KAPSTONE PAPER AND PACKAGING CORP. NORTHBROOK, Ill., Nov. 1, 2016 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE:KS) today reported results for the third quarter ended September 30, 2016. As compared to 2015's third quarter, results for 2016's third quarter are below:
-- Net sales of $777 million down $31 million, or 4 percent
-- Net income of $31 million down $3 million, or 9 percent
-- Diluted EPS of $0.32 down $0.03 per share, or 9 percent
Non U.S. GAAP financial measures for the 2016 third quarter are as follows:
-- Adjusted EBITDA of $108 million down $18 million, or 15 percent
-- Adjusted net income of $37 million down $13 million, or 26 percent
-- Adjusted diluted EPS of $0.37 down $0.14 per share, or 28 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone's operations performed well in the third quarter with our mills producing 700,000 tons of paper. Net earnings, however, were lower year-over-year primarily reflecting lower prices and a less favorable product mix. In the third quarter of 2016, we announced price increases on domestic containerboard, corrugated products, and extensible grade export kraft paper. We estimate that these increases should be fully implemented by the end of the first quarter of 2017, providing substantial benefits to KapStone.
"During the third quarter, we made significant progress increasing our future integration between our mills and corrugated operations. Upon attaining the expected run rates, the acquisition of Central Florida Box and additional strategic investments should provide an incremental 85,000 tons of integration over the next eighteen months.
"Finally, a very strong operating cash flow of $123 million in the third quarter enabled KapStone to make a $65 million prepayment on our term loans and funded $26 million of strategic investments to increase mill integration."
Third Quarter Operating Highlights
Consolidated net sales of $777 million in the third quarter of 2016 were $31 million, or 4 percent lower than $808 million for the 2015 third quarter. This decrease was due to $31 million of lower prices and a less favorable mix in the paper and packaging segment. Higher sales volumes in the paper and packaging segment were offset by lower volumes in the distribution segment. The Company's average mill selling price of $626 per ton in the third quarter of 2016 decreased by $45 per ton, or about 7 percent, compared to the third 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 $55 million for the 2016 third quarter decreased by $7 million, or 11 percent, compared to the 2015 third quarter. The lower operating earnings primarily reflect lower prices for domestic and export containerboard and export kraft paper prices, and a less favorable product mix. These factors were partially offset by lower fiber and fuel costs, lower management incentives, and costs due to the 2015 work stoppage at the Longview mill.
Interest expense, net, was $10 million for the third quarter of 2016, about flat with a year ago. Our weighted average interest rate as of September 30, 2016 was 2.1 percent compared to 1.8 percent as of September 30, 2015.
The effective income tax rate for the 2016 third quarter was 28.9 percent compared to 32.5 percent for the 2015 third quarter. The 2016 third quarter effective income tax rate includes a favorable discrete tax adjustment reflecting higher energy tax credits.
Cash Flow and Working Capital
Cash and cash equivalents increased by $2 million during the 2016 third quarter to $9 million at September 30, 2016. Operating activities provided $123 million during the 2016 third quarter including seasonally improved working capital. Investing activities used $53 million consisting of $27 million of capital expenditures and $26 million of strategic investments. Financing activities used $68 million including a $65 million debt prepayment and $10 million of cash dividends.
On August 17, 2016, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on October 13, 2016.
At September 30, 2016, the Company had approximately $419 million of working capital and $471 million of revolver borrowing capacity.
Conclusion
In summary, Stone commented, "With our strong cash flows, KapStone is in an excellent position to continue growing profitably."
Conference Call
KapStone will host a conference call at 10:00 a.m. CDT, Wednesday, November 2, 2016, to discuss the Company's financial results for the 2016 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: 888-608-7946
International: 484-747-6633
Participant Passcode: 98559078
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 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 and other strategic investments. 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 September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2016 2015 2016 2015
---- ---- ---- ----
Net sales $776,636 $807,563 $2,299,762 $2,025,107
Cost and expenses:
Cost of sales, excluding
depreciation and
amortization 548,811 569,267 1,650,919 1,421,943
Depreciation and
amortization 44,954 42,500 135,528 114,617
Freight and distribution
expenses 71,750 70,623 207,787 167,941
Selling, general and
administrative expenses 56,113 63,577 172,407 150,252
------ ------ ------- -------
Operating income 55,008 61,596 133,121 170,354
Foreign exchange (loss) (543) (766) (1,518) (1,704)
Loss on debt
extinguishment 679 628 679 628
Interest expense, net 10,148 9,528 29,965 24,456
------ ----- ------ ------
Income before provision
for income taxes 43,638 50,674 100,959 143,566
Provision for income taxes 12,620 16,468 33,045 49,004
------ ------ ------ ------
Net income $31,018 $34,206 $67,914 $94,562
======= ======= ======= =======
Net income per share:
Basic $0.32 $0.36 $0.70 $0.98
===== ===== ===== =====
Diluted $0.32 $0.35 $0.70 $0.97
===== ===== ===== =====
Weighted-average number of shares outstanding:
Basic 96,581,703 96,310,998 96,499,771 96,235,404
========== ========== ========== ==========
Diluted 97,888,469 97,629,641 97,639,370 97,631,247
========== ========== ========== ==========
Effective income tax rate 28.9% 32.5% 32.7% 34.1%
==== ==== ==== ====
Supplemental Information
GAAP to Non-GAAP Reconciliations
($ in thousands, except per share amounts)
(unaudited)
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2016 2015 2016 2015
---- ---- ---- ----
Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA
(Non-GAAP):
Net income (GAAP) $31,018 $34,206 $67,914 $94,562
Interest expense, net 10,148 9,528 29,965 24,456
Provision for income taxes 12,620 16,468 33,045 49,004
Depreciation and
amortization 44,954 42,500 135,528 114,617
------ ------ ------- -------
EBITDA (Non-GAAP) $98,740 $102,702 $266,452 $282,639
======= ======== ======== ========
Victory Packaging
inventory step-up
expense - 1,930 - 5,800
Acquisition, casualty,
impairment and other
expenses 3,944 752 6,485 4,093
Change in fair value of
contingent consideration
liability 1,527 1,500 4,579 2,053
Severance expenses 863 2,310 7,027 4,974
Longview work stoppage - 14,464 - 14,464
Loss on debt
extinguishment 679 628 679 628
Stock-based compensation
expense 1,826 1,585 7,188 8,122
----- ----- ----- -----
Accumulated EBITDA
adjustments 8,839 23,169 25,958 40,134
Adjusted EBITDA (Non-GAAP) $107,579 $125,871 $292,410 $322,773
======== ======== ======== ========
Net Income (GAAP) to Adjusted Net Income (Non-GAAP):
Net income (GAAP) $31,018 $34,206 $67,914 $94,562
Accumulated EBITDA
adjustments 8,839 23,169 25,958 40,134
Accumulated tax
adjustments* (3,315) (8,016) (12,035) (13,489)
------ ------ ------- -------
Adjusted Net Income (Non-
GAAP) $36,542 $49,359 $81,837 $121,207
======= ======= ======= ========
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP):
Diluted earnings per share
(GAAP) $0.32 $0.35 $0.70 $0.97
Accumulated EBITDA
adjustments 0.09 0.24 0.27 0.41
Accumulated tax
adjustments ( 0.04) ( 0.08) ( 0.13) ( 0.14)
Adjusted Diluted EPS (Non-
GAAP) $0.37 $0.51 $0.84 $1.24
===== ===== ===== =====
* Accumulated tax adjustments in
2016 reflect Accumulated EBITDA
adjustments tax affected at
37.5 percent, the Company's
marginal income tax rate offset
by an unfavorable $0.6 million
state tax examination
adjustment in Q2 2016. 2015
Accumulated EBITDA adjustments
were tax affected at 34.5
percent.
KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2016 2015
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $9,449 $6,821
Trade accounts receivable, net of allowances 388,520 363,869
Other receivables 16,398 18,732
Inventories 347,450 335,903
Prepaid expenses and other current assets 12,911 28,932
Total current assets 774,728 754,257
------- -------
Plant, property and equipment, net 1,419,035 1,406,146
Other assets 22,765 12,532
Intangible assets, net 321,923 344,583
Goodwill 705,617 704,592
------- -------
Total assets $3,244,068 $3,222,110
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $11,500 $6,400
Dividend payable 9,987 9,862
Accounts payable 210,987 196,491
Accrued expenses 66,501 73,138
Accrued compensation costs 48,680 64,149
Accrued income taxes 8,052 15
Total current liabilities 355,707 350,055
------- -------
Long-term debt, net of current portion 1,484,373 1,543,748
Pension and post-retirement benefits 36,443 40,510
Deferred income taxes 420,669 418,479
Other liabilities 53,336 24,038
Total other liabilities 1,994,821 2,026,775
--------- ---------
Stockholders' equity:
Common stock $0.0001 par value 10 10
Additional paid-in capital 274,176 266,220
Retained earnings 681,061 642,306
Accumulated other comprehensive (loss) income (61,707) (63,256)
------- -------
Total stockholders' equity 893,540 845,280
Total liabilities and stockholders' equity $3,244,068 $3,222,110
========== ==========
KapStone Paper and Packaging Corporation
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2016 2015 2016 2015
---- ---- ---- ----
Operating activities:
Net income $31,018 $34,206 $67,914 $94,562
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of plant and equipment 37,442 34,351 110,143 98,010
Amortization of intangible assets 7,512 8,149 25,385 16,607
Stock-based compensation expense 1,826 1,585 7,188 8,122
Pension and postretirement (561) (2,963) (1,588) (8,379)
Excess tax benefit from stock-based compensation - (7) 150 (1,518)
Amortization of debt issuance costs 1,250 1,317 3,625 4,364
(Gain) / Loss on disposal of fixed assets 2,503 (205) 3,156 5
Loss on debt extinguishment 679 628 679 628
Deferred income taxes (484) 3,990 220 6,441
Change in fair value of contingent consideration liability 1,527 553 4,579 2,053
Changes in operating assets and liabilities 40,050 22,457 (9,064) (44,247)
Net cash provided by operating activities $122,762 $104,061 $212,387 $176,648
-------- -------- -------- --------
Investing activities:
Equity method investments (10,500) - (11,750) -
Purchase of intangible assets (500) - (2,025) -
Acquisitions, net of cash acquired (15,438) (482) (15,438) (617,046)
Capital expenditures (26,873) (31,184) (99,246) (94,895)
Proceeds from the sales of assets 25 - 4,881 -
Net cash used in investing activities $(53,286) $(31,666) $(123,578) $(711,941)
-------- -------- --------- ---------
Financing activities:
Proceeds from revolving credit facility 89,500 $2,000 $353,200 $268,200
Repayments on revolving credit facility (94,000) (15,000) (348,100) (266,200)
Proceeds from receivables credit facility 15,462 9,226 36,556 112,961
Repayments on receivables credit facility (5,497) (13,487) (32,667) (18,449)
Proceeds from long-term debt - - - 519,763
Repayments on long-term debt (64,687) (64,688) (64,687) (64,688)
Payment of loan amendment costs and debt issuance fees 138 - (2,250) (10,790)
Proceeds from other current borrowings - - - 6,615
Payment from other current borrowings - (2,206) - (4,401)
Cash dividend paid (9,653) (9,634) (29,001) (29,098)
Payment of withholding taxes on vested stock awards (55) (12) (841) (2,460)
Proceeds from exercises of stock options 367 - 788 778
Proceeds from issuance of shares to ESPP 508 429 971 844
Excess tax benefit from stock-based compensation - 7 (150) 1,518
Net cash provided (used in) / provided by financing activities $(67,917) $(93,365) $(86,181) $514,593
-------- -------- -------- --------
Net increase in cash and cash equivalents 1,559 (20,970) 2,628 (20,700)
Cash and cash equivalents-beginning of period 7,890 28,737 6,821 28,467
Cash and cash equivalents-end of period $9,449 $7,767 $9,449 $7,767
====== ====== ====== ======
KapStone Paper and Packaging Corporation
Operating Segment Information
(In thousands)
(Unaudited)
Net Sales
---------
Three Months
Ended September
30, 2016 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Total Assets at Sept. 30, 2016
----- ------------- ----- ---------------------- ----------------------------- -------------------- ------------------------------
Paper and
Packaging $533,562 $18,674 $552,236 $57,731 $37,491 $24,900 $2,526,342
Distribution 243,074 - 243,074 8,230 5,795 936 676,350
Corporate - - - (10,953) 1,668 1,037 41,376
Intersegment
eliminations - (18,674) (18,674) - - - -
$776,636 $ - $776,636 $55,008 $44,954 $26,873 $3,244,068
======== =========== ======== ======= ======= ======= ==========
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 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
---------
Nine Months Ended
September 30,
2016 Trade Inter-segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures
----- ------------- ----- ---------------------- ----------------------------- --------------------
Paper and
Packaging $1,586,173 $55,667 $1,641,840 $145,054 $112,790 $91,520
Distribution (a) 713,589 - 713,589 21,947 17,158 3,934
Corporate - - - (33,880) 5,580 3,792
Intersegment
eliminations - (55,667) (55,667) - - -
$2,299,762 $ - $2,299,762 $133,121 $135,528 $99,246
========== =========== ========== ======== ======== =======
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
========== =========== ========== ======== ======== =======
(a) Reflects results of
Victory Packaging which
KapStone acquired on June
1, 2015
KapStone Paper and Packaging Corporation
Operating Segment EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
Paper and Packaging 2016 2015 2016 2015
------------------- ---- ---- ---- ----
Segment income $57,731 $60,185 $145,054 $190,321
Foreign exchange (loss) / gain 18 37 18 (702)
Depreciation and amortization 37,491 36,059 112,790 104,723
------ ------ ------- -------
EBITDA 95,240 96,281 257,862 294,342
Victory Packaging inventory step-
up expense - - - -
Acquisition, casualty, impairment
and other expenses 1,710 177 3,529 1,027
Longview work stoppage - 14,464 - 14,464
Severance expenses 701 2,207 5,998 4,871
Adjusted EBITDA $97,651 $113,129 $267,389 $314,704
======= ======== ======== ========
Adjusted EBITDA margin 18.3% 20.2% 16.9% 18.7%
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
Distribution 2016 2015 2016 2015
------------ ---- ---- ---- ----
Segment income $8,230 $11,139 $21,947 $12,859
Foreign exchange (loss) / gain (561) (803) (1,536) (1,002)
Depreciation and amortization 5,795 5,522 17,158 7,467
----- ----- ------ -----
EBITDA 13,464 15,858 37,569 19,324
Victory Packaging inventory step-
up expense - 1,930 - 5,800
Acquisition, casualty, impairment
and other expenses 1,129 - 1,654 -
Severance expenses 153 103 633 103
Adjusted EBITDA $14,746 $17,891 $39,856 $25,227
======= ======= ======= =======
Adjusted EBITDA margin 6.1% 7.2% 5.6% 7.4%
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
Corporate 2016 2015 2016 2015
--------- ---- ---- ---- ----
Segment (loss) $(10,953) $(9,728) $(33,880) $(32,826)
Loss on debt extinguishment (679) (628) (679) (628)
Depreciation and amortization 1,668 919 5,580 2,427
----- --- ----- -----
EBITDA (9,964) (9,437) (28,979) (31,027)
Victory Packaging inventory step-
up expense - - - -
Acquisition, casualty, impairment
and other expenses 1,105 575 1,302 3,066
Change in fair value of
contingent consideration
liability 1,527 1,500 4,579 2,053
Severance expenses 9 - 396 -
Stock-based compensation 1,826 1,585 7,188 8,122
Loss on debt extinguishment 679 628 679 628
Adjusted EBITDA $(4,818) $(5,149) $(14,835) $(17,158)
======= ======= ======== ========
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
Consolidated 2016 2015 2016 2015
------------ ---- ---- ---- ----
Operating income $55,008 $61,596 $133,121 $170,354
Loss on debt extinguishment (679) (628) (679) (628)
Foreign exchange (loss) / gain (543) (766) (1,518) (1,704)
Depreciation and amortization 44,954 42,500 135,528 114,617
------ ------ ------- -------
EBITDA 98,740 102,702 266,452 282,639
Victory Packaging inventory step-
up expense - 1,930 - 5,800
Acquisition, casualty, impairment
and other expenses 3,944 752 6,485 4,093
Longview work stoppage - 14,464 - 14,464
Severance expenses 863 2,310 7,027 4,974
Change in fair value of
contingent consideration
liability 1,527 1,500 4,579 2,053
Stock-based compensation 1,826 1,585 7,188 8,122
Loss on debt extinguishment 679 628 679 628
Adjusted EBITDA $107,579 $125,871 $292,410 $322,773
======== ======== ======== ========
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SOURCE KapStone Paper and Packaging Corporation
