Kapstone Posts Record 2Q Earnings on Production Boost and Strong Pricing

July 31, 2013 - KapStone Paper and Packaging Corporation (KS) today reported record results for the second quarter ended June 30, 2013.

  • Net sales of $326 million up $20 million, or 7 percent, versus prior year
  • Net income of $21 million up 14 percent versus 2012
  • Adjusted EBITDA of $56 million up $6 million, or 11 percent, versus prior year
  • Diluted EPS of $0.44 up $0.05 per share, or 13 percent, versus 2012
  • Adjusted diluted EPS of $0.48 up $0.06 per share, or 14 percent, versus prior year

Roger W. Stone, Chairman and Chief Executive Officer, stated, "Our mills produced a record 390,000 tons for the quarter. All-time record net sales and adjusted EBITDA were achieved despite the loss of approximately 9,400 production tons and $5.0 million of expense due to our Charleston mill's tri-annual planned maintenance outage. The increases in net sales and adjusted EBITDA were driven by our all-time record average selling prices for all mill products of $664 per ton which increased by $41 per ton compared to a year ago and $11 per ton compared to the first quarter of 2013, reflecting the impact of the 2012 and April 2013 containerboard price increases. The April price increase was fully implemented by June and partially realized in the second quarter of 2013.

"In addition to our legacy operations performing very well in the second quarter, we were equally delighted with the performance of Longview which we acquired on July 18, 2013. Together, KapStone and Longview create an even stronger and more diversified company."

SECOND QUARTER OPERATING HIGHLIGHTS

Consolidated net sales of $326 million in the second quarter of 2013 increased by $20 million, or 7 percent, compared to $306 million for the 2012 second quarter. The increase is primarily due to higher average selling prices as the $50 per ton 2012 containerboard price increase was fully realized and the April 2013 $50 per ton containerboard price increase was fully implemented by June and partially realized in the second quarter. The average mill selling price increased by $41 per ton compared to the second quarter of 2012.

In 2013's second quarter, 418,000 tons were sold compared to 423,000 tons a year earlier.

Operating income of $35 million for the 2013 second quarter increased by $2 million, or 7 percent, compared to the 2012 second quarter. The improved financial performance primarily reflects benefits from higher selling prices partially offset by the tri-annual Charleston mill outage, inflation on input costs, lower volume, Longview acquisition related charges and the new Aurora manufacturing plant.

Interest expense, net, was $1.9 million for the second quarter of 2013, down $0.4 million from a year ago as a result of lower debt balances and lower interest rates. At June 30, 2013, the interest rate on the majority of the Company's debt was 1.95 percent.

The effective income tax rate for the 2013 second quarter was 34.5 percent compared to 36.0 percent for the 2012 second quarter. The lower effective income tax rate is due to a higher expected benefit from the domestic manufacturing deduction and lower state income taxes.

Cash Flow and Working Capital
Cash and cash equivalents increased by $0.8 million in the quarter ended June 30, 2013, to $8.4 million reflecting $55.0 million of net cash provided by operating activities, $15.9 million of cash used by investing activities and $38.4 million of cash used by financing activities.

Capital expenditures for the second quarter of 2013 totaled $15.9 million. The Company estimates $93.0 million of capital expenditures for the year.

At June 30, 2013, the Company had approximately $125.0 million of working capital and $133.6 million of revolver borrowing capacity.

Longview Acquisition
In conjunction with our consummation of the Longview acquisition on July 18, 2013, we entered into an Amended and Restated credit agreement with Bank of America, Wells Fargo and Barclays Bank. As we previously reported, the new credit agreement includes an $805.0 million five-year term loan, a $470.0 million seven-year term loan and a $400.0 million revolving credit facility. At closing, we retired our remaining $305.3 million term loan and $13.7 million of revolver borrowings due under our old credit agreement and paid $19.7 million in bank fees.

Conclusion
In summary, Stone commented, "Our legacy KapStone operations are performing very well, and we are now thoroughly engaged in welcoming and integrating Longview into the KapStone family."

Headquartered in Northbrook, Illinois, KapStone Paper and Packaging Corporation is a leading North American producer of containerboard, unbleached kraft paper products, and corrugated products. The Company operates four paper mills and 22 converting plants located throughout the United States. The business employs approximately 4,500 people. For further information visit www.kapstonepaper.com.

SOURCE: KapStone Paper and Packaging Corporation