Graphic Packaging Holding Company Reports First Quarter 2010 Results

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended

March 31,

In millions, except per share amounts

2010

2009

Net Sales

$ 1,004.1

$ 1,019.2

Cost of Sales

858.3

892.9

Selling, General and Administrative

77.4

78.7

Other Expense (Income), Net

0.3

(0.4)

Restructuring and Other Special Charges

8.5

14.9

Income from Operations

59.6

33.1

Interest Expense, Net

(45.0)

(52.2)

Income (Loss) before Income Taxes and Equity in Net

  Earnings of Affiliates  

14.6

(19.1)

Income Tax Expense

(8.6)

(9.3)

Income (Loss) before Equity in Net Earnings of Affiliates

6.0

(28.4)

Equity in Net Earnings of Affiliates

0.3

0.2

Net Income (Loss)

$        6.3

$    (28.2)

Income (Loss) Per Share - Basic and Diluted

$      0.02

$    (0.08)

Weighted Average Number of Shares Outstanding - Basic

343.4

342.6

Weighted Average Number of Shares Outstanding - Diluted

346.9

342.6

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

March 31,

December 31,

In millions, except share and per share amounts

2010

2009

ASSETS

Current Assets:

Cash and Cash Equivalents

$     105.6

$            149.8

Receivables, Net

429.6

382.3

Inventories, Net

462.1

436.5

Other Current Assets

56.8

52.7

Total Current Assets

1,054.1

1,021.3

Property, Plant and Equipment, Net

1,750.3

1,797.4

Goodwill

1,205.9

1,204.6

Intangible Assets, Net

609.4

620.0

Other Assets

58.6

58.5

Total Assets

$  4,678.3

$         4,701.8

LIABILITIES

Current Liabilities:

Short-Term Debt and Current Portion of Long-Term Debt

$       17.3

$              17.6

Accounts Payable

336.2

350.8

Interest Payable

37.2

42.7

Other Accrued Liabilities

220.1

233.2

Total Current Liabilities

610.8

644.3

Long-Term Debt

2,783.2

2,782.6

Deferred Income Tax Liabilities

235.1

226.9

Other Noncurrent Liabilities

319.3

319.2

Total Liabilities

3,948.4

3,973.0

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;

343,260,732 and 343,245,250 shares issued and outstanding at

March 31, 2010 and December 31, 2009, respectively

3.4

3.4

Capital in Excess of Par Value

1,959.1

1,958.2

Accumulated Deficit

(1,012.7)

(1,019.0)

Accumulated Other Comprehensive Loss

(219.9)

(213.8)

Total Shareholders' Equity

729.9

728.8

Total Liabilities and Shareholders' Equity

$  4,678.3

$         4,701.8

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended

March 31,

In millions

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income (Loss)

$     6.3

$ (28.2)

Noncash Items Included in Net Income (Loss):

Depreciation and Amortization

74.3

76.4

Deferred Income Taxes

7.9

9.3

Amount of Postemployment Expense (Less) Greater Than Funding

(1.4)

12.2

Other, Net

7.0

7.3

Changes in Operating Assets & Liabilities

(119.3)

(73.7)

Net Cash (Used in) Provided by Operating Activities

(25.2)

3.3

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital Spending

(18.2)

(36.0)

Other, Net

(1.1)

(0.4)

Net Cash Used in Investing Activities

(19.3)

(36.4)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under Revolving Credit Facilities

96.0

105.4

Payments on Revolving Credit Facilities

(95.8)

(60.9)

Net Cash Provided by Financing Activities

0.2

44.5

EFFECT OF EXCHANGE RATE CHANGES ON CASH

0.1

(0.5)

Net (Decrease) Increase in Cash and Cash Equivalents

(44.2)

10.9

Cash and Cash Equivalents at Beginning of Period

149.8

170.1

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 105.6

$181.0

GRAPHIC PACKAGING HOLDING COMPANY

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 in the net earnings of the Company's affiliates, depreciation and amortization ("EBITDA"), Adjusted EBITDA, Adjusted Net Income (Loss) and Net Leverage Ratio.  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. The Company's management believes that the presentation of EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss) 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 (Loss) 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 (Loss) 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 (Loss) 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

March 31,

In millions

2010

2009

Net Income (Loss)

$     6.3

$ (28.2)

Add (Subtract):

Income Tax Expense

8.6

9.3

Equity in Net Earnings of Affiliates

(0.3)

(0.2)

Interest Expense, Net

45.0

52.2

Depreciation and Amortization

76.7

81.9

EBITDA

136.3

115.0

Charges Associated with Combination with Altivity

8.5

12.6

Grenoble Plant Shutdown Charges

-

2.3

Adjusted EBITDA

$ 144.8

$129.9

Net Income (Loss)

$     6.3

$ (28.2)

Charges Associated with Combination with Altivity

8.5

12.6

Grenoble Plant Shutdown Charges

-

2.3

Adjusted Net Income (Loss)

$   14.8

$ (13.3)

Per Share - Basic and Diluted

  Net Income (Loss)

$   0.02

$ (0.08)

  Charges Associated with Combination with Altivity

0.02

0.04

  Grenoble Plant Shutdown Charges

-

0.01

    Adjusted Net Income (Loss) *

$   0.04

$ (0.04)

* May not foot due to rounding

GRAPHIC PACKAGING HOLDING COMPANY

Reconciliation of Non-GAAP Financial Measures

(Continued)

Twelve Months Ended

March 31,

In millions

2010

2009

Net Income (Loss)

$       90.9

$   (104.6)

Add (Subtract):

-

-

Income Tax Expense

23.4

37.3

Equity in Net Earnings of Affiliates

(1.4)

(1.0)

Interest Expense, Net

189.2

224.9

Depreciation and Amortization

321.6

299.3

EBITDA

623.7

455.9

Charges Associated with Combination with Altivity

67.6

20.5

Inventory Step Up Related to Altivity

-

11.9

Loss on Early Extinguishment of Debt

7.1

-

Alternative Fuel Tax Credits Net of Expenses

(137.8)

-

Asset Impairment and Shutdown Charges

10.7

17.8

Adjusted EBITDA

$     571.3

$     506.1

March 31,

March 31,

Calculation of Net Debt:

2010

2009

Short-Term Debt and Current Portion of Long-Term Debt

$       17.3

$       18.9

Long-Term Debt

2,783.2

3,208.5

Less:

Cash and Cash Equivalents

(105.6)

(181.0)

Total Net Debt

$  2,694.9

$  3,046.4

Net Leverage Ratio

4.72

6.02

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, 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 March 31, 2010, the Company was in compliance with the financial covenant in the Credit Agreement and the ratio was as follows:

    Consolidated Secured Leverage Ratio — 2.89 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 March 31, 2010 are listed below:

In millions

Twelve Months Ended

March 31, 2010

Net Income

$90.9

Income Tax Expense

23.4

Interest Expense, Net

189.2

Depreciation and Amortization

303.3

Dividends Received, Net of Earnings of Equity Affiliates

(0.3)

Non-Cash Provisions for Reserves for Discontinued Operations

—

Other Non-Cash Charges

52.0

Merger Related Expenses

48.8

Losses Associated with Sale/Write-Down of Assets

37.0

Other  Non-Recurring/Extraordinary/Unusual Items

(132.0)

Projected Run Rate Cost Savings (a)

61.2

Credit Agreement EBITDA

$673.5

In millions

As of

March 31, 2010

Short-Term Debt

$17.3

Long-Term Debt

2,783.2

Total Debt

$2,800.5

Less Adjustments(b)

857.3

Consolidated Secured Indebtedness

$1,943.2

(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 $61.2 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 March 31, 2010. 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,

2010

Net Tons Sold (000's):

Paperboard Packaging

627.6

-

-

-

Multi-wall Bag

62.5

-

-

-

Specialty Packaging (1)

6.0

-

-

-

Total

696.1

-

-

-

Net Sales ($ Millions):

Paperboard Packaging

$     834.6

$          -

$                    -

$                  -

Multi-wall Bag

118.9

-

-

-

Specialty Packaging

50.6

-

-

-

Total

$  1,004.1

$          -

$                    -

$                  -

2009

Net Tons Sold (000's):

Paperboard Packaging

617.1

648.3

655.9

614.8

Multi-wall Bag

60.3

60.0

63.3

60.4

Specialty Packaging (1)

5.2

4.8

6.1

4.8

Total

682.6

713.1

725.3

680.0

Net Sales ($ Millions):

Paperboard Packaging

$     840.4

$    879.3

$              886.2

$            817.6

Multi-wall Bag

124.8

115.3

117.5

114.0

Specialty Packaging

54.0

49.2

50.5

47.0

Total

$  1,019.2

$ 1,043.8

$           1,054.2

$            978.6

(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.)