KapStone Reports Second Quarter Results

The effective income tax rate for the 2017 second quarter was 33.9 percent compared to 36.5 percent for the 2016 second quarter. Results in the 2016 second quarter included an unfavorable adjustment for a state tax examination.  

Cash Flow and Working Capital

Cash and cash equivalents of $7 million as of June 30, 2017 remained consistent with balances at March 31, 2017.  Operating activities provided $17 million during the second quarter, while investing activities used $35 million and financing activities provided $18 million. Capital expenditures in the second quarter were $35 million.  Financing activities included $28 million of net proceeds from borrowings offset by $10 million of cash dividends.

On May 16, 2017, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on July 12, 2017.

At June 30, 2017, the Company had approximately $456 million of working capital and $463 million of revolver borrowing capacity. 

Conclusion

In summary, Kaplan commented, "We are focusing on internal opportunities to increase productivity, integration, and growth.  Therefore, I expect to see additional improvement in the third quarter and beyond by lowering operating costs and increasing productivity.  Furthermore, we expect to benefit from the full realization of the price increases implemented in the first half of this year across most of our product lines."

Conference Call

KapStone will host a conference call at 10:00 a.m. CDT, Thursday, July 27, 2017, to discuss the Company's financial results for the 2017 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:   888-608-7946
International:  484-747-6633
Participant Passcode:  53832308

A presentation to be viewed in conjunction with the call will also be available on our website, http://www.kapstonepaper.com, in the "Investors" section.

Replay of the webcast will be available for 30 days on the Company's website following the call.

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, 24 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 it is 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; and (8) realizing the synergies and benefits of strategic investments. 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, 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)
(Unaudited)
	Quarter Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Net sales	$    822,717		$      784,911		$      1,588,560		$    1,523,126
Cost and expenses:
Cost of sales, excluding depreciation and amortization	592,515		568,831		1,153,413		1,102,108
Depreciation and amortization	46,054		46,035		91,402		90,574
Freight and distribution expenses	75,640		70,978		148,628		136,037
Selling, general and administrative expenses	67,313		55,554		133,798		116,294
Operating income	41,195		43,513		61,319		78,113
Foreign exchange (gain) / loss	(1,004)		872		(1,086)		975
Equity method investments income	(29)		-		(706)		-
Interest expense, net	12,311		10,006		23,041		19,817
Income before provision for income taxes	29,917		32,635		40,070		57,321
Provision for income taxes	10,141		11,913		14,302		20,425
Net income	$      19,776		$        20,722		$           25,768		$         36,896
Net income per share:
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