Graphic Packaging Holding Company, a leading provider of packaging solutions to food, beverage and other consumer products companies, today reported Net Income for fourth quarter 2012 of $22.9 million, or $0.06 per share, based upon 392.2 million weighted average diluted shares.  This compares to fourth quarter 2011 Net Income of $265.6 million, or $0.67 per share, based on 396.3 million weighted average diluted shares.  The fourth quarter of 2011 was positively impacted by the release of a $265.2 million tax valuation allowance. 

Adjusted Net Income for the fourth quarter of 2012 was $33.2 million, or $0.08 per diluted share, when adjusted for $10.3 million in charges (net of tax) related to business combinations and other special charges (which are detailed in the financial attachments hereto).  This compares to fourth quarter 2011 Adjusted Net Income of $7.0 million or $0.02 per diluted share.   

For the full year 2012, Net Income was $122.6 million, or $0.31 per diluted share, based on 396.2 million weighted average diluted shares.  This compares to 2011 Net Income of $276.9 million or $0.73per diluted share, based on 381.7 million weighted average diluted shares.  Full year 2012 Adjusted Net Income was $146.3 million or $0.37 per diluted share, compared to full year 2011 Adjusted Net Income of $100.7 million, or $0.26 per diluted share.

"We delivered a solid fourth quarter in a challenging operating environment," said CEO David Scheible. "Although end-consumer demand was sluggish, our volume and mix trends remained positive as a result of ongoing share gains in corrugated substitution, pasta and frozen foods. At the same time, we continued to drive year over year margins higher through improved operating performance and a commitment to cost reduction initiatives. Despite approximately $5 million of year-over-year incremental costs from a planned bi-annual maintenance cold outage at our West Monroe, LA mill, we delivered $6 million of benefit from net operating performance, bringing full year cost reduction to over $67 million."  

"I'm also excited about several transactions we executed this quarter.  We completed a secondary offering concurrent with a share repurchase. The offering and share repurchase combined to increase the float of our stock by more than 15% and reduced the shares held by our four largest shareholders from 65% to 53%.  We also acquired Contego's European food carton business and A&R Carton's Beer and Beverage packaging business.  Similar to our strategy in the U.S., we are committed to growing our European business around food and beverage end markets and optimizing our supply chain footprint around our customers' needs.  Both acquisitions will provide opportunities to further integrate our SUS^® paperboard.  Once combined with Graphic's European operations, we expect the new business to generate $16 to $18 million of annualized synergies within two years and be accretive to earnings in the first full year after integration."

Net Sales

Net Sales increased 0.2% to $1,053.3 million during fourth quarter 2012, compared to fourth quarter 2011 Net Sales of $1,051.7 million.  The slight increase resulted from $13.2 million of favorable volume/mix, partially offset by $8.8 million of lower pricing and $2.8 million of unfavorable exchange rates.  Full year 2012 Net Sales were $4,337.1 million, which is $130.8 million or 3.1% higher than 2011.

On a segment basis, Paperboard Packaging sales, which comprised 83.2% of total fourth quarter Net Sales, decreased 2.2% compared to the fourth quarter of 2011.  The decrease primarily reflected lower contractual pricing related to prior commodity input deflation.  Net sales in the Flexible Packaging segment increased 13.6% compared to the fourth quarter of 2011.  The increase was primarily the result of the addition of Delta Natural Kraft, LLC and Mid-America Packaging, LLC beginning on December 8, 2011. 

Attached is supplemental data showing Net Tons Sold, Net Sales and Income (Loss) from Operations by business segment for each quarter of 2012 and 2011.   

EBITDA

EBITDA for fourth quarter 2012 was $133.8 million.  Excluding $12.5 million of Charges Associated with Business Combinations and $3.9 million of other special charges, Adjusted EBITDA was $150.2 million.  This compares to fourth quarter 2011 EBITDA of $135.8 million and Adjusted EBITDA of $146.5 million.

Full year 2012 EBITDA was $609.0 million.  Excluding $22.7 million of Charges Associated with Business Combinations and $15.7 million of other special charges, full year 2012 Adjusted EBITDA was $647.4 million.  This compares to full year 2011 EBITDA of $480.5 million and Adjusted EBITDA of$591.3 million. 

When comparing against the prior year quarter, Adjusted EBITDA in the fourth quarter of 2012 was positively impacted by $10.8 million of commodity deflation, $6.1 million of improved net operating performance, $1.8 million of favorable volume/mix and $1.7 million of favorable exchange rates/other.  These benefits were partially offset by $8.8 million of lower pricing and $7.9 million in higher costs, primarily for labor and benefits.

Other Results

At the end of 2012, the Company's total debt was $2,333.3 million, or $32.5 million lower compared to the end of 2011.  Taking cash and cash equivalents into account, total Net Debt at the end of 2012 was $2,281.8 million.  This represents an increase of $187.8 million in Net Debt during 2012.  The 2012 increase in Net Debt was primarily due to the $300 million incremental term loan entered to fund the Company's fourth quarter share repurchase, as well as the debt incurred in connection with the acquisitions of Contego Packaging Holdings, Ltd. and A&R Carton Holding B.V.  When compared to 2011, the Company's 2012 Net Leverage Ratio remained essentially flat at 3.5 times Adjusted EBITDA.  Including cash and cash equivalents, at December 31, 2012, the Company had available liquidity of $652.3 million, including the undrawn availability under its $1.0 billion revolving credit facility.

The Company generated $180.3 million of Net Cash Provided by Operating Activities in the fourth quarter of 2012.  This compares to $188.9 million in the fourth quarter of 2011.  For full year 2012, Net Cash Provided by Operating Activities was $468.6 million compared to $387.8 million in 2011. 

Net Interest Expense was $25.5 million in fourth quarter 2012, compared to $34.2 million in fourth quarter 2011.  Full year 2012 Net Interest Expense was $111.1 million compared to $144.9 million in 2011.  The decrease was due to both lower debt balances and lower effective interest rates.

Capital expenditures for fourth quarter 2012 were $74.9 million compared to $51.7 million in the fourth quarter of 2011.  For full year 2012, capital expenditures were $203.3 million compared to $160.1 million in 2011.  The increase was primarily the result of the expenditures for the Macon, GA biomass boiler project and consolidation of Delta Natural Kraft and Mid-America Packaging into Graphic Flexible Packaging. 

Fourth quarter 2012 Income Tax Expense was $13.9 million, compared to a $234.5 million benefit in the fourth quarter of 2011.  For the full year 2012, Income Tax Expense was $82.5 million compared to a $229.8 million benefit in 2011.  The prior year Income Tax comparisons are impacted by the fourth quarter 2011 non cash benefit of $265.2 million associated with the release of the Company's U.S. federal, and a substantial portion of its state, deferred tax asset valuation allowance.  The valuation allowance release was based on the Company's assessment that it is more likely than not that the Company's U.S. federal and a substantial portion of its state deferred tax assets will be realized. As of December 31, 2012, the Company had approximately $950 million of NOLs for U.S. federal income tax purposes, which may be used to offset future taxable income.

Please note that a tabular reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net Income and Total Net Debt is attached to this release.

Acquisitions of Contego Packaging Holdings, Ltd. and A&R Carton Holding B.V.

During the fourth quarter 2012, the Company made two acquisitions in Europe.  On December 31, 2012, the Company acquired Contego Packaging Holdings, Ltd. ("Contego"), a leading food and consumer product packaging company based in the United Kingdom. Under the terms of the transaction, the Company paid approximately $93 million and assumed debt of approximately $35 million in an all cash transaction. Contego operates four folding carton facilities that convert approximately 150,000 tons of paperboard annually.

On December 31, 2012, the Company acquired A&R Carton Holding B.V. ("A&R"), which was A&R Carton's beer and beverage packaging business. Under the terms of the transaction, the Company paid approximately $25 million and assumed approximately $2 million in debt in an all cash transaction. A&R includes two manufacturing facilities that convert approximately 30,000 tons of paperboard annually.

The combination of Graphic Packaging's European packaging business with these two acquisitions will create one of Europe's largest folding carton businesses.  The two acquisitions provide state of the art web and sheet-fed converting assets creating a manufacturing platform in Europe similar to Graphic Packaging's U.S. operations.

Secondary Offering and Share Repurchase

During December 2012, certain shareholders of the Company sold 18.5 million shares of common stock in a secondary public offering at $6.10 per share, as well as an additional 2.8 million shares pursuant to the underwriters' overallotment option. In connection with the offering, the Company also repurchased and retired approximately 49.2 million shares of its common stock from the selling stockholders at $6.10 per share. The Company funded the share repurchase with an incremental term loan borrowing pursuant to an amendment to its Amended and Restated Credit Agreement, datedMarch 16, 2012 (the "Credit Agreement"). As a result of these actions, the shares outstanding held by the selling shareholders decreased from approximately 65% to approximately 53%.