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Rock-Tenn Posts Fiscal Second Quarter Results

April 28, 2008 - Rock-Tenn Company today reported earnings for the quarter ended March 31, 2008 of $0.45 per diluted share. The Companyís adjusted earnings were $0.66 per diluted share, excluding specific items related primarily to the Southern Container acquisition effective March 2, 2008, which represents a 16% increase over the prior year quarter adjusted earnings of $0.57 per diluted share.

Second Quarter Results

  • Net sales of $685.9 million for the second quarter of fiscal 2008 increased $100.2 million, or 17.1%, over the second quarter of fiscal 2007 due to increased net sales in each of our segments and the Southern Container acquisition.
  • Segment income was $57.2 million compared to $54.6 million in the prior year quarter, or an increase of 4.8% over the prior year quarter. Segment income, adjusted to eliminate the acquisition inventory step up discussed below, was $64.3 million, up 17.8% over the prior year quarter.
  • Income for the second quarter of fiscal 2008 was reduced by the acquisition bridge financing fee and write off of deferred financing fees of $4.9 million pre-tax, or $0.08 per diluted share after-tax, in connection with the Southern Container acquisition.
  • GAAP requires that an acquirer step up the value of the inventory acquired, which in the case of finished goods approximates selling price less cost to sell. This effectively eliminates the profit that the acquired company would have realized upon the sale of that inventory. For us, this write up reduced our income for the month of March 2008 by $7.1 million pre-tax, or $0.12 per diluted share after-tax, as the acquired inventory was sold and charged to cost of sales.
  • Rock-Tennís pre-tax restructuring and other costs were $0.8 million, or $0.01 per diluted share after-tax, for the second quarter of fiscal 2008 primarily related to Southern Container integration expenses of $1.1 million and deferred compensation expense funded into escrow by Southern Containerís stockholders of $0.7 million for key Southern Container employees that are to be paid one year after the acquisition closing. We must record deferred compensation expense for these payments under GAAP although we have no claim to the escrowed funds. The integration and deferred compensation expense was largely offset by a gain in fair value less cost to sell of a facility held for sale. Rock-Tennís pre-tax restructuring and other costs were $1.2 million, or $0.02 per diluted share after-tax, for the second quarter of fiscal 2007.

SEGMENT RESULTS

In the second quarter of fiscal 2008 we revised our segments to move our St. Paul, MN corrugated medium mill into our Corrugated Packaging segment. All segment information included in the financial statements presented has been reclassified to reflect this revision. We have included the results of Southern Containerís operations since the effective date of the acquisition in our Corrugated Packaging segment.

Consumer Packaging Segment

Consumer Packaging segment net sales were $336.0 million in the second quarter of fiscal 2008 compared to $312.8 million in the prior year quarter, due to higher unit pricing in the fiscal 2008 quarter and increased sales volumes of approximately 2%. Segment income increased $3.3 million over the prior year quarter to $16.4 million in the second quarter of fiscal 2008. Segment return on sales increased to 4.9% compared to 4.2% in the prior year quarter.

Paperboard and Containerboard Tons Shipped and Average Price

Total tons shipped in the second quarter of fiscal 2008 increased by 67,793 over the prior year quarter. We shipped 56,183 tons from the Solvay containerboard mill acquired in the Southern Container acquisition, and bleached paperboard and market pulp tons shipped increased 3.3% and 12.9%, respectively, over the prior year quarter to 84,916 and 27,837 tons. The average selling price for all paperboard and containerboard grades increased $16 per ton over the prior year quarter with higher paperboard pricing more than offsetting the effect of including the increased mix of lower priced containerboard.

Paperboard Segment

Paperboard segment net sales increased $23.3 million in the second quarter of fiscal 2008 from the prior year quarter to $233.7 million on higher selling prices and an increase in tons shipped. Average recycled fiber costs increased $30 per ton over the prior year quarter and energy increased $5 per ton of recycled paperboard. Higher paperboard pricing offset most of these cost increases resulting in slightly lower segment income of $22.2 million compared to $23.4 million in the prior year quarter.

Corrugated Packaging Segment

Corrugated Packaging segment net sales increased $52.6 million over the prior year quarter to $114.2 million in the second quarter of fiscal 2008. The increase in segment net sales is due to the 29 days we recorded for the Southern Container acquisition and higher volumes and pricing for corrugated sheet stock and packaging. Segment income was $4.9 million in the second quarter of fiscal 2008 and $5.9 million in the prior year quarter. Segment income in the second quarter of fiscal 2008 adjusted for the step up in inventory of $7.1 million pre-tax discussed above, was $12.0 million.

Merchandising Displays Segment

Merchandising Displays segment net sales increased $11.7 million, or 14.2%, over the prior year second quarter, to $94.3 million in the second quarter of fiscal 2008 on strong demand for promotional displays. Record segment income of $13.7 million was 12.3% higher than the prior year quarter.

Chairman and Chief Executive Officerís Statement

Rock-Tenn Company Chairman and Chief Executive Officer James A. Rubright stated, ďThe increase in Rock-Tennís sales and adjusted earnings in this challenging domestic economy demonstrates the resiliency of our food and consumer packaging focused businesses and the growth of our merchandising displays business. The very low cost positions we have achieved in coated recycled and bleached paperboard and containerboard continued to generate strong earnings and cash flow. Southern Containerís operations following the acquisition close exceeded our plan and increased adjusted earnings, as defined herein, by $.05 per share. Our merchandising displays business continued to grow, recording record sales and income during the quarter.Ē

Cash Provided By Operating Activities

Net cash provided by operating activities in the second quarter of fiscal 2008 was $12.7 million compared to $36.9 million in the prior year quarter. The decrease was primarily due to the use of funds for an increase in accounts receivable, an increase in our pension contributions compared to the prior year, and an increase in income taxes paid.

About Rock-Tenn Company

Rock-Tenn Company is one of North America's leading manufacturers of paperboard, containerboard, packaging and merchandising displays, with pro forma annual net sales of approximately $3.0 billion. The company operates locations in the United States, Canada, Mexico, Chilť and Argentina.

SOURCE: Rock-Tenn Company




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