Date: July 29, 2008
Source: Smurfit-Stone Container Corp.
Smurfit-Stone Container Corporation (NASDAQ: SSCC) today reported a second quarter 2008 adjusted net loss of $31 million, or $0.12 per diluted share. Results compare to adjusted net income of $15 million, or $0.06 per share, in the second quarter 2007 and an adjusted net loss of $24 million, or $0.09 per share, in the first quarter 2008. Adjusted net income (loss) reflects adjustments to net income (loss) available to common stockholders per diluted share, as detailed in the chart above.
Sales of $1.8 billion for the second quarter 2008 were comparable to both the prior year quarter and first quarter 2008.
Commenting on the company's second quarter performance, Patrick J. Moore, chairman and CEO, said, "We are seeing unprecedented cost inflation. As a result, our second quarter earnings were negatively impacted by higher-than-expected commodity costs including energy, freight and chemicals. We are raising our selling prices to offset this higher cost inflation, restore profit margins, and improve cash flow in the second half of 2008. In addition, I am pleased with the excellent progress we are making on our transformation plan. We remain on track to complete this program and realize $525 million in cumulative savings this year."
Second quarter operating highlights
$55 per ton containerboard and corresponding box price increases announced
Per-day US box shipments increased 0.7 percent sequentially
Significantly higher cost inflation impacted operating profit $47 million compared to first quarter 2008
Announced permanent closure of Snowflake, AZ, containerboard machine
5 box plant closures completed or announced year-to-date
Reduced headcount by 150 in second quarter; 5,725 since 2005
Commenting on second quarter operations, Steven J. Klinger, president and COO, said: "Given sequentially higher box shipments and lower mill production due to additional maintenance downtime, we ended the second quarter with record low containerboard inventories. While our average domestic linerboard and box prices were essentially flat with the first quarter, we are implementing price increases for both products starting in July."
Smurfit-Stone's per-day US box shipments increased 0.7 percent from the first quarter but were down 5 percent year-over-year. When adjusted to exclude the impact of box plant closures and efforts to improve low margin accounts, shipments were down 3 percent year-over-year. Adjusted shipments compare favorably to the overall US market, which declined 3.7 percent as reported by the Fibre Box Association.
"Sharply higher cost inflation impacted our operating profits by $47 million, or $0.11 per share, compared to the first quarter, primarily due to higher energy and freight costs," Klinger said. "Despite higher costs, we made continued progress transforming our operations in the second quarter. We announced the closure of the Snowflake mill paper machine effective in October. Since July 2005, we have closed 29 box plants and 4 additional plant closures have been announced. Our new box plant in the Chicago area commenced operations in the second quarter and we expect the new Los Angeles plant will be operational in the third quarter. Our transformation efforts reduced headcount by 150 positions in the second quarter and by 5,725, or 22 percent, since 2005. Overall, our transformation efforts remain on track."
Second quarter financial highlights
Commenting on the company's financial position, Charles A. Hinrichs, senior vice president and CFO said, "Reflecting significant cost inflation and higher capital spending, our debt increased in the second quarter. However, we expect to generate positive free cash flow in the second half of 2008 as we raise our selling prices and achieve additional benefits from our strategic initiatives. As a result, we are comfortable with our liquidity and expect to remain in compliance with our financial covenants in 2008."
Outlook - improved financial performance
Higher average selling prices and increased mill production, due to less maintenance downtime, should drive sequentially higher earnings in the third quarter of 2008, despite continued cost inflation. Commenting on Smurfit-Stone's outlook, Moore said, "Our earnings in the first half of 2008 were impacted by unprecedented cost inflation and a slow economy. Facing these challenges, the company is taking action to drive profitable growth and restore margins. We are aggressively implementing our previously announced $55 per ton containerboard and corresponding box price increases. Furthermore, we expect additional savings as we complete our transformation program. Longer term, we will leverage one of the most modern converting operations and our productive mill system to improve profitability and build shareholder value."
Smurfit-Stone management will discuss the company's financial performance at 9:00 a.m. ET on Tuesday, July 29, 2008, via a live webcast and teleconference. Participants can join the presentation by linking to the webcast through the investor page of the company's website at www.smurfit-stone.com or by calling (866) 393-7299 (no passcode) at least 10 minutes prior to the commencement of the presentation. The presentation will be archived on the company's website for subsequent viewing.
Smurfit-Stone Container Corporation (NASDAQ: SSCC) is the industry's leading integrated containerboard and corrugated packaging producer and is one of the world's largest paper recyclers. The company is a member of the World Business Council for Sustainable Development, the Sustainable Forestry Initiative(R), and the Chicago Climate Exchange. Smurfit-Stone generated revenue of $7.4 billion in 2007, has led the industry in safety every year since 2001, and conducts its business in compliance with the environmental, health, and safety principles of the American Forest & Paper Association.
This press release contains statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in general economic conditions, continued pricing pressures in key product lines, seasonality and higher recycled fiber and energy costs, as well as other risks and uncertainties described in the company's Annual Report on Form 10-K for the year ended December 31, 2007, as updated from time to time in the company's Securities and Exchange Commission filings. In this press release, certain non-U.S. GAAP financial information is presented. A reconciliation of that information to U.S. GAAP financial measures and additional disclosure regarding our use of non-GAAP financial measures are included in the attached schedules.
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions)
June 30, December 31,
2008 2007
Assets (Unaudited)
Current assets
Cash and cash equivalents $9 $7
Receivables, net 184 170
Retained interest in receivables
sold (Note 1) 288 249
Inventories 565 540
Prepaid expenses and other current
assets 50 36
Total current assets 1,096 1,002
Net property, plant and equipment 3,481 3,454
Timberland, less timber depletion 32 32
Goodwill 2,727 2,727
Other assets 154 172
$7,490 $7,387
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term
debt $11 $11
Accounts payable 615 582
Accrued compensation and payroll
taxes 176 193
Interest payable 65 66
Income taxes payable 14 10
Current deferred income taxes 21 21
Other current liabilities 114 106
Total current liabilities 1,016 989
Long-term debt, less current
maturities 3,561 3,348
Other long-term liabilities 789 834
Deferred income taxes 292 361
Stockholders' equity
Preferred stock 99 97
Common stock 3 3
Additional paid-in capital 4,078 4,066
Retained earnings (deficit) (2,114) (2,058)
Accumulated other comprehensive
income (loss) (234) (253)
Total stockholders' equity 1,832 1,855
$7,490 $7,387
Note 1: At June 30, 2008 and December 31, 2007, $681 million and $656
million, respectively, of receivables had been sold under two
accounts receivable programs, of which the company retained a
subordinated interest. The off-balance sheet debt related to the
two accounts receivable programs totaled $393 million and $422
million, respectively, as of those dates. See our Annual Report
on Form 10-K for the year ended December 31, 2007 for a further
description of these programs.
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net sales $1,835 $1,870 $3,630 $3,694
Costs and expenses
Cost of goods sold 1,659 1,609 3,242 3,219
Selling and administrative expenses 157 164 348 333
Restructuring expense 9 10 13 34
Gain on disposal of assets (1) (4)
Income from operations 11 87 31 108
Other income (expense)
Interest expense, net (61) (73) (124) (147)
Loss on early extinguishment of
debt (5) (28)
Foreign currency exchange gains
(losses) (4) (20) 11 (25)
Other, net (3) 7 (6) 2
Loss before income taxes (57) (4) (88) (90)
Benefit from income taxes 20 2 38 36
Net loss (37) (2) (50) (54)
Preferred stock dividends and
accretion (3) (3) (6) (6)
Net loss available to common
stockholders $(40) $(5) $(56) $(60)
Basic and diluted earnings per common
share
Net loss available to common
stockholders $(.16) $(.02) $(.22) $(.23)
Weighted average shares outstanding 257 256 257 256
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
June 30,
2008 2007
Cash flows from operating activities
Net loss $(50) $(54)
Adjustments to reconcile net
loss to net cash provided by
(used for) operating activities
Loss on early extinguishment
of debt 28
Depreciation, depletion and
amortization 175 181
Amortization of deferred debt
issuance costs 4 4
Deferred income taxes (73) (46)
Pension and postretirement
benefits (12) (24)
Gain on disposal of assets (4)
Non-cash restructuring expense 2 4
Non-cash stock-based
compensation 9 12
Non-cash foreign currency
exchange (gains) losses (11) 25
Change in current assets and
liabilities, net of effects
from acquisitions and
dispositions
Receivables and retained
interest in receivables
sold (52) (51)
Inventories (25) (6)
Prepaid expenses and other
current assets (8) 2
Accounts payable and
accrued liabilities 36 1
Interest payable (12)
Other, net 1 7
Net cash provided by (used for)
operating activities (8) 71
Cash flows from investing activities
Expenditures for property, plant
and equipment (207) (171)
Proceeds from property disposals 8 37
Net cash used for investing
activities (199) (134)
Cash flows from financing activities
Proceeds from long-term debt 675
Net borrowings (repayments) of
long-term debt 213 (576)
Debt repurchase premiums (23)
Preferred dividends paid (4) (4)
Proceeds from exercise of stock
options 1
Deferred debt issuance costs (7)
Net cash provided by financing
activities 209 66
Increase in cash and cash equivalents 2 3
Cash and cash equivalents
Beginning of period 7 9
End of period $9 $12
SMURFIT-STONE CONTAINER CORPORATION
SELECTED FINANCIAL HIGHLIGHTS
(In millions, except per share data)
(Unaudited)
2008 2007
1st Qtr 2nd Qtr Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Net sales $1,795 $1,835 $3,630 $1,824 $1,870 $1,885 $1,841 $7,420
Containerboard
and corrugated
containers
segment
operating
profit $108 $74 $182 $102 $162 $182 $158 $604
Interest
expense, net (63) (61) (124) (74) (73) (73) (65) (285)
Corporate
expenses (48) (48) (96) (44) (46) (44) (43) (177)
Other income
(expense),
net (28) (22) (50) (70) (47) (114) 13 (218)
Pre-tax income
(loss) from
operations $(31) $(57) $(88) $(86) $(4) $(49) $63 $(76)
Net income
(loss)
available
to common
stockholders $(16) $(40) $(56) $(55) $(5) $(96) $41 $(115)
Net income
(loss)
available
to common
stockholders
per diluted
share $(0.06) $(0.16) $(0.22) $(0.21) $(0.02) $(0.38) $0.16 $(0.45)
Adjusted net
income
(loss)
per diluted
share $(0.09) $(0.12) $(0.21) $(0.09) $0.06 $0.11 $0.09 $0.17
Adjusted
EBITDA $121 $109 $230 $135 $206 $217 $197 $755
Depreciation,
depletion and
amortization $87 $88 $175 $88 $93 $91 $88 $360
Capital
expenditures $94 $113 $207 $96 $75 $97 $116 $384
Pension
contributions $20 $12 $32 $31 $36 $48 $14 $129
Total
reported
debt $3,481 $3,572 $3,572 $3,739 $3,734 $3,406 $3,359 $3,359
SMURFIT-STONE CONTAINER CORPORATION
STATISTICAL INFORMATION
2008 2007
1st Qtr 2nd Qtr Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Containerboard
System
North American
Mill Operating
Rates
(Container-
board Only) 100.0% 99.0% 99.5% 97.1% 98.1% 100.0% 99.8% 99.2%
North American
Container-
board
Production -
M Tons 1,784 1,767 3,551 1,813 1,851 1,893 1,779 7,336
Year over
Year Avg.
Domestic
Linerboard
Price Change 7.5% 6.2% 6.8% 12.8% 3.1% -0.2% 7.8% 4.9%
Sequential
Avg. Domestic
Linerboard
Price Change -0.5% -0.6% N/A -0.3% 0.6% 1.6% 5.7% N/A
Pulp Production
- M Tons 123 136 259 145 134 149 146 574
SBS/Bleached
Board
Production
- M Tons 33 29 62 78 82 76 33 269
Kraft Paper
Production
- M Tons 43 44 87 46 47 39 45 177
Corrugated
Containers
North American
Shipments
- BSF 17.6 18.1 35.7 19.0 18.9 18.5 17.9 74.3
Per Day North
American
Shipments
- MMSF 279.1 283.0 281.1 296.7 299.3 293.7 295.0 296.2
Year over
Year Avg.
Corrugated
Price Change 4.7% 3.6% 4.1% 6.9% 3.3% 0.6% 3.5% 3.5%
Sequential Avg.
Corrugated
Price Change 1.2% -0.3% N/A 0.1% 0.7% 0.3% 2.4% N/A
Fiber Reclaimed
and Brokered
- M tons 1,716 1,677 3,393 1,721 1,679 1,688 1,754 6,842
SMURFIT-STONE CONTAINER CORPORATION
EBITDA, As Defined Below
(In millions)
(Unaudited)
2008 2007
1st Qtr 2nd Qtr Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Net income
(loss) $(13) $(37) $(50) $(52) $(2) $(93) $44 $(103)
(Benefit from)
provision
for income
taxes (18) (20) (38) (34) (2) 44 19 27
Interest
expense, net 63 61 124 74 73 73 65 285
Depreciation,
depletion
and
amortization 87 88 175 88 93 91 88 360
EBITDA 119 92 211 76 162 115 216 569
Receivables
discount
expense 6 4 10 7 9 7 4 27
Restructuring
(income)
charges 4 9 13 24 10 11 (29) 16
Non-cash
foreign
currency
exchange
(gains)
losses (15) 4 (11) 5 20 22 5 52
Litigation
charges 8 - 8
Loss on early
extinguishment
of debt - - - 23 5 1 - 29
(Gain) loss on
sale of
assets (1) - (1) - - 64 1 65
Pension
curtailment - - - - - (3) - (3)
Adjusted EBITDA $121 $109 $230 $135 $206 $217 $197 $755
"EBITDA" is defined as net income (loss) before (benefit from) provision
for income taxes, interest expense, net and depreciation, depletion and
amortization. "Adjusted EBITDA" is defined as EBITDA adjusted as indicated
above. EBITDA and Adjusted EBITDA are non-GAAP financial measures. See
disclosure following regarding the use of non-GAAP financial measures.
SMURFIT-STONE CONTAINER CORPORATION
ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE
(In Millions, Except Per Share Data)
(Unaudited)
2008 2007
1st Qtr 2nd Qtr Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Net income
(loss)
available to
common
stockholders
(GAAP) $(16) $(40) $(56) $(55) $(5) $(96) $41 $(115)
Loss on early
extinguishment
of debt, net of
income taxes - - - 14 3 - - 17
Non-cash foreign
currency exchange
(gains)/losses (15) 4 (11) 5 20 22 5 52
(Gain) loss on
sale of assets,
net of income
tax (1) - (1) - - 97 - 97
Restructuring
(income)
charges, net of
income taxes 3 5 8 14 1 7 (18) 4
Litigation charges,
net of income
taxes 5 - 5 - - - - -
Pension curtailment,
net of income
taxes - - - - - (2) - (2)
Resolution of a
prior year
income tax
matter - - - - (4) - - (4)
Reduction in
Canadian
statutory
income tax
rates - - - - - - (5) (5)
Adjusted net
income (loss)
available to
common
stockholders
(Note 1) $(24) $(31) $(55) $(22) $15 $28 $23 $44
2008 2007
1st Qtr 2nd Qtr Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Net income
(loss) per
diluted share
available to
common
stockholders
(GAAP) $(0.06) $(0.16) $(0.22) $(0.21) $(0.02) $(0.38) $0.16 (0.45)
Loss on early
extinguish-
ment of
debt - - - 0.05 0.01 - - 0.07
Non-cash
foreign
currency
exchange
(gains)/
losses (0.06) 0.02 (0.04) 0.02 0.08 0.09 0.02 0.20
(Gain) loss
on sale
of assets - - - - - 0.38 - 0.38
Restructuring
(income)
charges 0.01 0.02 0.03 0.05 0.01 0.03 (0.07) 0.02
Litigation
charges 0.02 - 0.02 - - - - -
Pension
curtailment - - - - - (0.01) - (0.01)
Resolution of
a prior year
income tax
matter - - - - (0.02) - - (0.02)
Reduction in
Canadian
statutory
income
tax rates - - - - - - (0.02)(0.02)
Adjusted net
income
(loss) per
diluted share
available
to common
stockholders
(Note 1) $(0.09) $(0.12) $(0.21) $(0.09) $0.06 $0.11 $0.09 $0.17
Note 1: Exclusive of loss on early extinguishment of debt, non-cash
foreign currency (gain) loss, (gain) loss on sale of assets,
restructuring charges, litigation charges, pension curtailment,
resolution of a prior year income tax matter and reduction in
Canadian statutory income tax rate. Adjusted net income (loss)
available to common stockholders and adjusted net income (loss)
per diluted share available to common stockholders are non-GAAP
financial measures. See disclosure following regarding the use of
non-GAAP financial measures.
SMURFIT-STONE CONTAINER CORPORATION
NON-GAAP FINANCIAL MEASURES
We measure our performance primarily through our operating profit. In addition to our audited consolidated financial statements presented in accordance with U.S. generally accepted accounting principles ("GAAP"), management uses certain non-GAAP financial measures, including "EBITDA," "adjusted EBITDA" and "adjusted net income (loss) per diluted share available to common stockholders" to measure our operating performance. We provide a definition of the components of these measurements and reconciliation to the most directly comparable GAAP financial measure.
These non-GAAP measures are considered by our Board of Directors and management as a basis for measuring and evaluating our overall operating performance. They are presented to enhance an understanding of our operating results and are not intended to represent cash flow or results of operations. The use of these non-GAAP measures provides an indication of our ability to service debt and we consider them appropriate measures to use because of our highly leveraged position. We believe these non-GAAP measures are useful in evaluating our operating performance compared to other companies in our industry, and are beneficial to investors, potential investors and other key stakeholders, including analysts and creditors who use these measures in their evaluations of our performance.
EBITDA has certain material limitations associated with its use as compared to net income. These limitations are primarily due to the exclusion of certain amounts that are material to our consolidated results of operations, such as interest expense, income tax expense and depreciation and amortization. In addition, EBITDA may differ from the EBITDA calculations of other companies in our industry, limiting its usefulness as a comparative measure.
Because of these limitations, EBITDA should not be considered a measure of discretionary cash available to us to invest in our business and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and adjusted EBITDA only as supplemental measures of our operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with GAAP. The EBITDA presentation includes a reconciliation to net income which we believe is clear and useful to our stakeholders. A further reconciliation to adjusted EBITDA excludes certain unusual or non-recurring items, and presents a more accurate picture of our operating performance.
We use adjusted EBITDA to provide meaningful supplemental information regarding our operating performance and profitability by excluding from EBITDA certain unusual or nonrecurring items that we believe are not indicative of our ongoing operating results as follows:
Loss on Early Extinguishment of Debt -- which represents unamortized deferred debt issuance cost or call premiums charged to expense in connection with our financing activities.
Non-Cash Foreign Currency Gain or Loss -- which is recorded in connection with fluctuations in the Canadian dollar. The functional currency for our Canadian operations is the U.S. dollar. Fluctuations in Canadian dollar-denominated monetary assets and liabilities result in non-cash gains or losses.
Gain or Loss on Sale of Assets -- related to significant transactions which occur on an infrequent basis.
Receivables Discount Expense -- which is recorded in connection with our accounts receivable securitization program and is considered a financing activity similar to interest expense that is added back in our presentation of adjusted EBITDA in a manner consistent with our interest expense.
Restructuring Charges -- which consist primarily of facility closures and other headcount reductions. A significant amount of these restructuring charges are non-cash charges related to the write-down of property, plant and equipment to estimated net realizable value. We exclude these restructuring charges to more clearly reflect our ongoing operating performance.
Litigation Charges -- related to significant legal matters which occur on an infrequent basis.
Pension Curtailment -- which occur on an infrequent basis.
We also use the non-GAAP measure "adjusted net income (loss) per diluted share available to common stockholders." Management believes this non-GAAP financial measure provides investors, potential investors, security analysts and others with useful information to evaluate the performance of the business because it excludes gains and losses and charges that management believes are not indicative of the ongoing operating results of the business. In addition, this non-GAAP financial measure is used by management to evaluate our operating performance for the same reasons as detailed above in the description of the related components excluded from EBITDA to arrive at adjusted EBITDA.
www.smurfit-stone.com
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