Business News

Graphic Packaging Holding Company Reports Second Quarter 2008 Results

Thursday 07. August 2008 - Net Loss and Adjusted Net Income were $(0.01) and $0.01 per share for second quarter of 2008 compared to a Net Loss of $(0.11) per share and a Pro Forma Net Loss of $(0.07) per share in the prior year quarter.

Second Quarter Highlights

– Net Loss and Adjusted Net Income were $(0.01) and $0.01 per share for second quarter of 2008 compared to a Net Loss of $(0.11) per share and a Pro Forma Net Loss of $(0.07) per share in the prior year quarter.

– EBITDA and Adjusted EBITDA were $129.0 million and $138.1 million for second quarter 2008 compared to EBITDA of $87.6 million and Pro Forma EBITDA of $130.4 million in the prior year quarter.

– Achieved annualized synergies in excess of $15 million. Expect to obtain $90 million target by 2010, earlier than 2012, as originally planned.

– Subsequent to quarter end, announced agreement to sell two coated- recycled board mills.

Graphic Packaging Holding Company (NYSE:GPK), a leading provider of packaging solutions to food, beverage and other consumer products companies, today reported a Net Loss for the second quarter 2008 of $(4.3) million, or $(0.01) per diluted share, based upon 342.9 million shares. Excluding charges associated with the combination with Altivity Packaging, LLC (“Altivity”), Adjusted Net Income was $4.8 million, or $0.01 per diluted share. This compares to a second quarter 2007 Net Loss of $(21.3) million, or $(0.11) per diluted share, based upon 201.8 million shares.

“We are pleased with our progress following the combination with Altivity as results improved for the quarter despite unprecedented rising costs for fiber, chemicals and energy,” said David W. Scheible, President and Chief Executive Officer. “Higher pricing, continuous improvement cost reductions and synergy achievement combined to more than offset inflation and drive an improvement over the prior year period.”

“The recent pullback in energy and energy related costs is certainly welcome, but we also have a series of action plans in place to combat higher costs. Our first priority is to ensure that the marketplace shares the inflationary costs we are experiencing. As a result, we are pushing hard to see that our recently announced price increases for both CUK and CRB are completely implemented including our new freight allowances with these customers. In concert with our board price moves, we continue to raise prices on our contracted folding carton products as negotiated price escalators reset.”

“In addition to driving price increases, we have expedited the timetable for achieving the previously announced $90 million in annualized synergies associated with the combination with Altivity. Specifically, by the end of the second quarter, we had reached annualized synergies in excess of $15 million and now expect to reach our $90 million target by 2010.”

Net Sales

Net sales increased 83.2% to $1,141.7 million during second quarter 2008, compared to second quarter 2007 net sales of $623.1 million. When comparing against the prior year quarter, net sales in the first quarter of 2008 were positively impacted by:

— $496 million from the inclusion of Altivity results;
— $14 million of favorable pricing; and
— $9 million of favorable foreign currency exchange rates.




Attached is supplemental data showing second quarter 2008 net sales and net tons sold by each of the Company’s business segments: Paperboard Packaging, Multi-wall Bag and Specialty Packaging. Pro forma net sales and pro forma net tons sold are also shown assuming the combination with Altivity occurred on January 1, 2007.

EBITDA

EBITDA for second quarter 2008 was $129.0 million. Excluding charges associated with the combination with Altivity, Adjusted EBITDA was $138.1 million. This compares to second quarter 2007 EBITDA of $87.6 million. When comparing against the prior year quarter, EBITDA was positively impacted by:

— $35 million from the inclusion of Altivity results;
— $14 million of favorable pricing;


— $20 million of lower operating costs as a result of ongoing continuous improvement programs and favorable performance;

— $11 million related to the change in fair value of an interest rate hedging contract which was assumed from Altivity; and

— $4 million from a lawsuit settlement.


EBITDA was negatively impacted by:



— $23 million of higher input costs primarily related to increased prices for fiber, chemicals and energy;

— $12 million related to a step-up in inventory basis to fair value as a result of the combination with Altivity; and

— $8 million of charges related to the combination with Altivity.


Other Results



At the end of the second quarter of 2008, the Company’s total debt was $3,108.2 million, representing a $46.5 million decrease from total debt of $3,154.7 million at the end of the first quarter 2008. Total debt was $1,968.4 million at the end of second quarter 2007. Approximately $1.2 billion of debt was assumed in the connection with the combination with Altivity. The Company has a $400 million revolving facility. As of June 30, 2008, the Company had available liquidity under this facility of $319.1 million.

Net interest expense was $57.1 million for second quarter 2008, as compared to net interest expense of $43.0 million in second quarter 2007. The increase was primarily due to the additional debt assumed in the combination with Altivity.

In the second quarter of 2008, the Company incurred $9.6 million of income tax expense, which was predominately attributable to the noncash expense associated with the amortization of goodwill for tax purposes. The Company has a $1.4 billion net operating loss that is available to offset future taxable income in the United States.

Capital expenditures for second quarter 2008 were $47.4 million compared to $22.8 million in the second quarter of 2007. Approximately $15.7 million of second quarter 2008 capital expenditures were related to the inclusion of Altivity results.

Under the terms of its Credit Agreement, as long as any commitment remains outstanding under the revolving credit facility, the Company must comply with a maximum consolidated secured leverage ratio. As of June 30, 2008, the Company’s ratio was 3.28 to 1.00, in compliance with the required maximum ratio of 5.25 to 1.00. The calculation of this covenant along with a tabular reconciliation of EBITDA, Adjusted EBITDA, Credit Agreement EBITDA and Adjusted Net Loss to Net Loss is attached to this release.

On July 10, 2008, the Company announced that it had signed an agreement with an affiliate of Sun Capital Partners, Inc. to sell two coated-recycled board (CRB) mills as required by the U.S. Department of Justice pursuant to the Consent Decree governing the combination of Graphic Packaging International, Inc. and Altivity in March 2008. The mills being sold are located in Philadelphia, Pennsylvania and Wabash, Indiana. The transaction is subject to review by the U.S. Department of Justice and other customary closing conditions.

Quarterly Pro Forma Comparisons

All pro forma results referenced in this release give effect to the combination with Altivity as if it had occurred on January 1, 2007. The pro forma information is not necessarily indicative of what the combined companies’ results of operations actually would have been if the combination had been completed on the date indicated.

— Second quarter 2008 Adjusted Net Income of $4.8 million or $0.01 per share compares to second quarter 2007 Pro Forma Net Loss of $(22.6) million or $(0.07) per share;

— Second quarter 2008 Net Sales of $1,141.7 were 2.3 percent higher than second quarter 2007 Pro Forma Net Sales of $1,115.9 million; and

— Second quarter 2008 Adjusted EBITDA of $138.1 million compares to second quarter 2007 Pro Forma EBITDA of $130.4 million.