Business News

Graphic Packaging Holding Company Reports Third Quarter 2008 Results

Wednesday 05. November 2008 - - Pro Forma Net Sales increased 3.3 percent over prior year quarter due to stronger volume and higher pricing. - EBITDA and Adjusted EBITDA were $123.9 million and $131.3 million compared to EBITDA of $78.8 million and Adjusted EBITDA of $104.0 million in the prior year quarter. - Achieved annualized synergies in excess of $25 million toward target of $90 million by 2010. - Closed sale of two coated-recycled board mills. Cash proceeds used to reduce debt.

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 third quarter 2008 of $(14.4) million, or $(0.04) per share, based upon 342.5 million shares. Excluding charges associated with the combination with Altivity Packaging, LLC (“Altivity”), Adjusted Net Loss was $(7.0) million, or $(0.02) per share. This compares to a third quarter 2007 Net Loss of $(13.9) million, or $(0.07) per share, and third quarter 2007 Adjusted Net Income of $11.3 million, or $0.05 per share based upon 202.1 million shares.

“The recent pullback in raw material prices was welcome but did not occur in time to benefit third quarter results as we experienced significantly higher costs for energy, chemicals, fiber and freight,” said David W. Scheible, President and Chief Executive Officer. “Higher pricing, continuous improvement cost reductions and synergy achievement offset some of the higher costs. I expect the decline in commodity prices to begin to benefit us in the fourth quarter.”

“Despite the slowing global economy, our pro forma sales increased more than 3.3 percent as volumes remained strong. We shipped approximately 30,000 more tons of paperboard packaging and multi-wall bags this quarter when comparing to the prior year period. When coupled with higher pricing in all of our segments, the top line grew at a healthy pace, especially in this uncertain economy.”

“The integration of the Altivity operations is progressing ahead of our original timeline. By the end of the third quarter we had achieved annualized synergies in excess of $25 million, well on our way to reaching the $90 million target by 2010.”

Net Sales

Net sales increased 90.4% to $1,165.7 million during third quarter 2008, compared to third quarter 2007 net sales of $612.1 million. When comparing against the prior year quarter, net sales in the third quarter of 2008 were positively impacted by:

— $522 million from the inclusion of Altivity results;
— $14 million of higher volume and favorable mix;
— $13 million of favorable pricing; and
— $5 million of favorable foreign currency exchange rates.




Attached is supplemental data showing third 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 third quarter 2008 was $123.9 million. Excluding charges associated with the combination with Altivity, Adjusted EBITDA was $131.3 million. This compares to third quarter 2007 EBITDA of $78.8 million and Adjusted EBITDA of $104.0. When comparing against the prior year quarter, Adjusted EBITDA was positively impacted by:

— $54 million from the inclusion of Altivity results;
— $14 million of lower operating costs as a result of ongoing continuous
improvement programs;
— $13 million of favorable pricing; and
— $4 million due to favorable volume and mix;


Adjusted EBITDA was negatively impacted by:



— $45 million of higher input costs primarily related to increased prices for energy, chemicals, caustic soda, fiber and freight;

— $8 million of higher manufacturing costs as a result of several weather related events including Hurricane Gustav and lower absorption of fixed overhead resulting from the temporary shutdown of the West Monroe, LA, #2 paper machine; and

— $5 million of unfavorable foreign currency translation.


Other Results


At the end of the third quarter of 2008, the Company’s total debt was $3,254.0 million compared to debt of $1,954.3 million at the end of third quarter 2007. Approximately $1.2 billion of debt was assumed in connection with the combination with Altivity. During the third quarter, the Company closed the sale of two of its coated-recycled board (CRB) mills and used cash proceeds of $21.1 million to reduce debt. At September 30, 2008, the Company had $214.7 million drawn from its $400 million revolving facility, $150 million of which was invested in short-term investments which were fully collateralized by U.S. Treasuries. In light of the unprecedented and continuing volatility in the credit and securities markets, the Company borrowed $150 million under its revolving credit facility and invested it in order to provide sufficient cash to meet liquidity needs in the foreseeable future. Including Cash and Cash Equivalents, as of September 30, 2008, the Company had available liquidity of $319.9 million.

Net interest expense was $57.4 million for third quarter 2008, as compared to net interest expense of $41.3 million in third quarter 2007. The increase was primarily due to the additional debt assumed in the combination with Altivity.

In the third quarter of 2008, the Company incurred $9.0 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 tax net operating loss carry-forward that is available to offset future taxable income in the United States.

Capital expenditures for third quarter 2008 were $43.1 million compared to $19.0 million in the third quarter of 2007. Approximately $6.5 million of third 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 September 30, 2008, the Company’s ratio was 3.58 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, Pro Forma Adjusted EBITDA, Pro Forma Net Sales, Credit Agreement EBITDA and Adjusted Net Loss to Net Loss is attached to this release.

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.

— Third quarter 2008 Pro Forma Adjusted Net Loss of $(7.0) million or $(0.02) per share compares to third quarter 2007 Pro Forma Net Income of $20.0 million or $0.05 per share;

— Third quarter 2008 Pro Forma Net Sales of $1,165.7 million were 3.3 percent higher than third quarter 2007 Pro Forma Net Sales of $1,129.0 million; and

— Third quarter 2008 Pro Forma Adjusted EBITDA of $131.3 million compares to third quarter 2007 Pro Forma Adjusted EBITDA of $158.8 million.