KapStone Reports Fourth Quarter And Full Year Results

            KapStone Reports Fourth Quarter And Full Year Results

Full Year Operating Cash Flows of $158 Million

$95 Million Special Dividend Paid

PR Newswire

NORTHBROOK, Ill., Feb. 13, 2013

NORTHBROOK, Ill., Feb. 13, 2013 /PRNewswire/ -- KapStone Paper and Packaging
Corporation (NYSE: KS) today reported preliminary results for the fourth
quarter and year ended December 31, 2012.

For the fourth quarter ended December 31, 2012:

  o Record net sales of $301 million, up 12% versus 2011
  o Diluted EPS of $0.22, down $1.34 per share versus prior year
  o Adjusted Diluted EPS of $0.28, down $0.01 per share versus prior year
  o Adjusted EBITDA of $38 million, flat with prior year

For the year ended December 31, 2012:

  o Record net sales of $1,217 million, up $311 million versus 2011, or 34%
  o Diluted EPS of $1.31, down $1.30 per share versus 2011
  o Record Adjusted Diluted EPS of $1.48, up $0.07 per share versus prior year
  o Record Adjusted EBITDA of $183 million, up $18 million, or 11% versus
    prior year

Roger W. Stone, Chairman and Chief Executive Officer, stated, "Fourth quarter
completed a transformational year for KapStone as we successfully integrated
our 2011 acquisition of U.S. Corrugated.  The acquisition has been a
significant contributor to KapStone's earnings this year, and we expect
additional benefits in 2013.

"Average mill revenue per ton increased during the quarter by approximately
$14 to $634 as our fall domestic containerboard price increase was fully
implemented by the end of the quarter. Our corrugated operations realized the
benefits from their fall price increase with most of the increase implemented
by December. In the fourth quarter, we completed major planned maintenance at
two of our mills which resulted in the loss of 12,500 tons of production.  For
the year, our mills ran very well, and our legacy mills achieved an all-time
production record for the year of 1.32 million tons. 

"Cash flow from operations for 2012 reached $158 million, a $21 million
increase over 2011. Given the strength of our cash flows and the uncertain tax
environment, we paid a special dividend of $2.00 per share on over 47 million
shares in late December."

Fourth Quarter Operating Highlights

Net sales for the quarter ended December 31, 2012 were $301.0 million, an
increase of 12 percent, when compared to the 2011 fourth quarter sales of
$268.8 million. The increase in net sales was attributable primarily to the
USC acquisition (the 2012 quarter included three months of results for USC
compared to only two months in 2011's fourth quarter due to the acquisition
being completed on October 31, 2011) and higher selling prices, partially
offset by lower external sales volume as more tons were used internally by our
corrugated operations. Average mill revenue per ton increased to $634 in the
current quarter versus $620 during the fourth quarter of 2011, reflecting the
partial realization of the $50 per ton domestic containerboard increase. 

Operating income of $18.6 million for the 2012 quarter declined from the prior
year's results by $2.0 million, or 10 percent.  Operating income improved due
to the USC acquisition and higher prices.  Fourth quarter operating income was
negatively impacted by increases in input costs and higher planned maintenance
outage costs.

Interest expense was $1.8 million for the fourth quarter of 2012, which
increased by $0.1 million versus the comparable quarter in 2011 as a result of
increased borrowings partially offset by lower interest rates. In addition,
amortization of debt issuance costs of $0.7 million for the 2012 quarter
declined by $0.5 million compared to the 2011 quarter. At December 31, 2012,
the interest rate on the Company's term loan was 1.71 percent.   

The effective income tax rate for the 2012 fourth quarter was 36.9 percent
compared to 35.7 percent for the first nine months of 2012. The higher tax
rate in the fourth quarter of 2012 includes a lower expected benefit from the
domestic manufacturing deduction. The effective income tax rate in the 2011
quarter was negative as it included the benefit from the reversal of tax
reserves of $63.0 million related to alternative mixture tax credits.  The
2011 effective income tax rate, excluding the impact of the tax credit
reversal, was 35.8 percent.

Full Year Operating Highlights

Net sales for the year ended December 31, 2012, were $1,216.6 million, an
increase of 34 percent, compared to 2011 sales of $906.1 million. The increase
in net sales was attributable primarily to the USC acquisition (twelve months
included in 2012 compared to two months in 2011) partially offset by lower
selling prices and less favorable foreign exchange rates on the euro. Average
mill revenue per ton decreased to $622 versus $627 in 2011.  

Operating income of $109.6 million for the year ended December 31, 2012
exceeded the prior year's results by $2.8 million. The improvement resulted
from the full year impact of the USC acquisition partially offset by higher
input costs, lower selling prices, and the less favorable euro. 

Interest expense was $8.3 million for the year ended December 31, 2012, up
$4.7 million from a year ago as a result of increased borrowings relating to
the USC acquisition.  Amortization of debt issuance costs of $3.5 million for
2012 increased by $1.0 million from a year ago due to a full year of
amortization on the $13.8 million of debt issuance costs paid for the new
credit agreement.

The effective income tax rate for the year ended December 31, 2012 was 35.9
percent compared to (23.6) percent for 2011. The 2012 effective income tax
rate includes a lower than expected benefit from the domestic manufacturing
deduction. The 2011 effective income tax rate was negative due to the reversal
of tax reserves related to the alternative fuel mixture credits upon
completion of the 2009 IRS examination in the fourth quarter of 2011. The
adjusted effective income tax rate in 2011 was 38.0 percent when the
alternative fuel mixture tax credit is excluded.  We expect our effective
income tax rate for 2013 to be 35.0 percent excluding any discrete
adjustments.

Cash Flow and Working Capital

Cash and cash equivalents decreased by $19.8 million in the quarter ended
December 31, 2012, to $16.5 million. For the fourth quarter of 2012, operating
activities provided $40.3 million, investing activities used $25.8 million for
capital expenditures and financing activities used $34.3 million. 

In the fourth quarter of 2012, due to the strength of our cash flows and the
uncertain tax environment, the Company's Board of Directors approved a $2.00
per share special cash dividend which totaled $94.9 million.  In addition,
employees elected the cashless exercise of 1.3 million stock options. To pay
for their payroll taxes, employees surrendered 0.4 million shares, and the
Company paid $8.3 million of cash to pay the taxes.  In addition, operating
cash flows were reduced by $6.7 million as Company accelerated payment of 80
percent of 2012 incentive compensation which typically would be paid in the
following year.

For the full 2012 year, capital expenditures totaled $67.2 million including
approximately $25.0 million for maintenance capital and the remainder for
strategic projects such as $10.0 million for information systems projects and
$4.0 million for the Charleston paper machine upgrade.   The Company expects
total capital expenditures to increase to $73.0 million in 2013 including
$19.0 million for the Charleston upgrade project and $9.0 million for the
opening of the Company's new manufacturing facility in Aurora, Illinois. 

Total net debt outstanding as of December 31, 2012, was $352.3 million and
increased by $82.7 million during the fourth quarter of 2012 primarily due to
the short-term borrowings for the payment of the special dividend.  For the
year, net debt increased by $5.0 million.    

At December 31, 2012, the Company had approximately $16.5 million of cash,
$68.7 million of working capital and $79.6 million of revolver borrowing
capacity.

The Company was in compliance with all debt covenants at December 31, 2012.   

Conclusion

In summary, Stone commented, "We have positive momentum as we move into 2013
with higher containerboard and corrugated prices, the $50 per ton kraft paper
increase announced in January, and the realization of additional acquisition
synergies. In early January 2013, we announced the opening of our new 192,000
square foot Aurora, Illinois manufacturing facility. The plant should be
operational in March. We are confident that we are in an excellent position to
continue to grow the company profitably."

Conference Call

KapStone will host a conference call at 11 a.m. ET, February 14, 2013 to
discuss the Company's financial results for the 2012 year and fourth 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:  800.901.5241
                                                 International:  617.786.2963
                                                   Participant Passcode:
 25259805

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.  The webcast is also being distributed through the Thomson
StreetEvents Network.  Individual investors can listen to the call at
http://earnings.com, Thomson's individual investor portal, powered by
StreetEvents.  Institutional investors can access the call via Thomson
StreetEvents (https://www.streetevents.com) a password-protected event
management site.

A replay of the webcast will be available for 30 days on the Company's web
site following the call.

About the Company  

Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is a
leading North American producer of containerboard, unbleached kraft paper and
corrugated products. The Company is the parent company of KapStone Kraft Paper
Corporation and KapStone Container Corporation which includes three paper
mills and 15 converting plants across the eastern and Midwestern US. The
business employs approximately 2,700 people.

 Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures.  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 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 including the integration of the US Corrugated
acquisition; (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)  the income tax impact of the federal incentive program for
cellulosic biofuel producers.  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, 2011 and elsewhere
in reports that the Company files with the SEC. These filings can be found on
KapStone's Web site at 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)
(preliminary and unaudited)
                                             Fav /                             Fav /
                                             (Unfav)                           (Unfav)
                     Quarter Ended December  Variance  Year Ended December     Variance
                     31,                               31,
                     2012        2011        %         2012        2011        %
Net sales            $           $           12.0%     $           $           34.3%
                      300,991    268,753               1,216,637   906,119
Cost and expenses:
 Cost of sales,
excluding            219,624     196,781     -11.6%    866,124     628,613     -37.8%
depreciation and
amortization
 Depreciation and    17,016      14,507      -17.3%    63,124      51,036      -23.7%
amortization
 Freight and
distribution         26,814      22,814      -17.5%    108,438     79,643      -36.2%
expenses
 Selling, general
and administrative   19,008      14,373      -32.2%    70,055      41,265      -69.8%
expenses
Other operating      36          309         -88.3%    664         1,179       -43.7%
income
Operating income     18,565      20,587      -9.8%     109,560     106,741     2.6%
Foreign exchange     96          (198)       148.5%    (303)       (319)       5.0%
gain / (loss)
Interest expense,    1,769       1,655       -6.9%     8,295       3,599       -130.5%
net
Amortization of debt 740         1,216       39.1%     3,479       2,482       -40.2%
issuance costs
Income before
provision for income 16,152      17,518      -7.8%     97,483      100,341     -2.8%
taxes
Provision for income 5,959       (56,678)    -110.5%   34,978      (23,640)    -248.0%
taxes
Net income           $           $           -86.3%    $           $           -49.6%
                      10,193     74,196                 62,505     123,981
Net income per
share:
Basic                $           $                     $           $        
                        0.22       1.60                     1.34       2.68
Diluted              $           $                     $           $        
                        0.22       1.56                     1.31       2.61
Weighted-average
number of shares
outstanding:        
Basic                46,994,747  46,424,982            46,713,456  46,287,183
Diluted              47,404,980  47,585,093            47,726,439  47,487,623
Effective income tax 36.9%       -323.5%               35.9%       -23.6%
rate
Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):
Net income (GAAP)    $           $           -86.3%    $           $           -49.6%
                      10,193     74,196                 62,505     123,981
   Interest expense, 1,769       1,655       -6.9%     8,295       3,599       -130.5%
net
   Amortization of   740         1,216       39.1%     3,479       2,482       -40.2%
debt issuance costs
   Provision for     5,959       (56,678)    110.5%    34,978      (23,640)    248.0%
income taxes
   Depreciation and  17,016      14,507      -17.3%    63,124      51,036      -23.7%
amortization
EBITDA (Non-GAAP)    $           $           2.2%      $           $           9.5%
                      35,677     34,896                 172,381    157,458
Acquisition, start
up and other         1,091       2,441       55.3%     5,049       3,540       -42.6%
expenses
Stock-based          920         759         -21.2%    5,242       3,985       -31.5%
compensation expense
Adjusted EBITDA      $           $           -1.1%     $           $           10.7%
(Non-GAAP)            37,688     38,096                 182,672    164,983
Net Income (GAAP) to Adjusted Net Income (Non-GAAP):
Net income (GAAP)    $           $                     $           $      
                      10,193     74,196                 62,505     123,981
Realization of
unrecognized tax     –           (63,026)              –           (63,026)
benefit
Income tax           1,657       –                     1,657       1,228
adjustments 
Acquisition, start
up and other         685         1,877                 3,171       2,483
expenses
Stock-based          578         490                   3,292       2,471
compensation expense
Adjusted Net Income  $           $                     $           $        
(Non-GAAP)            13,113     13,537                 70,625     67,137
Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP): 
Basic EPS (GAAP)     $           $                     $           $        
                        0.22       1.60                     1.34       2.68
Realization of
unrecognized tax     –           (1.36)                –           (1.36)
benefit
Income tax           0.04        –                     0.04        0.03
adjustments 
Acquisition, start
up and other         0.01        0.04                  0.07        0.05
expenses
Stock-based          0.01        0.01                  0.07        0.05
compensation expense
Adjusted Basic EPS   $           $                     $           $        
(Non-GAAP)              0.28       0.29                     1.52       1.45
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): 
Diluted earnings per $           $                     $           $        
share (GAAP)            0.22       1.56                     1.31       2.61
Realization of
unrecognized tax     –           (1.32)                –           (1.33)
benefit
Income tax           0.04        –                     0.03        0.03
adjustments 
Acquisition, start
up and other         0.01        0.04                  0.07        0.05
expenses
Stock-based          0.01        0.01                  0.07        0.05
compensation expense
Adjusted Diluted EPS $           $                     $           $        
(Non-GAAP)              0.28       0.29                     1.48       1.41

 

 

KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
                                           December 31,        December 31,
                                           2012                2011
                                           (preliminary and

                                           unaudited)
Assets
Current assets:
   Cash and cash equivalents               $      16,488       $        8,062
   Trade accounts receivable, net of       111,592             108,320
allowances
   Other receivables                       10,061              11,247
   Inventories                             113,511             110,054
   Prepaid expenses and other current      9,808               4,207
assets
   Deferred income taxes                   5,864               10,048
Total current assets                       267,324             251,938
Plant, property and equipment, net         576,115             567,195
Other assets                               4,412               4,313
Intangible assets, net                     57,027              63,715
Goodwill                                   226,289             237,193
Total assets                               $ 1,131,167         $ 1,124,354
Liabilities and Stockholders' Equity
Current liabilities:
  Current portion of long-term debt        $                –  $        6,094
  Short-term borrowings                    63,500              –
Accounts payable                           89,638              81,051
Accrued expenses                           25,032              21,217
Accrued compensation costs                 20,421              27,445
Total current liabilities                  198,591             135,807
Long-term debt, net of current portion     294,310             335,635
Pension and post-retirement benefits       13,193              10,676
Deferred income taxes                      96,459              84,316
Other liabilities                          10,666              11,642
Total other liabilities                    414,628             442,269
Stockholders' equity:
Common stock $0.0001 par value             5                   5
Additional paid-in capital                 236,034             230,665
Retained earnings                          285,011             318,068
Accumulated other comprehensive loss       (3,102)             (2,460)
Total stockholders' equity                 517,948             546,278
Total liabilities and stockholders' equity $ 1,131,167         $ 1,124,354

 

 

KapStone Paper and Packaging Corporation
Consolidated Statements of Cash Flows 
(In thousands)
(preliminary and unaudited)
                           Quarter Ended December     Year Ended December 31,
                           31,
                           2012         2011          2012        2011
Operating activities:
   Net income              $  10,193    $    74,196   $  62,505   $  123,981
   Adjustments to
reconcile net income to
net cash provided
by operating activities:
   Depreciation and        17,016       14,507        63,124      51,036
amortization
   Stock-based             920          759           5,242       3,985
compensation expense
   Excess tax benefits
from stock-based           (6,159)      (151)         (8,037)     (1,332)
compensation
   Amortization of debt    740          1,216         3,479       2,482
issuance costs
   Loss on disposal of     329          287           1,202       910
fixed assets
   Deferred income taxes   549          11,551        23,128      41,766
   Changes in operating    16,789       (70,033)      7,186       (86,452)
assets and liabilities
Net cash provided by       $  40,377    $    32,332   $157,829    $  136,376
operating activities
Investing activities:
   KPB acquisition         $            $             $           $  (49,700)
earn-out payment           –              –             –
   USC acquisition         –            (331,632)     (314)       (331,632)
   Restricted cash         –            15,000        –           –
   Capital expenditures    (25,838)     (16,269)      (67,237)    (42,531)
Net cash used in investing $(25,838)    $(332,901)    $ (67,551)  $(423,863)
activities
Financing activities:
Proceeds from revolving    $  63,500    $             $142,900    $      7,600
credit facility                           –
Repayments on revolving    –            –             (79,400)    (7,600)
credit facility
Proceeds from long-term    –            375,000       –           375,000
debt 
Repayments of long-term    –            (120,455)     (50,000)    (134,582)
debt 
Debt issuance costs for    –            (13,031)      –           (13,819)
new credit facility
Proceeds from other        –            –             3,398       2,273
current borrowings
Repayments of other        (622)        (623)         (3,398)     (2,273)
current borrowings
Cash dividends paid        (94,910)     –             (94,910)    –
Payment of withholding     (8,317)      –             (9,496)     (952)
taxes on stock awards
Proceeds from exercises of 272          247           1,345       1,264
stock options
Excess tax benefits from   6,159        151           8,037       1,332
stock-based compensation
Proceeds from issuance of  –            –             241         192
shares to ESPP
Loan amendment costs       (437)        –             (569)       (244)
Net cash provided by (used $(34,355)    $  241,289    $ (81,852)  $  228,191
in) financing activities
Net increase / (decrease)
in cash and cash           (19,816)     (59,280)      8,426       (59,296)
equivalents 
Cash and cash
equivalents-beginning of   36,304       67,342        8,062       67,358
period
Cash and cash              $  16,488    $      8,062  $  16,488   $      8,062
equivalents-end of period

 

SOURCE KapStone Paper and Packaging Corporation

Website: http://www.kapstonepaper.com
Contact: Andrea K. Tarbox, Vice President and Chief Financial Officer,
+1-847-239-8812