Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - GRAPHIC PACKAGING HOLDING CO | g27753e8vk.htm |
Exhibit 99.1
Investor Contact: Brad Ankerholz
Graphic Packaging Holding Company
770-644-3062
Graphic Packaging Holding Company
770-644-3062
Graphic Packaging Holding Company Reports Second Quarter 2011 Results
Financial Highlights
| • | Q2 Adjusted Earnings per Share were $0.09 versus $0.04 in the prior year period. | ||
| • | Q2 Net Sales increased 4.3% versus the prior year period. | ||
| • | Q2 Adjusted EBITDA was $150.1 million versus $145.1 million in the prior year period. |
MARIETTA, GA, July 28, 2011. 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 second quarter 2011 of $32.1 million, or $0.08 per share based upon 384.5 million
weighted average diluted shares. This compares to a second quarter 2010 Net Loss of $(32.8)
million, or $(0.10) per share based on 343.7 million weighted average shares.
When adjusting for charges associated with the acquisition of Sierra Pacific Packaging, Inc.,
(“Sierra”) and a loss on modification or extinguishment of debt, second quarter Adjusted Net Income
was $34.6 million, or $0.09 per share. This compares to second quarter 2010 Adjusted Net Income of
$14.7 million, or $0.04 per share. Second quarter 2010 Adjusted Net Income excludes $46.6 million
of Charges Associated with the Combination with Altivity Packaging, LLC, (“Altivity”) and a loss on
modification or extinguishment of debt.
“We posted a solid quarter despite a difficult operating environment in our key end-use markets,”
said CEO David Scheible. “Our top line increased over 4% as we continued to recapture prior input
inflation through higher pricing. At the same time, our earnings more than doubled as higher
prices, strong operating performance and improvements in our cost structure more than offset input
cost inflation.”
“We continued to experience soft demand in some core end-markets like beer, soft drink and cereal.
Persistent high unemployment and higher fuel prices are forcing end consumers to continue to
tightly manage discretionary spending. Many of our key customers are also pushing product price to
recover input cost inflation. This is a market where trends are difficult to predict, but demand
improved as we moved into the third quarter.”
Net Sales
Net sales increased 4.3% to $1,080.7 million during second quarter 2011, compared to second quarter
2010 net sales of $1,036.5 million. The increase resulted from approximately $36 million of higher
pricing and $13 million of favorable exchange rates. This was
partially offset by approximately $4 million of lower volumes/mix.
On a segment basis, Paperboard Packaging sales, which comprised approximately 84% of total second
quarter net sales, increased 4.5% compared to the second quarter of 2010. The increase reflects
higher contractual pricing related to the recovery of prior input cost inflation and open market
board price increases. Net sales in the Flexible Packaging segment increased 2.8% versus the
second quarter of 2010. The increase was the result of higher pricing, partially offset by
continued softness in construction end-markets.
Attached
is supplemental data showing net sales and Income (Loss) from
Operations by business segment for the first
and second quarters of 2011 and each quarter of 2010.
2
EBITDA
EBITDA for second quarter 2011 was $147.6 million, compared to $97.6 million in the second quarter
of 2010. Excluding charges associated with the Sierra acquisition and a loss on modification or
extinguishment of debt, second quarter 2011 Adjusted EBITDA was $150.1 million, compared to second
quarter 2010 Adjusted EBITDA of $145.1 million. Second quarter
2010 Adjusted EBITDA excludes $46.6 million of charges associated with the combination with Altivity and a loss on modification or
extinguishment of debt.
Adjusted EBITDA in the second quarter of 2011 was positively impacted by approximately $36 million
of higher pricing, approximately $18 million of improved net operating performance and
approximately $3 million of favorable exchange rates/other. Second quarter 2011 EBITDA was
negatively impacted by approximately $44 million of cost inflation, approximately $6 million
related to market downtime taken in our converting facilities and approximately $2 million of lower
volumes/mix.
Other Results
Taking cash and cash equivalents into account, total Net Debt at the end of the second quarter 2011
was $2,246.6 million. This represents a reduction of $347.5 million in net debt since June 30,
2010. The Company’s Net Leverage Ratio decreased to 3.89 times Adjusted EBITDA at the end of the
second quarter 2011 from 4.56 times Adjusted EBITDA at June 30, 2010. At the end of the second
quarter 2011, the Company had available liquidity of $559.6 million including the undrawn
availability under its $400 million revolving credit facility.
Net Cash
Provided by Operations was $117.6 million in the six months
ended June 30, 2011, which compares to $95.6 million in the six months ended June 30, 2010.
3
Net interest expense was $36.6 million in the second quarter 2011 compared to $45.0 million in the
second quarter 2010. The decrease was due to both lower debt balances and lower interest rates.
Second quarter 2011 Income Tax Expense was $7.4 million compared to $10.2 million in the second
quarter of 2010. The reduction was primarily due to a portion of goodwill being fully amortized at
the end of 2010. The Company has a $1.2 billion net operating loss carry-forward which is
currently being used and may be available to offset future taxable income in the United States.
Capital expenditures for second quarter 2011 were $34.0 million compared to $21.5 million in the
second quarter of 2010. The increase was driven by additional
investments to improve process
capability and reduce costs.
Under the terms of its Credit Agreement, the Company must comply with a maximum consolidated
secured leverage ratio. As of June 30, 2011, the Company’s ratio was 2.49 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 and
Net Leverage Ratio, is attached to this release.
Earnings Call
The Company will host a conference call at 10:00 am eastern time today (July 28, 2011) to discuss
the results of second quarter 2011. To access the conference call, listeners calling from within
North America should dial 800-392-9489 at least 10 minutes prior to the start of the conference
call (Conference ID#80451463). Listeners may also access the audio webcast, along with a slide
presentation, at the Investor Relations section of the Graphic Packaging website:
http://www.graphicpkg.com. Replays of the call can be accessed for one week by dialing
800-642-1687.
4
Forward Looking Statements
Any statements of the Company’s expectations in this press release constitute “forward-looking
statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements,
including but not limited to, improved demand and availability of the Company’s net operating loss
to offset taxable income, are based on currently available information and are subject to various
risks and uncertainties that could cause actual results to differ materially from the Company’s
present expectations. These risks and uncertainties include, but are not limited to, the Company’s
substantial amount of debt, inflation of and volatility in raw material and energy costs, cutbacks
in consumer spending that could affect demand for the Company’s products or actions taken by our
customers in response to the difficult economic environment, continuing pressure for lower cost
products, the Company’s ability to implement its business strategies, including productivity
initiatives and cost reduction plans, currency movements and other risks of conducting business
internationally, volatility in the credit and securities markets and the impact of regulatory and
litigation matters, including those that could impact the Company’s ability to protect and use its intellectual
property. Undue reliance should not be placed on such forward-looking statements, as such
statements speak only as of the date on which they are made and the Company undertakes no
obligation to update such statements. Additional information regarding these and other risks is
contained in the Company’s periodic filings with the SEC.
About Graphic Packaging Holding Company
Graphic Packaging Holding Company (NYSE:GPK), headquartered in Marietta, Georgia, is a leading
provider of packaging solutions for a wide variety of products to food, beverage and other consumer
products companies. The Company is one of the largest producers of folding cartons and holds a
leading market position in coated-unbleached kraft, coated-recycled boxboard and specialty
packaging. The Company’s customers include some of the most widely recognized
5
companies in the world. Additional information about Graphic Packaging, its business and its
products, is available on the Company’s web site at www.graphicpkg.com.
6
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| In millions, except per share amounts | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net Sales |
$ | 1,080.7 | $ | 1,036.5 | $ | 2,081.3 | $ | 2,040.6 | ||||||||
Cost of Sales |
915.3 | 887.7 | 1,757.7 | 1,746.0 | ||||||||||||
Selling, General and Administrative |
90.4 | 78.4 | 179.9 | 155.8 | ||||||||||||
Other (Income) Expense, Net |
(1.3 | ) | 1.0 | (1.2 | ) | 1.3 | ||||||||||
Restructuring and Other Special Charges |
— | 46.6 | — | 55.1 | ||||||||||||
Income from Operations |
76.3 | 22.8 | 144.9 | 82.4 | ||||||||||||
Interest Expense, Net |
(36.6 | ) | (45.0 | ) | (75.9 | ) | (90.0 | ) | ||||||||
Loss on Modification or Extinguishment of Debt |
(0.8 | ) | (0.9 | ) | (0.8 | ) | (0.9 | ) | ||||||||
Income (Loss) before Income Taxes and Equity Income of
Unconsolidated Entities |
38.9 | (23.1 | ) | 68.2 | (8.5 | ) | ||||||||||
Income Tax Expense |
(7.4 | ) | (10.2 | ) | (10.3 | ) | (18.8 | ) | ||||||||
Income (Loss) before Equity Income of Unconsolidated Entities |
31.5 | (33.3 | ) | 57.9 | (27.3 | ) | ||||||||||
Equity Income of Unconsolidated Entities |
0.6 | 0.5 | 0.9 | 0.8 | ||||||||||||
Net Income (Loss) |
$ | 32.1 | $ | (32.8 | ) | $ | 58.8 | $ | (26.5 | ) | ||||||
Income (Loss) Per Share — Basic |
$ | 0.08 | $ | (0.10 | ) | $ | 0.16 | $ | (0.08 | ) | ||||||
Income (Loss) Per Share — Diluted |
$ | 0.08 | $ | (0.10 | ) | $ | 0.16 | $ | (0.08 | ) | ||||||
Weighted Average Number of Shares Outstanding — Basic |
378.9 | 343.7 | 361.6 | 343.5 | ||||||||||||
Weighted Average Number of Shares Outstanding — Diluted |
384.5 | 343.7 | 367.1 | 343.5 | ||||||||||||
7
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, | December 31, | |||||||
| In millions, except share and per share amounts | 2011 | 2010 | ||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and Cash Equivalents |
$ | 191.2 | $ | 138.7 | ||||
Receivables, Net |
441.7 | 382.2 | ||||||
Inventories, Net |
490.9 | 417.3 | ||||||
Other Current Assets |
71.7 | 75.4 | ||||||
Total Current Assets |
1,195.5 | 1,013.6 | ||||||
Property, Plant and Equipment, Net |
1,635.6 | 1,641.5 | ||||||
Goodwill |
1,221.1 | 1,205.2 | ||||||
Intangible Assets, Net |
558.1 | 576.6 | ||||||
Other Assets |
46.7 | 47.7 | ||||||
Total Assets |
$ | 4,657.0 | $ | 4,484.6 | ||||
LIABILITIES |
||||||||
Current Liabilities: |
||||||||
Short-Term Debt and Current Portion of Long-Term Debt |
$ | 19.7 | $ | 26.0 | ||||
Accounts Payable |
393.6 | 361.5 | ||||||
Interest Payable |
24.7 | 28.4 | ||||||
Other Accrued Liabilities |
189.3 | 179.8 | ||||||
Total Current Liabilities |
627.3 | 595.7 | ||||||
Long-Term Debt |
2,418.1 | 2,553.1 | ||||||
Deferred Income Tax Liabilities |
250.5 | 241.1 | ||||||
Other Noncurrent Liabilities |
311.2 | 347.7 | ||||||
Total Liabilities |
3,607.1 | 3,737.6 | ||||||
SHAREHOLDERS’ EQUITY |
||||||||
Preferred Stock, par value $.01 per share; 100,000,000 shares authorized;
no shares issued or outstanding |
— | — | ||||||
Common Stock, par value $.01 per share; 1,000,000,000 shares authorized;
389,245,688 and 343,698,778 shares issued and outstanding at
June 30, 2011 and December 31, 2010, respectively |
3.9 | 3.4 | ||||||
Capital in Excess of Par Value |
2,176.0 | 1,965.2 | ||||||
Accumulated Deficit |
(949.5 | ) | (1,008.3 | ) | ||||
Accumulated Other Comprehensive Loss |
(180.5 | ) | (213.3 | ) | ||||
Total Shareholders’ Equity |
1,049.9 | 747.0 | ||||||
Total Liabilities and Shareholders’ Equity |
$ | 4,657.0 | $ | 4,484.6 | ||||
8
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| In millions | 2011 | 2010 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net Income |
$ | 58.8 | $ | (26.5 | ) | |||
Noncash Items Included in Net Income: |
||||||||
Depreciation and Amortization |
139.4 | 147.6 | ||||||
Deferred Income Taxes |
9.2 | 16.6 | ||||||
Amount of Postretirement Expense Less Than Funding |
(9.9 | ) | (3.9 | ) | ||||
Other, Net |
14.1 | 27.0 | ||||||
Changes in Operating Assets & Liabilities |
(94.0 | ) | (65.2 | ) | ||||
Net Cash Provided by Operating Activities |
117.6 | 95.6 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital Spending |
(70.8 | ) | (39.7 | ) | ||||
Acquisition of Business |
(51.9 | ) | — | |||||
Other, Net |
(1.8 | ) | 2.6 | |||||
Net Cash Used in Investing Activities |
(124.5 | ) | (37.1 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Net Proceeds from Issuance of Common Stock |
238.0 | — | ||||||
Repurchase of Common Stock |
(32.9 | ) | — | |||||
Payments on Debt |
(150.0 | ) | (34.9 | ) | ||||
Borrowings under Revolving Credit Facilities |
58.0 | 110.4 | ||||||
Payments on Revolving Credit Facilities |
(55.8 | ) | (110.4 | ) | ||||
Redemption and Early Tender Premiums and Debt Issuance Costs |
— | (0.5 | ) | |||||
Other, Net |
0.2 | — | ||||||
Net Cash Provided by (Used in) Financing Activities |
57.5 | (35.4 | ) | |||||
Effect of Exchange Rate Changes on Cash |
1.9 | (1.3 | ) | |||||
Net Increase in Cash and Cash Equivalents |
52.5 | 21.8 | ||||||
Cash and Cash Equivalents at Beginning of Period |
138.7 | 149.8 | ||||||
Cash and Cash Equivalents at End of Period |
$ | 191.2 | $ | 171.6 | ||||
9
Reconciliation of Non-GAAP Financial Measures
| The tables below set forth the calculation of the Company’s earnings before interest expense, income tax expense, equity income of unconsolidated entities, depreciation and amortization (“EBITDA”), Adjusted EBITDA, Adjusted Net Income and Net Leverage Ratio. Adjusted EBITDA and Adjusted Net Income exclude charges associated with the Company’s combination with Altivity Packaging, LLC and Sierra Acquisition as well as charges associated with modification or extinguishment of debt. The Company’s management believes that the presentation of EBITDA, Adjusted EBITDA, Adjusted Net Income and Net Leverage Ratio provides useful information to investors because these measures are regularly used by management in assessing the Company’s performance. EBITDA, Adjusted EBITDA, Adjusted Net Income and Net Leverage Ratio are financial measures not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), and are not measures of net income, operating income, operating performance or liquidity presented in accordance with GAAP. |
| EBITDA, Adjusted EBITDA, Adjusted Net Income and Net Leverage Ratio should be considered in addition to results prepared in accordance with GAAP, but should not be considered substitutes for or superior to GAAP results. In addition, our EBITDA, Adjusted EBITDA, Adjusted Net Income and Net Leverage Ratio may not be comparable to Adjusted EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate such measures in the same manner as we do. |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| In millions, except per share amounts | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net Income (Loss) |
$ | 32.1 | $ | (32.8 | ) | $ | 58.8 | $ | (26.5 | ) | ||||||
Add (Subtract): |
||||||||||||||||
Income Tax Expense |
7.4 | 10.2 | 10.3 | 18.8 | ||||||||||||
Equity Income of Unconsolidated Entities |
(0.6 | ) | (0.5 | ) | (0.9 | ) | (0.8 | ) | ||||||||
Interest Expense, Net |
36.6 | 45.0 | 75.9 | 90.0 | ||||||||||||
Depreciation and Amortization |
72.1 | 75.7 | 146.2 | 152.4 | ||||||||||||
EBITDA |
147.6 | 97.6 | 290.3 | 233.9 | ||||||||||||
Charges Associated with Combination with Altivity |
— | 46.6 | — | 55.1 | ||||||||||||
Charges Associated with Sierra Acquisition |
1.7 | — | 1.7 | — | ||||||||||||
Loss on Modification or Extinguishment of Debt |
0.8 | 0.9 | 0.8 | 0.9 | ||||||||||||
Adjusted EBITDA |
$ | 150.1 | $ | 145.1 | $ | 292.8 | $ | 289.9 | ||||||||
Net Income (Loss) |
$ | 32.1 | $ | (32.8 | ) | $ | 58.8 | $ | (26.5 | ) | ||||||
Charges Associated with Combination with Altivity |
— | 46.6 | — | 55.1 | ||||||||||||
Charges Associated with Sierra Acquisition |
1.7 | — | 1.7 | — | ||||||||||||
Loss on Modification or Extinguishment of Debt |
0.8 | 0.9 | 0.8 | 0.9 | ||||||||||||
Adjusted Net Income |
$ | 34.6 | $ | 14.7 | $ | 61.3 | $ | 29.5 | ||||||||
Per Share — Basic |
||||||||||||||||
Net Income (Loss) |
$ | 0.08 | $ | (0.10 | ) | $ | 0.16 | $ | (0.08 | ) | ||||||
Charges Associated with Combination with Altivity |
— | 0.14 | — | 0.16 | ||||||||||||
Charges Associated with Sierra Acquisition |
0.00 | — | 0.00 | — | ||||||||||||
Loss on Modification or Extinguishment of Debt |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Adjusted Net Income* |
$ | 0.09 | $ | 0.04 | $ | 0.17 | $ | 0.09 | ||||||||
Per Share — Diluted |
||||||||||||||||
Net Income (Loss) |
$ | 0.08 | $ | (0.10 | ) | $ | 0.16 | $ | (0.08 | ) | ||||||
Charges Associated with Combination with Altivity |
— | 0.14 | — | 0.16 | ||||||||||||
Charges Associated with Sierra Acquisition |
0.00 | — | 0.00 | — | ||||||||||||
Loss on Modification or Extinguishment of Debt |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Adjusted Net Income* |
$ | 0.09 | $ | 0.04 | $ | 0.17 | $ | 0.09 | ||||||||
| * | May not foot due to rounding |
10
GRAPHIC PACKAGING HOLDING COMPANY
Reconciliation of Non-GAAP Financial Measures
(Continued)
Reconciliation of Non-GAAP Financial Measures
(Continued)
| Twelve Months Ended | ||||||||||||
| June 30, | June 30, | December 31, | ||||||||||
| In millions | 2011 | 2010 | 2010 | |||||||||
Net Income |
$ | 96.0 | $ | 38.5 | $ | 10.7 | ||||||
Add (Subtract): |
||||||||||||
Income Tax Expense |
19.0 | 23.5 | 27.5 | |||||||||
Equity Income of Unconsolidated Entities |
(1.7 | ) | (1.6 | ) | (1.6 | ) | ||||||
Interest Expense, Net |
160.4 | 181.7 | 174.5 | |||||||||
Depreciation and Amortization |
293.1 | 316.7 | 299.3 | |||||||||
EBITDA |
566.8 | 558.8 | 510.4 | |||||||||
Charges Associated with Business Combination |
— | 79.8 | 55.1 | |||||||||
Charges Associated with Sierra Acquisition |
1.7 | — | — | |||||||||
Asset Impairment and Shutdown Charges |
— | 10.7 | — | |||||||||
Loss on Modification or Extinguishment of Debt |
8.3 | 1.9 | 8.4 | |||||||||
Alternative Fuel Tax Credits Net of Expenses |
— | (82.5 | ) | — | ||||||||
Adjusted EBITDA |
$ | 576.8 | $ | 568.7 | $ | 573.9 | ||||||
| June 30, | June 30, | December 31, | ||||||||||
| Calculation of Net Debt: | 2011 | 2010 | 2010 | |||||||||
Short-Term Debt and Current Portion of
Long-Term Debt |
$ | 19.7 | $ | 27.1 | $ | 26.0 | ||||||
Long-Term Debt |
2,418.1 | 2,738.6 | 2,553.1 | |||||||||
Less: |
||||||||||||
Cash and Cash Equivalents |
(191.2 | ) | (171.6 | ) | (138.7 | ) | ||||||
Total Net Debt |
$ | 2,246.6 | $ | 2,594.1 | $ | 2,440.4 | ||||||
Net Leverage Ratio (Net Debt/Adjusted EBITDA) |
3.89 | 4.56 | 4.25 | |||||||||
11
GRAPHIC PACKAGING HOLDING COMPANY
Reconciliation of Non-GAAP Financial Measures
(Continued)
Reconciliation of Non-GAAP Financial Measures
(Continued)
The Credit Agreement dated May 16, 2007, as amended (“the Credit Agreement”) and the indentures
governing the Company’s 9.5% Senior Subordinated Notes due 2013, 9.5% Senior Notes due 2017 and
7.875% Senior Notes due 2018 (“the Notes”) limit the Company’s ability to incur additional
indebtedness. Additional covenants contained in the Credit Agreement, among other things, restrict
the ability of the Company to dispose of assets, incur guarantee obligations, prepay other
indebtedness, make dividends and other restricted payments, create liens, make equity or debt
investments, make acquisitions, modify terms of the indentures under which the Notes are issued,
engage in mergers or consolidations, change the business conducted by the Company and its
subsidiaries, and engage in certain transactions with affiliates. Such restrictions, together with
the highly leveraged nature of the Company and disruptions in the credit markets, could limit the
Company’s ability to respond to changing market conditions, fund its capital spending program,
provide for unexpected capital investments or take advantage of business opportunities.
Under the terms of the Credit Agreement, the Company must comply with a maximum consolidated
secured leverage ratio, which is defined as the ratio of: (a) total long-term and short-term
indebtedness of the Company and its consolidated subsidiaries as determined in accordance with
generally accepted accounting principles in the United States (“U.S. GAAP”), plus the aggregate
cash proceeds received by the Company and its subsidiaries from any receivables or other
securitization but excluding therefrom (i) all unsecured indebtedness, (ii) all subordinated
indebtedness permitted to be incurred under the Credit Agreement, and (iii) all secured
indebtedness of foreign subsidiaries to (b) Adjusted EBITDA, which we refer to as Credit Agreement
EBITDA(1). Pursuant to this financial covenant, the Company must maintain a maximum consolidated
secured leverage ratio of less than the following:
| Maximum Consolidated | ||||
| Secured Leverage Ratio(1) | ||||
October 1, 2009 and thereafter |
4.75 to 1.00 | |||
| Note: | ||
| (1) | Credit Agreement EBITDA is defined in the Credit Agreement as consolidated net income before consolidated net interest expense, non-cash expenses and charges, total income tax expense, depreciation expense, expense associated with amortization of intangibles and other assets, non-cash provisions for reserves for discontinued operations, extraordinary, unusual or non-recurring gains or losses or charges or credits, gain or loss associated with sale or write-down of assets not in the ordinary course of business, any income or loss accounted for by the equity method of accounting, and projected run rate cost savings, prior to or within a twelve month period. |
At June 30, 2011, the Company was in compliance with the financial covenant in the Credit Agreement
and the ratio was as follows:
Consolidated Secured Leverage Ratio — 2.49 to 1.00
The Company’s management believes that presentation of the consolidated secured leverage ratio and
Credit Agreement EBITDA herein provides useful information to investors because borrowings under
the Credit Agreement are a key source of the Company’s liquidity, and the Company’s ability to
borrow under the Credit Agreement is dependent on, among other things, its compliance with the
financial ratio covenant. Any failure by the Company to comply with this financial covenant could
result in an event of default, absent a waiver or amendment from the lenders under such agreement,
in which case the lenders may be entitled to declare all amounts owed to be due and payable
immediately.
Credit Agreement EBITDA is a financial measure not calculated in accordance with U.S. GAAP, and is
not a measure of net income, operating income, operating performance or liquidity presented in
accordance with U.S. GAAP. Credit Agreement EBITDA should be considered in addition to results
prepared in accordance with U.S. GAAP, but should not be considered a substitute for or superior to
U.S. GAAP results. In addition, Credit Agreement EBITDA may not be comparable to EBITDA or
similarly titled measures utilized by other companies because other companies may not calculate
Credit Agreement EBITDA in the same manner as the Company does.
12
The calculations of the components of the maximum consolidated secured leverage ratio for and as of
the period ended June 30, 2011 are listed below:
| Twelve Months Ended | ||||
| In millions | June 30, 2011 | |||
Net Income |
$ | 96.0 | ||
Income Tax Expense |
19.0 | |||
Interest Expense, Net |
160.4 | |||
Depreciation and Amortization |
280.5 | |||
Equity Income of Unconsolidated Entities, Net of Dividends |
(0.3 | ) | ||
Other Non-Cash Charges |
39.9 | |||
Losses Associated with Sale/Write-Down of Assets |
2.2 | |||
Other Non-Recurring/Extraordinary/Unusual Items |
15.2 | |||
Projected Run Rate Cost Savings (a) |
61.3 | |||
Credit Agreement EBITDA |
$ | 674.2 | ||
| As of | ||||
| In millions | June 30, 2011 | |||
Short-Term Debt |
$ | 19.7 | ||
Long-Term Debt |
2,418.1 | |||
Total Debt |
$ | 2,437.8 | ||
Less Adjustments(b) |
760.1 | |||
Consolidated Secured Indebtedness |
$ | 1,677.7 | ||
| Note: | ||
| (a) | As defined by the Credit Agreement, this represents projected cost savings expected by the Company to be realized as a result of specific actions taken or expected to be taken prior to or within twelve months of the period in which Credit Agreement EBITDA is to be calculated, net of the amount of actual benefits realized or expected to be realized from such actions. | |
| The terms of the Credit Agreement limit the amount of projected run rate cost savings that may be used in calculating Credit Agreement EBITDA by stipulating that such amount may not exceed the lesser of (i) ten percent of EBITDA as defined in the Credit Agreement for the last twelve-month period (before giving effect to projected run rate cost savings) or (ii) $100 million. As a result, in calculating Credit Agreement EBITDA above, the Company used projected run rate cost savings of $61.3 million, or ten percent of EBITDA, as calculated in accordance with the Credit Agreement, which amount is lower than total projected cost savings identified by the Company, net of actual benefits realized for the twelve month period ended June 30, 2011. Projected run rate cost savings were calculated by the Company solely for its use in calculating Credit Agreement EBITDA for purposes of determining compliance with the maximum consolidated secured leverage ratio contained in the Credit Agreement and should not be used for any other purpose. | ||
| (b) | Represents consolidated indebtedness/securitization that is either (i) unsecured, or (ii) Permitted Subordinated Indebtedness as defined in the Credit Agreement, or secured indebtedness permitted to be incurred by the Company’s foreign subsidiaries per the Credit Agreement. |
If inflationary pressures on key inputs resume, or depressed selling prices, lower sales volumes,
increased operating costs or other factors have a negative impact on the Company’s ability to
increase its profitability, the Company may not be able to maintain its compliance with the
financial covenant in its Credit Agreement. The Company’s ability to comply in future periods with
the financial covenant in the Credit Agreement will depend on its ongoing financial and operating
performance, which in turn will be subject to economic conditions and to financial, business and
other factors, many of which are beyond the Company’s control, and will be substantially dependent
on the selling prices for the Company’s products, raw material and energy costs, and the Company’s
ability to successfully implement its overall business strategies and meet its profitability
objective. If a violation of the financial covenant or any of the other covenants occurred, the
Company would attempt to obtain a waiver or an amendment from its lenders, although no assurance
can be given that the Company would be successful in this regard. The Credit Agreement and the
indentures governing the Notes have certain cross-default or cross-acceleration provisions; failure
to comply with these covenants in any agreement could result in a violation of such agreement which
could, in turn, lead to violations of other agreements pursuant to such cross-default or
cross-acceleration provisions. If an event of default
13
occurs, the lenders are entitled to declare all amounts owed to be due and payable immediately. The
Credit Agreement is collateralized by substantially all of the Company’s domestic assets.
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GRAPHIC PACKAGING HOLDING COMPANY
Unaudited Supplemental Data
Unaudited Supplemental Data
| Three Months Ended | ||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | |||||||||||||
2011 |
||||||||||||||||
Net Sales ($ Millions): |
||||||||||||||||
Paperboard Packaging |
$ | 825.0 | $ | 907.2 | ||||||||||||
Flexible Packaging |
175.6 | 173.5 | ||||||||||||||
Total |
$ | 1,000.6 | $ | 1,080.7 | ||||||||||||
Income (Loss) from Operations ($ Millions): |
||||||||||||||||
Paperboard Packaging |
$ | 74.4 | $ | 90.8 | ||||||||||||
Flexible Packaging |
6.0 | 0.6 | ||||||||||||||
Corporate |
(11.8 | ) | (15.1 | ) | ||||||||||||
Total |
$ | 68.6 | $ | 76.3 | ||||||||||||
2010 |
||||||||||||||||
Net Sales ($ Millions): |
||||||||||||||||
Paperboard Packaging |
$ | 834.6 | $ | 867.8 | $ | 873.3 | $ | 843.7 | ||||||||
Flexible Packaging |
169.5 | 168.7 | 169.5 | 167.9 | ||||||||||||
Total |
$ | 1,004.1 | $ | 1,036.5 | $ | 1,042.8 | $ | 1,011.6 | ||||||||
Income (Loss) from Operations ($ Millions): |
||||||||||||||||
Paperboard Packaging |
$ | 75.7 | $ | 75.0 | $ | 86.8 | $ | 66.2 | ||||||||
Flexible Packaging |
6.7 | 4.5 | 1.6 | 5.2 | ||||||||||||
Corporate |
(22.8 | ) | (56.7 | ) | (9.9 | ) | (12.8 | ) | ||||||||
Total |
$ | 59.6 | $ | 22.8 | $ | 78.5 | $ | 58.6 | ||||||||
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