KapStone Reports Third Quarter Results

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Cash Flow From Operations Up Over 20 Percent

November 1, 2016 4:21 PM EDT

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:  888-608-7946International:  484-747-6633Participant 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

 

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kapstone-reports-third-quarter-results-300355357.html

SOURCE KapStone Paper and Packaging Corporation


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