Business News

Graphic Packaging Holding Company Reports First Quarter 2009 Results

Friday 08. May 2009 - -- Net sales of $1,019.2 million increased $294.9 million or 41% over the prior year quarter. -- Adjusted EBITDA was $129.9 million compared to Adjusted EBITDA of $99.6 million in the prior year quarter. -- Cash flow from operations was $1.9 million compared to $(75.2) million in the prior year quarter. -- Achieved Annualized synergies of $91.8 million related to the combination with Altivity Packaging, exceeding original goal of $90 million by the end of 2010.

First Quarter Highlights

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 first quarter 2009 of $(28.2) million, or $(0.08) per share, based upon 342.6 million weighted average shares. Adjusted Net Loss for the quarter, which excludes $14.9 million of charges primarily related to the combination with Altivity Packaging, LLC (“Altivity”), was $(13.3) million, or $(0.04) per share. This compares to a first quarter 2008 Net Loss of $(23.3) million, or $(0.10) per share and a first quarter 2008 Adjusted Net Loss of $(1.0) million, or $(0.00) per share based upon 234.5 million weighted average shares.
“Despite an ongoing difficult operating environment, I was pleased to see that sales to our core food and beverage packaging markets were down only 3% on a pro forma basis versus the prior year first quarter. This illustrates the relatively recession resistant nature of our business,” said David W. Scheible, President and Chief Executive Officer. “While our top line remains stable, we continue to push hard on both our synergy efforts and our cost cutting programs to improve margins. As a result, we saw our first quarter Pro Forma Adjusted EBITDA margin improve to 12.7 percent from 11.6 percent a year ago and from 9.8 percent in the fourth quarter 2008. Cost reductions from our continuous improvement programs coupled with synergy attainment from the Altivity combination more than offset raw material inflation this quarter. And, I’m pleased to announce that we have now exceeded our original synergy target of $90 million by the end of 2010, and will continue to realize integration benefits above and beyond this number.”
“We remain firmly committed to debt reduction and are seeing the benefits of improved margins and working capital initiatives. First quarter cash flow from operations was approximately $77 million favorable to the first quarter of 2008. Looking forward to the full year of 2009, we expect to comfortably exceed last year’s debt reduction and are currently targeting to reduce net debt by $170 to $200 million.”
Net Sales
Net sales increased 40.7% to $1,019.2 million during first quarter 2009, compared to first quarter 2008 net sales of $724.3 million. When comparing to the prior year quarter, net sales in the first quarter of 2009 were positively impacted by:
— $331 million from the inclusion of Altivity results; and

— $14 million of favorable pricing;


Net sales were negatively impacted by:
— $40 million related to volume and mix; and

— $10 million due to unfavorable foreign currency exchange rates;


Attached is supplemental data showing first quarter 2009 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, each assuming that the combination with Altivity occurred on January 1, 2008 and excluding first quarter 2008 results for the two coated recycled board mills divested in September 2008.
EBITDA
EBITDA for first quarter 2009 was $115.0 million. Excluding $14.9 million of charges primarily related to the combination with Altivity, Adjusted EBITDA was $129.9 million. This compares to first quarter 2008 EBITDA of $77.3 million and Adjusted EBITDA of $99.6 million. When comparing against the prior year quarter, Adjusted EBITDA in the first quarter of 2009 was positively impacted by:
— $35 million from the inclusion of Altivity results;
— $14 million of favorable pricing; and

— $14 million of lower operating costs as a result of ongoing continuous
improvement programs.


First quarter 2009 Adjusted EBITDA was negatively impacted by:

— $25 million of higher input costs primarily related to increased
prices for external board, chemicals, inks and coatings and labor and
benefits;
— $4 million related to volume and mix; and

— $3 million of lower fixed cost absorption primarily due to market
related downtime taken on the Company’s corrugated medium machine in
West Monroe, LA.


Other Results
At the end of the first quarter of 2009, the Company’s total debt was $3,227.4 million compared to debt of $3,154.7 million at the end of the first quarter 2008. At March 31, 2009, the Company had $186.5 million drawn from its $400 million revolving facility. In light of the unprecedented and continuing volatility in the credit and securities markets, as opposed to reducing debt, the Company kept $165.7 million invested in short-term investments that are fully collateralized by U.S. Treasuries. Including Cash and Cash Equivalents, as of March 31, 2009, the Company had available liquidity of $343.3 million.
Net interest expense was $52.2 million for first quarter 2009, as compared to net interest expense of $42.7 million in first quarter 2008. The increase was primarily due to the additional debt assumed in the combination with Altivity.
First quarter 2009 income tax expense was $9.3 million. This 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 carry-forward that is available to offset future taxable income in the United States.
Capital expenditures for first quarter 2009 were $36.0 million compared to $35.9 million in the first quarter of 2008. Approximately $6.4 million of first quarter 2009 capital expenditures were related to the inclusion of Altivity results.
Under the terms of its Credit Agreement, the Company must comply with a maximum consolidated secured leverage ratio. As of March 31, 2009, the Company’s ratio was 3.98 to 1.00, in compliance with the required maximum ratio of 5.00 to 1.00. The calculation of this covenant and the Company’s net debt 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, 2008 and exclude first quarter 2008 results for the two divested mills. 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.
— First quarter 2009 Pro Forma Net Loss of $(28.2) million or $(0.08)
per share compares to first quarter 2008 Pro Forma Net Loss of $(45.8)
million or $(0.13) per share.
— First quarter 2009 Pro Forma Net Sales of $1,019.2 million were 7.1
percent lower than first quarter 2008 Pro Forma Net Sales of $1,096.6
million.

— First quarter 2009 Pro Forma Adjusted EBITDA of $129.9 million
compares to first quarter 2008 Pro Forma Adjusted EBITDA of $127.6
million.