NORTHFIELD, Ill., Nov. 5 /PRNewswire-FirstCall/ -- KapStone Paper and Packaging Corporation today reported results for the third quarter ended September 30, 2007, and reaffirmed guidance for the full year 2007.
Predecessor Predecessor KPB KPB Three Months Ended Nine Months Ended Sept. 30, Sept. 30, 2007 2006 2007 2006 GAAP Net Income $7,802 $6,064 $18,329 $14,047 Adjusted Net Income $7,802 $6,616 (1) $19,294 (2) $13,924 (1) GAAP Basic Earnings per Share $0.31 NA $0.73 NA Adjusted Basic Earnings per Share $0.31 NA $0.77 (2) NA GAAP Diluted Earnings per Share $0.21 NA $0.51 NA Adjusted Diluted Earnings per Share $0.21 NA $0.54 (2) NA EBITDA $16,032 $14,905 $39,112 $37,552 Adjusted EBITDA $16,032 $15,805 (1) $40,638 (2) $37,352 (1) (1) Third quarter 2006 results were adjusted by $0.9 million pre-tax to eliminate an unfavorable property tax settlement. For the nine months ended September 30, 2006, this adjustment along with the $1.1 million favorable adjustment that had been recorded in the second quarter of 2006 resulted in a $0.2 million pre-tax benefit eliminated in adjusted net income. (2) Nine months ended September 30, 2007 results were adjusted to eliminate a $1.5 million pre-tax non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value. Third Quarter Operating Highlights
Third quarter 2007 net sales of $66.2 million were up $1.9 million, or 2.9%, and operating income of $12.9 million was up 25.6% over the same quarter last year.
Unbleached kraft paper net sales rose to $59.0 million, up $3.0 million, or 5.4%, over the prior year. Increased volume, up 5,178 tons, and higher average revenue per ton, up $1.14 per ton, drove the increase while a less favorable mix partially offset the volume and pricing gains. Operating income for the unbleached kraft paper segment was $15.3 million in the third quarter, up $5.4 million, or 54.5% over the prior year. The significant improvement in operating income during the quarter reflects higher volume and selling prices, productivity gains, and lower depreciation charges on the reduced depreciable asset base that resulted from the revaluation of plant and equipment to fair value. In addition, the prior year's quarter was negatively impacted by a $0.9 million unfavorable property tax adjustment.
Dunnage bag net sales were down from the prior year by $1.3 million, or 13.5%, to $8.3 million mainly due to an 11.4% decrease in volume and a 2.7% decrease in average revenue per bag. Dunnage bag operating income of $1.4 million decreased 30.4% for the third quarter of 2007 compared to the same quarter a year ago on lower sales volume and prices.
Corporate expenses of $3.9 million for the third quarter were $2.2 million higher than the comparable quarter in the prior year and reflect expenses for the Company's headquarters while the amount in 2006 reflects an allocation of corporate expenses when KPB was owned by International Paper Company (IP). Included in the 2007 corporate expenses are charges of approximately $0.6 million per quarter for the cost of transitional services provided by IP that will be terminated upon completion of the Company's own ERP system. It is currently projected that the Company's new ERP system will be fully implemented in the first quarter of 2008, reducing quarterly expenses by approximately $0.2 million.
Cash Flow and Working Capital
Net cash from operating activities for the nine months ended September 30, 2007 totaled $36.3 million, an improvement of $8.9 million, or 32.5%, over the comparable prior year period. Capital expenditures of $9.1 million for the 2007 period were primarily spent on equipment upgrades and replacements for the unbleached kraft facility and the new ERP system. Working capital at September 30, 2007 was $67.7 million including cash and short-term investments of $45.3 million.
Roger Stone, KapStone's chairman and chief executive officer, said, "In late October, we celebrated our mill's one hundredth anniversary of operations. Besides applauding the mill's very successful history, we also celebrate their continuing performance improvements. Acquiring these operations has given KapStone Paper and Packaging a solid platform for future growth."
Financial Guidance
The Company reiterates its guidance for the year ending December 31, 2007. The Company expects net sales in a range of $260-$264 million, up 6% - 7% over the prior year. Adjusted EBITDA is expected to be in the range of $58 - 60 million, up 11% - 15%, from 2006 EBITDA of $52.2 million. Cash balances at December 31, 2007, therefore, are expected to be in the range of $58 - $63 million. This guidance does not include any benefits from recently implemented industry linerboard price increases of $40 per ton.
This financial guidance is given as of the date hereof and is based on factors and circumstances known to the Company at this time. Such factors and circumstances may change, and such changes may have an impact on the Company's financial outlook. The Company is under no obligation to update its financial guidance.
Conference Call
KapStone has scheduled a conference call at 11 a.m. ET, Tuesday, November 6, 2007, to discuss the Company's financial results for the 2007 third quarter. The conference call will be available via the Internet by accessing the Company's web site at http://www.kapstonepaper.com/. A replay of the webcast will be available for 7 days following the call.
About the Company
On January 2, 2007, KapStone Paper and Packaging Corporation (the Company) completed the acquisition of substantially all of the assets and assumed certain liabilities, of the Kraft Papers Business, or KPB, a division of International Paper Company. The assets include an unbleached kraft paper manufacturing facility in Roanoke Rapids, North Carolina and Ride Rite(R) Converting, an inflatable dunnage bag manufacturer located in Fordyce, Arkansas. Prior to the acquisition of KPB, the Company, a special purpose acquisition corporation or "blank check company", had no operations. For periods prior to the acquisition, KPB is deemed to be the predecessor to the Company. Therefore, in this release, the KapStone results for 2007 are compared to KPB's 2006 results.
Headquartered in Northfield, IL, KapStone Paper and Packaging Corporation, is a leading North American producer of kraft paper and converter of inflatable dunnage bags. The Company is the parent company of KapStone Kraft Paper Corporation which includes a paper mill in Roanoke Rapids, NC, and Ride Rite(R), an inflatable dunnage bag manufacturer in Fordyce, AR. The business employs approximately 700 people.
Non-GAAP Financial Measures
Investors are cautioned that adjusted net income, adjusted EBITDA and adjusted EPS information contained in this press release are not financial measures under U.S. generally accepted accounting principles (GAAP). In addition, they should not be construed as alternatives to any other measures of performance determined in accordance with GAAP. These non-GAAP financial measures are provided to enhance the user's overall understanding of the Company's current financial performance and the Company's prospects for the future. The Company believes that these non-GAAP measures provide useful information to investors because they improve 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 Adjusted 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 IP.
Adjusted net income represents net income excluding a one-time non-cash purchase accounting adjustment made in connection with the KPB acquisition to adjust finished goods inventory to fair value and 2006 property tax settlements. EBITDA represents earnings before interest, income taxes, depreciation and amortization. Adjusted EBITDA is computed by eliminating from EBITDA a one-time non-cash purchase accounting adjustment made in connection with the KPB acquisition to adjust inventory to fair value and 2006 property tax adjustments. Adjusted EBITDA is not a measure of financial performance under GAAP and should not be considered as an alternative to earnings before income taxes (or any other performance measure under GAAP) as a measure of performance or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. Adjusted 2007 EPS is based on net income excluding the non-cash purchase accounting adjustment made in connection with the KPB acquisition to adjust inventory to fair value.
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 and include, among others, statements under the caption "Operating Highlights". 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) industry conditions, including changes in cost, competition, changes in the Company's product mix and demand and pricing for the Company's products; (ii) market and economic factors, including changes in pension and healthcare costs and natural disasters, such as hurricanes; (iii) results of legal proceedings and compliance costs, including unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations; and (iv) the ability to achieve and effectively manage growth; (v) ability to pay the Company's debt obligations; and (vi) ability to carry out the Company's strategic initiatives and manage associated costs. 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 and Quarterly Reports on Form 10-Q, which is incorporated herein by reference, 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 Corp Condensed Consolidated Statements of Operations Unaudited (In thousands, except per share amounts) Predecessor Predecessor KPB Fav/(Unfav) KPB Fav/(Unfav) 3 Months Ended 9 Months Ended Sept. 30, Variance Sept. 30, Variance 2007 2006 (1) % 2007 2006 (1) % Net sales $66,188 $64,318 2.9% $191,857 $189,164 1.4% Cost and expenses: Cost of sales 46,026 46,774 1.6% 141,180 142,688 1.1% Depreciation and amortization 3,178 4,671 32.0% 8,272 13,600 39.2% Gross profit 16,984 12,873 31.9% 42,405 32,876 29.0% Selling, general, and administrative expenses 4,529 2,639 -71.6% 12,552 8,924 -40.7% Other operating income 399 - NA 987 - NA Operating income 12,854 10,234 25.6% 30,840 23,952 28.8% Interest income 585 - NA 1,467 - NA Interest expense (1,044) (352) -196.6% (3,317) (1,059) -213.2% Income before provision for income taxes: 12,395 9,882 25.4% 28,990 22,893 26.6% Total provision for income taxes 4,593 3,818 -20.3% 10,661 8,846 -20.5% Net income $7,802 $6,064 28.7% $18,329 $14,047 30.5% Earnings per share: Basic $0.31 -- $0.73 -- Diluted $0.21 -- $0.51 -- Weighted-average number of shares outstanding: Basic 24,968,097 24,967,143 Diluted 36,674,697 35,723,847 (1) Prior period information has been revised in accordance to reflect the retrospective application of a change in accounting for planned major maintenance activities. OPERATING SEGMENT DATA (In thousands) Predecessor Predecessor KPB Fav/(Unfav) KPB Fav/(Unfav) 3 Months Ended 9 Months Ended Sept. 30, Variance Sept. 30, Variance 2007 2006 (1) % 2007 2006 (1) % Net sales Unbleached kraft $58,967 $56,006 5.3% $169,968 $164,413 3.4% Dunnage bags 8,254 9,558 -13.6% 24,706 27,537 -10.3% Intersegment elim. from unbleached kraft (1,033) (1,246) 17.1% (2,817) (2,786) -1.1% Total net sales $66,188 $64,318 2.9% $191,857 $189,164 1.4% Operating income by industry segment Unbleached kraft $15,297 $9,879 54.8% $36,703 $24,308 51.0% Dunnage bags 1,420 2,041 -30.4% 4,732 5,779 -18.1% Corporate expenses (3,863) (1,686) -129.1% (10,595) (6,135) -72.7% Total operating income $12,854 $10,234 25.6% $30,840 $23,952 28.8% KapStone Paper and Packaging Corp Condensed Consolidated Balance Sheets (In thousands) Predecessor KPB Sept. 30, December 31, 2007 2006 Assets (unaudited) Current assets: Cash and cash equivalents $9,942 $1 Short-term investments 35,379 -- Accounts receivable, net 31,586 25,824 Inventories, net 20,333 24,087 Prepaid expenses and other current assets 1,782 1,425 Total current assets 99,022 51,337 Plant, property and equipment, net 105,354 201,593 Deferred income taxes 934 -- Deferred acquisition costs 1,200 -- Other assets 2,086 4,452 Intangible assets, net 5,925 -- Goodwill 441 -- Total assets $214,962 $257,382 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $10,623 $7,931 Accrued expenses 10,953 7,144 Current portion long-term debt 9,750 -- Total current liabilities 31,326 15,075 Long-term debt 46,500 22,357 Asset retirement obligations 275 265 Pension and post retirement benefits 3,188 -- Total liabilities 81,289 37,697 Stockholders' equity: Common stock $.0001 par value 2 -- Invested capital 113,434 -- Divisional control -- 219,685 Common stock held in treasury (230) -- Retained earnings 20,467 -- Total stockholders' equity 133,673 -- Total liabilities and stockholders' equity $214,962 $257,382 SUPPLEMENTAL INFORMATION GAAP to Non-GAAP Reconciliations Unaudited (In thousands, except per share data) Predecessor Predecessor KPB KPB 3 Months Ended Sept. 30, 9 Months Ended Sept. 30, 2007 2006 (1) 2007 2006 (1) Net Income (GAAP) to Adjusted Net Income (Non-GAAP): Net income (GAAP) $7,802 $6,064 $18,329 $14,047 One-time non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value. -- -- 965 -- Property tax settlements -- 552 -- (123) Adjusted Net Income (Non-GAAP) $7,802 $6,616 $19,294 $13,924 Net Income (GAAP) to Adjusted EBITDA (Non-GAAP): Net income (GAAP) $7,802 $6,064 $18,329 $14,047 Interest income (585) -- (1,467) -- Interest expense 1,044 352 3,317 1,059 Tax provision 4,593 3,818 10,661 8,846 Depreciation and amortization 3,161 4,671 8,272 13,600 EBITDA 16,015 14,905 39,112 37,552 One-time non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value 1,526 Property tax settlements -- 900 -- (200) Adjusted EBITDA (Non-GAAP) $16,015 $15,805 $40,638 $37,352 Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP): Basic EPS (GAAP) $0.31 NA $0.73 NA Adjustment: One-time non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value NA 0.04 NA Adjusted Basic EPS (Non-GAAP) $0.31 NA $0.77 NA Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): Diluted earnings per share (GAAP) $0.21 NA $0.51 NA Adjustment: One-time non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value NA 0.03 NA Adjusted Diluted EPS (Non-GAAP) $0.21 NA $0.54 NA (1) Prior period information has been revised in accordance to reflect retrospective application of a change in accounting for planned major maintenance activities.
