NORTHBROOK, Ill., July 30 /PRNewswire-FirstCall/ -- KapStone Paper
and Packaging Corporation (NASDAQ:KPPC) today reported results for
the second quarter ended June 30, 2009. -- Net sales of $156.5
million, up 130 percent, versus prior year -- Net income of $18.1
million, up 120 percent, versus prior year -- EBITDA of $47.0
million, up 193 percent versus prior year -- Diluted EPS of $0.63,
up 186 percent versus prior year -- $40 million of voluntary debt
pre-payments to be made by July 31, 2009 Roger W. Stone, Chairman
and Chief Executive Officer, stated, "Having endured the lowest
sustained operating rates that I can recall, I am relieved to
report that we have seen continued volume improvement in our
markets since the first quarter of this year. In June, we shipped
the highest volume of product since last September, and by
mid-June, we were able to bring all our paper machines back on-line
while substantially reducing our inventory levels from year-end. We
optimized machine down-time by transferring some production from
Charleston to Roanoke Rapids, and our operations ran well during
the quarter. We benefited from lower operating costs as a result of
lower raw materials costs and the curtailment savings we previously
announced. However, pricing deterioration, lower operating rates,
and a less favorable product mix negatively impacted our earnings
in the second quarter. Generating strong cash flows and reducing
our debt are key objectives, and by July 31st we will make $40
million of voluntary debt pre-payments. Further, we intend to
continue to make voluntary debt pre-payments during the third
quarter." Second Quarter Operating Highlights Due to the
acquisition of the Charleston Kraft Division (Charleston) from
MeadWestvaco Corporation (MWV) on July 1, 2008, a full quarter of
Charleston's operations are included for the three months ended
June 30, 2009, resulting in significant changes in results over the
prior year period. Consolidated net sales of $156.5 million in the
second quarter of 2009 increased from $68.2 million for the 2008
second quarter, or a 130 percent increase. The Charleston
acquisition accounted for $102.4 million of the net sales increase.
Operating income of $33.4 million for the 2009 quarter increased by
$20.2 million, or 152 percent compared to the 2008 quarter
primarily due to $48.6 million of alternative fuel mixture tax
credits partially offset by lower selling prices, unfavorable
product mix and higher corporate expenses primarily due to the
Charleston acquisition. Segment Results Unbleached kraft segment
net sales increased to $150.4 million, an increase of $89.9
million, or 148 percent over 2008. The Charleston acquisition
accounted for $96.3 million of the net sales increase. Net sales in
the 2009 second quarter improved by $20.9 million compared to the
first quarter of 2009 due to an increase in incoming orders. To
balance production with demand, the Company ran four of its five
paper machines alternating downtime among the three machines at the
Charleston mill. By mid-June 2009, both paper mills were running at
normal capacity. Average selling prices declined by 11 percent from
the first quarter of 2009 to the 2009 second quarter. Operating
income for the unbleached kraft segment increased to $40.9 million
in the second quarter of 2009, a $25.0 million, or a 157 percent
increase, over the prior year. The $48.6 million of alternative
fuel mixture tax credits boosted operating income in addition to
savings from lower operating costs partially offset by lower
operating rates and lower average selling prices. Included in the
second quarter of 2009 operating results is a $2.4 million charge
for the amortization of an intangible asset relating to an acquired
coal contract with favorable prices valued at $14.1 million at the
date of acquisition. The coal contract terminates on December 31,
2009. Net sales in the second quarter of 2009 for the all other
segment, consisting of the dunnage bag business and the Summerville
lumber mill (Summerville), totaled $6.1 million compared to $8.9
million for the 2008 second quarter. There were no sales for the
dunnage bag business in the second quarter of 2009 due to its sale
on March 31, 2009. Summerville was acquired as part of the
Charleston acquisition from MWV. Operating loss in the segment was
$1.5 million for the second quarter of 2009 reflecting the first
quarter sale of the dunnage bag business and low sales volumes and
selling prices for Summerville mainly due to a continued slowdown
in the number of new housing starts and lower consumer spending.
Corporate expenses of $5.3 million for the second quarter of 2009
were $1.3 million higher than the comparable quarter in the prior
year and reflected higher costs to support the Charleston
acquisition, partially offset by lower compensation costs due to
salary and benefit curtailments. Corporate expenses in the second
quarter of 2009 were $0.5 million less than the first quarter of
2009 as the Company was able to reduce the amount of support
services provided by MWV. The Company expects to completely
transition from MWV's support services before the end of the year
eliminating approximately an additional $0.5 million of expense per
quarter. Interest expense of $4.2 million for the second quarter of
2009 increased by $3.7 million over the comparable quarter in 2008
and reflected the cost of the Company's new senior secured credit
facility. Effective August 1, 2009, the Company's average interest
rate on its term loans will be reduced to 2.9 percent down from an
average of 3.5 percent for the quarter ended June 30, 2009. The
reduction in the interest rates and the lower debt is projected to
save the Company $1.3 million of interest charges in the third
quarter of 2009 compared to the 2009 second quarter although there
will be a non-cash charge of approximately $0.6 million in the
third quarter for the acceleration of the amortization of the
deferred financing fees associated with the senior secured notes
that will be paid in full. Amortization of debt issuance costs
amounted to $0.9 million for the second quarter of 2009 compared to
less than $0.1 million for the 2008 quarter and increased due to
the higher financing costs for the new senior secured credit
facility established as part of the Charleston acquisition. The
effective tax rate for the 2009 quarter was 36.5 percent compared
to 36.8 percent for the 2008 quarter. The anticipated effective tax
rate for the full year of 2009 is approximately 38 percent. Cash
Flow and Working Capital Cash flow for the first six months of 2009
reflects $62.8 million generated from operating activities and
$62.1 million of cash used to paydown debt, mainly due to cash
proceeds generated from the sale of the dunnage bag business and
cash from operations. Total debt outstanding as of June 30, 2009
was $378.3 million. By July 31, 2009 the Company will make $40
million of voluntary debt prepayments. The Company reached
agreement with the lender of the 8.3 percent notes to pre-pay the
senior secured notes in their entirety. The Company anticipates
making further voluntary debt prepayments by September 30, 2009.
The cash receipts and pre-tax earnings generated from the
alternative fuel mixture tax credit are currently expected to
exceed $50 million for the third quarter of 2009. The Company was
in compliance with all debt covenants at June 30, 2009. At June 30,
2009, the Company had working capital of $67 million. Conclusion In
summary, Stone commented, "We see demand for our products
increasing. Pricing seems to have stabilized, and in fact, with
improved market demand and low industry inventory levels, on July
15th we announced a $50/ton price increase for our kraft paper.
With higher operating rates, increased shipments, potential
benefits from kraft paper price increases, a lower cost profile,
and a much stronger balance sheet, we are optimistic about the
balance of 2009 and the opportunities that await us." Conference
Call KapStone will host a conference call at 2 p.m. ET, Thursday,
July 30, 2009, to discuss the Company's financial results for the
2009 second quarter. All interested parties are invited to listen
and may do so by either accessing a simultaneous broadcast webcast
on KapStone's website, http://www.kapstonepaper.com/, or for those
unable to access the webcast, the following dial-in numbers are
available: Domestic: 866.383.8008 International: 617.597.5341
Participant Passcode: 71627996 The webcast is also being
distributed through the Thomson StreetEvents Network. Individual
investors can listen to the call at http://earnings.com/, Thomson's
individual investor portal, powered by StreetEvents. Institutional
investors can access the call via Thomson StreetEvents
(http://www.streetevents.com/) a password-protected event
management site. A replay of the webcast will be available for 30
days on the Company's web site following the call. About the
Company 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 1,550 people. Non-GAAP
Financial Measures This press release includes certain non-GAAP
financial measures. 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
provides useful information to investors because it improves the
comparability of the financial results between periods and provide
for greater transparency to key measures used to evaluate the
performance and liquidity of the Company. Management uses EBITDA
for evaluating the Company's performance against competitors and as
a primary measure for employees' incentive programs and potential
future contingent earn-out payments to International Paper Company.
A reconciliation of net income to EBITDA is 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 management's current
views and are subject to risks, uncertainties and assumptions, many
of which are beyond the Company's 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) the ability of
KapStone to successfully integrate Charleston's operations and
employees and KapStone's ability to realize anticipated synergies
and cost savings; (2) industry conditions, including changes in
cost, competition, changes in the Company's product mix and demand
and pricing for the Company's products; (3) market and economic
factors, including changes in raw material and healthcare costs,
exchange rates and interest rates; (4) results of legal proceedings
and compliance costs, including unanticipated expenditures related
to the cost of compliance with environmental and other governmental
regulations; (5) the ability to achieve and effectively manage
growth; (6) the ability to pay the Company's debt obligations; (7)
the ability to carry out the Company's strategic initiatives and
manage associated costs; and (8) the potential impact of changes to
or a discontinuation before December 31, 2009 of the federal
incentive program for alternative fuel mixtures. Further
information on these and other risks and uncertainties is provided
under Item 1A "Risk Factors" in the Company's Annual Report on Form
10-K for the year ended December 31, 2008 and Quarterly Report on
Form 10-Q for the quarter ended June 30, 2009, and elsewhere in
reports that the Company files or furnishes with the SEC. These
filings can be found on KapStone's Web site at
http://www.kapstonepaper.com/ and the SEC's Web site at
http://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) Six Quarter Fav /
Months Fav / Ended (Unfav) Ended (Unfav) June 30, Variance June 30,
Variance ------- -------- ------- -------- 2009 2008 % 2009 2008 %
---- ---- ----- ---- ---- ----- Net sales 156,493 $68,162 129.6%
$297,077 $135,291 119.6% Cost and expenses: Cost of sales,
excluding depreciation and amortization 88,354 40,800 -116.6%
184,838 82,358 -124.4% Freight and distribution 13,165 6,924 -90.1%
26,493 13,511 -96.1% Selling, general and administrative expenses
7,630 4,564 -67.2% 16,187 9,494 -70.5% Depreciation and
amortization 13,488 2,835 -375.8% 27,097 5,428 -399.2% (Loss) /
gain on sale of business (704) - n/a 16,695 - n/a Other operating
income 216 187 15.5% 448 371 20.8% --- --- ---- --- --- ----
Operating income 33,368 13,226 152.3% 59,605 24,871 139.7% Foreign
exchange gain / (loss) 171 - n/a (127) - n/a Interest income - 293
n/a 1 840 -99.9% Interest expense 4,156 419 -891.9% 9,066 1,113
-714.6% Amortization of debt issuance costs 855 41 -1985.4% 1,678
100 -1578.0% --- -- ------- ----- --- ------- Income before
provision for income taxes 28,528 13,059 118.5% 48,735 24,498 98.9%
Provision for income taxes 10,416 4,808 -116.6% 19,511 9,017
-116.4% ------ ----- ------ ------ ----- ------ Net income $18,112
$8,251 119.5% $29,224 $15,481 88.8% ======= ====== ===== =======
======= ==== Earnings per share: Basic $0.64 $0.32 $1.03 $0.61
===== ===== ===== ===== Diluted $0.63 $0.22 $1.02 $0.43 ===== =====
===== ===== Weighted-average number of shares outstanding: Basic
28,370,298 25,391,330 28,370,273 25,336,688 ========== ==========
========== ========== Diluted 28,646,527 36,719,720 28,563,291
35,638,521 ========== ========== ========== ========== Effective
tax rate 36.5% 36.8% 40.0% 36.8% ==== ==== ==== ==== OPERATING
SEGMENT DATA ($ In thousands) Six Quarter Fav / Months Fav / Ended
(Unfav) Ended (Unfav) June 30, Variance June 30, Variance -------
-------- ------- -------- 2009 2008 % 2009 2008 % ---- ---- -----
---- ---- ----- Net sales Unbleached kraft $150,398 $60,545 148.4%
$279,858 $120,905 131.5% Other 6,095 8,905 -31.6% 18,118 16,797
7.9% Intersegment sales elimination - (1,288) n/a (899) (2,411)
62.7% --- ------ --- ---- ------ ---- Total net sales $156,493
$68,162 129.6% $297,077 $135,291 119.6% ======== ======= =====
======== ======== ===== Operating income Unbleached kraft $40,934
$15,930 157.0% $56,416 $30,480 85.1% Other (1,538) 1,269 -221.2%
(2,375) 2,600 -191.3% (Loss) / gain on sale of business (704) - n/a
16,695 - n/a Corporate (5,324) (3,973) -34.0% (11,131) (8,209)
-35.6% ------ ------ ----- ------- ------ ----- Total operating
income $33,368 $13,226 152.3% $59,605 $24,871 139.7% =======
======= ===== ======= ======= ===== KapStone Paper and Packaging
Corporation Consolidated Balance Sheets ($ In thousands) June 30,
December 31, 2009 2008 ---- ---- (unaudited) Assets Current assets:
Cash and cash equivalents $22,147 $4,165 Trade accounts receivable,
net 59,069 71,489 Other receivables 13,958 6,207 Inventories 66,048
89,692 Refundable and prepaid income taxes - 14,145 Prepaid
expenses and other current assets 2,929 1,748 Deferred income taxes
5,469 3,363 ----- ----- Total current assets 169,620 190,809
------- ------- Plant, property and equipment, net 475,758 483,780
Restricted cash 2,500 - Other assets 685 882 Intangible assets, net
32,836 45,195 Goodwill 5,449 6,524 ----- ----- Total assets
$686,848 $727,190 ======== ======== Liabilities and Stockholders'
Equity Current liabilities: Current portion of long-term debt and
notes $39,913 $40,556 Accounts payable 35,654 42,214 Accrued
expenses 16,086 30,462 Accrued compensation costs 9,184 13,646
Accrued income taxes 2,130 --- ----- - Total current liabilities
102,967 126,878 ------- ------- Long-term debt and notes, less
current portion 329,078 389,374 Pension and post retirement
benefits 9,678 8,355 Deferred income taxes 28,280 15,951 Other
liabilities 5,841 5,865 ----- ----- Total other liabilities 372,877
419,545 ------- ------- Stockholders' equity: Common stock $.0001
par value 3 3 Additional paid-in capital 133,241 132,206 Retained
earnings 77,990 48,766 Accumulated other comprehensive loss (230)
(208) ---- ---- Total stockholders' equity 211,004 180,767 -------
------- Total liabilities and stockholders' equity $686,848
$727,190 ======== ======== KapStone Paper and Packaging Corporation
Consolidated Statement of Cash Flows and Supplemental Information
($ In thousands) (unaudited) Quarter Ended Six Months Ended June
30, June 30, ------------- ---------------- 2009 2008 2009 2008
---- ---- ---- ---- Operating activities: Net income $18,112 $8,251
$29,224 $15,481 Adjustments to reconcile net income to cash
provided by operating activities: Depreciation and amortization
13,488 2,835 27,097 5,428 Stock based compensation expense 528 455
1,034 691 Amortization of debt issuance costs 855 41 1,678 100 Loss
on disposal of assets (87) - 288 11 Deferred income taxes 4,180 275
11,345 1,686 Gain / (loss) on sale of business 704 - (16,695) -
Changes in operating assets and liabilities 28,601 (840) 8,816
(2,464) ------ ---- ----- ------ Total cash provided by operating
activities $66,381 $11,017 $62,787 $20,933 ------- ------- -------
------- Investing activities: CKD acquisition $1,000 $(1,924)
$1,000 $(2,393) KPB acquisition-earn-out for sale of dunnage bag
business (3,977) - (3,977) - Proceeds from sale of business - -
36,083 - Restricted cash - - (2,500) - Capital expenditures (6,587)
(2,319) (12,910) (4,620) ------ ------ ------- ------ Total cash
(used in) / provided by investing activities $(9,564) $(4,243)
$17,696 $(7,013) ------- ------- ------- ------- Financing
activities: Proceeds from revolving credit facility $23,400 $-
$61,300 $- Repayments on revolving credit facility (52,700) -
(73,700) - Repayments of long-term debt and notes (6,925) (11,600)
(49,731) (15,139) Proceeds from exercises of warrants into common
stock - 1,074 - 1,092 Debt issuance costs paid 35 - (370) - -- ---
---- --- Total cash (used in) / provided by financing activities
$(36,190) $(10,526) $(62,501) $(14,047) -------- -------- --------
-------- Net increase / (decrease) in cash and cash equivalents
20,627 (3,752) 17,982 (127) Cash and cash equivalents- beginning of
period 1,520 60,260 4,165 56,635 ----- ------ ----- ------ Cash and
cash equivalents-end of period $22,147 $56,508 $22,147 $56,508
======= ======= ======= ======= Supplemental information
------------------------ Net Income (GAAP) to EBITDA (Non-GAAP):
Net income (GAAP) $18,112 $8,251 $29,224 $15,481 Interest income -
(293) (1) (840) Interest expense 4,156 419 9,066 1,113 Amortization
of debt issuance costs 855 41 1,678 100 Provision for income taxes
10,416 4,808 19,511 9,017 Depreciation and amortization 13,488
2,835 27,097 5,428 ------ ----- ------ ----- EBITDA (Non-GAAP)
$47,027 $16,061 $86,575 $30,299 ======= ======= ======= =======
DATASOURCE: KapStone Paper and Packaging Corporation CONTACT:
Andrea K. Tarbox, Vice President and Chief Financial Officer of
KapStone Paper and Packaging Corporation, +1-847-239-8812 Web Site:
http://www.kapstonepaper.com/
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