10-Q

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                

Commission File Number: 001-33494

KapStone Paper and Packaging Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	20-2699372
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

KapStone Paper and Packaging Corporation

1101 Skokie Blvd., Suite 300

Northbrook, IL 60062

(Address of Principal Executive Offices including zip code)

Registrant’s Telephone Number, including area code (847) 239-8800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

There were 96,259,475 shares of the Registrant’s Common Stock, $0.0001 par value, outstanding at April 27, 2015.

KAPSTONE PAPER AND PACKAGING CORPORATION

Index to Form 10-Q

TABLE OF CONTENTS

PART I. — FINANCIAL INFORMATION
	Item 1. — Consolidated Financial Statements (Unaudited) and Notes to Consolidated Financial Statements	1
	Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3. — Quantitative and Qualitative Disclosures about Market Risk	15
	Item 4. — Controls and Procedures	15
PART II. — OTHER INFORMATION
	Item 1. — Legal Proceedings	16
	Item 1A. — Risk Factors	16
	Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds	16
	Item 3. — Defaults Upon Senior Securities	16
	Item 4. — Mine Safety Disclosures	16
	Item 5. — Other Information	16
	Item 6. — Exhibits	17
SIGNATURE		18

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PART 1. FINANCIAL INFORMATION

ITEM 1. - FINANCIAL STATEMENTS

KAPSTONE PAPER AND PACKAGING CORPORATION

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	March 31,			December 31,
	2015			2014
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	10,545		$	28,467
Trade accounts receivable (Includes $251,047 at March 31, 2015, and $225,577 at December 31, 2014, associated with the securitization facility)	255,435			228,740
Other receivables	13,779			12,833
Inventories	255,507			238,329
Prepaid expenses and other current assets	16,814			7,172
Total current assets	552,080			515,541
Plant, property and equipment, net	1,384,786			1,386,670
Other assets	10,296			10,135
Intangible assets, net	106,662			110,077
Goodwill	533,851			533,851
Total assets	$	2,587,675		$	2,556,274
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings	$	10,000		$	—
Other current borrowings	6,615			—
Dividend Payable	9,721			9,911
Accounts payable	150,788			149,600
Accrued expenses	46,972			48,340
Accrued compensation costs	46,012			62,491
Accrued income taxes	9,668			6,477
Deferred income taxes	1,804			1,990
Total current liabilities	281,580			278,809
Other liabilities:
Long-term debt (Includes $175,000 at March 31, 2015, and $167,000 at December 31, 2014, associated with the securitization facility)	1,055,014			1,046,063
Pension and postretirement benefits	29,582			32,800
Deferred income taxes	415,067			412,293
Other liabilities	7,895			8,182
Total other liabilities	1,507,558			1,499,338
Commitments and contingencies
Stockholders’ equity:
Preferred stock $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock — $0.0001 par value; 175,000,000 shares authorized; 96,257,183 shares issued and outstanding (excluding 40,000 treasury shares) at March 31, 2015 and 96,046,554 shares issued and outstanding (excluding 40,000 treasury shares) at December 31, 2014	10			10
Additional paid-in-capital	259,260			255,505
Retained earnings	591,053			574,601
Accumulated other comprehensive loss	(51,786		)	(51,989		)
Total stockholders’ equity	798,537			778,127
Total liabilities and stockholders’ equity	$	2,587,675		$	2,556,274

See notes to consolidated financial statements.

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KAPSTONE PAPER AND PACKAGING CORPORATION

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

(unaudited)

	Three Months Ended March 31,
	2015		2014
Net sales	$	546,289	$	548,952
Cost of sales, excluding depreciation and amortization	382,198		383,248
Depreciation and amortization	35,121		32,709
Freight and distribution expenses	43,427		40,732
Selling, general, and administrative expenses	38,194		34,145
Operating income	47,349		58,118
Foreign exchange loss	885		24
Interest expense, net	6,413		9,229
Income before provision for income taxes	40,051		48,865
Provision for income taxes	13,951		16,766
Net income	$	26,100	$	32,099
Other comprehensive income, net of tax Pension and postretirement plan reclassification adjustments:
Amortization of prior service costs	12		32
Amortization of net (gain) / loss	191		(2		)
Other comprehensive income, net of tax	203		30
Total comprehensive income	$	26,303	$	32,129
Weighted average number of shares outstanding:
Basic	96,123,351		95,720,328
Diluted	97,662,608		97,315,766
Net income per share:
Basic	$	0.27	$	0.34
Diluted	$	0.27	$	0.33
Dividends declared per common share	$	0.10	$	—

See notes to consolidated financial statements.

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KAPSTONE PAPER AND PACKAGING CORPORATION

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

	Three Months Ended March 31,
	2015			2014
Operating activities
Net income	$	26,100		$	32,099
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	35,121			32,709
Stock-based compensation expense	3,780			2,918
Pension and postretirement	(2,892		)	(4,080		)
Excess tax benefit from stock-based compensation	(1,391		)	(2,221		)
Amortization of debt issuance costs	1,007			1,452
Loss on disposal of fixed assets	178			979
Deferred income taxes	1,864			3,323
Changes in assets and liabilities:
Trade accounts receivable, net	(26,695		)	(5,380		)
Other receivables	(946		)	(364		)
Inventories	(17,178		)	(13,458		)
Prepaid expenses and other current assets	(9,642		)	(5,044		)
Other assets	(216		)	(1,278		)
Accounts payable	(51		)	5,497
Accrued expenses and other liabilities	(1,842		)	4,305
Accrued compensation costs	(16,479		)	(17,595		)
Accrued income taxes	5,370			5,089
Net cash (used in) provided by operating activities	(3,912		)	38,951
Investing activities
Capital expenditures	(28,762		)	(32,420		)
Net cash used in investing activities	(28,762		)	(32,420		)
Financing activities
Proceeds from revolving credit facility	86,400			56,500
Repayments on revolving credit facility	(76,400		)	(56,500		)
Proceeds from receivables credit facility	12,962			—
Repayments on receivables credit facility	(4,962		)	—
Payment on long-term debt	—			(1,175		)
Proceeds from other current borrowings	6,615			6,300
Repayments on other current borrowings	—			(1,673		)
Cash dividend paid	(9,838		)	—
Payment of withholding taxes on stock awards	(2,322		)	(1,641		)
Proceeds from exercises of stock options	491			214
Proceeds from shares issued to ESPP	415			205
Excess tax benefit from stock-based compensation	1,391			2,221
Net cash provided by financing activities	14,752			4,451
Net increase (decrease) in cash and cash equivalents	(17,922		)	10,982
Cash and cash equivalents-beginning of period	28,467			12,967
Cash and cash equivalents-end of period	$	10,545		$	23,949

See notes to consolidated financial statements.

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KAPSTONE PAPER AND PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(unaudited)

1.Financial Statements

The accompanying unaudited consolidated financial statements of KapStone Paper and Packaging Corporation (the “Company,” “we,” “us,” “our” or “KapStone”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.

2.Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB’) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers”. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The guidance in this update supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, this update supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts”. For a public entity, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The ASU allows for full or modified retrospective adoption. Early application is not permitted. The Company is currently evaluating the expected impact of adopting this standard.

In April 2015, the FASB proposed a one-year deferral of the effective date for its new revenue standard for public and nonpublic entities reporting under GAAP. Under the proposal, the standard would be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company does not expect the adoption of this standard to have a material impact on its consolidated balance sheets.

3.Annual Planned Maintenance Outages

Annual planned maintenance outage costs for the three months ended March 31, 2015 and 2014 totaled $8.6 million and $14.8 million, respectively, and are included in cost of sales.  The outage costs in the quarter ended March 31, 2014 reflected $5.6 million of outage costs at the North Charleston, South Carolina paper mill as a result of downtime incurred during the upgrade of the No. 3 paper machine.

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4.Inventories

Inventories consist of the following at March 31, 2015 and December 31, 2014, respectively:

	(unaudited)
	March 31,		December 31,
	2015		2014
Raw materials	$	103,685	$	99,390
Work in process	3,267		3,634
Finished goods	74,990		63,639
Replacement parts and supplies	72,357		70,026
Inventory at FIFO costs	254,299		236,689
LIFO inventory reserves	1,208		1,640
Inventories	$	255,507	$	238,329

5.Short-term Borrowings and Long-term Debt

Short-term Borrowings

As of March 31, 2015, the Company had $10.0 million of short-term borrowings with an interest rate of 1.93 percent under its $400 million revolving credit facility (the “Revolver”), which is part of the Company’s senior secured credit facility comprised of term loans and the Revolver (the “Credit Facility”).

As of March 31, 2015, the Company has current availability of $375.7 million under the Revolver.

Receivables Credit Facility

Under our accounts receivable securitization program, we sell, on an ongoing basis without recourse, certain trade receivables (“Receivables”) to KapStone Receivables, LLC (“KAR”), which is considered a wholly-owned, bankruptcy-remote variable interest entity (“VIE”). We have the authority to direct the activities of the VIE and, as a result, we have concluded that we maintain control of the VIE, are the primary beneficiary (as defined by accounting guidance) and, therefore, consolidate the account balances of KAR. As of March 31, 2015, $251.0 million of our receivables were sold to KAR. KAR in turn assigns a collateral interest in these receivables to a financial institution under a one-year facility (the “Receivables Credit Facility”) for proceeds up to $175 million. The assets of KAR are not available to us until all obligations of KAR are satisfied in the event of bankruptcy or insolvency proceedings.

Debt Covenants

Our credit agreement governing our Credit Facility (as amended to date, the “Credit Agreement”) as contains, among other provisions, covenants with which we must comply. The covenants limit our ability to, among other things, incur indebtedness, create additional liens on our assets, make investments, engage in mergers and acquisitions and sell any assets outside the normal course of business.

As of March 31, 2015, the Company was in compliance with all applicable covenants in the Credit Agreement.

Fair Value of Debt

As of March 31, 2015, the fair value of the Company’s debt approximates the carrying value of $1.1 billion as the variable interest rates re-price frequently at current market rates. The debt was valued using Level 2 inputs in the fair value hierarchy which are significant observable inputs including quoted prices for debt of similar terms and maturities.  Our weighted-average cost of borrowings was 1.82 percent and 2.25 percent for the three months ended March 31, 2015 and March 31, 2014, respectively.

Other Borrowing

In 2015 and 2014, the Company entered into short-term financing agreements of $6.6 million and $6.3 million, respectively, at an annual interest rate of 1.70 percent and 1.69 percent, respectively, for its annual property

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insurance premiums. The 2015 agreement requires the Company to pay three quarterly payments through the term of the financing agreement ending on December 31, 2015.  As of March 31, 2015 and 2014, there was $6.6 million and $4.6 million, respectively, outstanding under these agreements which is included in “Other current borrowings” on the Consolidated Balance Sheets.

6.Income Taxes

The Company’s effective income tax rate for the three months ended March 31, 2015 and 2014 was 34.8 percent and 34.3 percent, respectively.  Our tax rate is affected by recurring items such as state income taxes as well as discrete items that may occur in any given period but are not consistent from period to period. In addition to state income taxes, the domestic manufacturing deduction had the most significant impact on the difference between our statutory U.S. federal income tax rate of 35 percent and our effective income tax rate for both periods.

In the normal course of business, the Company is subject to examination by taxing authorities. The Company’s open federal tax years are 2011 and 2013.  The Company has open tax years for state income tax filings generally starting in 2011.

7.Net Income per Share

The Company’s basic and diluted net income per share is calculated as follows:

	Three Months Ended March 31,
	2015		2014
Net income	$	26,100	$	32,099
Weighted-average number of common shares for basic net income per share	96,123,351		95,720,328
Incremental effect of dilutive common stock equivalents:
Unexercised stock options	1,202,004		1,211,848
Unvested restricted stock awards	337,253		383,590
Weighted-average number of shares for diluted net income per share	97,662,608		97,315,766
Net income per share - basic	$	0.27	$	0.34
Net income per share - diluted	$	0.27	$	0.33

Approximately 374,000 and 47,000 of unexercised stock options were outstanding at March 31, 2015 and 2014, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive.

8.Pension Plan and Post-Retirement Benefits

Defined Benefit Plan

Net pension benefit recognized for the three months ended March 31, 2015 and 2014 for the Company’s one defined benefit plan (the “Pension Plan”) are as follows:

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	Three Months Ended March 31,
	2015			2014
Service cost for benefits earned during the quarter	$	1,215		$	2,449
Interest cost on projected benefit obligations	6,900			7,180
Expected return on plan assets	(10,236		)	(11,031		)
Amortization of net loss	534			—
Amortization of prior service cost	69			101
Net pension benefit - Company plan	(1,518		)	(1,301		)
Net pension cost - multi -employer plan	87			84
Total net pension benefit	$	(1,431	)	$	(1,217	)

KapStone funds the Pension Plan according to IRS funding requirements. Based on those requirements, KapStone funded $0.7 million for the three months ended March 31, 2015, and expects to fund an additional $0.4 million in 2015.

Defined Contribution Plan

We offer a 401(k) Defined Contribution Plan (“Contribution Plan”) to eligible employees.  The Company’s monthly contributions are based on the matching of certain employee contributions or based on a union negotiated formula. For the three months ended March 31, 2015 and 2014, the Company recognized expense of $5.0 million and $4.2 million, respectively, for the Company contributions to the Contribution Plan.  Effective in 2015, Longview salaried personnel received a 401(k) contribution rather than a cash balance plan contribution.

9.Stock-Based Compensation

In the quarter ended March 31, 2015, the compensation committee of the board of directors approved stock-based awards to executive officers, certain employees and directors. The 2015 awards consisted of the grant of 555,451 stock option and 181,590 restricted stock units.

The Company accounts for stock-based awards in accordance with ASC 718, “Compensation — Stock Compensation,” which requires that the cost resulting from all share-based payment transactions be recognized as compensation cost over the vesting period based on the fair value of the instrument on the date of grant.

Total stock-based compensation expense related to the stock option and restricted stock unit grants for the three months ended March 31, 2015 and 2014 is as follows:

	Three Months Ended March 31,
	2015		2014
Stock option compensation expense	$	1,950	$	1,524
Restricted stock unit compensation expense	1,830		1,394
Total stock-based compensation expense	$	3,780	$	2,918

Total unrecognized stock-based compensation cost related to the stock options and restricted stock units as of March 31, 2015 and December 31, 2014 is as follows:

	March 31,		December 31,
	2015		2014
Unrecognized stock option compensation expense	$	6,756	$	3,243
Unrecognized restricted stock unit compensation expense	7,734		3,923
Total unrecognized stock-based compensation expense	$	14,490	$	7,166

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As of March 31, 2015, total unrecognized compensation cost related to non-vested stock options and restricted stock units is expected to be recognized over a weighted average period of 2.6 years and 2.5 years, respectively.

Stock Options

Stock option awards vest as follows: 50% after two years and the remaining 50% after three years or upon a grantee of such stock options attaining the age 65. The stock options awarded in 2015 have a contractual term of ten years and are subject to forfeiture should the recipient terminate his or her employment with the Company for certain reasons prior to vesting in his or her awards, or the occurrence of certain other events such as termination with cause. The exercise price of these stock options is based on the closing market price of our common stock on the date of grant ($31.89 for the 2015 awards described above) and compensation expense is recorded on an accelerated basis over the awards’ vesting periods.

The weighted average fair value of the stock options granted in March 2015 and 2014 was $10.08 and $10.36, respectively. The fair value was calculated using the Black-Scholes option-pricing model based on the market price at the grant date and the weighted average assumptions specific to the underlying options. The expected term used by the Company is based on the historical average life of stock option awards.  The expected volatility assumption is based on the volatility of our common stock from the same time period as the expected term of the stock options. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term similar to the expected life of the stock options.

The assumptions utilized for calculating the fair value of stock options during the period are as follows:

	Three Months Ended March 31,
	2015		2014
Stock Options Black-Scholes assumptions (weighted average):
Expected volatility	39.08	%	39.93	%
Expected life (years)	4.90		4.30
Risk-free interest rate	1.35	%	1.34	%
Expected dividend yield	1.25	%	—	%

The following table summarizes stock options amounts and activity:

			Weighted		Weighted	Intrinsic
			Average		Average	Value
			Exercise		Remaining	(dollars in
	Options		Price		Life (Years)	thousands)
Outstanding at January 1, 2015	2,759,306		$	11.81	6.8	$	48,799
Granted	555,451		31.89
Exercised	(58,392	)	9.93
Forfeited	(19,764	)	17.68
Outstanding at March 31, 2015	3,236,601		$	15.25	7.2	$	56,933
Exercisable at March 31, 2015	1,950,074		$	7.18	5.8	$	50,042

For the three months ended March 31, 2015 and 2014, cash proceeds from the exercise of stock options totaled $0.5 million and $0.2 million, respectively.

Restricted Stock

Restricted stock units are restricted as to transferability until they vest three years from the grant date or upon a grantee of such restricted stock units attaining the age 65. These restricted stock units are subject to forfeiture should applicable employees terminate their employment with the Company for certain reasons prior to vesting in their awards, or the occurrence of certain other events. The value of these restricted stock units is based on the closing market price of our common stock on the date of grant and compensation expense is recorded on a straight-line basis over the awards’ vesting periods.

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The following table summarizes unvested restricted stock units amounts and activity:

			Weighted
			Average
			Grant Date
	Units		Fair Value
Outstanding at January 1, 2015	588,067		$	16.98
Granted	181,590		31.89
Vested	(212,864	)	9.88
Forfeited	(9,500	)	15.76
Outstanding at March 31, 2015	547,293		$	24.71

10.Commitments and Contingencies

We are from time to time subject to various administrative and legal investigations, claims and proceedings incidental to our business, including environmental and safety matters, labor and employments matters, personal injury claims, contractual disputes and taxes. We establish reserves for claims and proceedings when it is probable that liabilities exist and where reasonable estimates can be made. We also maintain insurance that may limit our financial exposure for defense costs, as well as liability, if any, for claims covered by the insurance (subject also to deductibles and self-insurance amounts). While any investigation, claim or proceeding has an element of uncertainty, and we cannot predict or assure the outcome of any claim or proceeding involving the Company, we believe the outcome of any pending or threatened claim or proceeding (other than those that cannot be assessed due to their preliminary nature), or all of them combined, will not have a material adverse effect on our results of operations, cash flows or financial condition.

The Company’s subsidiary, Longview, is a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) with respect to the Lower Duwamish Waterway Superfund Site in the State of Washington (the “Site”). The U.S. Environmental Protection Agency (“EPA”) asserts that the Site is contaminated as a result of discharges from various businesses and government entities located along the Lower Duwamish Waterway, including a corrugated converting plant owned and operated by Longview. In November 2014, the EPA issued a Record of Decision (“ROD”) for the Site. The ROD includes a selected remedy for the Site. In the ROD, EPA states that the total estimated net present value costs (discounted at 2.3%) for the selected remedy are $342 million. At least 40 potentially responsible parties, including Longview, have entered into an Allocation Agreement. Pursuant to the Allocation Agreement, the parties will attempt to determine each party’s portion of the cost to remediate the site. The allocation process in not expected to be completed until 2017. Based on available information provided to the Company to date, the Company cannot reasonably estimate its potential liability.

There have been no material changes in any of our legal proceedings since December 31, 2014.

11.Segment Information

The Company has one operating segment.  The Company produces containerboard, corrugated products, and specialty paper which are sold to customers who convert our products into end-market finished products or internally to corrugating plants which produce a wide variety of products ranging from basic corrugated shipping containers to specialized packaging.

The Company’s identification of one operating segment is based on financial information regularly evaluated by the chief operating decision maker in determining resource allocation and assessing performance, in accordance with Accounting Standards Codification 805, Segment Reporting.

Net sales by product line for the three months ended March 31, 2015 and 2014 are as follows:

	Three Months Ended March 31,				Increase/
Net sales by product line:	2015		2014		(Decrease)
Containerboard / Corrugated products	$	344,311	$	336,249	$	8,062
Specialty paper	179,203		189,009		(9,806		)
Other	22,775		23,694		(919		)
Total	$	546,289	$	548,952	$	(2,663	)

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12.Subsequent Events

The Company’s paper mill in Roanoke Rapids, North Carolina completed its annual planned maintenance outage in April 2015. The outage lasted approximately 8 days with an estimated cost of $8.5 million primarily for annual maintenance and inspections, and the fixed cost impact associated with lost paper production and a 10,400 reduction in tons produced.  In 2014, the annual outage for the Roanoke Rapids mill occurred in October.

On May 4, 2015, the Company, entered into an Equity Purchase Agreement with VP Holdco, Inc. and Victory Packaging Management, LLC.  Pursuant to the Agreement, the Company will purchase all rights, title and interest in Victory Packaging L.P. and its subsidiaries (“Victory”).

The Company will pay a cash purchase price of $615,000,000, subject to an adjustment based on net working capital of Victory at closing. The cash purchase price will be adjusted dollar for dollar for indebtedness outstanding at closing, certain bonuses and other unpaid transaction expenses of Victory and increased dollar for dollar by cash on hand at closing.  A portion of the cash purchase price will be placed into escrow to fund certain limited indemnity obligations of Victory. The Company will also be obligated to pay up to an additional $25,000,000 of contingent consideration to Victory if certain performance criteria are satisfied during the thirty months following the closing. In connection with the acquisition of Victory, the Company is also entering into employment agreements with two of Victory’s executives.

The transaction, which is expected to close in the second quarter of 2015, is subject to various conditions, including, among others, (1) the accuracy of representations and warranties and compliance with covenants, (2) the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and any other necessary governmental approvals, and (3) the reciept of certain third party consents and (4) the absence of a material adverse effect on Victory during the period between the date of the Agreement and the closing.

The Company has received financing commitments from Bank of America, N.A., Barclays Bank PLC, Wells Fargo Bank, National Association, Wells Fargo Securities, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated to provide sufficient funds to finance the Acquisition, including the payment of the aggregate purchase price. The availability of financing pursuant to such commitments is subject to various customary conditions, including no material adverse change and the consummation of the acquisition.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in Part I Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and in our other Securities and Exchange Commission filings. The information contained in this Form 10-Q represents our best judgment at the date of this report based on information currently available. In providing forward-looking statements, KapStone does not intend, and does not undertake any duty or obligation, to update its statements as a result of new information, future events or otherwise.

The Company has one reportable segment as of March 31, 2015.  The Company produces containerboard, corrugated products, and specialty paper which are sold to customers who convert our products into end-market finished products or internally to corrugating plants which produce a wide variety of products ranging from basic corrugated shipping containers to specialized packaging.

The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes thereto included elsewhere in this report.

Comparison of Results of Operations for the Three Months Ended March 31, 2015 and 2014

(In thousands)

	Three Months Ended March 31,				Increase/
	2015		2014		(Decrease)
Net sales	$	546,289	$	548,952	$	(2,663	)
Cost of sales, excluding depreciation and amortization	382,198		383,248		(1,050		)
Depreciation and amortization	35,121		32,709		2,412
Freight and distribution expenses	43,427		40,732		2,695
Selling, general, and administrative expenses	38,194		34,145		4,049
Operating income	47,349		58,118		(10,769		)
Foreign exchange loss	885		24		861
Interest expense, net	6,413		9,229		(2,816		)
Income before provision for income taxes	40,051		48,865		(8,814		)
Provision for income taxes	13,951		16,766		(2,815		)
Net income	$	26,100	$	32,099	$	(5,999	)

Net sales for the quarter ended March 31, 2015 were $546.3 million compared to $549.0 million for the first quarter of 2014, a decrease of $2.7 million or 0.5 percent reflecting a stronger U.S. dollar compared to the Euro.  In addition, net sales increased by $0.9 million due to higher average kraft paper selling prices partially offset by lower containerboard prices.  The impact from price was offset by $0.9 million due to lower other sales, mainly energy.  Average mill selling price per ton for the quarter ended March 31, 2015 was $683 compared to $685 for the prior year’s quarter reflecting a stronger U.S. dollar compared to the Euro.

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The following represents the Company’s sales by product line:

	Three Months Ended March 31,
	Net Sales (in thousands)				Increase/					Tons Sold		Increase/
Product Line Revenue:	2015		2014		(Decrease)			%		2015	2014	(Decrease)		%
Containerboard / Corrugated products	$	344,311	$	336,249	$	8,062		2.4	%	413,328	405,916	7,412		1.8	%
Specialty paper	179,203		189,009		(9,806		)	(5.2	)%	247,726	267,450	(19,724	)	(7.4	)%
Other	22,775		23,694		(919		)	(3.9	)%	—	—	—		—
Product sold	$	546,289	$	548,952	$	(2,663	)	(0.5	)%	661,054	673,366	(12,312	)	(1.8	)%

Tons of product sold for the quarter ended March 31, 2015 was 661,054 tons compared to 673,366 tons for the quarter ended March 31, 2014 a decrease of 12,312 tons, or 1.8 percent, as follows:

·Containerboard / Corrugated products increase in tons sold was primarily due to corrugated products which increased 7,435 tons, or 3.7 percent.  On a per workday basis, corrugated products were up 6.5 percent compared to 2014.

·Specialty paper decrease in tons sold was primarily due to lower kraft paper shipments, primarily export shipments, of 13,757 tons, or 8.4 percent, and pulp shipments of 8,254 tons, or 52.0 percent, as a result of the West coast port slowdown.

Cost of sales, excluding depreciation and amortization expense, for the quarter ended March 31, 2015 was $382.2 million compared to $383.2 million for the first quarter of 2014, a decrease of $1.0 million, or 0.3 percent.  Cost of sales decreased due to $6.2 million of lower planned maintenance outage costs, $5.7 million of lower costs for old corrugated containers “OCC” and $3.7 million due to lower sales volume partially offset by $7.8 million of increased costs for virgin fiber, $3.9 million of lower productivity, $1.1 million of inflation on labor and benefits, and $1.8 million of other input costs.  Planned maintenance outage costs of approximately $8.6 million and $14.8 million were included in cost of sales for the quarters ended March 31, 2015 and 2014, respectively.

Depreciation and amortization expense for the quarter ended March 31, 2015 totaled $35.1 million compared to $32.7 million for the quarter ended March 31, 2014.  The increase of $2.4 million was primarily due to the result of higher capital spending and $0.7 million of accelerated depreciation due to various paper machine upgrades.

Freight and distribution expenses for the quarter ended March 31, 2015 totaled $43.4 million compared to $40.7 million for the quarter ended March 31, 2014. The increase of $2.7 million was primarily due to mix partially offset by $1.2 million of lower fuel costs.

Selling, general and administrative expenses for the quarter ended March 31, 2015 totaled $38.2 million compared to $34.1 million for the quarter ended March 31, 2014. The increase of $4.1 million, or 12.0 percent, was primarily due to $2.5 million of higher compensation and benefit related expenses, $0.9 million of higher stock based compensation expense, $0.5 million of higher consulting fees, $0.4 million for higher legal expenses, and $0.5 million of other costs.  These increased expenses were partially offset by $0.7 million of lower Longview integration related expenses.  For the quarter ended March 31, 2015, selling, general and administrative expenses as a percentage of net sales increased to 7.0 percent from 6.2 percent in the quarter ended March 31, 2014.

Net interest expense for the quarters ended March 31, 2015 and 2014 was $6.4 million and $9.2 million, respectively. Interest expense reflects interest on the outstanding borrowings under the Credit Facility and the Receivables Credit Facility and amortization of debt issuance costs.  Interest expense was $2.8 million lower in the quarter ended March 31, 2015, primarily due to lower borrowings under the term loans and lower interest rates on the term loans and the Receivables Credit Facility.

Provision for income taxes for the quarters ended March 31, 2015 and 2014 was $14.0 million and $16.8 million, respectively, reflecting an effective income tax rate of 34.8 percent for the quarter ended March

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31, 2015, compared to 34.3 percent for the similar period in 2014. The higher effective income tax rate is due to changes in discrete items.  The lower provision for income taxes in 2015 primarily reflects lower pre-tax income of $8.8 million.

Liquidity and Capital Resources

Credit Facilities

The Company had $375.7 million available under the Revolver at March 31, 2015.  In addition, the Credit Facility also includes an “accordion” feature that allows the Company, subject to certain terms and conditions, to increase the commitments under the Revolver by up to $300.0 million.

Receivables Credit Facility

As of March 31, 2015, the Company had $175.0 million of outstanding borrowings under its $175 million Receivables Credit Facility with an interest rate of 0.9 percent.

Other Borrowing

In January 2015, the Company entered into a short-term financing agreement of $6.6 million at an annual interest rate of 1.70 percent for its annual property insurance premiums. The agreement requires the Company to pay three quarterly payments through the term of the financing agreement ending on December 1, 2015. As of March 31, 2015, there was $6.6 million outstanding under the current agreement.

Debt Covenants

As of March 31, 2015, under the financial covenants of the Credit Agreement, the Company must comply on a quarterly basis with a maximum permitted leverage ratio. The leverage ratio is calculated by dividing the Company’s debt by its rolling twelve month total earnings before interest expense, taxes, depreciation and amortization and allowable adjustments. The maximum permitted leverage ratio declines over the life of the Credit Agreement. On March 31, 2015, the maximum permitted leverage ratio was 4.00 to 1.00. On March 31, 2015, the Company was in compliance with a leverage ratio of 2.53 to 1.00.

The Credit Agreement also includes a financial covenant requiring a minimum fixed charge coverage ratio. This ratio is calculated by dividing the Company’s trailing twelve month total earnings before interest expense, taxes, depreciation and amortization and allowable adjustments less cash payments for income taxes, dividends and capital expenditures by the sum of our cash interest and required principal payments during the twelve month period. For the quarter ended March 31, 2015, the fixed charge coverage ratio was required to be at least 1.25 to 1.00. On March 31, 2015, the Company was in compliance with the Credit Agreement with a fixed charge coverage ratio of 7.89 to 1.00.

As of March 31, 2015, KapStone was also in compliance with all other covenants in the Credit Agreement.

Income taxes

The Company’s effective income tax rate, excluding discrete items for 2015, is projected to be 34.5 percent. The cash tax rate for 2015 is projected to be 35.0 percent.

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Sources and Uses of Cash

Three months ended March 31 (in thousands)	2015			2014			Incr / (Dcr)
Operating activities	$	(3,912	)	$	38,951		$	(42,863	)
Investing activities	(28,762		)	(32,420		)	3,658
Financing activities	14,752			4,451			10,301
Total change in cash and cash equivalents	$	(17,922	)	$	10,982		$	(28,904	)

Cash and cash equivalents decreased by $17.9 million from December 31, 2014, reflecting $3.9 million of net cash used by operating activities, $28.8 million of net cash used in investing activities, and $14.8 million of net cash provided by financing activities in the first three months of 2015.

Net cash used in operating activities was $3.9 million, comprised primarily of net income for the first three months of $26.1 million and non-cash charges of $37.7 million.  Changes in operating assets and liabilities used $67.7 million of cash. Net cash provided by operating activities decreased by $42.9 million in the three months ended March 31, 2015, compared to the three months ended March 31, 2014, mainly due to a $39.5 million increase in cash used for working capital and $6.0 million decrease in net income, partially offset by higher non-cash charges of $2.6 million.  The increase in cash used for working capital in the three months ended March 31, 2015, is primarily due to higher receivables and inventories balances and the payment of 2014 incentives.

Net cash used in investing activities was $28.8 million for capital expenditures.

Net cash provided by financing activities was $14.8 million and reflects $10.0 million of net short-term borrowings under the Revolver, $8.0 million of borrowings under the Receivables Credit Facility, and $6.6 million of proceeds from other current borrowings for our annual property insurance premiums partially offset by a $9.8 million quarterly dividend payment.  Net cash provided by financing activities increased by $10.3 million in the three months ended March 31, 2015, compared to the three months ended March 31, 2014, primarily due to net borrowings offset by the cash dividend payment.

Future Cash Needs

We expect that cash generated from operating activities will be sufficient to meet remaining 2015 cash needs consisting of $14.9 million of interest on our term loans under the Credit Facility and Receivable Credit Facility, $30.0 million of dividends subject to board approval, funding an additional $0.4 million contribution to our Pension Plan and any additional working capital needs.  In addition, capital expenditures for the full year is estimated at $135.0 million.

Should the need arise, we have the ability to draw from our $400.0 million Revolver and our $300.0 million accordion provision under our Revolver, if available.  We have available borrowing of $375.7 million as of March 31, 2015 under our Revolver.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet financing arrangements.  The Company established a special purpose entity in connection with the Receivables Credit Facility, which is consolidated as part of our financial statements. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the sensitivity of income to changes in interest rates, commodity prices, equity prices, and other market-driven rates or prices.

Under our Credit Agreement, at March 31, 2015 we have an outstanding Credit Facility consisting of two term loans totaling approximately $0.9 billion and the Revolver that provides for borrowing of up to $400 million.  Depending on the type of borrowing, the applicable interest rate under the Credit Facility is calculated at a per annum rate equal to (a) LIBOR plus an applicable margin or (b) the base rate that is calculated as (i) the greatest of (x) the prime rate, (y) the federal funds effective rate plus 0.50% or (z) a daily rate equal to one month LIBOR plus 1% plus (ii) an applicable margin. The unused portion of the Revolver is also subject to an unused fee that is calculated at a per annum rate (the “Unused Fee Rate”).

The applicable margin for borrowings under the Credit Facility and the Unused Fee Rate will be determined by reference to the pricing grid based on the Company’s total leverage ratio. Under such pricing grid, the applicable margins for Term Loan A-1 and Revolver ranges from 1.0% to 2.0% for Eurodollar loans and from 0.0% to 1.0% for base rate loans and the Unused Fee Rate ranges from 0.25% to 0.40%. The applicable margins for Term Loan A-2 ranges from 1.25% to 2.25% for Eurodollar loans and from 0.25% to 1.25% for base rate loans.  At March 31, 2015 the weighted average interest rate of the term loans was 1.99 percent.

Under our Receivables Credit Facility, at March 31, 2015 we have $175.0 million outstanding. The outstanding capital of each investment in the receivable interests shall accrue yield for each day at a rate per annum equal to the sum of (a) for any day, the one-month Eurodollar rate for U.S. dollar deposits plus (b) the applicable margin.  At March 31, 2015 the interest rate on outstanding amounts under the Receivables Credit Facility was 0.9 percent.

Changes in market rates may impact the base or LIBOR rate under all borrowings. For instance, if the bank’s LIBOR rate was to increase or decrease by one percentage point (1.0%), our annual interest expense would change by approximately $10.9 million based upon our expected future monthly term loan balances per our existing repayment schedule and the Receivables Credit Facility.

We are exposed to price fluctuations of certain commodities used in production. Key raw materials and energy used in the production process include roundwood and woodchips, old corrugated containers, fuel oil, electricity and caustic soda. We purchase these raw materials and energy at market prices, and do not use forward contracts or other financial instruments to hedge our exposure to price risk related to these commodities.

We are exposed to price fluctuations in the price of our finished goods. The prices we charge for our products are primarily based on market conditions.

We are exposed to currency fluctuations as we invoice certain European customers in Euros. The Company did not use forward contracts to reduce the impact of currency fluctuations during the quarter ended March 31, 2015. No such contracts were outstanding at March 31, 2015.

ITEM 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2015.

There were no changes in our internal control over financial reporting during the three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

There have been no material changes in the legal proceedings described in our Form 10-K for the year ended December 31, 2014.

ITEM 1A.

RISK FACTORS

There have been no material changes from the Risk Factors described in our Form 10-K for the year ended December 31, 2014.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

None.

ITEM 5.

OTHER INFORMATION

None.

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ITEM 6.

EXHIBITS

The following Exhibits are filed as part of this report.

Exhibit No.	Description
14.0	Code of Conduct and Ethics.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	XBRL Taxonomy Extension Definition Linkbase.
101.LAB	XBRL Taxonomy Extension Label Linkbase.
101.PRE	XBRL Extension Presentation Linkbase.

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SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KAPSTONE PAPER AND PACKAGING CORPORATION
May 5, 2015	By:	/s/ Andrea K. Tarbox
		Andrea K. Tarbox
		Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)

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EX-14.0

Exhibit 14.0

KAPSTONE PAPER AND PACKAGING CORPORATION

CODE OF CONDUCT AND ETHICS

Introduction

KapStone Paper and Packaging Corporation and its subsidiaries (collectively “KapStone” or the “Company”) have always endeavored to conduct business in a manner conforming to the highest ethical and business standards.  The Company’s reputation for unquestionable integrity is its most valuable asset in its relationships with its employees and agents (collectively “employee(s)”), its customers, its stockholders and the communities in which its operations are located.

This Code of Business Conduct and Ethics (the “Code”) covers a wide range of business practices and procedures and applies to all directors, officers and employees of the Company.  It does not cover every issue that may arise, but it sets out basic principles to guide directors, officers and employees of the Company to act in an ethical and legal manner.  All of our directors, officers and employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior.  It is essential and a condition of employment that all employees and representatives conform to these principles as they perform their activities on behalf of KapStone.

Since it is not practicable to specify specific requirements for business conduct and ethics for application in every possible situation, an understanding of the philosophy behind these standards is essential. The philosophy of the Company — upon which its ethical standards are based — is outlined below.

·We work hard and treat others with respect.

·We earn an honest profit by providing the right products and services to our customers.

·We act responsibly and in a manner that reflects favorably on the Company.

·We observe applicable laws and regulations.

·We require honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest, on the part of ourselves and others.

·We are committed to full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and other documents filed with, or furnished to, the Securities and Exchange Commission (“SEC”) and in all other public releases of information regarding the Company’s finances and operations.

If a law conflicts with a policy in this Code, you must comply with the law; however, if a local custom or policy conflicts with this Code, you must comply with the

1

Code.  If you have any questions about these conflicts, you should ask your supervisor how to handle the situation.

This Code will be strictly enforced.  All managers and supervisors are required to enforce this policy and are not permitted to sanction or condone violations. There will be serious adverse consequences for non-adherence to the Code, which may include removal from a position as director or officer, and dismissal as an employee of the Company.  If you are in a situation which you believe may violate or lead to a violation of this Code, you should follow the procedures described in Sections 15, 16 and 17 of this Code.

The Company does not tolerate retribution against persons who, in good faith, report suspected violations of law.  Persons subject to this Code who retaliate against others who report suspected crimes or wrongs will themselves be subject to immediate discipline.

1.Compliance with Laws

It is the policy of KapStone to comply fully with all valid laws and regulations that govern its operations in the various communities and states in which it operates and to conduct its affairs in keeping with the highest moral, legal, and ethical standards.

There is an obligation, both corporate and individual, to fulfill the intent of the above statement.  It is not expected that every employee will have full knowledge of the laws affecting his or her responsibilities. However, KapStone does expect that every employee with significant responsibilities will have a general knowledge of prohibited activities involved in his or her work and will seek guidance on any matter on which there is a question, either directly through his or her supervisor or if necessary, from KapStone’s Chairman, Roger Stone.

2.Business Ethics

The law is a base, and ethical business conduct should normally exist at a level above the minimum required by law.  This includes the obligation to avoid any actual or apparent conflicts of interest in personal and professional relationships.  The honesty and integrity of the Company’s business conduct must not be compromised.  The Company will not condone ethical violations for the sake of personal gain, personal advantage, expediency or perceived business advantage.

3.KapStone and Its Employees

Employees are KapStone’s greatest asset, and it is a KapStone policy to treat them fairly in all matters.  KapStone is committed to equal opportunity in all aspects of employment and to full compliance with all federal, state and local laws applicable to hiring and promoting people.

With this in mind, it is the intent of KapStone to:

2

·Choose and promote its employees on the basis of their ability to perform the work for which they are hired.  KapStone strictly prohibits discrimination based on any legally protected status, including race, color, gender, religion, national origin, disability, veteran status and age.

·Offer employees a safe, healthful, and clean environment in which to work.  Each employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries and unsafe conditions.  Violence and threatening behavior are not permitted.  Employees should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol.  The use of illegal drugs in the workplace will not be tolerated.

·Pay employees fairly in relationship to their contributions to KapStone efforts, within the boundaries of current standards, profitability and market conditions.

4.Discrimination, Harassment and Retaliation

KapStone is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate discrimination, harassment or retaliation. The Company’s policy against discrimination applies to any legally protected status, including race, color, gender, religion, national origin, disability, veteran status, sexual orientation and age.

KapStone also prohibits any individual from engaging in any act or any form of harassment of any other individual on the basis of any legally protected status, including race, color, gender, religion, national origin, disability, veteran status, sexual orientation or age.  This prohibition covers verbal, as well as physical harassment.  Included within this prohibition are unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature, where: (a) there is an attempt made to make submission to such conduct a term or condition of an individual’s employment; (b) the submission or rejection of such conduct is used as a basis for employment related decision; and (c) such conduct has the purpose or effect of substantially interfering with an individual’s work performance or creating an intimidating, hostile, or offensive working environment.

KapStone prohibits discrimination against any person who provides information to a federal regulatory or law enforcement agency, a member of Congress or any committee of Congress or to a supervisor concerning conduct which the employee reasonably believes constitutes a violation of securities laws or any provision of federal law relating to fraud against stockholders.  No one may take any action harmful to any person for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense.

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No director, officer or employee may retaliate against an individual for bringing a complaint of discrimination or harassment or for participating in an investigation or proceeding involving a complaint of discrimination or harassment.

KapStone requires continuous management attention at all levels to assure compliance with the spirit and letter of this policy.

5.Competition and Fair Dealing

KapStone seeks to outperform its competition fairly and honestly.  The Company seeks competitive advantages through superior performance, never through unethical or illegal business practices.  Stealing proprietary information, possessing trade secret information that was obtained without the owner’s consent or inducing such disclosures by past or present employees of other companies is prohibited.  Each employee should endeavor to respect the rights of and to deal fairly with the Company’s customers, suppliers, competitors and employees.  No employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other intentional act or practice.

In its relationships with its competitors, KapStone and its employees will fully understand and strictly adhere to the requirements of the antitrust laws.  These laws, which, in the U.S., include the Sherman Act, the Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act, seek to advance and maintain the free enterprise system and take precedence over any business objective of KapStone, notwithstanding any resulting increases in income or profits.  Such acts as price fixing, restrictive agreements, boycotts, tie-in arrangements exclusive of reciprocal dealings, monopolizing, price inducements, and discriminatory allowances are or may be illegal.  All violations of the antitrust laws must be scrupulously avoided by all employees.  KapStone will not condone any actions which an employee knew or should have known would violate the antitrust laws or any other valid law or regulation.

The purpose of business entertainment and gifts in a commercial setting is to create goodwill and sound working relationships, not to gain unfair advantage with customers or suppliers.  Gifts or bribes for the purpose of influencing the buying decisions of employees of customers or potential customers or to any person in a position to influence a buying decision are clearly improper and prohibited.

6.Insider Trading

Directors, officers and employees who have access to material confidential information are not permitted to use or share that information for securities trading purposes or for any other purpose except the conduct of the Company’s business and in strict conformity with all applicable laws and SEC regulations. All non-public information about the Company should be considered confidential information.  To use non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information is not only unethical but also

4

illegal. Trading in the securities of other companies with which the Company has a relationship while in possession of material nonpublic information is also prohibited.

7.Accounting, Auditing and Internal Control Matters; Public Disclosure Obligations

KapStone’s requirement that directors, officers and employees follow the highest ethical standards applies directly to all actions which involve business accounting, financial reporting, internal accounting controls, auditing matters and public disclosure obligations.

The Company requires honest and accurate recording and reporting of information in order to make responsible business decisions.  All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions and must conform to applicable legal requirements, generally accepted accounting principles and the Company’s system of internal controls.  No employee is ever authorized to knowingly enter or maintain false or misleading information in corporate books, records or reports.  It is prohibited under federal law and Company policy to fraudulently influence, coerce, manipulate or mislead the Company’s independent public accountants for the purpose of rendering the Company’s financial statements materially misleading.  Records should always be retained or destroyed according to the Company’s record retention policies.

Full, fair, accurate, timely and understandable disclosure is required in all reports and documents that the Company files with, or submits to, the SEC and in any other public communications regarding the Company’s business, financial condition or results of operations.

All officers, directors and employees are required to report, or cause to be reported, information, and should assist in any investigation by any regulatory or law enforcement agency, elected officials or others responsible for such matters, concerning matters that the officer, director or employee reasonably believes could constitute matters described in:

·Section 806 of the Sarbanes-Oxley Act of 2002, including wire fraud, mail fraud, bank fraud or securities fraud, breach of any rule or regulation promulgated by the SEC or any federal rules relating to fraud against stockholders;

·Section 301 of the Sarbanes-Oxley Act of 2002, including questionable accounting, internal controls and auditing matters;

·Item 406 of Regulation S-K, including disclosures in SEC reports and other public disclosures that are not full, fair, accurate, timely and understandable; and

5

·  Applicable New York Stock Exchange listing standards, including conflicts of interest and violations of laws, rules, or regulations applicable to the Company.

Accounting procedures and controls are prescribed by Company policies.  Within these policies, the officers of the Company have the primary responsibility for establishing and monitoring adequate systems of internal accounting and controls, and all employees must adhere to these controls.  The Company’s auditors monitor and document compliance with these internal controls.

The Audit Committee of the Company has adopted special procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters.  These procedures are set out in Sections 16 and 17 of this Code.

8.Confidentiality

Employees must maintain the confidentiality of the information entrusted to them by the Company or its customers, except when disclosure is authorized by the Chairman and Chief Executive Officer, the President or required by law.  Confidential information includes all non-public information that might be of use to competitors or harmful to the Company or its customers, if disclosed.  It also includes information that suppliers and customers have entrusted to us.  The obligation to preserve confidential information continues even after employment ends.

9.Protection and Proper Use of Company Assets

All directors, officers and employees should endeavor to protect the Company’s assets and ensure their efficient use.  Theft, carelessness and waste have a direct impact on the Company’s profitability.  Any suspected incident of fraud or theft should be immediately reported for investigation.

Many employees regularly use business expense accounts, which must be documented and recorded accurately and in accordance with the Company’s policies.  If you are not sure whether a certain expense is legitimate, ask your supervisor or your controller.

The obligation to protect the Company’s assets includes the Company’s proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks and copyrights, as well as business, marketing, product development and service plans, records, salary information and any unpublished financial data and reports.  Unauthorized use or distribution of this information would violate Company policy.  It could also be illegal and result in civil or even criminal penalties.

10.Payments to Government Personnel

The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in

6

order to obtain or retain business.  It is strictly prohibited to make illegal payments to government officials of any country.  In addition, the U.S. government has a number of laws and regulations regarding business gratuities which may be accepted by U.S. government personnel.  The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or other gratuity in violation of these rules would not only violate Company policy but could also be a criminal offense.  State and local governments, as well as foreign governments, may have similar rules.

Payments, regardless of amount, to any government employee, or gifts or services of substantial value or lavish entertainment, regardless of motive, are prohibited.  Relationships with public employees shall be so conducted that neither the official’s nor KapStone’s integrity would be compromised if the full details of the relationship became a matter of public knowledge.  The Company’s Chief Financial Officer (the “Compliance Officer” for purposes of this Code) can provide guidance to you in this area.

11.Political Contributions

Virtually every state either limits or prohibits the making of political contributions by a corporation to a state or local candidate or political party.  KapStone’s policy is to make no financial contributions to a political party or to a candidate running for any elective office, except as permitted by law.  This applies to all political parties or candidates.  All political contributions, including those requested by customers or suppliers, must be approved by both the Compliance Officer and the General Counsel.

12.KapStone and the Community

KapStone shall conduct its business in a manner that is socially and ethically responsible.  In addition to operating and managing its business, it shall seek to reasonably protect the quality of the environment and endeavor to conserve energy and other valuable resources.

Each of the KapStone’s facilities is expected to make every effort to be an integral part of the community in which it operates, and to participate in its activities as a concerned and responsible citizen.  Like individual citizens, the Company benefits from and supports such activities as health, welfare, character building, education, and culture.  KapStone recognizes that employee participation in cultural, social, or volunteer organizations can be public service of a higher order, and all KapStone employees are encouraged to participate during their non-working hours in public matters of their individual choice.

13.Conflicts of Interest

It has always been and continues to be KapStone’s intent that its employees maintain the highest standards of loyalty in their conduct of the Company’s affairs.  Directors, officers and employees owe a duty to the Company to advance the Company’s legitimate interests when the opportunity to do so arises.  In essence,  KapStone’s employees shall deal with suppliers, customers, and other persons doing business or seeking to do business with the Company in a manner that eliminates considerations of

7

personal advantage.  Because they hold positions of trust in the Company, a director, an officer, or any other employee may not make a profit from the Company because of his or her official position.  They are also prohibited from engaging in a competing business.

Any direct or indirect conflict of interest between the Company and any director, officer or employee is prohibited unless otherwise consented to by the Company.  The Company believes that it is in its best interests and is consistent with the obligations of directors, officers and employees to the Company to establish a policy that all business decisions will reflect independent judgment and discretion, uninfluenced by any considerations other than those honestly believed to be in the best interests of the Company and its stockholders.  Any decision will be deemed to be in conflict with the interests of the Company if, in the course of affiliation with the Company, the judgment and discretion of a director, officer or employee is or may be influenced by considerations of personal gain or benefit, or gain or benefit to a third party, whether or not affiliated with the director, officer or employee.  The divided loyalty that is present when a director, officer or employee has a conflict of interest could potentially lead to serious problems for the Company and could be grounds for disciplinary action or termination by the Company.

It is not possible to describe every situation or occurrence that could lead to a conflict of interest between a director, officer or employee and the Company.  The  events set forth below are intended to describe, by way of example, situations that could occur that could lead to a conflict of interest with the Company. Any questions regarding conflicts of interest should be discussed with the Company’s Compliance Officer or General Counsel:

·Relationships with Customer or Competitors:  Stock ownership and other financial interests or participation in any customer, supplier or competitor of the Company must be reported to the Compliance Officer; provided, however, stock ownership of less than 1% in a company whose stock is publicly traded will not be deemed a conflict of interest so long as the ownership does not comprise a significant portion of the net worth of the director, officer or employee.

·Indirect Interests and Relationships: A conflict of interest can arise because of the business activities of an affiliate of a director, officer or employee.  The term affiliate includes close family members and family members who live in the same household as a director, officer or employee.  A director, officer or employee has a potential conflict of interest whenever his or her affiliate has a significant interest in a transaction or a significant relationship with any customer, supplier or competitor of the Company.  The director, officer or employee should not make or influence any decision which could directly or indirectly benefit his or her affiliate and, in order to protect the director, officer or employee and the Company from the appearance of a conflict of interest, all relationships of this nature must be reported to the Compliance Officer.

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·Gifts and Entertainment: No gifts or entertainment at non-business-related functions may be accepted other than noncash gifts used for promotional purposes or entertainment having a value of less than $100 per year; however, values in excess of $100 per year may be approved by an employee’s supervisor.  Gifts of entertainment may only be accepted when the employee is to be accompanied by the vendor at the entertainment event.  Participation in business-related functions is permitted, including the acceptance of entertainment or meals.  However, each employee should exercise care to ensure that such functions are necessary and related to the conduct of business on behalf of the Company.  If in doubt, the Compliance Officer should be consulted.

·Loans: An employee will not accept loans from any person having or seeking business with the Company (other than loans from banks or financial institutions at prevailing market rates and terms).

·Outside Business Activities: As a general rule, the Company does not allow its employees to participate or engage in business activities outside of their employment with the Company.  As a general rule, participation on a part-time or other basis in any outside business or employment will be a conflict of interest if the director, officer or employee’s participation in that business could interfere with his or her ability to devote proper time and attention to his or her employment with the Company.

·Non-business Activities: Participation in the activities of a trade association, professional society, charitable institution or governmental institution, on a non-compensated basis, or holding a part-time public office (with or without compensation) will not generally create a conflict of interest in violation of this Code.  However, if any director, officer or employee is unsure of his or her particular situation, the Compliance Officer should be consulted.

·Personal Use of Company Property and Company Information: It is against Company policy for any director, officer or employee to use or divert any Company property, including services of other employees, for his or her own advantage or benefit, or to use Company letterhead when writing personal correspondence.

·Related Party Business Dealing.  If there is any business relationship or proposed business transaction that the Company might have with any company in which a director, officer or employee, or a related party of any such person, has a direct or indirect interest, and from which such person might derive a benefit, or at which a related party is employed, and if such a relationship or transaction might give rise to the appearance of a conflict of interest, then the Compliance Officer should be consulted.

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14.Company Opportunity

Directors and employees are prohibited from taking for themselves personally opportunities that are discovered through the use of corporate property, information, or position without the consent of the Board of Directors. No director or employee may use corporate property, information, or position for improper personal gain. Directors and employees have a duty to the Company to advance its legitimate interests when the opportunity to do so arises.

15.Waivers of the Code of Business Conduct and Ethics

Any waiver of this Code for executive officers or directors may be made only by the Board of Directors and will be promptly disclosed as required by law or NYSE rules.

16.Personal Responsibility

It is essential that the Company ensures prompt and consistent action against violations of this Code. However, in some situations it is difficult to know right from wrong.  Since directors, officers and employees cannot anticipate every situation that will arise, it is important to have guidelines on how to approach a new question or problem.  These are the steps to keep in mind:

·Make sure you have all the facts.  In order to reach the right solutions, we must be as fully informed as possible.

·Ask yourself: What specifically am I being asked to do?  Does it seem unethical or improper? This will enable you to focus on the specific question you are faced with, and the alternatives you have.  Use your judgment and common sense; if something seems unethical or improper, it probably is.

·Clarify your responsibility and role.  In most situations, there is shared responsibility.  Are your colleagues informed?  It may help to get others involved and discuss the problem.

·Discuss the problem with your supervisor.  This is the basic guidance for all situations.  In many cases, your supervisor will be more knowledgeable about the question, and will appreciate being brought into the decision-making process.  Remember that it is your supervisor’s responsibility to help solve problems.

·Seek help from Company resources.  If you believe that it is not appropriate to discuss an issue with your supervisor, or you do not feel comfortable approaching your supervisor with your question, discuss it locally with the Compliance Officer.

·You may report ethical violations in confidence and without fear of retaliation.  If your situation requires that your identity be kept secret, your anonymity will be protected.  The Company does not permit retaliation of any kind against employees for good faith reports of ethical violations.

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·Always ask first, act later:  If you are unsure of what to do in any situation, seek guidance before you act.

17.Reporting/Investigation Procedures

Any director, officer or employee who reasonably believes that there has been a material violation of this Code should report it immediately to the Compliance Officer or Roger Stone, Chairman. If the possible violation relates to questionable accounting, auditing, internal control or other matters described in Section 7 of this Code, the employee may submit an anonymous, confidential complaint as discussed in Section 17.  The Chairman of the Audit Committee shall in any event be promptly advised of any allegation of a material violation of Section 7 of this Code.  Upon receipt of a complaint, the Company or Audit Committee or other designee shall promptly investigate the matter.

Providing your name allows the Company to contact you if necessary during any investigation.  The Company will maintain in confidence the identity of those individuals who provide their names when reporting to the fullest extent possible consistent with the need to investigate. Absolute confidentiality of any complaint under this Code, however, cannot be guaranteed because the very fact of conducting an investigation may lead employees or other persons to reach conclusions of their own.  Anyone involved in an investigation under these procedures, whether as witnesses, participants in the performance of the investigation or otherwise, will be informed of their obligation to maintain confidentiality and may be asked to sign an acknowledgment of this obligation.

KapStone will not retaliate against any officer, director or employee who reports, causes to be reported, testifies, participates in or otherwise assists in any proceeding reported or about to be reported regarding any matter covered under this Code.

The Compliance Officer will send summaries of conversations, and will forward copies of written communications and transcripts of voice mail messages, containing reports to the Chairman of the Board of Directors and the Chairman of the Audit Committee, as appropriate under the circumstances.  The Compliance Officer will provide periodic reports to both Chairmen. The Compliance Officer will retain copies of all complaints, investigative reports, summaries of reports and other records relating to complaints in accordance with the Company’s records retention policy.

18.Procedures for Submitting Confidential, Anonymous Complaints Regarding Accounting, Auditing or Internal Control Matters

As an alternative to the procedures described in Section 17, any employee who reasonably believes that there has been a material violation of this Code relating to questionable accounting, auditing, internal control or other matters described in Section 7 of this Code may submit confidential, anonymous complaints in writing to the person listed below.  Complaints must provide sufficient information so that a reasonable investigation can be conducted and may be made directly to:

11

Matthew Paull, Chair of the Audit Committee of the Company’s Board of Directors;

Telephone No.: (847) 920-5413

Email Address: matthewpaull@mac.com

or such other individuals who are designated from time to time by the Board of Directors of KapStone.

The Company shall maintain a record of all complaints submitted under this Code alleging a violation accounting, auditing or internal control matters.

19.Consequences

If an investigation leads to a conclusion that a material violation of the Code has occurred, the Company will take appropriate corrective action, which may include removal from a position as director or officer and dismissal as an employee of the Company.  Among other things, directors, officers and employees of the Company may be disciplined for:

·Committing, authorizing, or directing an illegal act.

·Failing to exercise proper compliance oversight or tolerating illegal conduct, if acting as a supervisor of another employee of the Company.

·Failing to report illegal business conduct of which he or she directly knows or observes.

·Discouraging another director, officer, or employee from reporting a violation of law or of this Code.

·Improperly disclosing the identity of a person who anonymously reports a violation of this Code.

·Retaliating or condoning retaliation against any director, officer, or employee of the Company who reports such a violation.

As examples, the following are not valid excuses for failing to comply with the law and/or this Code and, as such, will not avoid disciplinary measures under this Code:

·“A supervisor demanded that I do the illegal, unethical or improper act.”

·“I thought the conduct was standard practice in our business.”

·“It was a business necessity because it would have cost more to act properly.”

·“I misinterpreted the law or this code and did not seek the advice of my supervisor.”

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The Company recognizes the potentially serious impact of a false accusation. Employees are expected as part of the ethical standards required by this Code to act responsibly in making complaints. Making a complaint without a good faith basis is itself an ethical violation. Any employee who makes a complaint in bad faith will be subject to appropriate corrective action, up to and including dismissal.

Code of Conduct approved by Audit Committee and Nominating and Governance Committee — March 2015

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Roger W. Stone, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of KapStone Paper and Packaging Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2015

	/s/ Roger W. Stone
Name:	Roger W. Stone
Title:	Chairman and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Andrea K. Tarbox, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of KapStone Paper and Packaging Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2015

	/s/ Andrea K. Tarbox
Name:	Andrea K. Tarbox
Title:	Vice President and Chief Financial Officer

1

EX-32.1

Exhibit 32.1

Certification of CEO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of KapStone Paper and Packaging Corporation for the quarter ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Roger W. Stone, Chairman and Chief Executive Officer of KapStone Paper and Packaging Corporation, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of KapStone Paper and Packaging Corporation.

Dated: May 5, 2015

By:	/s/ Roger W. Stone
	Roger W. Stone
	Chairman and Chief Executive Officer

1

EX-32.2

Exhibit 32.2

Certification of CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of KapStone Paper and Packaging Corporation for the quarter ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrea K. Tarbox, Vice President and Chief Financial Officer of KapStone Paper and Packaging Corporation, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of KapStone Paper and Packaging Corporation.

Dated: May 5, 2015

By:	/s/ Andrea K. Tarbox
	Andrea K. Tarbox
	Vice President and Chief Financial Officer

1

XML

Subsequent Events (Details) (USD $)	3 Months Ended		0 Months Ended	1 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	May 04, 2015 item	Apr. 30, 2015 T
Subsequent events
Annual planned maintenance outage costs	$ 8,600,000	$ 14,800,000
Subsequent event | Two Executives of Victory
Subsequent events
Number of executives entering into employment agreements			2
Subsequent event | Victory Packaging
Subsequent events
Period to satisfy performance criteria			30 months
Subsequent event | Victory Packaging | Maximum
Subsequent events
Additional contingent consideration			25,000,000
Subsequent event | Victory Packaging | Forecast
Subsequent events
Cash purchase price			615,000,000
Roanoke Rapids, North Carolina | Subsequent event
Subsequent events
Period for which outage lasted				8 days
Annual planned maintenance outage costs				$ 8,500,000
Reduction in production (in tons)				10,400

XML

Inventories (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Inventories
Raw materials	$ 103,685	$ 99,390
Work in process	3,267	3,634
Finished goods	74,990	63,639
Replacement parts and supplies	72,357	70,026
Inventory at FIFO costs	254,299	236,689
LIFO inventory reserves	1,208	1,640
Inventories	$ 255,507	$ 238,329

XML

Inventories

3 Months Ended

Mar. 31, 2015

Inventories

Inventories

4.Inventories

Inventories consist of the following at March 31, 2015 and December 31, 2014, respectively:

	(unaudited)
	March 31,		December 31,
	2015		2014
Raw materials	$	103,685	$	99,390
Work in process	3,267		3,634
Finished goods	74,990		63,639
Replacement parts and supplies	72,357		70,026
Inventory at FIFO costs	254,299		236,689
LIFO inventory reserves	1,208		1,640
Inventories	$	255,507	$	238,329

XML

Pension Plan and Post-Retirement Benefits (Details) (USD $)	3 Months Ended
	Mar. 31, 2015 plan	Mar. 31, 2014
Pension Plan and Post-Retirement Benefits
Number of defined benefit plans	1
Net pension (benefit) / cost recognized for the Pension Plans
Service cost for benefits earned during the quarter	$ 1,215,000	$ 2,449,000
Interest cost on projected benefit obligations	6,900,000	7,180,000
Expected return on plan assets	(10,236,000)	(11,031,000)
Amortization of net loss	534,000
Amortization of prior service cost	69,000	101,000
Net pension benefit - Company plan	(1,518,000)	(1,301,000)
Net pension cost - multi-employer plan	87,000	84,000
Total net pension benefit	(1,431,000)	(1,217,000)
Employer contributions	700,000
Expected employer contribution in remaining fiscal year	400,000
Defined Contribution Plan
Defined contribution plan expense recognized	$ 5,000,000	$ 4,200,000

XML

Net income per share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Net Income per Share
Net income	$ 26,100	$ 32,099
Weighted-average number of common shares for basic net income per share	96,123,351	95,720,328
Incremental effect of dilutive common stock equivalents:
Unexercised stock options (in shares)	1,202,004	1,211,848
Unvested restricted stock awards (in shares)	337,253	383,590
Weighted-average number of shares for diluted net income per share	97,662,608	97,315,766
Net income per share - basic (in dollars per share)	$ 0.27	$ 0.34
Net income per share - diluted (in dollars per share)	$ 0.27	$ 0.33
Anti-dilutive unexercised stock options (in shares)	374,000	47,000

XML

Stock-Based Compensation (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Stock-based compensation
Stock-based compensation expense	$ 3,780,000	$ 2,918,000
Unrecognized stock-based compensation expense
Unrecognized stock option compensation expense	6,756,000		3,243,000
Unrecognized restricted stock unit compensation expense	7,734,000		3,923,000
Total unrecognized stock-based compensation expense	14,490,000		7,166,000
Stock Options
Stock-based compensation
Stock-based compensation expense	1,950,000	1,524,000
Unrecognized stock-based compensation expense
Weighted average period of recognition	2 years 7 months 6 days
Stock Options
Minimum age requirement of grantee as a condition for vesting	65 years
Contractual term	10 years
Additional information
Weighted average fair value (in dollars per share)	$ 10.08	$ 10.36
Stock Options Black-Scholes assumptions (weighted average):
Expected volatility (as a percent)	39.08%	39.93%
Expected life	4 years 10 months 24 days	4 years 3 months 18 days
Risk-free interest rate (as a percent)	1.35%	1.34%
Expected dividend yield	1.25%
Options
Outstanding at the beginning of the period (in shares)	2,759,306
Granted (in shares)	555,451
Exercised (in shares)	(58,392)
Forfeited (in shares)	(19,764)
Outstanding at the end of the period (in shares)	3,236,601		2,759,306
Exercisable at the end of the period (in shares)	1,950,074
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 11.81
Granted (in dollars per share)	$ 31.89
Exercised (in dollars per share)	$ 9.93
Forfeited (in dollars per share)	$ 17.68
Outstanding at the end of the period (in dollars per share)	$ 15.25		$ 11.81
Exercisable at the end of the period (in dollars per share)	$ 7.18
Weighted Average Remaining Life (Years)
Outstanding at the end of the period	7 years 2 months 12 days		6 years 9 months 18 days
Exercisable at the end of the period	5 years 9 months 18 days
Intrinsic Value
Outstanding at the end of the period	56,933,000		48,799,000
Exercisable at the end of the period	50,042,000
Cash proceeds from exercises of options	500,000	200,000
Stock Options | Awards that vest after two years
Stock Options
Percentage of granted awards that will vest	50.00%
Additional information
Vesting period for awards	2 years
Stock Options | Awards that vest after three years
Stock Options
Percentage of granted awards that will vest	50.00%
Additional information
Vesting period for awards	3 years
Restricted Stock Units
Stock-based compensation
Stock-based compensation expense	$ 1,830,000	$ 1,394,000
Unrecognized stock-based compensation expense
Weighted average period of recognition	2 years 6 months
Stock Options
Minimum age requirement of grantee as a condition for vesting	65 years
Additional information
Vesting period for awards	3 years
Units
Outstanding at the beginning of the period (in shares)	588,067
Granted (in shares)	181,590
Vested (in shares)	(212,864)
Forfeited (in shares)	(9,500)
Outstanding at the end of the period (in shares)	547,293
Weighted Average Grant Date Fair Value
Outstanding at the beginning of the period (in dollars per share)	$ 16.98
Granted (in dollars per share)	$ 31.89
Vested (in dollars per share)	$ 9.88
Forfeited (in dollars per share)	$ 15.76
Outstanding at the end of the period (in dollars per share)	$ 24.71

XML

Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Nov. 30, 2014 item
Commitments and contingencies
Number of potentially responsible parties that entered into allocation agreement	40
Longview
Commitments and contingencies
Discount rate (as a percent)	2.30%
Estimated remedy	342

XML

Annual Planned Maintenance Outages

3 Months Ended

Mar. 31, 2015

Annual Planned Maintenance Outages

Annual Planned Maintenance Outage

3.Annual Planned Maintenance Outages

Annual planned maintenance outage costs for the three months ended March 31, 2015 and 2014 totaled $8.6 million and $14.8 million, respectively, and are included in cost of sales.  The outage costs in the quarter ended March 31, 2014 reflected $5.6 million of outage costs at the North Charleston, South Carolina paper mill as a result of downtime incurred during the upgrade of the No. 3 paper machine.

XML

Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015 item	Mar. 31, 2014
Segment Information
Number of operating segments	1
Segment Information
Net sales by product line: Total	$ 546,289	$ 548,952
Increase/(Decrease) in net sales	(2,663)
Containerboard / Corrugated products
Segment Information
Net sales by product line: Total	344,311	336,249
Increase/(Decrease) in net sales	8,062
Specialty paper
Segment Information
Net sales by product line: Total	179,203	189,009
Increase/(Decrease) in net sales	(9,806)
Other
Segment Information
Net sales by product line: Total	22,775	23,694
Increase/(Decrease) in net sales	$ (919)

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 10,545	$ 28,467
Trade accounts receivable (Includes $251,047 at March 31, 2015, and $225,577 at December 31, 2014, associated with the securitization facility)	255,435	228,740
Other receivables	13,779	12,833
Inventories	255,507	238,329
Prepaid expenses and other current assets	16,814	7,172
Total current assets	552,080	515,541
Plant, property and equipment, net	1,384,786	1,386,670
Other assets	10,296	10,135
Intangible assets, net	106,662	110,077
Goodwill	533,851	533,851
Total assets	2,587,675	2,556,274
Current liabilities:
Short-term borrowings	10,000
Other current borrowings	6,615
Dividend payable	9,721	9,911
Accounts payable	150,788	149,600
Accrued expenses	46,972	48,340
Accrued compensation costs	46,012	62,491
Accrued income taxes	9,668	6,477
Deferred income taxes	1,804	1,990
Total current liabilities	281,580	278,809
Other liabilities:
Long-term debt (Includes $175,000 at March 31, 2015, and $167,000 at December 31, 2014, associated with the securitization facility)	1,055,014	1,046,063
Pension and postretirement benefits	29,582	32,800
Deferred income taxes	415,067	412,293
Other liabilities	7,895	8,182
Total other liabilities	1,507,558	1,499,338
Commitments and contingencies
Stockholders' equity:
Preferred stock $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding
Common stock - $0.0001 par value; 175,000,000 shares authorized; 96,257,183 shares issued and outstanding (excluding 40,000 treasury shares) at March 31, 2015 and 96,046,554 shares issued and outstanding (excluding 40,000 treasury shares) at December 31, 2014	10	10
Additional paid-in-capital	259,260	255,505
Retained earnings	591,053	574,601
Accumulated other comprehensive loss	(51,786)	(51,989)
Total stockholders' equity	798,537	778,127
Total liabilities and stockholders' equity	$ 2,587,675	$ 2,556,274

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Financial Statements

3 Months Ended

Mar. 31, 2015

Financial Statements

Financial Statements

1.Financial Statements

The accompanying unaudited consolidated financial statements of KapStone Paper and Packaging Corporation (the “Company,” “we,” “us,” “our” or “KapStone”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

Stock-Based Compensation

Schedule of total stock-based compensation expense

	Three Months Ended March 31,
	2015		2014
Stock option compensation expense	$	1,950	$	1,524
Restricted stock unit compensation expense	1,830		1,394
Total stock-based compensation expense	$	3,780	$	2,918

Schedule of total unrecognized stock-based compensation

	March 31,		December 31,
	2015		2014
Unrecognized stock option compensation expense	$	6,756	$	3,243
Unrecognized restricted stock unit compensation expense	7,734		3,923
Total unrecognized stock-based compensation expense	$	14,490	$	7,166

Schedule of the assumptions utilized for calculating the fair value of stock options

	Three Months Ended March 31,
	2015		2014
Stock Options Black-Scholes assumptions (weighted average):
Expected volatility	39.08	%	39.93	%
Expected life (years)	4.90		4.30
Risk-free interest rate	1.35	%	1.34	%
Expected dividend yield	1.25	%	—	%

Summary of stock options amounts and activity

			Weighted		Weighted	Intrinsic
			Average		Average	Value
			Exercise		Remaining	(dollars in
	Options		Price		Life (Years)	thousands)
Outstanding at January 1, 2015	2,759,306		$	11.81	6.8	$	48,799
Granted	555,451		31.89
Exercised	(58,392	)	9.93
Forfeited	(19,764	)	17.68
Outstanding at March 31, 2015	3,236,601		$	15.25	7.2	$	56,933
Exercisable at March 31, 2015	1,950,074		$	7.18	5.8	$	50,042

Summary of unvested restricted stock units amounts and activity

			Weighted
			Average
			Grant Date
	Units		Fair Value
Outstanding at January 1, 2015	588,067		$	16.98
Granted	181,590		31.89
Vested	(212,864	)	9.88
Forfeited	(9,500	)	15.76
Outstanding at March 31, 2015	547,293		$	24.71

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Annual Planned Maintenance Outages (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Annual planned maintenance outage costs	$ 8.6	$ 14.8
North Charleston, South Carolina
Annual planned maintenance outage costs		$ 5.6

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2015

Recent Accounting Pronouncements

Recent Accounting Pronouncements

2.Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB’) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers”. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The guidance in this update supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, this update supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts”. For a public entity, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The ASU allows for full or modified retrospective adoption. Early application is not permitted. The Company is currently evaluating the expected impact of adopting this standard.

In April 2015, the FASB proposed a one-year deferral of the effective date for its new revenue standard for public and nonpublic entities reporting under GAAP. Under the proposal, the standard would be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company does not expect the adoption of this standard to have a material impact on its consolidated balance sheets.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	175,000,000	175,000,000
Common stock, shares issued	96,257,183	96,046,554
Common stock, shares outstanding	96,257,183	96,046,554
Treasury shares, shares outstanding	40,000	40,000
Receivables Credit Facility
Trade receivables with securitization facility	$ 251,047	$ 225,577
Long term debt portion associated with securitization facility	$ 175,000	$ 167,000

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Subsequent Events

3 Months Ended

Mar. 31, 2015

Subsequent Events.

Subsequent Events

12.Subsequent Events

The Company’s paper mill in Roanoke Rapids, North Carolina completed its annual planned maintenance outage in April 2015. The outage lasted approximately 8 days with an estimated cost of $8.5 million primarily for annual maintenance and inspections, and the fixed cost impact associated with lost paper production and a 10,400 reduction in tons produced.  In 2014, the annual outage for the Roanoke Rapids mill occurred in October.

On May 4, 2015, the Company, entered into an Equity Purchase Agreement with VP Holdco, Inc. and Victory Packaging Management, LLC.  Pursuant to the Agreement, the Company will purchase all rights, title and interest in Victory Packaging L.P. and its subsidiaries (“Victory”).

The Company will pay  a cash purchase price of $615,000,000, subject to an adjustment based on net working capital of Victory at closing. The cash purchase price will be adjusted dollar for dollar for indebtedness outstanding at closing, certain bonuses and other unpaid transaction expenses of Victory and increased dollar for dollar by cash on hand at closing.  A portion of the cash purchase price will be placed into escrow to fund certain limited indemnity obligations of Victory. The Company will also be obligated to pay up to an additional $25,000,000 of contingent consideration to Victory if certain performance criteria are satisfied during the thirty months following the closing. In connection with the acquisition of Victory, the Company is also entering into employment agreements with two of Victory’s executives.

The transaction, which is expected to close in the second quarter of 2015, is subject to various conditions, including, among others, (1) the accuracy of representations and warranties and compliance with covenants, (2) the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and any other necessary governmental approvals, and (3) the reciept of certain third party consents and (4) the absence of a material adverse effect on Victory during the period between the date of the Agreement and the closing.

The Company has received financing commitments from Bank of America, N.A., Barclays Bank PLC,  Wells Fargo Bank, National Association, Wells Fargo Securities, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated to provide sufficient funds to finance the Acquisition, including the payment of the aggregate purchase price. The availability of financing pursuant to such commitments is subject to various customary conditions, including no material adverse change and the consummation of the acquisition.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2015	Apr. 27, 2015
Document and Entity Information
Entity Registrant Name	KAPSTONE PAPER & PACKAGING CORP
Entity Central Index Key	0001325281
Document Type	10-Q
Document Period End Date	Mar. 31, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		96,259,475
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1

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Recent Accounting Pronouncements (Policies)

3 Months Ended

Mar. 31, 2015

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB’) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers”. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The guidance in this update supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, this update supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts”. For a public entity, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The ASU allows for full or modified retrospective adoption. Early application is not permitted. The Company is currently evaluating the expected impact of adopting this standard.

In April 2015, the FASB proposed a one-year deferral of the effective date for its new revenue standard for public and nonpublic entities reporting under GAAP. Under the proposal, the standard would be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company does not expect the adoption of this standard to have a material impact on its consolidated balance sheets.

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Consolidated Statements of Comprehensive Income
Net sales	$ 546,289	$ 548,952
Cost of sales, excluding depreciation and amortization	382,198	383,248
Depreciation and amortization	35,121	32,709
Freight and distribution expenses	43,427	40,732
Selling, general, and administrative expenses	38,194	34,145
Operating income	47,349	58,118
Foreign exchange loss	885	24
Interest expense, net	6,413	9,229
Income before provision for income taxes	40,051	48,865
Provision for income taxes	13,951	16,766
Net income	26,100	32,099
Pension and postretirement plan reclassification adjustments:
Amortization of prior service costs	12	32
Amortization of net (gain) / loss	191	(2)
Other comprehensive income, net of tax	203	30
Total comprehensive income	$ 26,303	$ 32,129
Weighted average number of shares outstanding:
Basic (in shares)	96,123,351	95,720,328
Diluted (in shares)	97,662,608	97,315,766
Net income per share:
Basic (in dollars per share)	$ 0.27	$ 0.34
Diluted (in dollars per share)	$ 0.27	$ 0.33
Dividends declared per common share	$ 0.10

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Net Income per Share

3 Months Ended

Mar. 31, 2015

Net Income per Share

Net Income per Share

7.Net Income per Share

The Company’s basic and diluted net income per share is calculated as follows:

	Three Months Ended March 31,
	2015		2014
Net income	$	26,100	$	32,099
Weighted-average number of common shares for basic net income per share	96,123,351		95,720,328
Incremental effect of dilutive common stock equivalents:
Unexercised stock options	1,202,004		1,211,848
Unvested restricted stock awards	337,253		383,590
Weighted-average number of shares for diluted net income per share	97,662,608		97,315,766
Net income per share - basic	$	0.27	$	0.34
Net income per share - diluted	$	0.27	$	0.33

Approximately 374,000 and 47,000 of unexercised stock options were outstanding at March 31, 2015 and 2014, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive.

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Income Taxes

3 Months Ended

Mar. 31, 2015

Income Taxes

Income Taxes

6.Income Taxes

The Company’s effective income tax rate for the three months ended March 31, 2015 and 2014 was 34.8 percent and 34.3 percent, respectively.  Our tax rate is affected by recurring items such as state income taxes as well as discrete items that may occur in any given period but are not consistent from period to period. In addition to state income taxes, the domestic manufacturing deduction had the most significant impact on the difference between our statutory U.S. federal income tax rate of 35 percent and our effective income tax rate for both periods.

In the normal course of business, the Company is subject to examination by taxing authorities. The Company’s open federal tax years are 2011 and 2013.  The Company has open tax years for state income tax filings generally starting in 2011.

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2015

Segment Information

Schedule of net sales by product line

	Three Months Ended March 31,				Increase/
Net sales by product line:	2015		2014		(Decrease)
Containerboard / Corrugated products	$	344,311	$	336,249	$	8,062
Specialty paper	179,203		189,009		(9,806		)
Other	22,775		23,694		(919		)
Total	$	546,289	$	548,952	$	(2,663	)

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Inventories (Tables)

3 Months Ended

Mar. 31, 2015

Inventories

Schedule of Inventories

	(unaudited)
	March 31,		December 31,
	2015		2014
Raw materials	$	103,685	$	99,390
Work in process	3,267		3,634
Finished goods	74,990		63,639
Replacement parts and supplies	72,357		70,026
Inventory at FIFO costs	254,299		236,689
LIFO inventory reserves	1,208		1,640
Inventories	$	255,507	$	238,329

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies

Commitments and Contingencies

10.Commitments and Contingencies

We are from time to time subject to various administrative and legal investigations, claims and proceedings incidental to our business, including environmental and safety matters, labor and employments matters, personal injury claims, contractual disputes and taxes. We establish reserves for claims and proceedings when it is probable that liabilities exist and where reasonable estimates can be made. We also maintain insurance that may limit our financial exposure for defense costs, as well as liability, if any, for claims covered by the insurance (subject also to deductibles and self-insurance amounts). While any investigation, claim or proceeding has an element of uncertainty, and we cannot predict or assure the outcome of any claim or proceeding involving the Company, we believe the outcome of any pending or threatened claim or proceeding (other than those that cannot be assessed due to their preliminary nature), or all of them combined, will not have a material adverse effect on our results of operations, cash flows or financial condition.

The Company’s subsidiary, Longview, is a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) with respect to the Lower Duwamish Waterway Superfund Site in the State of Washington (the “Site”). The U.S. Environmental Protection Agency (“EPA”) asserts that the Site is contaminated as a result of discharges from various businesses and government entities located along the Lower Duwamish Waterway, including a corrugated converting plant owned and operated by Longview. In November 2014, the EPA issued a Record of Decision (“ROD”) for the Site. The ROD includes a selected remedy for the Site. In the ROD, EPA states that the total estimated net present value costs (discounted at 2.3%) for the selected remedy are $342 million. At least 40 potentially responsible parties, including Longview, have entered into an Allocation Agreement. Pursuant to the Allocation Agreement, the parties will attempt to determine each party’s portion of the cost to remediate the site. The allocation process in not expected to be completed until 2017. Based on available information provided to the Company to date, the Company cannot reasonably estimate its potential liability.

There have been no material changes in any of our legal proceedings since December 31, 2014.

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Pension Plan and Post-Retirement Benefits

3 Months Ended

Mar. 31, 2015

Pension Plan and Post-Retirement Benefits

Pension Plan and Post-Retirement Benefits

8.Pension Plan and Post-Retirement Benefits

Defined Benefit Plan

Net pension benefit recognized for the three months ended March 31, 2015 and 2014 for the Company’s one defined benefit plan (the “Pension Plan”) are as follows:

	Three Months Ended March 31,
	2015			2014
Service cost for benefits earned during the quarter	$	1,215		$	2,449
Interest cost on projected benefit obligations	6,900			7,180
Expected return on plan assets	(10,236		)	(11,031		)
Amortization of net loss	534			—
Amortization of prior service cost	69			101
Net pension benefit - Company plan	(1,518		)	(1,301		)
Net pension cost - multi -employer plan	87			84
Total net pension benefit	$	(1,431	)	$	(1,217	)

KapStone funds the Pension Plan according to IRS funding requirements. Based on those requirements, KapStone funded $0.7 million for the three months ended March 31, 2015, and expects to fund an additional $0.4 million in 2015.

Defined Contribution Plan

We offer a 401(k) Defined Contribution Plan (“Contribution Plan”) to eligible employees.  The Company’s monthly contributions are based on the matching of certain employee contributions or based on a union negotiated formula. For the three months ended March 31, 2015 and 2014, the Company recognized expense of $5.0 million and $4.2 million, respectively, for the Company contributions to the Contribution Plan.  Effective in 2015, Longview salaried personnel received a 401(k) contribution rather than a cash balance plan contribution.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2015

Stock-Based Compensation

Stock-Based Compensation

9.Stock-Based Compensation

In the quarter ended March 31, 2015, the compensation committee of the board of directors approved stock-based awards to executive officers, certain employees and directors. The 2015 awards consisted of the grant of 555,451 stock option and 181,590 restricted stock units.

The Company accounts for stock-based awards in accordance with ASC 718, “Compensation — Stock Compensation,” which requires that the cost resulting from all share-based payment transactions be recognized as compensation cost over the vesting period based on the fair value of the instrument on the date of grant.

Total stock-based compensation expense related to the stock option and restricted stock unit grants for the three months ended March 31, 2015 and 2014 is as follows:

	Three Months Ended March 31,
	2015		2014
Stock option compensation expense	$	1,950	$	1,524
Restricted stock unit compensation expense	1,830		1,394
Total stock-based compensation expense	$	3,780	$	2,918

Total unrecognized stock-based compensation cost related to the stock options and restricted stock units as of March 31, 2015 and December 31, 2014 is as follows:

	March 31,		December 31,
	2015		2014
Unrecognized stock option compensation expense	$	6,756	$	3,243
Unrecognized restricted stock unit compensation expense	7,734		3,923
Total unrecognized stock-based compensation expense	$	14,490	$	7,166

As of March 31, 2015, total unrecognized compensation cost related to non-vested stock options and restricted stock units is expected to be recognized over a weighted average period of 2.6 years and 2.5 years, respectively.

Stock Options

Stock option awards vest as follows: 50% after two years and the remaining 50% after three years or upon a grantee of such stock options attaining the age 65. The stock options awarded in 2015 have a contractual term of ten years and are subject to forfeiture should the recipient terminate his or her employment with the Company for certain reasons prior to vesting in his or her awards, or the occurrence of certain other events such as termination with cause. The exercise price of these stock options is based on the closing market price of our common stock on the date of grant ($31.89 for the 2015 awards described above) and compensation expense is recorded on an accelerated basis over the awards’ vesting periods.

The weighted average fair value of the stock options granted in March 2015 and 2014 was $10.08 and $10.36, respectively. The fair value was calculated using the Black-Scholes option-pricing model based on the market price at the grant date and the weighted average assumptions specific to the underlying options. The expected term used by the Company is based on the historical average life of stock option awards.  The expected volatility assumption is based on the volatility of our common stock from the same time period as the expected term of the stock options. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term similar to the expected life of the stock options.

The assumptions utilized for calculating the fair value of stock options during the period are as follows:

	Three Months Ended March 31,
	2015		2014
Stock Options Black-Scholes assumptions (weighted average):
Expected volatility	39.08	%	39.93	%
Expected life (years)	4.90		4.30
Risk-free interest rate	1.35	%	1.34	%
Expected dividend yield	1.25	%	—	%

The following table summarizes stock options amounts and activity:

			Weighted		Weighted	Intrinsic
			Average		Average	Value
			Exercise		Remaining	(dollars in
	Options		Price		Life (Years)	thousands)
Outstanding at January 1, 2015	2,759,306		$	11.81	6.8	$	48,799
Granted	555,451		31.89
Exercised	(58,392	)	9.93
Forfeited	(19,764	)	17.68
Outstanding at March 31, 2015	3,236,601		$	15.25	7.2	$	56,933
Exercisable at March 31, 2015	1,950,074		$	7.18	5.8	$	50,042

For the three months ended March 31, 2015 and 2014, cash proceeds from the exercise of stock options totaled $0.5 million and $0.2 million, respectively.

Restricted Stock

Restricted stock units are restricted as to transferability until they vest three years from the grant date or upon a grantee of such restricted stock units attaining the age 65. These restricted stock units are subject to forfeiture should applicable employees terminate their employment with the Company for certain reasons prior to vesting in their awards, or the occurrence of certain other events. The value of these restricted stock units is based on the closing market price of our common stock on the date of grant and compensation expense is recorded on a straight-line basis over the awards’ vesting periods.

The following table summarizes unvested restricted stock units amounts and activity:

			Weighted
			Average
			Grant Date
	Units		Fair Value
Outstanding at January 1, 2015	588,067		$	16.98
Granted	181,590		31.89
Vested	(212,864	)	9.88
Forfeited	(9,500	)	15.76
Outstanding at March 31, 2015	547,293		$	24.71

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Segment Information

3 Months Ended

Mar. 31, 2015

Segment Information

Segment Information

11.Segment Information

The Company has one operating segment.  The Company produces containerboard, corrugated products, and specialty paper which are sold to customers who convert our products into end-market finished products or internally to corrugating plants which produce a wide variety of products ranging from basic corrugated shipping containers to specialized packaging.

The Company’s identification of one operating segment is based on financial information regularly evaluated by the chief operating decision maker in determining resource allocation and assessing performance, in accordance with Accounting Standards Codification 805, Segment Reporting.

Net sales by product line for the three months ended March 31, 2015 and 2014 are as follows:

	Three Months Ended March 31,				Increase/
Net sales by product line:	2015		2014		(Decrease)
Containerboard / Corrugated products	$	344,311	$	336,249	$	8,062
Specialty paper	179,203		189,009		(9,806		)
Other	22,775		23,694		(919		)
Total	$	546,289	$	548,952	$	(2,663	)

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Pension Plan and Post-Retirement Benefits (Tables)

3 Months Ended

Mar. 31, 2015

Pension Plan and Post-Retirement Benefits

Schedule of net pension benefit recognized for the Pension Plan

	Three Months Ended March 31,
	2015			2014
Service cost for benefits earned during the quarter	$	1,215		$	2,449
Interest cost on projected benefit obligations	6,900			7,180
Expected return on plan assets	(10,236		)	(11,031		)
Amortization of net loss	534			—
Amortization of prior service cost	69			101
Net pension benefit - Company plan	(1,518		)	(1,301		)
Net pension cost - multi -employer plan	87			84
Total net pension benefit	$	(1,431	)	$	(1,217	)

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Short-term Borrowings and Long-term Debt (Details) (USD $)	3 Months Ended
	Mar. 31, 2015 item	Dec. 31, 2014	Mar. 31, 2014
Long-term Debt
Short-term borrowings	$ 10,000,000
Weighted average cost of borrowings	1.82%		2.25%
Other current borrowings	6,615,000
Level 2
Long-term Debt
Fair value of debt	1,100,000,000
Other Borrowing
Long-term Debt
Initial aggregate principal amount	6,600,000	6,300,000
Interest rate (as a percent)	1.70%	1.69%
Number of quarterly payments	3
Other current borrowings	6,600,000		4,600,000
Credit Facility | Revolver
Long-term Debt
Short-term borrowings	10,000,000
LIBOR interest rate (as a percent)	1.93%
Current availability under borrowing base	375,700,000
Maximum borrowing capacity	400,000,000
Receivables Credit Facility
Long-term Debt
Trade receivables with securitization facility	251,047,000	225,577,000
Term of debt instrument	1 year
Collateral interest	175,000,000	167,000,000
Receivables Credit Facility | Maximum
Long-term Debt
Collateral interest	$ 175,000,000

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Operating activities
Net income	$ 26,100	$ 32,099
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	35,121	32,709
Stock-based compensation expense	3,780	2,918
Pension and postretirement	(2,892)	(4,080)
Excess tax benefit from stock-based compensation	(1,391)	(2,221)
Amortization of debt issuance costs	1,007	1,452
Loss on disposal of fixed assets	178	979
Deferred income taxes	1,864	3,323
Changes in assets and liabilities:
Trade accounts receivable, net	(26,695)	(5,380)
Other receivables	(946)	(364)
Inventories	(17,178)	(13,458)
Prepaid expenses and other current assets	(9,642)	(5,044)
Other assets	(216)	(1,278)
Accounts payable	(51)	5,497
Accrued expenses and other liabilities	(1,842)	4,305
Accrued compensation costs	(16,479)	(17,595)
Accrued income taxes	5,370	5,089
Net cash (used in) provided by operating activities	(3,912)	38,951
Investing activities
Capital expenditures	(28,762)	(32,420)
Net cash used in investing activities	(28,762)	(32,420)
Financing activities
Proceeds from revolving credit facility	86,400	56,500
Repayments on revolving credit facility	(76,400)	(56,500)
Proceeds from receivables credit facility	12,962
Repayments on receivables credit facility	(4,962)
Payment on long-term debt		(1,175)
Proceeds from other current borrowings	6,615	6,300
Repayments on other current borrowings		(1,673)
Cash dividend paid	(9,838)
Payment of withholding taxes on stock awards	(2,322)	(1,641)
Proceeds from exercises of stock options	491	214
Proceeds from shares issued to ESPP	415	205
Excess tax benefit from stock-based compensation	1,391	2,221
Net cash provided by financing activities	14,752	4,451
Net increase (decrease) in cash and cash equivalents	(17,922)	10,982
Cash and cash equivalents-beginning of period	28,467	12,967
Cash and cash equivalents-end of period	$ 10,545	$ 23,949

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Short-term Borrowings and Long-term Debt

3 Months Ended

Mar. 31, 2015

Short-term Borrowings and Long-term Debt

Short-term Borrowings and Long-term Debt

5.Short-term Borrowings and Long-term Debt

Short-term Borrowings

As of March 31, 2015, the Company had $10.0 million of short-term borrowings with an interest rate of 1.93 percent under its $400 million revolving credit facility (the “Revolver”), which is part of the Company’s senior secured credit facility comprised of term loans and the Revolver (the “Credit Facility”).

As of March 31, 2015, the Company has current availability of $375.7 million under the Revolver.

Receivables Credit Facility

Under our accounts receivable securitization program, we sell, on an ongoing basis without recourse, certain trade receivables (“Receivables”) to KapStone Receivables, LLC (“KAR”), which is considered a wholly-owned, bankruptcy-remote variable interest entity (“VIE”). We have the authority to direct the activities of the VIE and, as a result, we have concluded that we maintain control of the VIE, are the primary beneficiary (as defined by accounting guidance) and, therefore, consolidate the account balances of KAR. As of March 31, 2015, $251.0 million of our receivables were sold to KAR. KAR in turn assigns a collateral interest in these receivables to a financial institution under a one-year facility (the “Receivables Credit Facility”) for proceeds up to $175 million. The assets of KAR are not available to us until all obligations of KAR are satisfied in the event of bankruptcy or insolvency proceedings.

Debt Covenants

Our credit agreement governing our Credit Facility (as amended to date, the “Credit Agreement”) as contains, among other provisions, covenants with which we must comply. The covenants limit our ability to, among other things, incur indebtedness, create additional liens on our assets, make investments, engage in mergers and acquisitions and sell any assets outside the normal course of business.

As of March 31, 2015, the Company was in compliance with all applicable covenants in the Credit Agreement.

Fair Value of Debt

As of March 31, 2015, the fair value of the Company’s debt approximates the carrying value of $1.1 billion as the variable interest rates re-price frequently at current market rates. The debt was valued using Level 2 inputs in the fair value hierarchy which are significant observable inputs including quoted prices for debt of similar terms and maturities.  Our weighted-average cost of borrowings was 1.82 percent and 2.25 percent for the three months ended March 31, 2015 and March 31, 2014, respectively.

Other Borrowing

In 2015 and 2014, the Company entered into short-term financing agreements of $6.6 million and $6.3 million, respectively, at an annual interest rate of 1.70 percent and 1.69 percent, respectively, for its annual property insurance premiums. The 2015 agreement requires the Company to pay three quarterly payments through the term of the financing agreement ending on December 31, 2015.  As of March 31, 2015 and 2014, there was $6.6 million and $4.6 million, respectively, outstanding under these agreements which is included in “Other current borrowings” on the Consolidated Balance Sheets.

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Income taxes (Details)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Difference of effective tax rate from the statutory federal income tax rate
Effective tax rate (as a percent)	34.80%	34.30%
Statutory tax rate (as a percent)	35.00%	35.00%

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Net Income per Share (Tables)

3 Months Ended

Mar. 31, 2015

Net Income per Share

Schedule of basic and diluted net income per share

	Three Months Ended March 31,
	2015		2014
Net income	$	26,100	$	32,099
Weighted-average number of common shares for basic net income per share	96,123,351		95,720,328
Incremental effect of dilutive common stock equivalents:
Unexercised stock options	1,202,004		1,211,848
Unvested restricted stock awards	337,253		383,590
Weighted-average number of shares for diluted net income per share	97,662,608		97,315,766
Net income per share - basic	$	0.27	$	0.34
Net income per share - diluted	$	0.27	$	0.33