UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
October 28, 2015
Date of Report (Date of earliest event reported)
KapStone Paper and Packaging Corporation
(Exact name of registrant as specified in its charter)
Delaware |
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001-33494 |
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20-2699372 |
(State or other jurisdiction |
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(Commission |
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(IRS Employer |
1101 Skokie Boulevard, Suite 300
Northbrook, Illinois 60062
(Address of principal executive offices)
(847) 239-8800
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On October 28, 2015, KapStone Paper and Packaging Corporation (KapStone) issued a press release announcing third quarter 2015 financial results. A copy of the press release is attached hereto as Exhibit 99.1. In addition, a copy of KapStones Third Quarter 2015 Financial Review which will be used for the conference call on October 29, 2015 is attached hereto as Exhibit 99.2.
The information is being furnished under Item 2.02 Results of Operations and Financial Condition of Form 8-K. Such information, including the Exhibits attached hereto, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 7.01 Regulation FD Disclosure
On October 29, 2015, the management of KapStone will participate in a conference call discussing KapStones financial results for the quarter ended September 30, 2015.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit No. |
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Description |
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Exhibit 99.1 |
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Press release dated October 28, 2015, announcing third quarter 2015 financial results |
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Exhibit 99.2 |
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Third Quarter 2015 Financial Review of KapStone Paper and Packaging Corporation, dated October 28, 2015 |
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: October 28, 2015 |
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KAPSTONE PAPER AND PACKAGING CORPORATION | ||
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By: |
/s/ Andrea K. Tarbox | |
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Name: |
Andrea K. Tarbox | |
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Title: |
Vice President and Chief Financial Officer | |
Exhibit 99.1
FOR FURTHER INFORMATION: |
FOR IMMEDIATE RELEASE |
Andrea K. Tarbox |
Wednesday October 28, 2015 |
Vice President and Chief Financial Officer |
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847.239.8812 |
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KAPSTONE REPORTS THIRD QUARTER RESULTS
OPERATING CASH FLOWS EXCEED $100 MILLION
NORTHBROOK, IL October 28, 2015 KapStone Paper and Packaging Corporation (NYSE:KS) (KapStone, or the Company) today reported results for the third quarter ended September 30, 2015. As compared to 2014s third quarter, results for 2015s third quarter are below:
· Net sales of $808 million up $209 million, or 35 percent
· Net income of $34 million down $20 million, or 37 percent
· Adjusted net income of $49 million down $9 million, or 15 percent
· Adjusted EBITDA of $126 million down $6 million, or 4 percent
· Diluted EPS of $0.35 down $0.21 per share, or 38 percent
· Adjusted diluted EPS of $0.51 down $0.09 per share, or 15 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, The strength of our operations generated third quarter free cash flow of $73 million, up 24 percent over the prior year. The increase in cash flow includes $17 million generated by Victory, while our legacy operations also performed very well despite a 12 day work stoppage by our union at the Longview mill. No one wins in a strike, and this strike was no exception. The strike cost KapStone approximately $14 million, and our Longview union employees lost approximately $2 million of wages and benefits.
Our Charleston and Roanoke Rapids mills set all-time production records for the third quarter, and our corrugated products shipments year-to-date were up 4 percent on an average weekly basis over 2014. The stronger dollar, however, continues to negatively impact our export sales, resulting in lower sales prices for saturating kraft, export containerboard, and extensible grade kraft paper and a less favorable product mix.
We are making strong progress at integrating Victory Packaging and we are on target to realize the $30 million run rate of synergies by mid-2016. We are aggressively working on realizing the benefits of increased integration that Victory provides.
Third Quarter Operating Highlights
Consolidated net sales of $808 million in the third quarter of 2015 increased by $209 million, or 35 percent compared to $598 million for the 2014 third quarter. The increase is primarily due to $248 million from the Victory Packaging acquisition, partially offset by $24 million of lower shipments due to the Longview work stoppage, $3 million due to a stronger U.S. dollar compared to the Euro which impacted sales in Europe and some exports, and lower selling prices. The Company sold 678,000 tons of paper during the third quarter of 2015 compared to 715,000 tons a year earlier. The Companys average mill selling price of $671 per ton in the third quarter of 2015 decreased by $18 per ton compared to the third quarter of 2014, due to the stronger U.S. dollar and lower domestic and export containerboard prices.
Operating income of $62 million for the 2015 third quarter decreased by $33 million, or 35 percent, compared to the 2014 third quarter. The lower operating earnings primarily reflects lower sales volume and higher costs due to the work stoppage at Longview, lower average mill selling prices, higher fiber costs, inflation on compensation and benefit costs, and the stronger U.S. dollar which impacted prices in Europe and for some exports. On the positive side, Victory Packaging generated $18 million of earnings in the third quarter of 2015 prior to acquisition-related expenses of $2 million for a non-cash inventory step-up charge and $5 million of amortization expense of identified intangible assets.
Interest expense, net, of $10 million for the third quarter of 2015, was about $2 million higher than a year ago, reflecting the additional borrowings in June 2015 to finance the Victory Packaging acquisition. Our weighted average interest rate as of September 30, 2015 is 1.8 percent which is about the same as last year. Loss on debt extinguishment was about $2 million lower in 2015 compared to 2014 based on a lower amount of debt prepayments. In the quarter ended September 30, 2015, the Company made a $52 million debt prepayment compared to a $175 million prepayment in the period a year earlier.
The effective income tax rate for the 2015 third quarter was 32.5 percent compared to 33.9 percent for the 2014 third quarter. The decrease reflects a discrete benefit from a state tax law change enacted in the third quarter of 2015.
Cash Flow and Working Capital
Cash and cash equivalents decreased by $21 million to $8 million in the quarter ended September 30, 2015, from June 30, 2015. Operating activities generated $104 million during the third quarter while investing and financing activities used $32 million and $93 million, respectively. Capital expenditures in the third quarter were $31 million including the start-up of a new corrugator at the Companys Aurora Illinois box plant. Financing activities included a $52 million debt prepayment.
At September 30, 2015, the Company had approximately $431 million of working capital and $480 million of revolver borrowing capacity.
Conclusion
In summary, Stone commented, Having now worked together with the team from Victory, I am even more optimistic regarding the opportunities available to KapStone. These insights coupled with the strength of our industry, provide strong assurance that KapStone is well positioned for the future.
Conference Call
KapStone will host a conference call at 10:00 a.m. CDT, Thursday, October 29, 2015, to discuss the Companys financial results for the 2015 third quarter. All interested parties are invited to listen and may do so by either accessing a simultaneous broadcast webcast on KapStones website, http://www.kapstonepaper.com, or for those unable to access the webcast, the following dial-in numbers are available:
Domestic: 800-510-0219
International: 617-614-3451
Participant Passcode: 99597247
A presentation to be viewed in conjunction with the call will also be available on our website, http://www.kapstonepaper.com, in the Investors section.
Replay of the webcast will be available for 30 days on the Companys website following the call.
About the Company
Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is the fifth largest producer of containerboard and corrugated packaging products and is the largest kraft paper producer in the United States. The Company has four paper mills, 21 converting plants and 65 distribution centers. The business has approximately 6,200 employees.
Non-GAAP Financial Measures
This press release includes certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS to measure our operating performance. Management uses these measures to focus on the on-going operations, and believes it is useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The Company believes that EBITDA and Adjusted EBITDA provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency to key measures used to evaluate the performance and liquidity of the Company. Management uses EBITDA and Adjusted EBITDA for evaluating the Companys performance against competitors and as a primary measure for employees incentive programs. Reconciliations of Net Income to EBITDA, EBITDA to Adjusted EBITDA, Net Income to Adjusted Net Income, Basic EPS to Adjusted Basic EPS, and Diluted EPS to Adjusted Diluted EPS are included in the financial schedules contained in this press release. However, these measures should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.
Forward-Looking Statements
Statements in this news release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such as may, will, should, would, expect, project, anticipate, intend, plan, believe, estimate, potential, outlook, or continue, the negative of these terms or other similar expressions. These statements reflect managements current views and are subject to risks, uncertainties and assumptions, many of which are beyond the Companys control that could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially include, but are not limited to: (1) industry conditions; (2) market and economic factors; (3) results of legal proceedings and compliance costs; (4) the ability to achieve and effectively manage growth; (5) the ability to pay the Companys debt obligations; (6) the ability to carry out the Companys strategic initiatives and manage associated costs; (7) managing labor relationships and (8) realizing the synergies and benefits of the Victory Packaging acquisition. Further information on these and other risks and uncertainties is provided under Part I, Item 1A Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2014, under Part II, Item 1.A. Risk Factors in the Companys Quarterly Reports on Form 10-Q for the quarters ended June 30, 2015 and September 30, 2015, and elsewhere in reports that the Company files with the SEC. These filings can be found on KapStones Web site at http://www.kapstonepaper.com and the SECs Web site at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and the Company disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.
KapStone Paper and Packaging Corporation
Consolidated Statements of Income
(In thousands, except share and per share amounts)
(unaudited)
|
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Quarter Ended September 30, |
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Nine Months Ended September 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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Net sales |
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$ |
807,563 |
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$ |
598,106 |
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$ |
2,025,107 |
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$ |
1,737,507 |
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Cost and expenses: |
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Cost of sales, excluding depreciation and amortization |
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569,267 |
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388,641 |
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1,421,943 |
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1,164,134 |
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Depreciation and amortization |
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42,500 |
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34,997 |
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114,617 |
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101,580 |
| ||||
Freight and distribution expenses |
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70,623 |
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46,173 |
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167,941 |
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131,829 |
| ||||
Selling, general and administrative expenses |
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63,577 |
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34,133 |
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150,252 |
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102,371 |
| ||||
Operating income |
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61,596 |
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94,162 |
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170,354 |
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237,593 |
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|
|
|
|
|
|
|
|
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Foreign exchange gain / (loss) |
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(766 |
) |
(960 |
) |
(1,704 |
) |
(859 |
) | ||||
Loss on debt extinguishment |
|
628 |
|
2,963 |
|
628 |
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2,963 |
| ||||
Interest expense, net |
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9,528 |
|
8,099 |
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24,456 |
|
25,299 |
| ||||
Income before provision for income taxes |
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50,674 |
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82,140 |
|
143,566 |
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208,472 |
| ||||
Provision for income taxes |
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16,468 |
|
27,886 |
|
49,004 |
|
70,660 |
| ||||
Net income |
|
$ |
34,206 |
|
$ |
54,254 |
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$ |
94,562 |
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$ |
137,812 |
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|
|
|
|
|
|
|
|
|
| ||||
Net income per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.36 |
|
$ |
0.57 |
|
$ |
0.98 |
|
$ |
1.44 |
|
Diluted |
|
$ |
0.35 |
|
$ |
0.56 |
|
$ |
0.97 |
|
$ |
1.41 |
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|
|
|
|
|
|
|
|
|
| ||||
Weighted-average number of shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
96,310,998 |
|
95,958,877 |
|
96,235,404 |
|
95,857,079 |
| ||||
Diluted |
|
97,629,641 |
|
97,515,901 |
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97,631,247 |
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97,416,869 |
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|
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|
|
|
|
|
|
|
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Effective income tax rate |
|
32.5 |
% |
33.9 |
% |
34.1 |
% |
33.9 |
% | ||||
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|
|
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|
|
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Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP): |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
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Net income (GAAP) |
|
$ |
34,206 |
|
$ |
54,254 |
|
$ |
94,562 |
|
$ |
137,812 |
|
Interest expense, net |
|
9,528 |
|
8,099 |
|
24,456 |
|
25,299 |
| ||||
Provision for income taxes |
|
16,468 |
|
27,886 |
|
49,004 |
|
70,660 |
| ||||
Depreciation and amortization |
|
42,500 |
|
34,997 |
|
114,617 |
|
101,580 |
| ||||
EBITDA (Non-GAAP) |
|
$ |
102,702 |
|
$ |
125,236 |
|
$ |
282,639 |
|
$ |
335,351 |
|
|
|
|
|
|
|
|
|
|
| ||||
Stock-based compensation expense |
|
1,585 |
|
1,401 |
|
8,122 |
|
5,630 |
| ||||
Longview integration expenses |
|
365 |
|
603 |
|
1,574 |
|
3,350 |
| ||||
Victory Packaging acquisition expenses |
|
3,817 |
|
|
|
10,372 |
|
|
| ||||
Voluntary separation plan and severance |
|
2,310 |
|
1,465 |
|
4,974 |
|
6,283 |
| ||||
Longview work stoppage |
|
14,464 |
|
|
|
14,464 |
|
|
| ||||
Loss on debt extinguishment |
|
628 |
|
2,963 |
|
628 |
|
2,963 |
| ||||
Adjusted EBITDA (Non-GAAP) |
|
$ |
125,871 |
|
$ |
131,668 |
|
$ |
322,773 |
|
$ |
353,577 |
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|
|
|
|
|
|
|
|
|
| ||||
Net Income (GAAP) to Adjusted Net Income (Non-GAAP): |
|
|
|
|
|
|
|
|
| ||||
Net income (GAAP) |
|
$ |
34,206 |
|
$ |
54,254 |
|
$ |
94,562 |
|
$ |
137,812 |
|
Stock-based compensation expense |
|
1,037 |
|
918 |
|
5,312 |
|
3,688 |
| ||||
Longview integration and other expenses |
|
239 |
|
395 |
|
1,029 |
|
2,194 |
| ||||
Victory Packaging acquisition expenses |
|
2,496 |
|
|
|
6,783 |
|
|
| ||||
Voluntary separation plan and severance |
|
1,511 |
|
960 |
|
3,253 |
|
4,115 |
| ||||
Longview work stoppage |
|
9,459 |
|
|
|
9,459 |
|
|
| ||||
Acquisition tax adjustments |
|
|
|
(279 |
) |
398 |
|
(279 |
) | ||||
Loss on debt extinguishment |
|
411 |
|
1,941 |
|
411 |
|
1,941 |
| ||||
Adjusted Net Income (Non-GAAP) |
|
$ |
49,359 |
|
$ |
58,189 |
|
$ |
121,207 |
|
$ |
149,471 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP): |
|
|
|
|
|
|
|
|
| ||||
Basic EPS (GAAP) |
|
$ |
0.36 |
|
$ |
0.57 |
|
$ |
0.98 |
|
$ |
1.44 |
|
Stock-based compensation expense |
|
0.01 |
|
0.01 |
|
0.07 |
|
0.04 |
| ||||
Longview integration and other expenses |
|
|
|
|
|
0.01 |
|
0.02 |
| ||||
Victory Packaging acquisition expenses |
|
0.03 |
|
|
|
0.08 |
|
|
| ||||
Voluntary separation plan and severance |
|
0.02 |
|
0.01 |
|
0.03 |
|
0.04 |
| ||||
Longview work stoppage |
|
0.09 |
|
|
|
0.09 |
|
|
| ||||
Acquisition tax adjustments |
|
|
|
|
|
|
|
|
| ||||
Loss on debt extinguishment |
|
|
|
0.02 |
|
|
|
0.02 |
| ||||
Adjusted Basic EPS (Non-GAAP) |
|
$ |
0.51 |
|
$ |
0.61 |
|
$ |
1.26 |
|
$ |
1.56 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): |
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per share (GAAP) |
|
$ |
0.35 |
|
$ |
0.56 |
|
$ |
0.97 |
|
$ |
1.41 |
|
Stock-based compensation expense |
|
0.01 |
|
0.01 |
|
0.05 |
|
0.04 |
| ||||
Longview integration and other expenses |
|
|
|
|
|
0.01 |
|
0.02 |
| ||||
Victory Packaging acquisition expenses |
|
0.03 |
|
|
|
0.07 |
|
|
| ||||
Voluntary separation plan and severance |
|
0.02 |
|
0.01 |
|
0.03 |
|
0.04 |
| ||||
Longview work stoppage |
|
0.10 |
|
|
|
0.10 |
|
|
| ||||
Acquisition tax adjustments |
|
|
|
|
|
0.01 |
|
|
| ||||
Loss on debt extinguishment |
|
|
|
0.02 |
|
|
|
0.02 |
| ||||
Adjusted Diluted EPS (Non-GAAP) |
|
$ |
0.51 |
|
$ |
0.60 |
|
$ |
1.24 |
|
$ |
1.53 |
|
KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
|
|
September 30, |
|
December 31, |
| ||
|
|
2015 |
|
2014 |
| ||
|
|
(unaudited) |
|
|
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
7,767 |
|
$ |
28,467 |
|
Trade accounts receivable, net of allowances |
|
395,549 |
|
228,740 |
| ||
Other receivables |
|
18,694 |
|
12,833 |
| ||
Inventories |
|
334,256 |
|
238,329 |
| ||
Prepaid expenses and other current assets |
|
18,152 |
|
7,172 |
| ||
Total current assets |
|
774,418 |
|
515,541 |
| ||
|
|
|
|
|
| ||
Plant, property and equipment, net |
|
1,406,446 |
|
1,386,670 |
| ||
Other assets |
|
13,209 |
|
10,135 |
| ||
Intangible assets, net |
|
351,270 |
|
110,077 |
| ||
Goodwill |
|
704,592 |
|
533,851 |
| ||
Total assets |
|
$ |
3,249,935 |
|
$ |
2,556,274 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Short-term borrowings |
|
$ |
2,000 |
|
$ |
|
|
Current portion of long-term debt |
|
|
|
|
| ||
Other current borrowings |
|
2,214 |
|
|
| ||
Dividend payable |
|
9,828 |
|
9,911 |
| ||
Accounts payable |
|
191,213 |
|
149,600 |
| ||
Accrued expenses |
|
64,432 |
|
48,340 |
| ||
Accrued compensation costs |
|
72,181 |
|
62,491 |
| ||
Accrued income taxes |
|
|
|
6,477 |
| ||
Deferred income taxes |
|
1,396 |
|
1,990 |
| ||
Total current liabilities |
|
343,264 |
|
278,809 |
| ||
|
|
|
|
|
| ||
Long-term debt, net of current portion |
|
1,589,670 |
|
1,046,063 |
| ||
Pension and post-retirement benefits |
|
23,444 |
|
32,800 |
| ||
Deferred income taxes |
|
420,446 |
|
412,293 |
| ||
Other liabilities |
|
20,025 |
|
8,182 |
| ||
Total other liabilities |
|
2,053,585 |
|
1,499,338 |
| ||
|
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Common stock $0.0001 par value |
|
10 |
|
10 |
| ||
Additional paid-in capital |
|
264,306 |
|
255,505 |
| ||
Retained earnings |
|
640,149 |
|
574,601 |
| ||
Accumulated other comprehensive (loss) income |
|
(51,379 |
) |
(51,989 |
) | ||
Total stockholders equity |
|
853,086 |
|
778,127 |
| ||
Total liabilities and stockholders equity |
|
$ |
3,249,935 |
|
$ |
2,556,274 |
|
KapStone Paper and Packaging Corporation
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
|
|
Quarter Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
34,206 |
|
$ |
54,254 |
|
$ |
94,562 |
|
$ |
137,812 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
42,500 |
|
34,997 |
|
114,617 |
|
101,580 |
| ||||
Stock-based compensation expense |
|
1,585 |
|
1,401 |
|
8,122 |
|
5,630 |
| ||||
Pension and postretirement |
|
(2,963 |
) |
(3,105 |
) |
(8,379 |
) |
(9,939 |
) | ||||
Excess tax benefits from stock-based compensation |
|
(7 |
) |
(348 |
) |
(1,518 |
) |
(2,960 |
) | ||||
Amortization of debt issuance costs |
|
1,317 |
|
1,482 |
|
4,364 |
|
4,415 |
| ||||
Loss on debt extinguishment |
|
628 |
|
2,963 |
|
628 |
|
2,963 |
| ||||
Loss on disposal of fixed assets |
|
(205 |
) |
187 |
|
5 |
|
1,203 |
| ||||
Deferred income taxes |
|
3,990 |
|
(3,102 |
) |
6,441 |
|
(1,059 |
) | ||||
Changes in operating assets and liabilities |
|
23,010 |
|
8,666 |
|
(42,194 |
) |
(33,596 |
) | ||||
Net cash provided by operating activities |
|
$ |
104,061 |
|
$ |
97,395 |
|
$ |
176,648 |
|
$ |
206,049 |
|
|
|
|
|
|
|
|
|
|
| ||||
Investing activities: |
|
|
|
|
|
|
|
|
| ||||
Vicrory Packaging acquisition |
|
(482 |
) |
|
|
(617,046 |
) |
|
| ||||
Capital expenditures |
|
(31,184 |
) |
(38,691 |
) |
(94,895 |
) |
(112,367 |
) | ||||
Net cash used in investing activities |
|
$ |
(31,666 |
) |
$ |
(38,691 |
) |
$ |
(711,941 |
) |
$ |
(112,367 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Financing activities: |
|
|
|
|
|
|
|
|
| ||||
Proceeds from revolving credit facility |
|
$ |
2,000 |
|
$ |
|
|
$ |
268,200 |
|
$ |
97,900 |
|
Repayments on revolving credit facility |
|
(15,000 |
) |
|
|
(266,200 |
) |
(97,900 |
) | ||||
Proceeds from receivables credit facility |
|
9,226 |
|
175,000 |
|
112,961 |
|
175,000 |
| ||||
Repayments on receivables credit facility |
|
(13,487 |
) |
|
|
(18,449 |
) |
|
| ||||
Repayments of long-term debt |
|
(64,688 |
) |
(176,175 |
) |
(64,688 |
) |
(178,525 |
) | ||||
Proceeds from long-term debt |
|
|
|
|
|
519,763 |
|
|
| ||||
Payment of debt issuance and loan amendment costs |
|
|
|
(375 |
) |
(10,790 |
) |
(1,081 |
) | ||||
Proceeds from other current borrowings |
|
|
|
|
|
6,615 |
|
6,300 |
| ||||
Repayments of other current borrowings |
|
(2,206 |
) |
(1,736 |
) |
(4,401 |
) |
(5,138 |
) | ||||
Cash dividends paid |
|
(9,634 |
) |
|
|
(29,098 |
) |
|
| ||||
Payment of withholding taxes on vested stock awards |
|
(12 |
) |
(114 |
) |
(2,460 |
) |
(1,755 |
) | ||||
Proceeds from exercises of stock options |
|
|
|
250 |
|
778 |
|
639 |
| ||||
Proceeds from issuance of shares to ESPP |
|
429 |
|
395 |
|
844 |
|
600 |
| ||||
Excess tax benefits from stock-based compensation |
|
7 |
|
348 |
|
1,518 |
|
2,960 |
| ||||
Net cash provided by (used in) financing activities |
|
$ |
(93,365 |
) |
$ |
(2,407 |
) |
$ |
514,593 |
|
$ |
(1,000 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Net increase / (decrease) in cash and cash equivalents |
|
(20,970 |
) |
56,297 |
|
(20,700 |
) |
92,682 |
| ||||
Cash and cash equivalents-beginning of period |
|
28,737 |
|
49,352 |
|
28,467 |
|
12,967 |
| ||||
Cash and cash equivalents-end of period |
|
$ |
7,767 |
|
$ |
105,649 |
|
$ |
7,767 |
|
$ |
105,649 |
|
KapStone Paper and Packaging Corporation
Operating Segment Information
(In thousands)
(unaudited)
|
|
Net Sales |
|
Operating |
|
Depreciation |
|
Capital |
|
Total Assets |
| |||||||||||
Three Months Ended September 30, 2015 |
|
Trade |
|
Intersegment |
|
Total |
|
(Loss) |
|
Amortization |
|
Expenditures |
|
2015 |
| |||||||
Paper and Packaging |
|
$ |
559,435 |
|
$ |
7,628 |
|
$ |
567,063 |
|
$ |
60,185 |
|
$ |
36,059 |
|
$ |
25,448 |
|
$ |
2,524,562 |
|
Distribution (a) |
|
248,128 |
|
|
|
248,128 |
|
11,139 |
|
5,522 |
|
1,283 |
|
683,555 |
| |||||||
Corporate |
|
|
|
|
|
|
|
(9,728 |
) |
919 |
|
4,453 |
|
41,818 |
| |||||||
Intersegment eliminations |
|
|
|
(7,628 |
) |
(7,628 |
) |
|
|
|
|
|
|
|
| |||||||
|
|
$ |
807,563 |
|
$ |
|
|
$ |
807,563 |
|
$ |
61,596 |
|
$ |
42,500 |
|
$ |
31,184 |
|
$ |
3,249,935 |
|
|
|
Net Sales |
|
Operating |
|
Depreciation |
|
Capital |
|
Total Assets |
| |||||||||||
Three Months Ended September 30, 2014 |
|
Trade |
|
Intersegment |
|
Total |
|
(Loss) |
|
Amortization |
|
Expenditures |
|
2014 |
| |||||||
Paper and Packaging |
|
$ |
598,106 |
|
$ |
|
|
$ |
598,106 |
|
$ |
102,291 |
|
$ |
34,244 |
|
$ |
38,179 |
|
$ |
2,669,499 |
|
Distribution (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Corporate |
|
|
|
|
|
|
|
(8,129 |
) |
753 |
|
512 |
|
126,748 |
| |||||||
Intersegment eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
$ |
598,106 |
|
$ |
|
|
$ |
598,106 |
|
$ |
94,162 |
|
$ |
34,997 |
|
$ |
38,691 |
|
$ |
2,796,247 |
|
|
|
Net Sales |
|
Operating |
|
Depreciation |
|
Capital |
|
|
| ||||||||||
Nine Months Ended September 30, 2015 |
|
Trade |
|
Intersegment |
|
Total |
|
(Loss) |
|
Amortization |
|
Expenditures |
|
|
| ||||||
Paper and Packaging |
|
$ |
1,683,581 |
|
$ |
8,416 |
|
$ |
1,691,997 |
|
$ |
190,321 |
|
$ |
104,723 |
|
$ |
81,954 |
|
|
|
Distribution (a) |
|
341,526 |
|
|
|
341,526 |
|
12,859 |
|
7,467 |
|
1,526 |
|
|
| ||||||
Corporate |
|
|
|
|
|
|
|
(32,826 |
) |
2,427 |
|
11,415 |
|
|
| ||||||
Intersegment eliminations |
|
|
|
(8,416 |
) |
(8,416 |
) |
|
|
|
|
|
|
|
| ||||||
|
|
$ |
2,025,107 |
|
$ |
|
|
$ |
2,025,107 |
|
$ |
170,354 |
|
$ |
114,617 |
|
$ |
94,895 |
|
|
|
|
|
Net Sales |
|
Operating |
|
Depreciation |
|
Capital |
|
|
| ||||||||||
Nine Months Ended September 30, 2014 |
|
Trade |
|
Intersegment |
|
Total |
|
(Loss) |
|
Amortization |
|
Expenditures |
|
|
| ||||||
Paper and Packaging |
|
$ |
1,737,507 |
|
$ |
|
|
$ |
1,737,507 |
|
$ |
264,133 |
|
$ |
99,103 |
|
$ |
107,059 |
|
|
|
Distribution (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Corporate |
|
|
|
|
|
|
|
(26,540 |
) |
2,477 |
|
5,308 |
|
|
| ||||||
Intersegment eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
$ |
1,737,507 |
|
$ |
|
|
$ |
1,737,507 |
|
$ |
237,593 |
|
$ |
101,580 |
|
$ |
112,367 |
|
|
|
(a) Reflects Victroy Packaging acquisition as of June 1, 2015
Exhibit 99.2
2015 Third Quarter Review Roger W. Stone Chairman and Chief Executive Officer Andrea K. Tarbox Vice President and Chief Financial Officer October 28, 2015 1
Forward Looking Statements Forward-Looking Statements The information in this presentation and statements made during this presentation may contain certain forward-looking statements within the meaning of federal securities laws. These statements reflect managements expectations regarding future events and operating performance. Risk Factors These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to differ materially from those expressed in, or underlying, any forward-looking statements can be found in the Companys filings with the Securities and Exchange Commission, such as its annual and quarterly reports. The Company disclaims any obligation t revise or update such statements to reflect the occurrence of events after the date of this presentation. Non-GAAP Financial Measures This presentation refers to non-U.S. GAAP financial information. non U.S. GAAP to U.S. GAAP financial measures is available website at KapStonepaper.com under Investors. A reconciliation of onthecompanys 2
Q3 2015 Notables First full quarter of Victory results ¾ ¾ ¾ ¾ $248 million of revenue $18 million of adjusted EBITDA $17 million of free cash flow Expected synergy run rate of $30 million on target to be attained by mid-2016 as projected with significant ramp Achieved $1 million of synergies in Q3 September up in KapStone free cash flow of $73 million, or $0.75 per diluted share All-time quarterly production records set at Roanoke Rapids and Charleston mills 3
Q3 2015 Notables (cont.) First strike in KapStone history at Longview operations 12 days ¾ When there is a strike, no one wins Cost to KapStone was $14 million Striking workers lost $2.4 million of wages and benefit ¾ ¾ Longview lost 29,175 tons of production Performed Longview cold mill outage maintenance work both as scheduled and accelerated from 2016 During strike, non-union employees and contractorsrestarted2 paper machines capable of producing approximately 60% of mills capacity Charlestons Q3 planned maintenance outage delayed to Q4 2015 Customer requirements were met No customers lost ¾ ¾ ¾ ¾ 4
Third Quarter Financial Results (1) (2) (3) (4) Percentage change calculations made using unrounded source financials Adjusted to exclude non-cash stock compensation and acquisition, integration, and severance expenses Adjusted to exclude non-cash stock compensation, acquisition, integration and severance expenses net of related income taxes Includes $3 million net of tax and $0.03 per share impact in Q3 from amortization of intangibles for Victory purchase accounting 5 ($ in Millions, except per share) Q3 2015 Q3 2014 Inc/(Dec) (1) Q2 2015 Inc/(Dec) (1) Net Sales $ 808 $ 598 35% $ 671 20% EBITDA $103 $125 (18%) $98 4% Adj. EBITDA(2) $126 $132 (4%) $110 14% Net Income (4) $ 34 $ 54 (37%) $ 34 --% Adj. Net Income(3) $49 $58 (15%) $42 16% Diluted EPS(4) $0.35 $0.56 (38%) $0.35 --% Adj. Diluted EPS(3) $0.51 $0.60 (15%) $0.44 16%
Q3 2015 Compared to Q2 2015 Actual Acquisition and Timing of Outages Drives Improvement Net Sales Adjusted EBITDA $671 $155 $2 $20 $808 $110 $11 $6 $1 $126 Victory Packaging acquisition added $155 million of sales and $11 million of adjusted EBITDA Productivity reflects 25,000 tons of higher mill production (excludes 29,000 tons lost due to Longview 12 day work stoppage) Price and mix reflects average mill selling prices increasing $4 per ton to $671 5 percent increase in corrugated products volume on a per day basis (including tons shipped to Victory) Lower planned outages of $6 million reflects $7 million for Charleston machine upgrade being deferred to Q4 in order to have capacity available during Longview work stoppage 6 $ in Millions $ in Millions
Q3 2015 Compared to Q3 2014 Actual Acquisition is Key Driver YOY While PrAidcjuestaednEdBMITDixA Declines Continue Net Sales $18 $10 $1 $2 $4 $132 $3 $6 $248 $9 $3 $24 $808 $2 $ 26 $598 ¾ ¾ Victory Packaging acquisition added $248 million in sales and $18 million of adjusted EBITDA Collectively, unfavorable price/mix and FX drove mill selling prices $18 per ton lower Strong dollar negatively impacted export containerboard prices FX loss on saturating kraft sales due to lower Euro Higher domestic kraft paper prices partially offset declines ¾ ¾ ¾ Lower sales volume reflects impact of Longview 12 day work stoppage (29,000 tons) Change in outage costs was low as a planned outage with a cost of $7 million was deferred to Q4 Inflation negatively impacted adjusted EBITDA by $6 million Compensation and benefit increases Fiber costs about 6 percent higher in the Pacific Northwest 7 $ in Millions $ in Millions
8 Generating Powerful Cash Flow or 24%, FCF $per share Q3 2015 cash Net debt at September - $1,608 Weighted average interest of 1.82% million Capex for Q3 2015 Debt $63 Million Dividend Up $24 million, over PY 0.75 Generated $73 million of free flow 30, 2015 million rate Debt pay down included $52 voluntary prepayment on term loans Available revolver balance is $480 million was $31 million Reduced by Paid $10 Million
Summary of Key Assumptions for Q4 2015 ¾ Full quarter of West coast medium and linerboard reductions of $20 and $10 per ton, respectively (reductions took effect on August 1) Annual impact of approximately $3 million ¾ Partial impact of $15 per ton medium reduction announced in October Expected annual impact once fully realized should be approximately $1 million ¾ Production and shipping Three fewer corrugated products shipping days Weather disruptions at Charleston mill impacting fiber supply Seasonally lower volumes for Victory ¾ Planned outage maintenance expense of $11 million. 9,000 production tons lost including 7,200 tons for a rebuild of CHS paper machine 1 Roanoke Rapids annual outage which in the past occurred in Q4 will not occur in Q4 this year as it was performed earlier in 2015 ¾ Seasonally higher fiber and energy costs compared to Q3 2015 ¾ CAPEX is expected to be $130 million for the full year ¾ Effective income tax rate of 35%. Cash tax rate about the same 9
Appendix
Q3 2015 Versus Prior Quarter and Year Sales ad Production Tons Sold (1) (Net of internal consumption) Avg Mill Revenue per Ton Tons Produced (000) 681 715 685 $689 715 $671 710 678 $667 3Q 15 Actual 2Q 15 Actual 3Q 14 Actual 3Q 15 Actual 2Q 15 Actual 3Q 14 Actual 3Q 15 Actual 2Q 15 Actual 3Q 14 Actual Product Mix (000 Tons) Containerboard and Corrugated products (2) Specialty paper (3) Internal Consumption 470 443 425 267 253 245 220 190 186 3Q 15 Actual 2Q 15 Actual 3Q 14 Actual 3Q 15 Actual 2Q 15 Actual 3Q 14 Actual 3Q 15 Actual 2Q 15 Actual 3Q 14 Actual (1) (2) (3) Tons sold excludes internal consumption Containerboard includes all domestic and export sales of linerboard and medium Specialty products include Kraftpak, Durasorb, Kraft paper and roll pulp 11
Maintenance Outage Expense & Production Impact * The 14,300 ton impact is due to the paper machine #3 upgrade in Charleston ** The 10,400 ton impact is due to the Roanoke Rapids mill annual outage. In 2014 this outage occurred in Q4 *** The 9,000 ton impact includes 7,200 tons for a paper machine upgrade at Charleston 12 Lost Production Impact (Tons) Q Q2 Q3 Q4 Year 2014 Actual 14,300* 5,400 - 14,500 34,200 2015 Expected 1,900 10,400** 2,400 9,000** 23,700 Financial Impact ($ in Millions) Q1 Q2 Q3 Q4 Year 2014 Actual $ 14.8 $5.2 $5.2 $10.9 $36.1 2015 Expected $8.6 $11.1 $4.4 $11.0 $35.1
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