Kapstone Paper and Packaging Posts Record 1Q 2011 Results
May 2, 2011 (Press Release) - KapStone Paper and Packaging Corporation today reported results for the first quarter ended March 31, 2011.
- Net sales of $206.7 million, up 17 percent, versus prior year
- Net income of $15.1 million, up 137 percent, versus prior year
- Adjusted EBITDA of $39 million, up $38 million, versus prior year
- Diluted EPS of $0.32, up $0.18 per share or 129 percent, versus prior year
Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone achieved record first quarter results. We produced 323,000 tons of paper, a record when measured on a daily basis, and ran at a record operating rate of over 100%. Average selling prices of $618 per ton increased by $83 compared to the first quarter of 2010 and were up $123 compared to the trough reached in the third quarter of 2009. In addition, in March 2011, we announced price increases for our kraft paper and Kraftpak® products."
First Quarter Operating Highlights
Consolidated net sales of $206.7 million in the first quarter of 2011 increased by $30.2 million compared to $176.5 million for the 2010 first quarter, up 17.1 percent, mainly due to $25.5 million of higher selling prices as 2010 announced price increases were fully realized, $3.7 million of higher sales reflecting a 2.2% increase in unit volume and $1.3 million of favorable product mix. Exchange rates negatively impacted revenues by $0.3 million.
In March 2011, the Company announced a $50 per ton kraft paper price increase, effective April 15th, which should be fully realized in June 2011, and a $40 per ton Kraftpak® price increase effective May 1, 2011.
Operating income of $25.4 million for the 2011 quarter increased by $13.4 million, or 112.7% compared to the 2010 quarter. When 2010's operating income is adjusted to exclude $22.2 million of alternative fuel tax credits, 2011 operating income increased by $35.6 million, or 349%. The improved financial performance reflects $25.5 million of higher selling prices, $6.5 million for the Charleston mill's tri-annual maintenance outage which occurred in 2010, $2.9 million due to higher sales volume and improved mix, and $1.8 million of deflation, reflecting lower wood costs, partially offset by higher chemical and freight costs. Offsetting the increase in operating income was $1.1 million of higher stock compensation expense compared to 2010 when the awards were approved in the second quarter.
Interest expense was $0.7 million for the first quarter of 2011, down $0.2 million from a year ago as a result of net debt reduction. At March 31, 2011, the interest rate on the majority of the Company's debt was 1.76 percent. Amortization of debt issuance costs of $0.4 million for the first quarter of 2011 was reduced by $0.4 million from a year ago due to a higher amount of debt repayments in 2010.
The effective tax rate for the 2011 first quarter was 38.6 percent compared to 35.9 percent for the 2010 first quarter. The 2011 effective tax rate is higher due to a lower expected benefit from the domestic manufacturing deduction.
For income tax purposes, the Company has taken the position that the alternative fuel mixture tax credit is not taxable as it is similar to an excise tax refund. Since the IRS has issued no specific guidance in this area, the Company has recorded a $68 million liability for an unrecognized tax benefit. The Internal Revenue Service's audit of the Company's 2007-2009 tax returns is nearing completion.
Cash Flow and Working Capital
Cash and cash equivalents decreased by $44.9 million in the quarter ended March 31, 2011, reflecting $12.5 million of net cash provided by operating activities, $54.4 million of cash used by investing activities and $3.0 million of cash used for financing activities.
On January 4, 2011, the Company paid $49.7 million to International Paper Company to settle its final contingent earn-out liability for the KPB acquisition. The Company saved approximately $5.3 million by paying early and taking advantage of an eight percent discount. The contractual due date for the final earn-out was April 2012. The earn-out payment was deemed as additional acquisition consideration, and accordingly was recorded as goodwill in the consolidated balance sheets.
At March 31, 2011, the Company had approximately $83.7 million of working capital and $88.4 million of revolver borrowing capacity.
In summary, Stone commented, "We believe that KapStone's second quarter of 2011 and the remainder of the year will benefit on an increasing basis from the realization of announced price increases. With a solid base of bookings and large backlogs, we expect strong operating performance. We are focused on maintaining strong cash flows, growing the company profitably and increasing shareholder value."
Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is a leading North American producer of unbleached kraft paper products and linerboard. The Company is the parent company of KapStone Kraft Paper Corporation which includes paper mills in Roanoke Rapids, NC and North Charleston, SC, a lumber mill in Summerville, SC, and five chip mills in South Carolina. The business employs approximately 1,600 people.
SOURCE: KapStone Paper and Packaging Corp.