RockTenn Reports Earnings for the First Quarter of Fiscal 2010 of $1.43 Per Share and Adjusted Earnings Per Share of $0.94

RockTenn (NYSE:RKT) today reported earnings for the quarter ended December 31, 2009 of $1.43 per diluted share. The Company’s adjusted earnings were $0.94 per diluted share, excluding primarily items related to the alternative fuel tax credit, gain on debt extinguishment and restructuring charges compared to the prior year quarter adjusted earnings of $0.96 per diluted share.

First Quarter Results

• Net sales of $690.8 million for the first quarter of fiscal 2010 decreased $12.3 million compared to the first quarter of fiscal 2009.
• Segment income increased to $106.2 million compared to $90.0 million in the prior year quarter, an 18% increase over the prior year quarter. Segment income includes the alternative fuel tax credit of $20.7 million, net of expenses. This tax credit expired on December 31, 2009.
• RockTenn’s pre-tax restructuring and other costs, net of related noncontrolling interest, were $3.0 million, or $0.05 per diluted share after-tax, for the first quarter of fiscal 2010 consisting primarily of plant closing related asset impairments.
• RockTenn incurred pre-tax operating losses at previously closed facilities of $0.4 million, or $0.01 per diluted share after-tax.
• During the first quarter of fiscal 2010 we repurchased $19.5 million of our March 2013 Notes at an average price of approximately 98% of par and recorded an aggregate gain on extinguishment of debt of $0.5 million pre-tax, or $0.01 per diluted share after-tax.

Chairman and Chief Executive Officer’s Statement

RockTenn Chairman and Chief Executive Officer James A. Rubright stated, "RockTenn posted another quarter of strong earnings and cash flow generation, as cost savings and operational improvement programs and higher paperboard shipments largely offset higher input costs. In the seasonally weak December quarter, cash flow from operations was $96 million, up 84% over the prior year quarter.”

Segment Results

Paperboard and Containerboard Tons Shipped and Average Price

Total tons shipped in the first quarter of fiscal 2010 increased by 30,739 tons over the prior year quarter and decreased on a sequential quarter basis by 10,280 tons. The average selling price for all paperboard and containerboard grades decreased $46 per ton from the prior year quarter and decreased $7 per ton on a sequential quarter basis.

Consumer Packaging Segment

Consumer Packaging segment net sales increased 2.9% in the first quarter of fiscal 2010 compared to the prior year quarter, due to higher paperboard volumes. Segment income increased $31.3 million over the prior year quarter to $62.8 million due primarily to $20.7 million of alternative fuel tax credit, lower chemical and energy costs and higher paperboard volumes.

Corrugated Packaging Segment

Corrugated Packaging segment net sales decreased $23.1 million to $180.1 million in the first quarter of fiscal 2010 compared to the prior year quarter, due to lower selling prices which were partially offset by higher containerboard volumes. Segment income was $34.7 million in the first quarter of fiscal 2010 and segment return on sales was 19.3%.

Merchandising Displays Segment

Merchandising Displays segment net sales decreased $8.0 million over the prior year first quarter. Segment income was $4.2 million in the first quarter of fiscal 2010 and $5.1 million in the prior year quarter.

Specialty Paperboard Products Segment

Specialty Paperboard Products segment net sales increased $4.5 million in the first quarter of fiscal 2010 compared to the prior year quarter primarily due to increased paperboard volumes and higher volumes in our recycled fiber operations. Segment income was $4.5 million in the first quarter of fiscal 2010 and $2.8 million in the prior year quarter.

Cash Provided By Operating Activities

Net cash provided by operating activities in the first quarter of fiscal 2010 was $95.6 million compared to $52.0 million in the prior year quarter primarily due to a net reduction in operating assets and liabilities compared to a net increase in the prior year quarter.

Financing and Investing Activities

We reduced net debt by $81.4 million in the quarter and $334.7 million in the twelve months ended December 31, 2009. Our Credit Agreement Debt/EBITDA ratio was 2.16 times at December 31, 2009, well below our maximum permitted ratio of 4.25 times.

Conference Call

We will host a conference call to discuss our results of operations for the first quarter of fiscal 2010 and other topics that may be raised during the discussion at 9:00 a.m., Eastern Time, on January 27, 2010. The conference call will be webcast and can be accessed, along with a copy of this press release, at www.rocktenn.com.

About RockTenn

RockTenn (NYSE:RKT) is one of North America’s leading manufacturers of paperboard, containerboard and consumer and corrugated packaging, with annual net sales of approximately $2.8 billion. RockTenn’s 10,000 employees are committed to exceeding their customers’ expectations – every time. The Company operates locations in the United States, Canada, Mexico, Chilé and Argentina. For more information, visit www.rocktenn.com.

Non-GAAP 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 terminated fair value interest rate derivatives or swaps, the balance of our cash and cash equivalents, restricted cash (which includes restricted cash and marketable debt securities) and certain other investments that we consider to be readily available to satisfy these debt obligations.

Our management uses net debt, along with other factors, including net debt repayment per diluted share, 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 and net debt repayment per diluted share provides a measure to investors of how successful we are at achieving our debt reduction. Set forth below is a reconciliation of net debt to the most directly comparable GAAP measures, Current Portion of Debt and Total Long-Term Debt for the current quarter, prior quarter, one year ago quarter and the quarter following the Southern Container Acquisition:

Credit Agreement EBITDA and Total Funded Debt

"Credit Agreement EBITDA” is calculated in accordance with the definition contained in our Senior 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, certain non-cash and cash charges incurred, and charges taken resulting from the impact of changes to accounting rules related to the expensing of stock options.

"Total Funded Debt” is calculated in accordance with the definition contained in our Senior 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 deferred 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 Senior 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, 2009 calculation, our Leverage Ratio was 2.16 times, which includes a reduction of .31 times for the alternative fuel tax credit. Our maximum permitted Leverage Ratio under the Senior Credit Facility at December 31, 2009 was 4.25 times and will remain at this level until July 1, 2010 when it will re-set to 3.75 times.

Set forth below is a reconciliation of Credit Agreement EBITDA for the three and twelve months ended December 31, 2009, 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 Total Long-Term Debt:

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 the 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 is a reconciliation of adjusted net income to Net income attributable to Rock-Tenn Company shareholders: