Business News

KapStone Reports 2007 Full Year Results

Monday 17. March 2008 - Net Income Up 35% Over Prior Year - Full Year Basic and Diluted EPS of $1.08 and $0.75, Respectively - YTD Cash Flows from Operations of $52.2 Million, Up 44% over Prior Year - Year-end Cash Balance Exceeds Debt by $4.1 Million

KapStone Paper and Packaging Corporation (NASDAQ:KPPC) today reported results for the fourth quarter and year ended December 31, 2007.
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.”