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
July 27, 2016
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 July 27, 2016, KapStone Paper and Packaging Corporation (KapStone) issued a press release announcing second quarter 2016 financial results. A copy of the press release is attached hereto as Exhibit 99.1. In addition, a copy of KapStones 2016 Second Quarter Financial Review slides which will be used for the conference call on July 28, 2016 is attached hereto as Exhibit 99.2.
Item 7.01 Regulation FD Disclosure
On July 28, 2016, the management of KapStone will participate in a conference call discussing KapStones financial results for the quarter ended June 30, 2016. A copy of a presentation entitled 2016 Second Quarter Financial Review to be used in the conference call is attached as Exhibit 99.2 to this report.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
The following exhibits are being furnished herewith. 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 the exhibits 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.
Exhibit No. |
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Description |
Exhibit 99.1 |
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Press release dated July 27, 2016, announcing second quarter 2016 financial results |
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Exhibit 99.2 |
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2016 Second Quarter Financial Review slides of KapStone Paper and Packaging Corporation, dated July 27, 2016 |
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: July 27, 2016 |
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KAPSTONE PAPER AND PACKAGING CORPORATION | |
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|
|
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|
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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: |
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FOR IMMEDIATE RELEASE |
Andrea K. Tarbox |
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Wednesday, July 27, 2016 |
Vice President and Chief Financial Officer |
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847.239.8812 |
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KAPSTONE REPORTS SECOND QUARTER RESULTS
NORTHBROOK, IL July 27, 2016 KapStone Paper and Packaging Corporation (NYSE:KS) today reported results for the second quarter ended June 30, 2016. As compared to 2015s second quarter, results for 2016s second quarter are below:
· Net sales of $785 million up $114 million, or 17 percent
· Net income of $21 million down $13 million, or 40 percent
· Adjusted net income of $26 million down $16 million, or 39 percent
· Adjusted EBITDA of $97 million down $14 million, or 13 percent
· Diluted EPS of $0.21 down $0.14 per share, or 40 percent
· Adjusted diluted EPS of $0.27 down $0.17 per share, or 39 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, KapStones operations performed well in the second quarter with our mills producing over 668,000 tons of paper. The benefits from the Victory acquisition were offset by lower prices and a less favorable product mix. Our operating cash flow year-to-date was up $17 million. We achieved our goal of integrating an annual run rate of 115,000 tons of Victorys packaging needs into our mill and plant system. Also, with our recent strategic investments we expect additional mill integration within the next twelve months.
Second Quarter Operating Highlights
Consolidated net sales of $785 million in the second quarter of 2016 increased by $114 million, or 17 percent compared to $671 million for the 2015 second quarter. Victory Packagings net sales increased by $159 million due to including three months of revenues in the 2016 second quarter compared to only one month in the 2015 second quarter as the acquisition closed on June 1, 2015. All other revenues are down $45 million reflecting lower sales volume as we faced increased competition in select containerboard and corrugated product markets. The Companys average mill selling price of $624 per ton in the second quarter of 2016 decreased by $43 per ton, or about 6 percent compared to the second quarter of 2015 due to index-driven lower domestic containerboard prices, lower export containerboard and kraft paper prices and a less favorable product mix.
Operating income of $44 million for the 2016 second quarter decreased by $18 million, or 29 percent, compared to the 2015 second quarter. The lower operating earnings primarily reflect lower prices for domestic and export containerboard and export kraft paper, the timing of planned maintenance outages, inflation on salary and certain benefit costs, an increase of the fair value of the Victory contingent consideration liability and higher depreciation and severance charges. These factors were partially offset by three months of earnings from Victory Packaging compared to one month in 2015 and related synergies, lower Victory acquisition related expenses, lower fiber and fuel costs and lower management incentives.
Interest expense, net, was $10 million for the second quarter of 2016, up $1.5 million from a year ago as a result of borrowings associated with the Victory Packaging acquisition and higher interest rates. Our weighted average interest rate as of June 30, 2016 is 2.1 percent compared to 1.8 percent as of June 30, 2015.
The effective income tax rate for the 2016 second quarter was 36.5 percent compared to 35.2 percent for the 2015 second quarter. Results in the 2016 second quarter include an unfavorable adjustment from a state tax examination.
Cash Flow and Working Capital
Cash and cash equivalents of $8 million as of June 30, 2016, remained consistent with balances at March 31, 2016. Operating activities provided $31 million during the second quarter while investing activities used $38 million and financing activities provided $8 million. Capital expenditures in the second quarter were $36 million. Financing activities included $18 million of net borrowings offset by $10 million of cash dividends.
On May 11, 2016, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on July 13, 2016.
At June 30, 2016, the Company had approximately $456 million of working capital and $467 million of revolver borrowing capacity.
Conclusion
In summary, Stone commented, I expect to see our operations continue to perform better.
Conference Call
KapStone will host a conference call at 10:00 a.m. CDT, Thursday, July 28, 2016, to discuss the Companys financial results for the 2016 second 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: 888-608-7946
International: 484-747-6633
Participant Passcode: 47375590
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, 20 converting plants and 60 distribution centers. The business has approximately 6,300 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 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 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 relations and (8) realizing the synergies and benefits of the Victory Packaging acquisition. Further information on
these and other risks and uncertainties is provided under Item 1A Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 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 June 30, |
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Six Months Ended June 30, |
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2016 |
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2015 |
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2016 |
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2015 |
| ||||
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|
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Net sales |
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$ |
784,911 |
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$ |
671,255 |
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$ |
1,523,126 |
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$ |
1,217,544 |
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|
|
|
|
|
|
|
|
|
| ||||
Cost and expenses: |
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|
| ||||
Cost of sales, excluding depreciation and amortization |
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568,831 |
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470,478 |
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1,102,108 |
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852,676 |
| ||||
Depreciation and amortization |
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46,035 |
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36,996 |
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90,574 |
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72,117 |
| ||||
Freight and distribution expenses |
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70,978 |
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53,891 |
|
136,037 |
|
97,318 |
| ||||
Selling, general and administrative expenses |
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55,554 |
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48,481 |
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116,294 |
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86,675 |
| ||||
Operating income |
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43,513 |
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61,409 |
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78,113 |
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108,758 |
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|
|
|
|
|
|
|
|
| ||||
Foreign exchange (loss) |
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(872 |
) |
(53 |
) |
(975 |
) |
(938 |
) | ||||
Interest expense, net |
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10,006 |
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8,515 |
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19,817 |
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14,928 |
| ||||
Income before provision for income taxes |
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32,635 |
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52,841 |
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57,321 |
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92,892 |
| ||||
Provision for income taxes |
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11,913 |
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18,585 |
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20,425 |
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32,536 |
| ||||
Net income |
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$ |
20,722 |
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$ |
34,256 |
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$ |
36,896 |
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$ |
60,356 |
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Net income per share: |
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Basic |
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$ |
0.21 |
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$ |
0.36 |
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$ |
0.38 |
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$ |
0.63 |
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Diluted |
|
$ |
0.21 |
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$ |
0.35 |
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$ |
0.38 |
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$ |
0.62 |
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|
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|
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Weighted-average number of shares outstanding: |
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|
|
|
|
|
|
|
| ||||
Basic |
|
96,517,357 |
|
96,269,619 |
|
96,458,354 |
|
96,196,889 |
| ||||
Diluted |
|
97,629,786 |
|
97,664,781 |
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97,561,774 |
|
97,647,666 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Effective income tax rate |
|
36.5 |
% |
35.2 |
% |
35.6 |
% |
35.0 |
% |
Supplemental Information
GAAP to Non-GAAP Reconciliations
($ in thousands, except share and per share amounts)
(unaudited)
|
|
Quarter Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP): |
|
|
|
|
|
|
|
|
| ||||
Net income (GAAP) |
|
$ |
20,722 |
|
$ |
34,256 |
|
$ |
36,896 |
|
$ |
60,356 |
|
Interest expense, net |
|
10,006 |
|
8,515 |
|
19,817 |
|
14,928 |
| ||||
Provision for income taxes |
|
11,913 |
|
18,585 |
|
20,425 |
|
32,536 |
| ||||
Depreciation and amortization |
|
46,035 |
|
36,996 |
|
90,574 |
|
72,117 |
| ||||
EBITDA (Non-GAAP) |
|
$ |
88,676 |
|
$ |
98,352 |
|
$ |
167,712 |
|
$ |
179,937 |
|
|
|
|
|
|
|
|
|
|
| ||||
Victory Packaging acquisition expenses |
|
262 |
|
5,919 |
|
525 |
|
6,002 |
| ||||
Integration, casualty and other expenses |
|
1,050 |
|
724 |
|
2,016 |
|
1,209 |
| ||||
Change in fair value of contingent consideration liability |
|
1,526 |
|
553 |
|
3,052 |
|
553 |
| ||||
Severance expenses |
|
3,116 |
|
2,025 |
|
6,164 |
|
2,664 |
| ||||
Stock-based compensation expense |
|
1,941 |
|
2,757 |
|
5,362 |
|
6,537 |
| ||||
Adjusted EBITDA (Non-GAAP) |
|
$ |
96,571 |
|
$ |
110,330 |
|
$ |
184,831 |
|
$ |
196,902 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income (GAAP) to Adjusted Net Income (Non-GAAP): |
|
|
|
|
|
|
|
|
| ||||
Net income (GAAP) |
|
$ |
20,722 |
|
$ |
34,256 |
|
$ |
36,896 |
|
$ |
60,356 |
|
Victory Packaging acquisition expenses |
|
262 |
|
5,919 |
|
525 |
|
6,002 |
| ||||
Integration, casualty and other expenses |
|
1,050 |
|
724 |
|
2,016 |
|
1,209 |
| ||||
Change in fair value of contingent consideration liability |
|
1,526 |
|
553 |
|
3,052 |
|
553 |
| ||||
Severance expenses |
|
3,116 |
|
2,025 |
|
6,164 |
|
2,664 |
| ||||
Stock-based compensation expense |
|
1,941 |
|
2,757 |
|
5,362 |
|
6,537 |
| ||||
Accumulated tax adjustments* |
|
(2,597 |
) |
(3,747 |
) |
(5,760 |
) |
(5,472 |
) | ||||
Adjusted Net Income (Non-GAAP) |
|
$ |
26,020 |
|
$ |
42,487 |
|
$ |
48,255 |
|
$ |
71,849 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): |
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per share (GAAP) |
|
$ |
0.21 |
|
$ |
0.35 |
|
$ |
0.38 |
|
$ |
0.62 |
|
Victory Packaging acquisition expenses |
|
|
|
0.06 |
|
0.01 |
|
0.06 |
| ||||
Integration, casualty and other expenses |
|
0.01 |
|
0.01 |
|
0.02 |
|
0.01 |
| ||||
Change in fair value of contingent consideration liability |
|
0.02 |
|
0.01 |
|
0.03 |
|
0.01 |
| ||||
Severance expenses |
|
0.03 |
|
0.02 |
|
0.06 |
|
0.03 |
| ||||
Stock-based compensation expense |
|
0.02 |
|
0.03 |
|
0.05 |
|
0.07 |
| ||||
Accumulated tax adjustments |
|
(0.02 |
) |
(0.04 |
) |
(0.06 |
) |
(0.06 |
) | ||||
Adjusted Diluted EPS (Non-GAAP) |
|
$ |
0.27 |
|
$ |
0.44 |
|
$ |
0.49 |
|
$ |
0.74 |
|
*Accumulated tax adjustments in 2016 reflect EBITDA adjustments tax affected at 37.5 percent, the Companys marginal income tax rate offset by an unfavorable state tax examination adjustment
KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
|
|
June 30, |
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December 31, |
| ||
|
|
2016 |
|
2015 |
| ||
|
|
(Unaudited) |
|
|
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
7,890 |
|
$ |
6,821 |
|
Trade accounts receivable, net of allowances |
|
415,131 |
|
363,869 |
| ||
Other receivables |
|
12,682 |
|
18,732 |
| ||
Inventories |
|
331,642 |
|
335,903 |
| ||
Prepaid expenses and other current assets |
|
15,124 |
|
28,932 |
| ||
Total current assets |
|
782,469 |
|
754,257 |
| ||
|
|
|
|
|
| ||
Plant, property and equipment, net |
|
1,411,362 |
|
1,406,146 |
| ||
Other assets |
|
10,792 |
|
12,532 |
| ||
Intangible assets, net |
|
327,235 |
|
344,583 |
| ||
Goodwill |
|
704,592 |
|
704,592 |
| ||
Total assets |
|
$ |
3,236,450 |
|
$ |
3,222,110 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Short-term borrowings |
|
$ |
16,000 |
|
$ |
6,400 |
|
Dividend payable |
|
9,907 |
|
9,862 |
| ||
Accounts payable |
|
182,376 |
|
196,491 |
| ||
Accrued expenses |
|
63,864 |
|
73,138 |
| ||
Accrued compensation costs |
|
52,215 |
|
64,149 |
| ||
Accrued income taxes |
|
2,288 |
|
15 |
| ||
Total current liabilities |
|
326,650 |
|
350,055 |
| ||
|
|
|
|
|
| ||
Long-term debt, net of current portion |
|
1,537,028 |
|
1,543,748 |
| ||
Pension and post-retirement benefits |
|
37,830 |
|
40,510 |
| ||
Deferred income taxes |
|
420,843 |
|
418,479 |
| ||
Other liabilities |
|
44,993 |
|
24,038 |
| ||
Total other liabilities |
|
2,040,694 |
|
2,026,775 |
| ||
|
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Common stock $0.0001 par value |
|
10 |
|
10 |
| ||
Additional paid-in capital |
|
271,530 |
|
266,220 |
| ||
Retained earnings |
|
659,789 |
|
642,306 |
| ||
Accumulated other comprehensive (loss) income |
|
(62,223 |
) |
(63,256 |
) | ||
Total stockholders equity |
|
869,106 |
|
845,280 |
| ||
Total liabilities and stockholders equity |
|
$ |
3,236,450 |
|
$ |
3,222,110 |
|
KapStone Paper and Packaging Corporation
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
|
|
Quarter Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
20,722 |
|
$ |
34,256 |
|
$ |
36,896 |
|
$ |
60,356 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| ||||
Depreciation of plant and equipment |
|
37,098 |
|
31,954 |
|
72,701 |
|
63,659 |
| ||||
Amortization of intangible assets |
|
8,937 |
|
5,042 |
|
17,873 |
|
8,458 |
| ||||
Stock-based compensation expense |
|
1,941 |
|
2,757 |
|
5,362 |
|
6,537 |
| ||||
Pension and postretirement |
|
(579 |
) |
(2,524 |
) |
(1,027 |
) |
(5,416 |
) | ||||
Excess tax (deficiency) / benefit from stock-based compensation |
|
10 |
|
(120 |
) |
150 |
|
(1,511 |
) | ||||
Amortization of debt issuance costs |
|
1,251 |
|
2,040 |
|
2,375 |
|
3,047 |
| ||||
(Gain) / Loss on disposal of fixed assets |
|
715 |
|
32 |
|
653 |
|
210 |
| ||||
Deferred income taxes |
|
(360 |
) |
587 |
|
704 |
|
2,451 |
| ||||
Change in fair value of contingent consideration liability |
|
1,526 |
|
553 |
|
3,052 |
|
553 |
| ||||
Changes in operating assets and liabilities |
|
(40,241 |
) |
1,922 |
|
(49,114 |
) |
(65,757 |
) | ||||
Net cash provided by operating activities |
|
$ |
31,020 |
|
$ |
76,499 |
|
$ |
89,625 |
|
$ |
72,587 |
|
|
|
|
|
|
|
|
|
|
| ||||
Investing activities: |
|
|
|
|
|
|
|
|
| ||||
Purchase of intangible assets |
|
(1,025 |
) |
|
|
(1,525 |
) |
|
| ||||
Victory Packaging acquisition |
|
|
|
(616,564 |
) |
|
|
(616,564 |
) | ||||
Capital expenditures |
|
(36,210 |
) |
(34,949 |
) |
(72,373 |
) |
(63,711 |
) | ||||
Proceeds from sales of assets |
|
|
|
|
|
4,856 |
|
|
| ||||
Other |
|
(1,250 |
) |
|
|
(1,250 |
) |
|
| ||||
Net cash used in investing activities |
|
$ |
(38,485 |
) |
$ |
(651,513 |
) |
$ |
(70,292 |
) |
$ |
(680,275 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Financing activities: |
|
|
|
|
|
|
|
|
| ||||
Proceeds from revolving credit facility |
|
129,100 |
|
$ |
179,800 |
|
$ |
263,700 |
|
$ |
266,200 |
| |
Repayments on revolving credit facility |
|
(123,100 |
) |
(174,800 |
) |
(254,100 |
) |
(251,200 |
) | ||||
Proceeds from receivables credit facility |
|
14,424 |
|
90,773 |
|
21,094 |
|
103,735 |
| ||||
Repayments on receivables credit facility |
|
(2,470 |
) |
|
|
(27,170 |
) |
(4,962 |
) | ||||
Proceeds from long-term debt |
|
|
|
519,763 |
|
|
|
519,763 |
| ||||
Payment of loan amendment costs and debt issuance fees |
|
(138 |
) |
(10,790 |
) |
(2,388 |
) |
(10,790 |
) | ||||
Proceeds from other current borrowings |
|
|
|
|
|
|
|
6,615 |
| ||||
Payment from other current borrowings |
|
|
|
(2,195 |
) |
|
|
(2,195 |
) | ||||
Cash dividend paid |
|
(9,652 |
) |
(9,626 |
) |
(19,348 |
) |
(19,464 |
) | ||||
Payment of withholding taxes on vested stock awards |
|
(94 |
) |
(126 |
) |
(786 |
) |
(2,448 |
) | ||||
Proceeds from exercises of stock options |
|
211 |
|
287 |
|
420 |
|
778 |
| ||||
Proceeds from issuance of shares to ESPP |
|
|
|
|
|
464 |
|
415 |
| ||||
Excess tax (deficiency) / benefit from stock-based compensation |
|
(10 |
) |
120 |
|
(150 |
) |
1,511 |
| ||||
Net cash provided by / (used in) financing activities |
|
$ |
8,271 |
|
$ |
593,206 |
|
$ |
(18,264 |
) |
$ |
607,958 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net increase in cash and cash equivalents |
|
806 |
|
18,192 |
|
1,069 |
|
270 |
| ||||
Cash and cash equivalents-beginning of period |
|
7,084 |
|
10,545 |
|
6,821 |
|
28,467 |
| ||||
Cash and cash equivalents-end of period |
|
$ |
7,890 |
|
$ |
28,737 |
|
$ |
7,890 |
|
$ |
28,737 |
|
KapStone Paper and Packaging Corporation
Operating Segment Information
(In thousands)
(Unaudited)
|
|
Net Sales |
|
Operating |
|
Depreciation |
|
|
|
Total Assets |
| |||||||||||
Three Months Ended June 30, 2016 |
|
Trade |
|
Inter- |
|
Total |
|
Income |
|
and |
|
Capital |
|
at June 30, |
| |||||||
Paper and Packaging |
|
$ |
532,571 |
|
$ |
20,524 |
|
$ |
553,095 |
|
$ |
41,082 |
|
$ |
38,163 |
|
$ |
34,265 |
|
$ |
2,507,161 |
|
Distribution (a) |
|
252,340 |
|
|
|
252,340 |
|
12,336 |
|
5,702 |
|
932 |
|
686,997 |
| |||||||
Corporate |
|
|
|
|
|
|
|
(9,905 |
) |
2,170 |
|
1,013 |
|
42,292 |
| |||||||
Intersegment eliminations |
|
|
|
(20,524 |
) |
(20,524 |
) |
|
|
|
|
|
|
|
| |||||||
|
|
$ |
784,911 |
|
$ |
|
|
$ |
784,911 |
|
$ |
43,513 |
|
$ |
46,035 |
|
$ |
36,210 |
|
$ |
3,236,450 |
|
|
|
Net Sales |
|
Operating |
|
Depreciation |
|
|
|
Total Assets |
| |||||||||||
Three Months Ended June 30, 2015 |
|
Trade |
|
Inter- |
|
Total |
|
Income |
|
and |
|
Capital |
|
at June 30, |
| |||||||
Paper and Packaging |
|
$ |
577,857 |
|
$ |
788 |
|
$ |
578,645 |
|
$ |
71,844 |
|
$ |
34,187 |
|
$ |
30,256 |
|
$ |
2,553,708 |
|
Distribution (a) |
|
93,398 |
|
|
|
93,398 |
|
1,720 |
|
1,945 |
|
243 |
|
527,704 |
| |||||||
Corporate (b) |
|
|
|
|
|
|
|
(12,155 |
) |
864 |
|
4,450 |
|
223,792 |
| |||||||
Intersegment eliminations |
|
|
|
(788 |
) |
(788 |
) |
|
|
|
|
|
|
|
| |||||||
|
|
$ |
671,255 |
|
$ |
|
|
$ |
671,255 |
|
$ |
61,409 |
|
$ |
36,996 |
|
$ |
34,949 |
|
$ |
3,305,204 |
|
|
|
Net Sales |
|
Operating |
|
Depreciation |
|
|
|
|
| ||||||||||
Six Months Ended June 30, 2016 |
|
Trade |
|
Inter- |
|
Total |
|
Income |
|
and |
|
Capital |
|
|
| ||||||
Paper and Packaging |
|
$ |
1,052,611 |
|
$ |
36,993 |
|
$ |
1,089,604 |
|
$ |
87,323 |
|
$ |
75,299 |
|
$ |
66,620 |
|
|
|
Distribution (a) |
|
470,515 |
|
|
|
470,515 |
|
13,717 |
|
11,363 |
|
2,998 |
|
|
| ||||||
Corporate |
|
|
|
|
|
|
|
(22,927 |
) |
3,912 |
|
2,755 |
|
|
| ||||||
Intersegment eliminations |
|
|
|
(36,993 |
) |
(36,993 |
) |
|
|
|
|
|
|
|
| ||||||
|
|
$ |
1,523,126 |
|
$ |
|
|
$ |
1,523,126 |
|
$ |
78,113 |
|
$ |
90,574 |
|
$ |
72,373 |
|
|
|
|
|
Net Sales |
|
Operating |
|
Depreciation |
|
|
|
|
| ||||||||||
Six Months Ended June 30, 2015 |
|
Trade |
|
Inter- |
|
Total |
|
Income |
|
and |
|
Capital |
|
|
| ||||||
Paper and Packaging |
|
$ |
1,124,146 |
|
$ |
788 |
|
$ |
1,124,934 |
|
$ |
130,136 |
|
$ |
68,664 |
|
$ |
56,506 |
|
|
|
Distribution (a) |
|
93,398 |
|
|
|
93,398 |
|
1,720 |
|
1,945 |
|
243 |
|
|
| ||||||
Corporate |
|
|
|
|
|
|
|
(23,098 |
) |
1,508 |
|
6,962 |
|
|
| ||||||
Intersegment eliminations |
|
|
|
(788 |
) |
(788 |
) |
|
|
|
|
|
|
|
| ||||||
|
|
$ |
1,217,544 |
|
$ |
|
|
$ |
1,217,544 |
|
$ |
108,758 |
|
$ |
72,117 |
|
$ |
63,711 |
|
|
|
(a) Reflects results of Victory Packaging which KapStone acquired on June 1, 2015
(b) Goodwill related to the Victory Packaging acquisition was included in Corporate as of June 30, 2015 and was subsequently allocated to the Distribution segment in the quarter ended September 30, 2015
KapStone Paper and Packaging Corporation
Operating Segment EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
|
|
Quarter Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
Paper and Packaging |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
Segment income |
|
$ |
41,082 |
|
$ |
71,844 |
|
$ |
87,323 |
|
$ |
130,136 |
|
Foreign exchange (loss) / gain |
|
(288 |
) |
146 |
|
|
|
(739 |
) | ||||
Depreciation and amortization |
|
38,163 |
|
34,187 |
|
75,299 |
|
68,664 |
| ||||
EBITDA |
|
78,957 |
|
106,177 |
|
162,622 |
|
198,061 |
| ||||
Victory Packaging acquisition expenses |
|
|
|
|
|
|
|
|
| ||||
Integration, casualty and other expenses |
|
935 |
|
724 |
|
1,819 |
|
1,209 |
| ||||
Severance expenses |
|
3,035 |
|
2,025 |
|
5,297 |
|
2,664 |
| ||||
Adjusted EBITDA |
|
$ |
82,927 |
|
$ |
108,926 |
|
$ |
169,738 |
|
$ |
201,934 |
|
Adjusted EBITDA margin |
|
15.6 |
% |
18.8 |
% |
16.1 |
% |
18.0 |
% |
|
|
Quarter Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
Distribution |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
Segment income |
|
$ |
12,336 |
|
$ |
1,720 |
|
$ |
13,717 |
|
$ |
1,720 |
|
Foreign exchange (loss) / gain |
|
(584 |
) |
(199 |
) |
(975 |
) |
(199 |
) | ||||
Depreciation and amortization |
|
5,702 |
|
1,945 |
|
11,363 |
|
1,945 |
| ||||
EBITDA |
|
17,454 |
|
3,466 |
|
24,105 |
|
3,466 |
| ||||
Victory Packaging acquisition expenses |
|
262 |
|
3,870 |
|
525 |
|
3,870 |
| ||||
Integration, casualty and other expenses |
|
|
|
|
|
|
|
|
| ||||
Severance expenses |
|
89 |
|
|
|
480 |
|
|
| ||||
Adjusted EBITDA |
|
$ |
17,805 |
|
$ |
7,336 |
|
$ |
25,110 |
|
$ |
7,336 |
|
Adjusted EBITDA margin |
|
7.1 |
% |
7.9 |
% |
5.3 |
% |
7.9 |
% |
|
|
Quarter Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
Corporate |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
Segment (loss) |
|
$ |
(9,905 |
) |
$ |
(12,155 |
) |
$ |
(22,927 |
) |
$ |
(23,098 |
) |
Foreign exchange loss / (gain) |
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
2,170 |
|
864 |
|
3,912 |
|
1,508 |
| ||||
EBITDA |
|
(7,735 |
) |
(11,291 |
) |
(19,015 |
) |
(21,590 |
) | ||||
Victory Packaging acquisition expenses |
|
|
|
2,049 |
|
|
|
2,132 |
| ||||
Integration, casualty and other expenses |
|
115 |
|
|
|
197 |
|
|
| ||||
Change in fair value of contingent consideration liability |
|
1,526 |
|
553 |
|
3,052 |
|
553 |
| ||||
Severance expenses |
|
(8 |
) |
|
|
387 |
|
|
| ||||
Stock-based compensation |
|
1,941 |
|
2,757 |
|
5,362 |
|
6,537 |
| ||||
Adjusted EBITDA |
|
$ |
(4,161 |
) |
$ |
(5,932 |
) |
$ |
(10,017 |
) |
$ |
(12,368 |
) |
|
|
Quarter Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
Consolidated |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
Segment income |
|
$ |
43,513 |
|
$ |
61,409 |
|
$ |
78,113 |
|
$ |
108,758 |
|
Foreign exchange (loss) / gain |
|
(872 |
) |
(53 |
) |
(975 |
) |
(938 |
) | ||||
Depreciation and amortization |
|
46,035 |
|
36,996 |
|
90,574 |
|
72,117 |
| ||||
EBITDA |
|
88,676 |
|
98,352 |
|
167,712 |
|
179,937 |
| ||||
Victory Packaging acquisition expenses |
|
262 |
|
5,919 |
|
525 |
|
6,002 |
| ||||
Integration, casualty and other expenses |
|
1,050 |
|
724 |
|
2,016 |
|
1,209 |
| ||||
Severance expenses |
|
3,116 |
|
2,025 |
|
6,164 |
|
2,664 |
| ||||
Change in fair value of contingent consideration liability |
|
1,526 |
|
553 |
|
3,052 |
|
553 |
| ||||
Stock-based compensation |
|
1,941 |
|
2,757 |
|
5,362 |
|
6,537 |
| ||||
Adjusted EBITDA |
|
$ |
96,571 |
|
$ |
110,330 |
|
$ |
184,831 |
|
$ |
196,902 |
|
Exhibit 99.2
2016 Second Quarter Financial Review Roger W. Stone, Chairman and Chief Executive Officer Matt Kaplan, President and Chief Operating Officer Andrea K. Tarbox, Vice President and Chief Financial Officer July 27, 2016 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
Second Quarter Financial Results ($ in Millions, except per share) Q2 2016 Q2 2015 Inc/(Dec) (1) Q1 2016 Inc/(Dec) (1) Net Sales $ 785 $ 671 17% $ 738 6% EBITDA $ 89 $ 98 (10%) $ 79 12% Adj. EBITDA(2) $ 97 $ 110 (13%) $ 88 9% Net Income (3) $ 21 $ 34 (40%) $ 16 28% Adj. Net Income(2) $ 26 $ 42 (39%) $ 22 17% Diluted EPS(4) $ 0.21 $ 0.35 (40%) $ 0.17 24% Adj. Diluted EPS(4) $ 0.27 $ 0.44 (39%) $ 0.23 17% Second Quarter Financial Results 3 (1) Percentage change calculations made using unrounded source financials (2) Excludes non-cash stock compensation and changes in contingent consideration; and acquisition, integration and severance expenses. Net of accumulated tax adjustments for Adjusted Net Income (3)Includes amortization of purchase accounting intangibles net of tax of $6 million in Q2 2016 and Q1 2016 and $3 million in Q2 2015 (4)Includes amortization of purchase accounting intangibles net of tax of $0.06 per share in Q2 2016 and Q1 2016, and $0.03 per share in Q2 2015
Q2 2016 Compared to Q2 2015 Acquisition Net Sales Benefits and Synergies Offset by Price/Mix declines and Outages Adjusted EBITDA $24 $7 $11 $110 $8 $2 $3 $159 $24 $97 $785 $1 $20 $671 ¾ ¾ Acquisition reflects three months of Victory revenues and earnings in 2016 compared to one month in Q2 2015 Average mill selling prices dropped $43 per ton reflecting: Lower prices of $19 million due to index driven lower domestic containerboard prices and lower prices for export containerboard and export kraft paper Less favorable product mix of $1 million due to lower Durasorb volume and higher export containerboard Lower corrugated products selling prices of $4 million due to competitive pressures/mix Sales volume down 6,000 tons due to lower mill shipments offset by higher corrugated products (up 6.6 percent on a msf basis including shipments to Victory) Deflation of $3 million due to lower fiber and fuel costs partially offset by higher salary, wages, medical and OCC costs Other sales includes $20 million for elimination of container shipments to Victory Productivity and costs includes 17,000 tons of lower mill production and $2 million of lower pension income partially offset by $2 million of lower incentive compensation ¾ ¾ ¾ ¾ ¾ 4 $ in Millions $ in Millions
Q2 2016 Compared to Q1 2016 Price and mix includes: Lower prices for domestic and export containerboard and export kraft paper Favorable product mix of $5 million due to higher domestic kraft paper and Durasorb shipments and less roll pulp volume Victory sales and earnings increase due to seasonality Sales volume gains reflect an additional 14,000 tons sold Deflation of $6 million due to lower fiber and energy costs Planned outages higher in Q2 2016, mainly due to Roanoke Rapids annual outage including 11,700 tons of lower production Productivity includes cost savings due to lower salaries from severance actions and Victory synergies, partially offset by 22,000 tons of lower mill production
Seasonal Cash Flow Changes Operating Cash Flows Trend $90 ¾ YTD operating cash flow $17 million higher than prior year due to Q1 2016s favorable working capital changes and lower cash tax payments. In Q2 2016, operating cash flow $73 ¾ declined by $45 million YOY due to higher receivables primarily Q2 2015 Q2 2016 ¾ Debt to EBITDA leverage ratio (per credit agreement) 3.63 times - - - December 31, 2015 March 31, 2016 June 30, 2016 30, 2016 - $1,566 million 3.69 times 3.98 times ¾ ¾ ¾ ¾ Net debt at June Capex for Q2 2016 was $36 million. Full year estimate Cash tax rate for the year expected to be 26 percent No pension plan funding required is $125 million 6 $ in Millions
Operations Overview Mill Production Thousands of Tons Mill/Corrugated Thousands of Tons Sales Avg. Mill Revenue/Ton 710 704 692 $667 690 685 $625 $624 668 Q2 2015 Q1 2016 Q2 2016 Q2 2015 Q1 2016 Q2 2016 Q2 2015 Q1 2016 Q2 2016 ¾ After setting daily production records in due to a 36 hour electrical Q1 2016, production was lower in Q2 2016 mainly service outage at Longview and higher lost tons due to a planned maintenance outage at Roanoke Rapids Year-over-year price erosion of $43 per ton resulted in a $20 million decline in revenue in Q2 2016 ¾ 7
Continued Progress in Lowering Mill Costs Energy Costs Per Ton Fiber Costs Per Ton Mill Headcount $176.25 $176.06 $43.75 2,407 $42.18 $41.54 2,354 $170.12 2,265 Q2 2015 Q1 2016 Q2 2016 Q2 2015 Q1 2016 Q2 2016 Q2 2015 Q1 2016 Q2 2016 ¾ In early 2014, we identified substantial cost savings opportunities and developed plans to achieve goals Making progress due to process improvements and benefits of capital spending Energy costs included $3 per ton in Q2 2016 and $1.50 per ton in Q2 2015 related to planned outages Further incremental benefits expected in future ¾ ¾ ¾ 8
Victory Update ¾ Financial results Q2 Q2 Q2 Q3 On 2016 net sales $252 million adjusted EBITDA - $18 million (pre-synergies) seasonally stronger quarter expected to be similar to Q2 track to meet or exceed 2016 expectations ¾ Integration update Q2 2016 Container Division consumption of approximately 25,000 tons In June achieved 115,000 ton mill integration annualized run-rate 9
Central Florida Box (CFB) Acquisition ¾ What we bought Well managed, established sheet plant founded in 1979 Equipped with highly productive, underutilized equipment Strong, loyal customer base Located in Florida (north of Orlando) Currently profitable and accretive with significant upside Ability to service Victory Packaging in central Florida ¾ Purchase price was $15.4 million, net of cash acquired ¾ Post synergy benefits include 20,000 to 25,000 tons of additional integration with adjusted EBITDA estimated at $3.4 million mill 10
Market Summary ¾ Continues to be challenging ¾ Containerboard: ¾ Domestic markets exhibiting good demand and pricing stability ¾ Export markets showing solid demand with static pricing ¾ Kraft paper ¾ Domestic kraft paper improving demand with stable pricing ¾ Export kraft paper stable volume with modestly improving pricing ¾ Specialty paper Durasorb and Kraftpak stable demand and pricing ¾ Corrugated products ¾ July demand consistent with Q2 ¾ Stable pricing 11
Summary of Key Assumptions for Q3 2016 ¾ CFB acquisition effective July 1, 2016 ¾ Planned outage maintenance expense approximately $13 million lower than Q2 2016.Loss of 6,100 production tons, approximately 6,800 tons less than Q2 2016 ¾ Average fiber costs trending down Q3 2016 fiber costs should be approximately $2 million lower than Q2 OCC costs expected to increase ¾ Benefit of headcount reduction of approximately $2 million per quarter ¾ CAPEX is expected to be $30 million for Q3 2016, and $125 million for year the full ¾ Effective income tax rate of 35 percent 12
Appendix
Quarterly Key Performance Indicators Sales ad Production Mill External Shipments (000) Avg Mill Revenue per Ton Tons Produced (000) 668 $667 $624 $625 690 685 492 480 482 2Q 16 1Q 16 2Q 15 2Q 16 1Q 16 2Q 15 2Q 16 1Q 16 2Q 15 Paper and Packaging Product Mix (000 Tons) Containerboard and Corrugated products (1) Specialty paper (2) Internal Consumption 449 443 434 257 258 267 189 190 184 2Q 16 1Q 16 2Q 15 2Q 16 1Q 16 2Q 15 2Q 16 1Q 16 2Q 15 (1) Containerboard includes all domestic and export sales of linerboard and medium (2) Specialty paper includes Kraftpak, Durasorb, Kraft paper and roll pulp 14
Maintenance Outage Expense & Production Impact * The 14,300 ton impact is due to the paper machine #3 upgrade in Charleston ** The 2016 and 2015 ton impact is mainly due to the Roanoke Rapids mill annual outage. In 2014 this outage occurred in Q4 with 11,200 tons lost *** The 16,900 ton impact includes 12,200 tons for paper machine #1 upgrade at Charleston 15 Financial Impact ($ in Millions) Q1 Q2 Q3 Q4 Year 2014 Actual $ 14.8 $ 5.2 $ 5.2 $ 10.9 $36.1 2015 Actual $8.6 $11.1 $4.4 $13.3 $37.4 2016 Act / Forecast $ 6.6 $ 19.0 $ 6.0 $ 0.9 $32.5 Q2 Q3 Q4 Year Lost Production Impact (Tons) Q1 2014 Actual 14,300* 5,400 - 14,500 34,200 2015 Actual 2,000 10,400** 2,400 16,900*** 31,700 2016 Act / Forecast 4 800 12,900** 6 100 ---23,800
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