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KapStone Paper and Packaging Corporation$34.65$.03.09%

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 KapStone Reports 2017 Fourth Quarter And Full Year Results
   Wednesday, February 07, 2018 4:15:00 PM ET

KapStone Paper and Packaging Corporation (KS ) today reported preliminary results for the fourth quarter and year ended December 31, 2017.

As compared to 2016’s fourth quarter, results for 2017’s fourth quarter:

-- Net sales of $859 million, up $81 million, or 10 percent

-- Net income of $188 million, up $169 million, or 924 percent

-- Diluted EPS of $1.90, up $1.71 per share, or 900 percent

Non U.S. GAAP financial measures for 2017’s fourth quarter as compared to 2016’s fourth quarter:

-- Adjusted EBITDA of $136 million, up $44 million, or 48 percent

-- Adjusted net income of $50 million, up $27 million, or 115 percent

-- Adjusted diluted EPS of $0.51, up $0.27 per share, or 113 percent

As compared to the year ended December 31, 2016, results for the year ended December 31, 2017:

-- Net sales of $3,316 million, up $239 million, or 8 percent

-- Net income of $244 million, up $158 million, or 182 percent

-- Diluted EPS of $2.47 up $1.59 per share, or 181 percent

Non U.S. GAAP financial measures for the year ended December 31, 2017 as compared to 2016’s year:

-- Adjusted EBITDA of $437 million, up $53 million, or 14 percent

-- Adjusted net income of $130 million, up $23 million, or 21 percent

-- Adjusted diluted EPS of $1.32, up $0.22 per share, or 20 percent

Matthew Kaplan, President and Chief Executive Officer, stated, "Eleven years ago, we began a journey to build a world-class paper and packaging company with the resources and skills of our largest competitors-- that focused on maximization of stockholder value and that treated our customers and employees like a small, family-oriented company. On January 29, 2018, we announced signing a definitive agreement to be acquired by WestRock for $35.00 per share, subject to customary closing conditions, including KapStone stockholder approval. We believe this acquisition is a compelling transaction for our stockholders and an exciting development for both KapStone and WestRock."

Fourth Quarter Operating Highlights

Consolidated net sales of $859 million in the fourth quarter of 2017 were $81 million higher than 2016, reflecting higher prices for containerboard and corrugated products. Tons of paper sold in the paper and packaging segment increased to 731,000 tons during the fourth quarter of 2017 compared to 724,000 tons a year earlier. The Company’s average mill selling price of $698 per ton in the fourth quarter of 2017 was higher by $81 per ton compared to the fourth quarter of 2016 due to the combined impact of higher export and domestic containerboard selling prices and kraft paper prices. Average mill selling prices were flat compared to the third quarter of 2017. Distribution segment sales increased by $14 million compared to the prior year quarter due to higher prices, partially offset by lower volume.

Net income of $188 million for the 2017 fourth quarter increased by $169 million compared to the 2016 fourth quarter. The current quarter includes a provisional tax benefit of $144 million associated with the passage of the Tax Cuts and Jobs Act on December 22, 2017. The tax benefit consists of a non-cash adjustment to re-measure deferred income tax liabilities at the new 21 percent federal statutory income tax rate compared to the prior 35 percent income tax rate.

Adjusted EBITDA for the fourth quarter of 2017 of $136 million increased by $44 million compared to the fourth quarter of 2016 as follows:

-- $57 million due to higher selling prices,

-- Higher sales volume of $3 million,

-- Productivity improvements and cost savings of $10 million, and

-- $6 million due to the impact of Hurricane Matthew in 2016, which did not recur.

These items were partially offset by:

-- Higher compensation and benefit costs of $16 million,

-- $7 million of higher planned maintenance outages, and

-- Inflation of $8 million driven by higher OCC costs.

The effective income tax rate for the fourth quarter of 2017, when excluding the impact of the new tax law, was 31.4 percent compared to 32.6 percent for the fourth quarter of 2016.

Full Year Operating Highlights

Consolidated net sales for the year ended December 31, 2017, were $3,316 million, an increase of 8 percent, compared to 2016 sales of $3,077 million. The increase was due to higher prices, a better product mix and higher volumes in the paper and packaging segment. The Company’s average mill selling price of $677 per ton in 2017 was higher by $54 per ton compared to 2016 due to the combined impact of higher export and domestic containerboard selling prices and kraft paper prices. Distribution segment sales increased by $31 million compared to 2016 due to higher prices, partially offset by lower volume.

Net income of $244 million for the year ended December 31, 2017 was higher than 2016’s $86 million by $158 million. The increase was mainly due to a provisional tax benefit of $144 million based on the new tax law enacted on December 22, 2017.

Adjusted EBITDA for 2017 of $437 million increased by $53 million compared to 2016 as follows:

-- $155 million due to higher selling prices,

-- Higher sales volume and improved operating performance of $10 million, and

-- $6 million due to the impact of Hurricane Matthew in 2016, which did not recur.

These items were partially offset by:

-- $35 million of higher compensation and benefit costs,

-- Inflation of $43 million driven by higher OCC costs, and

-- Higher planned maintenance outage costs of $14 million.

The effective income tax rate for the year ended December 31, 2017, when excluding the impact of the new tax law, was 33.2 percent compared to 32.7 percent for 2016.

Cash Flow and Working Capital

Cash and cash equivalents increased by $17 million during the current quarter to $28 million at December 31, 2017. The Company generated $150 million of net cash from operating activities during the fourth quarter of 2017. Capital expenditures in the fourth quarter of 2017 were $30 million. The Company paid $10 million of dividends and made a voluntary debt repayment to reduce term loan borrowings by $80 million in the fourth quarter of 2017.

Cash and cash equivalents decreased by $1 million during 2017 compared to December 31, 2016, reflecting cash provided by operating activities of $325 million, $138 million for capital expenditures, and $34 million for a strategic investment to increase mill integration. Cash used by financing activities totaled $155 million reflecting $155 million of voluntary debt prepayments and $39 million of cash dividends paid to stockholders, partially offset by $39 million of net proceeds from the receivables credit facility.

At December 31, 2017, the Company had approximately $405 million of working capital and $486 million of revolver borrowing capacity.

Cancellation of Conference Call

Due to the signing of a definitive agreement to be acquired by WestRock, the conference call previously scheduled to be held on Thursday, February 8, 2018 is cancelled.

About the Company

Headquartered in Northbrook, IL, 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. The Company has four paper mills, 23 converting plants and 60 distribution centers. The business has approximately 6,400 employees.

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures, including "EBITDA", "Adjusted EBITDA", "Adjusted Net Income", and "Adjusted Diluted EPS" to measure our operating performance. Management uses these measures to focus on the on-going operations, and believes they are useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The Company believes that EBITDA and Adjusted EBITDA 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 of the Company. Management uses EBITDA and Adjusted EBITDA for evaluating the Company’s performance against competitors and as a primary measure for employees’ incentive programs. Reconciliations of Net Income to EBITDA, EBITDA to Adjusted EBITDA, Net Income to Adjusted Net Income, and Diluted EPS to Adjusted Diluted EPS are 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) industry conditions; (2) market and economic factors; (3) results of legal proceedings and compliance costs; (4) the ability to achieve and effectively manage growth; (5) the ability to pay the Company’s debt obligations; (6) the ability to carry out the Company’s strategic initiatives and manage associated costs; (7) managing labor relations; (8) realizing the synergies and benefits of strategic investments; (9) unanticipated business interruptions; and (10) various factors related to the pending transaction with WestRock, including but not limited to the ability of KapStone and WestRock to receive the required regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction), to receive the required approval of KapStone’s stockholders and to satisfy the other conditions to the closing of the transaction on a timely basis or at all; the occurrence of events that may give rise to a right of one or both of the parties to terminate the merger agreement; negative effects of the announcement or the consummation of the transaction on the market price of WestRock’s or KapStone’s common stock and/or on their respective businesses, financial conditions, results of operations and financial performance; risks relating to the value of the shares that may be issued in the transaction, significant transaction costs and/or unknown liabilities; the possibility that the anticipated benefits from the proposed transaction cannot be realized in full or at all or may take longer to realize than expected; risks associated with third party contracts containing consent and/or other provisions that may be triggered by the proposed transaction; risks associated with transaction-related litigation; the possibility that costs or difficulties related to the integration of KapStone’s operations with those of WestRock will be greater than expected; the outcome of legally required consultation with employees, their works councils or other employee representatives; and the ability of KapStone and the combined company to retain and hire key personnel. Further information on these and other risks and uncertainties is provided under Part I, Item 1A "Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and elsewhere in reports that the Company files 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 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)
(Preliminary and Unaudited)
                                                       Quarter Ended December 31,     Year Ended December 31,
                                                       2017           2016            2017             2016
Net sales                                              $  858,682     $  777,495      $ 3,315,660      $ 3,077,257
Cost and expenses:
Cost of sales, excluding depreciation and amortization 588,676        563,953         2,354,523        2,214,872
Depreciation and amortization                          47,937         46,685          186,801          182,213
Freight and distribution expenses                      74,201         71,236          299,872          279,023
Plant closure costs                                    1,241          -               10,208           -
Selling, general and administrative expenses           68,566         51,720          265,131          224,127
Multiemployer pension plan withdrawal expense          -              6,376           -                6,376
Operating income                                       78,061         37,525          199,125          170,646
Foreign exchange (gain) / loss                         508            737             (993)            2,255
Equity method investments income                       (375)          (548)           (1,752)          (548)
Loss on debt extinguishment                            674            -               1,305            679
Interest expense, net                                  14,077         10,113          52,282           40,078
Income before provision (benefit) for income taxes     63,177         27,223          148,283          128,182
Provision (benefit) for income taxes                   (124,532)      8,885           (95,220)         41,930
Net income                                             $  187,709     $    18,338     $    243,503     $      86,252
Net income per share:
Basic                                                  $        1.94  $        0.19   $          2.51  $          0.89
Diluted                                                $        1.90  $        0.19   $          2.47  $          0.88
Weighted-average number of shares outstanding:
Basic                                                  97,003,931     96,581,703      96,859,516       96,533,368
Diluted                                                98,815,063     97,888,469      98,615,101       97,777,066
Effective income tax rate                              -197.1%        32.6%           -64.2%           32.7%
Supplemental Information
GAAP to Non-GAAP Reconciliations
($ in thousands, except share and per share amounts)
(unaudited)
                                                                      Quarter Ended December 31,     Year Ended December 31,
                                                                      2017           2016            2017             2016
Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):
Net income (GAAP)                                                     $  187,709     $    18,338     $    243,503     $      86,252
Interest expense, net                                                 14,077         10,113          52,282           40,078
Provision (benefit) for income taxes                                  (124,532)      8,885           (95,220)         41,930
Depreciation and amortization                                         47,937         46,685          186,801          182,213
EBITDA (Non-GAAP)                                                     $  125,191     $    84,021     $    387,366     $    350,473
Stock-based compensation expense                                      2,234          1,750           14,910           8,938
Acquisition, integration, start-up and other expenses                 243            2,123           7,440            6,338
Longview piping inspection settlement                                 -              -               2,034            -
Union contract ratification cost                                      -              -               5,925            -
Plant closure costs                                                   1,241          -               10,208           -
Loss on asset disposals                                               213            -               2,173            2,270
Change in fair value of contingent consideration liability            6,134          (2,979)         5,794            1,600
Severance expenses                                                    -              533             -                7,560
Multiemployer pension plan withdrawal expense                         -              6,376           -                6,376
Loss on debt extinguishment                                           674            -               1,305            679
Accumulated EBITDA adjustments                                        10,739         7,803           49,789           33,761
Adjusted EBITDA (Non-GAAP)                                            $  135,930     $    91,824     $    437,155     $    384,234
Net Income (GAAP) to Adjusted Net Income (Non-GAAP):
Net income (GAAP)                                                     $  187,709     $    18,338     $    243,503     $      86,252
Accumulated EBITDA adjustments                                        10,739         7,803           49,789           33,761
Accumulated tax adjustments                                           (4,027)        (2,926)         (18,671)         (12,660)
Tax impact of Tax Cuts and Jobs Act                                   (144,387)      -               (144,387)        -
Adjusted Net Income (Non-GAAP)                                        $    50,034    $    23,215     $    130,234     $    107,353
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP):
Diluted earnings per share (GAAP)                                     $        1.90  $        0.19   $          2.47  $          0.88
Accumulated EBITDA adjustments                                        0.11           0.08            0.50             0.35
Accumulated tax adjustments                                           ( 0.04)        ( 0.03)         ( 0.19)          ( 0.13)
Tax impact of Tax Cuts and Jobs Act                                   ( 1.46)        -               ( 1.46)          -
Adjusted Diluted EPS (Non-GAAP)                                       $        0.51  $        0.24   $          1.32  $          1.10
KapStone Paper and Packaging Corporation
Consolidated Balance Sheets
(In thousands)
                                             December 31,                             December 31,
                                             2017                                     2016
                                             (Preliminary and Unaudited)
Assets
Current assets:
Cash and cash equivalents                    $                             28,065     $       29,385
Trade accounts receivable, net of allowances 443,462                                  392,962
Other receivables                            23,289                                   13,562
Inventories                                  315,575                                  322,664
Prepaid expenses and other current assets    17,470                                   10,247
Total current assets                         827,861                                  768,820
Plant, property and equipment, net           1,453,607                                1,441,557
Other assets                                 24,431                                   25,468
Intangible assets, net                       297,475                                  314,413
Goodwill                                     720,611                                  705,617
Total assets                                 $                        3,323,985       $  3,255,875
Liabilities and Stockholders’ Equity
Current liabilities:
Capital lease obligation                     $                                    30  $               -
Dividend payable                             10,302                                   10,052
Accounts payable                             199,574                                  189,350
Accrued expenses                             105,951                                  76,480
Accrued compensation costs                   75,215                                   48,840
Accrued income taxes                         31,458                                   15,971
Total current liabilities                    422,530                                  340,693
Long-term debt, net of current portion       1,374,502                                1,485,323
Long-term financing obligations              82,199                                   -
Capital lease obligation                     4,595                                    -
Pension and post-retirement benefits         14,196                                   34,207
Deferred income taxes                        252,101                                  405,561
Other liabilities                            36,848                                   85,761
Total other liabilities                      1,764,441                                2,010,852
Stockholders’ equity:
Common stock $0.0001 par value               10                                       10
Additional paid-in capital                   291,629                                  275,970
Retained earnings                            894,061                                  689,668
Accumulated other comprehensive loss         (48,686)                                 (61,318)
Total stockholders’ equity                   1,137,014                                904,330
Total liabilities and stockholders’ equity   $                        3,323,985       $  3,255,875
KapStone Paper and Packaging Corporation
Consolidated Statement of Cash Flows
(In thousands)
(Preliminary and Unaudited)
                                                            Quarter Ended December 31,   Year Ended December 31,
                                                            2017          2016           2017         2016
Operating activities:
Net income                                                  $  187,709    $  18,338      $  243,503   $    86,252
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of plant and equipment                         40,193        39,175         155,903      149,318
Amortization of intangible assets                           7,744         7,510          30,898       32,895
Stock-based compensation expense                            2,234         1,750          14,910       8,938
Pension and postretirement                                  (1,321)       (2,106)        (3,292)      (3,694)
Excess tax benefit from stock-based compensation            -             57             -            207
Amortization of debt issuance costs                         1,230         1,179          4,787        4,804
Loss on debt extinguishment                                 674           -              1,305        679
Loss on disposal of assets                                  1,587         443            5,372        3,599
Deferred income taxes                                       (151,678)     (14,660)       (157,918)    (14,440)
Change in fair value of contingent consideration liability  6,134         (2,979)        5,794        1,600
Equity method investments income, net of cash received      (375)         (548)          98           (548)
Plant closure costs                                         (521)         -              7,522        -
Provision for bad debts                                     98            -              3,024        -
Multiemployer pension plan withdrawal expense               -             6,376          -            6,376
Changes in operating assets and liabilities                 55,841        14,998         13,562       5,934
Net cash provided by operating activities                   $  149,549    $  69,533      $  325,468   $  281,920
Investing activities:
Capital expenditures                                        (30,346)      (27,619)       (138,358)    (126,865)
Purchase of intangible assets                               -             (500)          -            (2,525)
Acquisition, net of cash acquired                           -             -              (33,500)     (15,438)
Equity method investments                                   -             (57)           -            (11,807)
Proceeds from the sales of assets                           472           -              472          4,881
Net cash (used in) investing activities                     $   (29,874)  $(28,176)      $(171,386)   $(151,754)
Financing activities:
Proceeds from revolving credit facility                     $    74,500   $  97,800      $  422,000   $  451,000
Repayments on revolving credit facility                     (77,000)      (109,300)      (422,000)    (457,400)
Proceeds from receivables credit facility                   14,666        6,445          89,914       43,001
Repayments on receivables credit facility                   (23,662)      (6,675)        (50,338)     (39,342)
Proceeds from long-term debt                                -             -              -            -
Repayments on long-term debt                                (80,000)      -              (155,000)    (64,687)
Repayments on long-term financial obligations               (232)         -              (495)        -
Payment of loan amendment costs                             -             -              (1,488)      (2,250)
Proceeds from other current borrowings                      -             -              6,214        -
Repayments on other current borrowings                      (2,084)       -              (6,214)      -
Repayments on capital lease obligation                      (3)           -              (22)         -
Cash dividends paid                                         (9,696)       (9,735)        (38,722)     (38,736)
Payment of withholding taxes on vested stock awards         (13)          31             (1,884)      (810)
Proceeds from exercises of stock options                    645           70             1,686        858
Proceeds from issuance of shares to ESPP                    -             -              972          971
Other                                                       (25)          (57)           (25)         (207)
Net cash (used in) financing activities                     $(102,904)    $(21,421)      $(155,402)   $(107,602)
Net increase (decrease) in cash and cash equivalents        16,771        19,936         (1,320)      22,564
Cash and cash equivalents-beginning of period               11,294        9,449          29,385       6,821
Cash and cash equivalents-end of period                     $    28,065   $  29,385      $    28,065  $    29,385
KapStone Paper and Packaging Corporation
Operating Segment Information
(In thousands)
(Preliminary and Unaudited)
                                     Net Sales
Three Months Ended December 31, 2017 Trade         Inter-         Total         Segment      Depreciation      Capital           Total Assets
                                                   segment                      Operating    and               Expenditures      at Dec. 31,
                                                                                Income       Amortization                        2017
                                                                                (Loss)
Paper and Packaging                  $    608,298  $ 18,397       $    626,695  $    85,379  $         40,280  $         27,665  $   2,620,391
Distribution                         250,384       -              250,384       11,046       5,853             397               652,544
Corporate                            -             -              -             (18,364)     1,804             2,284             51,050
Intersegment eliminations            -             (18,397)       (18,397)      -            -                 -                 -
                                     $    858,682  $         -    $    858,682  $    78,061  $         47,937  $         30,346  $   3,323,985
                                     Net Sales
Three Months Ended December 31, 2016 Trade         Inter-         Total         Segment      Depreciation      Capital           Total Assets
                                                   segment                      Operating    and               Expenditures      at Dec. 31,
                                                                                Income       Amortization                        2016
                                                                                (Loss)
Paper and Packaging                  $    541,047  $ 16,422       $    557,469  $    36,103  $         38,716  $         24,502  $   2,541,634
Distribution                         236,448       -              236,448       7,349        5,869             415               658,208
Corporate                            -             -              -             (5,927)      2,100             2,702             56,033
Intersegment eliminations            -             (16,422)       (16,422)      -            -                 -                 -
                                     $    777,495  $         -    $    777,495  $    37,525  $         46,685  $         27,619  $   3,255,875
                                     Net Sales
Year Ended December 31, 2017         Trade         Inter-         Total         Segment      Depreciation      Capital
                                                   segment                      Operating    and               Expenditures
                                                                                Income       Amortization
                                                                                (Loss)
Paper and Packaging                  $ 2,335,114   $ 86,509       $ 2,421,623   $  227,388   $       155,605   $       129,360
Distribution                         980,546       -              980,546       30,204       23,667            2,258
Corporate                            -             -              -             (58,467)     7,529             6,740
Intersegment eliminations            -             (86,509)       (86,509)      -            -                 -
                                     $ 3,315,660   $         -    $ 3,315,660   $  199,125   $       186,801   $       138,358
                                     Net Sales
Year Ended December 31, 2016         Trade         Inter-segment  Total         Segment      Depreciation      Capital
                                                                                Operating    and               Expenditures
                                                                                Income       Amortization
                                                                                (Loss)
Paper and Packaging                  $ 2,127,220   $ 72,089       $ 2,199,309   $  181,157   $       151,506   $       116,022
Distribution                         950,037       -              950,037       29,296       23,027            4,349
Corporate                            -             -              -             (39,807)     7,680             6,494
Intersegment eliminations            -             (72,089)       (72,089)      -            -                 -
                                     $ 3,077,257   $         -    $ 3,077,257   $  170,646   $       182,213   $       126,865
KapStone Paper and Packaging Corporation
Operating Segment EBITDA and Adjusted EBITDA
(In thousands)
(Preliminary and Unaudited)
                                                            Quarter Ended December 31,  Year Ended December 31,
Paper and Packaging                                         2017         2016           2017        2016
Segment operating income                                    $   85,379   $ 36,103       $ 227,388   $ 181,157
Equity method investments income                            (375)        (548)          (1,752)     (548)
Foreign exchange (gain) / loss                              (110)        479            (919)       461
Loss on debt extinguishment                                 674          -              1,305       -
Depreciation and amortization                               40,280       38,716         155,605     151,506
EBITDA                                                      125,470      74,888         384,359     332,750
Severance expenses                                          -            (448)          -           5,550
Acquisition, integration, start-up and other expenses       1,075        (550)          4,381       1,269
Longview piping inspection settlement                       -            -              2,034       -
Plant closure costs                                         1,241        -              10,208      -
Loss on asset disposals                                     213          -              858         1,710
Union contract ratification costs                           -            -              5,925       -
Loss on debt extinguishment                                 674          -              1,305       -
Multiemployer pension plan withdrawal expense               -            6,376          -           6,376
Adjusted EBITDA                                             $ 128,673    $ 80,266       $ 409,070   $ 347,655
Adjusted EBITDA margin                                      20.5%        14.4%          16.9%       15.8%
                                                            Quarter Ended December 31,  Year Ended December 31,
Distribution                                                2017         2016           2017        2016
Segment operating income                                    $   11,046   $   7,349      $   30,204  $   29,296
Foreign exchange (gain) / loss                              618          258            (74)        1,794
Depreciation and amortization                               5,853        5,869          23,667      23,027
EBITDA                                                      16,281       12,960         53,945      50,529
Acquisition, integration, start-up and other expenses       (1,343)      2,126          371         3,780
Loss on asset disposals                                     -            -              1,315       -
Severance expenses                                          -            981            -           1,614
Adjusted EBITDA                                             $   14,938   $ 16,067       $   55,631  $   55,923
Adjusted EBITDA margin                                      6.0%         6.8%           5.7%        5.9%
                                                            Quarter Ended December 31,  Year Ended December 31,
Corporate                                                   2017         2016           2017        2016
Segment operating (loss)                                    $ (18,364)   $ (5,927)      $ (58,467)  $ (39,807)
Loss on debt extinguishment                                 -            -              -           679
Depreciation and amortization                               1,804        2,100          7,529       7,680
EBITDA                                                      (16,560)     (3,827)        (50,938)    (32,806)
Stock-based compensation expense                            2,234        1,750          14,910      8,938
Acquisition, integration, start-up and other expenses       511          547            2,688       1,289
Loss on asset disposals                                     -            -              -           560
Change in fair value of contingent consideration liability  6,134        (2,979)        5,794       1,600
Loss on debt extinguishment                                 -            -              -           679
Severance expenses                                          -            -              -           396
Adjusted EBITDA                                             $   (7,681)  $ (4,509)      $ (27,546)  $ (19,344)
                                                            Quarter Ended December 31,  Year Ended December 31,
Consolidated                                                2017         2016           2017        2016
Segment operating income                                    $   78,061   $ 37,525       $ 199,125   $ 170,646
Equity method investments income                            (375)        (548)          (1,752)     (548)
Foreign exchange (gain) / loss                              508          737            (993)       2,255
Loss on debt extinguishments                                674          -              1,305       679
Depreciation and amortization                               47,937       46,685         186,801     182,213
EBITDA                                                      125,191      84,021         387,366     350,473
Stock-based compensation expense                            2,234        1,750          14,910      8,938
Acquisition, integration, start-up and other expenses       243          2,123          7,440       6,338
Longview piping inspection settlement                       -            -              2,034       -
Union contract ratification costs                           -            -              5,925       -
Plant closure costs                                         1,241        -              10,208      -
Loss on asset disposals                                     213          -              2,173       2,270
Change in fair value of contingent consideration liability  6,134        (2,979)        5,794       1,600
Loss on debt extinguishment                                 674          -              1,305       679
Severance expenses                                          -            533            -           7,560
Multiemployer pension plan withdrawal expense               -            6,376          -           6,376
Adjusted EBITDA                                             $ 135,930    $ 91,824       $ 437,155   $ 384,234
KapStone Paper and Packaging Corporation
Summary of Interest Expense, net
(In thousands)
(Preliminary and Unaudited)
                                                      Quarter Ended December 31,  Year Ended December 31,
                                                      2017       2016             2017      2016
Interest on term loans and revolver                   $   9,862  $   7,496        $ 39,009  $ 31,599
Interest on receivables securitization facility       1,681      1,500            5,618     3,940
Sub-total                                             11,543     8,996            44,627    35,539
Amortization of debt issuance costs                   1,230      1,179            4,787     4,804
Implicit interest on long-term financing obligations  1,529      -                3,305     -
Interest on capital lease obligation                  133        -                489       -
Other interest                                        13         16               76        7
Capitalized interest                                  (326)      (36)             (816)     (187)
Interest income                                       (45)       (42)             (186)     (85)
Total interest expense, net                           $ 14,077   $ 10,113         $ 52,282  $ 40,078

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SOURCE KapStone Paper and Packaging Corporation

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