KAPSTONE PAPER AND PACKAGING CORP. NORTHBROOK, Ill., July 27, 2016 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE:KS) today reported results for the second quarter ended June 30, 2016. As compared to 2015's second quarter, results for 2016's second quarter are below:
-- Net sales of $785 million up $114 million, or 17 percent
-- Net income of $21 million down $13 million, or 40 percent
-- Adjusted net income of $26 million down $16 million, or 39 percent
-- Adjusted EBITDA of $97 million down $14 million, or 13 percent
-- Diluted EPS of $0.21 down $0.14 per share, or 40 percent
-- Adjusted diluted EPS of $0.27 down $0.17 per share, or 39 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone's operations performed well in the second quarter with our mills producing over 668,000 tons of paper. The benefits from the Victory acquisition were offset by lower prices and a less favorable product mix. Our operating cash flow year-to-date was up $17 million. We achieved our goal of integrating an annual run rate of 115,000 tons of Victory's packaging needs into our mill and plant system. Also, with our recent strategic investments we expect additional mill integration within the next twelve months."
Second Quarter Operating Highlights
Consolidated net sales of $785 million in the second quarter of 2016 increased by $114 million, or 17 percent compared to $671 million for the 2015 second quarter. Victory Packaging's net sales increased by $159 million due to including three months of revenues in the 2016 second quarter compared to only one month in the 2015 second quarter as the acquisition closed on June 1, 2015. All other revenues are down $45 million reflecting lower sales volume as we faced increased competition in select containerboard and corrugated product markets. The Company's average mill selling price of $624 per ton in the second quarter of 2016 decreased by $43 per ton, or about 6 percent compared to the second quarter of 2015 due to index-driven lower domestic containerboard prices, lower export containerboard and kraft paper prices and a less favorable product mix.
Operating income of $44 million for the 2016 second quarter decreased by $18 million, or 29 percent, compared to the 2015 second quarter. The lower operating earnings primarily reflect lower prices for domestic and export containerboard and export kraft paper prices, the timing of planned maintenance outages, inflation on salary and certain benefit costs, an increase of the fair value of the Victory contingent consideration liability and higher depreciation and severance charges. These factors were partially offset by three months of earnings from Victory Packaging compared to one month in 2015 and related synergies, lower Victory acquisition related expenses, lower fiber and fuel costs and lower management incentives.
Interest expense, net, was $10 million for the second quarter of 2016, up $1.5 million from a year ago as a result of borrowings associated with the Victory Packaging acquisition and higher interest rates. Our weighted average interest rate as of June 30, 2016 is 2.1 percent compared to 1.8 percent as of June 30, 2015.
The effective income tax rate for the 2016 second quarter was 36.5 percent compared to 35.2 percent for the 2015 second quarter. Results in the 2016 second quarter include an unfavorable adjustment from a state tax examination.
Cash Flow and Working Capital
Cash and cash equivalents of $8 million as of June 30, 2016, remained consistent with balances at March 31, 2016. Operating activities provided $31 million during the second quarter while investing activities used $38 million and financing activities provided $8 million. Capital expenditures in the second quarter were $36 million. Financing activities included $18 million of net borrowings offset by $10 million of cash dividends.
On May 11, 2016, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on July 13, 2016.
At June 30, 2016, the Company had approximately $456 million of working capital and $467 million of revolver borrowing capacity.
Conclusion
In summary, Stone commented, "I expect to see our operations continue to perform better."
Conference Call
KapStone will host a conference call at 10:00 a.m. CDT, Thursday, July 28, 2016, to discuss the Company's financial results for the 2016 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: 888-608-7946
International: 484-747-6633
Participant Passcode: 47375590
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, 20 converting plants and 60 distribution centers. The business has approximately 6,300 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 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, 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 Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 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 June 30, Six Months Ended June 30,
---------------------- -------------------------
2016 2015 2016 2015
---- ---- ---- ----
Net sales $784,911 $671,255 $1,523,126 $1,217,544
Cost and expenses:
Cost of sales, excluding
depreciation and
amortization 568,831 470,478 1,102,108 852,676
Depreciation and
amortization 46,035 36,996 90,574 72,117
Freight and distribution
expenses 70,978 53,891 136,037 97,318
Selling, general and
administrative expenses 55,554 48,481 116,294 86,675
------ ------ ------- ------
Operating income 43,513 61,409 78,113 108,758
Foreign exchange (loss) (872) (53) (975) (938)
Interest expense, net 10,006 8,515 19,817 14,928
------ ----- ------ ------
Income before provision
for income taxes 32,635 52,841 57,321 92,892
Provision for income taxes 11,913 18,585 20,425 32,536
------ ------ ------ ------
Net income $20,722 $34,256 $36,896 $60,356
======= ======= ======= =======
Net income per share:
Basic $0.21 $0.36 $0.38 $0.63
===== ===== ===== =====
Diluted $0.21 $0.35 $0.38 $0.62
===== ===== ===== =====
Weighted-average number of shares outstanding:
Basic 96,517,357 96,269,619 96,458,354 96,196,889
========== ========== ========== ==========
Diluted 97,629,786 97,664,781 97,561,774 97,647,666
========== ========== ========== ==========
Effective income tax rate 36.5% 35.2% 35.6% 35.0%
==== ==== ==== ====
Supplemental Information
GAAP to Non-GAAP Reconciliations
($ in thousands, except share and per share amounts)
(unaudited)
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
2016 2015 2016 2015
---- ---- ---- ----
Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA
(Non-GAAP):
Net income (GAAP) $20,722 $34,256 $36,896 $60,356
Interest expense, net 10,006 8,515 19,817 14,928
Provision for income taxes 11,913 18,585 20,425 32,536
Depreciation and
amortization 46,035 36,996 90,574 72,117
------ ------ ------ ------
EBITDA (Non-GAAP) $88,676 $98,352 $167,712 $179,937
======= ======= ======== ========
Victory Packaging
acquisition expenses 262 5,919 525 6,002
Integration, casualty and
other expenses 1,050 724 2,016 1,209
Change in fair value of
contingent consideration
liability 1,526 553 3,052 553
Severance expenses 3,116 2,025 6,164 2,664
Stock-based compensation
expense 1,941 2,757 5,362 6,537
----- ----- ----- -----
Adjusted EBITDA (Non-GAAP) $96,571 $110,330 $184,831 $196,902
======= ======== ======== ========
Net Income (GAAP) to Adjusted Net Income (Non-GAAP):
Net income (GAAP) $20,722 $34,256 $36,896 $60,356
Victory Packaging
acquisition expenses 262 5,919 525 6,002
Integration, casualty and
other expenses 1,050 724 2,016 1,209
Change in fair value of
contingent consideration
liability 1,526 553 3,052 553
Severance expenses 3,116 2,025 6,164 2,664
Stock-based compensation
expense 1,941 2,757 5,362 6,537
Accumulated tax
adjustments* (2,597) (3,747) (5,760) (5,472)
------ ------ ------ ------
Adjusted Net Income (Non-
GAAP) $26,020 $42,487 $48,255 $71,849
======= ======= ======= =======
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP):
Diluted earnings per share
(GAAP) $0.21 $0.35 $0.38 $0.62
Victory Packaging
acquisition expenses - 0.06 0.01 0.06
Integration, casualty and
other expenses 0.01 0.01 0.02 0.01
Change in fair value of
contingent consideration
liability 0.02 0.01 0.03 0.01
Severance expenses 0.03 0.02 0.06 0.03
Stock-based compensation
expense 0.02 0.03 0.05 0.07
Accumulated tax
adjustments ( 0.02) ( 0.04) ( 0.06) ( 0.06)
Adjusted Diluted EPS (Non-
GAAP) $0.27 $0.44 $0.49 $0.74
===== ===== ===== =====
Accumulated tax adjustments in
2016 reflect EBITDA adjustments
tax affected at 37.5 percent,
the Company's marginal income
tax rate offset by an
unfavorable state tax
examination adjustment
KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2016 2015
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $7,890 $6,821
Trade accounts receivable, net of
allowances 415,131 363,869
Other receivables 12,682 18,732
Inventories 331,642 335,903
Prepaid expenses and other current
assets 15,124 28,932
Total current assets 782,469 754,257
------- -------
Plant, property and equipment, net 1,411,362 1,406,146
Other assets 10,792 12,532
Intangible assets, net 327,235 344,583
Goodwill 704,592 704,592
------- -------
Total assets $3,236,450 $3,222,110
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $16,000 $6,400
Dividend payable 9,907 9,862
Accounts payable 182,376 196,491
Accrued expenses 63,864 73,138
Accrued compensation costs 52,215 64,149
Accrued income taxes 2,288 15
Total current liabilities 326,650 350,055
------- -------
Long-term debt, net of current portion 1,537,028 1,543,748
Pension and post-retirement benefits 37,830 40,510
Deferred income taxes 420,843 418,479
Other liabilities 44,993 24,038
Total other liabilities 2,040,694 2,026,775
--------- ---------
Stockholders' equity:
Common stock $0.0001 par value 10 10
Additional paid-in capital 271,530 266,220
Retained earnings 659,789 642,306
Accumulated other comprehensive (loss)
income (62,223) (63,256)
------- -------
Total stockholders' equity 869,106 845,280
Total liabilities and stockholders'
equity $3,236,450 $3,222,110
========== ==========
KapStone Paper and Packaging Corporation
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
2016 2015 2016 2015
---- ---- ---- ----
Operating activities:
Net income $20,722 $34,256 $36,896 $60,356
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation of plant
and equipment 37,098 31,954 72,701 63,659
Amortization of
intangible assets 8,937 5,042 17,873 8,458
Stock-based
compensation expense 1,941 2,757 5,362 6,537
Pension and
postretirement (579) (2,524) (1,027) (5,416)
Excess tax
(deficiency) /
benefit from stock-
based compensation 10 (120) 150 (1,511)
Amortization of debt
issuance costs 1,251 2,040 2,375 3,047
(Gain) /Loss on
disposal of fixed
assets 715 32 653 210
Deferred income taxes (360) 587 704 2,451
Change in fair value
of contingent
consideration
liability 1,526 553 3,052 553
Changes in operating
assets and
liabilities (40,241) 1,922 (49,114) (65,757)
Net cash provided by
operating activities $31,020 $76,499 $89,625 $72,587
------- ------- ------- -------
Investing activities:
Purchase of intangible
assets (1,025) - (1,525) -
Victory Packaging
acquisition - (616,564) - (616,564)
Capital expenditures (36,210) (34,949) (72,373) (63,711)
Proceeds from sales of
assets - - 4,856 -
Other (1,250) - (1,250) -
Net cash used in
investing activities $(38,485) $(651,513) $(70,292) $(680,275)
-------- --------- -------- ---------
Financing activities:
Proceeds from
revolving credit
facility 129,100 $179,800 $263,700 $266,200
Repayments on
revolving credit
facility (123,100) (174,800) (254,100) (251,200)
Proceeds from
receivables credit
facility 14,424 90,773 21,094 103,735
Repayments on
receivables credit
facility (2,470) - (27,170) (4,962)
Proceeds from long-
term debt - 519,763 - 519,763
Payment of loan
amendment costs and
debt issuance fees (138) (10,790) (2,388) (10,790)
Proceeds from other
current borrowings - - - 6,615
Payment from other
current borrowings - (2,195) - (2,195)
Cash dividend paid (9,652) (9,626) (19,348) (19,464)
Payment of withholding
taxes on vested stock
awards (94) (126) (786) (2,448)
Proceeds from
exercises of stock
options 211 287 420 778
Proceeds from issuance
of shares to ESPP - - 464 415
Excess tax
(deficiency) /
benefit from stock-
based compensation (10) 120 (150) 1,511
Net cash provided by /
(used in) financing
activities $8,271 $593,206 $(18,264) $607,958
------ -------- -------- --------
Net increase in cash
and cash equivalents 806 18,192 1,069 270
Cash and cash
equivalents-
beginning of period 7,084 10,545 6,821 28,467
Cash and cash
equivalents-end of
period $7,890 $28,737 $7,890 $28,737
====== ======= ====== =======
KapStone Paper and Packaging Corporation
Operating Segment Information
(In thousands)
(Unaudited)
Net Sales
---------
Three Months
Ended June 30,
2016 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Total Assets at June 30, 2016
----- ------------- ----- ---------------------- ----------------------------- -------------------- -----------------------------
Paper and
Packaging $532,571 $20,524 $553,095 $41,082 $38,163 $34,265 $2,507,161
Distribution (a) 252,340 - 252,340 12,336 5,702 932 686,997
Corporate - - - (9,905) 2,170 1,013 42,292
Intersegment
eliminations - (20,524) (20,524) - - - -
$784,911 $ - $784,911 $43,513 $46,035 $36,210 $3,236,450
======== ============ ======== ======= ======= ======= ==========
Net Sales
---------
Three Months
Ended June 30,
2015 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Total Assets at June 30, 2015
----- ------------- ----- ---------------------- ----------------------------- -------------------- -----------------------------
Paper and
Packaging $577,857 $788 $578,645 $71,844 $34,187 $30,256 $2,553,708
Distribution (a) 93,398 - 93,398 1,720 1,945 243 527,704
Corporate (b) - - - (12,155) 864 4,450 223,792
Intersegment
eliminations - (788) (788) - - - -
$671,255 $ - $671,255 $61,409 $36,996 $34,949 $3,305,204
======== ============ ======== ======= ======= ======= ==========
Net Sales
---------
Six Months Ended
June 30, 2016 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures
----- ------------- ----- ---------------------- ----------------------------- --------------------
Paper and
Packaging $1,052,611 $36,993 $1,089,604 $87,323 $75,299 $66,620
Distribution (a) 470,515 - 470,515 13,717 11,363 2,998
Corporate - - - (22,927) 3,912 2,755
Intersegment
eliminations - (36,993) (36,993) - - -
$1,523,126 $ - $1,523,126 $78,113 $90,574 $72,373
========== ============ ========== ======= ======= =======
Net Sales
---------
Six Months Ended
June 30, 2015 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures
----- ------------- ----- ---------------------- ----------------------------- --------------------
Paper and
Packaging $1,124,146 $788 $1,124,934 $130,136 $68,664 $56,506
Distribution (a) 93,398 - 93,398 1,720 1,945 243
Corporate - - - (23,098) 1,508 6,962
Intersegment
eliminations - (788) (788) - - -
$1,217,544 $ - $1,217,544 $108,758 $72,117 $63,711
========== ============ ========== ======== ======= =======
Reflects
results of
Victory
Packaging
which
KapStone
acquired on
(a) June 1, 2015
(b) Goodwill
related to
the Victory
Packaging
acquisition
was included
in Corporate
as of June
30, 2015 and
was
subsequently
allocated to
the
Distribution
segment in
the quarter
ended
September
30, 2015
KapStone Paper and Packaging Corporation
Operating Segment EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
Paper and Packaging 2016 2015 2016 2015
------------------- ---- ---- ---- ----
Segment income $41,082 $71,844 $87,323 $130,136
Foreign exchange (loss) / gain (288) 146 - (739)
Depreciation and amortization 38,163 34,187 75,299 68,664
------ ------ ------ ------
EBITDA 78,957 106,177 162,622 198,061
Victory Packaging acquisition
expenses - - - -
Integration, casualty and other
expenses 935 724 1,819 1,209
Severance expenses 3,035 2,025 5,297 2,664
Adjusted EBITDA $82,927 $108,926 $169,738 $201,934
======= ======== ======== ========
Adjusted EBITDA margin 15.6% 18.8% 16.1% 18.0%
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
Distribution 2016 2015 2016 2015
------------ ---- ---- ---- ----
Segment income $12,336 $1,720 $13,717 $1,720
Foreign exchange (loss) / gain (584) (199) (975) (199)
Depreciation and amortization 5,702 1,945 11,363 1,945
----- ----- ------ -----
EBITDA 17,454 3,466 24,105 3,466
Victory Packaging acquisition
expenses 262 3,870 525 3,870
Integration, casualty and other
expenses - - - -
Severance expenses 89 - 480 -
Adjusted EBITDA $17,805 $7,336 $25,110 $7,336
======= ====== ======= ======
Adjusted EBITDA margin 7.1% 7.9% 5.3% 7.9%
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
Corporate 2016 2015 2016 2015
--------- ---- ---- ---- ----
Segment (loss) $(9,905) $(12,155) $(22,927) $(23,098)
Foreign exchange loss / (gain) - - - -
Depreciation and amortization 2,170 864 3,912 1,508
----- --- ----- -----
EBITDA (7,735) (11,291) (19,015) (21,590)
Victory Packaging acquisition
expenses - 2,049 - 2,132
Integration, casualty and other
expenses 115 - 197 -
Change in fair value of
contingent consideration
liability 1,526 553 3,052 553
Severance expenses (8) - 387 -
Stock-based compensation 1,941 2,757 5,362 6,537
Adjusted EBITDA $(4,161) $(5,932) $(10,017) $(12,368)
======= ======= ======== ========
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
Consolidated 2016 2015 2016 2015
------------ ---- ---- ---- ----
Segment income $43,513 $61,409 $78,113 $108,758
Foreign exchange (loss) / gain (872) (53) (975) (938)
Depreciation and amortization 46,035 36,996 90,574 72,117
------ ------ ------ ------
EBITDA 88,676 98,352 167,712 179,937
Victory Packaging acquisition
expenses 262 5,919 525 6,002
Integration, casualty and other
expenses 1,050 724 2,016 1,209
Severance expenses 3,116 2,025 6,164 2,664
Change in fair value of
contingent consideration
liability 1,526 553 3,052 553
Stock-based compensation 1,941 2,757 5,362 6,537
Adjusted EBITDA $96,571 $110,330 $184,831 $196,902
======= ======== ======== ========
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SOURCE KapStone Paper and Packaging Corporation
