KapStone Paper and Packaging Corp fka KS

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KapStone Reports 2008 First Quarter Results
Monday May 5, 5:00 pm ET
Net Income Up 2% over 2007
- Basic and Diluted EPS of $0.29 and $0.21, respectively
- Cash Flows from Operations of $9.9 Million
- Cash Balance Exceeds Debt by $11.3 Million


NORTHBROOK, Ill., May 5 /PRNewswire-FirstCall/ -- KapStone Paper and Packaging Corporation (Nasdaq: KPPC - News) today reported results for the first quarter ended March 31, 2008.


$ 000's Three Months Ended March 31,
2008 2007

Net Sales $67,129 $65,427

Net Income $7,230 $7,078

Net Income per Share - Basic $0.29 $ 0.28

Net Income per Share - Diluted $0.21 $0.21

EBITDA $14,238 $14,046


First Quarter Operating Highlights

First quarter 2008 net sales of $67.1 million were up $1.7 million, or 2.6%, and net income of $7.2 million was up 2.1% compared to the same quarter last year.

For the three months ended March 31, 2008, unbleached kraft segment net sales increased by $1.9 million, or 3.2%, to $60.4 million compared to $58.5 million for the three months ended March 31, 2007. Average revenue per ton increased $34/ton, approximately $3.6 million, due to the full realization of 2007 price increases. The February 2008 kraft paper price increase had a minimal impact during the quarter and is expected to be realized in the second quarter of 2008. Volume of paper sold decreased by 3,303 tons driven by greater 2007 inventory sales volumes and lighter grade mix, partially offset by one additional operating day in 2008.

Unbleached kraft segment operating income increased by $1.1 million, or 8.1%, to $14.6 million for the three months ended March 31, 2008 compared to $13.5 million for the three months ended March 31, 2007. Higher average revenue per ton contributed $3.6 million of the increased operating income. The impact of the pricing gains was partially offset by lower volume of $1.4 million. Inflation on energy, chemicals, freight and other costs negatively impacted operating income by $2.0 million for the quarter ended March 31, 2008. In addition, 2007 operating income included a $1.2 million non-cash purchase accounting charge adjusting acquired finished goods inventory to fair value. Operating income in the quarter ended March 31, 2008, was also negatively impacted by production levels that were 2.5% below the similar period in 2007.

For the three months ended March 31, 2008, net sales for the dunnage bag segment increased by $0.1 million, or 1.3%, to $7.9 million compared to $7.8 million for the three months ended March 31, 2007 mainly due to a 2.8% increase in unit sales. Average revenue per bag of $3.76 decreased by $0.04 or 1.1%, for the three months ended March 31, 2008 compared to the similar period in the prior year due to increased price competition in 2-ply bags.

Dunnage bag segment operating income decreased by $0.2 million, or 13.3%, to $1.3 million for the three months March 31, 2008 compared to $1.5 million for the three months ended March 31, 2007. Unfavorable volume/mix, lower average revenue per bag, inflation on raw material costs and higher amortization expenses contributed approximately $0.5 million of the reduction to operating income. Operating income for the quarter ended March 31, 2007, included a $0.3 million non-cash purchase accounting charge adjusting acquired finished goods inventory to fair value.

Corporate expenses for the three months ended March 31, 2008 totaled $4.2 million compared to $3.1 million for the year three months March 31, 2007. The increase of $1.1 million is due to higher compensation related costs of $0.7 million reflecting the hiring of corporate employees taking place mainly during the second half of 2007 and early 2008 in anticipation of terminating the transitional services agreement with International Paper Company ("IP"). For the quarter ended March 31, 2008, transitional support services from IP totaled $0.7 million. In addition, professional fees and occupancy costs were higher by $0.2 million in quarter ended March 31, 2008.

Cash Flow and Working Capital

Net cash from operating activities for the quarter ended March 31, 2008 totaled $9.9 million. Capital expenditures of $2.3 million for the 2008 period were primarily spent on the Company's ERP system implementation and equipment upgrades and replacements for the unbleached kraft facility. Working capital at March 31, 2008 was $71.4 million including cash and cash equivalents of $60.3 million. With cash and cash equivalents of $60.3 million and combined current and long-term debt balances of $49.0 million at March 31, 2008, the Company is $11.3 million net cash positive. In April 2008, the Company paid $11.6 million representing the mandatory prepayment on its long-term debt based on its 2007 excess cash flow results.

Roger Stone, KapStone's chairman and chief executive officer, said, "As we begin our second year, we are optimistic. Following several rough operating months since our annual shutdown last year resulting in lower production levels than we would have expected, our Roanoke Rapids mill is now running smoothly. While we are concerned about the impact of inflation on our costs, particularly energy related costs, our $40 per ton kraft paper increase has been fully implemented and should more than offset the impact of those cost increases. With our backlogs very strong, our favorable operating metrics, and the pending acquisition of the MeadWestvaco North Charleston Kraft Division, we are excited about the future of our business."

Pending Acquisition of the Charleston Kraft Division of MeadWestvaco Corporation

On April 4, 2008, KapStone signed an asset purchase agreement with MeadWestvaco Corporation (MW) to purchase substantially all of the assets and assume certain liabilities of MW's North Charleston Kraft Division (CKD) for $485 million, subject to certain post-closing adjustments. The acquisition consists of an unbleached kraft paper manufacturing facility and electric cogeneration facility in North Charleston, South Carolina and a lumber business located in Summerville, South Carolina. KapStone expects to close the acquisition by September 30, 2008, subject to customary closing conditions, including regulatory review and receipt of financing

Conference Call

KapStone has scheduled a conference call at 11 a.m. EDT, May 6, 2008, to discuss the Company's financial results for the quarter ended March 31, 2008. 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 completed the acquisition of substantially all of the assets and assumed certain liabilities, of the Kraft Papers Business, or KPB, a division of IP. The assets include an unbleached kraft paper manufacturing facility in Roanoke Rapids, North Carolina and Ride Rite® Converting, an inflatable dunnage bag manufacturer located in Fordyce, Arkansas. Prior to the acquisition of KPB, KapStone, a special purpose acquisition corporation or "blank check company", had no operations.

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 business employs approximately 700 people.

Non-GAAP Financial Measures

Investors are cautioned that EBITDA information contained in this press release is not a financial measure under U.S. generally accepted accounting principles (GAAP). In addition, it should not be construed as an alternative to any other measure of performance determined in accordance with GAAP. This non-GAAP financial measure is 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 this non-GAAP measure provides useful information to investors because it improves 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 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.