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8-K - 8-K - KAPSTONE PAPER & PACKAGING CORPa14-5227_18k.htm
EX-99.2 - EX-99.2 - KAPSTONE PAPER & PACKAGING CORPa14-5227_1ex99d2.htm

Exhibit 99.1

 

 

 

FOR FURTHER INFORMATION:

 

FOR IMMEDIATE RELEASE

Andrea K. Tarbox

 

Monday, February 10, 2014

Vice President and Chief Financial Officer

 

 

847.239.8812

 

 

 

KAPSTONE REPORTS RECORD

FOURTH QUARTER AND FULL YEAR RESULTS

Fourth Quarter Operating Cash Flows of $130 Million

 

NORTHBROOK, IL — February 10, 2014 — KapStone Paper and Packaging Corporation (NYSE:KS) today reported preliminary record results for the fourth quarter and year ended December 31, 2013.

 

As compared to 2012’s fourth quarter, results for 2013’s fourth quarter are below:

·                  Net sales of $563 million up $262 million, or 87 percent

·                  Net income of $43 million up $33 million, or 330 percent

·                  Adjusted net income of $44 million up $31 million, or 238 percent

·                  Adjusted EBITDA of $110 million up $72 million, or 189 percent

·                  Adjusted EBITDA margin of 19.5 percent, up from 12.5 percent

·                  Diluted EPS of $0.45 up $0.34 per share, or 309 percent

·                  Adjusted diluted EPS of $0.45 up $0.31 per share, or 221 percent

 

As compared to the year ended December 31, 2012, results for the year ended December 31, 2013:

·                  Net sales of $1,748 million up $531 million, or 44 percent

·                  Net income of $127 million up $64 million, or 102 percent

·                  Adjusted net income of $138 million up $67 million, or 94 percent

·                  Adjusted EBITDA of $333 million up $150 million, or 82 percent

·                  Adjusted EBITDA margin of 19.1 percent up from 15.0 percent

·                  Diluted EPS of $1.32 up $0.67 per share, or 103 percent

·                  Adjusted diluted EPS of $1.42 up $0.68 per share, or 92 percent

 

Roger W. Stone, Chairman and Chief Executive Officer, stated, “Almost every year has been transformational for KapStone, and 2013 was no exception with the successful acquisition of Longview.  Longview generated $62 million of adjusted EBITDA in the fourth quarter, continuing the strong performance we had anticipated, and the synergy benefits we identified began to yield positive results.

 

“Our legacy operations delivered a record fourth quarter and an all-time full-year record performance despite struggling with some temporary fourth quarter operational issues

 

1



 

which negatively impacted our EBITDA by $6 million in the quarter. Last week, we successfully completed the $29 million capital project in the Charleston mill to upgrade one of the paper machines.

 

“KapStone’s growing strength is best evidenced by its robust operating cash flows which delivered $130 million in the fourth quarter.  We are particularly encouraged with the results this quarter due to the typical seasonality experienced that produces a less favorable product mix. We are already seeing improvements in our mix as we move further into this year and have a sound order backlog.”

 

Fourth Quarter Operating Highlights

 

Consolidated net sales of $563 million in the fourth quarter of 2013 increased by $262 million, or 87 percent, compared to $301 million for the 2012 fourth quarter. The increase is primarily due to the Longview acquisition, which contributed $241 million of additional revenue, and higher average selling prices for the legacy operations. The Company sold 703,000 tons of paper during the fourth quarter of 2013 compared to 408,000 tons a year earlier. The Company’s average mill selling price of $670 per ton in the fourth quarter of 2013 increased by $36 per ton compared to the fourth quarter of 2012 due to the combined impact of the 2012 and 2013 containerboard and corrugated product price increases and the inclusion of Longview.  However, average mill selling prices decreased $12 per ton from the third quarter of 2013, reflecting the seasonally less favorable product mix due to increased roll pulp shipments.

 

Operating income of $74 million for the 2013 fourth quarter increased by $55 million, or 289 percent, compared to the 2012 fourth quarter. The improved financial performance primarily reflects benefits from the Longview acquisition and higher containerboard and corrugated product prices, partially offset by higher fiber costs, lower production volumes, and less favorable mix.

 

Interest expense, net, was $9 million for the fourth quarter of 2013, up $7 million from a year ago as a result of a higher debt balance associated with the Longview acquisition. At December 31, 2013, the average interest rate on our term loans was 2.5 percent. Amortization of debt issuance costs of $1.5 million for the fourth quarter of 2013 increased by $0.7 million from a year ago due to costs associated with the Company’s amended and restated credit agreement.

 

The effective income tax rate for the 2013 fourth quarter was 31.6 percent compared to 36.9 percent for the 2012 fourth quarter. The lower effective income tax rate in the 2013 fourth quarter is due to a reversal of an uncertain tax position reserve relating to alternative fuel mixture credits partially offset by higher state income taxes.

 

Full Year Operating Highlights

 

Consolidated net sales for the year ending December 31, 2013, were $1,748 million, an increase of 44 percent, compared to 2012 sales of $1,217 million.  The increase was primarily due to the Longview acquisition which contributed $440 million, as well as higher average selling prices.

 

2



 

Operating income of $220 million for the year ended December 31, 2013 was higher than the prior year by $110 million, or 100%.  The increase was due to the Longview acquisition and higher selling prices, partially offset by higher fiber and maintenance outage costs.

 

Interest expense for the year ended December 31, 2013 was $21 million, up $12 million from a year ago due to increased borrowings relating to the Longview acquisition.  Amortization of debt issuance costs of $4 million for 2013 increased by $1 million from the year prior due to amortization on the $20 million of debt issuance costs paid for the new credit agreement.

 

The effective income tax rate for the year ended December 31, 2013 was 34.7 percent compared to 35.9 percent for 2012.  The lower effective income tax rate in the 2013 is due to the reversal of an uncertain tax position reserve relating to alternative fuel mixture credits partially offset by higher state income taxes. For 2013, the Company estimates its cash tax rate to be approximately 2 percent reflecting utilization of cellulosic biofuel tax credits.

 

Cash Flow and Working Capital

 

Cash and cash equivalents increased by $1 million in the quarter ended December 31, 2013, from September 30, 2013 to $13 million.  The Company generated $130 million of net cash from operating activities during the fourth quarter and paid down $89 million of debt, including a voluntary prepayment of $40 million reducing the debt leverage ratio to 2.7 times, down from 3.8 times at the time of the Longview acquisition.  With this reduction in debt and leverage, the Company’s interest margin spread on its bank loans will be reduced by 25 bps in early March. Capital expenditures in the fourth quarter reached $40 million and included $7 million for the Charleston paper machine upgrade.

 

For the full year, cash provided by operating activities was $299 million, and capital expenditures were $97 million.

 

At December 31, 2013, the Company had approximately $210 million of working capital and $395 million of revolver borrowing capacity.

 

Conclusion

 

In summary, Stone commented, “Our expectations for the Longview acquisition were high, but I am quite pleased with the additional benefits identified and generated through the teamwork of the combined companies.”

 

Conference Call

 

KapStone will host a conference call at 11 a.m. ET, Tuesday, February 11, 2014, to discuss the Company’s financial results for the 2013 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:  866.202.0886
International:  617.213.8841
Participant Passcode:  21363407

 

3



 

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 22 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

 

4



 

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.

 

5



 

KapStone Paper and Packaging Corporation

Consolidated Statements of Income

(In thousands, except share and per share amounts)

(preliminary and unaudited)

 

 

 

 

 

 

 

Fav / (Unfav)

 

 

 

 

 

Fav / (Unfav)

 

 

 

Quarter Ended December 31,

 

Variance

 

Year Ended December 31,

 

Variance

 

 

 

2013

 

2012

 

%

 

2013

 

2012

 

%

 

Net sales

 

$

563,425

 

$

300,991

 

87.2

%

$

1,748,162

 

$

1,216,637

 

43.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

383,885

 

219,624

 

-74.8

%

1,186,930

 

866,124

 

-37.0

%

Depreciation and amortization

 

32,436

 

17,016

 

-90.6

%

95,435

 

63,124

 

-51.2

%

Freight and distribution expenses

 

40,524

 

26,814

 

-51.1

%

135,972

 

108,438

 

-25.4

%

Selling, general and administrative expenses

 

32,874

 

19,008

 

-72.9

%

110,612

 

70,055

 

-57.9

%

Other operating income

 

100

 

36

 

177.8

%

675

 

664

 

1.7

%

Operating income

 

73,806

 

18,565

 

297.6

%

219,888

 

109,560

 

100.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange gain / (loss)

 

95

 

96

 

-1.0

%

232

 

(303

)

176.6

%

Interest expense, net

 

8,823

 

1,769

 

-398.8

%

20,641

 

8,295

 

-148.8

%

Amortization of debt issuance costs

 

1,485

 

740

 

-100.7

%

4,489

 

3,479

 

-29.0

%

Income before provision for income taxes

 

63,593

 

16,152

 

293.7

%

194,990

 

97,483

 

100.0

%

Provision for income taxes

 

20,119

 

5,959

 

-237.6

%

67,652

 

34,978

 

-93.4

%

Net income

 

$

43,474

 

$

10,193

 

326.5

%

$

127,338

 

$

62,505

 

103.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.45

 

$

0.11

 

309.1

%

$

1.34

 

$

0.67

 

100.0

%

Diluted

 

$

0.45

 

$

0.11

 

309.1

%

$

1.32

 

$

0.65

 

103.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

95,552,335

 

93,989,494

 

 

 

95,258,756

 

93,426,912

 

 

 

Diluted

 

97,112,699

 

94,809,960

 

 

 

96,739,482

 

95,452,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

31.6

%

36.9

%

 

 

34.7

%

35.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

43,474

 

$

10,193

 

326.5

%

$

127,338

 

$

62,505

 

103.7

%

Interest expense, net

 

8,823

 

1,769

 

-398.8

%

20,641

 

8,295

 

-148.8

%

Amortization of debt issuance costs

 

1,485

 

740

 

-100.7

%

4,489

 

3,479

 

-29.0

%

Provision for income taxes

 

20,119

 

5,959

 

-237.6

%

67,652

 

34,978

 

-93.4

%

Depreciation and amortization

 

32,436

 

17,016

 

-90.6

%

95,435

 

63,124

 

-51.2

%

EBITDA (Non-GAAP)

 

$

106,337

 

$

35,677

 

198.1

%

$

315,555

 

$

172,381

 

83.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition, start up and other expenses

 

2,698

 

1,091

 

-147.3

%

12,238

 

5,049

 

-142.4

%

Stock-based compensation expense

 

932

 

920

 

-1.3

%

5,203

 

5,242

 

0.7

%

Adjusted EBITDA (Non-GAAP)

 

$

109,967

 

$

37,688

 

191.8

%

$

332,996

 

$

182,672

 

82.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Net income (GAAP)

 

$

43,474

 

$

10,193

 

 

 

$

127,338

 

$

62,505

 

 

 

Acquisition, start up and other expenses

 

1,740

 

685

 

 

 

7,894

 

3,171

 

 

 

Stock-based compensation expense

 

601

 

578

 

 

 

3,356

 

3,292

 

 

 

Reversal of uncertain tax position

 

(5,001

)

 

 

 

(5,001

)

 

 

 

Deferred tax adjustment due to tax rate change

 

2,296

 

 

 

 

2,296

 

 

 

 

Discrete tax adjustments

 

475

 

1,657

 

 

 

1,881

 

1,657

 

 

 

Adjusted Net Income (Non-GAAP)

 

$

43,585

 

$

13,113

 

 

 

$

137,764

 

$

70,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Basic EPS (GAAP)

 

$

0.45

 

$

0.11

 

 

 

$

1.34

 

$

0.67

 

 

 

Acquisition, start up and other expenses

 

0.02

 

0.01

 

 

 

0.08

 

0.03

 

 

 

Stock-based compensation expense

 

0.02

 

 

 

 

0.04

 

0.04

 

 

 

Reversal of uncertain tax position

 

(0.05

)

 

 

 

(0.05

)

 

 

 

Deferred tax adjustment due to tax rate change

 

0.02

 

 

 

 

0.02

 

 

 

 

Discrete tax adjustments

 

 

0.02

 

 

 

0.02

 

0.02

 

 

 

Adjusted Basic EPS (Non-GAAP)

 

$

0.46

 

$

0.14

 

 

 

$

1.45

 

$

0.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Diluted earnings per share (GAAP)

 

$

0.45

 

$

0.11

 

 

 

$

1.32

 

$

0.65

 

 

 

Acquisition, start up and other expenses

 

0.02

 

0.01

 

 

 

0.08

 

0.03

 

 

 

Stock-based compensation expense

 

0.01

 

 

 

 

0.03

 

0.04

 

 

 

Reversal of uncertain tax position

 

(0.05

)

 

 

 

(0.05

)

 

 

 

Deferred tax adjustment due to tax rate change

 

0.02

 

 

 

 

0.02

 

 

 

 

Discrete tax adjustments

 

 

0.02

 

 

 

0.02

 

0.02

 

 

 

Adjusted Diluted EPS (Non-GAAP)

 

$

0.45

 

$

0.14

 

 

 

$

1.42

 

$

0.74

 

 

 

 



 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(preliminary and unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

12,967

 

$

16,488

 

Trade accounts receivable, net of allowances

 

232,347

 

116,285

 

Other receivables

 

11,399

 

10,061

 

Inventories

 

217,382

 

113,511

 

Prepaid expenses and other current assets

 

6,405

 

9,808

 

Deferred income taxes

 

 

5,864

 

Total current assets

 

480,500

 

272,017

 

 

 

 

 

 

 

Plant, property and equipment, net

 

1,389,609

 

576,115

 

Other assets

 

129,493

 

4,412

 

Intangible assets, net

 

123,745

 

57,027

 

Goodwill

 

528,515

 

226,289

 

Total assets

 

$

2,651,862

 

$

1,135,860

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

4,950

 

$

 

Short-term borrowings

 

 

63,500

 

Other current borrowings

 

 

 

Accounts payable

 

159,127

 

89,638

 

Accrued expenses

 

45,885

 

29,725

 

Accrued compensation costs

 

54,871

 

20,421

 

Deferred income taxes

 

5,445

 

 

Total current liabilities

 

270,278

 

203,284

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

1,192,413

 

294,310

 

Pension and post-retirement benefits

 

69,611

 

13,193

 

Deferred income taxes

 

444,672

 

96,459

 

Other liabilities

 

8,808

 

10,666

 

Total long-term liabilities

 

1,715,504

 

414,628

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock $0.0001 par value

 

5

 

5

 

Additional paid-in capital

 

246,191

 

236,034

 

Retained earnings

 

412,349

 

285,011

 

Accumulated other comprehensive income (loss)

 

7,535

 

(3,102

)

Total stockholders’ equity

 

666,080

 

517,948

 

Total liabilities and stockholders’ equity

 

$

2,651,862

 

$

1,135,860

 

 



 

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows

(In thousands)

(preliminary and unaudited)

 

 

 

Quarter Ended December 31,

 

Year Ended December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

Operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

$

43,474

 

$

10,193

 

$

127,338

 

$

62,505

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

32,436

 

17,016

 

95,435

 

63,124

 

Stock-based compensation expense

 

932

 

920

 

5,203

 

5,242

 

Excess tax benefits from stock-based compensation

 

(984

)

(6,159

)

(3,531

)

(8,037

)

Amortization of debt issuance costs

 

1,485

 

740

 

4,489

 

3,479

 

Loss on disposal of fixed assets

 

622

 

329

 

1,012

 

1,202

 

Pension and post retirement

 

(2,595

)

1,216

 

(3,908

)

1,489

 

Deferred income taxes

 

25,352

 

549

 

59,865

 

23,128

 

Changes in operating assets and liabilities

 

29,089

 

15,573

 

12,791

 

5,697

 

Net cash provided by operating activities

 

$

129,811

 

$

40,377

 

$

298,694

 

$

157,829

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

Longview acquisition, net of cash acquired

 

(774

)

 

(538,239

)

 

USC acquisition

 

 

 

 

(314

)

Capital expenditures

 

(40,435

)

(25,838

)

(96,706

)

(67,237

)

Net cash used in investing activities

 

$

(41,209

)

$

(25,838

)

$

(634,945

)

$

(67,551

)

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

$

32,500

 

$

63,500

 

$

321,613

 

$

142,900

 

Repayments on revolving credit facility

 

(69,000

)

 

(385,113

)

(79,400

)

Proceeds from long-term debt

 

 

 

1,275,000

 

 

Repayment of long-term debt

 

(51,237

)

 

(356,550

)

(50,000

)

Repayment of Longview senior notes

 

 

 

(507,520

)

 

Payment of debt issuance costs

 

 

 

(19,654

)

 

Proceeds from other current borrowings

 

 

 

5,115

 

3,398

 

Repayments of other current borrowings

 

(1,376

)

(622

)

(5,115

)

(3,398

)

Cash dividend paid

 

 

(94,910

)

 

(94,910

)

Payment of withholding taxes on stock awards

 

 

(8,317

)

(860

)

(9,496

)

Proceeds from exercises of stock options

 

307

 

272

 

1,934

 

1,345

 

Excess tax benefits from stock-based compensation

 

984

 

6,159

 

3,531

 

8,037

 

Proceeds from issuance of shares to ESPP

 

 

 

349

 

241

 

Loan amendment costs

 

 

(437

)

 

(569

)

Net cash provided by (used in) financing activities

 

$

(87,822

)

$

(34,355

)

$

332,730

 

$

(81,852

)

 

 

 

 

 

 

 

 

 

 

Net increase / (decrease) in cash and cash equivalents

 

780

 

(19,816

)

(3,521

)

8,426

 

Cash and cash equivalents-beginning of period

 

12,187

 

36,304

 

16,488

 

8,062

 

Cash and cash equivalents-end of period

 

$

12,967

 

$

16,488

 

$

12,967

 

$

16,488