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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20172018

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to

Commission File Number: 001-33494

KapStone Paper and Packaging Corporation

(Exact Name of Registrant as Specified in its Charter)

KapStone Paper and Packaging Corporation

1101 Skokie Blvd., Suite 300

Northbrook, IL 60062

(Address of Principal Executive Offices including zip code)

Registrant’s Telephone Number, including area code (847) 239-8800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

There were 96,956,61897,950,763 shares of the Registrant’s Common Stock, $0.0001 par value, outstanding at October 19, 2017.17, 2018.

Table of Contents

KAPSTONE PAPER AND PACKAGING CORPORATION

Index to Form 10-Q

TABLE OF CONTENTS

i

Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. - FINANCIAL STATEMENTS

KAPSTONE PAPER AND PACKAGING CORPORATION

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

See notes to consolidated financial statements.

KAPSTONE PAPER AND PACKAGING CORPORATION

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

(unaudited)

See notes to consolidated financial statements.

KAPSTONE PAPER AND PACKAGING CORPORATION

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

See notes to consolidated financial statements.

KAPSTONE PAPER AND PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(unaudited)

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 nine months ended September 30, 20172018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2018. 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, 2016.2017, as updated in our Current Report on Form 8-K filed on May 4, 2018 (“May 8-K”).

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 containerboard, corrugated products and specialty paper for industrial and consumer markets. The Distribution segment, through Victory Packaging, L.P. (“Victory”), a North American distributor of packaging materials, with more than 60 distribution centers located in the United States, Mexico and Canada, provides packaging materials and related products to a wide variety of customers.  For more information about our segments, see Note 14, Segment Information.

In these consolidated financial statements, certain amounts in prior periods have been reclassified to conform to the current period presentation.  Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2017-07, “Compensation — Retirement Benefits”.  As discussed in our May 8-K, this reclassification did not affect the Company’s net income, earnings per share, financial position, or cash flows.

2.                                      Recently Adopted and New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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.  ASU 2015-11 was adopted during the interim period ended March 31, 2017, and it had no material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, which requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows 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 December 15, 2016, and interim periods within those fiscal years. ASU 2016-09 was adopted prospectively during the interim period ended March 31, 2017.  The adoption of this ASU decreased the Company’s provision for incomes taxes by $0.1 million for the three months ended September 30, 2017 and increased the Company’s provision for income taxes by $0.4 million for the nine months September 30, 2017.  The Company has elected to continue recognizing estimated forfeitures over the vesting term of the awards.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standard’s 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 Production-Type Contracts”. 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).  The Company did not elect to early adopt this standard.

We have completedEffective January 1, 2018, the diagnostic phaseCompany adopted the requirements of evaluating the overall impact of ASU 2014-09 as it relates to significant contracts and are currently evaluating non-significant contracts that may impact the Company’s financial position or results of operations in the aggregate.  The Company has determined that it will adopt this standard utilizingASC Topic 606, “Revenue from Contracts with Customers,” using the modified retrospective method, which will result inrequires the recognition of the cumulative effect of initially applying the standard (if any) as an adjustment to opening retained earnings for the fiscal year beginning January 1, 2018.  The adoption of ASC Topic 606 did not result in the recognition of a cumulative adjustment to opening retained earnings under the modified retrospective approach, nor did it have a material effect on the Company’s financial position or results of operations.  The adoption of this topic did result in the addition of required disclosures within the notes to the consolidated financial statements, as disclosed in Note 3, “Revenue”.

Our implementation team consistingconsisted of senior leadership from finance, legal, sales and operations continues to report itswith periodic progress reporting to management and to the audit committee of our board of directors ondirectors.  Implementation consisted of a periodic basis.  This team has continued to understand the impactreview of the standard on our revenueCompany’s significant contracts and is reviewing existing accounting practices to identify necessary changes to policies and procedures that will result from the applicationan evaluation of the new standard.  We have completed the significant contract review phase of the assessment and are assessing updates to our systems and control environment to support additional disclosures under the new standard.standard, as well as updates to policies and procedures.

During our assessment, the Company considered whether the adoption would require a transition from point-in-time revenue recognition to an over-time approach for products produced by the Company without an alternative use, which would result in acceleration of revenue. The Company concluded that based on its enforceable rights included in its contracts or prevailing terms and conditions, an enforceable right of payment that includes a reasonable profit throughout the duration of the contract does not exist. Therefore, the Company will remain at a point-in-time approach and record revenue at the point control transfers to the customer.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”, which clarifies the treatment of several cash flow categories. In addition, ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. Effective January 1, 2018, the Company adopted ASU 2016-15.  During the first quarter of 2018, the Company paid $20.7 million of contingent consideration to the former owners of Victory based on achieving certain financial performance criteria for the thirty month period following the acquisition of Victory. Accordingly, the portion of the cash payment up to the acquisition date fair value of the contingent consideration liability of $9.6 million was classified as a financing outflow, while the amounts paid in excess of the acquisition date fair value, or $11.1 million, was classified as an operating outflow in the Company’s Consolidated Statements of Cash Flows.

In March, 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715, Compensation—Retirement Benefits. The ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The ASU also allows only the service cost component to be eligible for capitalization when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset). Effective January 1, 2018, the Company adopted ASU 2017-07 applying the allowable practical expedient by using the amounts disclosed in the pension and other postretirement benefit plan footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements to the period presented.  This resulted in a $1.6 million and $4.7 million reclassification between cost of sales, excluding depreciation and amortization, and pension and postretirement income in the Company’s Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017, respectively.  This reclassification did not affect the Company’s net income, earnings per share, financial position, or cash flows.

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, “Leases”. This guidance revises existing practice related to accounting for leases under ASC Topic 840 Leases 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 standardit 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.

The Company does havehas a significant number of leases for both property and equipment. As such, the Company expects that there will be a material impact on our financial position and disclosures upon the adoption of ASU 2016-02. Our implementation team, consisting of senior leadership from finance, legal, IT and operations, reports its progress to management and to the audit committee of our board of directors on a

periodic basis. We have completed the process of abstracting data from known leases and have completed our procedures to validate and test the completeness and accuracy of this data.  We have also completed our evaluation of a stratified discount rate model and have begun implementing new and/or updated systems necessary to support additional disclosures under the new standard.  The Company will provide additional disclosure as the implementation progresses.

In AugustJune 2016, the FASB issued ASU 2016-15, “StatementNo. 2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Cash Flows: ClassificationCredit Losses on Financial Instruments. This standard replaces the incurred loss methodology previously employed to measure credit losses for most financial assets and requires the use of Certain Cash Receiptsa forward-looking expected loss model. Current accounting delays the recognition of credit losses until it is probable a loss has been incurred, while the update will require financial assets to be measured at amortized costs less a reserve and Cash Payments”, which clarifiesequal to the treatment of several cash flow categories. In addition, ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannotnet amount expected to be separated, classificationcollected. This standard will depend on the predominant source or use. This update isbe effective for annual periods beginning after December 15, 2017, and2019, including interim periods within those fiscal years, withthat reporting period, and early adoption permitted, including adoption in an interim period.application is permitted. The Company is currently evaluating the new guidance to determine the impact that the adoption of ASU 2016-15it will have on our cash flows and related disclosures.its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which amends the guidance in ASC Topic 350, “Intangibles-Goodwill and Other”. The ASU eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The ASU is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The ASU will be applied prospectively. The Company currently does not expect that the adoption of these provisions will have a material effect on our consolidated financial statements and related disclosures, but will simplify the measurement of any impairment loss should goodwill be impaired in the future.

In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business”, which amends the guidance in ASC Topic 805, “Business Combinations”. The ASU changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it is not met, the entity then evaluates whether the set meets the requirements that a business

include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The ASU defines an output as “the result of inputs and processes applied to those inputs that provide goods or services to customers, investment income (such as dividends or interest), or other revenues.” The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted.  The ASU will be applied prospectively to any transactions occurring within the period of adoption. The Company currently does not expect that the adoption of these provisions will have a material effect on our consolidated financial statements.

In March, 2017,February 2018, the FASB issued ASU No. 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). Under existing GAAP, the Presentationeffects of Net Periodic Pension Costchanges in tax rates and Net Periodic Postretirement Benefit Cost.” This ASU applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other typeslaws on deferred tax balances are recorded as a component of benefits accounted for under Topic 715, Compensation — Retirement Benefits. The ASU requires that an employer report the service cost componentincome tax expense in the same line item orperiod in which the law was enacted. When deferred tax balances related to items asoriginally recorded in accumulated other compensation costs arisingcomprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from services rendered by the pertinent employees during the period. Theaccumulated other components of net benefit cost are requiredcomprehensive income to be presented in the income statement separatelyretained earnings for stranded tax effects resulting from the service cost component2017 Tax Cuts and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items usedJobs Act. The amendments in the income statement to present the other components of net benefit cost must be disclosed. Thethis ASU also allows only the service cost component to be eligible for capitalization when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset). This ASUrequire certain disclosures about stranded tax effects. The guidance is effective for annual reporting periodsfiscal years beginning after December 15, 2017, including2018, and interim periods within those annual periods.fiscal years. Early adoption in any period is permitted aspermitted. The Company’s provisional adjustments recorded in 2017 to account for the impact of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance.2017 Tax Cuts and Jobs Act resulted in stranded tax effects. The Company is currently evaluating the effect thattiming and impact of adopting ASU No. 2017-072018-02.

In August 2018, the FASB issued ASU 2018-13, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The new guidance is effective for all entities for fiscal years beginning after December 2019 and for interim periods within those fiscal years. Early adoption is permitted.  The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements and related disclosures.statements.

3.                                      API AcquisitionRevenue

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On FebruaryJanuary 1, 2017,2018, the Company acquiredadopted ASC Topic 606 using the assetsmodified retrospective method applied to those contracts which were not completed as of Associated Packaging, Inc. and Fast Pak, LLC (together, “API”) with operations located in Greer, South Carolina for $33.5 million.January 1, 2018.  The acquisition was funded from borrowingsadoption of ASC Topic 606 did not have a material effect on the Company’s revolving credit facility (“Revolver”)financial position or results of operations.

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The table below disaggregates our external revenue by major source (in thousands).  API providesFor additional revenue detail relating to key Paper and Packaging product lines, see Note 14, Segment Information.

Paper and Packaging Revenue

Paper and Packaging includes containerboard, corrugated packagingproducts and digital production needs servingspecialty paper products manufactured at our facilities located in the United States.  Sales to customers are initiated through a diversepurchase order and are governed by our standard terms and conditions, written agreements or both.  Revenue is recognized when performance obligations under the terms of a contract with a customer base, includingare satisfied; generally, this occurs with the transfer of control of our products.  Transfer of control occurs at a specific point-in-time.  Based on the enforceable rights included in our contracts or prevailing terms and conditions, products produced by the Company without an emphasisalternative use are not protected by an enforceable right of payment that includes a reasonable profit throughout the duration of the contract.  Sales with terms f.o.b. (free on fulfillment and kitting forboard) shipping point are recognized at the automotive and consumer products industries. The Company has allocatedtime of shipment.  For sales transactions with terms f.o.b. destination, revenue is recorded when the purchase priceproduct is delivered to the assets acquired and liabilities assumed,customer’s site.  Consignment sales are recognized in revenue at the earlier of which $14.0 millionthe period that the goods are consumed or after a period of time subsequent to receipt by the customer as specified by contract terms, provided control of the promised goods or services has been allocated to intangible assets, $2.8 million to plant, property and equipment, $1.7 million to net working capital and $15.0 million to goodwill (which is deductible for tax purposes).  The purchase price allocation is final.transferred.

Transaction feesRevenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.  Sales, value add, and expensesother taxes we collect concurrent with revenue-producing activities are excluded from revenue.  Incidental items that are immaterial in the context of the contract are recognized as expense.  Certain customers may receive cash-based incentives (rebates or credits), which are accounted for as variable consideration.  We estimate these amounts based on the API acquisition relatedexpected amount to due diligence, advisorybe provided to customers and legal services have been expensed as incurred.  These expenses were $0.4 million forreduce revenues recognized.  For the three and nine month periodsmonths ended September 30, 2018 and 2017, respectively,paper and were recorded as selling, generalpackaging customer incentives totaled $6.1 million and administrative expenses in the Consolidated Statements of Comprehensive Income.

This acquisition further strengthens the Company’s goal of increasing mill integration.

Operating results of the acquisition since February 1, 2017 are included in the Company’s Paper and Packaging segment.  The Company’s consolidated statement of comprehensive income for$6.2 million, respectively.  For the nine months ended September 30, 2018 and 2017, paper and packaging customer incentives totaled $16.4 million and $19.7 million, respectively.  As of September 30, 2018 and 2017, a reserve for estimated unpaid rebates of $5.7 million and $6.0 million, respectively, is included in accrued expenses on the Company’s Consolidated Balance Sheets.

Upfront consideration paid to a customer associated with the execution of a master agreement (“prebate”) is capitalized and amortized as a reduction in transaction prices over the expected sales impacted by the agreement.  As of September 30, 2018, unamortized prebates totaled $0.7 million.  If we determined our obligations under a warranty claim are probable and subject to reasonable determination, an estimation of our liability is recorded as an offset against revenue at that time.  As of September 30, 2018 and 2017, reserves for warranty claims were not material. The adoption of ASC Topic 606 did not have a significant impact on our estimates for variable consideration.

Freight charged to customers is recognized in net sales.

Distribution Revenue

Our distribution operations distribute corrugated packaging materials and other specialty packaging products to customers in the United States, Canada and Mexico.  Sales to customers are initiated through a purchase order and are governed by standard terms and conditions, written agreements or both.

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of our products at a specific point-in-time.  While the distribution business makes wide use of stocking arrangements with customers to ensure consistent on-time

delivery, based on the enforceable rights included in our contracts or prevailing terms and conditions, products without an alternative use are not protected by an enforceable right of payment that includes $17.3a reasonable profit throughout the duration of the contract.  As such, revenue is recorded when the product is delivered to the customer’s site.  If goods are not purchased by a customer after a period of time specified by the contract terms, customers may be billed and goods are shipped.  Certain customers may request that Victory hold the goods after billing for an additional period specified in the contract terms. In such circumstances, the Company recognizes revenue as control of the goods transfers to the customer.  Consignment sales are recognized in revenue at the earlier of the period that the goods are consumed or after a period of time subsequent to receipt by the customer as specified by contract terms, provided control of the promised goods or services has transferred.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.  Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.  Incidental items that are immaterial in the context of the contract are recognized as expense.  Certain customers may receive cash-based incentives (rebates or credits), which are accounted for as variable consideration.  We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized.  For the three months ended September 30, 2018 and 2017, distribution customer incentives totaled $2.3 million and $2.7 million, respectively.  For the nine months ended September 30, 2018 and 2017, distribution customer incentives totaled $7.2 million and $8.0 million, respectively. As of September 30, 2018 and 2017, a reserve for estimated unpaid rebates of $3.4 million and $2.8 million, respectively, is included in accrued expenses on the Company’s Consolidated Balance Sheets.

Upfront consideration paid to a customer associated with the execution of a master agreement (“prebate”) is capitalized and amortized as a reduction in transaction prices over the expected sales impacted by the agreement.  As of September 30, 2018 and 2017, unamortized prebates totaled $3.2 million and $1.1 million, respectively.  If we determined our obligations under a warranty claim are probable and subject to reasonable determination, an estimation of our liability is recorded as an offset against revenue at that time.  As of September 30, 2018 and 2017, reserves for warranty claims were not material. The adoption of ASC Topic 606 did not have a significant impact on our estimates for variable consideration.

Freight charged to customers is recognized in net sales.

Other Revenue

Lumber — The Company generates revenue from the sale of lumber produced at its Summerville, South Carolina lumber mill.  Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the transfer of control of our lumber products upon delivery to the customer.  Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.  Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.  Incidental items that are immaterial in the context of the contract are recognized as expense.

Power — The Company generates revenue from power generation at its North Charleston and Longview Mills.  Power revenue at the North Charleston mill is recognized from the sale of shaft horsepower generated by a cogeneration facility.  The supply of shaft horsepower is recognized as revenue over-time as energy is produced and delivered (output measure).  Power revenue at the Longview mill is recognized from the sale of electricity and is recognized over time as electricity is generated and is delivered to the customer.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and $1.0administrative expense.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

4.Merger

On January 28, 2018, KapStone, WestRock Company (“WestRock”), Whiskey Holdco, Inc., a wholly-owned subsidiary of WestRock (“Holdco”), Kola Merger Sub, Inc., a wholly-owned subsidiary of Holdco (“KapStone Merger Sub”), and Whiskey Merger Sub, Inc., a wholly-owned subsidiary of Holdco (“WestRock Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the terms and conditions thereof, WestRock will acquire all of the outstanding shares of KapStone through a transaction in which: (i) WestRock Merger Sub will merge with and into WestRock, with WestRock surviving such merger (the “WestRock Merger”) as a wholly-owned subsidiary of Holdco and (ii) KapStone Merger Sub will merge with and into KapStone, with KapStone surviving such merger as a wholly-owned subsidiary of Holdco (the “Merger”).

Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the WestRock Merger and the Merger (the “Effective Time”): (i) each share of common stock, par value $0.0001 per share, of KapStone (the “KapStone Common Stock”) issued and outstanding immediately prior to the Effective Time (excluding any shares of KapStone Common Stock that are held (a) in treasury or (b) by any KapStone stockholder who is entitled to exercise, and properly exercises, appraisal rights with respect to such shares of KapStone Common Stock) will be converted into the right to receive, at the election of the stockholder (subject to proration as described below): (a) $35.00 in cash, without interest (the “Cash Consideration”), or (b) 0.4981 shares of common stock (the “Holdco Common Stock”), par value $0.01 per share, of Holdco (the “Stock Consideration” and, together with the Cash Consideration, the “Merger Consideration”); and (ii) each share of common stock, par value $0.01 per share, of WestRock issued and outstanding immediately prior to the Effective Time will be converted into one share of Holdco Common Stock.

KapStone stockholders were entitled to make an election to receive the Stock Consideration by submitting an election form by the previously announced election deadline on September 5, 2018. Any KapStone stockholder that did not make an election to receive the Stock Consideration will receive the Cash Consideration.

The completion of the Merger is subject to customary conditions, including, without limitation the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.  As of the date of this Quarterly Report on Form 10-Q, the parties have received all antitrust clearances that are a condition to the Merger other than Hart-Scott-Rodino clearance. The parties are targeting completing the Merger by the end of the calendar year 2018, subject to satisfaction or waiver of the closing conditions in the Merger Agreement.  It is possible that factors outside the control of KapStone or WestRock could result in the Merger being completed at a later time or not at all.

To assist the Company in its sale process, the Company retained two financial advisors to advise the board of directors and executive management and to render customary “fairness opinions” to the Company and the board of directors regarding the Merger Consideration to be paid upon consummation of the Merger.  As of September 30, 2018, the financial advisors had been paid $10.2 million in the aggregate for their services (paid in the first quarter of operating income from this acquired business.2018).  Upon consummation of the Merger, the Company is obligated to pay the two firms an additional $34.1 million in the aggregate.  For the three and nine months ended September 30, 2018, the Company incurred $4.6 million and $20.5 million, respectively, of Merger-related expenses in total.

In conjunctionconnection with the API acquisition,Merger, KapStone has entered into retention agreements or change in control severance agreements (“Severance Agreements”) with certain employees, and intends to enter into success bonus agreements with certain employees.  Payment under any such agreement is or will be contingent upon the Company signed a 25-year lease agreement with a total commitment of approximately $14.7 million.  The Company estimated the fair valueconsummation of the leaseMerger.  KapStone has entered into Severance Agreements with each of our non-director executive officers, each providing for severance payments in an amount equal to be $4.7a fixed amount not to exceed two times the sum of such executive officer’s annual base salary plus target bonus, as well as certain continuing health insurance benefits. The success bonus agreements have not been made final and remain subject to KapStone’s discretion (subject to a $3.0 million basedlimitation on an assessment ofaggregate success bonus payments for all KapStone employees pursuant to the market values of comparable properties.  The lease was capitalized as a long-term building asset and long-term liability as the present value of the payments is more than 90 percent of the fair value of the property.  Amortization of the asset under this capital lease obligation is included in depreciation expense.Merger Agreement).

4.5.                                      Plant Closure

On August 1, 2017, the Company approved and announced the closing of its Paper and Packaging segment box plant located in Oakland, California.  All operating activities ceased at this location in October 2017.  As of September 30, 2017,For the quarter ended March 31, 2018, the Company recorded additional charges of $6.0$0.9 million for

impaired property, plant and equipment, $1.1$0.6 million of other costs and $0.3 million for inventorythe dismantling of equipment, related to this plant closing.  No additional costs were incurred during the second quarter of 2018.

On February 1, 2018, the Company sold the land and $0.9building in Oakland, California for $14.7 million for severance associated with the plant closure.after fees, taxes and commissions and recorded a gain of $7.5 million.

5.6.                                      Planned Maintenance Outages

Planned maintenance outage costs for the three months ended September 30, 2018 and 2017 and 2016 totaled $13.0$9.2 million and $3.8$13.0 million, respectively, and are included in cost of sales.  The $9.2$3.8 million increasedecrease in planned maintenance outage costs for the quarter2018 is primarily due to planned outages at the Company’s North Charleston, South Carolina (“Charleston”)deferral of two projects into the fourth quarter of 2018, partially offset by the Longview, Washington’s cold mill outage. The cold mill outage lasted 4 days with a cost of $7.5 million and a lost paper mill.production of approximately 13,000 tons.

Planned maintenance outage costs for the nine months ended September 30, 2018 and 2017 and 2016 totaled $36.8$45.0 million and $29.4$36.8 million, respectively, and are included in cost of sales.  The $7.4$8.2 million increase in planned maintenance outage costs in 2018 is primarily due to planned outagesa boiler upgrade at the Company’sNorth Charleston, South Carolina paper mill.mill with a cost of $16.0 million and lost paper production of approximately 30,000 tons, partially offset by timing of other projects.

6.7.                                      Inventories

Inventories consist of the following at September 30, 20172018 and December 31, 2016,2017, respectively:

7.8.                                      Short-term Borrowings and Long-term Debt

Short-term Borrowings and Long-term Debt

As of September 30, 2017,2018, the Company had $2.5 million of short-term borrowingsno amounts outstanding under the Revolver, with a weighted average interest rate of 5.25 percent.

As of September 30, 2017, the Company has available borrowing capacity of $483.4its $500 million under the Revolver.

Other Borrowing

In January 2017, the Company entered into a short-term financing agreement of $6.2 million at an annual interest rate of 2.4 percent for its annual property insurance premiums.  The agreement requires the Company to pay three payments through the term of the financing agreement ending on December 31, 2017.  As of September 30, 2017, there was $2.1 million outstanding under the current agreement.

Long-term Debt

Long-term debt consists of the following at September 30, 2017 and December 31, 2016, respectively:

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 provides for a senior securedrevolving credit facility (the “Credit Facility”“Revolver”), and had borrowing availability 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 the Revolver. In addition, the Credit Facility also includes an uncommitted accordion feature that allows the Company, subject to certain significant conditions, to request additional commitments from our existing or new lenders under the Credit Facility without further approvals of any existing lenders thereunder. The aggregate amount of such increases in potential commitments (and potential borrowings) is limited to $600 million, unless the Company would maintain a pro forma total leverage ratio of 2.5 to 1.0 or less after giving effect to the increase in potential commitments (and potential borrowings).

In July 2017, the Company entered into the Third Amendment (“Third Amendment”) to the Credit Agreement. The Third Amendment modified 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 September 30, 2017, December 31, 2017 and March 31, 2018, and modified certain defined terms used in the calculation of the financial covenants in a manner favorable to the Company.

The Company paid approximately $1.3 million of loan amendment fees associated with the Third Amendment, which are being amortized over the remaining term of the Credit Agreement using the effective interest method.$484.4 million.

In September 2017,2018, the Company made a voluntary prepayment on its term loans under the Credit Facility of $75.0$75 million and, as a result, $0.6$0.5 million of unamortized debt issuance costs were written-off as a loss on debt extinguishment.

Other Borrowing

In January 2018, the Company entered into a short-term financing agreement of $6.8 million at an annual interest rate of 2.9 percent for its annual property insurance premiums.  The agreement requires the Company to make three payments through the term of the financing agreement ending on December 31, 2018.  As of September 30, 2018, there was $2.3 million outstanding under the current agreement.

Receivables Credit Facility

Effective as of June 1, 2017,2018, the Company entered into Amendment No. 34 to the Receivables Purchase Agreement (the “Amendment”) amending its Receivables Purchase Agreement dated as of September 26, 2014 (as amended from time to time, the “Receivables Purchase Agreement”), which is part of anour trade accounts receivable securitization program (the “Securitization Program”) of the Company and certain of its subsidiaries.

The Amendment included the following changes to the Receivables Purchase Agreement:

·                  the aggregate commitment of the Purchasers (as defined in the Receivables Purchase Agreement) under the Receivables Purchase Agreement was increased from $275.0 million to $325.0 million;

·extended the “Facility Termination Date” (as defined in the Receivables Purchase Agreement) was extended from June 6, 20171, 2018 to June 1, 2018; and

·                  certain definitions used to determine the maximum amount that may be outstanding under the Securitization Program were added or modified, as applicable, in a manner favorable to the Company.

The Company paid approximately $0.2 million of loan amendment fees associated with this Amendment, which are being amortized over the remaining term using the effective interest method.

On February 21, 2017, the Company entered into Amendment No. 3 to the Receivables Sale Agreement amending its Receivables Sale Agreement dated as of September 26, 2014, which is part of the Securitization Program. All accounts receivable purchased from API and all accounts receivable generated from facilities acquired from API that are not paid to an eligible bank account are designated as “Excluded Receivables”.May 31, 2019.

Under our Securitization Program, the Company and its subsidiaries that participate in the Securitization Program (the “Originators”) 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 September 30, 2017, $444.52018, $464.3 million of our trade accounts receivables were sold to KAR. KAR in turn assigns a collateral interest in these receivables to a group of financial institutions under a one-year $325 million facility (the “Receivables Credit Facility”) for proceeds of $317.8$315.0 million. The assets of KAR are not available to the Company until all obligations of KAR are satisfied in the event of bankruptcy or insolvency proceedings.

The Company included the Receivables Credit Facility in Long-term debt on the Consolidated Balance Sheets based on management’s intent to continue to refinance outstanding amounts under the Securitization Program until the maturity of the Term loan A-l which is June 1, 2020. Term loan A-1 and Term loan A-2 (with $611.9 million and $392.0 million outstanding as of September 30, 2018, respectively), together with the Revolver, comprise our credit facility (the “Credit Facility”) under our Second Amended and Restated Credit Agreement, as amended (the “Credit Agreement”). The Company also has the ability to refinance the short-term obligations under the Receivables Credit Facility on a long-term basis using its Revolver. Provided the Company complies with its covenants under the Credit Agreement, there are no additional requirements as to when borrowings under the Revolver would need to be repaid other than the maturity date of June 1, 2020.

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 September 30, 2017,2018, the Company was in compliance with all applicable covenants in the Credit Agreement.

Fair Value of Debt

As of September 30, 2017,2018, the fair value of the Company’s debt approximates the carrying value of $1.5$1.3 billion as the variable interest rates re-price frequently at current market rates. Our weighted-average cost of borrowings was 3.03.6 percent and 2.153.0 percent for the nine months ended September 30, 20172018 and 2016, respectively.

8.Long-term Financing Obligations

In 2015, the Company signed non-cancellable contracts with a third party to construct facilities to produce wood chips for the use at the Company’s Charleston and Roanoke Rapids paper mills for twenty years, with an annual purchase obligation of approximately $12.5 million.  The Company has evaluated these agreements and concluded that they represent in-substance leases under ASC 840, Leases.  In accordance with the special provisions discussed in ASC 840-40-55-15, language within the contracts result in the Company assuming a certain level of construction risk, and as such, we are considered the accounting owner of the assets during the construction period, even though these facilities are being constructed and financed entirely by the third party.  Accordingly, as the third-party incurs the construction project costs, the assets and corresponding financial obligation are recorded in plant, property and equipment, net and other liabilities in the Company’s consolidated balance sheets.

Upon completion of each project, the Company evaluates if the in-substance leases meet certain ‘sale-leaseback’ criteria under ASC 840.  If the contract does not meet such requirements, which is the expectation for each of these contracts, the amount recognized during the construction phase will be recorded as a financing liability.  Payments under the contract will then be allocated between a reduction of the lease obligation and interest expense, utilizing an imputed interest rate in accordance with ASC 840.

In June 2017, the Roanoke Rapids paper mill completed Phase I of this project and did not meet the ‘sale-leaseback’ criteria.  As such, $43.7 million is now reflected as a long-term financing obligation.

In September 2017, the Charleston paper mill completed this project and did not meet the ‘sale-leaseback’ criteria.  As such, $42.4 million is now reflected as a long-term financing obligation.

The Company incurred $1.5 million and $1.8 million of implicit interest expense on these long-term financing obligations for three and nine month periods ending September 30, 2017, respectively.

9.                                      Income Taxes

The Company’s effective income tax rate for the three and nine months ended September 30, 20172018 was 23.4 percent and 22.6 percent, respectively, compared to 33.3 percent and 34.4 percent, respectively, compared to 28.9 percent and 32.7 percent for the three and nine months ended September 30, 2016.2017, respectively.  The higher effective income tax rate in the three months ended September 30, 2017 is due to the state of Illinois enacting legislation increasing the corporate income tax rate as of July 1, 2017.  Accordingly the Company re-measured its deferred tax liabilities and recorded a charge of $0.5 million.

Cash taxes paid, net of refunds for the three and nine months ended September 30, 2018, is lower due to the 21 percent federal statutory tax rate beginning in 2018 instituted by the Tax Cuts and Jobs Act (the “Act”).

The Act, among other things, reduced the US federal corporate income tax rate from 35 percent to 21 percent and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The Act also created new taxes starting in 2018 on certain foreign sourced earnings. The Company applied the guidance in SAB 118 and at December 31, 2017 recorded provisional estimates to re-measure our deferred taxes using the new 21 percent rate ($144.7 million tax benefit) and to record an estimated transition tax ($0.3 million expense).

During the nine months ended September 30, 2018, we have not recorded any measurement period adjustments to the provisional estimates recorded at December 31, 2017. Final accounting for these impacts is expected in the fourth quarter of 2018, subsequent to the Company’s completion of 2017 tax returns.

Cash taxes, net of tax refunds, paid in the three and nine months ended September 30, 2018 were $19.7 million and $74.7 million, respectively, compared to $12.8 million and $40.3 million, respectively, compared to $6.6 million and $5.8 million for the three and nine months ended September 30, 2016,2017, respectively.

In the normal course of business, the Company is subject to examination by taxing authorities. The Company’s open federal tax years are 2014, 2015 and 2016. The Company has open tax years for state and foreign income tax filings generally starting in 2013.2014.

10.                               Net Income per Share

The Company’s basic and diluted net income per share for the three and nine months ended September 30, 20172018 and 20162017 is calculated as follows:

There were no anti-dilutive weighted average unexercised stock options outstanding for the three and nine month periods ended September 30, 2018.

A total of 1,604,202 and 1,105,4201,620,967 weighted average unexercised stock options were outstanding for the three month periods ended September 30, 2017 and 2016, respectively, but were not included in the computation of diluted net income per share because the awards were anti-dilutive.

A total of 1,620,967 and 1,809,906 weighted average unexercised stock options were outstanding for the nine month periods ended September 30, 2017, and 2016, respectively, but were not included in the computation of diluted net income per share because the awards were anti-dilutive.

11.                               Pension Plan and Post-Retirement Benefits

Defined Benefit Plans

Net pension cost (benefit)benefit recognized for the three and nine months ended September 30, 20172018 and 20162017 for the Company’s defined benefit plan (the “Pension Plan”) is as follows:

Effective January 1, 2018, the Company adopted ASU 2017-07.  The ASU requires that the service cost component be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of

income from operations.  As a result, $0.8 million and $2.3 million of service cost is included in cost of sales, excluding depreciation and amortization, for the three and nine months ended September 30, 2018.  $(2.8) million and $(8.5) million was recorded as pension and postretirement income in the Company’s Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018, respectively.  In addition, $(0.3) million and $(0.9) million was recorded as pension and postretirement income in the Company’s Consolidated Statements of Comprehensive Income related to the Company’s other postretirement benefits for the three and nine months ended September 30, 2018, respectively.

The adoption of this ASU retrospectively, utilizing the allowable practical expedient, resulted in a $(1.6) million and $(4.7) million reclassification between cost of sales, excluding depreciation and amortization, and pension income in the Company’s Consolidated Statements of Comprehensive Income for three and nine months ended September 30, 2017, respectively.

The Company currently does not anticipate making any Pension Plan contributions in 2017.2018. 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 for certain salary and non-salary employees of its subsidiary Longview Fibre Paper and Packaging, Inc. (“Longview”) subsidiary and their dependents.  The Company makes contributions to its postretirement plan as claims are submitted.

In March 2017, the union employees at the Charleston paper mill ratified new collective bargaining agreements which changed the defined pension benefit plan to a defined contribution plan for certain employees.  The overall impact on the Company’s Pension Plan is deemed immaterial.

In July 2017, the union employees at the Roanoke Rapids paper mill ratified a new 4 year collective bargaining agreement which puts in place a high deductible health care plan beginning January 1, 2018, and changes the defined pension benefit plan to a defined contribution plan for certain employees.  The overall impact on the Company’s Pension Plan is deemed immaterial.

Defined Contribution Plan

The Company offers 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 September 30, 20172018 and 2016,2017, the Company recognized expense of $6.4$6.7 million and $2.5$6.4 million, respectively, for matching contributions. For the nine months ended September 30, 20172018 and 2016,2017, the Company recognized expense of $18.6$21.2 million and $8.5$18.6 million, respectively, for matching contributions.

In 2017, the Company restored matching contributions to its Contribution Plans for certain employees that were previously suspended during 2016.  As a result, contributions were $3.9 million higher in the quarter ended September 30, 2017, and $10.1 million higher for the nine months ended September 30, 2017, compared to the same periods in 2016.

Multiemployer Pension Plan

In conjunction with the Company’s Longview and U.S. Corrugated acquisitions, we assumed participation in the GCIU-Employer Retirement Fund for approximately 300 hourly employees at four corrugated products manufacturing plants.  On October 31, 2016, the Company provided formal notification to the plan trustee of its withdrawal from the plan and cessation of plan contributions effective December 31, 2016.  Accordingly, the Company recorded an estimated withdrawal liability of approximately $6.4 million, based on annual payments of approximately $0.4 million over 20 years, discounted at a credit adjusted risk-free rate return of approximately 3.6 percent. This liability is based on an analysis of the facts available to management; however, the withdrawal liability will ultimately be determined by the plan trustee.

12.                               Stock-Based Compensation

The Company accounts for stock-based awards in accordance with ASC 718, “Compensation“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 and nine months ended September 30, 20172018 and 20162017 is as follows:

Total unrecognized stock-based compensation cost related to the stock options and restricted stock units as of September 30, 20172018 and December 31, 20162017 is as follows:

As of September 30, 2017,2018, 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 2.11.4 years and 2.02.1 years, respectively.

Stock Options

The following table summarizes stock options amounts and activity:

For the three and nine months ended September 30, 2018, cash proceeds from the exercise of stock options totaled $1.8 million and $8.9 million, respectively.  For the three and nine months ended September 30, 2017, cash proceeds from the exercise of stock options totaled $0.1 million and $1.0 million, respectively.  For the three and nine months ended September 30, 2016, cash proceeds from the exercise of stock options totaled $0.4 million and $0.8 million, respectively.

Restricted Stock Units

Restricted stock units for executive officers and certain employees are restricted as to transferability until they vest, generally vest three years from the grant date or upon a grantee of such restricted stock units attaining the age 65.65 and retiring from service with the Company. Restricted stock units forgranted to directors are restricted as to transferability until theyduring 2017 and thereafter generally vest one year from the grant date or upon a grantee of such restricted stock units attaining the age of 65.65 and retiring from service with the Company.  Restricted stock units granted to directors prior to 2017 generally vest three years from the grant date.  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 average 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.

In accordance with the Merger Agreement, employees whose employment is terminated without “cause” or who resign their employment for “good reason” after consummation of the Merger will have their unvested options and RSUs (other than their 2018 annual equity grants) immediately vest in full as of the date of such termination or resignation. With respect to KapStone’s 2018 annual equity grants (which consisted entirely of RSUs), two-thirds of each award would automatically vest upon termination of the award holder’s employment without “cause” or resignation for “good reason” after consummation of the Merger, and the remainder would be forfeited upon any termination of employment prior to the normal vesting date. These automatic vesting provisions will apply indefinitely after consummation of the Merger and are not subject to a limited duration protection period. The 2018 grants also include the retirement-related vesting provisions included in past KapStone grants.

The following table summarizes unvested restricted stock units amounts and activity: