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Graphic Packaging Posts Second Quarter Loss on Costs, Pricing

Aug. 5, 2010 - Graphic Packaging Holding Company today reported a Net Loss for second quarter 2010 of $(32.8) million, or $(0.10) per share based upon 343.7 million weighted average shares. This compares to second quarter 2009 Net Income of $19.6 million, or $0.06 per share based upon 344.3 million weighted average diluted shares.

Adjusted Net Income for the quarter, which excludes $46.6 million of charges associated with the combination with Altivity Packaging, LLC ("Altivity"), was $14.7 million, or $0.04 per diluted share. This compares to second quarter 2009 Adjusted Net Income of $4.8 million, or $0.01 per diluted share. Second quarter 2009 Adjusted Net Income excluded charges associated with the combination with Altivity as well as the Alternative Fuel Tax Credits Net of Expenses.

"Strong operating performance during the quarter offset the negative impacts of higher input costs and lower contractual pricing," said David W. Scheible, President and Chief Executive Officer.

"Cost inflation has begun to moderate, however, particularly for secondary fiber and wood. We should also see year-over-year pricing turn positive in the second half of the year as our contracts reset to pass along inflation experienced in the second half of 2009. As a result, I expect to meet our full year targets as we realize these benefits and continue to execute on our continuous improvement initiatives," Scheible said.

Net Sales

Net sales decreased 0.7% to $1,036.5 million during second quarter 2010, compared to second quarter 2009 net sales of $1,043.8 million. The decline was the result of $12 million of lower pricing, partially offset by $3 million related to favorable volume/mix and $2 million related to favorable foreign currency exchange rates.

On a segment basis, in Paperboard Packaging, tons sold increased 1.0% but net sales declined 1.3% compared to the second quarter of 2009. The decline in net sales was driven by lower pricing primarily related to contractual deflationary pass-throughs. Net sales in the Multi-wall Bag and Specialty segments increased 2.6% as a 3.2% increase in volumes was partially offset by unfavorable mix and the divestiture of the Handschy ink business in 2009.

EBITDA

EBITDA for the second quarter 2010 was $97.6 million. EBITDA was impacted by $46.6 million of charges associated with the combination with Altivity. The majority of these one-time charges relate to estimated multi-employer pension withdrawal liabilities and building write-downs of closed Altivity plants. All integration activities related to Altivity were completed as of the end of the second quarter. Excluding these charges and a $0.9 million Loss on Early Extinguishment of Debt, Adjusted EBITDA was $145.1 million. This compares to second quarter 2009 EBITDA of $162.5 million and Adjusted EBITDA of $147.7 million. When comparing against the prior year quarter, Adjusted EBITDA in the second quarter of 2010 was positively impacted by $35 million of improved operating performance and cost reduction initiatives. This was offset by $23 million of higher input cost inflation, $12 million of lower pricing and $3 million related to unfavorable foreign exchange rates.

Other Results

At the end of second quarter 2010, the Company's total debt was $2,765.7 million. The Company generated $125.9 million of Net Cash Provided by Operating Activities in the second quarter of 2010. This compares to $119.0 million in the second quarter of 2009, when excluding cash received from the Alternative Fuel Tax Credit. The Company had $171.6 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 4.56 times at the end of the second quarter 2010 from 5.65 times as of June 30, 2009.

Net interest expense was $45.0 million for second quarter 2010 as compared to net interest expense of $52.5 million in second quarter 2009. The decrease was primarily due to lower debt balances.

Second quarter 2010 income tax expense was $10.2 million, 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 second quarter 2010 were $21.5 million compared to $30.4 million in the second quarter of 2009 reflecting the higher level of capital expenditures last year as a result of integration activities.

Under the terms of its Credit Agreement, the Company must comply with a maximum consolidated secured leverage ratio. As of June 30, 2010, the Company's ratio was 2.89 to 1.00, in compliance with the required maximum ratio of 4.75 to 1.00.

SOURCE: Graphic Packaging Holding Company




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