.56 $0.97 $1.41
===== ===== ===== =====
Weighted-average number of shares outstanding:
Basic 96,310,998 95,958,877 96,235,404 95,857,079
========== ========== ========== ==========
Diluted 97,629,641 97,515,901 97,631,247 97,416,869
========== ========== ========== ==========
Effective income tax rate 32.5% 33.9% 34.1% 33.9%
==== ==== ==== ====
Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):
Net income (GAAP) $34,206 $54,254 $94,562 $137,812
Interest expense, net 9,528 8,099 24,456 25,299
Provision for income taxes 16,468 27,886 49,004 70,660
Depreciation and
amortization 42,500 34,997 114,617 101,580
------ ------ ------- -------
EBITDA (Non-GAAP) $102,702 $125,236 $282,639 $335,351
======== ======== ======== ========
Stock-based compensation
expense 1,585 1,401 8,122 5,630
Longview integration
expenses 365 603 1,574 3,350
Victory Packaging
acquisition expenses 3,817 - 10,372 -
Voluntary separation plan
and severance 2,310 1,465 4,974 6,283
Longview work stoppage 14,464 - 14,464 -
Loss on debt
extinguishment 628 2,963 628 2,963
Adjusted EBITDA (Non-GAAP) $125,871 $131,668 $322,773 $353,577
======== ======== ======== ========
Net Income (GAAP) to Adjusted Net Income (Non-GAAP):
Net income (GAAP) $34,206 $54,254 $94,562 $137,812
Stock-based compensation
expense 1,037 918 5,312 3,688
Longview integration and
other expenses 239 395 1,029 2,194
Victory Packaging
acquisition expenses 2,496 - 6,783 -
Voluntary separation plan
and severance 1,511 960 3,253 4,115
Longview work stoppage 9,459 - 9,459 -
Acquisition tax
adjustments - (279) 398 (279)
Loss on debt
extinguishment 411 1,941 411 1,941
--- ----- --- -----
Adjusted Net Income (Non-
GAAP) $49,359 $58,189 $121,207 $149,471
======= ======= ======== ========
Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP):
Basic EPS (GAAP) $0.36 $0.57 $0.98 $1.44
Stock-based compensation
expense 0.01 0.01 0.07 0.04
Longview integration and
other expenses - - 0.01 0.02
Victory Packaging
acquisition expenses 0.03 - 0.08 -
Voluntary separation plan
and severance 0.02 0.01 0.03 0.04
Longview work stoppage 0.09 - 0.09 -
Acquisition tax
adjustments - - - -
Loss on debt
extinguishment - 0.02 - 0.02
Adjusted Basic EPS (Non-
GAAP) $0.51 $0.61 $1.26 $1.56
===== ===== ===== =====
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP):
Diluted earnings per share
(GAAP) $0.35 $0.56 $0.97 $1.41
Stock-based compensation
expense 0.01 0.01 0.05 0.04
Longview integration and
other expenses - - 0.01 0.02
Victory Packaging
acquisition expenses 0.03 - 0.07 -
Voluntary separation plan
and severance 0.02 0.01 0.03 0.04
Longview work stoppage 0.10 - 0.10 -
Acquisition tax
adjustments - - 0.01 -
Loss on debt
extinguishment - 0.02 - 0.02
Adjusted Diluted EPS (Non-
GAAP) $0.51 $0.60 $1.24 $1.53
===== ===== ===== =====
KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2015 2014
---- ----
(unaudited)
Assets
Current assets:
Cash
and
cash
equivalents $7,767 $28,467
Trade
accounts
receivable,
net
of
allowances 395,549 228,740
Other
receivables 18,694 12,833
Inventories 334,256 238,329
Prepaid
expenses
and
other
current
assets 18,152 7,172
Total
current
assets 774,418 515,541
------- -------
Plant,
property
and
equipment,
net 1,406,446 1,386,670
Other
assets 13,209 10,135
Intangible
assets,
net 351,270 110,077
Goodwill 704,592 533,851
------- -------
Total
assets $3,249,935 $2,556,274
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-
term
borrowings $2,000 $ -
Current
portion
of
long-
term
debt - -
Other
current
borrowings 2,214 -
Dividend
payable 9,828 9,911
Accounts
payable 191,213 149,600
Accrued
expenses 64,432 48,340
Accrued
compensation
costs 72,181 62,491
Accrued
income
taxes - 6,477
Deferred
income
taxes 1,396 1,990
Total
current
liabilities 343,264 278,809
------- -------
Long-
term
debt,
net
of
current
portion 1,589,670 1,046,063
Pension
and
post-
retirement
benefits 23,444 32,800
Deferred
income
taxes 420,446 412,293
Other
liabilities 20,025 8,182
Total
other
liabilities 2,053,585 1,499,338
--------- ---------
Stockholders' equity:
Common
stock
$0.0001
par
value 10 10
Additional
paid-
in
capital 264,306 255,505
Retained
earnings 640,149 574,601
Accumulated
other
comprehensive
(loss)
income (51,379) (51,989)
------- -------
Total
stockholders'
equity 853,086 778,127
Total
liabilities
and
stockholders'
equity $3,249,935 $2,556,274
========== ==========
KapStone Paper and Packaging Corporation
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Quarter Ended September Nine Months Ended
30, September 30,
------------------------ ------------------
2015 2014 2015 2014
---- ---- ---- ----
Operating activities:
Net income $34,206 $54,254 $94,562 $137,812
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and
amortization 42,500 34,997 114,617 101,580
Stock-based
compensation expense 1,585 1,401 8,122 5,630
Pension and
postretirement (2,963) (3,105) (8,379) (9,939)
Excess tax benefits
from stock-based
compensation (7) (348) (1,518) (2,960)
Amortization of debt
issuance costs 1,317 1,482 4,364 4,415
Loss on debt
extinguishment 628 2,963 628 2,963
Loss on disposal of
fixed assets (205) 187 5 1,203
Deferred income taxes 3,990 (3,102) 6,441 (1,059)
Changes in operating
assets and
liabilities 23,010 8,666 (42,194) (33,596)
Net cash provided by
operating activities $104,061 $97,395 $176,648 $206,049
-------- ------- -------- --------
Investing activities:
Victory Packaging
acquisition (482) - (617,046) -
Capital expenditures (31,184) (38,691) (94,895) (112,367)
Net cash used in
investing activities $(31,666) $(38,691) $(711,941) $(112,367)
-------- -------- --------- ---------
Financing activities:
Proceeds from
revolving credit
facility $2,000 $ - $268,200 $97,900
Repayments on
revolving credit
facility (15,000) - (266,200) (97,900)
Proceeds from
receivables credit
facility 9,226 175,000 112,961 175,000
Repayments on
receivables credit
facility (13,487) - (18,449) -
Repayments of long-
term debt (64,688) (176,175) (64,688) (178,525)
Proceeds from long-
term debt - - 519,763 -
Payment of debt
issuance and loan
amendment costs - (375) (10,790) (1,081)
Proceeds from other
current borrowings - - 6,615 6,300
Repayments of other
current borrowings (2,206) (1,736) (4,401) (5,138)
Cash dividends paid (9,634) - (29,098) -
Payment of
withholding taxes on
vested stock awards (12) (114) (2,460) (1,755)
Proceeds from
exercises of stock
options - 250 778 639
Proceeds from
issuance of shares
to ESPP 429 395 844 600
Excess tax benefits
from stock-based
compensation 7 348 1,518 2,960
Net cash provided by
(used in) financing
activities $(93,365) $(2,407) $514,593 $(1,000)
-------- ------- -------- -------
Net increase /
(decrease) in cash
and cash equivalents (20,970) 56,297 (20,700) 92,682
Cash and cash
equivalents-
beginning of period 28,737 49,352 28,467 12,967
Cash and cash
equivalents-end of
period $7,767 $105,649 $7,767 $105,649
====== ======== ====== ========
KapStone Paper and Packaging Corporation
Operating Segment Information
(In thousands)
(unaudited)
Net Sales
---------
Three Months
Ended September
30, 2015 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Total Assets at Sept 30, 2015
----- ------------- ----- ---------------------- ----------------------------- -------------------- -----------------------------
Paper and
Packaging $559,435 $7,628 $567,063 $60,185 $36,059 $25,448 $2,524,562
Distribution (a) 248,128 - 248,128 11,139 5,522 1,283 683,555
Corporate - - - (9,728) 919 4,453 41,818
Intersegment
eliminations - (7,628) (7,628) - - - -
$807,563 $ - $807,563 $61,596 $42,500 $31,184 $3,249,935
======== ==================== ======== ======= ======= ======= ==========
Net Sales
---------
Three Months
Ended September
30, 2014 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Total Assets at Sept 30, 2014
----- ------------- ----- ---------------------- ----------------------------- -------------------- -----------------------------
Paper and
Packaging $598,106 $ - $598,106 $102,291 $34,244 $38,179 $2,669,499
Distribution (a) - - - - - - -
Corporate - - - (8,129) 753 512 126,748
Intersegment
eliminations - - - - - - -
$598,106 $ - $598,106 $94,162 $34,997 $38,691 $2,796,247
======== ==================== ======== ======= ======= ======= ==========
Net Sales
---------
Nine Months Ended
September 30,
2015 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures
----- ------------- ----- ---------------------- ----------------------------- --------------------
Paper and
Packaging $1,683,581 $8,416 $1,691,997 $190,321 $104,723 $81,954
Distribution (a) 341,526 - 341,526 12,859 7,467 1,526
Corporate - - - (32,826) 2,427 11,415
Intersegment
eliminations - (8,416) (8,416) - - -
$2,025,107 $ - $2,025,107 $170,354 $114,617 $94,895
========== ==================== ========== ======== ======== =======
Net Sales
---------
Nine Months Ended
September 30,
2014 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures
----- ------------- ----- ---------------------- ----------------------------- --------------------
Paper and
Packaging $1,737,507 $ - $1,737,507 $264,133 $99,103 $107,059
Distribution (a) - - - - - -
Corporate - - - (26,540) 2,477 5,308
Intersegment
eliminations - - - - - -
$1,737,507 $ - $1,737,507 $237,593 $101,580 $112,367
========== ==================== ========== ======== ======== ========
(a) Reflects Victory Packaging acquisition as of June 1, 2015
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SOURCE KapStone Paper and Packaging Corporation
