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 |