Business News

Graphic Packaging Holding Company Reports Second Quarter 2009 Results

Wednesday 05. August 2009 - Second Quarter Highlights -- Earnings per share were $0.06. Earnings include $55.3 million of alternative fuel tax credits, net of expenses and $40.5 million of one-time, non-recurring charges. -- Adjusted EBITDA margin increased to 14.2% from 12.7% in the first quarter 2009 and 12.2% in the prior year quarter. -- Reduced debt by $159.1 million during the quarter while maintaining strong cash position of $160.6 million.

— Tons sold increased 4.5% from the first quarter 2009.

Graphic Packaging Holding Company (NYSE: GPK), a leading provider of packaging solutions to food, beverage and other consumer products companies, today reported Net Income for the second quarter 2009 of $19.6 million, or $0.06 per share, based upon 343.0 million weighted average shares. Adjusted Net Income for the quarter, which excludes $55.3 million of alternative fuel tax credits, net of expenses and $40.5 million of one-time, non-recurring charges primarily associated with the combination with Altivity Packaging, LLC (“Altivity”), was $4.8 million, or $0.01 per share. This compares to a second quarter 2008 Net Loss of $(4.3) million, or $(0.01) per share and Adjusted Net Income of $4.8 million, or $0.01 per share.
“I am pleased with our strong performance in this difficult operating environment,” said David W. Scheible, President and Chief Executive Officer. “Total tons sold increased 4.5 percent from the first quarter, reflecting the recessionary resistant nature of our food and beverage packaging business. At the same time, our margins significantly expanded as input costs remained relatively low and we continued to recognize synergies from the Altivity combination and cost reductions from our continuous improvement programs. Our second quarter Adjusted EBITDA margin improved to 14.2 percent from 12.2 percent a year ago and 12.7 percent in first quarter 2009. This strong operating performance is resulting in substantial cash generation and net debt reduction. We have generated approximately $174 million of operating cash through the first six months of 2009 compared to $16 million over the same period last year.”
Net Sales
Second quarter 2009 net sales of $1,043.8 million increased 2.4% from first quarter net sales of $1,019.2 million and decreased 8.6% from second quarter 2008 net sales of $1,141.7 million. When comparing to the prior year quarter, net sales in the second quarter of 2009 were positively impacted by $8 million of favorable pricing and negatively impacted by:
— $78 million related to volume and mix;
— $18 million of lower sales related to the divestiture of the Wabash,
IN and the Philadelphia, PA paper mills; and

— $10 million due to unfavorable changes in foreign currency exchange
rates.
Attached is supplemental data showing second 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 and second quarter 2008 results for the two coated-recycled board mills divested in September 2008.


EBITDA
EBITDA for second quarter 2009 was $162.5 million. Excluding $55.3 million of alternative fuel tax credits, net of expenses, and $40.5 million of one-time, non-recurring charges primarily related to the combination with Altivity, Adjusted EBITDA was $147.7 million. This compares to first quarter 2009 Adjusted EBITDA of $129.9 million and second quarter 2008 Adjusted EBITDA of $139.3 million. When comparing against the prior year quarter, Adjusted EBITDA in the second quarter of 2009 was positively impacted by:
— $8 million of favorable pricing; and

— $21 million of favorable net performance driven by synergies and
continuous improvement cost reductions.

Second quarter Adjusted EBITDA was negatively impacted by:

— $14 million related to volume and mix; and

— $8 million of higher input costs primarily related to increased prices
for labor and benefits, external board and inks and coatings.

Other Results
At the end of the second quarter of 2009, the Company’s total debt was $3,068.3 million, or $159.1 million lower than debt of $3,227.4 million at the end of the first quarter 2009. Taking cash and cash equivalents into account, total Net Debt at the end of the second quarter 2009 was $2,907.7 million. This represents a reduction of $225.1 million in Net Debt since the combination with Altivity. In light of the unprecedented and continuing volatility in the credit and securities markets, the Company kept $144.1 million invested in short-term investments that are fully collateralized by U.S. Treasuries. Including Cash and Cash Equivalents, as of June 30, 2009, the Company had available liquidity of $496.0 million. At June 30, 2009, the Company had $16.5 million drawn from its $400 million revolving credit facility.
Net cash provided by operating activities was $174.1 million through the first six months of 2009, compared to $16.0 million during the same period last year. YTD 2009 operating cash flow includes $51.6 million of alternative fuel tax credits received. The alternative fuel tax credits are currently scheduled to expire on December 31, 2009.
Net interest expense was $52.5 million for first quarter 2009, as compared to net interest expense of $57.1 million in second quarter 2008. The decrease was primarily due to lower interest rates on the Company’s un-hedged floating rate debt. During the second quarter, the Company refinanced $225 million aggregate principal amount of its 8.5% senior unsecured notes due August 2011 by issuing $245 million aggregate principal amount of new 9.5% senior notes due June 2017. The additional $20 million of proceeds from the new notes was used to pay accrued interest on the 2011 notes, all fees and expenses incurred in connection with the new offering, and the cash tender offer and applicable early tender premiums for the 2011 notes.
Second quarter 2009 income tax expense was $10.1 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 second quarter 2009 were $30.4 million compared to $47.4 million in the second quarter of 2008. Capital expenditures were $66.4 million through the first six months of 2009 compared to $83.3 million over the same period last year.
Under the terms of its Credit Agreement, the Company must comply with a maximum consolidated secured leverage ratio. As of June 30, 2009, the Company’s ratio was 3.63 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 Income (Loss) to Net Income (Loss) is attached to this release.