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KapStone Reports Third Quarter Results
Cash Flow From Operations Up Over 20 Percent

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

Andrea K. Tarbox, Vice President and Chief Financial Officer, 847.239.8812