NORTHBROOK, Ill., March 14 /PRNewswire-FirstCall/ -- KapStone Paper and Packaging Corporation today reported results for the fourth quarter and year ended December 31, 2007.
Predecessor Predecessor KPB KPB Three Months Ended Dec. 31, Year Ended Dec. 31, $000's 2007 2006 2007 2006 GAAP Net Income $8,634 $5,919 (1) $26,963 $19,967 Adjusted Net Income $8,634 $5,919 (1) $27,940 (2) $19,967 GAAP Basic Earnings per Share $0.34 NA $1.08 NA Adjusted Basic Earnings per Share $0.34 NA $1.12 (2) NA GAAP Diluted Earnings per Share $0.23 NA $0.75 NA Adjusted Diluted Earnings per Share $0.23 NA $0.78 (2) NA EBITDA $16,515 $14,608 $55,627 $52,161 Adjusted EBITDA $16,515 $14,608 (1) $57,153 (2) $52,161 (1) Fourth quarter 2006 results were revised to reflect retrospective application of a change in accounting for planned major maintenance activities. (2) Year ended December 31, 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. Full Year Operating Highlights
Full year 2007 net sales of $256.8 million were up $10.6 million, or 4.3%, and operating income of $44.3 million was up 30.5% over last year.
Unbleached kraft paper net sales for the year ended December 31, 2007, rose to $227.9 million, up $13.7 million, or 6.4%, over the prior year. Net sales benefited from higher average revenue per ton, up $18 per ton or 3.4%, propelled by higher prices net of mix changes and increased volume, up 11,358 tons or 2.8%. Operating income for the unbleached kraft paper segment for the year ended December 31, 2007, was $51.9 million for the year, up $17.6 million, or 51.4% over the prior year. The significant improvement in operating income during the year reflects higher selling prices and volume, cost reduction initiatives, and lower depreciation charges of $6.9 million on the reduced fixed asset depreciable asset base that resulted from the revaluation of plant and equipment to fair value, partially offset by $2.9 million of unplanned outages and a non-cash charge to adjust inventory to fair value of $1.2 million as part of the KPB acquisition.
Dunnage bag net sales were down by $3.0 million, or 8.3%, to $32.8 million for the year ended December 31, 2007, mainly due to a 7.5% reduction in volume. Dunnage bag operating income was down $1.2 million, or 15.5%, to $6.4 million due to lower sales volume, a non-cash charge of $0.3 million to adjust inventory to fair value as part of the KPB acquisition and higher amortization expenses of $0.2 million.
Corporate expenses of $14.0 million for the year ended December 31, 2007, were $6.2 million higher than 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 $2.4 million for the cost of transitional services provided by IP that will be terminated upon start-up of the Company's own ERP system. It is currently projected that the Company's new ERP system will be fully implemented in the second quarter of 2008.
Fourth Quarter Operating Highlights
Fourth quarter 2007 net sales of $64.9 million were up $7.9 million, or 13.9%, and operating income of $13.5 million was up 34.6% over the same quarter last year.
Unbleached kraft paper net sales rose to $58.0 million, up $8.2 million, or 16.5%, over the prior year. Increased volume, up 7,780 tons, and higher average revenue per ton, up $40 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 $15.2 million in the fourth quarter, up $5.2 million, or 52.2% over the prior year. The significant improvement in operating income during the quarter reflects higher selling prices and volume, and lower depreciation charges of $1.6 million on the reduced depreciable asset base that resulted from the revaluation of plant and equipment to fair value, partially offset by $1.9 million of unplanned outages.
Dunnage bag net sales were down from the prior year by $0.1 million, or 1.5%, to $8.1 million mainly due to a slight decrease in volume. Dunnage bag operating income was down $0.1 million, or 6.1%, to $1.6 million due to lower sales volume.
Corporate expenses of $3.4 million for the fourth quarter were $1.7 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 IP. Included in the 2007 corporate expenses are charges of approximately $0.6 million for the cost of transitional services provided by IP that will be terminated upon start-up of the Company's own ERP system. It is currently projected that the Company's new ERP system will be fully implemented in the second quarter of 2008.
Cash Flow and Working Capital
Net cash from operating activities for the year ended December 31, 2007 totaled $52.2 million, an improvement of $16.0 million, or 44.3%, over the comparable prior year. Capital expenditures of $11.9 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 December 31, 2007 was $65.1 million including cash and cash equivalents of $56.6 million. With a cash and cash equivalents balance of $56.6 million and combined current and long-term debt balances of $52.5 million at December 31, 2007, the Company is now $4.1 million net cash positive.
Roger Stone, KapStone's chairman and chief executive officer, said, "We are particularly pleased with the operating results achieved in our inaugural year including an adjusted EBITDA margin of 22% and net income margin of 11%. With our operations performing well and a strong demand for our products, we delivered significant cash to the balance sheet resulting in our cash balances now exceeding our debt obligations. We are entering 2008 in an even stronger position with an opportunity for continuing performance improvements, a first quarter price increase of $40 per ton on our kraft paper products, and a results-driven management team."
Conference Call
KapStone has scheduled a conference call at 2 p.m. ET, March 17, 2008, to discuss the Company's financial results for 2007. The conference call will be available via the Internet by accessing the Company's web site at http://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 Northbrook, 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. 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. 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: (i) 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 Income (In thousands, except per share amounts) Predecessor Predecessor KPB Fav/(Unfav) KPB Fav/(Unfav) 3 Months Ended Year Ended Dec. 31, Variance Dec. 31, Variance 2007 2006 (1) % 2007 2006 (1) % Net sales $64,938 $56,997 13.9% $256,795 $246,161 4.3% Cost and expenses: Cost of sales 38,818 34,683 -11.9% 162,429 160,444 -1.2% Freight and distribution 6,105 5,347 -14.2% 23,581 22,274 -5.9% Selling and administrative expenses 3,837 2,358 -62.7% 16,482 11,282 -46.1% Depreciation and amortization 3,055 4,610 33.7% 11,327 18,210 37.8% Other operating income 337 - NA 1,324 - NA Operating income 13,460 9,999 34.6% 44,300 33,951 30.5% Interest income 629 - NA 2,096 - NA Interest expense (978) (352) -177.8% (4,295) (1,411) -204.4% Income before provision for income taxes: 13,111 9,647 35.9% 42,101 32,540 29.4% Total provision for income taxes 4,477 3,728 -20.1% 15,138 12,573 -20.4% Net income $8,634 $5,919 45.9% $26,963 $19,967 35.0% Earnings per share: Basic $0.34 - $1.08 - Diluted $0.23 - $0.75 - Weighted-average number of shares outstanding: Basic 25,138,797 25,010,057 Diluted 37,098,615 36,134,488 (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 Fav/ Predecessor Fav/ KPB (Unfav) KPB (Unfav) 3 Months Ended Year Ended Dec. 31, Variance Dec. 31, Variance 2007 2006 (1) % 2007 2006 (1) % Net sales Unbleached kraft $57,953 $49,762 16.5% $227,921 $214,175 6.4% Dunnage bags 8,095 8,216 -1.5% 32,801 35,753 -8.3% Intersegment elim. from unbleached kraft (1,110) (981) -13.1% (3,927) (3,767) -4.2% Total net sales $64,938 $56,997 13.9% $256,795 $246,161 4.3% Operating income by industry segment Unbleached kraft $15,198 $9,983 52.2% $51,901 $34,280 51.4% Dunnage bags 1,618 1,724 -6.1% 6,350 7,514 -15.5% Corporate expenses (3,356) (1,708) -96.5% (13,951) (7,843) -77.9% Total operating income $13,460 $9,999 34.6% $44,300 $33,951 30.5% KapStone Paper and Packaging Corp Condensed Consolidated Balance Sheets (In thousands) Predecessor KPB Dec. 31, December 31, 2007 2006 Assets Current assets: Cash and cash equivalents $56,635 $1 Trade accounts receivable, net 30,208 25,824 Inventories, net 19,846 24,087 Deferred income taxes 1,263 - Prepaid expenses and other current assets 735 1,425 Total current assets 108,687 51,337 Plant, property and equipment, net 104,858 201,593 Deferred acquisition costs 1,664 - Other assets 2,071 4,452 Intangible assets, net 5,875 - Goodwill 2,295 - Total assets $225,450 $257,382 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $11,050 $7,931 Accrued expenses 12,969 7,144 Current portion long-term debt 19,578 - Total current liabilities 43,597 15,075 Long-term debt 32,922 22,357 Asset retirement obligations 279 265 Deferred income taxes 1,047 - Pension and post retirement benefits 3,420 - Total liabilities 81,265 37,697 Stockholders' equity: Common stock $.0001 par value 3 - Invested capital 115,002 - Divisional control - 219,685 Accumulated other comprehensive income 79 - Retained earnings 29,101 - Total stockholders' equity 144,185 219,685 Total liabilities and stockholders' equity $225,450 $257,382 SUPPLEMENTAL INFORMATION GAAP to Non-GAAP Reconciliations Unaudited Predecessor Predecessor (In thousands, except per share data) KPB KPB 3 Months Ended Year Ended Dec. 31, Dec. 31, 2007 2006 (1) 2007 2006 (1) Net Income (GAAP) to Adjusted Net Income (Non-GAAP): Net income (GAAP) $8,634 $5,919 $26,963 $19,967 One-time non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value. - - 977 - Adjusted Net Income (Non-GAAP) $8,634 $5,919 $27,940 $19,967 Net Income (GAAP) to Adjusted EBITDA (Non-GAAP): Net income (GAAP) $8,634 $5,919 $26,963 $19,967 Interest income (629) - (2,096) - Interest expense 978 352 4,295 1,411 Tax provision 4,477 3,727 15,138 12,573 Depreciation and amortization 3,055 4,610 11,327 18,210 EBITDA 16,515 14,608 55,627 52,161 One-time non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value. 1,526 Adjusted EBITDA (Non-GAAP) $16,515 $14,608 $57,153 $52,161 Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP): Basic EPS (GAAP) $0.34 NA $1.08 NA Adjustment: One-time non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value. NA NA 0.04 NA Adjusted Basic EPS (Non-GAAP) $0.34 NA $1.12 NA Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): Diluted earnings per share (GAAP) $0.23 NA $0.75 NA Adjustment: One-time non-cash charge made in connection with the KPB acquisition to adjust inventory to fair value. NA NA 0.03 NA Adjusted Diluted EPS (Non-GAAP) $0.23 NA $0.78 NA (1) Prior period information has been revised in accordance to reflect retrospective application of a change in accounting
