Kapstone Paper & Packaging (KS) 10-Q 27 Apr 16 2016 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 22, 2016
Document and Entity Information
Entity Registrant Name	KAPSTONE PAPER & PACKAGING CORP
Entity Central Index Key	1,325,281
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		96,509,838
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q1

Consolidated Balance Sheets

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 7,084	$ 6,821
Trade accounts receivable (Includes $341,274 at March 31, 2016, and $345,372 at December 31, 2015, associated with the receivables credit facility)	372,038	363,869
Other receivables	17,274	18,732
Inventories	335,056	335,903
Prepaid expenses and other current assets	19,298	28,932
Total current assets	750,750	754,257
Plant, property and equipment, net	1,412,379	1,406,146
Other assets	9,298	12,532
Intangible assets, net	335,647	344,583
Goodwill	704,592	704,592
Total assets	3,212,666	3,222,110
Current liabilities:
Short-term borrowings	10,000	6,400
Dividend payable	9,859	9,862
Accounts payable	198,486	196,491
Accrued expenses	65,329	73,138
Accrued compensation costs	48,829	64,149
Accrued income taxes	1,544	15
Total current liabilities	334,047	350,055
Other liabilities:
Long-term debt (Includes $247,584 at March 31, 2016, and $265,614 at December 31, 2015, associated with the receivables credit facility)	1,523,961	1,543,748
Pension and postretirement benefits	39,235	40,510
Deferred income taxes	420,803	418,479
Other liabilities	39,099	24,038
Total other liabilities	2,023,098	2,026,775
Stockholders' equity:
Common stock-$0.0001 par value; 175,000,000 shares authorized; 96,505,133 shares issued and outstanding (excluding 40,000 treasury shares) at March 31, 2016 and 96,327,506 shares issued and outstanding (excluding 40,000 treasury shares) at December 31, 2015	10	10
Additional paid-in-capital	269,482	266,220
Retained earnings	648,768	642,306
Accumulated other comprehensive loss	(62,739)	(63,256)
Total stockholders' equity	855,521	845,280
Total liabilities and stockholders' equity	$ 3,212,666	$ 3,222,110

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2016	Dec. 31, 2015
Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	175,000,000	175,000,000
Common stock, shares issued	96,505,133	96,327,506
Common stock, shares outstanding	96,505,133	96,327,506
Treasury shares, shares outstanding	40,000	40,000

Consolidated Statements of Comp

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Consolidated Statements of Comprehensive Income
Net sales	$ 738,215	$ 546,289
Cost of sales, excluding depreciation and amortization	533,277	382,198
Depreciation and amortization	44,539	35,121
Freight and distribution expenses	65,059	43,427
Selling, general, and administrative expenses	60,740	38,194
Operating income	34,600	47,349
Foreign exchange loss	103	885
Interest expense, net	9,811	6,413
Income before provision for income taxes	24,686	40,051
Provision for income taxes	8,512	13,951
Net income	16,174	26,100
Pension and postretirement plan reclassification adjustments:
Amortization (accretion) of prior service costs	(104)	12
Amortization of net loss	621	191
Other comprehensive income, net of tax	517	203
Total comprehensive income	$ 16,691	$ 26,303
Weighted average number of shares outstanding:
Basic (in shares)	96,399,351	96,123,351
Diluted (in shares)	97,509,528	97,662,608
Net income per share:
Basic (in dollars per share)	$ 0.17	$ 0.27
Diluted (in dollars per share)	0.17	0.27
Dividends declared per common share	$ 0.10	$ 0.10

Consolidated Statements of Cash

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Operating activities
Net income	$ 16,174	$ 26,100
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense	35,603	31,705
Amortization of intangible assets	8,936	3,416
Stock-based compensation expense	3,421	3,780
Pension and postretirement	(448)	(2,892)
Excess tax (deficiency) / benefit from stock-based compensation	140	(1,391)
Amortization of debt issuance costs	1,124	1,007
(Gain) / loss on disposal of fixed assets	(62)	178
Deferred income taxes	1,064	1,864
Change in fair value of contingent consideration liability	1,526
Changes in assets and liabilities:
Trade accounts receivable, net	(8,169)	(26,695)
Other receivables	1,789	(946)
Inventories	847	(17,178)
Prepaid expenses and other current assets	8,007	(9,642)
Other assets		(216)
Accounts payable	7,936	(51)
Accrued expenses and other liabilities	(6,303)	(1,842)
Accrued compensation costs	(15,320)	(16,479)
Accrued income taxes	2,340	5,370
Net cash provided by (used in) operating activities	58,605	(3,912)
Investing activities
Purchase of intangible assets	(500)
Capital expenditures	(36,163)	(28,762)
Proceeds from the sale of assets	4,856
Net cash used in investing activities	(31,807)	(28,762)
Financing activities
Proceeds from revolving credit facility	134,600	86,400
Repayments on revolving credit facility	(131,000)	(76,400)
Proceeds from receivables credit facility	6,670	12,962
Repayments on receivables credit facility	(24,700)	(4,962)
Payment of loan amendment fees	(2,250)
Proceeds from other current borrowings		6,615
Cash dividend paid	(9,696)	(9,838)
Payment of withholding taxes on vested stock awards	(692)	(2,322)
Proceeds from exercises of stock options	209	491
Proceeds from shares issued to ESPP	464	415
Excess tax benefit from stock-based compensation		1,391
Excess tax deficiency from stock-based compensation	(140)
Net cash (used in) provided by financing activities	(26,535)	14,752
Net increase (decrease) in cash and cash equivalents	263	(17,922)
Cash and cash equivalents-beginning of period	6,821	28,467
Cash and cash equivalents-end of period	$ 7,084	$ 10,545

Financial Statements

Financial Statements	3 Months Ended
	Mar. 31, 2016
Financial Statements
Financial Statements	1. Financial Statements The accompanying unaudited consolidated financial statements of KapStone Paper and Packaging Corporation (the “Company,” “we,” “us,” “our” or “KapStone”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015. We report our operating results in two reportable segments: Paper and Packaging and Distribution. Our Paper and Packaging segment manufactures and sells a wide variety of container board, corrugated products and specialty paper for industrial and consumer markets. The Distribution segment was established June 1, 2015 concurrent with the acquisition of Victory Packaging. For more information about our segments, see Note 11, Segment Information. In these consolidated financial statements, certain amounts in prior periods’ consolidated financial statements have been reclassified to conform with the current period presentation. In accordance with Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” we recast 2015 segment information to conform with the current year presentation. For more information see Note 11, Segment Information. In addition, amortization of intangible assets is now separately identified in the Statement of Cash Flows and 2015 was recast to conform to the current year presentation. None of the reclassifications affected our results of operations, financial position, or cash flows.

Recent Accounting Pronouncement

Recent Accounting Pronouncements	3 Months Ended
	Mar. 31, 2016
Recent Accounting Pronouncements
Recent Accounting Pronouncements	2. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board ("FASB') issued Accounting Standards Update ("ASU") No. 2014-09 "Revenue from Contracts with Customers". The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The guidance in this update supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, "Revenue Recognition", and most industry-specific guidance throughout the Industry Topics of the Codification . Additionally, this update supersedes some cost guidance included in Subtopic 605-35, "Revenue Recognition-Construction-Type and Prod uction-Type Contracts". For a public entity, the amendments are effective for annual reporting periods beginni ng after December 15, 2016, including interim periods within that reporti ng period. In July 2015, the FASB approved a one-year deferral of the effective date for its new revenue standard for public and nonpublic entities reporting under GAAP. The standard will be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. Additionally the FASB approved the option to early adopt up to the original effective date (fiscal years beginning after December 15, 2016). We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our financial condition, results of operations and disclosures. In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. The Company has adopted ASU 2015-03 and it had no material impact on its financial statements. In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which is intended to simplify the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. Application of the standard, which should be applied prospectively, is required for the annual and interim periods beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2015-11 will have on our financial condition, results of operations and disclosures. In February 2016, the FASB issued ASU 2016-02 “Leases”. This guidance revises existing practice related to accounting for leases under Accounting Standards Codification Topic 840 Leases (ASC 840) for both lessees and lessors. The new guidance in ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). While the new standard maintains similar accounting for lessors as under ASC 840, the new standard reflects updates to, among other things, align with certain changes to the lessee model. The guidance is effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted for all entities. We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our financial condition, results of operations and disclosures. In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, which will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after 15 December 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2016-9 will have on our financial condition, results of operations and disclosures.

Planned Maintenance Outages

Planned Maintenance Outages	3 Months Ended
	Mar. 31, 2016
Planned Maintenance Outages
Planned Maintenance Outages	3. Planned Maintenance Outages Planned maintenance outage costs for the three months ended March 31, 2016 and 2015 totaled $6.6 million and $8.6 million, respectively, and are included in cost of sales.

Inventories

Inventories	3 Months Ended
	Mar. 31, 2016
Inventories
Inventories	4. Inventories Inventories consist of the following at March 31, 2016 and December 31, 2015, respectively: March 31, December 31, 2016 2015 Raw materials $ $ Work in process Finished goods Replacement parts and supplies Inventory at FIFO costs LIFO inventory reserves ) ) Inventories $ $

Short-term Borrowings and Long-

Short-term Borrowings and Long-term Debt	3 Months Ended
	Mar. 31, 2016
Short-term Borrowings and Long-term Debt
Short-term Borrowings and Long-term Debt	5. Short-term Borrowings and Long-term Debt KapStone and certain of our subsidiaries are parties to a Second Amended and Restated Credit Agreement dated June 1, 2015 (as amended from time to time, the “Credit Agreement”), which provided for a senior secured credit facility (the “Credit Facility”) of $1.915 billion, consisting of a Term Loan A-1 in the aggregate amount of $940 million and a Term Loan A-2 in the aggregate amount of $475 million and a $500 million revolving credit facility (the “Revolver”). The Credit Facility also includes an accordion feature that allows the Company subject to certain significant conditions, to obtain additional commitments from our existing or new lenders in an amount up to $600 million without further approvals of any existing lenders thereunder. On February 8, 2016, the Company entered into the First Amendment (“First Amendment”) to the Credit Agreement. The First Amendment modified, among other things, the financial covenant in the Credit Agreement related to maintenance of a maximum total leverage ratio by increasing the permitted total leverage ratio for fiscal quarters ending on or prior to June 30, 2018, and it modified certain defined terms used in the calculation of the financial covenants in a manner favorable to the Company. The First Amendment also modified 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 based on the total leverage ratio of the Company. The Company paid approximately $2.3 million of loan amendment fees associated with the First Amendment, which are being amortized over the term of the Credit Agreement using the effective interest method. Short-term Borrowings As of March 31, 2016, the Company had $10.0 million of short-term borrowings outstanding which bear interest at 4.25 percent under its Revolver. As of March 31, 2016, the Company has available borrowings of $472.9 million under the Revolver. Receivables Credit Facility Under our accounts receivable securitization program (the “Securitization Program”), we sell, on an ongoing basis without recourse, certain trade receivables to KapStone Receivables, LLC (“KAR”), which is considered a wholly-owned, bankruptcy-remote variable interest entity (“VIE”). The Company has the authority to direct the activities of the VIE and, as a result, we have concluded that we maintain control of the VIE, are the primary beneficiary (as defined by accounting guidance) and, therefore, consolidate the account balances of KAR. As of March 31, 2016, $341.3 million of our trade accounts receivables were sold to KAR. KAR in turn assigns a collateral interest in these receivables to a financial institution under a one-year $275 million facility (the “Receivables Credit Facility”) for proceeds of $247.6 million. The assets of KAR are not available to us until all obligations of KAR are satisfied in the event of bankruptcy or insolvency proceedings. Debt Covenants Our Credit Agreement governing our Credit Facility contains, among other provisions, covenants with which we must comply. The covenants limit our ability to, among other things, incur indebtedness, create additional liens on our assets, make investments, engage in mergers and acquisitions and sell any assets outside the normal course of business. As of March 31, 2016, the Company was in compliance with all applicable covenants in the Credit Agreement. Fair Value of Debt As of March 31, 2016, the fair value of the Company’s debt approximates the carrying value of $1.6 billion as the variable interest rates re-price frequently at current market rates. The debt was valued using Level 2 inputs in the fair value hierarchy which are significant observable inputs including quoted prices for debt of similar terms and maturities. Our weighted-average cost of borrowings was 2.08 percent and 1.82 percent for the three months ended March 31, 2016 and March 31, 2015, respectively.

Income Taxes

Income Taxes	3 Months Ended
	Mar. 31, 2016
Income Taxes
Income Taxes	6. Income Taxes The Company’s effective income tax rate for the three months ended March 31, 2016 and 2015 was 34.5 percent and 34.8 percent, respectively. Our tax rate is affected by recurring items such as state income taxes, as well as discrete items that may occur in any given period but are not consistent from period to period. In addition to state income taxes, the domestic manufacturing deduction had the most significant impact on the difference between our statutory U.S. federal income tax rate of 35 percent and our effective income tax rate for both periods. In the normal course of business, the Company is subject to examination by taxing authorities. The Company’s open federal tax years are 2013 and 2014. The Company has open tax years for state income tax filings generally starting in 2012.

Net Income per Share

Net Income per Share	3 Months Ended
	Mar. 31, 2016
Net Income per Share
Net Income per Share	7. Net Income per Share The Company’s basic and diluted net income per share is calculated as follows: Three Months Ended March 31, 2016 2015 Net income $ $ Weighted-average number of common shares for basic net income per share Incremental effect of dilutive common stock equivalents: Unexercised stock options Unvested restricted stock awards Weighted-average number of shares for diluted net income per share Net income per share - basic $ $ Net income per share - diluted $ $ Approximately 1,463,000 and 374,000 of unexercised stock options were outstanding at March 31, 2016 and 2015, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive.

Pension Plan and Post-Retiremen

Pension Plan and Post-Retirement Benefits	3 Months Ended
	Mar. 31, 2016
Pension Plan and Post-Retirement Benefits
Pension Plan and Post-Retirement Benefits	8. Pension Plan and Post-Retirement Benefits Defined Benefit Plan Net pension cost (benefit) recognized for the three months ended March 31, 2016 and 2015 for the Company’s defined benefit plan (the “Pension Plan”) is as follows: Three Months Ended March 31, 2016 2015 Service cost for benefits earned during the quarter $ $ Interest cost on projected benefit obligations Expected return on plan assets ) ) Amortization of net loss Amortization of prior service cost Net pension cost (benefit) - Company plan ) Net pension cost - multi -employer plan Total net pension cost (benefit) $ $ ) The Company currently does not anticipate making any Pension Plan contributions in 2016. This estimate is based on current tax laws, plan asset performance, and liability assumptions, which are subject to change. The Company provides postretirement health care insurance benefits through an indemnity plan and a health maintenance organization plan for certain salary and non-salary Longview employees and their dependents. The Company anticipates making contributions to its postretirement plans in 2016 as claims are submitted. Defined Contribution Plan We offer 401(k) Defined Contribution Plans (“Contribution Plans”) to eligible employees. The Company’s monthly contributions are based on the matching of certain employee contributions or based on a union negotiated formula. For the three months ended March 31, 2016 and 2015, the Company recognized expense of $3.6 million and $5.0 million, respectively, for the Company contributions to the Contribution Plans. In March 2016, the Company suspended contributions for certain employees. As a result, contributions were $2.2 million lower in the quarter ended March 31, 2016. This was partially offset by an increase of $0.8 million for Victory.

Stock-Based Compensation

Stock-Based Compensation	3 Months Ended
	Mar. 31, 2016
Stock-Based Compensation
Stock-Based Compensation	9. Stock-Based Compensation In the quarter ended March 31, 2016, the compensation committee of the board of directors approved stock-based awards to executive officers, certain employees, and directors. The 2016 awards consisted of the grant of 1,237,455 stock options, and 384,572 restricted stock units. The Company accounts for stock-based awards in accordance with ASC 718, “ Compensation — Stock Compensation ,” which requires that the cost resulting from all share-based payment transactions be recognized as compensation cost over the vesting period based on the fair value of the instrument on the date of grant. Total stock-based compensation expense related to the stock option and restricted stock unit grants for the three months ended March 31, 2016 and 2015 is as follows: Three Months Ended March 31, 2016 2015 Stock option compensation expense $ $ Restricted stock unit compensation expense Total stock-based compensation expense $ $ Total unrecognized stock-based compensation cost related to the stock options and restricted stock units as of March 31, 2016 and December 31, 2015 is as follows: March 31, December 31, 2016 2015 Unrecognized stock option compensation expense $ $ Unrecognized restricted stock unit compensation expense Total unrecognized stock-based compensation expense $ $ As of March 31, 2016, total unrecognized compensation cost related to non-vested stock options and restricted stock units is expected to be recognized over a weighted average period of 2.5 years and 2.4 years, respectively. Stock Options Stock option awards vest as follows: 50% after two years and the remaining 50% after three years or upon a grantee of such stock options attaining the age 65. The stock options awarded in 2016 have a contractual term of ten years and are subject to forfeiture should the recipient terminate his or her employment with the Company for certain reasons prior to vesting in his or her awards, or the occurrence of certain other events, such as termination with cause. The exercise price of these stock options is based on the average market price of our common stock on the date of grant ($12.72 for the 2016 awards described above) and compensation expense is recorded on an accelerated basis over the awards’ vesting periods. The weighted average fair value of the stock options granted in March 2016 and 2015 was $3.79 and $10.08, respectively. The fair value was calculated using the Black-Scholes option-pricing model based on the market price at the grant date and the weighted average assumptions specific to the underlying options. The expected term used by the Company is based on the historical average life of stock option awards. The expected volatility assumption is based on the volatility of our common stock from the same time period as the expected term of the stock options. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term similar to the expected life of the stock options. The expected dividend yield is calculated as the annual dividend per share amount divided by the average market price of the common stock on the date of the grant. The assumptions utilized for calculating the fair value of stock options during the period are as follows: Three Months Ended March 31, 2016 2015 KapStone Stock Options Black-Scholes assumptions (weighted average): Expected volatility % % Expected life (years) Risk-free interest rate % % Expected dividend yield % % The following table summarizes stock options amounts and activity: Weighted Weighted Intrinsic Average Average Value Exercise Remaining (dollars in Options Price Life (Years) thousands) Outstanding at January 1, 2016 $ Granted Exercised ) Lapsed (forfeited or cancelled) ) Outstanding at March 31, 2016 $ Exercisable at March 31, 2016 $ $ For the three months ended March 31, 2016 and 2015, cash proceeds from the exercise of stock options totaled $0.2 million and $0.5 million, respectively. Restricted Stock Restricted stock units are restricted as to transferability until they vest three years from the grant date or upon a grantee of such restricted stock units attaining the age 65. These restricted stock units are subject to forfeiture should applicable employees terminate their employment with the Company for certain reasons prior to vesting in their awards, or the occurrence of certain other events. The value of these restricted stock units is based on the closing market price of our common stock on the date of grant and compensation expense is recorded on a straight-line basis over the awards’ vesting periods. The following table summarizes unvested restricted stock units amounts and activity: Weighted Average Grant Units Price Outstanding at January 1, 2016 $ Granted Vested ) Forfeited ) Outstanding at March 31, 2016 $

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Mar. 31, 2016
Commitments and Contingencies
Commitments and Contingencies	10. Commitments and Contingencies Legal Claims 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 employment matters, personal injury claims, contractual 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. There have been no material changes in any of our legal proceedings for the three months ended March 31, 2016. Contingent Consideration The Company’s contingent consideration obligation relates to the Victory acquisition that was consummated on June 1, 2015 and is considered on Level 3 liability. The fair value of the obligation of $15.8 million and $13.3 million at March 31, 2016 and December 31, 2015, respectively, is driven by the probability of reaching the performance measures through December 1, 2017 required by the purchase agreement and the associated discount rate. The probability is estimated by reviewing financial forecasts and assessing the likelihood of reaching the required performance measures based on factors specific to the acquisition. The discount rate is determined by applying a risk premium to a risk-free interest rate. The total potential payout under this obligation is $25.0 million.

Segment Information

Segment Information	3 Months Ended
	Mar. 31, 2016
Segment Information
Segment Information	11. Segment Information Paper and Packaging: This segment manufactures and sells a wide variety of container board, corrugated products and specialty paper for industrial and consumer markets. Distribution: Through Victory, a North American distributor of packaging materials, and its approximately 70 distribution centers located in the United States, Mexico and Canada, the Company provides packaging materials and related products to a wide variety of customers. Each segment’s profits and losses are measured on operating profits before foreign exchange gains / (losses), net interest expense and income taxes. Net Sales Three Months Ended March 31, 2016 Trade Inter- segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Assets Paper and Packaging: Containerboard / Corrugated products $ $ $ Specialty paper — Other — Paper and Packaging $ $ $ $ $ $ $ Distribution — Corporate — — — ) Intersegment eliminations — ) ) — — — — $ $ — $ $ $ $ $ Net Sales Three Months Ended March 31, 2015 Trade Inter- segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Assets Paper and Packaging: Containerboard / Corrugated products $ $ — $ Specialty paper — Other — Paper and Packaging $ $ — $ $ $ $ $ Distribution — — — — — — — Corporate — — — ) Intersegment eliminations — — — — — — — $ $ — $ $ $ $ $

Subsequent Event

Subsequent Event	3 Months Ended
	Mar. 31, 2016
Subsequent Event.
Subsequent Event	12. Subsequent Event The Company’s paper mill in Roanoke Rapids, North Carolina began its annual planned maintenance outage on April 21, 2016. The outage is expected to last approximately 9 days with an estimated cost of $8.9 million primarily for maintenance, inspections, and the fixed cost impact associated with lost paper production of 12,600 tons.

Inventories (Tables)

Inventories (Tables)	3 Months Ended
	Mar. 31, 2016
Inventories
Schedule of Inventories	March 31, December 31, 2016 2015 Raw materials $ $ Work in process Finished goods Replacement parts and supplies Inventory at FIFO costs LIFO inventory reserves ) ) Inventories $ $

Net Income per Share (Tables)

Net Income per Share (Tables)	3 Months Ended
	Mar. 31, 2016
Net Income per Share
Schedule of basic and diluted net income per share	Three Months Ended March 31, 2016 2015 Net income $ $ Weighted-average number of common shares for basic net income per share Incremental effect of dilutive common stock equivalents: Unexercised stock options Unvested restricted stock awards Weighted-average number of shares for diluted net income per share Net income per share - basic $ $ Net income per share - diluted $ $

Pension Plan and Post-Retirem20

Pension Plan and Post-Retirement Benefits (Tables)	3 Months Ended
	Mar. 31, 2016
Pension Plan and Post-Retirement Benefits
Schedule of pension and other postretirement benefit (income)/costs	Three Months Ended March 31, 2016 2015 Service cost for benefits earned during the quarter $ $ Interest cost on projected benefit obligations Expected return on plan assets ) ) Amortization of net loss Amortization of prior service cost Net pension cost (benefit) - Company plan ) Net pension cost - multi -employer plan Total net pension cost (benefit) $ $ )

Stock-Based Compensation (Table

Stock-Based Compensation (Tables)	3 Months Ended
	Mar. 31, 2016
Stock-Based Compensation
Schedule of total stock-based compensation expense	Three Months Ended March 31, 2016 2015 Stock option compensation expense $ $ Restricted stock unit compensation expense Total stock-based compensation expense $ $
Schedule of total unrecognized stock-based compensation	March 31, December 31, 2016 2015 Unrecognized stock option compensation expense $ $ Unrecognized restricted stock unit compensation expense Total unrecognized stock-based compensation expense $ $
Schedule of the assumptions utilized for calculating the fair value of stock options	Three Months Ended March 31, 2016 2015 KapStone Stock Options Black-Scholes assumptions (weighted average): Expected volatility % % Expected life (years) Risk-free interest rate % % Expected dividend yield % %
Summary of stock options amounts and activity	Weighted Weighted Intrinsic Average Average Value Exercise Remaining (dollars in Options Price Life (Years) thousands) Outstanding at January 1, 2016 $ Granted Exercised ) Lapsed (forfeited or cancelled) ) Outstanding at March 31, 2016 $ Exercisable at March 31, 2016 $ $
Summary of unvested restricted stock units amounts and activity	Weighted Average Grant Units Price Outstanding at January 1, 2016 $ Granted Vested ) Forfeited ) Outstanding at March 31, 2016 $

Segment Information (Tables)

Segment Information (Tables)	3 Months Ended
	Mar. 31, 2016
Segment Information
Schedule of segment sales by product line	Net Sales Three Months Ended March 31, 2016 Trade Inter- segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Assets Paper and Packaging: Containerboard / Corrugated products $ $ $ Specialty paper — Other — Paper and Packaging $ $ $ $ $ $ $ Distribution — Corporate — — — ) Intersegment eliminations — ) ) — — — — $ $ — $ $ $ $ $ Net Sales Three Months Ended March 31, 2015 Trade Inter- segment Total Operating Income (Loss) Depreciation and Amortization Capital Expenditures Assets Paper and Packaging: Containerboard / Corrugated products $ $ — $ Specialty paper — Other — Paper and Packaging $ $ — $ $ $ $ $ Distribution — — — — — — — Corporate — — — ) Intersegment eliminations — — — — — — — $ $ — $ $ $ $ $

Financial Statements (Details)

Financial Statements (Details)	1 Months Ended
	Jun. 30, 2015segment
Financial Statements
Number of Reportable Segments	2

Planned Maintenance Outages (De

Planned Maintenance Outages (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cost of sales
Planned Maintenance Outage
Planned maintenance outage costs	$ 6.6	$ 8.6

Inventories (Details)

Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Inventories
Raw materials	$ 93,610	$ 101,250
Work in process	5,642	6,165
Finished goods	156,344	149,774
Replacement parts and supplies	80,559	79,717
Inventory at FIFO costs	336,155	336,906
LIFO inventory reserves	(1,099)	(1,003)
Inventories	$ 335,056	$ 335,903

Short-term Borrowings and Lon26

Short-term Borrowings and Long-term Debt - Second Amended and Restated Credit Agreement, Interest Rates (Details) $ in Millions	Jun. 01, 2015USD ($)
Credit Facility | Second Amended And Restated Credit Agreement
Short-term Borrowings and Long-term Debt
Maximum borrowing capacity	$ 1,915
Credit Facility | Term Loan A1
Short-term Borrowings and Long-term Debt
Maximum borrowing capacity	940
Credit Facility | Term Loan A2
Short-term Borrowings and Long-term Debt
Maximum borrowing capacity	475
Credit Facility | First Amendment To The Credit Agreement
Short-term Borrowings and Long-term Debt
Loan amendment fees	2.3
Revolver Credit Facility
Short-term Borrowings and Long-term Debt
Maximum borrowing capacity	500
Accordion maximum borrowing capacity	$ 600

Short-term Borrowings and Lon27

Short-term Borrowings and Long-term Debt - Short-term Borrowings (Details) - Revolver Credit Facility $ in Millions	Mar. 31, 2016USD ($)
Short-term borrowings
Current availability under borrowing base	$ 472.9
Second Amended And Restated Credit Agreement
Short-term borrowings
Short-term borrowings	$ 10
Line of credit interest rate (as a percent)	4.25%

Short-term Borrowings and Lon28

Short-term Borrowings and Long-term Debt - Receivables Credit Facility (Details) - Receivables Credit Facility - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Receivables Credit Facility
Trade accounts receivable	$ 341,274	$ 345,372
Term of debt instrument	1 year
Amount outstanding	$ 247,584	$ 265,614
Maximum
Receivables Credit Facility
Maximum borrowing capacity	$ 275,000

Short-term Borrowings and Lon29

Short-term Borrowings and Long-term Debt - Fair Value of Debt, Other Borrowing (Details) - USD ($) $ in Billions	Mar. 31, 2016	Mar. 31, 2015
Fair Value of Debt
Weighted average cost of borrowings	2.08%	1.82%
Level 2
Fair Value of Debt
Fair value of debt	$ 1.6

Income taxes (Details)

Income taxes (Details)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Income Taxes
Effective tax rate (as a percent)	34.50%	34.80%
Statutory income tax rate (as a percent)	35.00%	35.00%

Net income per share (Details)

Net income per share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Net Income per Share
Net income	$ 16,174	$ 26,100
Weighted-average number of common shares for basic net income per share	96,399,351	96,123,351
Incremental effect of dilutive common stock equivalents:
Unexercised stock options (in shares)	806,311	1,202,004
Unvested restricted stock awards (in shares)	303,866	337,253
Weighted-average number of shares for diluted net income per share	97,509,528	97,662,608
Net income per share - basic (in dollars per share)	$ 0.17	$ 0.27
Net income per share - diluted (in dollars per share)	$ 0.17	$ 0.27
Anti-dilutive unexercised stock options (in shares)	1,463,000	374,000

Pension Plan and Post-Retirem32

Pension Plan and Post-Retirement Benefits (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Net pension (benefit) / cost recognized for the Pension Plans
Service cost for benefits earned during the quarter	$ 1,125	$ 1,215
Interest cost on projected benefit obligations	7,079	6,900
Expected return on plan assets	(9,340)	(10,236)
Amortization of net loss	1,157	534
Amortization of prior service cost	24	69
Net pension cost (benefit) - Company plan	45	(1,518)
Net pension cost - multi-employer plan	88	87
Total net pension cost (benefit)	133	(1,431)
Defined Contribution Plan
Suspended contributions	2,200
Defined contribution plan expense recognized	3,600	$ 5,000
Victory Acquisition
Defined Contribution Plan
Contributions offset	$ 800

Stock-Based Compensation (Detai

Stock-Based Compensation (Details)	3 Months Ended
	Mar. 31, 2016shares
Stock Options
Stock-based compensation
Granted (in shares)	1,237,455
Restricted Stock Units
Stock-based compensation
Granted (in shares)	384,572

Stock-Based Compensation - Tota

Stock-Based Compensation - Total Non Cash Stock Based Compensation Expense Related to Stock Options and Restricted Stock (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Stock-based compensation
Stock-based compensation expense	$ 3,421	$ 3,780
Stock Options
Stock-based compensation
Stock-based compensation expense	1,789	1,950
Restricted Stock Units
Stock-based compensation
Stock-based compensation expense	$ 1,632	$ 1,830

Stock-Based Compensation - To35

Stock-Based Compensation - Total Unrecognized Stock Based Compensation Cost Related to the Stock Options and Restricted Stock (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Unrecognized stock-based compensation expense
Total unrecognized stock-based compensation expense	$ 15,125	$ 9,311
Restricted Stock Units
Unrecognized stock-based compensation expense
Unrecognized restricted stock unit compensation expense	$ 8,130	5,094
Weighted average period of recognition	2 years 4 months 24 days
Stock Options
Unrecognized stock-based compensation expense
Unrecognized stock option compensation expense	$ 6,995	$ 4,217
Weighted average period of recognition	2 years 6 months

Stock-Based Compensation - Stoc

Stock-Based Compensation - Stock Options (Details) - Stock Options - $ / shares	1 Months Ended		3 Months Ended
	May. 31, 2015	Mar. 31, 2014	Mar. 31, 2016
Stock Options
Minimum age requirement of grantee as a condition for vesting			65 years
Contractual term			10 years
Granted (in dollars per share)			$ 12.72
Weighted average fair value (in dollars per share)	$ 3.79	$ 10.08
Awards that vest after two years
Stock Options
Vesting period for awards			2 years
Percentage of granted awards that will vest			50.00%
Awards that vest after three years
Stock Options
Vesting period for awards			3 years
Percentage of granted awards that will vest			50.00%

Stock-Based Compensation - KapS

Stock-Based Compensation - KapStone Stock Options Black-Scholes Assumptions (Details)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Stock Options Black-Scholes assumptions (weighted average):
Expected volatility (as a percent)	43.61%	39.08%
Expected life	5 years 26 days	4 years 10 months 24 days
Risk-free interest rate (as a percent)	1.35%	1.35%
Expected dividend yield	3.14%	1.25%

Stock-Based Compensation - Summ

Stock-Based Compensation - Summary of Information Related to Stock Options (Details) - Stock Options - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Options
Outstanding at the beginning of the period (in shares)	3,265,900
Granted (in shares)	1,237,455
Exercised (in shares)	(45,932)
Lapsed (forfeited or cancelled) (in shares)	(13,030)
Outstanding at the end of the period (in shares)	4,444,393
Exercisable at the end of the period (in shares)	2,334,518
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 15.45
Granted (in dollars per share)	12.72
Exercised (in dollars per share)	8.23
Lapsed (forfeited or cancelled) (in dollars per share)	31.51
Outstanding at the end of the period (in dollars per share)	14.72
Exercisable at the end of the period (in dollars per share)	$ 10.05
Weighted Average Remaining Life (Years)
Outstanding at the end of the period	5 years 3 months 18 days
Intrinsic Value
Exercisable at the end of the period	$ 12,784
Additional information
Cash proceeds from exercises of options	$ 200	$ 500

Stock-Based Compensation - Rest

Stock-Based Compensation - Restricted Stock (Details) - Restricted Stock Units	3 Months Ended
	Mar. 31, 2016$ / sharesshares
Stock-based compensation
Vesting period for awards	3 years
Minimum age requirement of grantee as a condition for vesting	65 years
Units
Outstanding at the beginning of the period (in shares) | shares	550,009
Granted (in shares) | shares	384,572
Vested (in shares) | shares	(183,370)
Forfeited (in shares) | shares	(7,743)
Outstanding at the end of the period (in shares) | shares	743,468
Weighted Average Grant Date Fair Value
Outstanding at the beginning of the period (in dollars per share) | $ / shares	$ 24.60
Granted (in dollars per share) | $ / shares	12.72
Vested (in dollars per share) | $ / shares	13.83
Forfeited (in dollars per share) | $ / shares	30.16
Outstanding at the end of the period (in dollars per share) | $ / shares	$ 21.07

Commitments and Contingencies (

Commitments and Contingencies (Details) - Victory Acquisition - USD ($) $ in Millions	Mar. 31, 2016	Dec. 31, 2015
Contingent consideration
Total potential payout	$ 25
Level 3 liability
Contingent consideration
Fair value of the obligation	$ 15.8	$ 13.3

Segment Information (Details)

Segment Information (Details) $ in Thousands	1 Months Ended	3 Months Ended
	Jun. 30, 2015segmentitem	Mar. 31, 2016USD ($)	Mar. 31, 2015USD ($)	Dec. 31, 2015USD ($)
Segment information
Number of reportable segments | segment	2
Net Sales		$ 738,215	$ 546,289
Operating Income (Loss)		34,600	47,349
Depreciation and amortization		44,539	35,121
Capital Expenditures		36,163	28,762
Assets		3,212,666	2,587,675	$ 3,222,110
Operating Segment
Segment information
Net Sales		738,215	546,289
Intersegment
Segment information
Net Sales		(16,469)
Paper And Packaging
Segment information
Net Sales		520,040	546,289
Operating Income (Loss)		46,241	58,399
Depreciation and amortization		37,136	34,477
Capital Expenditures		32,355	26,250
Assets		2,501,605	2,544,235
Paper And Packaging | Operating Segment
Segment information
Net Sales		536,509	546,289
Paper And Packaging | Intersegment
Segment information
Net Sales		16,469
Distribution
Segment information
Net Sales		218,175
Operating Income (Loss)		1,381
Depreciation and amortization		5,661
Capital Expenditures		2,066
Assets		665,458
Distribution | Operating Segment
Segment information
Net Sales		218,175
Corporate
Segment information
Operating Income (Loss)		(13,022)	(11,050)
Depreciation and amortization		1,742	644
Capital Expenditures		1,742	2,512
Assets		45,603	43,440
Containerboard And Corrugated Products | Paper And Packaging
Segment information
Net Sales		324,290	344,311
Containerboard And Corrugated Products | Paper And Packaging | Operating Segment
Segment information
Net Sales		340,759	344,311
Containerboard And Corrugated Products | Paper And Packaging | Intersegment
Segment information
Net Sales		16,469
Specialty Paper | Paper And Packaging
Segment information
Net Sales		174,438	179,203
Specialty Paper | Paper And Packaging | Operating Segment
Segment information
Net Sales		174,438	179,203
Other Products | Paper And Packaging
Segment information
Net Sales		21,312	22,775
Other Products | Paper And Packaging | Operating Segment
Segment information
Net Sales		$ 21,312	$ 22,775
Victory Acquisition
Segment information
Number of distribution centers | item	70

Subsequent Event (Details)

Subsequent Event (Details) - Roanoke Rapids, North Carolina - Subsequent event $ in Millions	Apr. 21, 2016USD ($)T
Subsequent event
Period for which outage lasted	9 days
Planned maintenance outage costs | $	$ 8.9
Reduction in production (in tons) | T	12,600