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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File No.: 001-33494

KapStone Paper and Packaging Corporation
(Exact name of registrant as specified in its charter)

KapStone Paper and Packaging Corporation
1101 Skokie Blvd. Suite 300
Northbrook, IL 60062
(Address of principal executive offices) (ZIP Code)

Registrant's telephone number, including area code:(847) 239-8800

         SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

         SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:NONE

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes oý    No ýo

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.ýo

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of the above in Rule 12b-2 of the Exchange Act.

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of the 83,731,10985,454,365 shares of Common Stock held by non-affiliates of the registrant on June 30, 2014,2015, was $2,774,011,641.$1,975,704,919. This calculation was made using a price per share of Common Stock of $33.13;$23.12; the closing price of the Common Stock on the New York Stock Exchange on June 30, 20142015 the last day of the registrant's most recently completed second fiscal quarter of 2014.2015. Solely for purposes of this calculation, all shares held by directors and executive officers of the registrant have been excluded. This exclusion should not be deemed an admission that these individuals are affiliates of the registrant.

         On February 18, 2015,19, 2016, there were 96,085,55796,372,155 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

         The registrant's Definitive Proxy Statement for its 20152016 Annual Meeting of Stockholders will be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K pursuant to General Instruction G(3) of the Form 10-K. Information from such Definitive Proxy Statement will be incorporated by reference into Part III.

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INDEX

Part I

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PART I

Item 1.    Business

KapStone Acquisition History

        KapStone Paper and Packaging Corporation was formed in Delaware as a special purpose acquisition corporation on April 15, 2005 for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an unidentified operating business in the paper, packaging, forest products, and related industries. Unless the context otherwise requires, references to "KapStone," the "Company," "we," "us" and "our" refer to KapStone Paper and Packaging Corporation and its subsidiaries.

        On January 2, 2007, we acquired from International Paper Company substantially all of the assets and assumed certain liabilities of the Kraft Papers Business ("KPB") for $155.0 million, less $7.8 million of working capital adjustments. The KPB assets consisted of an unbleached kraft paper manufacturing facility in Roanoke Rapids, North Carolina, Ride Rite® Converting, an inflatable dunnage bag manufacturer located in Fordyce, Arkansas, trade accounts receivable and inventories. We subsequently paid an aggregate of $53.7 million additional purchase price pursuant to contingent earn-out payments based upon achieving certain EBITDA targets.

        On July 1, 2008, we acquired from MeadWestvaco Corporation ("MWV") substantially all of the assets and assumed certain liabilities of the Charleston Kraft Division ("CKD") for $485.0 million (net of cash acquired of $10.6 million), less $8.9 million of working capital adjustments. The CKD assets consisted of an unbleached kraft paper manufacturing facility in North Charleston, South Carolina (including a cogeneration facility), chip mills located in Elgin, Hampton, Andrews and Kinards, South Carolina, a lumber mill located in Summerville, South Carolina, trade accounts receivable and inventories.

        On March 31, 2009, we completed the sale of our dunnage bag business to Illinois Tool Works Inc. for $36.0 million, less $1.1 million of working capital adjustments. The Company considered the sale an opportunity to reduce its debt and focus on its core business.

        On October 31, 2011, we acquired U.S. Corrugated Acquisition Inc. ("USC") pursuant to a merger for $330.0 million in cash plus $1.9 million of working capital adjustments. USC owned, at the time of the merger, a recycled containerboard paper mill in Cowpens, South Carolina and fourteen corrugated packaging plants across the Eastern and Midwestern United States.

        On July 18, 2013, we acquired 100 percent of the stock of Longview Fibre Paper and Packaging, Inc., ("Longview") for $1.025 billion plus $41.5 million of working capital adjustments. Longview is a leading manufacturer of high quality containerboard, kraft papers and corrugated products. Longview's operations include a paper mill located in Longview, Washington equipped with five paper machines which have the capacity to produce approximately 1.3 million tons of containerboard and kraft paper annually. Longview also owns seven converting facilities located in the Pacific Northwest.

        On June 1, 2015, we acquired 100 percent of the partnership interests in Victory Packaging, L.P. and its subsidiaries ("Victory") for $615.0 million in cash and $2.0 million of working capital adjustments. Victory, headquartered in Houston, TX, provides its customers comprehensive packaging solutions and services and is one of the largest North American distributors of packaging materials. Victory's operations include more than 60 distribution and fulfillment facilities in the United States, Mexico and Canada. See Note 3, Victory Acquisition, for further detail.

The Company operates in onetwo segments: Paper and Packaging and Distribution. Our Paper and Packaging segment the integrated manufacturemanufactures and sale of containerboard,sells a wide variety container board, corrugated products and specialty paper for industrial and consumer markets. The Distribution segment was acquired June 1,

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2015 through the acquisition of Victory. The Company also has a Corporate and other category, which includes expenses and certain assets not attributable to either of the segments.

Future Acquisitions

        In an effort to diversify and/or grow our business we have been, and continue to be, engaged in evaluating a number of potential acquisition opportunities. No assurance can be given that we will consummate additional transactions. The structuring and financing of any future acquisitions may be dependent on the terms and availability of additional financing to us that either replaces or does not conflict with the Company's existing senior secured credit facility.

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General

        KapStoneOur Paper and Packaging segment produces containerboard, corrugated products and specialty paper. In 2014,2015, we produced 2.7 million tons, nearly 82 percent of which nearly 80 percent was sold to third party converters or shipped to our corrugated products manufacturing plants based in the United States, and 2018 percent of which was sold to foreign based customers. In 2014,2015, our corrugatingcorrugated products manufacturing plants produced and sold about 851849 thousand tons or 12.913.4 billion square feet (BSF)("BSF") of corrugated products in the U.S. Our net sales in 20142015 totaled $2.3$2.1 billion, which was comprised of $1.5$1.4 billion of containerboard and corrugated products and $0.8$0.7 billion of specialty paper.

        Our Distribution segment, which operates under the Victory and Golden State Container trade names, provides its customers comprehensive packaging solutions and services and distributes corrugated packaging materials, as well as other specialty packaging materials, such as plastics, wood, void fill, tapes and stretch wraps. For the seven months ended December 31, 2015, Victory's net sales totaled $0.6 billion, 14 percent of which was sold to foreign-based customers. We believe the Victory acquisition provides us with an additional distribution channel for our corrugated packaging products and, ultimately, our container board mills.

        The Company's business is affected by cyclical industry conditions and general economic conditions in the U.S.North America and in other parts of the countriesworld where we export containerboard and specialty paper.paper and distribute packaging materials. These conditions affect the prices whichthat we are able to charge for our products.products and services. Our foreign and export sales may also be affected by fluctuations in foreign exchange rates and trade policies and relations.

Industry OverviewOverviews

        We competeOur Paper and Packaging segment competes in the containerboard, corrugated products and specialty paper markets. We view the specialty paper market as including kraft paper, saturating kraft and unbleached folding carton board.

        Our Distribution segment competes in the distribution and fulfillment services market, serving customers across a range of industries. These customers include governmental entities, as well as customers in the moving and storage, automotive, retail and other industries.

Paper and Packaging Segment

Containerboard

        Containerboard, consisting of linerboard and corrugated medium, is primarily used to manufacture corrugated containers for packaging products. U.S. demand for corrugated containers and containerboard tends to be driven by industrial production of processed foods, nondurable goods and certain durable goods.

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        The American Forest and Paper Association's ("AF&PA") estimate of the size of the U.S. containerboard market is as follows:

        The primary markets for our containerboard are our corrugated products manufacturing plants, and independent corrugated and laminated products customers who focus on specialty niche packaging.packaging and Victory.

Corrugated Products

        According to the Fibre Box Association's most recent annual report dated April 2014,2015, the value of industry shipments of corrugated products was $28.4$29.8 billion, an increase of $2.0 million,$1.4 billion, or 7.04.9 percent.

        The primary end-use markets for corrugated products are shown below (as reported in the most recent Fibre Box Association annual report dated April 2014)2015):

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        Corrugated products manufacturing plants tend to be located in close proximity to customers to minimize freight costs and shipping times. The Fibre Box Association estimates that the U.S. corrugated products industry consists of approximately 570540 companies and over 1,200 plants.

Specialty Paper

Kraft Paper

        We produce three general categories of kraft paper:

•

Multiwall paper is used to produce bags for agricultural products, pet food, baking products, cement and chemicals. We are the only U.S. manufacturer of extensible, high performance multiwall kraft paper. Our FibreShield® and TEA-Kraft® lines of products offer durability, savings, efficiency and are supported by our exceptional customer and technical service. We also manufacture durable flat multiwall sack paper for a variety of end-use applications.



•

Specialty products hashave a large variety of uses within coating and laminating applications that requires a smooth surface. Specialty products arepaper is also used to produce shingle wrap, end caps, roll wrap and dunnage bags. Our specialty paper products are designed to meet the unique needs of a variety of customers and end uses. We modify a range of specialty paper products for our specialty paper grades, such as sizing, smoothness, porosity, wet strength, pH and others. Our specialty paper products are manufactured for a variety of converters, including laminators, coaters, insulation manufacturers, agricultural product processors and food product packaging producers.






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•

Lightweight paper is used in a variety of flexible packaging applications that range from 100 percent recycled content for quick-service restaurants carry out bags to 100 percent virgin content for direct contact food packaging. Our lightweight virgin furnished papers are produced from specifically blended wood chip recipes. These wood chip and pulp recipes are specifically designed to develop paper properties important for a variety of specialty packaging end uses and coating base paper applications. Our recycled content light weight papers are made in a wide variety of basis weights and percentages of recycled fiber content, and are valued for their cleanliness, strength, sustainability and end-use possibilities. The most recently developed product line, FibreGreen®, is composed of old corrugated containers ("OCC") processed in our state-of-the-art OCC facility and are available in a wide range of basis weights. FibreGreen® meets the U.S. Food and Drug Administration's requirements for direct food contact and is certified by the Sustainable Forestry Initiative®.

        The AF&PA's estimate of the size of the U.S. kraft paper market is as follows:

(In millions)		2014		2013		2012		2015			2014			2013
Total U.S. sales		1.40 tons		1.34 tons		1.34 tons			1.58 tons			1.40 tons			1.34 tons
U.S. production		1.34 tons		1.27 tons		1.28 tons			1.15 tons			1.34 tons			1.27 tons
Imports		0.17 tons		0.18 tons		0.16 tons			0.17 tons			0.17 tons			0.18 tons
Exports		0.21 tons		0.21 tons		0.22 tons			0.21 tons			0.21 tons			0.21 tons
U.S. operating rates		90%		77%		76%			90	%		90	%		77	%

        Over the last two decades, unbleached kraft paper production capacity has declined. This decline was primarily driven by plastic bags replacing paper at most grocery stores across North America. The multiwall shipping sack market also contributed to the decrease in capacity resulting from conversion to plastic and woven poly in certain end-use markets, primarily pet food, chemicals and seed and feed markets.




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Saturating Kraft

        Saturating kraft is used in multiple industries around the world, including construction, electronics manufacturing and furniture manufacturing. The major end-use is thin high pressure laminates (HPL)("HPL"), used to create decorative surfaces such as kitchen and bath countertops, home and office furniture and flooring. Within the HPL market there is a growing and distinct HPL segment manufacturing and selling a much thicker product called compact laminates used as surfacing products such as exterior cladding, partitions and doors. In Asia, there is significant use of saturating kraft product for the manufacturing of printed circuit boards (PCB) and copper clad laminates (CCL) and there is also a growing use for thin HPL in decorative surfaces. We are not aware of any published data reporting the size of the saturating kraft market. Barriers to entry for producing high quality saturating kraft are high as it is a technically difficult grade of paper to produce.

Unbleached Folding Carton Board

        Unbleached folding carton board is a low density virgin fiber board. Applications are widely spread throughout end uses in the general folding carton segment of the paperboard packaging market. This product can replace the use of more expensive coated recycled board, coated natural kraft board and solid bleached sulfate board which are currently much larger markets. There is no published data we are aware of reporting the size of the unbleached, uncoated folding carton market.

Distribution Segment

        Victory has been delivering comprehensive packaging solutions in the packaging services and distribution industry for almost 40 years. The Distribution segment, through Victory's operations, works




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with customers to improve and facilitate the various aspects of packaging and distribution, including packaging design, creation, storage, delivery and management. Based in Houston, TX, Victory has more than 60 warehouses and distribution facilities, with the majority in the United States, 3 in Canada and 18 in Mexico, and operates in California under the name of Golden State Container. Nationwide, Victory is one of the largest distributors specializing in packaging solutions for its customers on a national scale. Victory also oversees local packaging and distribution for regional customers. The Distribution segment's national network includes more than 7 million square feet of warehouse space and approximately 220 delivery vehicles.

        Victory distributes corrugated and other specialty packaging products, which include stretch film, void fill, carton sealing tape and other specialty tapes.

Manufacturing

        We operate four paper mills, three in the Southeastern region and one in the Pacific Northwest region of the United States. In 2014,2015, we produced 2.7 million tons of containerboard and specialty paper at our mills in North Charleston, South Carolina; Roanoke Rapids, North Carolina; Cowpens, South Carolina and Longview, Washington. Our mills generally operate 24 hours a day, seven days a week. Fiber used to make containerboard and specialty paper is produced from a combination of locally sourced roundwood and woodchips. After the wood is debarked and chipped, the chips are loaded into digesters for cooking. Woodchips, chemicals and steam are mixed in the digester to produce softwood pulp. Hardwood pulp is produced in North Charleston in a similar fashion for the production of DuraSorb® saturating kraft. The pulp is screened and washed through a series of washers and then stored prior to the paper making process. OCC is used to make recycled containerboard at our Cowpens mill and is a component of certain grades of kraft paper and containerboard at our Longview mill. The Company processes pulp using eleven paper machines at our facilities. Management monitors productivity on a real-time basis with on-line reporting tools that track production values versus targets. Overall equipment efficiency is also monitored daily through production reporting systems.

        As of December 31, 2014,2015, we operated 21 corrugated products manufacturing plants, comprised of twelve13 box plants, sevensix sheet plants and two sheet feeder plants. Box plants operate as combining operations that manufacture corrugated sheets and finished corrugated products. Sheet feeder plants have a corrugator machine and manufacture corrugated sheets, which are shipped to sheet or box plants. Sheet plants have various machines whichthat convert corrugated sheets, purchased either from our operations or third parties, into finished corrugated products. Plants with a corrugating machine have total capacity of approximately eighteen billion square feet ("BSF").18 BSF.

        Our corrugated products manufacturing plants operate in fourteen15 states in the U.S., with no manufacturing facilities outside of the continental U.S. Each plant, for the most part, serves a market radius that typically averages 200 miles. Our sheet plants are generally located in close proximity to our larger corrugated plants, which enables us to offer additional services and converting capabilities, such as small volume and quick turnaround items.




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        We produce a wide variety of products ranging from basic corrugated shipping containers to specialized packaging. We also have multi-color printing capabilities to make high-impact graphics boxes and displays that offer customers such as consumer products companies more attractive packaging.

        We have dedicated personnel who coordinate and execute all containerboard buy/sell arrangements with other containerboard manufacturers. As is industry practice, we also "trade" among industry participants who are located more closely to converting plants in order to reduce freight costs.




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Supply Chain

        Containerboard and specialty paper produced in our paper mills is shipped by rail or truck to customers in the U.S. and is shipped by truck to nearby ports and then by ocean vessel to our export customers. Domestic rail shipments represent about 4041 percent of the tons shipped and the remaining 6059 percent is shipped by truck.

        Our corrugated products are delivered by truck due to our customers demand for timely service. We use a combination of a dedicated third-party fleet and our own trucks.

        The majority of Victory's products in the U.S. and Canada are delivered directly from Victory's network of distribution and fulfillment facilities using its fleet of approximately 220 delivery vehicles. In Mexico, delivery is outsourced to third party logistics companies. Our distribution and fulfillment facilities offer a range of delivery options depending on the customer's needs and preferences, and the strategic placement of the distribution and fulfillment facilities also allows for delivery of special or "rush" orders to many customers.

Sales and Marketing

        Our containerboard and specialty paper marketing strategy is to sell our products to third-party converters and manufacturers of industrial and consumer packaging products. We seek to meet the quality and service needs of the customers of our corrugated operations at the most efficient cost, while balancing those needs against the demands of our containerboard customers.

        We sell our products directly to end users and converters, as well as through sales agents. Our sales groups are responsible for the sale of these products to third party converters in the U.S. Sales to export markets are managed by separate teams of which certain personnel are based in Europe and Asia.

        Our corrugated and packaging products and services are sold through an internal sales and marketing organization. We have sales representatives and sales managers who serve local and regional accounts. We also have corporate account managers who serve large national accounts at multiple customer locations. Our corrugated operations focus on supplying both high-volume commodity products and specialized packaging with high-value graphics.

Customers and Products

        The following represents the Company's sales by product line:

																											Years Ended December 31,
		Years Ended December 31,																									Net Sales (in thousands)
		Net Sales (in thousands)												Tons Sold																									Tons Sold
								Increase/ (Decrease)												Increase/ (Decrease)													Increase/ (Decrease)												Increase/ (Decrease)
Product Line Revenue:		2014			2013						%			2014			2013						%				2015			2014						%			2015			2014						%
Containerboard / Corrugated products		$	1,463,670		$	1,108,545		$	355,125			32.0	%		1,764,628			1,403,797			360,831			25.7	%		$	1,399,522		$	1,463,670		$	(64,148	)		(4.4	)%		1,688,868			1,764,628			(75,760	)		(4.3	)%
Specialty paper			741,601			551,931			189,670			34.4	%		1,031,024			799,261			231,763			29.0	%			720,588			741,601			(21,013	)		(2.8	)%		1,017,905			1,031,024			(13,119	)		(1.3	)%
Distribution																												582,949			—			582,949			+100	%		—			—			—			—
Other			95,649			87,686			7,963			9.1	%		—			—			—			—				86,286			95,649			(9,363	)		(9.8	)%		—			—			—			—
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Product sold		$	2,300,920		$	1,748,162		$	552,758			31.6	%		2,795,652			2,203,058			592,594			26.9	%		$	2,789,345		$	2,300,920		$	488,425			21.2	%		2,706,773			2,795,652			(88,879	)		(3.2	)%
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        KapStoneOur Paper and Packaging segment has over 3,000 U.S.-based and over 200 export customers, and our Distribution segment has approximately 6,200 active customers.

        Containerboard is sold to domestic and foreign converters in the corrugated packaging industry and to other converters for a variety of uses including laminated tier sheets and wrapping material,




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among others. Historically, our focus is on independent converters who do not have their own mill systems or converters who otherwise commonly purchase containerboard in the open market.




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        Corrugated products are sold primarily to regional and local accounts, which are broadly diversified across industries and geographic locations. We have a select number of national accounts, or those customers with a national presence. These national customers typically purchase corrugated products from several of our box plants throughout the United States.

        Specialty paper is sold to both domestic and export converters who produce multiwall bags for food grade agricultural products, pet food, cement and chemicals, grocery bags and specialty conversion products, such as wrapping paper products, dunnage bags and roll wrap.

        Our saturating kraft paper, sold under the trade name Durasorb®, has a customer base which is split among three geographic regionsregions: the Americas, Europe and Asia. Approximately 86 percent of our Durasorb® sales are exports to customers in Europe, Latin America and Asia where growth opportunities are favorable. KapStone, or its predecessor, has done business with many of these customers for well over 40 years. Some customers have consolidated to form a greater presence in their end-use markets. Customer consolidation is particularly evident in North America and is in the early phase in Europe. In Asia, there are numerous players and it is a highly fragmented market making entry difficult for some companies that do not have a presence in the region. KapStone has acquired a leadership position with our Durasorb® product through knowledge of our markets and understanding the technical needs of our customers' manufacturing processes and the demanding requirements of their products.

        Our unbleached folding carton board sold under the Kraftpak® trade name has a customer base which consistsconsisting primarily of integrated and independent converters in the folding carton industry. Our unbleached folding carton board product is a unique, low-density virgin fiber board. KapStone believes that the best growth opportunities for Kraftpak® are in consumer brands that are changing their images to promote environmental friendliness and sustainability. Kraftpak® and similar products replace the use of coated recycled board, coated natural kraft board and solid bleached sulfate board, which are currently much larger markets.

        Victory's customer base includes local, regional and national accounts across a wide range of industries and size and through a variety of means ranging from multi-year supply agreements to transactional sales. Besides offering material-neutral design capabilities and high levels of distribution services, Victory also specializes in fulfillment, kitting and contract packaging services.

        Victory has valuable, multi-year, long-term supply agreements with many of its largest customers that set forth the terms and conditions of sale, including product pricing and warranties. Generally, customers are not required to purchase any minimum amount of products under these agreements and can place orders on an individual purchase order basis. However, Victory enters into negotiated supply agreements with certain of our customers, which include commitments to inventory held in Victory's distribution facilities. Victory's working capital needs generally reflect the need to carry significant amounts of inventory in our distribution and fulfillment facilities to meet delivery requirements of our distribution and fulfillment customers, as well as significant accounts receivable balances. As is typical in this industry, our customers often do not pay upon receipt, but are offered terms which are heavily dependent on the specific circumstances of the sale.

No customer accounts for more than 10 percent of consolidated net sales. Our business is not dependent upon a single customer or upon a small number of major customers. We do not believe the loss of any one customer would have a material adverse effect on our business.

Seasonality and Backlog

        DemandIn our Paper and Packaging segment, demand for our major product lines is relatively constant throughout the year, and seasonal fluctuations in marketing, production, shipments and inventories are not significant. Slight seasonal fluctuations are largely driven by the agricultural market within the western United States. Backlogs are a factor in the industry, as they allow paper mills to run more efficiently. However, most orders are placed for delivery within 30 days.




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        In our Distribution segment, operating results are subject to some seasonal influences that are not material to the consolidated results of the Company. Historically, our highest shipments occur during the second and third quarters, while our lowest shipments occur during the first quarter. Within the Distribution segment, shipments for the first quarter are typically less than shipments for the fourth quarter of the preceding year.

Suppliers and Major Raw Materials Used

        Fiber is the single largest cost in the manufacture of containerboard and specialty paper. KapStone consumes both wood fiber and recycled fiber in its paper mills. Our paper mills in North Charleston and Roanoke Rapids use primarily100 percent virgin fiber. The fiber needs in 20142015 of our Longview, Washington mill were supplied by approximately 6866 percent of virgin fiber and 3234 percent recycled fiber. Fiber used to make containerboard and specialty paper is produced from a combination of locally sourced roundwood and woodchips. We rely on supply agreements and open-market purchases to supply these mills with roundwood and wood chips. Fiber resources are generally available within economic proximity to these mills and we have not experienced any significant difficulty in obtaining our mill fiber needs.




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        Our mill in Cowpens, South Carolina is a 100 percent recycled mill, whose fiber consumption consists solely of recycled fiber or OCC. We obtain OCC pursuant to certain supply agreements and in open market purchases from suppliers within economic proximity to the Cowpens Mill. OCC has historically exhibited significant price volatility. The Cowpens mill has not experienced any significant difficulty in obtaining OCC.

        Our corrugated manufacturing plants consume containerboard produced at our mills or from third parties and through buy/sell arrangements. We also use third-party mills which are closer to our corrugated manufacturing plants to realize freight savings. Containerboard, which includes both linerboard and corrugating medium, is the principal raw material used to manufacture corrugated products. Linerboard is used as the inner and outer facings, or liners, of corrugated products. Corrugating medium is fluted and laminated to linerboard in corrugated plants to produce corrugated sheets. The sheets are subsequently printed, cut, folded and glued to produce corrugated products.

        Victory purchases products from a number of suppliers, mainly in the U.S. Victory's suppliers consist of large paper and packaging corporations, regional corrugated and sheet plants and non-corrugated corporations. Upon being acquired by KapStone, Victory increased its purchases from KapStone's corrugated products manufacturing plants. Suppliers are selected based on customer demand for the product and a supplier's total service, cost and product quality offering.

        The product sourcing is designed to ensure that Victory is able to offer consistent but varied product selections and market competitive pricing across the enterprise while maintaining the ability to service localized market requirements. Our procurement program is also focused on replenishment, which includes purchase order placement and managing the total cost of inventory by improving the number of days inventory on hand, negotiating favorable payment terms and maintaining vendor-owned and vendor-managed programs. As a large purchaser of packaging material, we can qualify for volume allowances with some suppliers and can realize significant economies of scale. We in turn enter into incentive agreements with certain of our largest customers, which are generally based on sales to these customers.

Energy

        Energy at the paper mills is obtained through purchased electricity or through various fuels, which are converted to steam or electricity on-site. Fuel sources include coal, biomass fuel, natural gas, oil, bark, sawdust and by-products of the manufacturing and pulping process, including black liquor. These fuels are burned in boilers to produce steam. Steam turbine generators are used to produce electricity.




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To reduce our mill energy cost, we have invested in processes and equipment to ensure a high level of purchased fuel flexibility. In recent history, fuel oil has exhibited higher costs per thermal unit and more price volatility than natural gas and coal. During 2014,2015, approximately 6560 percent of our North Charleston, South Carolina and Roanoke Rapids, North Carolina millsmills' purchased fuel needs were from coal, historically our lowest cost purchased fuel. A substantial portion of our Longview mill electricity requirements are satisfied by hydroelectric power, which has relatively stable pricing.

        In 2014,2015, we purchased coal under two contractsone contract that ended on December 31, 2014.2015. In 2015,2016, the Company has one coal contract for all of its needs with contracted pricing through December 31, 2015.2016.

        KapStone's corrugated productproducts manufacturing plants primarily use boilers that produce steam which areis used to powerin the corrugating machines.product manufacturing process. The majority of these boilers burn natural gas, although some also have the ability to burn fuel oil. Sheet plants use electricity for their main source of power.

        Volatile fuel prices have a direct impact on our Distribution segment, as it affects the prices paid by us for products as well as the costs incurred to deliver products to our distribution and fulfillment customers. Victory purchases diesel fuel under contracts tied to market prices for diesel and does not engage in any material forward or hedging fuel contracts.

Competition

        The markets in which we sell our products are highly competitive and comprised of many participants. We face significant competitors, including large, vertically integrated companies and numerous smaller companies.

        Our principal competitors with respect to sales of our containerboard and specialty paper are a number of large, diversified paper companies, including International Paper Company, Georgia-Pacific (owned by Koch Industries, Inc.), Rock-TennWestRock Company and Packaging Corporation of America, all of which have greater financial resources than we do. We also compete with other regional manufacturers of these products. Our specialty paper products (other than our Durasorb® and Kraftpak® products) are each generally considered a commodity-type product that can be purchased from numerous suppliers and competition is based primarily on price, product specification, service and quality.

        Corrugated products businesses seek to differentiate themselves through pricing, quality, service and product design and innovation. We compete for both local and national account business, and we compete against producers of other types of packaging products. On a national level, our primary competitors include International Paper Company, Georgia-Pacific (owned by Koch Industries, Inc.), Rock-TennWestRock Company and Packaging Corporation of America. However, with our strategic focus on local and regional accounts, we also compete with the smaller, independent converters.

        The packaging distribution industry is highly competitive, with numerous regional and local competitors, and is a mature industry characterized by slowing growth. Victory's principal competitors include regional and local distributors, national and regional manufacturers and independent brokers. Most of these competitors generally offer a wide range of products at prices comparable to those Victory offers, though at varying service levels. On a national level, our primary competitors include International Paper Company, Georgia-Pacific (owned by Koch Industries, Inc.), WestRock Company, Veritiv and Packaging Corporation of America. However, with our strategic focus on local and regional accounts, we also compete with the smaller, independent distribution companies. Additionally, new competition could arise from non-traditional sources, group purchasing organizations, e-commerce, discount wholesalers or consolidation among competitors. We believe that Victory offers the full range of services required to effectively compete, but if new competitive sources appear it may result in margin erosion or make it more difficult to attract and retain customers.




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Intellectual Property

        The Company owns patents, licenses, trademarks and trade names on products. However, we do not believe that our intellectual property is material to our business and the loss of any or our intellectual property rights would not have a material adverse effect on our operations or financial condition.

Employees

        As of December 31, 2014,2015, we had 4,628approximately 6,400 employees. Of these, 1,380approximately 2,000 employees are salaried and 3,2484,400 are hourly. Approximately 2,5002,400 of our hourly employees are represented by unions. The majority of our unionized employees are represented by the United Steel Workers (USW).Workers.

        Currently, there is a collective bargaining agreement in placeeffect with trade unionrespect to approximately 360 employees at our mills in North Charleston through June 2015 andthe Roanoke Rapids paper mill through August 2016. The Company is engaged in negotiations with itsLongview union employees in Longview. The mill is operating under the terms of a contract, thatcovering approximately 600 employees, expired in June 2014. We expect to begin negotiations to renew2014 and the North Charleston contract, covering approximately 540 employees, expired in June 2015. We experienced a 12-day work stoppage at Longview from August 27, 2015 until September 8, 2015 when the union contract in early 2015.

        We did not experience anyemployees returned to work stoppages in 2014 and have not experienced any work stoppages in the eight years prior to 2014. We believe we have good relations with our employees.without a contract.

Environmental Matters

        Compliance with environmental requirements is a significant factor in our business operations. We commit substantial resources to maintaining environmental compliance and managing environmental risk. We are subject to, and must comply with, a variety of federal, state and local environmental laws, particularly those relating to air and water quality, waste disposal, and cleanup of contaminated soil, groundwater or rivers. The most significant of these laws affecting us are:

1.

Resource Conservation and Recovery Act (RCRA);Act;



2.

Clean Water Act (CWA);Act;



3.

Clean Air Act (CAA);Act;



4.

The Emergency Planning and Community Right-to-Know-Act (EPCRA);Right-to-Know-Act;



5.

Toxic Substance Control Act (TSCA);Act; and



6.

Safe Drinking Water Act (SDWA).Act.

        We believe that we are currently in material compliance with these and all applicable environmental rules and regulations. Because environmental regulations are constantly evolving, we have incurred, and will continue to incur, costs to maintain compliance with these and other environmental laws and regulations. We work diligently to anticipate and budget for the impact of applicable environmental regulations and do not currently expect that future environmental compliance obligations will materially affect our business or financial condition.

        We do not believe that any ongoing remedial projects are material in nature.

        The Company's subsidiary, Longview is a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to the Lower Duwamish Waterway Superfund Site in the State of Washington (the "Site"). The U.S. Environmental Protection Agency ("EPA") asserts that the Site is contaminated as a result of discharges from various businesses and government entities located along the Lower Duwamish Waterway, including a corrugated converting plant owned and operated by Longview. In November 2014, the EPA issued a Record of Decision ("ROD") for the Site. The ROD includes a selected remedy for the Site. In the




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ROD, EPA states that the total estimated net present value costs (discounted at 2.3%)2.3 percent) for the selected




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remedy are $342 million. At least 40 potentially responsible parties, includingNeither the Company nor Longview have entered into an Allocation Agreement.has received a specific monetary demand regarding its potential liability for the Site. In addition, Longview is a participant in a non-judicial allocation process with respect to the Site. Pursuant to the Allocation Agreement, thenon-judicial allocation process, Longview and other participating parties will attemptseek to determine each party's portion ofallocate certain costs, including but not limited to, the costcosts necessary to remediateperform the site.work under the ROD. The non-judicial allocation process inis not expectedscheduled to be completed until 2017. Based onupon the information available information provided to the Company to date,at this time, the Company cannot reasonably estimate its potential liability. We also maintain insurance that may limit our financial exposureliability for defense costs, as well as liability, if any, for claims covered by the insurance (subject also to deductibles, self-insurance amounts, and retrospective premiums).this Site.

        We could also incur environmental liabilities as a result of claims by third parties for civil damages, including liability for personal injury or property damage, arising from releases of hazardous substances or contamination. We are not aware of any material claims of this type currently pending against us.

        While legislation regarding the regulation of greenhouse gas emissions has been proposed from time to time at the federal level, it is uncertain whether such legislation will be passed and, if so, what the breadth and scope of such legislation will be. The EPA has begun to propose and / or adopt regulations regulating certain aspects of greenhouse gas emissions. To the extent such regulations become applicable to our operations, they could potentially adversely affect the Company. The result of a broader regulation of greenhouse gas emissions could be an increase in our future environmental compliance costs, through caps, taxes or additional capital expenditures to modify facilities, which may be material. However, climate change legislation and the resulting future energy policy could also provide us with opportunities if the use of renewable energy is encouraged. We currently generate a significant portion of our power requirements for our mills using bark, black liquor and biomass as fuel, which are derived from renewable resources. While we believe we are well-positioned to take advantage of any renewable energy incentives, it is uncertain what the ultimate costs and opportunities of any climate change legislation or regulation will be and how our business and industry will be affected.

        In 2004, EPA published the Boiler MACT regulations, establishing air emissions standards and certain other requirements for industrial boilers. These regulations have been subject to a series of legal challenges and have been repurposed and / or amended by EPA several times since the initial rules were published. A final reconsidered regulation was issued in January 2013 but legal challenges have been filed and it remains uncertain as to whether the rule as currently promulgated will be further revised. Based upon the Company's current understandings of the rules, it is unclear what the total cost of compliance will be, if any.

        In addition to Boiler MACT and greenhouse gas standards, the EPA has recently finalized a number of other environmental rules, which may impact the pulp and paper industry. The EPA also is revising existing environmental standards and developing several new rules that may apply to the industry in the future. We cannot currently predict with certainty how any future changes in environmental laws and regulations (or their interpretation) and/or enforcement practices will affect our business; however, it is possible that our compliance, capital expenditure requirements and operating costs could increase materially.

Available Information

        We make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished as required by Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through our Internet Website (www.kapstonepaper.com) as soon as is reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Information contained in or incorporated into our Internet Website is not incorporated by reference herein.

Financial Information About Segments and Geographic Areas

        We operate as one segment andtwo segments with 82 percent of our revenues are generated primarilysold in one geographic region.the United States and 18 percent sold to foreign based customers. See "Segment Information" of Note 2—Summary of Significant Accounting Policies and Note 15—16—Segment Information contained in the "Notes to Consolidated Financial Statements."




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Item 1A.    Risk Factors


        Some of the statements in this report and, in particular, statements found in Management's Discussion and Analysis of Financial Condition and Results of Operations, that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures and financial condition. These statements are often identified by the words "will," "should," "anticipate," "believe," "expect," "intend," "estimate," "hope," or similar expressions. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. These factors, risks and uncertainties include, but are not limited to, the factors described below.

        Our actual results, performance, or achievementfinancial condition and liquidity could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our business results of operations, financial condition or financial condition.liquidity. In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward looking statements that have been made to reflect the occurrence of events after the date hereof.hereof, except as required by law or regulation.

Risks associated with our business

We rely on key customers and a loss of one or more of our key customers could adversely affect our business, results of operations, cash flows and financial position.

        During the year ended December 31, 2014, no customer accounted for more than 10 percent of consolidated net sales. However, losses of key customers could significantly impact our business, results of operations, cash flows and financial position.

We are dependent upon key management executives and other key employees, the loss of whom may adversely impact our business.

        We depend on the expertise, experience and continued services of corporate, mill and mill management.distribution services management, and other key employees. The loss of such management, or an inability to attract or retain other key individuals, could materially adversely affect our business. There can be no assurance that our salaries and incentive compensation plans will allow us to retain the services of these key management executives and key employees or hire new key employees. We compete with other businesses for management and other key employees and invest significant resources in training and motivating them. There is no assurance that we will be able to attract or retain highly qualified employees. The inability to retain or hire qualified personnel at economically reasonable compensation levels would restrict our ability to improve our business and result in lower operating results and profitability.

Our indebtedness may adversely affect our financial health.

        As of December 31, 2014,2015, we had approximately $1.1$1.6 billion of outstanding debt. As a result of the indebtedness, our ability to obtain additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes may be impaired in the future. The debt could make us vulnerable to economic downturns and may hinder our ability to adjust to rapidly changing market conditions.

        A significant portion of our cash flow from operations will be needed to meet the payment of principal and interest on our indebtedness. The business may not generate sufficient cash flow from operations to enable it to repay our indebtedness and to fund other liquidity needs, including capital expenditure requirements.requirements, or to pay dividends on our common stock. The indebtedness incurred by us under our senior secured credit facility (the "Credit Facility") under our Second Amended and Restated Credit Agreement (as amended, the "Credit Agreement")bears interest at variable rates, and therefore if interest rates increase, our debt service requirements would increase. In such case, we may need to refinance or restructure all or a portion of our indebtedness on or before maturity. We may not be able




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to refinance any of our indebtedness, including the Credit Facility, on commercially




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reasonable terms, or at all. If we cannot service or refinance our indebtedness, we may have to take actions such as suspending the payment of, or reducing the amount of, dividends, selling assets, seeking additional equity or reducing or delaying capital expenditures, any of which could have a material adverse effect on our operations and financial condition.

        Our Credit Facility contains restrictive covenants that limit our liquidity and corporate activities, including our ability to pursue additional acquisitions. Our Credit Facility imposes operating and financial restrictions that limit our ability to:

•

incur additional indebtedness;



•

create additional liens on our assets;



•

make investments;



•

engage in mergers or acquisitions;



•

pay dividends; and



•

sell all or any substantial part of our assets.

        In addition, our Credit Facility also imposes other restrictions on us. Therefore, we would need to seek permission from the lenders in order to engage in certain corporate actions. The lenders' interests may be different from ours, and no assurance can be given that we will be able to obtain the lenders' permission when needed. This may prevent us from taking actions that are in our best interest.

        Our Credit Facility requires us to maintain certain financial ratios. The failure to maintain the specified ratios could result in an event of default if not cured or waived.

        In the event of a default under our Amended and Restated Credit Agreement, the lenders generally would be able to declare all outstanding indebtedness, together with accrued interest, to be due and payable. In addition, borrowings under the Credit Facility are secured by a first priority lien on substantially all of our assets (other than real estate) and, in the event of a default under that facility, the lenders generally would be entitled to seize the collateral. A default under any debt instrument, unless cured or waived, would likely have a material adverse effect on our business, liquidity and financial condition.

If we fail to extend or renegotiate the collective bargaining agreements as they expire from time to time, or if our unionized employees were to engage in a strike or other work stoppage, our business, and operating results and financial condition could be materially harmed.

        Most of our hourly paid employees are represented by trade unions. We are aFrom time to time, we may be party to collective bargaining contracts which apply to approximately 875900 employees at various corrugating manufacturing plants, 700600 employees at the Longview mill, 560540 employees at the North Charleston mill and 365360 employees at the Roanoke Rapids mill. No assurance can be given that we will be able to successfully extend or renegotiate the collective bargaining agreements as they expire from time to time. Currently, there is a collective bargaining agreement in effect with respect to North Charleston through June 2015 and Roanoke Rapids through August 2016. The Longview union contract expired in June 2014 and remains under negotiations.the North Charleston contract expired in June 2015. We experienced a 12-day work stoppage at Longview from August 27, 2015 until September 8, 2015 when the union employees returned to work without a contract.

        If we are unable to extend or negotiate new agreements without work stoppages, it could negatively impact our ability to manufacture our products and adversely affect our business results of operations.operations and financial condition. In addition, we can give no assurances that the Longview work stoppage in 2015 is any indication of the duration and impact on our business or results of operations of any future work stoppage. Furthermore, if a significant number of our remaining employees were to




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unionize, including in the wake of any future legislation or administrative regulation that makes it easier for employees to unionize, our business, results of operations and financial condition could be adversely affected. Any inability to negotiate acceptable new contracts under these collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs. If any such strikes or other work stoppages occur, or if additional employees become represented by a union, a disruption of our operations and higher labor costs could result. Labor relations matters affecting our suppliers of products and services could also adversely affect our business from time to time.

We sell some of our products internationally, and, accordingly, our business, results of operations, cash flows and financial positioncondition could be adversely affected by the political and economic conditions of the countries in which we conduct business, by fluctuations in exchange rates and other factors related to our international operations.

        Approximately 2018 percent of our revenues in 20142015 and 20132014 were derived from foreign and export sales. Our international operations and activities face increasing exposure to the risks of selling to customers in foreign countries. These factors include:

•

Changes in foreign currency exchange rates or controls which could adversely affect selling prices for our products and therefore our competitive position in a particular market.



•

Trade protection measures in favor of local producers of competing products, including government subsidies, tax benefits, trade actions (such as anti-dumping proceedings) and other measures giving local producers a competitive advantage over us.



•

Changes generally in political, regulatory, social or economic conditions in the countries in which we sell our products.

        A stronger U.S. dollar adversely affects our pricing with respect to exports, increases foreign imports of containerboard at relatively lower prices, impacts our U.S. sales, and adversely affects our business and results of operations. These risks could affect the cost of selling our products, our pricing, sales volume and ultimately our financial performance. The likelihood of such occurrences and their potential effect on the Company vary from country to country and are unpredictable.

We may be required to record a charge to our earnings if our goodwill becomes impaired.

        We test for impairment of goodwill annually in accordance with generally accepted accounting standards. When events or changes in circumstances indicate that the carrying value for such assets may not be recoverable, we review goodwill for impairment on an interim basis. Factors that may be considered a change in circumstances requiring our interim testing include a decline in stock price as compared to our book value per share, future cash flows and slower growth rates. In connection with future annual or interim tests, we may be required to record a non-cash charge to earnings during the period in which any impairment of goodwill is determined, which would adversely impact our results of operations.

        SeeNote 2. "Significant Accounting Policies—Goodwill and Intangible Assets" in the Notes to the Consolidated Financial Statements for additional information related to testing for impairment of goodwill.

We may incur business disruptions.

        We take measures to minimize the risks of disruptions at our manufacturing facilities. However, the occurrence of a natural disaster, such as a hurricane, tropical storm, earthquake, tornado, flood, fire or other unanticipated problems, such as labor difficulties (including work stoppages or strikes), equipment failure or unscheduled maintenance, could cause operational disruptions and could




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materially adversely affect our earnings and cash flows. Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles.

Our operations are dependent upon certain supply agreements for fiber.

        We rely on certain supply arrangements to provide us roundwood and woodchips. If one of these suppliers failed to deliver quality roundwood or woodchips in the quantities we require, KapStone's supply may not be adequate to cover customer needs, which could have an adverse effect on our results of operations, cash flows and financial condition.

We rely on key customers and a loss of one or more of our key customers could adversely affect our business, results of operations, cash flows and financial condition.

        During the year ended December 31, 2015, no customer accounted for more than 10 percent of consolidated net sales. However, losses of key customers in either of our segments could significantly impact our business, results of operations, cash flows and financial condition.

Our business depends on effective information management systems.

        We rely on our enterprise resource planning (ERP) systems to support such critical business operations as processing sales orders and invoicing, inventory control, purchasing and supply chain management, payroll and human resources and financial reporting. We periodically implement upgrades to such systems or migrate one or more of our affiliates, facilities or operations, including acquired businesses and assets, from one system to another. If we are unable to adequately maintain such systems to support our developing business requirements or effectively manage any upgrade or migration, we could encounter difficulties that could have a material adverse impact on our business, internal controls over financial reporting, financial results or our ability to timely and accurately report such results.

We are subject to cyber-security risks related to certain customer, employee, vendor or other company data.

        We use information technologies to securely manage operations and various business functions. We rely upon various technologies to process, store and report on our business and interact with customers, vendors and employees. Despite our security design and controls, and those of our third-party providers, we could become subject to cyber attacks which could result in operational disruptions or the




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misappropriation of sensitive data. Our ability to plan our operations, source materials, manufacture and ship product, account for orders and interface generally with our customers and vendors could be denied or misused. Likewise, our internal financial reporting system could be compromised. In addition, theft of intellectual property, trade secrets of confidential information about us or our employees, vendors or customers could result from a cyber incident. There can be no assurance that any such disruptions or misappropriations and the resulting repercussions willwould not be material to our results of operations, financial condition or cash flows.

We may incur business disruptions.

        We take measures to minimize the risks of disruptions at our manufacturing facilities. However, the occurrence of a natural disaster, such as a hurricane, tropical storm, earthquake, tornado, flood, fire or other unanticipated problems, such as labor difficulties, equipment failure or unscheduled maintenance, could cause operational disruptionsEnvironmental regulations and could materially adversely affect our earnings and cash flows. Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles.

Environmental regulationspotential environmental liabilities could materially adversely affect our results of operations and financial positioncondition and require us to make unexpected capital expenditures.

        We are subject to environmental regulation by federal, state and local authorities in the United States and by authorities in Mexico with respect to our Distribution segment operations located in Northern Mexico, including requirements that regulate discharge into the environment, waste management, andhazardous substance reporting, remediation of environmental contamination. Maintaining compliance with existingcontamination, forestry operations and newendangered species habitats. We cannot predict the impact of future environmental laws may require material and regulations (or changes in interpretations of existing or environmental laws and regulations), particularly in the areas of emissions, climate control initiatives or enforcement practices, will have on our operations and capital expenditure requirements. Environmental liabilities or new or changed compliance obligations could result in civil or criminal fines or penalties, enforcement actions, or other




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additional capital expenditures.significant costs, which could adversely impact our results of operations, cash flows and financial condition.

        Due to past history of industrial operations at the Roanoke Rapids mill, North Charleston mill, Longview mill and some of our corrugating manufacturing plants, the possibility of on-site and off-site environmental impact to the soil and groundwater may present a heightened risk of contamination. If we are required to make significant expenditures for remediation, the costs of such efforts may have a significant negative impact on our results of operations, cash flows and financial position.condition.

Risks related to compliance with U.S. and international laws, rules and regulations could adversely impact our business and results of operations.

Our operations are dependent upon certain operating agreementssubject to U.S. and international laws, rules and regulations, including those concerning transportation and safety, the import and export of goods, customs regulations, payments to government officials, bribery, fraud, anti-kickback and false claims rules, competition, money laundering, and data privacy laws. While we strive to maintain high standards, we cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents, or business partners that would violate such laws, rules or regulations. We could incur substantial costs in order to comply with such laws, rules and regulations, or incur substantial fines or sanctions, enforcement actions (including orders limiting our operations or requiring corrective measures), and third-party claims for fiber.

        We rely on certain supply arrangements to provide us roundwoodproperty damage and woodchips. If onepersonal injury as a result of these suppliers failed to deliver quality roundwoodviolations of, or woodchips in the quantities we require, KapStone's supply may not be adequate to cover customer needs, which could have an adverse effect on our results of operations, cash flowsliabilities under, laws, regulations, codes and financial position.common law.

Our pension costs are subject to a variety of factors and assumptions that could cause these costs to change.

        We have a defined benefit pension plan that covers 54 percent of our U.S. employees. Our pension costs are dependent upon a variety of factors and assumptions based upon past experience. Fluctuations in market returns, interest rates, mortality rates, the number of retirees and longer life-expectancy may result in increased pension costs. Similarly, changes in assumptions regarding current discount rates and expected rates of return on plan assets could also change pension costs. Material adverse changes in these factors could have a negative impact on our results of operations, cash flows, and financial position.condition.

We may not be able to fully compensate for increases in fuel costs.

        Volatile fuel prices have a direct impact on our business. The cost of fuel affects the price paid by us for products and raw materials as well as the costs incurred to produce and deliver products to our customers. Although we have been able to pass along a portion of increased fuel costs to our customers in the past, there is no guarantee that we can continue to do so, which may have a negative impact on our business and our profitability.

Risks Associated with KapStone's Common Stock

The market price for our common stock may be highly volatile.

        The market price of our common stock may be volatile due to certain factors, including, but not limited to: quarterly fluctuations in our financial and operating results; general conditions in the paper and packaging industries; or changes in earnings estimates.




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Our named executive officers and directors control a substantial percentage, approximately 11 percent, of our common stock and thus may influence certain actions requiring a stockholder vote.

        At December 31, 2014,2015, our named executive officers and directors owned 11.010.9 million shares of our common stock, or approximately 11 percent of our total outstanding common stock. Accordingly, our named executive officers and directors may have some influence over the outcome of all matters




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requiring approval by our stockholders, including future acquisitions and the election of directors. In addition, our board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. At the annual meeting, as a consequence of our "staggered" board of directors, only a minority of the board of directors will be considered for election and our officers and directors, because of their ownership position, will have some influence regarding the outcome of the election.

Risks associated with the paper, packaging, forest products and related industries

The paper, packaging, forest products and related industries are highly cyclical. Fluctuations in the prices of and the demand for products could result in smaller profit margins and lower sales volumes.

        Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for products in the paper, packaging, forest products and related industries. The length and magnitude of industry cycles have varied over time and by product, but generally reflect changes in macroeconomic conditions and levels of industry capacity. Most paper products and many wood products used in the packaging industry are commodities that are widely available from many producers. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand. The overall levels of demand for these commodity products reflect fluctuations in levels of end-user demand, which depend in large part on general macroeconomic conditions in North America and regional economic conditions in our markets (including Europe, Asia, and Central and South America), as well as foreign currency exchange rates. The foregoing factors could materially and adversely impact our sales, cash flows, profitability and results of operations.

An increase in the cost or a reduction in the availability of wood fiber, other raw materials, energy and transportation may have an adverse effect on our profitability and results of operations.

        Wood fiber (including OCC)including OCC is the principal raw material in many parts of the paper and packaging industry. Wood fiber is a commodity, and prices historically have been cyclical and have varied on a regional basis. Environmental litigation and regulatory developments have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in the United States. In addition, future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, the promotion of forest health and the response to and prevention of catastrophic wildfires could also affect timber supplies. Availability of harvested timber may further be limited by fire, insect infestation, disease, ice storms, wind storms, flooding and other causes, thereby reducing supply and increasing prices. DemandIncreasing demand for products packaged in containers with greater (or 100 percent) recycled paper content have and may continue to increase the demand for OCC. In addition, demand for OCC, especially from China, could result in shortages or spikes in the cost of OCC.

        Industry supply of commodity paper and wood products is also subject to fluctuation, as changing industry conditions can influence producers to idle or permanently close individual machines or entire mills. In addition, to avoid substantial cash costs in connection with idling or closing a mill, some producers will choose to continue to operate at a loss, sometimes even a cash loss, which could prolong weak pricing environments due to oversupply. Oversupply in these markets can also result from producers introducing new capacity in response to favorable short-term pricing trends. Industry supply of commodity papers and wood products is also influenced by overseas production capacity, which has




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grown in recent years and is expected to continue to grow. Wood fiber pricing is subject to regional market influences, and the cost of wood fiber may increase in particular regions due to market shifts in those regions. In addition, the ability to obtain wood fiber from foreign countries may be impacted by economic, legal and political conditions in those countries as well as transportation difficulties.




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        Energy is a significant input cost for the paper and packaging industry. Increases in energy prices can be expected to adversely impact businesses. Energy prices, particularly for electricity, coal and fuel oil, have been volatile in recent years and currently coal and electricity prices exceed historical averages. These fluctuations have historically impacted manufacturing costs of companies in the industry, often contributing to reduced margins and increased earnings volatility. In addition, weCurrent or future environmental laws, rules and regulations (or their interpretation or changes in their interpretation) that adversely and materially impact electric utilities, including those restricting or limiting "greenhouse gas" emissions, are likely to result in increased electric costs and could adversely effect our results of operations, profitability and financial condition. We could be materially adversely impacted by energy supply disruptions or the inability to pass on cost increases to our customers.

Disruptions in transportation could adversely affect our supply ofor raw materials and/or our ability to distribute our products and could have an adverse effect on our results, of operations, profitability and liquidity.

        Since we distribute our products by truck, rail, and ship, the reduced availability of those modes of transportation could limit our ability to promptly deliver products to our customers. The delay or failure to deliver our products to customers in a timely manner may require us to offer price concessions, discounts or other financial incentives to any affected customer in compensation for such delay or failure or could result in lost sale(s) and, ultimately, if the delay or failure is not promptly remedied, the loss of affected customers. Reduced availability of transportation could also affect our ability to receive adequate supplies of raw materials in a timely manner; which could have an adverse effect on our operations; financial condition and liquidity.manner. In addition, the increased costs of transportation may reduce our profitability if we are not able to recover those costs through price increases for our products.

        Our business in the past has been and in the future could be adversely affected by strikes and labor renegotiations affecting seaports, labor disputes between railroads or trucking companies and their union employees, or by a work stoppage at one or more seaports, railroads or local trucking companies servicing the areas in which we operate or with whom we do business.

Paper The impact of any transportation disruption on our business and packaging companies face strong competition.

        We face competition from numerous competitors, domestic as well as foreign. Someoperations is unpredictable and will be affected by, among other things, the duration of the disruption, alternative modes of transportation available to us, if any, and the additional costs associated with any alternative transportation method, which costs we may not be able to pass on to our competitors are larger, more vertically integrated companies that have greater financial and other resources, greater manufacturing economies of scale, greater energy self-sufficiency and/or lower operating costs.customers.

Certain paper and wood products are vulnerable to long-term declines in demand due to competing technologies or materials.

        Companies in the paper and packaging industry are subject to possible declines in demand for their products as the use of alternative materials and technologies grows and the prices of such alternatives become more competitive. Any substantial shift in demand from wood and paper products to competing technologies or materials could result in a material decrease in sales of our products and could adversely affect our results of operations, cash flows and financial position.condition. We cannot ensure that any efforts we might undertake to adapt our product offerings to such changes would be successful or sufficient.




Tablenot adversely impact our business, results of Contentsoperations or financial condition.

Paper and packaging companies are subject to significant environmental regulation and environmental compliance expenditures, as well as other potential environmental liabilities.

        Companies in the paper and packaging industry are subject to a wide range of general and industry specific environmental laws and regulations, particularly with respect to air emissions, wastewater discharges, solid and hazardous waste management, hazardous substance reporting, hazardous substance release notification, site remediation, forestry operations and endangered species habitats. We may incur substantial expenditures to maintain compliance with applicable environmental laws and regulations (or new interpretations thereof), which could adversely affect our results of operations. Failure to comply with applicable environmental laws and regulations could expose us to civil or criminal fines or penalties or enforcement actions, including orders limiting operations or requiring corrective measures, installation of pollution control equipment or other remedial actions.




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Risks Associated with Acquisitions

The anticipated benefits of the LongviewVictory Packaging acquisition may not be realized.

        We acquired Longview with the expectationexpected that the Victory acquisition of Longview would result in various benefits including, among other things, benefits relating toothers, enhanced revenues a broader arrayand cash flows, an additional distribution channel for the Company's converting facilities and corrugated box products and increased mill vertical integration. In addition, we expect the acquisition of product offerings,Victory to allow the expansionCompany to allocate more containerboard production to converting operations and reduce exposure to the relatively lower price export sales of linerboard, expand and optimize our linerboard and medium production capabilities, operational improvementsstrengthen the Company's design and a diversification ofpackaging capabilities, enhance our customer base.logistics and vendor managed inventory experience and expand our converting and corrugated box presence nationally. The acquisition presents challenges to management, including the integration of operations, information systems, properties and personnel of LongviewVictory and our existing operations. Achieving the anticipated benefits of the acquisition is subject to a number of uncertainties, including, but not limited to, whether we can retain the Victory management team and integrate our business and the LongviewVictory business in an efficient and effective manner. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy and could materially and adversely impact our business, financial condition and operating results.

Future acquisitions of businesses by us would subject us to additional business, operating and industry risks, the impact of which cannot presently be evaluated, and could adversely impact our capital structure.

        We have completed several relatively large acquisitions in recent years and may pursue other acquisition opportunities in an effort to diversify our investments and/or grow our business. There can be no assurances that we will successfully be able to identify suitable acquisition candidates, complete and finance acquisitions, integrate acquired businesses or operations into our existing businesses and operations, realize the anticipated synergies and business opportunities or expand into new markets or products. Any business acquired by us may cause us to be affected by numerous risks inherent in the acquired business' operations. Any future acquisition may not achieve the same levels of profitability or revenues as our existing businesses or perform as expected and could require us to make unexpected capital contributions, expose us to additional liabilities or require a disproportionate amount of management time and attention. If we acquire a business in an industry characterized by a high level of risk, we may be adversely affected by the currently unascertainable risks of that industry. We cannot ensure that we would be able to properly ascertain or assess all of the significant risk factors with any such acquisitions.

        In addition, the financing of any acquisition completed by us could adversely impact our capital structure as any such financing would likely include and/or the issuance of additional equity securities and/or the borrowing of additional funds. The issuance of additional equity securities may significantly dilute our stockholders and/or adversely affect prevailing market prices for our common stock. Increasing our indebtedness could increase the risk of a default that would entitle the holder to declare all of such indebtedness due and payable and/or to seize any collateral securing the indebtedness. In addition, default under one debt instrument could in turn permit lenders under other debt instruments to declare borrowings outstanding under those other instruments to be due and payable pursuant to cross default clauses. Accordingly, the financing of future acquisitions could adversely impact our capital structure and the value of your equity interest in us.

        Except as required by law or the rules of any securities exchange on which our securities might be listed at the time we seek to consummate a subsequent acquisition, stockholders will not be asked to vote on any such proposed acquisition and no redemption rights in connection with any such acquisition will exist.acquisition.

Item 1B.    Unresolved Staff Comments


        None.




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Item 2.    Properties


        The table below provides a summary of our paper mills, the principal products produced and each mill's annual practical maximum capacity based upon all of our paper machines' production capabilities, as reported to the AF&PA:

Location		Products		Capacity (tons)
Longview, WA		Containerboard / Specialty Paper			1,300,000
North Charleston, SC		Containerboard / Specialty Paper			910,000975,000
Roanoke Rapids, NC		Containerboard / Specialty Paper			460,000
Cowpens, SC		Recycled containerboard			240,000255,000
​	​	​	​	​	​	​
Total					2,910,0002,990,000

        We have granted mortgages on all of our owned real property, including our paper mills, to secure our obligations under our Credit Facility.

        As of December 31, 2014,2015, our corrugated products production facilitiesmanufacturing plants included:

Corrugated Products Manufacturing Plants		Approx. Sq. Ft.			Property Leased(1)/ Owned
Full-Line Box Plants
Amsterdam, NY			227,000		Leased
Aurora, IL			323,000		Leased
Bowling Green, KY			306,000		Leased
Cedar Rapids, IA			386,000		Leased
College Park, GA			183,000		Owned
Longview, WA			241,000		Owned
Mesquite, TX			275,000		Leased
Minneapolis, MN			275,000		Leased
Oakland, CA			216,000		Owned
Seattle, WA			132,000		Owned
Spanish Fork, UT			519,000		Owned
Twin Falls, ID			446,000		Owned
Yakima,WA			420,000		Owned
Sheet Plants
Atlanta, GA			113,000		Leased
Aurora, IL			198,000		Leased
Cedar City, UT			143,000		Owned
Grand Forks, ND			85,000		Leased
Seward, NE			85,000		Leased
Somerset, KY			87,000		Leased
Springfield, MA			235,000		Owned
Sheet Feeders
Atlanta, GA			133,000		Leased
Fort Worth, TX			100,000		Owned

---

(1)

Of the leased property 1.4 million square feet expire in 2032. The equipment in the leased facilities is, in virtually all cases, owned by KapStone, except for forklifts, trailers and other rolling stock which are leased.

        As of December 31, 2015, our Distribution segment had a network of more than 60 distribution centers all of which were leased. Our leased locations comprise approximately 6.0 million square feet located in the U.S. and approximately 1.2 million square feet located in Mexico. These facilities are strategically located throughout the U.S., Canada and Mexico in order to efficiently serve our customer base and the surrounding areas while also facilitating expedited delivery services for special orders. We




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continually evaluate location, size and attributes to maximize efficiency, deliver top quality customer service and achieve economies of scale.

We currently lease space for our corporate headquarters in Northbrook, Illinois. The lease for this facility expires in 2020.




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        We currently believe that our owned and leased space for facilities and properties are sufficient to meet our operating requirements for the foreseeable future.

Item 3.    Legal Proceedings


        We are from time to time subject to various administrative and legal investigations, claims and proceedings incidental to our business, including environmental and safety matters, labor and employments matters, personal injury claims, contractual, commercial and other disputes and taxes. We establish reserves for claims and proceedings when it is probable that liabilities exist and where reasonable estimates can be made. We also maintain insurance that may limit our financial exposure for defense costs, as well as liability, if any, for claims covered by the insurance (subject also to deductibles and self-insurance amounts). While any investigation, claim or proceeding has an element of uncertainty, and we cannot predict or assure the outcome of any claim or proceeding involving the Company, we believe the outcome of any pending or threatened claim or proceeding (other than those that cannot be assessed due to their preliminary nature), or all of them combined, will not have a material adverse effect on our results of operations, cash flows or financial condition.

Item 4.    Mine Safety Disclosure


        Not applicable.


PART II


Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


        Our common stock, par value $0.0001 per share, trades on the New York Stock Exchange ("NYSE") under the symbol "KS". As of December 31, 2014,2015, there were 811 shareholders of record of our common stock. The number of shareholders of record includes one single shareholder, Cede & Co., for all of the shares held by our shareholders in individual brokerage accounts maintained at banks, brokers and institutions.

        On December 11, 2013, the board of directors declared a two-for-one stock split in the form of a stock dividend (the "Stock Split"). To implement the stock split, one share of common stock for each then outstanding share of common stock was distributed on January 7, 2014 to all shareholders of record as of the close of business on December 23, 2013.

The following table sets forth the high and low sales price information for the Company's common stock from January 1, 20132014 through December 31, 2014,2015, as reported by the NYSE. All amounts for 2013 have been restated forNYSE and the 2014 Stock Split (defined below).cash dividends declared per common share during the last two years.

															2015									2014
		2014						2013													Dividends Declared									Dividends Declared
Quarter Ended		Low			High			Low			High				Low			High						Low			High
March 31		$	26.71		$	32.59		$	11.28		$	13.93			$	28.82		$	35.43		$	0.10		$	26.71		$	32.59		$	—
June 30		$	24.74		$	33.34		$	13.18		$	20.42			$	23.12		$	32.16		$	0.10		$	24.74		$	33.34		$	—
September 30		$	28.13		$	33.35		$	20.72		$	24.68			$	16.34		$	25.00		$	0.10		$	28.13		$	33.35		$	—
December 31		$	24.46		$	31.56		$	21.74		$	28.53			$	17.00		$	24.76		$	0.10		$	24.46		$	31.56		$	0.10

        At December 31, 2014,2015, the closing share price on the NYSE was $29.31.$22.59.

        In December 2014, our board of directors approved the initiation of a regular quarterly dividend of $0.10 per share, indicating a current annualized dividend of $0.40 per share.        The timing and amount of future dividends are subject to the determination of the Company's board of directors.

        There were no cash dividends or other cash distributions made during 2013.




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Stock Performance Graph

        The performance graph shall not be deemed to be "soliciting material" or to be "filed" with the commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934 as amended.

        The following graph compares a $100 investment in our common stock on December 31, 20092010 with a $100 investment in each of the S&P 500 and the S&P Paper and Packaging Index (the Company's peer group) also made on December 31, 2009.2010. The graph portrays total return, 2009-2014,2010-2015, assuming reinvestment of dividends.


Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 20142015







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Item 6.    Selected Financial Data


        The following table sets forth KapStone's selected financial information derived from its audited consolidated financial statements as of, and for the years ended, December 31, 2015, 2014, 2013, 2012 2011 and 2010.2011.

        The selected financial data presented below summarizes certain financial data which has been derived from and should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and KapStone's audited consolidated financial statements included in Item 8.

		Years Ended December 31,																Years Ended December 31,
In thousands, except per share amounts		2014			2013(1)			2012			2011(1)			2010				2015(1)			2014			2013(1)			2012			2011(1)
Statement of Income Data:
Net sales		$	2,300,920		$	1,748,162		$	1,216,637		$	906,119		$	782,676			$	2,789,345		$	2,300,920		$	1,748,162		$	1,216,637		$	906,119
Operating income(2)		$	299,931		$	219,888		$	109,560		$	106,741		$	68,703			$	199,167		$	299,931		$	219,888		$	109,560		$	106,741
Net income(3)(2)		$	171,915		$	127,338		$	62,505		$	123,981		$	65,041			$	106,386		$	171,915		$	127,338		$	62,505		$	123,981
Basic net income per share(4)(3)		$	1.79		$	1.34		$	0.67		$	1.34		$	0.71			$	1.11		$	1.79		$	1.34		$	0.67		$	1.34
Diluted net income per share(4)(3)		$	1.76		$	1.32		$	0.65		$	1.31		$	0.69			$	1.09		$	1.76		$	1.32		$	0.65		$	1.31
Cash dividends declared per common share(5)(4)		$	0.10		$	—		$	1.00		$	—		$	—			$	0.40		$	0.10		$	—		$	1.00		$	—
Balance Sheet Data:
Cash and cash equivalents		$	28,467		$	12,967		$	16,488		$	8,062		$	67,358			$	6,821		$	28,467		$	12,967		$	16,488		$	8,062
Total assets		$	2,556,274		$	2,651,862		$	1,135,860		$	1,130,147		$	723,421			$	3,222,110		$	2,556,274		$	2,651,862		$	1,135,860		$	1,130,147
Long-term liabilities		$	1,499,338		$	1,715,504		$	414,628		$	442,269		$	185,539			$	2,026,775		$	1,501,328		$	1,715,504		$	414,628		$	442,269
Total stockholders' equity		$	778,127		$	666,080		$	517,948		$	546,278		$	418,634			$	845,280		$	778,127		$	666,080		$	517,948		$	546,278

---

(1)

2013 resultsResults for 2015 reflect the results ofVictory acquisition on June 1, 2015. Results for 2013 and later reflect the Longview acquisition on July 18, 2013 while2013. Results for 2011 results and later reflect the USC acquisition on October 31, 2011.



(2)

2009 and 2010 operating income includes $164.0 million and $22.2 million, respectively, of income from alternative fuel mixture credits.



(3)

2013 and 2011 net income includes a $5.0 million and $63.0 million benefit, respectively, from the reversal of the tax reserves for alternative fuel mixture credits. 2010 net income includes a $21.0 million cellulosic biofuel producers' tax credit.



(4)(3)

Earnings per share for all periods have been restated for the stock split declared in December 2013.



(5)(4)

In 2015 and December 2014, the Company declared a regular dividend that will be paid in January 2015.quarterly dividend. In December 2012, the Company declared and paid a special cash dividend.

        See Note 3 and Note 4 in the Notes to Consolidated Financial Statements for a discussion of the Victory and Longview acquisition.acquisitions, respectively.




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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations


Overview

        KapStone is the fifth largest producer of containerboard and the largest producer of kraft paper in North America, based on production capacity. We operate four containerboard mills and 22 corrugated products manufacturing plants. Our paper mills produce a combination of containerboard, which we ship to our corrugated products manufacturing plants and to third party converters, as well as specialty papers consisting of kraft paper, saturating kraft paper sold under the trade name Durasorb and uncoated paper stock board sold under the trade name Kraftpak. Our corrugated products manufacturing plants produce a wide variety of corrugated packaging products, including conventional shipping containers used to protect and transport manufactured goods and multi-color boxes and displays with strong visual appeal that help to merchandise the packaged product in retail locations. In addition, we produce packaging for fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. In addition, with the June 2015 acquisition of Victory, based in Houston, Texas, we operate a network of 60 distribution centers across the United States, Mexico and Canada which distribute packaging materials to a wide variety of customers and industry segments. Substantially all of our operations are located in the United States but we ship approximately 20 percent of containerboard and specialty products to customers in Europe, Asia and Latin America.

Executive Summary

        NetIn 2015, consolidated net sales grew 21 percent to a record $2.8 billion. We reported $106.4 million of $2.3 billion and earnings ofnet income, or $1.09 per diluted share in 2015, compared with $171.9 million, or $1.76 per share in 2014 were both a record high2014. In June 2015, we acquired Victory which contributed $582.9 million of revenues and $20.7 million of operating income for the Company reflecting 2.8 millionseven months under KapStone ownership.

        Compared to 2014, our consolidated earnings were negatively impacted by lower containerboard and extensible kraft paper prices, a less favorable product mix, a stronger US dollar which depressed results of our sales to many of our European customers who are billed in euros, lower sales volume, the impact of a 12 day strike at our Longview, Washington paper mill and inflation on compensation and benefits as well as fiber. The Victory acquisition was accretive to our earnings as well as the synergies generated from the integration of approximately 25,000 tons of product sold.its packaging products into the KapStone mill and plant system. For 2016, the Company expects the number of tons to be shipped to Victory to approximate 90,000 tons growing to at least 115,000 tons in 2017.

        In 2014, the average mill selling price per ton increased by $15 to $684 per ton. This increase was primarily due to the realization2015, our four paper mills produced a total of 2013 containerboard and corrugated products price increases, along with 2013 specialty paper price increases, and the 2014 kraft paper price increase. Our mill operations had a strong year in 2014, producing a record 2.7 million tons of containerboard and specialty paperproducts which was down 36,000 tons from 2014 which was a record year. A 12 day strike at our Longview mill reduced production by 29,000 tons.

        In 2015, due to strong cash flow from operations we made debt prepayments of $103.5 million compared to 2.1$325.0 million tons in 2013.2014. In addition, capital spending in 2015 totaled $126.8 million compared to $137.2 million in 2014. Key capital projects completed in 2015 consisted of a major upgrade to paper machines in Charleston and Longview, the installation of a new corrugator at the Aurora Illinois corrugated products manufacturing plant and other upgrades to our manufacturing plants to support volume growth. In 2015, we completed information systems projects to more fully integrate our Longview operations with KapStone. The Company expects capital spending in 2016 to approximate $115.0 million.

        Some key highlights forIn late 2014, include:

•

In February the Company completed a $29 million investment at our North Charleston mill. The primary project in this investment was the replacement of the press section on No. 3 Paper Machine, which is designed to improve the capability and efficiency of producing Ultra High Performance (UPL) lightweight linerboard grades.



•

In March the Company announced a $50 per ton selling price increase for kraft paper. This price increase was fully realized by the end of the third quarter of 2014.



•

In July the Company released its 2013 sustainability report, which showed significant progress toward its 2020 sustainability goals. These goals, which were set based on our commitment to social responsibility, extend well beyond applicable laws and regulations mandated by federal, state and local governmental entities.



•

In September the Company entered into an accounts receivable securitization arrangement ("Securitization") with Wells Fargo Bank, N.A. and PNC Bank, N.A. The Securitization generated proceeds of $175 million which were used to partially prepay our existing term loans. Due to a lower interest rate on the Securitization, our gross annual interest expense is expected to be reduced by approximately $2.0 million.



•

In December the Company's board of directors approved the initiation of a regular quarterly dividend of $0.10 per share which was paid on January 12, 2015.



•

As of Decembercommon stock dividend. Accordingly in 2015 the Company merged its three defined benefit pension plans into one.



•

We believe we are the 5th largest manufacturerpaid approximately $38.7 million of dividends to shareholders.

        In January 2016, Pulp and Paper Week announced price index reductions for containerboard in the United States.

of $15 to $20 per ton. The Company estimates that these reductions will have an annualized impact on



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revenues and operating income of $20.0 to $26.0 million. In response to this, in February 2016, the Company announced plans to curtail certain employee benefits.

Results of Operations for the Years Ended December 31, 2015, 2014 2013, and 20122013

The following table compares results of operations for the years ended December 31, 2015 and 2014:

		Years Ended December 31,									% of Net Sales
								Increase/ (Decrease)
		2015			2014						2015			2014
Paper and packaging		$	2,228,676		$	2,300,920		$	(72,244	)		79.9	%		100.0	%
Distribution			582,949			—			582,949			20.9	%		—
Intersegment Eliminations			(22,280	)		—			(22,280	)		(0.8	)%		—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net sales		$	2,789,345		$	2,300,920		$	488,425			100.0	%		100.0	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Paper and packaging			224,012			334,753			(110,741	)		8.0	%		14.5	%
Distribution			20,719			—			20,719			0.7	%		0.0	%
Corporate			(45,564	)		(34,822	)		(10,742	)		(1.6	)%		(1.5	)%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating income		$	199,167		$	299,931		$	(100,764	)		7.1	%		13.0	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Foreign exchange loss			2,556			1,222			1,334			0.1	%		0.1	%
Loss on debt extinguishment			1,218			5,617			(4,399	)		0.0	%		0.2	%
Interest expense, net			33,759			32,491			1,268			1.2	%		1.4	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income before taxes			161,634			260,601			(98,967	)		5.8	%		11.3	%
Provision for income taxes			55,248			88,686			(33,438	)		2.0	%		3.9	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income		$	106,386		$	171,915		$	(65,529	)		3.8	%		7.5	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

        Consolidated net sales for the year ended December 31, 2015 were $2,789.3 million compared to $2,300.9 million for the year ended December 31, 2014, an increase of $488.4 million, or 21.2 percent. The increase in net sales was primarily driven by the Victory acquisition on June 1, 2015, which accounted for $582.9 million of net sales.

        Paper and Packaging segment net sales of $2,228.7 million decreased by $72.4 million from the prior year due to $47.4 million of lower volume, primarily due to the Longview mill work stoppage in the third quarter and internalizing more of the Company's corrugated products manufacturing plants demand, $26.9 million of lower prices and a less favorable product mix, $10.8 million due to a stronger U.S. dollar compared to the Euro and $9.4 million due to lower other sales. Average mill selling price per ton for 2015 was $667 compared to $684 for 2014, reflecting a stronger U.S. dollar compared to the Euro, lower containerboard domestic and export prices and a less favorable product mix, partially offset by higher domestic kraft paper prices.

        Paper and Packaging segment sales to external customers by product line were as follows:

		Years Ended December 31,
		Net Sales (in thousands)												Tons Sold
								Increase/ (Decrease)												Increase/ (Decrease)
Product Line Revenue:		2015			2014						%			2015			2014						%
Containerboard / Corrugated products		$	1,421,802		$	1,463,670		$	(41,868	)		(2.9	)%		1,714,476			1,764,628			(50,152	)		(2.8	)%
Specialty paper			720,588			741,601			(21,013	)		(2.8	)%		1,017,905			1,031,024			(13,119	)		(1.3	)%
Other			86,286			95,649			(9,363	)		(9.8	)%		—			—			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Product sold		$	2,228,676		$	2,300,920		$	(72,244	)		(3.1	)%		2,732,381			2,795,652			(63,271	)		(2.3	)%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​




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        Tons of product sold in 2015 was 2,732,381 tons compared to 2,795,652 tons in 2014, a decrease of 63,271 tons, or 2.3 percent as follows:

•

Containerboard sales decreased by 65,201 tons, or 7.2 percent, primarily due to the Longview mill work stoppage in the third quarter and volumes being redirected from outside sales to fulfill demand for internal converting. Corrugated product sales volume increased by approximately 15,049 tons, or 1.7 percent (3.4 percent in BSF).



•

Specialty paper sales volume decreased by 13,119 tons, or 1.3 percent, primarily due to lower kraft paper export shipments of 37,680 tons, or 27.8 percent, reflecting increased competition in our export markets, partially offset by higher domestic kraft paper shipments of 19,389 tons.



•

Other sales declined primary due to lower energy and lumber prices.

        Distribution segment net sales of $582.9 million reflect sales for Victory, which the Company acquired on June 1, 2015.

        Cost of sales, excluding depreciation and amortization expense, for the year ended December 31, 2015 was $1,982.7 million compared to $1,551.5 million for the year ended December 31, 2014, an increase of $431.2 million, or 27.8 percent. The increase in cost of sales was mainly due to the $430.1 million impact of the Victory acquisition, including $5.8 million of expense related to the step up of inventory in purchase accounting. Excluding the acquisition, cost of sales was flat reflecting higher costs due to $20.4 million of inflation and $15.1 million caused by the Longview mill work stoppage. This increase in cost of sales was offset by $29.3 million of lower sales volume, $4.2 million of productivity gains and lower incentive compensation and $2.0 million of lower severance costs. Planned maintenance outage costs during 2015 and 2014 totaled $37.4 million and $36.1 million, respectively, and were included in cost of sales for those years.

        Depreciation and amortization expense for the year ended December 31, 2015 totaled $162.2 million compared to $136.5 million for 2014. The increase of $25.7 million reflects $13.1 million from the Victory acquisition, including $11.1 million of amortization expense for acquired intangible assets. In addition, depreciation expense was higher due to $6.1 million from higher capital spending and $6.5 million of accelerated depreciation mainly for two boilers taken out of service due to modernizing the Longview paper mill.

        Freight and distribution expenses for the year ended December 31, 2015 totaled $234.5 million compared to $175.9 million in 2014. The increase of $58.6 million was primarily due to $55.0 million from the Victory acquisition and $4.6 million due to product and customer mix, which was partially offset by $3.9 million of lower fuel costs.

        Selling, general and administrative expenses for the year ended December 31, 2015 totaled $210.8 million compared to $137.0 million in 2014. The increase of $73.8 million, or 53.9 percent, includes $64.1 million for Victory direct selling and administrative expenses. Excluding Victory, selling, general and administrative expenses increased by $9.7 million due to $2.9 million of Victory acquisition expenses and $3.7 million of contingent consideration expense, $3.4 million of higher salary and benefit related expenses, $2.9 million of higher stock-based compensation expense and $2.2 million of higher legal and consulting expenses. This increase in selling, general and administrative expense was partially offset by $2.7 million of lower Longview integration expenses and $2.4 million of lower incentive compensation due to the Company's lower operating income in 2015. As a percentage of net sales, selling, general and administrative expenses increased to 7.6 percent in 2015 from 6.0 percent in 2014.

        Loss on debt extinguishment for the years ended December 31, 2015 and 2014 totaled $1.2 million and $5.6 million, respectively, due to $103.5 million of prepayments on the term loans under the Credit Facility in 2015 and $325.0 million of prepayments in 2014.




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        Net interest expense for the years ended December 31, 2015 and 2014 was $33.8 million and $32.5 million, respectively. Interest expense reflects interest on the outstanding borrowings under the Credit Facility and the receivables credit facility in connection with our trade receivables securitization program (the "Receivables Credit Facility") and amortization of debt issuance costs. Interest expense was $1.3 million higher for the year ended 2015, primarily due to higher borrowings under the term loans to finance the Victory acquisition.

        Provision for income taxes for the years ended December 31, 2015 and 2014 was $55.2 million and $88.7 million, respectively, reflecting an effective income tax rate of 34.2 percent for 2015, compared to 34.0 percent for 2014. The lower provision for income taxes in 2015 primarily reflects lower pre-tax income of $99.0 million.

        The following table compares results of operations for the years ended December 31, 2014 and 2013:

																		Years Ended December 31,									% of Net Sales
		Years Ended December 31,									% of Net Sales													% Change
		2014			2013			% Change			2014			2013				2014			2013						2014			2013
Net sales		$	2,300,920		$	1,748,162			31.6	%		100.0	%		100.0	%		$	2,300,920		$	1,748,162			31.6	%		100.0	%		100.0	%
Cost of sales, excluding depreciation and amortization			1,551,531			1,186,930			30.7	%		67.4	%		67.9	%			1,551,531			1,186,930			30.7	%		67.4	%		67.9	%
Depreciation and amortization			136,548			95,435			43.1	%		5.9	%		5.5	%			136,548			95,435			43.1	%		5.9	%		5.5	%
Freight and distribution expenses			175,901			135,972			29.4	%		7.6	%		7.8	%			175,901			135,972			29.4	%		7.6	%		7.8	%
Selling, general and administrative expenses			137,009			110,612			23.9	%		6.0	%		6.3	%			137,009			110,612			23.9	%		6.0	%		6.3	%
Other operating income			—			675			(100.0	)%		—			—				—			675			(100.0	)%		—			—
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Operating income			299,931			219,888			36.4	%		13.0	%		12.6	%			299,931			219,888			36.4	%		13.0	%		12.6	%
Foreign exchange gain/(loss)			(1,222	)		232			626.7	%		(0.1	)%		—				(1,222	)		232			626.7	%		(0.1	)%		—
Loss on debt extinguishment			5,617			—			100.0	%		0.2	%		—				5,617			—			100.0	%		0.2	%		—
Interest expense, net			32,491			25,130			29.3	%		1.4	%		1.4	%			32,491			25,130			29.3	%		1.4	%		1.4	%
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Income before provision for income taxes			260,601			194,990			33.6	%		11.3	%		11.2	%			260,601			194,990			33.6	%		11.3	%		11.2	%
Provision for income taxes			88,686			67,652			31.1	%		3.9	%		3.9	%			88,686			67,652			31.1	%		3.9	%		3.9	%
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Net income		$	171,915		$	127,338			35.0	%		7.6	%		7.3	%		$	171,915		$	127,338			35.0	%		7.5	%		7.3	%
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        Net sales for the year ended December 31, 2014 were $2,300.9 million compared to $1,748.2 million for the year ended December 31, 2013, an increase of $552.7 million.million of the increase. The increase in net sales was driven primarily by the Longview acquisition, which accounted for $510.2 million. In addition to the Longview acquisition, net sales increased by $29.5 million due to higher average selling prices and product mix changes and $11.1 million of higher sales volume. Average mill selling price per ton for 2014 was $684 compared to $669 for 2013. Average mill selling prices increased primarily due to the realization of 2013 containerboard and corrugated products price increases, along with 2013 specialty paper price increases and thea $50 per ton 2014 kraft paper selling price increase.




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        The following represents the Company's sales by product line:

		Years Ended December 31,
		Net Sales (in thousands)												Tons Sold
								Increase/ (Decrease)												Increase/ (Decrease)
Product Line Revenue:		2014			2013						%			2014			2013						%
Containerboard / Corrugated products		$	1,463,670		$	1,108,545		$	355,125			32.0	%		1,764,628			1,403,797			360,831			25.7	%
Specialty paper			741,601			551,931			189,670			34.4	%		1,031,024			799,261			231,763			29.0	%
Other			95,649			87,686			7,963			9.1	%		—			—			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Product sold		$	2,300,920		$	1,748,162		$	552,758			31.6	%		2,795,652			2,203,058			592,594			26.9	%
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        Tons of product sold in 2014 was 2,795,652 tons compared to 2,203,058 tons in 2013. Excluding the Longview acquisition, tons of products sold in 2014 decreased by 14,738 tons or 0.9 percent as follows:

•

Containerboard / Corrugated product sales volume decreased 1.3 percent. Containerboard sales decreased 5.8 percent reflecting volumes being redirected from outside sales to fulfill demand for internal converting. Corrugated product sales volume increased 6.5 percent.



•

Specialty paper sales decreased by 0.1 percent, primarily due to lower Durasorb® sales, which decreased 5.8 percent, partially offset by a kraft paper volume increase of 3.2 percent.




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        Cost of sales, excluding depreciation and amortization expense, for the year ended December 31, 2014 was $1,551.5 million compared to $1,186.9 million for the year ended December 31, 2013, an increase of $364.6 million. The increase in cost of sales was mainly due to the $337.5 million impact of the Longview acquisition. In addition to the Longview acquisition, cost of sales increased mainly due to $21.5 million of inflation on labor, benefits and input costs, $18.7 million of higher sales volume, $11.2 million of higher planned maintenance outage costs, $6.6 million of voluntary severance plan charges and $4.4 million of other cost increases. These cost increases were partially offset by $35.3 million of productivity gains, primarily resulting from higher production and cost savings. Including Longview, annual planned maintenance outage costs during 2014 and 2013 totaled $36.1 million and $24.9 million, respectively, and were included in cost of sales for those years.

        Depreciation and amortization expense for the year ended December 31, 2014 totaled $136.5 million compared to $95.4 million for 2013. The increase of $41.1 million was primarily due to $34.1 million from the Longview acquisition, $5.2 million of which reflected amortization of identified intangibles and $7.0 million was the result of higher capital spending.

        Freight and distribution expenses for the year ended December 31, 2014 totaled $175.9 million compared to $136.0 million for 2013. The increase of $39.9 million was primarily due to $30.5 million from the Longview acquisition, $7.5 million from higher sales volumes and mix and $1.9 million of inflation and other cost increases.

        Selling, general and administrative expenses for the year ended December 31, 2014 totaled $137.0 million compared to $110.6 million in 2013. The increase of $26.4 million was primarily due to $25.2 million from the Longview acquisition. In addition to the Longview acquisition, selling, general, and administrative expenses increased due to $3.9 million of higher compensation and benefit related expenses, $4.2 million of 2014 Longview integration related expenses, $0.9 million higher legal expenses and $0.3 million of voluntary severance plan charges, partially offset by $8.5 million of nonrecurring 2013 Longview acquisition related expenses that did not occur in 2014.expenses. As a percentage of net sales, selling, general, and administrative expenses decreased to 6.0 percent in 2014 from 6.3 percent in 2013.

        Loss on debt extinguishment for the year ended December 31, 2014 was $5.6 million due to the $325.0 million of voluntary prepayments on the term loans under the Credit Facility.




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        Net interest expense for the years ended December 31, 2014 and 2013 was $32.5 million and $25.1 million, respectively. Interest expense reflects interest on the Company's borrowings under its Credit Facility, Receivables Credit Facility and amortization of debt issuance costs. Interest expense was $7.4 million higher for the year ended 2014 due to higher term loan balances used to fund the Longview acquisition and an increase in variable interest rates.

        Provision for income taxes for the years ended December 31, 2014 and 2013 was $88.7 million and $67.7 million, respectively, reflecting an effective income tax rate of 34.0 percent for 2014 compared to 34.7 percent for 2013. The higher provision for income taxes in 2014 primarily reflects higher pre-tax income. In addition, 2013 included a $5.0 million favorable adjustment for reversal of a tax reserve for an uncertain tax position relating to alternative fuel mixture credits.




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The following table compares results of operations for the years ended December 31, 2013 and 2012:

		Years Ended December 31,									% of Net Sales
		2013			2012			% Change			2013			2012
Net sales		$	1,748,162		$	1,216,637			43.7	%		100.0	%		100.0	%
Cost of sales, excluding depreciation and amortization			1,186,930			866,124			37.0	%		67.9	%		71.2	%
Depreciation and amortization			95,435			63,124			51.2	%		5.5	%		5.2	%
Freight and distribution expenses			135,972			108,438			25.4	%		7.8	%		8.9	%
Selling, general and administrative expenses			110,612			70,055			57.9	%		6.3	%		5.8	%
Other operating income			675			664			1.7	%		—			0.1	%
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Operating income			219,888			109,560			100.7	%		12.6	%		9.0	%
Foreign exchange gain/(loss)			232			(303	)		176.6	%		—			—
Interest expense, net			25,130			11,774			113.4	%		1.4	%		1.0	%
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Income before provision for income taxes			194,990			97,483			100.0	%		11.2	%		8.0	%
Provision for income taxes			67,652			34,978			93.4	%		3.9	%		2.9	%
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Net income		$	127,338		$	62,505			103.7	%		7.3	%		5.1	%
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        Net sales for the year ended December 31, 2013 were $1,748.2 million compared to $1,216.6 million for the year ended December 31, 2012, an increase of $531.6 million. The increase in net sales was driven primarily by the Longview acquisition, which accounted for $439.6 million. Excluding the Longview acquisition, net sales increased by $92.0 million or 7.6 percent. Net sales (excluding Longview) increased by $77.3 million due to higher average selling prices, $9.2 million of other sales and $5.5 million due to volume and product mix changes. Average mill selling price per ton for 2013 was $669 compared to $622 for 2012. Average mill selling prices increased primarily due to the full realization of the 2012 and 2013 price increases for domestic containerboard and corrugated products.

        The following represents the Company's sales by product line:

		Years Ended December 31,
		Net Sales (in thousands)												Tons Sold
								Increase/ (Decrease)												Increase/ (Decrease)
Product Line Revenue:		2013			2012						%			2013			2012						%
Containerboard / Corrugated products		$	1,108,545		$	714,085		$	394,460			55.2	%		1,403,797			1,046,500			357,297			34.1	%
Specialty paper			551,931			428,663			123,268			28.8	%		799,261			633,965			165,296			26.1	%
Other			87,686			73,889			13,797			18.7	%		—			—			—			0.0	%
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Product sold		$	1,748,162		$	1,216,637		$	531,525			43.7	%		2,203,058			1,680,465			522,593			31.1	%
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        Tons of product sold in 2013 was 2,203,058 tons compared to 1,680,465 tons in 2012. Excluding the Longview acquisition, tons of products sold in 2013 decreased by 13,897 tons or 1 percent as follows:

•

Domestic containerboard sales increased 14.5 percent due to higher demand for ultra performance containerboard grades.



•

Corrugated product sales volume increased 3.9 percent reflecting a heavier basis weight of tons shipped and product mix, new customers and the addition of the Aurora manufacturing facility.



•

Export containerboard sales decreased by 30.3 percent as more containerboard volume was shipped to domestic customers and used for internal consumption.




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•

Specialty paper sales decreased by 5.7 percent, primarily due to Kraft paper sales which decreased 20.5 percent, reflecting an overall decrease in demand in the industry and lower volume of sales to a customer as it internalized its needs, partially offset by higher Durasorb® and Kraftpak® volume.

        Cost of sales, excluding depreciation and amortization expense, for the year ended December 31, 2013 was $1,186.9 million compared to $866.1 million for the year ended December 31, 2012, an increase of $320.8 million. The increase in cost of sales was mainly due to the $272.0 million impact of the Longview acquisition. Excluding the Longview acquisition, cost of sales increased by $48.8 million, or 5.6 percent, mainly due to $32.5 million of inflation on labor, benefits and input costs, $6.5 million of higher planned maintenance outage costs and other cost increases. Including Longview, annual planned maintenance outage costs during 2013 and 2012 totaled $24.9 million and $18.4 million, respectively, and were included in cost of sales for those years.

        Depreciation and amortization expense for the year ended December 31, 2013 totaled $95.4 million compared to $63.1 million for 2012. The increase of $32.3 million was primarily due to $27.6 million from the Longview acquisition, $2.4 million of which was amortization of identified intangibles. Excluding the Longview acquisition, depreciation and amortization expense increased $5.3 million due to the recent investments in information technology, equipment upgrades, and replacements at the paper mills.

        Selling, general and administrative expenses for the year ended December 31, 2013 totaled $110.6 million compared to $70.1 million in 2012. The increase of $40.5 million was primarily due to $26.1 million from the Longview acquisition. Excluding the Longview acquisition, selling, general, and administrative expenses increased by $14.4 million due to $8.5 million of Longview transaction fees and expenses, $5.9 million of higher compensation related expenses, $1.8 million of higher IT and consulting expenses, $1.4 million for the Aurora, IL manufacturing facility, and $0.6 million of bad debt expense, partially offset by $3.8 million of 2012 USC acquisition and integration related expenses. As a percentage of net sales, selling, general, and administrative expenses increased to 6.3 percent in 2013 from 5.8 percent in 2012.

        Net interest expense for the years ended December 31, 2013 and 2012 was $25.1 million and $11.8 million, respectively. Interest expense reflects interest on the Company's borrowings under its Credit Facility and amortization of debt issuance costs. Interest expense was $13.3 million higher for the year ended 2013 due to higher term loan balances used to fund the Longview acquisition and an increase in variable interest rates.

        Provision for income taxes for the years ended December 31, 2013 and 2012 was $67.7 million and $35.0 million, respectively, reflecting an effective income tax rate of 34.7 percent for 2013 compared to 35.9 percent for 2012. The higher provision for income taxes in 2013 primarily reflects higher pre-tax income and higher state income taxes, partially offset by a $5.0 million favorable adjustment for reversal of a tax reserve for an uncertain tax position relating to alternative fuel mixture credits.

Liquidity and Capital Resources

Receivables Acquisition

        On June 1, 2015, the Company purchased 100 percent of the partnership interests in Victory for $615.0 million in cash and $2.0 million for certain post-closing adjustments. The Company will also be obligated to pay up to an additional $25.0 million of contingent consideration to the former owners of Victory if certain performance criteria are satisfied during the thirty months following the closing.

Credit Facility

        In September 2014, certain wholly-owned subsidiaries ofconjunction with the Victory acquisition, the Company ("Originators") entered into a one-year agreement to sell all eligible trade receivables (the "Receivables") on a non-recourse basis (subject to purchase price credits for breaches of certain representationsthe Second Amended and warranties with respect to the Receivables), to KapStone Receivable, LLC ("KAR"), a wholly-owned subsidiary of the Company that is a bankruptcy remote variable interest entity (the "VIE"). KAR is a variable interest entity as it receives subordinated financing from the OriginatorsRestated Credit Agreement (as amended from time to time, the "Credit Agreement") by and among KapStone Kraft Paper Corporation, as Borrower, the Company and certain subsidiaries of Borrower from time to time party thereto, as Guarantors, the lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer. The Credit Agreement, which provides for a senior secured credit facility (the "Credit Facility") in an initial aggregate principal amount of $1.915 billion, consisting of a Term Loan A-1 in the aggregate amount of $940.0 million, a Term Loan A-2 in the aggregate amount of $475.0 million, and a $500.0 million revolving credit facility (including a $75.0 million letter of credit sub-facility and a $45.0 million swing line loan sub-facility, the "Revolver"). The Credit Facility also includes an "accordion" feature that allows the Company, subject to certain terms and conditions, to increase the commitments under the Credit Facility. The aggregate amount of such increases is not limited if the Company maintains a pro forma total leverage ratio equal to or less than 2.5 to 1.0 after giving effect to any increase. To the extent the pro forma total leverage ratio of the Company is greater than 2.5 to 1.0 after giving effect to any increase, the aggregate amount of such increases is limited to $600.0 million. The incremental borrowings from the Credit Agreement, consisting of proceeds from Term Loan A-1, Term Loan A-2, and $115.0 million of borrowings under the Revolver were used to finance its activities.the Company's acquisition of Victory and pay certain transaction fees and expenses.

        On February 8, 2016, the Company entered into the First Amendment ("First Amendment") to the Credit Agreement. The Company continuesFirst Amendment modifies, among other things, the financial covenant in the Credit Agreement related to servicesmaintenance of a maximum total leverage ratio by increasing the receivables after they have been soldpermitted total leverage ratio for fiscal quarters ending on or prior to KARJune 30, 2018, and makesit modifies certain defined terms used in the calculation of the financial covenants in a manner favorable to the Company. The First Amendment also modifies the pricing grid applicable to interest rates and the unused commitment fee under the Credit Agreement in order to provide for an additional pricing level applicable based on the total leverage ratio of the Company.

        Depending on the type of borrowing, the applicable interest rate under the Credit Facility is calculated at a per annum rate equal to (a) LIBOR plus an applicable margin[,which is currently 1.75% for Term Loan A-1 Eurodollar loans, 1.875% for Term Loan A-2 Eurodollar loans and 1.75% for




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primary decisions regardingRevolver Eurodollar loans] or (b) the collateral in KARbase rate that is calculated as (i) the greatest of (x) the prime rate, (y) the federal funds effective rate plus 0.50% or (z) a daily rate equal to one month LIBOR plus 1% plus (ii) an applicable margin[,which is currently 0.75% for Term Loan A-1 Eurodollar loans, 0.875% for Term Loan A-2 Eurodollar loans and is therefore the primary beneficiary and will consolidate the account balances of KAR. KAR finances its purchases0.75% for Revolver base rate loans]. The unused portion of the Receivables in part with proceeds of draws under a one-year facility ("Receivables Credit Facility"),Revolver is subject to an unused fee that is calculated at a maximum of $175 million. The actual amount available to draw upon varies based on eligible receivables (as defined in the agreement establishing the Receivables Credit Facility). The proceeds from the initial sales of the Receivables were used to pay down the term loans under our Amended and Restated Credit Agreement. As of December 31, 2014, $167.0 million was outstanding with an interestper annum rate of 0.9 percent.

Amendments to the Amended and Restated Credit Agreement(the "Unused Fee Rate").

        In April 2014, the Company entered into a First Amendment (the "First Amendment") to the Amended and Restated Credit Agreement dated as of July 18, 2013 (as amended from time to time, the "Amended and Restated Credit Agreement"). The First Amendment reduced the borrowing rates under our Credit Facilityapplicable margin for both term loansborrowings under the Credit Facility and for any future borrowings under the $400 million revolving credit facility (the "Revolver") portion ofUnused Fee Rate will be determined by reference to the Credit Facility. The interest rates are based on LIBOR rates plus a margin determined from a pricing grid based on the Company's total leverage ratio. Under such pricing grid, the applicable margins for Term Loan A-1 and Revolver range from 1.00% to 2.00% for Eurodollar loans and from 0.00% to 1.00% for base rate loans, and the Unused Fee Rate range from 0.20% to 0.325%. The applicable margins for Term Loan A-2 will range from 1.125% to 2.125% for Eurodollar loans and from 0.125% to 1.25% for base rate loans.

        Annual principal repayments, paid in quarterly installments beginning in the fourth quarter of 2017, are as follows:

Fiscal year ending:
2016		$	—
2017			12,938
2018			51,750
2019			51,750
2020			733,250
2021			4,750
2022			444,125
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Total		$	1,298,563
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Receivables Credit Facility

        Under our accounts receivable securitization program (the "Securitization Program"), certain of KapStone's subsidiaries sell, on an ongoing basis without recourse, certain trade accounts receivables (the "Receivables") and related assets to KapStone Receivables, LLC, a Delaware limited liability company and wholly owned, bankruptcy remote subsidiary of the Company ("KAR"), pursuant to a Receivables Sale Agreement dated as of September 26, 2014 (the "Receivables Sale Agreement") among the Company, as servicer, KapStone Kraft Paper Corporation, KapStone Container Corporation, KapStone Charleston Kraft LLC and Longview Fibre Paper and Packaging, Inc., as Originators (the "Originators"), and KAR, as buyer. KAR, in turn, sells the interests in the Receivables and related assets to certain financial institutions pursuant to a Receivables Purchase Agreement (the "Receivables Purchase Agreement") among KAR, as seller, the financial institutions from time to time party thereto as purchasers (the "Purchasers"), the Company, as servicer, and (iii) Wells Fargo Bank, N.A., as administrative agent.

        Pursuant to the Securitization Program, (i) the Originators will sell or contribute certain of their respective Receivables and certain related assets to KAR, a portion of the purchase price of which will be paid from the proceeds of subordinated debt advanced by the Originators to EBITDA ratioKAR, (ii) the Purchasers have committed to purchase undivided interests in the Receivables in the aggregate principal amount of up to $175.0 million, which interests shall be secured by the Receivables (the "Receivables Credit Facility"), (iii) the Company will service and administer the Receivables on behalf of KAR and (iv) the Company will provide a performance guaranty to KAR in respect of the obligations of the Originators under the Receivables Sale Agreement, including without limitation, obligations to pay purchase price credits and indemnity obligations. The Purchasers receive yield on their investments based on a spread over the LIBOR rate for each day that their investments in the Receivables are outstanding, as well as a fee calculated on the unused portion of their commitments.




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        In June, 2015, the parties entered into (i) Amendment No. 1 to Receivables Purchase Agreement as of June 10, 2015 (the "Amendment to Receivables Purchase Agreement") amending its Receivables Purchase Agreement and (ii) Amendment No. 1 to Receivables Sale Agreement (the "Amendment to Receivables Sale Agreement" and, together with the Amendment to Receivables Purchase Agreement, the "Amendments") as of June 10, 2015 amending its Receivables Sale Agreement.

        Pursuant to the Amendments:

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Victory was added as an "Originator" under the Receivables Sale Agreement;



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the principal amount of undivided interests in the receivables the financial institutions that are parties to the Receivables Purchase Agreement (the "Purchasers") are committed to purchase was increased from up to $175.0 million to up to $275.0 million; and



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the "Facility Termination Date" (as defined in our Amended and Restated Credit Agreement. Accordingly, the weighted average interest rate on borrowings underReceivables Purchase Agreement) was extended from September 26, 2015 to June 8, 2016 (the date by which the Credit Facility asPurchasers commitment to purchase receivables will terminate).

        As of December 31, 2014 is 1.98 percent, compared to 2.25 percent as of March 31, 2014. The First Amendment also reduced the unused commitment fees related to the Revolver by 5 to 10 basis points.

        In August 2014,2015, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement, which included certain technical amendments to the Amended and Restated Credit Agreement in connection with the Receivables program and the relatedhad $265.6 million of outstanding borrowings under its $275 million Receivables Credit Facility.

        In December 2014, the Company entered into a Third Amendment to the Amended and Restated Credit Agreement. The modificationFacility at an interest rate of the Amended and Restated Credit Agreement will enable the Company, subject to certain conditions and limitations, to pay dividends on, or make repurchases of, the Company's common stock.1.18 percent.

Voluntary and Mandatory Prepayments

        For the year ended December 31, 2015, the Company made $103.5 million of voluntary prepayments on its term loans under its Credit Facility using cash generated from operations.

        For the year ended December 31, 2015, the Company made $36.1 million in mandatory payments throughout the year on the Receivable Credit Facility based on the Company's eligible receivables.

        For the year ended December 31, 2014, the Company made $325.0 million of voluntary prepayments on its term loans under its credit facilityCredit Facility using $175.0 million of cash from the Receivables Credit Facility and $150.0 million of cash generated from operations.

        For the year ended December 31, 2014, the Company made an $8.0 million mandatory payment on the Receivable Credit Facility based on the Company's eligible receivables. No mandatory prepayments were required under the Amended and Restated Credit Agreement.

        For the year ended December 31, 2013, the Company made a $40.0 million voluntary prepayment on its term loan under its then-existing credit agreement using cash generated from operations.Facility.

Other Borrowing

        In 20142015 and 2013,2014, the Company entered into financing agreements of $6.3$6.6 million and $5.1$6.3 million, respectively, at an annual interest raterates of 1.69 and 1.61approximately 1.70 percent respectively, for its annual property insurance premiums. These agreements requiredThe amount due under the Company to pay consecutive monthly2015 agreement was repaid in three quarterly payments through the term of eachthe financing agreement endingwhich ended on December 1^st of each year. The31, 2015.

        For 2016, the Company entereddid not enter into a similar agreement in 2015 with quarterly payment terms ending on October 15^th.




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Debt Covenants

        Under the financial covenants of the Amended and Restated Credit Agreement, theThe Company must comply on a quarterly basis with the financial covenants of its Credit Agreement, including a maximum permitted leverage ratio. The leverage ratio is calculated by dividing the Company's debt net of available cash by its rolling twelve month total earnings before interest expense, taxes, depreciation and amortization and allowable adjustments. The maximum permitted leverage ratio declines over the life of the Amended and Restated Credit Agreement. On December 31, 2014,2015, the maximum permitted leverage ratio was 4.25 to 1.00. On December 31, 2014,2015, the Company was in compliance with a leverage ratio of 2.383.6 to 1.00. The First Amendment increased the maximum permitted leverage ratio for fiscal quarters ending on or prior to June 30, 2018.

        The Amended and Restated Credit Agreement also includes a financial covenant requiring a minimum fixed chargeinterest coverage ratio. This ratio is calculated by dividing the Company's trailing twelve month total earnings before




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interest expense, taxes, depreciation and amortization and allowable adjustments less cash payments for income taxes and capital expenditures by the sum of our net cash interest and required principal payments during the twelve month period. From the closing date of the Amended and Restated Credit Agreement through the quarter endingOn December 31, 2014,2015, the fixed chargeinterest coverage ratio was required to be at least 1.253.00 to 1.00. On December 31, 2014,2015, the Company was in compliance with the Amended and Restated Credit Agreement with a fixed chargean interest coverage ratio of 7.5313.4 to 1.00.

        As of December 31, 2014,2015, the Company was also in compliance with all other covenants in the Amended and Restated Credit Agreement.

Income Taxes

        Income taxes paid, net of refunds, were $65.5 million, $77.5 million and $4.0 million in 2015, 2014 and $7.0 million in 2014, 2013, and 2012, respectively. The increasedecrease in 2014 is2015 was primarily due to higherlower pre-tax income following the 2013 Longview acquisition, significant tax credit carry-forwards and net operating losses fully utilized through 2013 and bonus depreciation claimed in 2013.income. The Company expects its 20152016 cash tax rate to be approximately 35 percent.

Sources and Uses of Cash

Years ended December 31 ($ in thousands)		2014			2013			2012				2015			2014			2013
Operating activities		$	313,198		$	298,694		$	157,829			$	262,457		$	313,198		$	298,694
Investing activities			(137,232	)		(634,945	)		(67,551	)			(743,802	)		(137,232	)		(634,945	)
Financing activities			(160,466	)		332,730			(81,852	)			459,699			(160,466	)		332,730
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Total change in cash and cash equivalents		$	15,500		$	(3,521	)	$	8,426			$	(21,646	)	$	15,500		$	(3,521	)
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2015

        Cash and cash equivalents decreased by $21.6 million from December 31, 2014, reflecting $262.5 million of net cash provided by operating activities, $743.8 million of net cash used in investing activities and $459.7 million of net cash provided by financing activities.

        Net cash provided by operating activities was $262.5 million, comprised of net income of $106.4 million and non-cash charges of $187.4 million. Changes in operating assets and liabilities used $31.3 million of cash. Net cash provided by operating activities decreased by $50.7 million during the year ended December 31, 2015 compared to 2014, mainly due to a $65.5 million decrease in net income and a $25.3 million increase in cash used for working capital, partially offset by higher non-cash charges of $40.1 million. The increase in working capital mainly reflects higher inventory levels and income taxes.

        Net cash used in investing activities includes $617.0 million for the Victory acquisition and $126.8 million for capital expenditures. Net cash used in investing activities increased by $606.6 million for the year ended December 31, 2015 compared to 2014, primarily due to the Victory acquisition, partially offset by $10.5 million of lower capital spending.

        Net cash provided by financing activities was $459.7 million, reflecting $519.8 million of additional borrowings under the Credit Facility, $98.6 million of net borrowings under the Receivables Credit Facility and $6.4 million of net short-term borrowings under the Revolver. These borrowings were partially offset by $103.5 million of prepayments on the term loans under the Credit Facility, $38.7 million of dividend payments, $12.9 million principal payments on the term loans under the Credit Facility and $10.8 million of debt issuance costs for the Credit Agreement. Net cash provided by financing activities increased by $620.2 million in 2015 compared to 2014, primarily due to net borrowings to finance the Victory acquisition of $519.8 million and lower voluntary prepayments of $212.1 million, which was partially offset by the lower net borrowings under the Receivables Credit Facility of $68.4 million and cash dividend payments of $38.7 million.




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2014

        Cash and cash equivalents increased by $15.5 million from December 31, 2013, reflecting $313.2 million of net cash provided by operating activities, $137.2 million of net cash used in investing activities and $160.5 million of net cash used by financing activities.

        Net cash provided by operating activities was $313.2 million, comprised primarily of net income of $171.9 million and non-cash charges of $147.4 million. Changes in operating assets and liabilities used $6.1 million of cash. Net cash provided by operating activities increased by $14.5 million during the year ended December 31, 2014 compared to 2013 mainly due to a $44.6 million increase in net income, which was partially offset by $18.9 million of cash used for working capital and lower non-cash charges of $11.2 million.




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        Net cash used in investing activities was $137.2 million for capital expenditures. For the year ended December 31, 2014, capital expenditures included $49.5 million for our Longview operations acquired on July 18, 2013 and $5.6 million for the completion of the North Charleston, South Carolina paper mill No. 3 paper machine upgrade. Capital expenditures increased by $40.5 million in 2014 compared to 2013 due to the Longview acquisition and higher strategic capital spending.

        Net cash used in financing activities was $160.5 million and reflects $325.0 million of voluntary prepayments on the term loans under the Credit Facility, $8.0 million repayment on the Receivables Credit Facility as a result of a reduction in the Company's eligible receivables, $3.5 million for principal payments on the term loans under the Credit Facility, $1.1 million of fees paid for the Receivables Credit Facility and the First Amendment,Amendments thereto and $0.2 million for cash dividends paid. These amounts were partially offset by $175.0 million of initial proceeds from Receivables Credit Facility and $2.4 million of proceeds from share transactions. Net cash provided by financing activities decreased by $493.2 million in 2014 compared to 2013, primarily due to higher net borrowings in 2013 as a result of the Longview acquisition.

2013

        Cash and cash equivalents decreased by $3.5 million from December 31, 2012, reflecting $298.7 million of net cash provided by operating activities and $332.7 million of net cash provided by financing activities, offset by cash used in investing activities of $634.9 million.

        Net cash provided by operating activities was $298.7 million due to non-cash charges of $158.6 million, net income of $127.3 million and changes in operating assets and liabilities of $12.8 million. Net cash provided by operating activities increased by $140.9 million during the year ended December 31, 2013 compared to 2012 mainly due to higher non-cash charges of $69.0 million, higher net income of $64.8 million and $7.1 million of cash provided by changes in operating assets and liabilities.

        Net cash used in investing activities includes $538.2 million for the Longview acquisition and $96.7 million of capital expenditures. For the year ended December 31, 2013, capital expenditures included $10.2 million for the new manufacturing facility in Aurora, IL and $22.2 million for Longview. Net cash used in investing activities increased by $567.4 million in 2013 compared to 2012, primarily due to the Longview acquisition.

        Net cash provided by financing activities totaled $332.7 million, reflecting $1,275.0 million of borrowings under the Credit Facility, partially offset by the $812.8 million payoff of the Company's prior credit facility and Longview's senior notes assumed in the acquisition, $63.5 million of short-term borrowing repayments, a $40.0 million voluntary prepayment, $19.7 million of debt issuance costs for the Amended and Restated Credit Agreement and a $11.2 million scheduled principal payment. Net cash provided by financing activities increased by $414.6 million in 2013 compared to 2012, mainly due to higher net borrowings in 2013 due to the Longview acquisition.

Future Cash Needs

        We expect that cash on hand at December 31, 20142015 and cash generated from operating activities in 20152016 and, if needed, the ability to draw from our $400.0$500.0 million Revolver and our $300.0$600.0 million accordion provision under our Credit Facility, if available, will be sufficient to meet anticipated cash needs, which primarily consists of $21.2 million of interest payments on our term loans, approximately $135.0$115.0 million of expected capital expenditures, $38.4$38.7 million of dividends $1.1 million of pension plan funding and any additional working capital needs.

        At December 31, 2014,2015, the Company had no$6.4 million of borrowings under the Revolver and had $395.7$476.5 million of remaining revolverRevolver availability net of outstanding letters of credit.




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        On a long term basis, we expect that cash generated from operating activities and, if needed, the ability to draw from our Revolver and accordion provision, if available, will be sufficient to meet long term obligations. Our long term obligations primarily consist of $1.1$1.7 billion of debt service and interest (which includes a $513.2$716.8 million final payment on our term loan A-1 and $167.0$265.6 million on our Receivable Credit Facility in July 2018June 2020 and a final payment on our term loan A-2 in July 2020June 2022 of $231.1$442.9 million), capital expenditures of $110.0approximately $115.0 million to $125.0 million annually, annual defined benefit pension plan contributions, dividends and working capital needs and acquisitions.needs.

Off-Balance Sheet Arrangements

        We have not entered into any off-balance sheet financing arrangements. The Company established a variable interestspecial purpose entity in connection with the Receivables Credit Facility.Securitization Program. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.




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Critical Accounting Policies

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We believe our critical accounting policies are those described below. The Company's audit committee has reviewed the policies listed below. For a detailed discussion of these and other accounting policies, see Note 2"Significant "Significant Accounting Policies" of the Notes to the Consolidated Financial Statements.

Revenue Recognition

        The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") 605,Revenue Recognition. Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership. Sales with terms designated f.o.b. (free on board) shipping point are recognized at the time of shipment. For sales transactions with terms f.o.b. destination, revenue is recorded when the product is delivered to the customer's site and when title and risk of loss are transferred. Sales on consignment are recognized in revenue at the earlier of the month that the goods are consumed or after a period of time subsequent to receipt by the customer as specified by contract terms. Incentive rebates are typically paid in cash and are netted against revenue on an accrual basis as qualifying purchases are made by the customer to earn and thereby retain the rebate.

        The Company recognizes revenue from the sale of shaft horsepower, generated by its cogeneration facility, and energy sales on a gross basis and is included in net sales.

        Freight charged to customers is recognized in net sales.

Goodwill and Intangibles

        Certain business acquisitions have resulted in the recording of goodwill. Upon acquisition, the purchase price is first allocated to identifiable assets and liabilities based on estimated fair value, with any remaining purchase price recorded as goodwill. Goodwill is considered an indefinite lived intangible assetassets and as such is not amortized. At December 31, 2014,2015, we have goodwill of $533.9$704.6 million. In conjunction with the LongviewVictory acquisition the Company's goodwill increased by $308.3$170.7 million, see Note 3 "Longview Acquisition""Victory Acquisition" of the Notes to Consolidated Financial Statements.

Goodwill Valuations

        We evaluate goodwill using a qualitative assessment to determine whether it is more likely than not thatGoodwill represents the excess of the cost of an acquired business over the fair value of anythe identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At December 31, 2015, we had $704.6 million of goodwill, of which we recorded $308.3 million in connection with the Longview acquisition in 2013 and $170.7 million in connection with the acquisition of Victory in 2015. At December 31, 2015, we had $533.9 million and $170.7 million of goodwill allocated to our Paper and Packaging and Distribution segments, respectively.

        All of our intangible assets are amortized over their estimated useful lives, except goodwill, which we test for impairment annually in the fourth quarter, or sooner, if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. The test is performed at the reporting unit level. A reporting unit is less than its carrying amount. If we determinean operating segment or one level below an operating segment (referred to as a "component"). A component is considered a reporting unit for purposes of goodwill testing if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that thecomponent. We now maintain three reporting units for purposes of our goodwill and intangible asset impairment testing, Western Paper and Packaging Operations, Eastern Paper and Packaging Operations and Distribution. The




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fair valueDistribution segment was added in 2015 in conjunction with the Victory acquisition. Regional paper and packaging reporting units make up our Paper and Packaging segment and the Distribution reporting unit is the same as the Distribution segment. Segment information is discussed further in Note 16, Segment Information, of the Notes to Consolidated Financial Statements. In 2015, we merged two reporting unit may be less than its carrying amount, we evaluateunits into one regional unit. Our impairment analysis was conducted both immediately before and immediately after the merger of reporting units to determine if impairment existed at either of the merged reporting units prior to the merger. This combination of reporting units had no impact on the allocation of goodwill using a two-step impairment test. Otherwise, we conclude that no impairment is indicated and we do not perform the two-step impairment test.to our segments.

        In conducting our goodwill impairment analysis, we use a qualitative assessment, the Company analyzes a variety of events or factors that may influence the fair value of the reporting unit, including, but not limited to: the results of prior quantitative tests performed; changes in the carrying amount of the reporting unit; actual and projected operating results; relevant market data for both the Company and its peer companies; industry outlooks; macroeconomic conditions; liquidity; changes in key personnel; and the Company's competitive position. Significant judgment is used to evaluate the totality of these events and factors to make the determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.

        If the qualitative assessment concludes that the two-step impairment test is necessary,process. First, we first compare the book value of a reporting unit, including goodwill, with its fair value. The fair value is estimated based on a market approach and a discounted cash flow analysis, also known as the income approach, and is reconciled back to the current market capitalization for the Company to ensure that the implied control premium is reasonable. If the book value of a reporting unit exceeds its fair value, we perform the second step to estimate an implied fair value of the reporting unit's goodwill by allocating the fair value offor the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The difference between the total fair value of the reporting unit and the fair value of all the assets and liabilities other than goodwill is the implied fair value of that goodwill. The amount of impairment loss is equal to the excess of the book value of the goodwill over the implied fair value of that goodwill.

Evaluating Goodwill—Results The initial step of our impairment test indicated no impairment, including our before and Significant Assumptions

        Based on the favorable resultsafter test of the qualitative assessment conducted as of October 1, 2014, there was no goodwill impairment charge recordedcombined reporting unit.

        The following assumptions are used in 2014.

        For our three reporting units our qualitative assessment included a review of the events and factors outlined above. Significant weight was provided to the following factors, as we determined that these items have the most significant impact oncalculating the fair value of this reporting unit.units:

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Market valuation—This factor best reflects a market participant viewCompany Business Projections.  The discounted cash flow model utilizes business projections that are developed internally by management for use in managing the business. These projections include assumptions for sales volume growth, price and mix changes, synergy benefits from acquisitions, inflation on costs and expenses, income taxes, and capital expenditures. Our forecasts take into consideration recent sales data for existing products, planned timing of the Company. The substantial increasecapital projects, and economic indicators to estimate future production volumes, selling prices, and key input costs for our manufactured products. Our pricing assumptions include an assessment of approximately $500 million from the prior year is directly attributable to the improved legacy performance, Longview integration,industry supply and is a positive indicator of no impairment.demand dynamics for our major products.



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Actual 2014 operating performance vs. expectations—Growth Rates.  A growth rate is used to calculate the Company's abilityterminal value in the discounted cash flow model. The growth rate is the expected rate at which earnings or revenue is projected to execute and deliver performancegrow beyond the forecast period. Growth rate assumptions were 2.5 percent to 3.0 percent in excess of projections during 2014 reflects management's ability to adapt to market conditions and deliver record operating results.our discounted cash flow models.



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Discount Rates.  Future cash flows are discounted at a rate that is consistent with a weighted average cost of capital for a potential market participant. The weighted average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise. The discount raterates selected are based on existing conditions within our industry and reflect adjustments for potential risk premiums in those markets as well as weighting of the market cost of equity versus debt. We used for the last performed quantitative assessment in 2012 was 10.5 percent. Since then the Company estimates that the discount rate has decreasedrates ranging from 9 percent to 9.012 percent in 2014 based on analysis prepared withdetermining the assistancediscounted cash flows for each of a third party. An overall decrease in the discount rate has a favorable impact to fair values of theour reporting units.



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Better expected future performance partially dueEBITDA Multiples.  The market approach requires the use of a valuation multiple to calculate the estimated fair value of a full year realizationreporting unit. We use an EBITDA multiple based on a selection of comparable companies and recent acquisition transactions within our industries to corroborate the value calculated in our discounted cash flow model.

        As of October 1, 2015, we determined that the fair values of our Western Paper and Packaging Operations and Eastern Paper and Packaging Operations reporting units were substantially in excess of the $50 per ton 2014 kraft paper selling price increasecarrying amount, and productivity improvementstherefore, no goodwill impairment existed. The fair value of our Distribution




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reporting unit at October 1, 2015 exceeded carrying value and was also slightly higher than the fair value on the June 1, 2015 acquisition date. As a result, the second step of the goodwill impairment test was not required to be completed.

        The estimates and assumptions we use are consistent with the business plans and estimates we use to manage operations and to make acquisition and divestiture decisions. The use of different assumptions could impact whether an impairment charge is required and, if so, the amount of such impairment. Future outcomes may also differ. If we fail to achieve estimated volume and pricing targets, experience unfavorable market conditions or achieve results that differ from our estimates, then revenue and cost forecasts may not be achieved, and we may be required to recognize impairment charges, which could have a significant noncash impact on our operating results and financial condition. We cannot predict the Company's 2014 strategic capital expenditures.

        Intangible assets acquired in a business combination or asset purchase are initially valued at the fair market value using generally accepted valuation methods appropriate for the type of the intangible asset. Definite-lived intangible assets are amortized over their estimated useful lives and are reviewed

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for impairment if indicators of impairment arise. The evaluation of the impairment is based upon a comparison of the carrying amount of the intangible asset to the estimated future undiscounted cash flows expected to be generated by the asset. If the estimated undiscounted future cash flows are less than the carrying amount of the assets, the asset is considered to be impaired. If impaired, the intangible asset is written down to estimated fair market value.

Pension and Postretirement Benefits

        The Company provides pension and postretirement benefits to certain employees and accounts for these benefits in accordance with ASC 715,Compensation—Retirement Benefits. For financial reporting purposes, long-term assumptions are developed through consultations with investment advisors and actuaries foractuaries. Such assumptions include the expected long-term rate of return on plan assets, discount rates, health care trend rates and mortality rates. ThereThe discount rate for the current year is based on long-term high quality bond rates. We describe these assumptions in Note 10 "Pension and Postretirement Benefits" of the Notes to Consolidated Financial Statements, which include, among others, the discount rate, expected long-term rate of return on plan assets and expected rates of increase in compensation levels. Although there is authoritative guidance on how to select most of these assumptions, however, management exercisesmust exercise judgment when decidingselecting these assumptions. We evaluate these assumptions with our actuarial advisors on the final assumptions used for valuation purposes. We evaluated the assumptions for the year ended December 31, 2014an annual basis and we believe they are within accepted industry ranges, although an increase or decrease in the assumptions or economic events outside our control could have a direct impact on future recorded obligations and reported net earnings. A summary of key assumptions for 2015, 2014 2013 and 20122013 is as follows:

        The measurement date for our plan is year-end as of December 31. Accordingly, at the end of each year;year, we determine the discount rate to be used to discount pension liabilities to its present value.

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This rate is adjusted to match the duration of the liabilities associated with the pension plan. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. The Company's estimate of its projected benefit obligation ("PBO") is highly dependent on changes in market interest rates. In estimating this rate at the end of 2014,2015, we reviewed rates of return on relevant market indices and concluded that the Fidelity Bond Modeler is consistent with observable market conditions and industry standards for developing spot rate curves. The impact of the change in market interest rates during 20142015 from the prior year resulted in a $66.3$31.0 million increasedecrease to our December 31, 2014 projected benefit obligation ("PBO")2015 PBO and was recorded through "Accumulated other comprehensive income / (loss)," a component of "Stockholders' Equity" in the Consolidated Balance Sheets.

        A significant element in determining our net periodic benefit income is the expected return on plan assets. For 2014,2015, we had assumed that the expected long-term rate of return on plan assets would be 6.986.50 percent, or $44.1$41.1 million. This expected return on plan assets is included in the net periodic benefit income for the year ended December 31, 2014.2015. As a result of the combined effect of valuation changes in market values of both the equity and bond markets,investments, the actual return on plan assets was approximately 5.8 percent, or $37.9$(21.5) million in 2014.2015, or (2.6) percent. More specifically, equities and certain fixed income credits came under pressure due to a multitude of macroeconomic factors, with the return seeking portfolio down 2.4 percent for the year, relative to a benchmark gain of 3.1 percent. While the return-seeking portfolio outperformed its policy benchmark, it lagged higher quality, domestic equity markets, with the S&P 500 one of the few sources of positive returns in 2015, returning +1.4 percent. The plan's equity allocation is globally diversified and seeks to achieve a return premium relative to global equities on a long-term basis. While this allocation will lead to short-term deviations from long-term return targets, it is constructed with the intent to achieve the plan's actuarial return total plan return of +6.5 percent over a long-term period.

        The long duration segment of the portfolio, which achieved its objective of mimicking the returns on the plan's liability, was also in negative territory for 2015, (2.6) percent, consistent with the gain experienced on the plan's liability. The plan also exited a 6 percent allocation to Real Assets mid-way through the year, which held back performance in the first six months of the year, but avoided the commodity-driven slide that occurred in the latter half of 2015.

        The difference between the expected return and the actual return on plan assets is reflected on the Consolidated Balance Sheets through charges to "Accumulated other comprehensive income / (loss)." As of December 31, 20142015 and 2013,2014, the fair value of plan assets is $593.1 million and $647.5 million, and $645.5 million, respectively.

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        In addition to the change from the prior year in discount rates,rate change, we adopted newupdated U.S. mortality tables in 20142015 for purposes of determining our mortality assumption used in the defined benefit plan's liability calculation. The new assumptions were based on the Society of Actuary'sActuaries recent mortality experience study and reflect future mortality improvement. Based on our experience and in consultation with our actuaries, we utilized a base RP-2014 with MP-2014MP-2015 projection scale and appropriate collar adjustments. In 2013,2014, we utilized the RP-2000RP-2014 mortality tables.tables with MP-2014 projection scale. The updated mortality assumption resulted in an increasea decrease to the projected benefit obligationPBO of $27.8$10.9 million as of the end of 20142015 and was recorded through "Accumulated other comprehensive income / loss," a component of "Stockholders' Equity" in the Consolidated Balance Sheets.

        As of December 31, 2014 and 2013, we determined the discount rate for our plan to be 4.24 percent and 5.11 percent, respectively, and used these rates to measure the PBO at the end of each respective year end. The decreaseincrease in the discount rate, the change to the updated mortality assumption, and overall plan experience has increaseddecreased the PBO by $91.5$41.4 million to $626.1 million as of December 31, 2015 from $669.2 million as of December 31, 2014 from $577.7 million as2014. As of December 31, 2013. The Plan's2015 and 2014, the plan's unfunded status was $32.9 million and $21.7 million, as of December 31, 2014 compared to a surplus of $67.8 million as of December, 31 2013.respectively.

        We recognized net periodic pension income of $6.5 million in 2015, compared to $5.0 million in 2014, compared to $1.3 million of net periodic pension expense in 2013.2014. For the year ended December 31, 2015,2016, we estimate net periodic pension incomeexpense to approximate $6.1$0.2 million, reflecting a discount rate of 4.244.66 percent, and an expected return on plan assets of 6.5 percent.percent and amortization of actuarial losses of $4.6 million.