UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

April 18, 2018

Date of Report (Date of earliest event reported)

 

KapStone Paper and Packaging Corporation

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

001-33494

 

20-2699372

(State or other jurisdiction
of incorporation)

 

(Commission
File Number)

 

(IRS Employer
Identification No.)

 

1101 Skokie Boulevard, Suite 300
Northbrook, Illinois 60062

(Address of principal executive offices)

 

(847) 239-8800

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (Section 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (Section 240.12b-2 of this chapter).

 

Emerging growth company     o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

 

 

 



 

Item 2.02              Results of Operations and Financial Condition.

 

On April 18, 2018, KapStone Paper and Packaging Corporation (“KapStone”) issued a press release announcing first quarter 2018 financial results. A copy of the press release is attached hereto as Exhibit 99.1. In addition, a copy of KapStone’s 2018 First Quarter Financial Review slides which will be included on the company’s website under Investors is attached hereto as Exhibit 99.2.

 

Item 9.01              Financial Statements and Exhibits.

 

(d)           Exhibit

 

The following exhibits are being furnished herewith.  The exhibits attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall the exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

Exhibit No.

 

Description

Exhibit 99.1

 

Press release dated April 18, 2018, announcing first quarter 2018 financial results

Exhibit 99.2

 

2018 First Quarter of 2018 Financial Review slides

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date:  April 18, 2018

 

 

 

 

 

 

KAPSTONE PAPER AND PACKAGING CORPORATION

 

 

 

 

 

 

 

By:

/s/ Andrea K. Tarbox

 

Name:

Andrea K. Tarbox

 

Title:

Executive Vice President and Chief Financial Officer

 

3


Exhibit 99.1

 

 

FOR FURTHER INFORMATION:

FOR IMMEDIATE RELEASE

Andrea K. Tarbox

Wednesday, April 18, 2018

Executive Vice President and Chief Financial Officer

 

847.239.8812

 

 

KAPSTONE REPORTS FIRST QUARTER RESULTS

 

NORTHBROOK, IL — April 18, 2018 — KapStone Paper and Packaging Corporation (NYSE:KS) today reported results for the first quarter ended March 31, 2018. As compared to 2017’s first quarter, results for 2018’s first quarter are below:

 

·                  Net sales of $799 million up $33 million, or 4 percent

·                  Net income of $33 million up $27 million, or 446 percent

·                  Diluted EPS of $0.33 up $0.27 per share, or 450 percent

 

Non U.S. GAAP financial measures for the 2018 first quarter compared to 2017 are as follows:

 

·                  Adjusted EBITDA of $115 million up $34 million, or 42 percent

·                  Adjusted net income of $42 million up $27 million, or 181 percent

·                  Adjusted diluted EPS of $0.43 up $0.28 per share, or 187 percent

 

Matt Kaplan, President and Chief Executive Officer, stated, “Our first quarter results continued the positive momentum we built in the latter half of 2017.  Demand for containerboard, corrugated boxes, and kraft paper is strong.  We announced a $50 per ton containerboard price increase effective with shipments in mid-March.  In addition, we completed a rebuild of one of our boilers at the North Charleston mill which should provide for greater reliability and more efficient operations.

 

“Victory Packaging, our distribution business, had a solid first quarter and is entering its seasonally strongest quarter of the year.

 

“We continue to work on the merger with WestRock.”

 

1



 

First Quarter Operating Highlights

 

Consolidated net sales of $799 million in the first quarter of 2018 increased by $33 million, or 4 percent compared to $766 million for the 2017 first quarter. The increase in net sales is primarily due to higher prices, partially offset by lower sales volume. The Company sold 662,000 tons of paper during the first quarter of 2018 compared to 699,000 tons a year earlier. Volume was lower in the current quarter as mill production was limited due to a boiler upgrade at the Charleston mill which reduced production by approximately 26,000 tons. The Company’s average mill selling price of $719 per ton in the first quarter of 2018 increased by $71 per ton, or about 11 percent compared to the first quarter of 2017 due to higher prices for most products and a favorable product mix. Mill selling prices increased by $21 per ton or 3 percent compared to the fourth quarter of 2017 due to higher specialty product prices and a better product mix.

 

Net income of $33 million for the 2018 first quarter increased by $27 million, or 446 percent, compared to the 2017 first quarter. The higher earnings primarily reflects:

 

·                  Higher selling prices and a better product mix of $48 million,

·                  Favorable productivity of $10 million mainly due to higher mill production,

·                  Lower recycled fiber costs of $6 million,

·                  Non-recurring 2017 costs of $5 million associated with ratifying a union contract at the North Charleston paper mill,

·                  A $7 million gain on the sale of the former Oakland box plant site, and

·                  A lower effective income tax rate resulting from the passage of the Tax Cuts and Jobs Act passed in December 2017.

 

The above items were partially offset by:

 

·                  Merger expenses of $14 million,

·                  Lower sales volume of $7 million,

·                  $8 million of higher planned maintenance costs, including the boiler upgrade,

·                  Inflation of $15 million driven by higher virgin fiber costs, freight and compensation,

·                  $4 million of weather related costs in January 2018, and

·                  Higher interest charges of $4 million due to higher interest rates.

 

Cash Flow and Working Capital

 

Cash and cash equivalents of $19 million as of March 31, 2018, declined by $9 million from December 31, 2017.  Operating activities provided $5 million during the first quarter. Investing activities used $22 million, including $37 million for capital expenditures, partially offset by $15 million of proceeds from the sale of the former Oakland box plant site. Financing activities provided $8 million of cash in the current quarter reflecting higher borrowings, partially offset by a quarterly dividend payment and the Victory Packaging contingent consideration payment.

 

On February 23, 2018, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on April 11th.

 

2



 

At March 31, 2018, the Company had approximately $431 million of working capital and $466 million of revolver borrowing capacity. The Company’s net debt to EBITDA ratio as defined by the bank agreement decreased to 2.96 times at March 31, 2018, down from 3.99 a year ago.

 

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, 23 converting plants and over 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,

 

3



 

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; (8) realizing the synergies and benefits of strategic investments; (9) unanticipated business interruptions; and (10) various factors related to the pending transaction with WestRock, including but not limited to the ability of KapStone and WestRock to receive the required regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction), to receive the required approval of KapStone’s stockholders and to satisfy the other conditions to the closing of the proposed transaction on a timely basis or at all; the occurrence of events that may give rise to a right of one or both of the parties to terminate the merger agreement; negative effects of the announcement or the consummation of the proposed transaction on the market price of WestRock’s or KapStone’s common stock and/or on their respective businesses, financial conditions, results of operations and financial performance; risks relating to the value of the shares that may be issued in the transaction, significant transaction costs and/or unknown liabilities; the possibility that the anticipated benefits from the proposed transaction cannot be realized in full or at all or may take longer to realize than expected; risks associated with third party contracts containing consent and/or other provisions that may be triggered by the proposed transaction; risks associated with transaction-related litigation; the possibility that costs or difficulties related to the integration of KapStone’s operations with those of WestRock will be greater than expected; the outcome of legally required consultation with employees, their works councils or other employee representatives; and the ability of KapStone and the combined company to retain and hire key personnel. 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, 2017 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.

 

4



 

KapStone Paper and Packaging Corporation

Consolidated Statements of Income

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Net sales

 

$

799,195

 

$

765,843

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

553,069

 

562,461

 

Depreciation and amortization

 

46,365

 

45,348

 

Plant closure costs

 

1,752

 

 

Freight and distribution expenses

 

76,586

 

72,988

 

Selling, general and administrative expenses

 

63,611

 

66,485

 

Merger expenses

 

13,532

 

 

Gain on sale of property

 

(7,453

)

 

Operating income

 

51,733

 

18,561

 

 

 

 

 

 

 

Foreign exchange (gain)

 

(37

)

(82

)

Pension income

 

(3,092

)

(1,563

)

Equity method investment income

 

(520

)

(677

)

Interest expense, net

 

14,345

 

10,730

 

Income before provision for income taxes

 

41,037

 

10,153

 

Provision for income taxes

 

8,296

 

4,161

 

Net income

 

$

32,741

 

$

5,992

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

Basic

 

$

0.34

 

$

0.06

 

Diluted

 

$

0.33

 

$

0.06

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

Basic

 

97,331,105

 

96,698,637

 

Diluted

 

99,716,527

 

98,463,667

 

 

 

 

 

 

 

Effective income tax rate

 

20.2

%

41.0

%

 

Supplemental Information

GAAP to Non-GAAP Reconciliations

($ in thousands, except share and per share amounts)

(unaudited)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):

 

 

 

 

 

Net income (GAAP)

 

$

32,741

 

$

5,992

 

Interest expense, net

 

14,345

 

10,730

 

Provision for income taxes

 

8,296

 

4,161

 

Depreciation and amortization

 

46,365

 

45,348

 

EBITDA (Non-GAAP)

 

$

101,747

 

$

66,231

 

 

 

 

 

 

 

Acquisition, integration, start-up and other expenses

 

1,956

 

1,805

 

Union contract ratification cost

 

 

4,979

 

Merger expenses

 

13,532

 

 

Plant closure costs

 

1,752

 

 

Change in fair value of contingent consideration liability

 

 

2,516

 

Gain on sale of property

 

(7,453

)

 

Stock-based compensation expense

 

3,007

 

5,265

 

Accumulated EBITDA adjustments

 

12,794

 

14,565

 

Adjusted EBITDA (Non-GAAP)

 

$

114,541

 

$

80,796

 

 

 

 

 

 

 

Net Income (GAAP) to Adjusted Net Income (Non-GAAP):

 

 

 

 

 

Net income (GAAP)

 

$

32,741

 

$

5,992

 

Accumulated EBITDA adjustments

 

12,794

 

14,565

 

Accumulated tax adjustments

 

(3,071

)

(5,462

)

Adjusted Net Income (Non-GAAP)

 

$

42,464

 

$

15,095

 

 

 

 

 

 

 

Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP):

 

 

 

 

 

Diluted earnings per share (GAAP)

 

$

0.33

 

$

0.06

 

Accumulated EBITDA adjustments

 

0.13

 

0.15

 

Accumulated tax adjustments

 

(0.03

)

(0.06

)

Adjusted Diluted EPS (Non-GAAP)

 

$

0.43

 

$

0.15

 

 

5



 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

18,684

 

$

28,065

 

Trade accounts receivable, net of allowances

 

437,889

 

443,462

 

Other receivables

 

21,179

 

23,289

 

Inventories

 

333,731

 

315,575

 

Prepaid expenses and other current assets

 

21,125

 

17,470

 

Total current assets

 

832,608

 

827,861

 

 

 

 

 

 

 

Plant, property and equipment, net

 

1,467,093

 

1,453,607

 

Other assets

 

25,546

 

24,431

 

Intangible assets, net

 

289,731

 

297,475

 

Goodwill

 

720,611

 

720,611

 

Total assets

 

$

3,335,589

 

$

3,323,985

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term borrowings

 

$

20,000

 

$

 

Other current borrowings

 

6,767

 

 

Other financial obligations

 

1,103

 

30

 

Dividend payable

 

10,145

 

10,302

 

Accounts payable

 

220,543

 

199,574

 

Accrued expenses

 

81,525

 

105,951

 

Accrued compensation costs

 

43,999

 

75,215

 

Accrued income taxes

 

17,726

 

31,458

 

Total current liabilities

 

401,808

 

422,530

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

1,371,238

 

1,374,502

 

Long-term financing obligations

 

92,340

 

82,199

 

Capital lease obligation

 

4,587

 

4,595

 

Pension and post-retirement benefits

 

11,320

 

14,196

 

Deferred income taxes

 

253,926

 

252,101

 

Other liabilities

 

31,535

 

36,848

 

Total other liabilities

 

1,764,946

 

1,764,441

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock $0.0001 par value

 

10

 

10

 

Additional paid-in capital

 

299,737

 

291,629

 

Retained earnings

 

917,047

 

894,061

 

Accumulated other comprehensive loss

 

(47,959

)

(48,686

)

Total stockholders’ equity

 

1,168,835

 

1,137,014

 

Total liabilities and stockholders’ equity

 

$

3,335,589

 

$

3,323,985

 

 

6



 

KapStone Paper and Packaging Corporation

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

2017

 

Operating activities:

 

 

 

 

 

Net income

 

$

32,741

 

$

5,992

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation of plant and equipment

 

38,621

 

37,758

 

Amortization of intangible assets

 

7,744

 

7,590

 

Stock-based compensation expense

 

3,007

 

5,265

 

Pension and postretirement

 

(2,552

)

(572

)

Gain on sale of property

 

(7,453

)

 

Amortization of debt issuance costs

 

1,176

 

1,179

 

Loss on disposal of fixed assets

 

428

 

526

 

Deferred income taxes

 

1,747

 

1,521

 

Change in fair value of contingent consideration liability

 

 

2,516

 

Equity method investments income, net of cash received

 

(520

)

(167

)

Plant closure costs

 

793

 

 

Provision for bad debts

 

447

 

 

Changes in operating assets and liabilities

 

(71,056

)

(28,939

)

Net cash provided by operating activities

 

$

5,123

 

$

32,669

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Capital expenditures

 

(37,025

)

(38,669

)

Proceeds from the sale of property

 

14,681

 

 

API acquisition

 

 

(33,500

)

Net cash used in investing activities

 

$

(22,344

)

$

(72,169

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from revolving credit facility

 

$

110,500

 

$

122,988

 

Repayments on revolving credit facility

 

(90,500

)

(97,000

)

Proceeds from receivables credit facility

 

23,274

 

17,031

 

Repayments on receivables credit facility

 

(27,714

)

(21,621

)

Repayments on other financing obligations

 

(265

)

 

Proceeds from other current borrowings

 

6,767

 

6,214

 

Cash dividends paid

 

(9,723

)

(9,664

)

Payment of withholding taxes on vested stock awards

 

(1,783

)

(856

)

Proceeds from exercises of stock options

 

6,390

 

451

 

Proceeds from issuance of shares to ESPP

 

494

 

487

 

Payment of Victory Packaging contingent consideration

 

(9,600

)

 

Net cash provided by financing activities

 

$

7,840

 

$

18,030

 

 

 

 

 

 

 

Net (decrease) in cash and cash equivalents

 

(9,381

)

(21,470

)

Cash and cash equivalents-beginning of period

 

28,065

 

29,385

 

Cash and cash equivalents-end of period

 

$

18,684

 

$

7,915

 

 

7



 

KapStone Paper and Packaging Corporation

Operating Segment Information

(In thousands)

(Unaudited)

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

Trade

 

Inter-
segment

 

Total

 

Operating
Income
(Loss)

 

Depreciation
and
Amortization

 

Capital
Expenditures

 

Total Assets
at March 31,
2018

 

Paper and Packaging

 

$

567,985

 

$

17,114

 

$

585,099

 

$

74,711

 

$

38,676

 

$

35,148

 

$

2,642,878

 

Distribution

 

231,210

 

 

231,210

 

2,491

 

5,907

 

287

 

640,945

 

Corporate

 

 

 

 

(25,469

)

1,782

 

1,590

 

51,766

 

Intersegment eliminations

 

 

(17,114

)

(17,114

)

 

 

 

 

 

 

$

799,195

 

$

 

$

799,195

 

$

51,733

 

$

46,365

 

$

37,025

 

$

3,335,589

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2017

 

Trade

 

Inter-
segment

 

Total

 

Operating
Income
(Loss)

 

Depreciation
and
Amortization

 

Capital
Expenditures

 

Total Assets
at March 31,
2017

 

Paper and Packaging

 

$

547,644

 

$

21,197

 

$

568,841

 

$

32,752

 

$

37,406

 

$

36,490

 

$

2,591,747

 

Distribution

 

218,199

 

 

218,199

 

2,597

 

5,978

 

679

 

687,854

 

Corporate

 

 

 

 

(16,788

)

1,964

 

1,500

 

43,218

 

Intersegment eliminations

 

 

(21,197

)

(21,197

)

 

 

 

 

 

 

$

765,843

 

$

 

$

765,843

 

$

18,561

 

$

45,348

 

$

38,669

 

$

3,322,819

 

 

8



 

KapStone Paper and Packaging Corporation

Operating Segment EBITDA and Adjusted EBITDA

(In thousands)

(Unaudited)

 

 

 

Quarter Ended March 31,

 

Paper and Packaging

 

2018

 

2017

 

Segment operating income

 

$

74,711

 

$

32,752

 

Equity method investments income

 

(520

)

(677

)

Foreign exchange (gain)

 

(139

)

(45

)

Pension income

 

(3,092

)

(1,563

)

Loss on debt extinguishment

 

 

 

Depreciation and amortization

 

38,676

 

37,406

 

EBITDA

 

117,138

 

72,443

 

Loss on debt extinguishment

 

 

 

Acquisition, integration, start-up and other expenses

 

1,226

 

1,366

 

Gain on sale of property

 

(7,453

)

 

Plant closure costs

 

1,752

 

 

Union contract ratification costs

 

 

4,979

 

Loss on asset disposal

 

 

 

Adjusted EBITDA

 

$

112,663

 

$

78,788

 

Adjusted EBITDA margin

 

19.3

%

13.9

%

 

 

 

Quarter Ended March 31,

 

Distribution

 

2018

 

2017

 

Segment operating income

 

$

2,491

 

$

2,597

 

Foreign exchange (gain) / loss

 

102

 

(37

)

Depreciation and amortization

 

5,907

 

5,978

 

EBITDA

 

8,296

 

8,612

 

Acquisition, integration, start-up and other expenses

 

551

 

163

 

Adjusted EBITDA

 

$

8,847

 

$

8,775

 

Adjusted EBITDA margin

 

3.8

%

4.0

%

 

 

 

Quarter Ended March 31,

 

Corporate

 

2018

 

2017

 

Segment operating (loss)

 

$

(25,469

)

$

(16,788

)

Depreciation and amortization

 

1,782

 

1,964

 

EBITDA

 

(23,687

)

(14,824

)

Stock-based compensation expense

 

3,007

 

5,265

 

Acquisition, integration, start-up and other expenses

 

179

 

276

 

Change in fair value of contingent consideration liability

 

 

2,516

 

Merger expenses

 

13,532

 

 

Adjusted EBITDA

 

$

(6,969

)

$

(6,767

)

 

 

 

Quarter Ended March 31,

 

Consolidated

 

2018

 

2017

 

Segment operating income

 

$

51,733

 

$

18,561

 

Equity method investments income

 

(520

)

(677

)

Foreign exchange (gain) / loss

 

(37

)

(82

)

Pension income

 

(3,092

)

(1,563

)

Loss on debt extinguishment

 

 

 

Depreciation and amortization

 

46,365

 

45,348

 

EBITDA

 

101,747

 

66,231

 

Stock-based compensation expense

 

3,007

 

5,265

 

Acquisition, integration, start-up and other expenses

 

1,956

 

1,805

 

Union contract ratification costs

 

 

4,979

 

Plant closure costs

 

1,752

 

 

Loss on asset disposal

 

 

 

Change in fair value of contingent consideration liability

 

 

2,516

 

Gain on sale of property

 

(7,453

)

 

Loss on debt extinguishment

 

 

 

Merger expenses

 

13,532

 

 

Adjusted EBITDA

 

$

114,541

 

$

80,796

 

 

9



 

KapStone Paper and Packaging Corporation

Summary of Interest Expense, net

(In thousands)

(Unaudited)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

2017

 

Interest on term loans and revolver

 

$

9,896

 

$

8,614

 

Interest on receivables securitization facility

 

1,847

 

1,054

 

Sub-total

 

11,743

 

9,668

 

 

 

 

 

 

 

Amortization of debt issuance costs

 

1,176

 

1,179

 

Implicit interest on long-term financing obligations

 

1,683

 

 

Interest on capital lease obligation

 

133

 

 

Capitalized interest

 

(347

)

(71

)

Interest income

 

(43

)

(46

)

Total interest expense, net

 

$

14,345

 

$

10,730

 

 

10


Exhibit 99.2

2018 First Quarter Financial Review April 18, 2018

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Forward-Looking Statements Forward-looking Statements The information in this presentation and statements made during this presentation may contain certain forward-looking statements within the meaning of federal securities laws. These statements reflect management’s expectations regarding future events and operating performance. Risk Factors These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to differ materially from those expressed in, or underlying, any forward-looking statements can be found in the Company’s filings with the Securities and Exchange Commission, such as its annual and quarterly reports. The Company disclaims any obligation to revise or update such statements to reflect the occurrence of events after the date of this presentation. Non-GAAP Financial Measures This presentation refers to non-U.S. GAAP financial information. A reconciliation of non-U.S. GAAP to U.S. GAAP financial measures is available at the end of the press release and on the company’s website at KapStonepaper.com under Investors. 2

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First Quarter Financial Results 3 ($ in Millions, except per share) Q1 2018 Q1 2017 Inc/(Dec)(1) Q4 2017 Inc/(Dec)(1) Net Sales $ 799 $ 766 4% $ 859 (7%) Net Income $ 33 $ 6 446% $ 188 (87%) Diluted EPS $ 0.33 $ 0.06 450% $ 1.90 (83%) EBITDA $ 102 $ 66 54% $ 125 (19%) Adj. EBITDA(2) $ 115 $ 81 42% $ 136 (16%) Adj. Net Income(3) $ 42 $ 15 181% $ 50 (15%) Adj. Diluted EPS(4) $ 0.43 $ 0.15 187% $ 0.51 (16%) (1) Percentage change calculations made using unrounded source financials (2) Excludes non-cash stock compensation, merger expenses, changes in contingent consideration, union contract ratification costs, and acquisition, integration, expense and other charges. Net of accumulated tax adjustments for Adjusted Net Income Excludes $144 million impact of Tax Cuts and Jobs Act in Q4 2017 Excludes $1.46 per share impact of Tax Cuts and Jobs Act in Q4 2017

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Q1 2018 Compared to Q1 2017 Higher Prices offset by Outage Costs Drives Earnings Growth Price/mix was favorably impacted by higher average mill selling prices, up $71 per ton reflecting: Higher mill prices of $29 million Favorable product mix of $2 million Higher corrugated products prices of $17 million Sales volume down 37,000 tons in Paper and Packaging segment driven by lower sales of specialty paper. Distribution segment sales up $13 million mainly on price. Adjusted EBITDA flat as higher margins were offset by inflation on operating costs Inflation includes higher virgin fiber costs, compensation and benefits, and freight, offset by lower OCC costs Outages reflects higher planned costs, mainly for a boiler upgrade outage at the Charleston mill Productivity includes higher mill production and lower operating costs, partially offset by $4 million of incentives 4 $766 $48 $28 $13 $799 Net Sales $ in Millions $81 $48 $7 $9 $8 $10 $115 $ in Millions Adjusted EBITDA

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Q1 2018 Compared to Q4 2017 Seasonally Lower Volume and Outage Costs Lower Earnings 5 Price/mix was favorably impacted by higher average mill selling prices, up $21 per ton reflecting: Higher containerboard and corrugated prices and higher specialty paper products Favorable mix primarily reflecting lower export containerboard shipments (-19,000 tons) Paper and Packaging segment sales down $49 million, or 67,000 tons due to two less mill production days, planned outages and seasonality. Distribution segment sales down $19 million due to seasonality resulting in $6 million of lower Adjusted EBITDA Planned outages includes $14 million for the boiler upgrade at Charleston, offset by Cogen outage in ‘17 Costs includes $6 million for two less mill production days, $4 million weather impact in January 2018, and higher costs for freight and chemicals $859 $8 $49 $19 $799 Net Sales $ in Millions $136 $8 $6 $12 $5 $8 $14 $115 $ in Millions Adjusted EBITDA

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Cash Flows Q1 Operating Cash Flows 6 For Q1 2018 cash flow from operations decreased $28 million YOY primarily due to a $11 million contingent consideration payment for the Victory acquisition, $14 million of merger related expenses, and $31 million of management incentives, partially offset by a $25 million increase in earnings in 2018 Capex of $37 million for the current quarter. Proceeds of $15 million from the sale of the former Oakland box plant Net debt at March 31, 2018 - $1,396 million up $32 million from December 31, 2017 No term loan principal payments due until 2020 Debt to EBITDA leverage ratio (per credit agreement) 2.96 times – March 31, 2018 3.20 times – December 31, 2017 3.99 times – March 31, 2017 Interest rates should remain flat (Fed March rate hike offset by lower margin due to lower leverage ratio) No pension plan funding required in 2018 $10 million cash dividend paid in January $5 $33 2018 2017 $ in Millions

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Quarterly Key Performance Indicators 7 Sales and Production Paper and Packaging Product Mix (000 Tons) Containerboard includes all domestic and export sales of linerboard and medium Specialty paper includes Kraft paper, Durasorb, Kraftpak and roll pulp Containerboard and Corrugated Products(1) Specialty Paper(2) Average Mill Revenue per Ton Tons Produced (000) Mill External Shipments (000) $719 $698 $648 1Q 18 4Q 17 1Q 17 674 705 678 1Q 18 4Q 17 1Q 17 442 504 474 1Q 18 4Q 17 1Q 17 441 470 435 221 259 264 1Q 18 4Q 17 1Q 17 1Q 18 4Q 17 1Q 17

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Maintenance Outage Expense & Production Impact 8 Financial Impact ($ in millions) Q1 Q2 Q3 Q4 Year 2016 Actual $ 6.6 $ 19.0 $ 3.8 $ 3.2 $ 32.6 2017 Actual $ 6.2 $ 17.6 $ 13.0 $ 10.0 $ 46.8 2018 Actual / Forecast $ 14.7 $ 27.2 $ 15.2 $ 7.6 $ 64.7 Lost Production Impact (Tons) Q1 Q2 Q3 Q4 Year 2016 Actual 4,800 12,900 1,900 5,300 24,900 2017 Actual 6,400 12,800 11,500 4,200 34,900 2018 Actual / Forecast 27,100* 19,200** 15,900*** 5,000 67,200 * The 27,100 ton impact includes 25,700 tons for the boiler upgrade at Charleston ** The 19,200 ton impact is mainly due to the annual cold mill outage at Roanoke Rapids, and the continuation of the Charleston boiler upgrade *** The 15,900 tons impact reflects a cold mill outage at Longview

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