KapStone Reports Record Second Quarter Results

                KapStone Reports Record Second Quarter Results

NET INCOME SURGES 14 PERCENT

PR Newswire

NORTHBROOK, Ill., July 31, 2013

NORTHBROOK, Ill., July 31, 2013 /PRNewswire/ --KapStone Paper and Packaging
Corporation (NYSE:KS) today reported record results for the second quarter
ended June 30, 2013.

  oNet sales of $326 million up $20 million, or 7 percent, versus prior year
  oNet income of $21 million up 14 percent versus 2012
  oAdjusted EBITDA of $56 million up $6 million, or 11 percent, versus prior
    year
  oDiluted EPS of $0.44 up $0.05 per share, or 13 percent, versus 2012
  oAdjusted diluted EPS of $0.48 up $0.06 per share, or 14 percent, versus
    prior year

Roger W. Stone, Chairman and Chief Executive Officer, stated, "Our mills
produced a record 390,000 tons for the quarter. All-time record net sales and
adjusted EBITDA were achieved despite the loss of approximately 9,400
production tons and $5.0 million of expense due to our Charleston mill's
tri-annual planned maintenance outage. The increases in net sales and adjusted
EBITDA were driven by our all-time record average selling prices for all mill
products of $664 per ton which increased by $41 per ton compared to a year ago
and $11 per ton compared to the first quarter of 2013, reflecting the impact
of the 2012 and April 2013 containerboard price increases. The April price
increase was fully implemented by June and partially realized in the second
quarter of 2013.

"In addition to our legacy operations performing very well in the second
quarter, we were equally delighted with the performance of Longview which we
acquired on July 18, 2013. Together, KapStone and Longview create an even
stronger and more diversified company." 

Second Quarter Operating Highlights

Consolidated net sales of $326 million in the second quarter of 2013 increased
by $20 million, or 7 percent, compared to $306 million for the 2012 second
quarter. The increase is primarily due to higher average selling prices as the
$50 per ton 2012 containerboard price increase was fully realized and the
April 2013 $50 per ton containerboard price increase was fully implemented by
June and partially realized in the second quarter. The average mill selling
price increased by $41 per ton compared to the second quarter of 2012.

In 2013's second quarter, 418,000 tons were sold compared to 423,000 tons a
year earlier. 

Operating income of $35 million for the 2013 second quarter increased by $2
million, or 7 percent, compared to the 2012 second quarter. The improved
financial performance primarily reflects benefits from higher selling prices
partially offset by the tri-annual Charleston mill outage, inflation on input
costs, lower volume, Longview acquisition related charges and the new Aurora
manufacturing plant.

Interest expense, net, was $1.9 million for the second quarter of 2013, down
$0.4 million from a year ago as a result of lower debt balances and lower
interest rates. At June 30, 2013, the interest rate on the majority of the
Company's debt was 1.95 percent.

The effective income tax rate for the 2013 second quarter was 34.5 percent
compared to 36.0 percent for the 2012 second quarter. The lower effective
income tax rate is due to a higher expected benefit from the domestic
manufacturing deduction and lower state income taxes.

Cash Flow and Working Capital

Cash and cash equivalents increased by $0.8 million in the quarter ended June
30, 2013, to $8.4 million reflecting $55.0 million of net cash provided by
operating activities, $15.9 million of cash used by investing activities and
$38.4 million of cash used by financing activities.

Capital expenditures for the second quarter of 2013 totaled $15.9 million. The
Company estimates $93.0 million of capital expenditures for the year.

At June 30, 2013, the Company had approximately $125.0 million of working
capital and $133.6 million of revolver borrowing capacity.

Longview Acquisition

In conjunction with our consummation of the Longview acquisition on July 18,
2013, we entered into an Amended and Restated credit agreement with Bank of
America, Wells Fargo and Barclays Bank. As we previously reported, the new
credit agreement includes an $805.0 million five-year term loan, a $470.0
million seven-year term loan and a $400.0 million revolving credit facility.
At closing, we retired our remaining $305.3 million term loan and $13.7
million of revolver borrowings due under our old credit agreement and paid
$19.7 million in bank fees.

Conclusion

In summary, Stone commented, "Our legacy KapStone operations are performing
very well, and we are now thoroughly engaged in welcoming and integrating
Longview into the KapStone family."

Conference Call

KapStone will host a conference call at 11 a.m. EDT, Thursday, August 1, 2013,
to discuss the Company's financial results for the 2013 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: 866.730.5771
International: 857.350.1595
Participant Passcode: 87287078

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 a
leading North American producer of containerboard, unbleached kraft paper
products, and corrugated products.The Company operates four paper mills and
22 converting plants located throughout the United States. The business
employs approximately 4,500 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 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, 2012 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)
                                             Fav /                              Fav /
                                             (Unfav)                            (Unfav)
                     Quarter Ended June 30,  Variance   Six Months Ended June   Variance
                                                        30,
                     2013        2012        %          2013        2012        %
Net sales           $ 326,321  $ 306,259  6.6%       $ 646,134  $ 606,102  6.6%
Cost and expenses:
Cost of sales,
excluding            225,753     213,335     -5.8%      450,699     427,409     -5.4%
depreciation and
amortization
Depreciation and    17,253      15,327      -12.6%     34,477      30,503      -13.0%
amortization
Freight and
distribution         27,849      27,936      0.3%       55,769      53,679      -3.9%
expenses
Selling, general
and administrative   21,072      17,436      -20.9%     40,200      35,008      -14.8%
expenses
Other operating      196         230         -14.8%     398         428         -7.0%
income
Operating income    34,590      32,455      6.6%       65,387      59,931      9.1%
Foreign exchange     89          (508)       117.5%     (222)       (388)       42.8%
gain / (loss)
Interest expense,    1,909       2,296       16.9%      3,784       4,669       19.0%
net
Amortization of debt 727         897         19.0%      1,453       1,803       19.4%
issuance costs
Income before
provision for income 32,043      28,754      11.4%      59,928      53,071      12.9%
taxes
Provision for income 11,052      10,350      -6.8%      20,478      19,104      -7.2%
taxes
Net income          $          $          14.1%      $          $          16.1%
                     20,991     18,404                39,450     33,967
Net income per
share:
 Basic              $        $                   $        $   
                     0.44       0.39                  0.83       0.73
 Diluted            $        $                   $        $   
                     0.44       0.39                  0.82       0.71
Weighted-average
number of shares
outstanding:
 Basic              47,550,426  46,620,354             47,516,218  46,555,990
 Diluted            48,217,835  47,744,589             48,222,022  47,792,980
Effective income tax 34.5%       36.0%                  34.2%       36.0%
rate
Net Income (GAAP) to
EBITDA (Non-GAAP) to
Adjusted EBITDA
(Non-GAAP):
Net income (GAAP)    $          $          14.1%      $          $          16.1%
                     20,991     18,404                39,450     33,967
 Interest expense, 1,909       2,296       16.9%      3,784       4,669       19.0%
net
 Amortization of   727         897         19.0%      1,453       1,803       19.4%
debt issuance costs
 Provision for     11,052      10,350      -6.8%      20,478      19,104      -7.2%
income taxes
 Depreciation and  17,253      15,327      -12.6%     34,477      30,503      -13.0%
amortization
EBITDA (Non-GAAP)    $          $          9.9%       $          $          10.7%
                     51,932     47,274                99,642     90,046
Acquisition, start
up and other         2,673       1,382       -93.4%     3,284       2,605       -26.1%
expenses
Stock-based          954         1,264       24.5%      3,299       3,577       7.8%
compensation expense
Adjusted EBITDA      $          $          11.3%      $ 106,225  $          10.4%
(Non-GAAP)           55,559     49,920                            96,228
Net Income (GAAP) to
Adjusted Net Income
(Non-GAAP):
Net income (GAAP)    $          $                     $          $ 
                     20,991     18,404                39,450     33,967
Acquisition, start
up and other         1,751       885                    2,151       1,667
expenses
Stock-based          625         809                    2,161       2,289
compensation expense
Adjusted Net Income  $          $                     $          $ 
(Non-GAAP)           23,367     20,098                43,762     37,923
Basic EPS (GAAP) to
Adjusted Basic EPS
(Non-GAAP):
Basic EPS (GAAP)     $        $                   $        $   
                     0.44       0.39                  0.83       0.73
Acquisition, start
up and other         0.04        0.02                   0.04        0.04
expenses
Stock-based          0.01        0.02                   0.05        0.05
compensation expense
Adjusted Basic EPS   $        $                   $        $   
(Non-GAAP)           0.49       0.43                  0.92       0.82
Diluted EPS (GAAP)
to Adjusted Diluted
EPS (Non-GAAP):
Diluted earnings per $        $                   $        $   
share (GAAP)         0.44       0.39                  0.82       0.71
Acquisition, start
up and other         0.03        0.02                   0.04        0.03
expenses
Stock-based          0.01        0.01                   0.05        0.05
compensation expense
Adjusted Diluted EPS $        $                   $        $   
(Non-GAAP)          0.48       0.42                  0.91       0.79



KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
                                     June 30,            December 31,
                                     2013                2012
                                     (unaudited)
Assets
Current assets:
 Cash and cash equivalents         $      8,404  $    16,488
 Trade accounts receivable, net of 139,272             111,592
allowances
 Other receivables                 6,189               10,061
 Inventories                       114,065             113,511
 Prepaid expenses and other        7,361               9,808
current assets
 Deferred income taxes             5,732               5,864
Total current assets                 281,023             267,324
Plant, property and equipment, net   577,718             576,115
Other assets                         4,450               4,412
Intangible assets, net               52,741              57,027
Goodwill                             226,289             226,289
Total assets                         $  1,142,221      $  1,131,167
Liabilities and Stockholders' Equity
Current liabilities:
 Current portion of long-term debt $      5,313  $         –
 Short-term borrowings              13,700              63,500
 Other current borrowings           1,703               –
 Accounts payable                   81,470              89,638
 Accrued expenses                   31,179              25,032
 Accrued compensation costs         20,874              20,421
 Accrued income taxes               1,812               –
Total current liabilities            156,051             198,591
Long-term debt, net of current       290,323             294,310
portion
Pension and post-retirement benefits 13,820              13,193
Deferred income taxes                108,068             96,459
Other liabilities                    11,134              10,666
Total other liabilities              423,345             414,628
Stockholders' equity:
Common stock $0.0001 par value       5                   5
Additional paid-in capital           241,386             236,034
Retained earnings                    324,461             285,011
Accumulated other comprehensive loss (3,027)             (3,102)
Total stockholders' equity           562,825             517,948
Total liabilities and stockholders'  $  1,142,221      $  1,131,167
equity



KapStone Paper and Packaging Corporation
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
                            Quarter Ended June 30,    Six Months Ended June
                                                      30,
                            2013          2012        2013        2012
Operating activities:
 Net income               $  20,991   $ 18,404   $ 39,450   $   33,967
 Adjustments to reconcile
net income to net cash
provided by
 operating activities:
 Depreciation and         17,253        15,327      34,477      30,503
amortization
 Stock-based compensation 954           1,264       3,299       3,577
expense
 Excess tax benefits
from stock-based            (1,344)       (1,051)     (1,730)     (1,496)
compensation
 Amortization of debt     727           897         1,453       1,803
issuance costs
 Loss on disposal of      124           523         142         591
fixed assets
 Deferred income taxes    8,520         8,526       13,426      14,728
 Changes in operating     7,810         13,319      (19,845)    (6,673)
assets and liabilities
Net cash provided by        $  55,035   $ 57,209   $ 70,672   $   77,000
operating activities
Investing activities:
 USC acquisition          –             –           –           (314)
 Capital expenditures     (15,881)      (16,549)    (32,713)    (27,454)
Net cash used in investing  $ (15,881)   $(16,549)   $(32,713)   $ 
activities                                                        (27,768)
Financing activities:
 Proceeds from revolving   $  41,900   $  1,400  $ 91,400   $   39,400
credit facility
 Repayments on revolving   (80,400)      (1,400)     (141,200)   (39,400)
credit facility
 Repayments of long-term   –             (50,000)    –           (50,000)
debt
 Proceeds from other       –             –           3,731       3,398
current borrowings
 Repayments of other       (1,016)       (925)       (2,028)     (1,846)
current borrowings
 Payment of withholding    (848)         (1,179)     (860)       (1,179)
taxes on stock awards
 Proceeds from exercises   652           55          1,014       475
of stock options
 Excess tax benefits from  1,344         1,051       1,730       1,496
stock-based compensation
 Proceeds from issuance of –             –           170         90
shares to ESPP
 Loan amendment costs      –             (45)        –           (45)
Net cash provided by (used  $ (38,368)   $(51,043)   $(46,043)   $ 
in) financing activities                                          (47,611)
Net increase / (decrease)
in cash and cash            786           (10,383)    (8,084)     1,621
equivalents
Cash and cash
equivalents-beginning of    7,618         20,066      16,488      8,062
period
Cash and cash               $   8,404  $  9,683  $  8,404  $   
equivalents-end of period                                         9,683

SOURCE KapStone Paper and Packaging Corporation

Website: http://www.kapstonepaper.com
Contact: Andrea K. Tarbox, Vice President and Chief Financial Officer,
847.239.8812
 
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