Graphic Packaging Holding Company Reports Third Quarter 2009 Results
- Press Release
- Source: Graphic Packaging International, Inc.
- On 7:30 am EST, Thursday November 5, 2009
MARIETTA, Ga., Nov. 5 /PRNewswire-FirstCall/ --
Related Quotes
| Symbol | Price | Change |
|---|---|---|
| GPK | 2.81 | -0.01 |
Third Quarter Highlights
- Earnings per share were $0.10 versus a loss of $(0.04) per share in the prior year period.
- Adjusted EBITDA was $155.1 million, 17.1% higher than the prior year period.
- Excluding alternative fuel tax credits, operating cash flow increased $74.9 million versus the prior year period.
- Net Debt reduced by $113.6 million during the quarter.
Graphic Packaging Holding Company (NYSE: GPK - News), a leading provider of packaging solutions to food, beverage and other consumer products companies, today reported Net Income for third quarter 2009 of $33.2 million, or $0.10 per share, based upon 344.9 million weighted average diluted shares outstanding. Adjusted Net Income for the quarter, which excludes $38.5 million of alternative fuel tax credits net of expenses, a $1.0 million loss on early extinguishment of debt, and $14.6 million of restructuring and other charges primarily associated with the combination with Altivity Packaging, LLC ("Altivity"), was $10.3 million, or $0.03 per weighted average diluted share. This compares to a third quarter 2008 Net Loss of $(14.4) million, or $(0.04) per share and Adjusted Net Loss of $(7.0) million, or $(0.02) per share.
"Our focus on food and beverage and the execution of our operational plans put in place following the combination with Altivity have allowed us to perform well in this difficult operating environment," said David W. Scheible, President and Chief Executive Officer. "Our third quarter Adjusted EBITDA grew over 17% from the prior year period and our Adjusted EBITDA margin improved to 14.7% from 11.5% a year ago and 14.2% in second quarter 2009. We continue to recognize synergies from the Altivity combination and realize the benefits of our continuous improvement programs. We also continue to strengthen our balance sheet as year-to-date Net Debt decreased by over $219 million. This is a result of generating $322 million of operating cash, including $97 million of alternative fuel tax credits, through the first nine months of 2009, compared to $43 million in the same period last year."
Net Sales
Third quarter 2009 Net Sales of $1,054.2 million increased 1.0% from second quarter 2009 Net Sales of $1,043.8 million but decreased 9.6% from third quarter 2008 Net Sales of $1,165.7 million. The Company's Multi-wall Bag and Specialty Packaging segments were particularly impacted by the economy, as the core end-use markets of construction and general manufacturing continued to be demand challenged. When comparing to the prior year quarter, Net Sales in the third quarter of 2009 were negatively impacted by:
- $76 million related to volume and mix;
- $19 million of lower sales related to the divestiture of the Wabash, IN and the Philadelphia, PA paper mills;
- $13 million due to price; and
- $4 million due to unfavorable changes in foreign currency exchange rates.
Attached is supplemental data showing third 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 2008 results of the Wabash, IN and the Philadelphia, PA paper mills divested in September 2008.
EBITDA
EBITDA for third quarter 2009 was $178.0 million. Excluding $38.5 million of alternative fuel tax credits net of expenses, $1.0 million loss on early extinguishment of debt, and $14.6 million of restructuring and other charges primarily related to the combination with Altivity, Adjusted EBITDA was $155.1 million. This compares to second quarter 2009 Adjusted EBITDA of $147.7 million and third quarter 2008 Adjusted EBITDA of $132.4 million. When comparing against the prior year quarter, Adjusted EBITDA in the third quarter of 2009 was positively impacted by:
- $29 million of lower input costs primarily related to energy, fiber, chemicals, and resin;
- $20 million of favorable net performance driven by synergies and continuous improvement cost reductions; and
- $6 million of positive foreign currency exchange rates.
Third quarter 2009 Adjusted EBITDA was negatively impacted by:
- $19 million related to volume, mix and lower fixed cost absorption; and
- $13 million due to pricing.
Other Results
At the end of the third quarter of 2009, the Company's total debt was $3,038.8 million, or $29.5 million lower than debt of $3,068.3 million at the end of the second quarter 2009. Taking cash and cash equivalents into account, total Net Debt at the end of the third quarter 2009 was $2,794.1 million. This represents a reduction of $338.7 million in Net Debt since first quarter 2008. As a precaution against possible future volatility in the credit and securities markets, at September 30, 2009, the Company kept $219.6 million invested in short-term investments that are fully collateralized by U.S. Treasuries. The Company currently intends to use a portion of this cash to make a voluntary pre-payment of debt. Including Cash and Cash Equivalents, as of September 30, 2009, the Company had available liquidity of approximately $608.6 million and had not drawn on its $400 million revolving credit facility.
Net cash provided by operating activities was $321.5 million through the first nine months of 2009, compared to $42.8 million during the same period last year. YTD 2009 operating cash flow includes $97.2 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 $53.3 million for third quarter 2009, as compared to net interest expense of $57.4 million in third quarter 2008. The decrease was due to both lower interest rates and lower debt balances. During the third quarter, the Company refinanced the remaining $180.1 million aggregate principal amount of its 8.5% senior unsecured notes due August 2011 by issuing, at a premium, $180.0 million aggregate principal amount of new 9.5% senior notes due June 2017. The premium proceeds of $5.4 million from the new notes were used to pay accrued interest on the 2011 notes as well as all fees and expenses incurred in connection with the offering and redemption.
Third quarter 2009 income tax expense was $10.3 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 which may be available to offset future taxable income in the United States.
Capital expenditures for third quarter 2009 were $29.9 million compared to $43.1 million in the third quarter of 2008. Capital expenditures were $96.3 million through the first nine months of 2009 compared to $126.4 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 September 30, 2009, the Company's ratio was 3.44 to 1.00, in compliance with the required maximum ratio of 5.00 to 1.00. The required maximum ratio stepped down to 4.75 to 1.00 on October 1, 2009. 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.
Earnings Call
The Company will host a conference call at 8:30 am eastern time today (November 5th) to discuss the results of third quarter 2009. 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# 33401838). Listeners may also access the audio webcast 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.
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, the availability of the Company's net operating loss to offset taxable income in the U.S. and voluntary debt prepayments, 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, volatility in the credit and securities markets, 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, and the impact of regulatory and litigation matters, including the continued availability of the alternative fuel tax credits and the Company's net operating loss offset to taxable income, and those that 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 - News), 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-recycled boxboard and specialty bag packaging. The Company's customers include some of the most widely recognized 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.
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September December
30, 31,
In millions, except share and per share amounts 2009 2008
----------------------------------------------- --------- --------
ASSETS
Current Assets:
Cash and Cash Equivalents $244.7 $170.1
Receivables, Net 413.8 369.6
Inventories, Net 465.4 532.0
Other Current Assets 52.6 56.9
----------------------------------------------- --------- --------
Total Current Assets 1,176.5 1,128.6
Property, Plant and Equipment, Net 1,835.2 1,935.1
Goodwill 1,210.4 1,204.8
Intangible Assets, Net 630.6 664.6
Other Assets 47.0 50.0
----------------------------------------------- --------- --------
Total Assets $4,899.7 $4,983.1
----------------------------------------------- --------- --------
LIABILITIES
Current Liabilities:
Short-Term Debt and Current Portion of
Long-Term Debt $29.2 $18.6
Accounts Payable 313.5 333.4
Other Accrued Liabilities 314.2 333.6
----------------------------------------------- --------- --------
Total Current Liabilities 656.9 685.6
Long-Term Debt 3,009.6 3,165.2
Deferred Income Tax Liabilities 218.3 187.8
Accrued Pension and Postretirement Benefits 366.9 375.8
Other Noncurrent Liabilities 48.2 43.5
----------------------------------------------- --------- --------
Total Liabilities 4,299.9 4,457.9
----------------------------------------------- --------- --------
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;
343,245,250 and 342,522,470 shares issued
and outstanding at September 30, 2009 and
December 31, 2008, respectively 3.4 3.4
Capital in Excess of Par Value 1,957.6 1,955.4
Accumulated Deficit (1,050.8) (1,075.4)
Accumulated Other Comprehensive Loss (310.4) (358.2)
----------------------------------------------- --------- --------
Total Shareholders' Equity 599.8 525.2
----------------------------------------------- --------- --------
Total Liabilities and Shareholders' Equity $4,899.7 $4,983.1
----------------------------------------------- --------- --------
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
In millions, except
per share amounts 2009 2008 2009 2008
-------------------------------- --------- -------- -------- --------
Net Sales $1,054.2 $1,165.7 $3,117.2 $3,031.7
Cost of Sales 907.8 1,015.3 2,702.4 2,626.7
Selling, General and Administrative 74.1 85.4 232.0 218.7
Research, Development and Engineering 1.7 2.1 5.3 6.0
Other (Income) Expense, Net (3.0) 3.0 (11.2) 1.6
Restructuring and Other Special
(Credits) Charges (23.9) 7.4 (29.9) 38.8
-------------------------------- --------- -------- -------- --------
Income from Operations 97.5 52.5 218.6 139.9
Interest Income 0.1 0.5 0.3 1.0
Interest Expense (53.4) (57.9) (158.3) (158.2)
Loss on Early Extinguishment of Debt (1.0) - (7.1) -
-------------------------------- --------- -------- -------- --------
Income (Loss) before Income Taxes and
Equity in Net Earnings of Affiliates 43.2 (4.9) 53.5 (17.3)
Income Tax Expense (10.3) (9.0) (29.7) (25.0)
-------------------------------- --------- -------- -------- --------
Income (Loss) before Equity in Net
Earnings of Affiliates 32.9 (13.9) 23.8 (42.3)
Equity in Net Earnings of Affiliates 0.3 0.4 0.8 1.2
-------------------------------- --------- -------- -------- --------
Income (Loss) from
Continuing Operations 33.2 (13.5) 24.6 (41.1)
Loss from Discontinued Operations,
Net of Taxes - (0.9) - (0.9)
Net Income (Loss) $33.2 $(14.4) $24.6 $(42.0)
-------------------------------- --------- -------- -------- --------
Income (Loss) Per Share - Basic
Continuing Operations $0.10 $(0.04) $0.07 $(0.14)
Discontinued Operations - - - -
Total $0.10 $(0.04) $0.07 $(0.14)
-------------------------------- --------- -------- -------- --------
Income (Loss) Per Share - Diluted
Continuing Operations $0.10 $(0.04) $0.07 $(0.14)
Discontinued Operations - - - -
-------------------------------- --------- -------- -------- --------
Total $0.10 $(0.04) $0.07 $(0.14)
-------------------------------- --------- -------- -------- --------
Weighted Average
Number of Shares
Outstanding - Basic 343.4 342.5 343.0 306.8
Weighted Average
Number of Shares
Outstanding - Diluted 344.9 342.5 343.9 306.8
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended
September 30,
---------------
In millions 2009 2008
------------------------------------- ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $24.6 $(42.0)
Noncash Items Included in Net Income (Loss):
Depreciation and Amortization 228.0 190.0
Write-off of Debt Issuance Costs on Early
Extinguishment of Debt 2.3 -
Deferred Income Taxes 27.9 20.8
Amount of Postemployment Expense Greater (Less)
Than Funding 13.1 (38.6)
Amortization of Deferred Debt Issuance Costs 6.4 5.9
Other, Net 8.4 20.2
Changes in Operating Assets & Liabilities 10.8 (113.5)
------------------------------------- ------ ------
Net Cash Provided by Operating Activities 321.5 42.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending (96.3) (126.4)
Acquisition Costs Related to Altivity - (30.3)
Cash Acquired Related to Altivity - 60.2
Proceeds from Sale of Assets, Net of Selling Costs 9.8 20.3
Other, Net (1.2) (4.6)
------------------------------------- ------ ------
Net Cash Used in Investing Activities (87.7) (80.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Debt 423.8 1,200.0
Payments on Debt (425.3) (1,195.6)
Borrowings under Revolving Credit Facilities 105.9 747.4
Payments on Revolving Credit Facilities (249.1) (544.5)
Debt Issuance Costs and Early Tender Premiums (14.7) (16.3)
Other, Net (0.1) (0.5)
------------------------------------- ------ ------
Net Cash (Used in) Provided by Financing
Activities (159.5) 190.5
EFFECT OF EXCHANGE RATE CHANGES ON CASH 0.3 (0.7)
------------------------------------- ------ ------
Net Increase in Cash and Cash Equivalents 74.6 151.8
Cash and Cash Equivalents at Beginning of Period 170.1 9.3
------------------------------------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $244.7 $161.1
Reconciliation of Non-GAAP Financial Measures
The table below sets forth the Company's earnings before interest
expense, income tax expense, equity in the net earnings of the Company's
affiliates, depreciation and amortization ("EBITDA"), Adjusted EBITDA, and
Adjusted Net Income (Loss). Adjusted EBITDA and Adjusted Net Income
(Loss) exclude charges associated with the Company's combination with
Altivity Packaging, LLC and other Restructuring and Other Special Charges
(Credits). The Company's management believes that the presentation of
EBITDA, Adjusted EBITDA and Adjusted Net Income (Loss) provides useful
information to investors because these measures are regularly used by
management in assessing the Company's performance. EBITDA, Adjusted EBITDA
and Adjusted Net Income (Loss) 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 and Adjusted Net Income (Loss) 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 and Adjusted Net Income (Loss) 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 Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
In millions 2009 2008 2009 2008
------------------------------------- ----- ------- ----- ------
Net Income (Loss) $33.2 $(14.4) $24.6 $(42.0)
Add (Subtract):
Income Tax Expense 10.3 9.0 29.7 25.0
Equity in Net Earnings of Affiliates (0.3) (0.4) (0.8) (1.2)
Interest Expense, Net 53.3 57.4 158.0 157.2
Depreciation and Amortization 81.5 73.4 244.0 193.5
------------------------------------- ----- ------- ----- ------
EBITDA 178.0 125.0 455.5 332.5
Charges Associated with Combination
with Altivity 14.6 7.4 61.6 38.8
Grenoble Plant Shutdown Charges - - 2.3 -
Loss on Early Extinguishment of Debt 1.0 - 7.1 -
Alternative Fuel Tax Credits Net of
Expenses (38.5) - (93.8) -
------------------------------------- ----- ------- ----- ------
Adjusted EBITDA $155.1 $132.4 $432.7 $371.3
------------------------------------- ----- ------- ----- ------
Net Income (Loss) $33.2 $(14.4) $24.6 $(42.0)
Charges Associated with Combination
with Altivity 14.6 7.4 61.6 38.8
Grenoble Plant Shutdown Charges - - 2.3 -
Loss on Early Extinguishment of Debt 1.0 - 7.1 -
Alternative Fuel Tax Credits Net of
Expenses (38.5) - (93.8) -
------------------------------------- ----- ------- ----- ------
Adjusted Net Income (Loss) $10.3 $(7.0) $1.8 $(3.2)
------------------------------------- ----- ------- ----- ------
Per Share - Basic
Net Income (Loss) $0.10 $(0.04) $0.07 $(0.14)
Charges Associated with Combination
with Altivity 0.04 0.02 0.18 0.13
Grenoble Plant Shutdown Charges - - 0.01 -
Loss on Early Extinguishment of Debt - - 0.02 -
Alternative Fuel Tax Credits Net of
Expenses (0.11) - (0.27) -
------------------------------------- ----- ------- ----- ------
Adjusted Net Income (Loss) * $0.03 $(0.02) $0.01 $(0.01)
------------------------------------- ----- ------- ----- ------
Per Share - Diluted
Net Income (Loss) $0.10 $(0.04) $0.07 $(0.14)
Charges Associated with Combination
with Altivity 0.04 0.02 0.18 0.13
Grenoble Plant Shutdown Charges - - 0.01 -
Loss on Early Extinguishment of Debt - - 0.02 -
Alternative Fuel Tax Credits Net of
Expenses (0.11) - (0.27) -
------------------------------------- ----- ------- ----- ------
Adjusted Net Income (Loss) * $0.03 $(0.02) $0.01 $(0.01)
------------------------------------- ----- ------- ----- ------
* May not foot due to rounding
September 30, March 31,
------------- ---------
Calculation of Net Debt: 2009 2008
-------------------------------------- ------------- ---------
Short-Term Debt and Current Portion of
Long-Term Debt $29.2 $20.3
Long-Term Debt 3,009.6 3,134.4
Less:
Cash and Cash Equivalents (244.7) (21.9)
-------------------------------------- ------------- ---------
Total Net Debt $2,794.1 $3,132.8
-------------------------------------- ------------- ---------
GRAPHIC PACKAGING HOLDING COMPANY
Reconciliation of Non-GAAP Financial Measures (continued)
Pro Forma Results
The following pro forma results for the three months and nine months ended
September 30, 2008, respectively, give effect to Graphic Packaging
Corporation's combination with Altivity Packaging, LLC as if it had
occurred on January 1, 2008 and exclude the 2008 results for the two
coated-recycled board mills divested in September 2008. The Company's
management believes that the pro forma presentation provides useful
information to investors in light of the Company's combination with
Altivity Packaging, LLC. The pro forma information is not necessarily
indicative of what the combined companies' results of operations actually
would have been if the transaction had been completed on the date
indicated.
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
In millions 2009 2008 2009 2008
------------------ -------- -------- -------- --------
Net Sales $1,054.2 $1,165.7 $3,117.2 $3,031.7
Altivity Net Sales - (18.5) - 335.6
-------------------------- -------- -------- -------- --------
Pro Forma Net Sales $1,054.2 $1,147.2 $3,117.2 $3,367.3
-------------------------- -------- -------- -------- --------
Pro Forma Net Income (Loss) $33.2 $(15.4) $24.6 $(66.5)
Add (Subtract):
Income Tax Expense 10.3 9.0 29.7 25.7
Equity in Net Earnings of Affiliates (0.3) (0.4) (0.8) (1.2)
Interest Expense, Net 53.3 57.4 158.0 188.7
Depreciation and Amortization 81.5 73.4 244.0 212.0
-------------------------- -------- -------- -------- --------
Pro Forma EBITDA 178.0 124.0 455.5 358.7
Charges Associated with
Combination with Altivity 14.6 7.4 61.6 38.8
Grenoble Plant Shutdown Charges - - 2.3 -
Loss on Early Extinguishment
of Debt 1.0 - 7.1 -
Alternative Fuel Tax Credits
Net of Expenses (38.5) - (93.8) -
-------------------------- -------- -------- -------- --------
Pro Forma Adjusted EBITDA $155.1 $131.4 $432.7 $397.5
-------------------------- -------- -------- -------- --------
Pro Forma Net Income (Loss) $33.2 $(15.4) $24.6 $(66.5)
Charges Associated with
Combination with Altivity 14.6 7.4 61.6 38.8
Grenoble Plant Shutdown Charges - - 2.3 -
Loss on Early Extinguishment
of Debt 1.0 - 7.1 -
Alternative Fuel Tax Credits
Net of Expenses (38.5) - (93.8) -
-------------------------- -------- -------- -------- --------
Pro Forma Adjusted Net Income
(Loss) $10.3 $(8.0) $1.8 $(27.7)
-------------------------- -------- -------- -------- --------
Per Share - Basic
Pro Forma Net Income (Loss) $0.10 $(0.04) $0.07 $(0.19)
Charges Associated with
Combination with Altivity 0.04 0.02 0.18 0.11
Grenoble Plant Shutdown
Charges - - 0.01 -
Loss on Early Extinguishment
of Debt - - 0.02 -
Alternative Fuel Tax Credits
Net of Expenses (0.11) - (0.27) -
---------------------------- ----- -------- ----- --------
Pro Forma Adjusted Net Income
(Loss)* $0.03 $(0.02) $0.01 $(0.08)
-------------------------- -------- -------- -------- --------
Per Share - Diluted
Pro Forma Net Income (Loss) $0.10 $(0.04) $0.07 $(0.19)
Charges Associated with
Combination with Altivity 0.04 0.02 0.18 0.11
Grenoble Plant Shutdown
Charges - - 0.01 -
Loss on Early Extinguishment
of Debt - - 0.02 -
Alternative Fuel Tax Credits
Net of Expenses (0.11) - (0.27) -
-------------------------- -------- -------- -------- --------
Pro Forma Adjusted Net Income
(Loss)* $0.03 $(0.02) $0.01 $(0.08)
-------------------------- -------- -------- -------- --------
* May not foot due to rounding
GRAPHIC PACKAGING HOLDING COMPANY
Reconciliation of Non-GAAP Financial Measures
(Continued)
The Credit Agreement dated May 15, 2007, as amended ("the Credit Agreement") and the indentures governing the Company's 9.5% Senior Notes due 2017 and 9.5% Senior Subordinated Notes due 2013 ("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 recent 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, 2008 - September 30, 2009 5.00 to 1.00
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 September 30, 2009, the Company was in compliance with the financial covenant in the Credit Agreement and the ratio was as follows:
Consolidated Secured Leverage Ratio -- 3.44 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.
The calculations of the components of the maximum consolidated secured leverage ratio for and as of the period ended September 30, 2009 are listed below:
Twelve Months
Ended
In millions September 30,
2009
---------------------------------------------------------------
Pro Forma Net Loss $(33.1)
Income Tax Expense 39.1
Interest Expense, Net 216.2
Depreciation and Amortization 302.3
Dividends Received, Net of Earnings of
Equity Affiliates 0.6
Non-Cash Provisions for Reserves for
Discontinued Operations 0.3
Other Non-Cash Charges 49.6
Merger Related Expenses 50.4
Losses Associated with Sale/Write-Down
of Assets 36.8
Other Non-Recurring/Extraordinary/
Unusual Items (86.3)
Projected Run Rate Cost Savings (a) 57.6
---------------------------------------------------------------
Credit Agreement EBITDA $633.5
---------------------------------------------------------------
As of
September
30, 2009
In millions
---------------------------------------------------------------
Short-Term Debt $29.2
Long-Term Debt 3,009.6
---------------------------------------------------------------
Total Debt $3,038.8
Less Adjustments (b) 856.5
---------------------------------------------------------------
Consolidated Secured Indebtedness $2,182.3
---------------------------------------------------------------
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 $57.6 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 September 30, 2009. 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 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.
GRAPHIC PACKAGING HOLDING COMPANY
Unaudited Supplemental Data
Three Months Ended
------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
2009
Net Tons Sold (000's):
----------------------
Paperboard Packaging 617.1 648.3 655.9
Multi-wall Bag 60.3 60.0 63.3
Specialty Packaging (1) 5.2 4.8 6.1
---------------------------------------------------------------------
Total 682.6 713.1 725.3 -
---------------------------------------------------------------------
Net Sales ($ Millions):
-----------------------
Paperboard Packaging $840.4 $879.3 $886.2
Multi-wall Bag 124.8 115.3 117.5
Specialty Packaging 54.0 49.2 50.5
---------------------------------------------------------------------
Total $1,019.2 $1,043.8 $1,054.2 $-
---------------------------------------------------------------------
2008
Net Tons Sold (000's):
----------------------
Paperboard Packaging 535.7 705.5 748.4 640.0
Multi-wall Bag 27.8 75.2 75.3 67.3
Specialty Packaging (1) 1.6 7.4 7.5 5.7
---------------------------------------------------------------------
Total 565.1 788.1 831.2 713.0
---------------------------------------------------------------------
Net Sales ($ Millions):
-----------------------
Paperboard Packaging $657.1 $928.5 $946.9 $844.9
Multi-wall Bag 50.0 143.5 145.3 139.3
Specialty Packaging 17.2 69.7 73.5 63.5
---------------------------------------------------------------------
Total $724.3 $1,141.7 $1,165.7 $1,047.7
---------------------------------------------------------------------
(1) Tonnage is not applicable to the majority of the Specialty
Packaging segment due to the nature of products sold (e.g. inks,
labels, etc.)
GRAPHIC PACKAGING HOLDING COMPANY
Unaudited Supplemental Data (continued)
Pro Forma Results
The following pro forma results for the three months and nine months
ended September 30, 2008, respectively, give effect to Graphic Packaging
Corporation's combination with Altivity Packaging, LLC as if it had
occurred on January 1, 2008 and exclude the 2008 results for the two
coated-recycled board mills divested in September 2008. The Company's
management believes that the pro forma presentation provides useful
information to investors in light of the Company's recent combination
with Altivity Packaging, LLC. The pro forma information is not
necessarily indicative of what the combined companies' results of
operations actually would have been if the transaction had been completed
on the date indicated.
Three Months Ended
------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
2009
Net Tons Sold (000's):
----------------------
Paperboard Packaging 617.1 648.3 655.9
Multi-wall Bag 60.3 60.0 63.3
Specialty Packaging (1) 5.2 4.8 6.1
---------------------------------------------------------------------
Total 682.6 713.1 725.3 -
---------------------------------------------------------------------
Net Sales ($ Millions):
-----------------------
Paperboard Packaging $840.4 $879.3 $886.2
Multi-wall Bag 124.8 115.3 117.5
Specialty Packaging 54.0 49.2 50.5
---------------------------------------------------------------------
Total $1,019.2 $1,043.8 $1,054.2 $-
---------------------------------------------------------------------
2008
Net Tons Sold (000's):
----------------------
Paperboard Packaging 690.0 672.9 715.0 640.0
Multi-wall Bag 73.3 75.2 75.3 67.3
Specialty Packaging (1) 7.1 7.4 7.5 5.7
---------------------------------------------------------------------
Total 770.4 755.5 797.8 713.0
---------------------------------------------------------------------
Net Sales ($ Millions):
-----------------------
Paperboard Packaging $882.1 $910.3 $928.4 $844.9
Multi-wall Bag 144.2 143.5 145.3 139.3
Specialty Packaging 70.3 69.7 73.5 63.5
---------------------------------------------------------------------
Total $1,096.6 $1,123.5 $1,147.2 $1,047.7
---------------------------------------------------------------------
(1) Tonnage is not applicable to the majority of the Specialty Packaging
segment due to the nature of products sold (e.g. inks, labels, etc.)
Related Headlines
- GRAPHIC PACKAGING HOLDING CO Files SEC form 8-K, Change in Directors or Principal Officers - EDGAR Online
- Graphic Packaging Holding Company Appoints New Board Member - PR Newswire
- GRAPHIC PACKAGING HOLDING CO Financials - EDGAR Online Financials
- Five Paper Companies Licensed To Print Money - at Investopedia
- Graphic Packaging Holding Company Q3 2009 Earnings Call Transcript - at Seeking Alpha
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