KapStone More Than Doubles Year Over Year Earnings on Revenue Growth and Improved Operations

News provided by

KapStone Paper and Packaging Corporation

Aug 03, 2011, 04:01 ET

NORTHBROOK, Ill., Aug. 3, 2011 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported record results for the second quarter ended June 30, 2011.

  • Net sales of $215 million, up $16 million or 8 percent, versus 2010
  • Average revenue per ton of $633, up $48 or 8 percent, versus 2010
  • Diluted EPS of $0.38, up $0.23 or 153 percent, versus 2010
  • Adjusted EBITDA of $44 million, up $19 million or 76 percent, versus Q2 2010

Roger W. Stone, Chairman and Chief Executive Officer, stated, "Record net sales of $215 million and record adjusted EBITDA of $44 million demonstrate the growing success of KapStone.  Sales benefited from price increases on two product lines partially implemented in the second quarter that should be fully realized in the third quarter. Our mills had an excellent quarter and achieved a new average daily production record of 3,600 tons.  Increased productivity coupled with cost savings initiatives reduced our cost per ton by $15 compared to a year ago."  

Second Quarter Operating Highlights

Record net sales for the quarter ended June 30, 2011 of $214.8 million were up $15.7 million over the same period a year ago.  The increase in net sales was driven by $15.8 million of higher average selling prices, $2.0 million from increased volume, and $1.9 million from favorable exchange rates. A less favorable product mix reduced sales by $1.9 million reflecting lower percentages of DuraSorb® and kraft paper sales.

Operating income of $30.6 million for the 2011 quarter increased by $18.1 million compared to the 2010 quarter primarily on $15.8 million of higher average selling prices, $4.8 million of productivity gains, $1.9 million due to favorable exchange rates and $0.8 million of lower stock compensation expenses.  Higher depreciation and amortization of $1.7 million, less favorable product mix of $1.3 million and inflation of $0.9 million, primarily on freight and chemical costs, partially offset the gains.  

Interest expense of $0.6 million for the second quarter of 2011 decreased by $0.2 million over the comparable quarter in 2010 and reflected lower debt levels. At June 30, 2011, the interest rate on the majority of the Company's debt is 1.69 percent.  

The effective tax rate for the 2011 second quarter was 38.6 percent compared to 33.7 percent for the 2010 second quarter. The 2011 effective tax rate is higher due to a lower expected benefit from the domestic manufacturing deduction. The 2010 effective tax rate included a benefit from a discrete adjustment related to a refundable tax credit from the inorganic content of black liquor.  

For income tax purposes, the Company has taken the position that the alternative fuel mixture tax credit is not taxable as it is similar to an excise tax refund. Since the Internal Revenue Service ("IRS") has issued no specific guidance in this area, the Company has recorded a $68 million liability for an unrecognized tax benefit. The IRS's examination of the Company's 2007-2009 tax returns is ongoing.

Cash Flow and Working Capital

Cash and cash equivalents increased by $27.3 million to $49.8 million as of June 30, 2011, reflecting $40.6 million provided by operating activities offset by $8.2 million used in investing activities and $5.1 million used in financing activities.  

Total debt outstanding as of June 30, 2011, was $106.5 million and was reduced by $5.3 million during the second quarter of 2011.      

At June 30, 2011, the Company had approximately $110.6 million of working capital and $88.6 million of revolver borrowing capacity.

Conclusion

In summary, Stone commented, "As we enter the second half of the year, we believe that KapStone will benefit from the realizations of our announced price increases.  We will continue to pursue operational excellence.  Our backlogs remain at healthy levels."

Conference Call

KapStone will host a conference call at 11 a.m. ET, Thursday, August 4, 2011, to discuss the Company's financial results for the 2011 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: 800.299.0148
International: 617.801.9711
Participant Passcode: 39430804

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 (http://streetevents.com) a password-protected event management site.

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 unbleached kraft paper products and linerboard.   The Company is the parent company of KapStone Kraft Paper Corporation which includes paper mills in Roanoke Rapids, NC and North Charleston, SC, a lumber mill in Summerville, SC, and five chip mills in South Carolina.  The business employs approximately 1,600 people.

Non-GAAP Financial Measures

In addition to our audited consolidated financial statements presented in accordance with U.S. GAAP, management uses certain non-GAAP measures, including "EBITDA", "Adjusted EBITDA", "Adjusted Net Income", and "Adjusted Diluted EPS" to measure our operating performance.  Investors are cautioned that EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS are not financial measures under U.S. GAAP.  Management uses these measures to focus on the on-going operations, and believes that they are useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The Company believes that these non-GAAP measures 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, and diluted EPS to Adjusted Diluted EPS are included in the financial schedules contained in this press release.  In addition, these measures should not be construed as alternatives to any other measures 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; and  (6) the ability to carry out the Company's strategic initiatives and manage associated costs.  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, 2010 and elsewhere in reports that the Company files or furnishes 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)

(unaudited)


















Fav / (Unfav)





Fav / (Unfav)

Quarter Ended June 30,

Variance

Six Months Ended June 30,

Variance

2011

2010

%

2011

2010

%













Net sales

$   214,786

$   199,119

7.9%

$   421,524

$   375,618

12.2%













Cost and expenses:











Cost of sales, excluding depreciation and amortization

143,143

146,684

2.4%

285,794

276,985

-3.2%

Freight and distribution expenses

19,681

20,048

1.8%

37,510

36,118

-3.9%

Selling, general and administrative expenses

8,866

8,942

0.8%

18,172

16,041

-13.3%

Depreciation and amortization

12,778

11,149

-14.6%

24,569

22,495

-9.2%

Other operating income

290

227

27.8%

578

510

13.3%

Operating income

30,608

12,523

144.4%

56,057

24,489

128.9%













Foreign exchange gain / (loss)

45

(532)

108.5%

335

(898)

137.3%

Interest income

9

9

0.0%

9

18

-50.0%

Interest expense

649

818

20.7%

1,336

1,679

20.4%

Amortization of debt issuance costs

437

483

9.5%

847

1,259

32.7%

Income before provision for income taxes

29,576

10,699

176.4%

54,218

20,671

162.3%

Provision for income taxes

11,417

3,606

-216.6%

20,928

7,187

-191.2%

Net income

$     18,159

$       7,093

156.0%

$     33,290

$     13,484

146.9%













Net income per share:











Basic

$         0.39

$         0.15



$         0.72

$         0.30

Diluted

$         0.38

$         0.15



$         0.70

$         0.29



























Weighted-average number of shares outstanding:        











Basic

46,250,362

45,917,254



46,172,108

45,700,323

Diluted

47,416,400

47,004,892



47,435,487

46,813,744



























Effective tax rate

38.6%

33.7%



38.6%

34.8%

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)









June 30,

December 31,

2011

2010

(Unaudited)

Assets


Current assets:


  Cash and cash equivalents

$    49,822

$        67,358

  Trade accounts receivable, net of allowances

81,402

66,640

  Other receivables

3,027

2,780

  Inventories

75,484

73,324

  Prepaid income taxes

–

348

  Prepaid expenses and other current assets

3,426

2,403

  Deferred income taxes

6,907

9,394

Total current assets

220,068

222,247




Plant, property and equipment, net

455,970

466,019

Other assets

3,984

3,996

Intangible assets, net

20,865

22,654

Goodwill

54,511

4,811

Total assets

$  755,398

$      719,727








Liabilities and Stockholders’ Equity


Current liabilities:


  Current portion of long-term debt

$    18,835

$        18,835

  Other current borrowings

1,038

–

Accounts payable

52,413

55,504

Accrued expenses

18,857

22,986

Accrued compensation costs

15,941

18,229

Accrued income taxes

2,372

–

Total current liabilities

109,456

115,554




Long-term debt, net of current portion

84,030

92,857

Accrued pension and post-retirement benefits

6,235

6,454

Deferred income taxes

29,833

17,917

Other liabilities

70,587

68,311

Total other liabilities

190,685

185,539




Stockholders’ equity:


Common stock $.0001 par value

5

5

Additional paid-in capital

227,974

224,844

Retained earnings

227,377

194,087

Accumulated other comprehensive loss

(99)

(302)

Total stockholders' equity

455,257

418,634

Total liabilities and stockholders’ equity

$  755,398

$      719,727

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)









Quarter Ended June 30,

Six Months Ended June 30,

2011

2010

2011

2010

Operating activities:






  Net income

$ 18,159

$   7,093

$  33,290

$  13,484

  Adjustments to reconcile net income to net cash provided by






  operating activities:






  Depreciation and amortization

12,778

11,149

24,569

22,495

  Stock-based compensation expense

763

1,520

2,521

2,157

Excess tax benefits from stock-based compensation

(692)

(360)

(758)

(388)

  Amortization of debt issuance costs

438

483

848

1,259

  Loss on disposal of fixed assets

56

307

182

460

  Deferred income taxes

7,156

3,756

14,291

6,655

  Changes in operating assets and liabilities

1,980

11,053

(21,851)

11,874

Net cash provided by operating activities

$ 40,638

$ 35,001

$  53,092

$  57,996








Investing activities:






  KPB acquisition earn-out payment

$          –

$          –

$ (49,700)

$           –

  CKD acquisition

–

–

–

638

  Capital expenditures

(8,236)

(8,256)

(12,914)

(15,504)

Net cash used in investing activities

$ (8,236)

$ (8,256)

$ (62,614)

$ (14,866)
















Financing activities:






Proceeds from revolving credit facility

$          –

$ 24,900

$    7,600

$  76,700

Repayments on revolving credit facility

–

(29,400)

(7,600)

(84,100)

Repayments of long-term debt

(4,709)

(3,845)

(9,418)

(17,986)

Proceeds from other current borrowings

–

–

2,273

2,564

Repayments on other current borrowings

(618)

(427)

(1,235)

(1,279)

Loan amendment costs

–

–

(244)

–

Payment of withholding taxes on vested restricted stock awards

(866)

(624)

(866)

(624)

Proceeds from exercises of stock options

443

217

621

544

Excess tax benefits from stock-based compensation

692

360

758

388

Proceeds from issuance of shares to ESPP

–

–

97

–

Other

–

111

–

111

Net cash used in financing activities

$ (5,058)

$ (8,708)

$   (8,014)

$ (23,682)








Net increase / (decrease) in cash and cash equivalents

27,344

18,037

(17,536)

19,448

Cash and cash equivalents-beginning of period

22,478

3,851

67,358

2,440

Cash and cash equivalents-end of period

$ 49,822

$ 21,888

$  49,822

$  21,888

KapStone Paper and Packaging Corporation

Supplemental Information

GAAP to Non-GAAP Reconciliations

($ in thousands, except share and per share amounts)

(unaudited)









Quarter Ended June 30,

Six Months Ended June 30,

2011

2010

2011

2010

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






Net income (GAAP)

$ 18,159

$   7,093

$ 33,290

$ 13,484

  Interest income

(9)

(9)

(9)

(18)

  Interest expense

649

818

1,336

1,679

  Amortization of debt issuance costs

437

483

847

1,259

  Provision for income taxes

11,417

3,606

20,928

7,187

  Depreciation and amortization

12,778

11,149

24,569

22,495

EBITDA (Non-GAAP)

$ 43,431

$ 23,140

$ 80,961

$ 46,086








Alternative fuel mixture tax credits

–

(40)

–

(22,195)

Stock-based compensation expense

763

1,520

2,521

2,157

Adjusted EBITDA (Non-GAAP)

$ 44,194

$ 24,620

$ 83,482

$ 26,048








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






Net income (GAAP)

$ 18,159

$   7,093

$ 33,290

$ 13,484

Alternative fuel mixture tax credits

–

(27)

–

(14,478)

Stock-based compensation expense

468

1,008

1,548

1,407

Adjusted Net Income (Non-GAAP)

$ 18,627

$   8,074

$ 34,838

$      413








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








Basic EPS (GAAP)

$     0.39

$     0.15

$     0.72

$     0.30

Alternative fuel mixture tax credits

–

-

–

( 0.32)

Stock-based compensation expense

0.01

0.02

0.03

0.03

Adjusted Basic EPS (Non-GAAP)

$     0.40

$     0.17

$     0.75

$     0.01








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








Diluted earnings per share (GAAP)

$     0.38

$     0.15

$     0.70

$     0.29

Alternative fuel mixture tax credits

–

-

–

( 0.31)

Stock-based compensation expense

0.01

0.02

0.03

0.03

Adjusted Diluted EPS (Non-GAAP)

$     0.39

$     0.17

$     0.73

$     0.01

SOURCE KapStone Paper and Packaging Corporation

WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?

icon3
440k+
Newsrooms &
Influencers
icon1
9k+
Digital Media
Outlets
icon2
270k+
Journalists
Opted In
GET STARTED