Graphic Packaging Holding Company Reports Third Quarter 2014 Results

Third Quarter Highlights

• Q3 Net Sales increased $49.3 million or 4.9%, after adjusting for the impact of divested businesses.
• Q3 Adjusted Earnings per Diluted Share increased to $0.17 versus $0.12 in the prior year period.
• Q3 Adjusted EBITDA increased to $190.6 million versus $175.2 million in the prior year period.
• Q3 Adjusted EBITDA margin was 18.2% versus 15.1% in the prior year period.

Graphic Packaging Holding Company (NYSE: GPK), (the "Company"), a leading provider of packaging solutions to food, beverage and other consumer products companies, today reported Net Income for third quarter 2014 of $53.0 million, or $0.16 per share, based upon 330.6 million weighted average diluted shares.  This compares to third quarter 2013 Net Income of $44.5 million, or $0.13 per share, based on 352.2 million weighted average diluted shares.

Including the tax impact, third quarter 2014 Net Income was negatively impacted by $4.5 million of special charges. When adjusting for these charges, Adjusted Net Income for the third quarter of 2014 was $57.5 million, or $0.17 per diluted share compared to third quarter 2013 Adjusted Net Income of $42.9 million or $0.12 per diluted share.

"We reported a record Adjusted EBITDA margin this quarter of just over 18%," said CEO David Scheible. "This represented a three percentage point increase over the third quarter last year.  The significant jump was primarily driven by our decision to exit non-core, lower margin businesses over the last year and to re-focus these resources around our paperboard packaging business.  The divestitures truly transformed us into a pure play, vertically integrated paperboard packaging business."

"We also performed quite well in what continues to be a difficult operating environment, as demand in some of our key end use markets remains sluggish.  Performance was strong across the business, as key operating metrics at both our mills and converting plants were up over last year.  The integration of our acquisitions in Europe is also on target and we are realizing the planned synergies.  Overall, we delivered a solid $22 million net benefit from performance initiatives in the quarter which keeps us on track to achieve our previously guided $60 million of benefits for the full year. We also remain on target to deliver $350 million of net debt reduction from operations in 2014, having achieved approximately $140 million in the third quarter."

Net Sales

Net Sales decreased 9.7% to $1,050.0 million in the third quarter of 2014, compared to $1,163.0 million in the prior year period. Excluding $162.3 million of sales in the prior year period from divested businesses, Net Sales increased $49.3 million or 4.9%. The increase was driven by $28.0 million of improved volume/mix, $19.1 million of higher pricing and $2.2 million of favorable exchange rates.

Given the June 30, 2014 sale of the Company's Multi-wall Bag Business, beginning with the third quarter 2014, the Company will be reporting financial results under a single segment called Paperboard Packaging.

Attached is supplemental data showing Net Tons Sold, Net Sales and Income (Loss) from Operations for the Paperboard Packaging Segment for the first three quarters of 2014 and each quarter of 2013 as reclassified.

EBITDA

EBITDA for third quarter 2014 was $182.3 million, or $6.5 million lower than the third quarter of last year.  When adjusting for special charges, Adjusted EBITDA increased 8.8% to $190.6 million in third quarter 2014 from $175.2 million in third quarter 2013.  When comparing against the prior year quarter, Adjusted EBITDA in the third quarter of 2014 was positively impacted by $22.3 million of improved net operating performance, $19.1 million of higher pricing and $2.4 million of favorable exchange rates.  These benefits were offset by $15.6 million of commodity inflation, $12.6 million in higher labor and benefit costs and $0.2 million of unfavorable volume/mix.

Other Results

Total Net Debt at the end of third quarter 2014 was $2,024.0 million, $177.4 million lower than at the end of 2013.  The Company's September 30, 2014 Net Leverage Ratio dropped to 2.90 times Adjusted EBITDA from 3.23 times Adjusted EBITDA at the end of the third quarter of 2013.  At September 30, 2014, the Company had available domestic liquidity of $877.1 million, including the undrawn availability under its $1.0 billion U.S. revolving credit facility.

Net Interest Expense was $20.4 million in the third quarter of 2014, compared to $23.5 million in the third quarter of 2013. The decrease was primarily attributable to lower debt levels.

Capital expenditures were $42.5 million in the third quarter of 2014, compared to $68.6 million in the third quarter of 2013.  The difference in the quarter was due to the timing of expenditures as capital expenditures through the first 9 months of 2014 were $151.4 million compared to $153.2 million over the same period last year.

Income Tax Expense was $39.3 million in the third quarter of 2014 compared to $35.8 million in the third quarter of 2013.  As of September 30, 2014, the Company had approximately $811 million of Net Operating Losses (NOLs) for U.S. federal cash income tax purposes, which may be used to offset future taxable income.

www.graphicpkg.com

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