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EX-99.2 - EX-99.2 - KAPSTONE PAPER & PACKAGING CORPa14-17832_1ex99d2.htm

Exhibit 99.1

 

 

FOR FURTHER INFORMATION:

FOR IMMEDIATE RELEASE

Andrea K. Tarbox

Wednesday, July 30, 2014

Vice President and Chief Financial Officer

 

847.239.8812

 

 

KAPSTONE REPORTS RECORD SECOND QUARTER RESULTS

 

NORTHBROOK, IL – July 30, 2014 – KapStone Paper and Packaging Corporation (NYSE:KS) today reported record results for the second quarter ended June 30, 2014. As compared to 2013’s second quarter, results for 2014’s second quarter are below:

 

·                  Net sales of $590 million up $264 million, or 81 percent

·                  Net income of $51 million up $30 million, or 143 percent

·                  Adjusted net income of $56 million up $33 million, or 143 percent

·                  Adjusted EBITDA of $126 million up $70 million, or 125 percent

·                  Adjusted EBITDA margin of 21.4 percent, up from 17.0 percent

·                  Diluted EPS of $0.53 up $0.31 per share, or 141 percent

·                  Adjusted diluted EPS of $0.58 up $0.34 per share, or 142 percent

 

Roger W. Stone, Chairman and Chief Executive Officer, stated, “KapStone recovered nicely in the second quarter from the severe winter, and we achieved outstanding all-time record results.  EBITDA and EPS are more than double the prior year’s results.

 

“During the second quarter, much progress was made on previously announced initiatives. The $50 per ton Kraft paper price was implemented by the end of the quarter.  In April, the major upgrade to the Longview paper machine was completed enabling us to produce ultra-high performance linerboard at our Longview mill while increasing efficiency. The voluntary separation plan at our legacy mills was well received, and we now expect the program to reduce annual personnel costs by approximately $5 million.”

 

Second Quarter Operating Highlights

 

Consolidated net sales of $590 million in the second quarter of 2014 increased by $264 million, or 81 percent compared to $326 million for the 2013 second quarter. The increase is primarily due to the Longview acquisition, which contributed $240 million of additional revenue, and higher prices and sales volumes for the legacy operations. The Company sold 720,000 tons of products during the second quarter of 2014 compared to 418,000 tons a year earlier. The Company’s average mill selling price of $685 per ton in the second quarter of 2014 increased by $21 per ton compared to the second quarter of 2013 due to the impact of the 2013 containerboard

 

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and corrugated product price increases, higher specialty paper prices and the inclusion of Longview.

 

Operating income of $85 million for the 2014 second quarter increased by $50 million, or 143 percent, compared to the 2013 second quarter. The improved financial performance primarily reflects benefits from the Longview acquisition, higher prices and sales volumes from legacy operations and lower outage costs, partially offset by inflation on labor and input costs and the cost associated with a voluntary separation plan.

 

Interest expense, net, was $6 million for the second quarter of 2014, up $4 million from a year ago as a result of a higher debt balance associated with the Longview acquisition. As of June 30, 2014, the average interest rate on our term loans was 2 percent which is 50 basis points, or $6 million on an annualized basis, lower than at December 31, 2013 due to a recently amended credit facility agreement that reduced the borrowing rates, as well as an improved debt to EBITDA ratio that improved our position on the interest rate pricing grid.

 

The effective income tax rate for the 2014 second quarter was 33.6 percent compared to 34.5 percent for the 2013 second quarter.  The Company’s cash tax rate is forecasted at 35 percent for 2014.

 

Cash Flow and Working Capital

 

Cash and cash equivalents increased by $25 million in the quarter ended June 30, 2014, from March 31, 2014 to $49 million.   The Company generated $70 million of net cash from operating activities during the second quarter. At June 30, 2014 the debt leverage ratio was 2.7 times, down from 3.8 times at the time of the Longview acquisition. Capital expenditures in the second quarter were $41 million and include costs to upgrade a paper machine at Longview.

 

At June 30, 2014, the Company had approximately $266 million of working capital and $395 million of revolver borrowing capacity.

 

Conclusion

 

In summary, Stone commented, “We continued our shift from integration to optimizing the enterprise during the second quarter. Our operating platform will continue to strengthen and provide improved results.”

 

Conference Call

 

KapStone will host a conference call at 11 a.m. ET, Thursday, July 31, 2014, to discuss the Company’s financial results for the 2014 second quarter. All interested parties are invited to listen and may do so by either accessing a simultaneous broadcast webcast on KapStone’s website, http://www.kapstonepaper.com, or for those unable to access the webcast, the following dial-in numbers are available:

 

Domestic:  866-713-8563
International:  617-597-5311
Participant Passcode:  77384976

 

2



 

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 is the parent company of KapStone Kraft Paper Corporation and KapStone Container Corporation which includes four paper mills and 21 converting plants, respectively, across the US. The business employs approximately 4,600 people.

 

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 and liquidity 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, Basic EPS to Adjusted Basic EPS, 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, including changes in cost, competition, changes in the Company’s product mix and demand and pricing for the Company’s products; (2) market and economic factors, including changes in raw material and healthcare costs, exchange rates and interest rates; (3) results of legal proceedings and compliance costs, including unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations; (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

 

3



 

manage associated costs and (7) the integration of the Longview acquisition. Further information on these and other risks and uncertainties is provided under Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 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)

 

 

 

 

 

 

 

Fav / (Unfav)

 

 

 

 

 

Fav / (Unfav)

 

 

 

Quarter Ended June 30,

 

Variance

 

Six Months Ended June 30,

 

Variance

 

 

 

2014

 

2013

 

%

 

2014

 

2013

 

%

 

Net sales

 

$

590,449

 

$

326,321

 

80.9

%

$

1,139,401

 

$

646,134

 

76.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

392,245

 

225,753

 

-73.7

%

775,493

 

450,699

 

-72.1

%

Depreciation and amortization

 

33,874

 

17,253

 

-96.3

%

66,583

 

34,477

 

-93.1

%

Freight and distribution expenses

 

44,924

 

27,849

 

-61.3

%

85,656

 

55,769

 

-53.6

%

Selling, general and administrative expenses

 

34,093

 

21,072

 

-61.8

%

68,238

 

40,200

 

-69.7

%

Other operating income

 

 

196

 

-100.0

%

 

398

 

-100.0

%

Operating income

 

85,313

 

34,590

 

146.6

%

143,431

 

65,387

 

119.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange gain / (loss)

 

125

 

89

 

40.4

%

101

 

(222

)

145.5

%

Interest expense, net

 

6,488

 

1,909

 

-239.9

%

14,267

 

3,784

 

-277.0

%

Amortization of debt issuance costs

 

1,483

 

727

 

-104.0

%

2,933

 

1,453

 

-101.9

%

Income before provision for income taxes

 

77,467

 

32,043

 

141.8

%

126,332

 

59,928

 

110.8

%

Provision for income taxes

 

26,008

 

11,052

 

-135.3

%

42,774

 

20,478

 

-108.9

%

Net income

 

$

51,459

 

$

20,991

 

145.1

%

$

83,558

 

$

39,450

 

111.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.54

 

$

0.22

 

 

 

$

0.87

 

$

0.41

 

 

 

Diluted

 

$

0.53

 

$

0.22

 

 

 

$

0.86

 

$

0.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

95,892,033

 

95,140,852

 

 

 

95,806,181

 

95,072,436

 

 

 

Diluted

 

97,418,941

 

96,475,670

 

 

 

97,367,354

 

96,484,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

33.6

%

34.5

%

 

 

33.9

%

34.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

51,459

 

$

20,991

 

145.1

%

$

83,558

 

$

39,450

 

111.8

%

Interest expense, net

 

6,488

 

1,909

 

-239.9

%

14,267

 

3,784

 

-277.0

%

Amortization of debt issuance costs

 

1,483

 

727

 

-104.0

%

2,933

 

1,453

 

-101.9

%

Provision for income taxes

 

26,008

 

11,052

 

-135.3

%

42,774

 

20,478

 

-108.9

%

Depreciation and amortization

 

33,874

 

17,253

 

-96.3

%

66,583

 

34,477

 

-93.1

%

EBITDA (Non-GAAP)

 

$

119,312

 

$

51,932

 

129.7

%

$

210,115

 

$

99,642

 

110.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition, start up and other expenses

 

933

 

2,673

 

65.1

%

2,747

 

3,284

 

16.4

%

Voluntary separation plan

 

4,818

 

 

 

4,818

 

 

 

Stock-based compensation expense

 

1,311

 

954

 

-37.4

%

4,229

 

3,299

 

-28.2

%

Adjusted EBITDA (Non-GAAP)

 

$

126,374

 

$

55,559

 

127.5

%

$

221,909

 

$

106,225

 

108.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

51,459

 

$

20,991

 

 

 

$

83,558

 

$

39,450

 

 

 

Acquisition, start up and other expenses

 

611

 

1,751

 

 

 

1,799

 

2,151

 

 

 

Voluntary separation plan

 

3,156

 

 

 

 

3,156

 

 

 

 

Stock-based compensation expense

 

859

 

625

 

 

 

2,770

 

2,161

 

 

 

Adjusted Net Income (Non-GAAP)

 

$

56,085

 

$

23,367

 

 

 

$

91,283

 

$

43,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS (GAAP)

 

$

0.54

 

$

0.22

 

 

 

$

0.87

 

$

0.41

 

 

 

Acquisition, start up and other expenses

 

 

0.02

 

 

 

0.02

 

0.02

 

 

 

Voluntary separation plan

 

0.03

 

 

 

 

0.03

 

 

 

 

Stock-based compensation expense

 

0.01

 

0.01

 

 

 

0.03

 

0.03

 

 

 

Adjusted Basic EPS (Non-GAAP)

 

$

0.58

 

$

0.25

 

 

 

$

0.95

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share (GAAP)

 

$

0.53

 

$

0.22

 

 

 

$

0.86

 

$

0.41

 

 

 

Acquisition, start up and other expenses

 

0.01

 

0.02

 

 

 

0.02

 

0.02

 

 

 

Voluntary separation plan

 

0.03

 

 

 

 

0.03

 

 

 

 

Stock-based compensation expense

 

0.01

 

 

 

 

0.03

 

0.02

 

 

 

Adjusted Diluted EPS (Non-GAAP)

 

$

0.58

 

$

0.24

 

 

 

$

0.94

 

$

0.45

 

 

 

 

5



 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

49,352

 

$

12,967

 

Trade accounts receivable, net of allowances

 

263,240

 

232,347

 

Other receivables

 

8,829

 

11,399

 

Inventories

 

225,020

 

217,382

 

Prepaid expenses and other current assets

 

9,404

 

6,405

 

Total current assets

 

555,845

 

480,500

 

 

 

 

 

 

 

Plant, property and equipment, net

 

1,395,987

 

1,389,609

 

Other assets

 

132,904

 

129,493

 

Intangible assets, net

 

116,911

 

123,745

 

Goodwill

 

533,851

 

528,515

 

Total assets

 

$

2,735,498

 

$

2,651,862

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

25,075

 

$

4,950

 

Other current borrowings

 

2,898

 

 

Accounts payable

 

161,173

 

159,127

 

Accrued expenses

 

49,436

 

45,885

 

Accrued compensation costs

 

46,896

 

54,871

 

Accrued income taxes

 

3,103

 

 

Deferred income taxes

 

1,096

 

5,445

 

Total current liabilities

 

289,677

 

270,278

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

1,172,073

 

1,192,413

 

Pension and post-retirement benefits

 

66,168

 

69,611

 

Deferred income taxes

 

443,576

 

444,672

 

Other liabilities

 

8,513

 

8,808

 

Total other liabilities

 

1,690,330

 

1,715,504

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock $0.0001 par value

 

10

 

10

 

Additional paid-in capital

 

251,980

 

246,186

 

Retained earnings

 

495,907

 

412,349

 

Accumulated other comprehensive income

 

7,594

 

7,535

 

Total stockholders’ equity

 

755,491

 

666,080

 

Total liabilities and stockholders’ equity

 

$

2,735,498

 

$

2,651,862

 

 

6



 

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

$

51,459

 

$

20,991

 

$

83,558

 

$

39,450

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

33,874

 

17,253

 

66,583

 

34,477

 

Stock-based compensation expense

 

1,311

 

954

 

4,229

 

3,299

 

Pension and postretirement

 

(2,754

)

506

 

(6,834

)

709

 

Excess tax benefits from stock-based compensation

 

(391

)

(1,344

)

(2,612

)

(1,730

)

Amortization of debt issuance costs

 

1,483

 

727

 

2,933

 

1,453

 

Loss on disposal of fixed assets

 

37

 

124

 

1,016

 

142

 

Deferred income taxes

 

(1,144

)

8,520

 

2,179

 

13,426

 

Changes in operating assets and liabilities

 

(14,172

)

7,304

 

(42,398

)

(20,554

)

Net cash provided by operating activities

 

$

69,703

 

$

55,035

 

$

108,654

 

$

70,672

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(41,256

)

(15,881

)

(73,676

)

(32,713

)

Net cash used in investing activities

 

$

(41,256

)

$

(15,881

)

$

(73,676

)

$

(32,713

)

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

$

41,400

 

$

41,900

 

$

97,900

 

$

91,400

 

Repayments on revolving credit facility

 

(41,400

)

(80,400

)

(97,900

)

(141,200

)

Repayments of long-term debt

 

(1,175

)

 

(2,350

)

 

Proceeds from other current borrowings

 

 

 

6,300

 

3,731

 

Repayments of other current borrowings

 

(1,729

)

(1,016

)

(3,402

)

(2,028

)

Payment of withholding taxes on vested stock awards

 

 

(848

)

(1,641

)

(860

)

Proceeds from exercises of stock options

 

175

 

652

 

389

 

1,014

 

Proceeds from issuance of shares to ESPP

 

 

 

205

 

170

 

Loan amendment costs

 

(706

)

 

(706

)

 

Excess tax benefits from stock-based compensation

 

391

 

1,344

 

2,612

 

1,730

 

Net cash provided by (used in) financing activities

 

$

(3,044

)

$

(38,368

)

$

1,407

 

$

(46,043

)

 

 

 

 

 

 

 

 

 

 

Net increase / (decrease) in cash and cash equivalents

 

25,403

 

786

 

36,385

 

(8,084

)

Cash and cash equivalents-beginning of period

 

23,949

 

7,618

 

12,967

 

16,488

 

Cash and cash equivalents-end of period

 

$

49,352

 

$

8,404

 

$

49,352

 

$

8,404

 

 

7