Rock-Tenn Company : RockTenn Reports First Quarter Fiscal 2013 Results

RockTenn (NYSE:RKT) today reported earnings for the quarter ended December 31, 2012 of $1.18 per diluted share and adjusted earnings of $1.35 per diluted share. Adjusted earnings per share increased 14% over the prior year quarter.

First Quarter Results

• Net sales of $2,287 million for the first quarter of fiscal 2013 increased $19 million compared to the first quarter of fiscal 2012. Segment income of $209 million increased $16 million or 8% over the prior year quarter.
• RockTenn's restructuring and other costs and operating losses and transition costs due to plant closures were $0.17 per diluted share after-tax, for the first quarter of fiscal 2013. These costs consisted primarily of $9 million of pre-tax facility closure charges and $7 million of pre-tax integration costs.

Chairman and Chief Executive Officer's Statement

RockTenn Chairman and Chief Executive Officer James A. Rubright stated, "Our 14% adjusted earnings per share increase over the prior year quarter reflects the progress we've made in the operating performance of our Corrugated Packaging segment and higher pricing from the fall 2012 containerboard and box price increases. Corrugated Packaging segment EBITDA margins increased to 15.4% for the quarter."

Segment Results

Containerboard and Paperboard Tons Shipped

Corrugated Packaging segment tons shipped declined approximately 16,000 tons over the prior year quarter as we took two major maintenance outages and built approximately 74,000 tons of inventory in the current year quarter. Consumer Packaging segment paperboard and pulp shipments of approximately 346,000 tons increased 4% percent over the prior year quarter primarily on stronger demand for recycled paperboard.

Corrugated Packaging Segment

Corrugated Packaging segment net sales increased $67 million to $1,590 million in the first quarter of fiscal 2013 compared to the prior year quarter and segment income increased $29 million to $138 million in the first quarter of fiscal 2013 compared to the prior year quarter. The increased sales and earnings are primarily related to higher selling prices and lower recycled fiber and energy costs partially offset by $16 million of incremental maintenance outage expense and higher virgin fiber and chemical costs. Corrugated Packaging segment EBITDA margin was 15.4% for the first quarter of fiscal 2013.

Consumer Packaging Segment

Consumer Packaging segment net sales decreased $9 million in the first quarter of fiscal 2013 compared to the prior year quarter due primarily to lower selling prices. Segment income was $67 million in the first quarter of fiscal 2013 compared to $80 million in the prior year quarter due primarily to lower selling prices, and to lower income from promotional displays that resulted primarily from higher containerboard prices. Consumer Packaging segment EBITDA margin was 14.9% for the first quarter of fiscal 2013.

Recycling Segment

Recycling segment net sales decreased $78 million over the prior year first quarter to $252 million primarily as a result of lower selling prices and volume. Segment income increased $1 million to $4 million in the first quarter of fiscal 2013 compared to the prior year quarter primarily due to cost structure improvements. Recycling segment EBITDA margin was 3.0% for the first quarter of fiscal 2013.

Cash Provided From Operating, Financing and Investing Activities

Cash provided by operations was $278 million in the first quarter of fiscal 2013, after pension funding in excess of expense of $13 million. We reduced net debt (as defined) by $155 million in the December quarter to $3.22 billion and our Leverage Ratio (as defined) was 2.77 times. Total debt was $3.25 billion at December 31, 2012. We invested $92 million in capital expenditures and returned $32 million in dividends to our shareholders, including the acceleration of the February 2013 dividend.

Conference Call

We will host a conference call to discuss our results of operations for the first quarter of fiscal 2013 and other topics that may be raised during the discussion at 9:00 a.m., Eastern Time, on January 23, 2013. The conference call will be webcast live with an accompanying slide presentation, along with a copy of this press release, at www.rocktenn.com.

Investors who wish to participate in the webcast via teleconference should dial 888-790-4710 (inside the U.S.) or 773-756-0961 (outside the U.S.) at least 15 minutes prior to the start of the call and enter the passcode ROCKTENN. Replays of the call will be available through February 6, 2013 and can be accessed at 866-351-2785 (U.S. callers) and 203-369-0055 (outside the U.S.).

About RockTenn

RockTenn (NYSE:RKT) is one of North America's leading integrated manufacturers of corrugated and consumer packaging. RockTenn's 26,000 employees are committed to exceeding their customers' expectations - every time. The Company operates locations in the United States, Canada, Mexico, Chile, Argentina and China. For more information, visit www.rocktenn.com.

⁽¹⁾ Includes inventory step-up expense of $0.4 million in the three months ended December 31, 2011.

Non-GAAP Financial Measures and Reconciliations

We have included financial measures that are not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Below, we define the non-GAAP financial measures, provide a reconciliation of each non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP, and discuss the reasons that we believe this information is useful to management and may be useful to investors. These measures may differ from similarly captioned measures of other companies in our industry. The following non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

Net Debt

We have defined the non-GAAP measure "net debt" to include the aggregate debt obligations reflected in our consolidated balance sheet, less the hedge adjustments resulting from fair value interest rate derivatives or swaps and the balance of our cash and cash equivalents.

Our management uses net debt, along with other factors, to evaluate our financial condition. We believe that net debt is an appropriate supplemental measure of financial condition because it provides a more complete understanding of our financial condition before the impact of our decisions regarding the appropriate use of cash and liquid investments. Set forth below is a reconciliation of net debt to the most directly comparable GAAP measures, Current portion of debt and Long-term debt due after one year for the current quarter and the prior quarter.

Segment EBITDA Margins

Our management uses "Segment EBITDA Margins", along with other factors, to evaluate our segment performance against our peers. Management believes that investors also use this measure to evaluate our performance relative to our peers.

Set forth below is a reconciliation of Segment EBITDA margins to the most directly comparable GAAP measures, Segment Income and Segment Sales for the quarter ending December 31, 2012:

Credit Agreement EBITDA and Total Funded Debt

"Credit Agreement EBITDA" is calculated in accordance with the definition contained in our Credit Facility. Credit Agreement EBITDA is generally defined as Consolidated Net Income plus: consolidated interest expense, income taxes of the consolidated companies determined in accordance with GAAP, depreciation and amortization expense of the consolidated companies determined in accordance with GAAP, loss on extinguishment of debt and financing fees, certain non-cash and cash charges incurred, including certain restructuring and other costs, acquisition and integration costs, charges and expenses associated with the write-up of inventory acquired and other items.

"Total Funded Debt" is calculated in accordance with the definition contained in our Credit Facility. Total Funded Debt is generally defined as aggregate debt obligations reflected in our balance sheet, less the hedge adjustments resulting from terminated and existing fair value interest rate derivatives or swaps, less certain cash, plus additional outstanding letters of credit not already reflected in debt and certain guarantees.

Our management uses Credit Agreement EBITDA and Total Funded Debt to evaluate compliance with our debt covenants and borrowing capacity available under our Credit Facility. Management believes that investors also use these measures to evaluate our compliance with our debt covenants and available borrowing capacity. Borrowing capacity is dependent upon, in addition to other measures, the "Credit Agreement Debt/EBITDA ratio" or the "Leverage Ratio," which is defined as Total Funded Debt divided by Credit Agreement EBITDA. As of the December 31, 2012 calculation, our Leverage Ratio was 2.77 times. Our maximum permitted Leverage Ratio under the Credit Facility at December 31, 2012 was 3.75 times.

Set forth below is a reconciliation of Credit Agreement EBITDA for the twelve months ended December 31, 2012, to the most directly comparable GAAP measure, Consolidated Net Income:

Set forth below is a reconciliation of Total Funded Debt to the most directly comparable GAAP measures, Current portion of debt and Long-term debt due after one year:

Adjusted Net Income and Adjusted Earnings per Diluted Share

We also use the non-GAAP measures "adjusted net income" and "adjusted earnings per diluted share". Management believes these non-GAAP financial measures provide our board of directors, investors, potential investors, securities analysts and others with useful information to evaluate the performance of the Company because it excludes restructuring and other costs, net, and other specific items that management believes are not indicative of the ongoing operating results of the business. The Company and our board of directors use this information to evaluate the Company's performance relative to other periods. We believe that the most directly comparable GAAP measures to adjusted net income and adjusted earnings per diluted share are Net income attributable to Rock-Tenn Company shareholders and Earnings per Diluted Share, respectively. Set forth at the beginning of this press release is a reconciliation of adjusted earnings per diluted share to Earnings per diluted share. Set forth below is a reconciliation of adjusted net income to Net income attributable to Rock-Tenn Company shareholders:

RockTenn
John Stakel, SVP-Treasurer, 678-291-7900