Kapstone Posts Record Fourth Quarter Results on Longview Acquisition

Kapstone sold 703,000 tons of paper during the fourth quarter of 2013 compared to 408,000 tons a year earlier.

Feb. 10, 2014 - KapStone Paper and Packaging Corporation (KS) today reported preliminary record results for the fourth quarter and year ended December 31, 2013.

As compared to 2012's fourth quarter, results for 2013's fourth quarter are below:

  • Net sales of $563 million up $262 million, or 87 percent
  • Net income of $43 million up $33 million, or 330 percent
  • Adjusted net income of $44 million up $31 million, or 238 percent
  • Adjusted EBITDA of $110 million up $72 million, or 189 percent
  • Adjusted EBITDA margin of 19.5 percent, up from 12.5 percent
  • Diluted EPS of $0.45 up $0.34 per share, or 309 percent
  • Adjusted diluted EPS of $0.45 up $0.31 per share, or 221 percent

As compared to the year ended December 31, 2012, results for the year ended December 31, 2013:

  • Net sales of $1,748 million up $531 million, or 44 percent
  • Net income of $127 million up $64 million, or 102 percent
  • Adjusted net income of $138 million up $67 million, or 94 percent
  • Adjusted EBITDA of $333 million up $150 million, or 82 percent
  • Adjusted EBITDA margin of 19.1 percent up from 15.0 percent
  • Diluted EPS of $1.32 up $0.67 per share, or 103 percent
  • Adjusted diluted EPS of $1.42 up $0.68 per share, or 92 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, "Almost every year has been transformational for KapStone, and 2013 was no exception with the successful acquisition of Longview. Longview generated $62 million of adjusted EBITDA in the fourth quarter, continuing the strong performance we had anticipated, and the synergy benefits we identified began to yield positive results.

"Our legacy operations delivered a record fourth quarter and an all-time full-year record performance despite struggling with some temporary fourth quarter operational issues which negatively impacted our EBITDA by $6 million in the quarter. Last week, we successfully completed the $29 million capital project in the Charleston mill to upgrade one of the paper machines.

"KapStone's growing strength is best evidenced by its robust operating cash flows which delivered $130 million in the fourth quarter. We are particularly encouraged with the results this quarter due to the typical seasonality experienced that produces a less favorable product mix. We are already seeing improvements in our mix as we move further into this year and have a sound order backlog."

FOURTH QUARTER OPERATING HIGHLIGHTS

Consolidated net sales of $563 million in the fourth quarter of 2013 increased by $262 million, or 87 percent, compared to $301 million for the 2012 fourth quarter. The increase is primarily due to the Longview acquisition, which contributed $241 million of additional revenue, and higher average selling prices for the legacy operations. The Company sold 703,000 tons of paper during the fourth quarter of 2013 compared to 408,000 tons a year earlier. The Company's average mill selling price of $670 per ton in the fourth quarter of 2013 increased by $36 per ton compared to the fourth quarter of 2012 due to the combined impact of the 2012 and 2013 containerboard and corrugated product price increases and the inclusion of Longview. However, average mill selling prices decreased $12 per ton from the third quarter of 2013, reflecting the seasonally less favorable product mix due to increased roll pulp shipments.

Operating income of $74 million for the 2013 fourth quarter increased by $55 million, or 289 percent, compared to the 2012 fourth quarter. The improved financial performance primarily reflects benefits from the Longview acquisition and higher containerboard and corrugated product prices, partially offset by higher fiber costs, lower production volumes, and less favorable mix.

Interest expense, net, was $9 million for the fourth quarter of 2013, up $7 million from a year ago as a result of a higher debt balance associated with the Longview acquisition. At December 31, 2013, the average interest rate on our term loans was 2.5 percent. Amortization of debt issuance costs of $1.5 million for the fourth quarter of 2013 increased by $0.7 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 fourth quarter was 31.6 percent compared to 36.9 percent for the 2012 fourth quarter. The lower effective income tax rate in the 2013 fourth quarter is due to a reversal of an uncertain tax position reserve relating to alternative fuel mixture credits partially offset by higher state income taxes.

FULL YEAR OPERATING HIGHLIGHTS

Consolidated net sales for the year ending December 31, 2013, were $1,748 million, an increase of 44 percent, compared to 2012 sales of $1,217 million. The increase was primarily due to the Longview acquisition which contributed $440 million, as well as higher average selling prices.

Operating income of $220 million for the year ended December 31, 2013 was higher than the prior year by $110 million, or 100%. The increase was due to the Longview acquisition and higher selling prices, partially offset by higher fiber and maintenance outage costs.

Interest expense for the year ended December 31, 2013 was $21 million, up $12 million from a year ago due to increased borrowings relating to the Longview acquisition. Amortization of debt issuance costs of $4 million for 2013 increased by $1 million from the year prior due to amortization on the $20 million of debt issuance costs paid for the new credit agreement.

The effective income tax rate for the year ended December 31, 2013 was 34.7 percent compared to 35.9 percent for 2012. The lower effective income tax rate in the 2013 is due to the reversal of an uncertain tax position reserve relating to alternative fuel mixture credits partially offset by higher state income taxes. For 2013, the Company estimates its cash tax rate to be approximately 2 percent reflecting utilization of cellulosic biofuel tax credits.

CASH FLOW AND WORKING CAPITAL

Cash and cash equivalents increased by $1 million in the quarter ended December 31, 2013, from September 30, 2013 to $13 million. The Company generated $130 million of net cash from operating activities during the fourth quarter and paid down $89 million of debt, including a voluntary prepayment of $40 million reducing the debt leverage ratio to 2.7 times, down from 3.8 times at the time of the Longview acquisition. With this reduction in debt and leverage, the Company's interest margin spread on its bank loans will be reduced by 25 bps in early March. Capital expenditures in the fourth quarter reached $40 million and included $7 million for the Charleston paper machine upgrade.

For the full year, cash provided by operating activities was $299 million, and capital expenditures were $97 million.

At December 31, 2013, the Company had approximately $210 million of working capital and $395 million of revolver borrowing capacity.

CONCLUSION

In summary, Stone commented, "Our expectations for the Longview acquisition were high, but I am quite pleased with the additional benefits identified and generated through the teamwork of the combined companies."

Headquartered in Northbrook, Illinois, 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. www.kapstonepaper.com.

SOURCE: KapStone Paper and Packaging Corporation