Smurfit-Stone Reports Third Quarter 2010 Results

CREVE COEUR, Mo. and CHICAGO, Nov. 1, 2010 /PRNewswire-FirstCall/ -- Smurfit-Stone Container Corporation (NYSE: SSCC) today reported net income of $65 million, or $0.65 per diluted share, for the third quarter ended Sept. 30, 2010, compared with net income attributable to common stockholders of $1.41 billion, or $5.41 per diluted share, for the second quarter of 2010, and $65 million, or $0.25 per share, for the third quarter of 2009.

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Smurfit-Stone's third quarter 2010 adjusted net income was $76 million, or $0.76 per diluted share, up from adjusted net income of $2 million, or $0.01 per diluted share, in the second quarter of this year, and an adjusted net loss of ($23) million, or ($0.09) per diluted share, in the third quarter of 2009.  The adjustments in the third quarter of 2010 were primarily the exclusion of costs related to reorganization and restructuring.  The major adjustment in the second quarter of 2010 was the exclusion of $1.42 billion of income, including tax benefits, related to the Company's emergence from bankruptcy.

The Company reported operating income of $142 million for the third quarter of 2010, compared to an operating loss of ($6) million in the second quarter of 2010, and operating income of $159 million in the third quarter of 2009.  The sequential improvement in operating income reflects increased net sales in the third quarter due to higher selling prices, lower maintenance-related downtime, lower fiber costs, and cost savings achieved in mill and container operations.  Third quarter 2009 operating income significantly benefitted from income related to the alternative fuel tax credits that were received in 2009.  

Patrick J. Moore, Smurfit-Stone's Chief Executive Officer, commented, "I am pleased with our strong third quarter performance, which benefitted from favorable pricing trends and lower input costs driven primarily by fiber.  Importantly, we are realizing cost savings and efficiency improvements from our financial restructuring, investments in our core business, and focused efforts such as our Operational Excellence initiative.  I'm proud of the efforts and commitment of our employees which contributed significantly to the strong quarter.  I view the positive momentum in the quarter as an important step in delivering on the accelerated performance improvement we are pursuing."

Adjusted EBITDA for the third quarter of 2010 was $239 million, up from $102 million in the second quarter of 2010, and $94 million in the third quarter of 2009.  The sequential improvement in adjusted EBITDA reflects higher selling prices, reduced maintenance-related downtime and related expenses, lower fiber costs, and improvements in overall operating productivity including additional headcount reductions made in the quarter.    

Net sales for the third quarter of this year were $1.63 billion, up 4.5 percent from $1.56 billion in the second quarter of 2010 and up 15.3 percent over sales of $1.42 billion in the third quarter of 2009.  The improvement in third quarter 2010 net sales is primarily due to higher average selling prices during the quarter.        

Third Quarter Highlights

• The Company achieved very strong results in its first quarter since emerging from bankruptcy, demonstrating the performance capabilities of the new Smurfit-Stone.
• Ongoing efforts to reduce operating costs were also a significant contributor to higher earnings and cash generation in the quarter, with overall headcount being reduced by 460 positions in the quarter and 1,368 positions year to date.
• Strong cash generation, with cash balances growing by $124 million in the quarter, resulting in net debt of less than $730 million at September 30, 2010.  

Outlook

Smurfit-Stone expects moderately lower sequential earnings in the fourth quarter from the third quarter, as continued price improvement will be more than offset by additional mill maintenance costs, normal seasonal demand declines and higher energy usage.  The Company also expects higher recycled fiber costs in the fourth quarter.  

In addition to the major cost reduction focus in the business operations, the Company is undertaking a significant reduction in its selling, general and administrative costs, primarily through reductions of more than 450 positions for full-year 2010, or more than 14 percent of its workforce in these functions.  The Company expects to realize net savings of more than $50 million in 2011 as compared to 2010, and has identified opportunities for additional savings in 2012.

Conference Call and Webcast

Smurfit-Stone will host a conference call for analysts, institutional investors and shareholders on Monday, Nov. 1, 2010, at 8:30 a.m. Eastern Time. To access the call, participants should dial the number below approximately 10 minutes before the start time.

U.S. – (866) 783-2146 or International – (857) 350-1605

Passcode:  26779754

The call will also be webcast in a listen-only format with an accompanying slide presentation and can be accessed at www.smurfit-stone.com.

A replay of the conference call will be available through Nov. 15, 2010.  To access the replay, dial (888) 286-8010 (U.S.) or (617) 801-6888 (International), and enter passcode 99716475

A replay of the webcast will be available at www.smurfit-stone.com.

Forward-Looking Statements & Non-GAAP Measures

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, pricing pressures in key product lines, seasonality, changes in input costs including 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, 2009, 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.  The Company does not intend to review, revise or update any particular forward-looking statements in light of future events.

About Smurfit-Stone

Smurfit-Stone Container Corporation is one of the industry's leading integrated containerboard and corrugated packaging producers and one of the world's largest paper recyclers. Smurfit-Stone generated revenue of $5.57 billion in 2009, 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.  The company is a member of the Sustainable Forestry Initiative® .  

SMURFIT-STONE CONTAINER CORPORATION NON-GAAP FINANCIAL MEASURES

In the accompanying financial presentation, we use the financial measures "adjusted net income (loss) attributable to common stockholders" (adjusted net income (loss)), "adjusted net income (loss) per diluted share attributable to common stockholders" (adjusted net income (loss) per diluted share), "EBITDA" and "adjusted EBITDA" which are derived from our consolidated financial information but are not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). These measures are considered "non-GAAP financial measures" under the U.S. Securities and Exchange Commission (SEC) rules.  Adjusted net income (loss) and adjusted net income (loss) per diluted share are non-GAAP financial measures that exclude from net income (loss) attributable to common stockholders the effects of reorganization items (income) expense, debtor-in-possession financing costs, alternative fuel mixture tax credits, loss on early extinguishment of debt, non-cash foreign currency exchange (gains) losses, interest on Predecessor unsecured debt, restructuring charges, (gain) loss on sale of assets and a multi-employer pension plan withdrawal charge.  EBITDA is defined as net income (loss) before (provision for) benefit from income taxes, interest expense, net and depreciation, depletion and amortization.  Adjusted EBITDA is defined as EBITDA adjusted for reorganization items (income) expense, restructuring charges, debtor-in-possession financing costs, alternative fuel mixture tax credits, loss on early extinguishment of debt, non-cash foreign currency exchange (gains) losses, (gain) loss on sale of assets, a multi-employer pension plan withdrawal charge and other adjustments.

The accompanying financial presentation includes a reconciliation of net income (loss) attributable to common stockholders and net income (loss) per diluted share attributable to common stockholders, the most directly comparable GAAP financial measures, to adjusted net income (loss) and adjusted net income (loss) per diluted share, respectively.  A reconciliation of net (income) loss to EBITDA and adjusted EBITDA is also presented.

We use these supplemental non-GAAP measures to evaluate performance period over period, to analyze the underlying trends in our business, to assess our performance relative to our competitors and to establish operational goals and forecasts that are used in allocating resources. These non-GAAP measures of operating results are reported to our board of directors, chief executive officer and our president and chief operating officer and are used to make strategic and operating decisions and assess performance.  These non-GAAP measures are presented to enhance an understanding of our operating results and are not intended to represent cash flows or results of operations.  We also believe these non-GAAP measures are beneficial to investors, potential investors and other key stakeholders, including analysts and creditors who use these measures in their evaluations of our performance from period to period and against the performance of other companies in our industry. Our creditors also use these measures to evaluate our ability to service our debt.  The use of these non-GAAP financial measures is beneficial to these stakeholders because they exclude certain items that management believes are not indicative of the on-going operating performance of our business, and including them would distort comparisons to our past operating performance.  Accordingly, we have excluded the adjustments, as detailed below, for the purpose of calculating these non-GAAP measures. 

The following is an explanation of each of the adjustments that we have made to arrive at these non-GAAP measures for (1) the three months ended September 30, 2010 of the Successor, (2) the six months ended June 30, 2010 of the Predecessor and (3) the three and nine months ended September 30, 2009 of the Predecessor, as well as the reasons management believes each of these items is not indicative of operating performance:

• Reorganization items (income) expense, net of income taxes - These income and expense items are directly related to the process of our reorganizing under Chapter 11 and the Companies' Creditors Arrangement Act in Canada.  The items include gain due to plan effects, gain due to fresh start accounting adjustments, provision for rejected/settled executory contracts and leases, accounts payable settlement gains and professional fees.  These income and expense items are not considered indicative of our ongoing operating performance and are not used by us to assess our operating performance.
• Debtor-in-possession (DIP) financing costs - These expenses were incurred and paid during the first quarter of 2009 in connection with entering into the DIP Credit Agreement.  These expense items are not considered indicative of our ongoing operating performance and are not used by us to assess our operating performance.
• Alternative fuel mixture tax credits - These amounts represent an excise tax credit for alternative fuel mixtures produced by a taxpayer for sale, or for use as a fuel in a taxpayer's trade or business, through December 31, 2009, at which time the credit expired.  These items are not considered indicative of our ongoing operating performance and are not used by us to assess our operating performance.
• Loss on early extinguishment of debt - These losses represent unamortized deferred debt issuance cost and call premiums charged to expense in connection with our financing activities.  These losses were not considered indicative of our ongoing operating performance because they related to specific financing activities and were not used by us to assess our operating performance.
• Non-cash foreign currency (gains) losses - Through June 30, 2010, the functional currency for our Canadian operations was the U.S. dollar.  Fluctuations in Canadian dollar-denominated monetary assets and liabilities resulted in non-cash gains or losses.  We excluded the impact of foreign currency exchange gains and losses because the impact of foreign exchange is highly variable and difficult to predict from period to period and is not tied to our operating performance.  These gains or losses are not considered indicative of our ongoing operating performance and are not used by us to assess our operating performance.
• Interest on Predecessor unsecured debt - These amounts represent the post-petition interest accrued on unsecured debt from the time of our bankruptcy filing, which was stayed and not paid as a result of the bankruptcy proceedings.  In the fourth quarter of 2009, we concluded it was not probable that interest expense that was accrued from the time of our bankruptcy filing through November 30, 2009, would be an allowed claim.  This expense was not considered indicative of our ongoing operating performance and was excluded by management in assessing our operating performance.                  
• Restructuring charges - These adjustments represent the write-down of assets, primarily property, plant and equipment, to estimated net realizable values, the acceleration of depreciation for equipment to be abandoned or taken out of service, severance costs and other costs associated with our restructuring activities. These income and expense items were not considered indicative of our ongoing operating performance and were excluded by management in assessing our operating performance.
• (Gain) loss on sale of assets – These amounts represent gains and losses we recognized related to the sale of non-strategic assets.  These gains and losses were not considered indicative of ongoing operating performance and were excluded by management in assessing our operating performance.
• Multi-employer pension plan withdrawal charge – This amount represents the charge associated with the withdrawal from a multi-employer pension plan.  This expense item was not considered indicative of our ongoing operating performance and was excluded by management in assessing our operating performance.
• Other - These adjustments principally represent amounts accrued under our 2009 long-term incentive plan.  These income and expense items were not considered indicative of our ongoing operating performance and were excluded by management in assessing our operating performance.

Adjusted net income (loss), adjusted net income (loss) per diluted share, EBITDA and adjusted EBITDA have certain material limitations associated with their use as compared to net income (loss).  These limitations are primarily due to the exclusion of certain amounts that are material to our consolidated results of operations, as discussed above.  In addition, these adjusted net income (loss) and EBITDA measures may differ from adjusted net income (loss) and EBITDA calculations of other companies in our industry, limiting their usefulness as comparative measures.  Because of these limitations, adjusted net income (loss), adjusted net income (loss) per diluted share, EBITDA and adjusted EBITDA 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 adjusted net income (loss), adjusted net income (loss) per diluted share, EBITDA and adjusted EBITDA only as supplemental measures of our operating performance.  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.

We believe that providing these non-GAAP measures in addition to the related GAAP measures provides investors greater transparency to the information our management uses for financial and operational decision-making and allows investors to see our results as management sees them. We also believe that providing this information better enables investors to understand our operating performance and to evaluate the methodology used by our management to evaluate and measure our operating performance, and the methodology and financial measures used by our board of directors to assess management's performance.

SOURCE Smurfit-Stone Container Corporation

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