Graphic Packaging Holding Company Reports Second Quarter 2010 Results

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Monday, 30 August 2010 22:51

Graphic Packaging Holding Company , a leading provider of packaging solutions to food, beverage and other consumer products companies, today reported a Net Loss for second quarter 2010 of $(32.8) million, or $(0.10) per share based upon 343.7 million weighted average shares. This compares to second quarter 2009 Net Income of $19.6 million, or $0.06 per share based upon 344.3 million weighted average diluted shares. Adjusted Net Income for the quarter, which excludes $46.6 million of charges associated with the combination with Altivity Packaging, LLC ("Altivity"), was $14.7 million, or $0.04 per diluted share. This compares to second quarter 2009 Adjusted Net Income of $4.8 million, or $0.01 per diluted share. Second quarter 2009 Adjusted Net Income excluded charges associated with the combination with Altivity as well as the Alternative Fuel Tax Credits Net of Expenses.

"Strong operating performance during the quarter offset the negative impacts of higher input costs and lower contractual pricing," said David W. Scheible, President and Chief Executive Officer. "Cost inflation has begun to moderate, however, particularly for secondary fiber and wood. We should also see year-over-year pricing turn positive in the second half of the year as our contracts reset to pass along inflation experienced in the second half of 2009. As a result, I expect to meet our full year targets as we realize these benefits and continue to execute on our continuous improvement initiatives."

Net Sales

Net sales decreased 0.7% to $1,036.5 million during second quarter 2010, compared to second quarter 2009 net sales of $1,043.8 million. The decline was the result of $12 million of lower pricing, partially offset by $3 million related to favorable volume/mix and $2 million related to favorable foreign currency exchange rates.

On a segment basis, in Paperboard Packaging, tons sold increased 1.0% but net sales declined 1.3% compared to the second quarter of 2009. The decline in net sales was driven by lower pricing primarily related to contractual deflationary pass-throughs. Net sales in the Multi-wall Bag and Specialty segments increased 2.6% as a 3.2% increase in volumes was partially offset by unfavorable mix and the divestiture of the Handschy ink business in 2009.

Attached is supplemental data showing second quarter 2010 net sales and net tons sold by each of the Company's business segments: Paperboard Packaging, Multi-wall Bag and Specialty Packaging.

EBITDA

EBITDA for the second quarter 2010 was $97.6 million. EBITDA was impacted by $46.6 million of charges associated with the combination with Altivity. The majority of these one-time charges relate to estimated multi-employer pension withdrawal liabilities and building write-downs of closed Altivity plants. All integration activities related to Altivity were completed as of the end of the second quarter. Excluding these charges and a $0.9 million Loss on Early Extinguishment of Debt, Adjusted EBITDA was $145.1 million. This compares to second quarter 2009 EBITDA of $162.5 million and Adjusted EBITDA of $147.7 million. When comparing against the prior year quarter, Adjusted EBITDA in the second quarter of 2010 was positively impacted by $35 million of improved operating performance and cost reduction initiatives. This was offset by $23 million of higher input cost inflation, $12 million of lower pricing and $3 million related to unfavorable foreign exchange rates.

Other Results

At the end of second quarter 2010, the Company's total debt was $2,765.7 million. The Company generated $125.9 million of Net Cash Provided by Operating Activities in the second quarter of 2010. This compares to $119.0 million in the second quarter of 2009, when excluding cash received from the Alternative Fuel Tax Credit. The Company had $171.6 million of Cash and Cash Equivalents and had not drawn on its $400 million revolving credit facility. The Company's net leverage ratio decreased to 4.56 times at the end of the second quarter 2010 from 5.65 times as of June 30, 2009.

Net interest expense was $45.0 million for second quarter 2010 as compared to net interest expense of $52.5 million in second quarter 2009. The decrease was primarily due to lower debt balances.
Second quarter 2010 income tax expense was $10.2 million, predominately attributable to the non- cash expense associated with the amortization of goodwill for tax purposes. The Company has a $1.3 billion net operating loss carry-forward which may be available to offset future taxable income in the United States.
Capital expenditures for second quarter 2010 were $21.5 million compared to $30.4 million in the second quarter of 2009 reflecting the higher level of capital expenditures last year as a result of integration activities.
Under the terms of its Credit Agreement, the Company must comply with a maximum consolidated secured leverage ratio. As of June 30, 2010, the Company's ratio was 2.89 to 1.00, in compliance with the required maximum ratio of 4.75 to 1.00. The calculation of this covenant, along with a tabular reconciliation of EBITDA, Adjusted EBITDA, Credit Agreement EBITDA, Adjusted Net Income (Loss), Net Leverage Ratio and Net Cash Provided by Operating Activities excluding Alternative Fuel Tax Credits are attached to this release.

Earnings Call

The Company will host a conference call at 8:30 am eastern time today (August 5, 2010) to discuss the results of the second quarter 2010. To access the conference call, listeners calling from within North America should dial 800-392-9489 at least 10 minutes prior to the start of the conference call (Conference ID# 85804255). Listeners may also access the audio webcast at the Investor Relations section of the Graphic Packaging website: http://www.graphicpkg.com. Replays of the call can be accessed for one week by dialing 800-642-1687.

Forward Looking Statements

Any statements of the Company's expectations in this press release constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements, including but not limited to, pricing, debt reduction and the availability of the Company's net operating loss to offset taxable income in the U.S., are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company's present expectations. These risks and uncertainties include, but are not limited to, the Company's substantial amount of debt, inflation of and volatility in raw material and energy costs, volatility in the credit and securities markets, cutbacks in consumer spending that could affect demand for the Company's products or actions taken by our customers in response to the difficult economic environment, continuing pressure for lower cost products, the Company's ability to implement its business strategies, including productivity initiatives and cost reduction plans, currency movements and other risks of conducting business internationally, and the impact of regulatory and litigation matters, including the continued availability of the Company's net operating loss offset to taxable income, and those that impact the Company's ability to protect and use its intellectual property. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements. Additional information regarding these and other risks is contained in the Company's periodic filings with the SEC.

About Graphic Packaging Holding Company

Graphic Packaging Holding Company (NYSE: GPK), headquartered in Marietta, Georgia, is a leading provider of packaging solutions for a wide variety of products to food, beverage and other consumer products companies. The Company is one of the largest producers of folding cartons and holds a leading market position in coated-recycled boxboard and specialty bag packaging. The Company's customers include some of the most widely recognized companies in the world. Additional information about Graphic Packaging, its business and its products, is available on the Company's web site at www.graphicpkg.com.