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Graphic Packaging Holding Co. reports slightly lower Q3 sales, remain optimistic

Monday, November 08, 2010

Press release from the issuing company

Marietta, Ga. - Graphic Packaging Holding Company, a leading provider of packaging solutions to food, beverage and other consumer products companies, today reported Net Income for third quarter 2010 of $17.6 million, or $0.05 per diluted share based upon 347.2 million weighted average diluted shares.  This compares to third quarter 2009 Net Income of $33.2 million, or $0.10 per diluted share based upon 344.9 million weighted average diluted shares.  Adjusted Net Income for the quarter, which excludes a $6.5 million charge associated with the Loss on Modification or Extinguishment of Debt, was $24.1 million, or $0.07 per diluted share.  This compares to third quarter 2009 Adjusted Net Income of $10.3 million, or $0.03 per diluted share.  Third quarter 2009 Adjusted Net Income excluded Charges Associated with the Combination with Altivity, Loss on Modification or Extinguishment of Debt, as well as the Alternative Fuel Tax Credits Net of Expenses.

"Market conditions in the second half of 2010 remain challenging as consumers tightly manage spending even for food and beverage items," said David W. Scheible, President and Chief Executive Officer.  "We felt most of the demand sluggishness early in third quarter, however, and saw some positive volume signs later in the quarter as the order book picked up in September and into the fourth quarter.  Despite the challenging market environment, our margins improved sequentially over Q2 2010 as we cycled through our contractual price give backs and began to recognize price increases related to 2010 input inflation. We also achieved over $36 million in cost reductions and improved operating performance in both the mills and converting operations.  In addition, cash flow generation was solid and we improved our capital structure with the successful refinancing of a portion our 2013 notes."  

Net Sales

Net sales decreased 1.1% to $1,042.8 million during third quarter 2010, compared to third quarter 2009 net sales of $1,054.2 million.  The $11.4 million decline resulted from $25.2 million of unfavorable volume/mix, partially offset by $13.6 million of favorable pricing.

On a segment basis, in Paperboard Packaging, tons sold decreased 1.5% to 646,000 tons from 655,900 tons, and net sales declined 1.5% to $873.3 million compared to $886.2 million in third quarter 2009.  The decline in net sales was driven by lower volume related to soft market demand in beverage and some categories of consumer packaging.  Combined net sales in the Multi-wall Bag and Specialty segments increased 0.9% to $169.5 million from $168.0 million in third quarter 2009 as a 1.7% decrease in volume was more than offset by favorable pricing.  

Attached is supplemental data showing third 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 third quarter 2010 was $144.8 million.  EBITDA was impacted by a $6.5 million Loss on Modification or Extinguishment of Debt. Excluding this charge, Adjusted EBITDA was $151.3 million.  This compares to third quarter 2009 EBITDA of $178.0 million and Adjusted EBITDA of $155.1 million.  When comparing against the prior year quarter, Adjusted EBITDA in the third quarter 2010 was negatively impacted by $52.0 million of input cost inflation and $3.6 million of unfavorable volume/mix.  This was partially offset by $36.4 million of improved operating performance and cost reduction initiatives, $13.6 million favorable pricing and $1.8 million from favorable foreign exchange rates.  

Other Results

At the end of third quarter 2010, the Company's total debt was $2,725.7 million.  The Company generated $73.4 million of Net Cash Provided by Operating Activities in the third quarter of 2010. This compares to $103.0 million in third quarter 2009, when excluding cash received from the Alternative Fuel Tax Credit.  At September 30, 2010, the Company had $166.3 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 4.53 times Adjusted EBITDA at the end of third quarter 2010 from 5.20 times Adjusted EBITDA as of September 30, 2009.  

Net interest expense was $44.0 million for third quarter 2010 as compared to net interest expense of $53.3 million in third quarter 2009.  The decrease was due to both lower debt balances and lower overall interest rates.

Third quarter 2010 income tax expense was $11.0 million compared to $10.3 million of income tax in third quarter 2009, both 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 third quarter 2010 were $34.2 million compared to $29.9 million in third quarter 2009.  The year over year increase was primarily the result of timing, as the Company's 2010 capital spending is weighted to the second half of the year.  On a year-to-date basis, capital expenditures were $73.9 million through September compared to $96.3 million over the same period in 2009.

Under the terms of its Credit Agreement, the Company must comply with a maximum consolidated secured leverage ratio.  As of September 30, 2010, the Company's secured leverage ratio was 2.95 to 1.00, in compliance with the required maximum ratio of 4.75 to 1.00.  The calculation of this ratio, along with a tabular reconciliation of EBITDA, Adjusted EBITDA, Credit Agreement EBITDA, Adjusted Net Income, Net Leverage Ratio and Net Cash Provided by Operating Activities excluding Alternative Fuel Tax Credits are attached to this release.

 

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