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News Makers
GRAPHIC PACKAGING NET INCOME
ROSE IN THIRD QUARTER
November 4, 2004
Graphic Packaging Corporation [yesterday] reported net income for third quarter 2004 of $5.5 million or $0.03 per diluted share, based upon 203.1 million shares. Results for the quarter compare to a third quarter 2003 net loss of $52.8 million, or $(0.32) per diluted share, based upon 163.8 million shares.
In August 2003, Graphic Packaging International Corporation and Riverwood Holding, Inc. merged in a stock-for-stock transaction and, at that time, Riverwood Holding, Inc. was renamed Graphic Packaging Corporation. The merger has been accounted for as a purchase transaction. Results for 2004 discussed herein are those of the merged company. Results for third quarter 2003 represent those of Riverwood Holding, Inc. for the period July 1, 2003 through August 8, 2003 (the merger date) along with merged company results from August 9, 2003 through September 30, 2003. The unaudited pro forma combined financial information discussed within this release represents the company’s pro forma combined financial information as if the merger had occurred on January 1, 2003. The unaudited pro forma net loss for third quarter 2003 was $47.6 million or $(0.24) per diluted share based upon 198.3 million shares. Unaudited pro forma Statements of Operations for each quarter of 2003 are provided as a supplementary table to this release.
Earnings for the third quarter reflect steady sales in both the beverage and the food and consumer products packaging businesses, along with faster than expected recognition of merger synergies. These positive factors were somewhat offset by inflationary pressures on energy, chemicals and coatings, and fiber.
During the third quarter, the Company generated $72.5 million in cash flow from operations. Of this amount, $28.1 million was used to fund capital expenditures and $21.8 million was used for debt reduction, while cash and cash equivalents increased $20.6 million.
"Continued execution of the business strategies set forth during the merger is delivering strong financial results and generating cash for debt reduction," said Stephen M. Humphrey, President and Chief Executive Officer. "We are driving top line growth through product innovation, cross selling opportunities, and integration. During the third quarter, for example, Pepsi launched its Aquafina® product packaged in our Fridge Vendor® beverage carton. Our continued penetration into the bottled water market is exciting, as this is one of the fastest growing segments of the U.S. beverage market. On the cross-selling side, a long time legacy Graphic Packaging customer, Quaker, launched its Instant Quaker Oats club store variety pack in the Riverwood patented Z-Flute® application. Finally, we are continuing to convert cartons once using SBS or CRB to our CUK substrate. Since the merger date, our CUK volume has increased by an annualized 40,000 tons."
"At the same time, the Company remains focused on reducing costs and increasing margins. We continue to take embedded costs out of the system through our Six Sigma and other Continuous Improvement programs coupled with the recognition of merger related synergies. One facet of our synergy program, the rationalization of the company’s manufacturing capacity, continues to progress. We continue towards the planned closures of the Clinton, MS and Bow, NH carton plants along with the mid-2005 launch of our new facility in Fort Smith, AR. These plant actions, in conjunction with the last phase of expansion at our Lumberton, NC facility, will complete our sheet-fed modernization program. There are, however, costs that we cannot control. Unfortunately, the Company continues to be negatively impacted by inflationary pressures. As a result, our costs have increased steadily for energy, chemicals and coatings, and fiber."
Net sales increased 29.1% to $617.2 million during third quarter 2004, compared to third quarter 2003 net sales of $478.1 million. Net sales were $31.8 million or 5.4% higher than pro forma net sales of $585.4 million for third quarter 2003. Net sales were impacted by:
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A 3.7% year over year increase in North American carton sales, despite lower pricing. The increase was driven by higher volumes in both the beverage and the food and consumer product sectors.
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Increased containerboard sales of $7.4 million or 38.8% over third quarter 2003, primarily due to improved pricing.
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A positive contribution of $8.9 million due to favorable foreign currency exchange rates. The company’s total international sales were $104.7 million or approximately 17% of total sales for third quarter 2004.
Income from operations for third quarter 2004 was $47.0 million, compared to third quarter 2003 income from operations of $33.1 million. Unaudited pro forma income from operations was $39.3 million for the third quarter 2003. The Company continues to benefit from its ongoing cost cutting initiatives and synergy recognition.
However, income from operations was negatively impacted by:
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Energy costs, primarily natural gas at our U.S. mills, which were up approximately $3.3 million in third quarter 2004 versus pro forma costs for third quarter 2003.
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Fiber costs at our U.S. mills, which were up approximately $2.6 million in third quarter 2004 versus pro forma costs for third quarter 2003.
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Chemicals and coatings at our U.S. mills, which were up approximately $1.3 million in third quarter 2004 versus pro forma costs for third quarter 2003.
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Year over year manufacturing variances of approximately $4.0 million, primarily related to the roll out of the Fridge Vendor(R) beverage carton. This variance is expected to decrease as the Company's beverage manufacturing initiative nears completion.
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Depreciation and amortization expense for the quarter of $58.8 million compared to $53.5 million on a pro forma basis for third quarter 2003.
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A charge of approximately $2.4 million related to asset retirements, principally at our paperboard mills, reflected in other expense, net.
Net interest expense was $38.4 million for third quarter 2004, as compared to pro forma net interest expense of $39.5 million for third quarter 2003.
Income tax expense for the 2004 and 2003 periods was primarily incurred on income earned in foreign countries. The Company has a $1.3 billion net operating loss that is available to shelter future taxable income in the United States, subject to limitations as described in the Company's filings with the Securities and Exchange Commission (SEC).
Capital expenditures for third quarter 2004 were $28.1 million, of which approximately $5.5 million was related to the Company's beverage carton manufacturing initiative. Expenditures on this initiative now total approximately $61.3 million of the total projected expenditure of $70 million to $75 million during the 2003-2005 period. Total capital expenditures on a year-to-date basis are $103.4 million.
EBITDA for third quarter 2004 was $105.8 million versus $92.8 million on a pro forma basis for third quarter 2003. Credit Agreement EBITDA for third quarter 2004 was $115.8 million, versus $106.2 million on a pro forma basis for third quarter 2003. Credit Agreement EBITDA refers to EBITDA as defined in the Company's $1.6 Billion Credit Agreement (the "Credit Agreement") and is a financial measure used to determine compliance with certain covenants thereunder. Credit Agreement EBITDA is calculated on a pro forma basis and should not be construed as an alternative to income from operations or net income as a measure of operating results or as an alternative to cash flow as a measure of liquidity. Borrowings under the Credit Agreement are a key source of the Company's liquidity. A tabular reconciliation of EBITDA and Credit Agreement EBITDA is attached to this release.
Later this week, Graphic Packaging Corporation intends to file its Form 10-Q Report for the period ended September 30, 2004. In addition, the Company will host a conference call at 10:00 am (EST) on Thursday, November 4, 2004 to discuss the results of the quarter. 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. Listeners may also access the audio webcast at the Investor Relations section of the Graphic Packaging website: . Replays of the call will be available for one week following the completion of the call and can be accessed by dialing 800-642-1687.
Forward-Looking Statements
Statements of Graphic Packaging Corporation's expectations for reduction of debt, production efficiency improvements, synergies from the merger and capital expenditures in this release constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995.
SOURCE: Graphic Packaging Corporation
Contact:Kurt Marttila
800-247-9871
kmarttila@ssqi.com
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