KapStone Paper and Packaging Posts Record Third Quarter Results

Oct. 30, 2013 - KapStone Paper and Packaging Corporation today reported record results for the third quarter ended September 30, 2013. As compared to 2012's third quarter, results for 2013's third quarter are below:

  • Net sales of $539 million up $229 million, or 74 percent
  • Net income of $44 million up $26 million, or 144 percent
  • Adjusted net income of $51 million up $31 million, or 155 percent
  • Adjusted EBITDA of $117 million up $68 million, or 139 percent
  • Adjusted EBITDA margin of 21.7 percent up from 15.8 percent
  • Diluted EPS of $0.92 up $0.54 per share, or 142 percent
  • Adjusted diluted EPS of $1.05 up $0.64 per share, or 156 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, "The third quarter was an exceptional quarter for KapStone. On July 18, 2013, we completed the Longview acquisition and while our third quarter results include only 75 days of Longview's operations, the benefits of the acquisition are clear as Longview generated $54 million of adjusted EBITDA in the period.

"Excluding the impact of the Longview acquisition, legacy KapStone delivered all-time record adjusted EBITDA of $63 million due to higher containerboard and corrugated products prices despite higher fiber costs from the unusually wet summer. Our consolidated adjusted EBITDA soared to a record $117 million, and we generated $75 million of free cash flow which we used to reduce our debt."

THIRD QUARTER OPERATING HIGHLIGHTS

Consolidated net sales of $539 million in the third quarter of 2013 increased by $229 million, or 74 percent compared to $310 million for the 2012 third quarter. The increase is primarily due to the Longview acquisition which contributed $198 million of additional revenue and higher average selling prices for the legacy operations. In 2013's third quarter, 662,000 tons of paper were sold compared to 427,000 tons a year earlier. The Company's average selling price increased by $18 per ton compared to the second quarter of 2013 and was $57 per ton higher than the third quarter of 2012 due to the combined impact of 2012 and 2013 containerboard and corrugated products price increases and the inclusion of Longview.

Operating income of $80.7 million for the 2013 third quarter increased by $49.6 million, or 159 percent, compared to the 2012 third quarter. The improved financial performance primarily reflects benefits from the Longview acquisition and higher containerboard prices partially offset by higher fiber costs, lower production volumes, higher compensation and benefit costs and Longview transaction fees and acquisition expenses.

Interest expense, net, was $8.0 million for the third quarter of 2013, up $6.2 million from a year ago as a result of a higher debt balance associated with the Longview acquisition. At September 30, 2013, the average interest rate on our term loans was 2.60 percent. Amortization of debt issuance costs of $1.6 million for the third quarter of 2013 increased by $0.6 million from a year ago due to costs associated with the Company's amended and restated credit agreement.

The effective income tax rate for the 2013 third quarter was 37.9 percent compared to 35.1 percent for the 2012 third quarter. The higher effective income tax rate in the 2013 third quarter is due to a discrete tax adjustment relating to prior year tax return. For 2013, the Company estimates its cash tax rate to be approximately 11 percent reflecting complete utilization of remaining cellulosic biofuel tax credits.

Cash Flow and Working Capital

Cash and cash equivalents increased by $3.8 million in the quarter ended September 30, 2013, to $12.2 million reflecting $98.2 million of net cash provided by operating activities, $561.0 million of cash used in investing activities primarily reflecting the Longview acquisition and $466.6 million of cash provided by financing activities reflecting $1.3 billion of borrowings from our new credit facility offset by the repayment of $305.3 million of debt under the prior credit facility and the redemption of $507.5 million of Longview senior notes assumed as part of the acquisition.

Capital expenditures for the third quarter of 2013 totaled $23.6 million, including $7.0 million for Longview. The Company estimates $93.0 million of capital expenditures for the year.

At September 30, 2013, the Company had approximately $164.3 million of working capital and $358.8 million of revolver borrowing capacity.

Conclusion

In summary, Stone commented, "Our integration of Longview continues on plan. We have now identified $18 million of synergies that should benefit KapStone by the end of 2015. However, more significant than the synergies identified thus far are the substantial benefits from operating efficiencies and capital programs in progress. Looking ahead, we believe we are well positioned to improve our profitability by benefitting from full quarters of Longview results, strong performance from our legacy operations, and robust cash flows."

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 Corp.