Graphic Packaging Holding Co (GPK) 2002 Q1 法說會逐字稿

Good afternoon. I'm Jeff. I'm your facilitator today.All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like to ask a question during that time, simply press star and a 1 on your telephone key pad.

If you would like to withdraw your question, press the pound key. Thank you. Mr. Leon, you may begin your conference.

CEO/PRESIDENT: Thank you, Jeff. Good morning or afternoon. I'm Luis Leon, Chief Financial Officer of Graphic Packaging, and I would like to welcome you to our first conference call. With me here today is David Scrimbleand on the line from outside the continent is Jeff Coors our Chief Executive Officer.

Before we start, let me go through the legal cautions. First, this call is being recorded and is accessible during the next seven days. However, we will not be updating the recording for any events. Please go to our website GraphicPacking.Com for any subsequent public disclosures.

Second, during this conference call, we might make forward looking statements and these involve risks and uncertainties that could cause results to differ.

Please read the statements in our news release and the filings with the Securities and Exchange Commission. Let me proceed with a prepared script and follow it with a question and answer session.

As we discuss the quarter in detail, we will compare with the fourth quarter of 2001 versus the first quarter of 2001.Consequently, we believe comparisons with fourth quarter 2001 applicable to the 2002 first quarter.

In addition, in discussions that follow, I will exclude special and extraordinary items as detailed in the press release.

First, our profitability.Both quarters experienced reduced volume with customers tracking with inventory alignments.

In addition, the customers experienced slow downs due to acquisition and integration. The customers on just in time supply basis, cut backs had an impact on us.This 100 basis point improvement a test to the success of our six sigma and other programs as well as our ability to schedule operations and manage variable costs.

Effective the first of this year, we are no longer advertising good will as required by FASB 102. The historic unitization of $21 million a year will cease and book noncash charge in the second quarter of 2002 relating to good will impairment. We're currently evaluating the magnitude of the charge and expect it to be in the range not to exceed $200 million.Even that increased from 31.6 million in 2001 to 34.6 million in the first quarter of 2002.

Capital expend yours 7.2 million dollars for the quarter and on track to be at or less than the $40 million target we had for the year.

Moving on to the capital structure, as all of you know, we restructured the balance sheet at the end of February.

Consequently, we had a successful bond issue of $300 million ten-years notes with a solid base for long-term unsecured financing at a fixed rate of 8 and 58% rate. Coupled with bank financing, the company has greater capability and structure with which to operate in the foreseeable future.

As part of the restructuring, we repaid the $50 million 10% subordinated notes that would have come due in 2008 and paid down the previous credit facility that would have expired in two years.

This ends the presentation. And Jeff, we would like to turn it over to you for any questions from the audience.

At this time, I would like to remind everyone, to ask a question, please press star and 1 on your telephone key pad. We'll pause for a moment to compile the Q&A roster.

Your first question from Bruce Kline with Credit Suisse First Boston.

Hi, Bruce.And secondly, volume trends and whether you see the restocking.

This is David Scrimble.At that time, it's flowing through and gone through the penal at that time.

I'm sorry, Dave. The first part you said, you're comparing fourth quarter of --

Yeah. Quarter '01 to quarter -- first quarter.Downward?

Downward.

And 2%. Anywhere in that 2, 2 1/2% rate.

Okay.

Really no share loss.

Uh-huh.

Let's see. Your other question had to do with -- we have, in fact, seen some initial pick-up in volume as we had into April. But I'm not here to say it is a robust rebound, bounce off the bottom sort of an economic thing. We have seen improvement, for sure over first quarter rates but I think we're managing it as a gradual improvement.

Okay.Anything on the cost saving front to share or how did it wind down?

Actually, as you know, we tracked it carefully internally. Our cost reduction plans for the quarter were on what we expected to do for the year. Luis gave discussion on that. We shut down the Nuna facility or in the process of shutting it down. In the penal, first quarter, you have costs that are in that resident to moving business along. You know, from a plant to a plant.

But we don't anticipate additional plant rationalization at this point in time and we do continue to look like we're on track for the cost reductions for this year.

Okay. Great. Okay. Thanks, guys.

Your next question from Sandra burns with Deutche bank.

Hi, good afternoon.

Good afternoon.

Hi.

Well, I mean, we don't typically talk about individual customers except I will tell you that the (inaudible) some of the new things we have done recently, business we have closed that will structures or laminated structures and we do expect to see that increase as we go forward based on some new business. I won't talk specifically about customer applications.

We had contracts we have signed that will impact us in the latter half of the year. And those are what we mention as business opportunities. But I don't think that we're at liberty to mention who those contracts are with.

Okay. The laminated structures, could you say the application that's used in?

No. We have not done that and I don't want to do that now.

Okay. Just last question on the volume side, of course recently (inaudible) said that the contract looks like it's pretty stable.Anything else on the bigger contracts, bigger customers you have, big changes in volume trends from the bigger customers?

(Inaudible) Coors is the only real major customer with the contract this year at all so we haven't seen anything different from any other customers.

Okay. Great. Thank you.

Your next question comes from Scott Davis with Morgan Stanley.

Good morning. Afternoon, guys.

Hi, Scott.

Here with addings, as well.Are you prepared to give us on guidance here?

No. We really don't, Scott.And as a result of our continued lowered cost structure that will be translated into greater ebada. I would have to say that probably the guidance to give you is we should be doing better in the second half or second part of the year than we are at the present time.

Okay.

Well, we haven't really -- I guess the volume we talked about a little bit. We see improvement overall and second quarter is traditionally a second quarter. And we have some new business things in there.We certainly saw some price reductions in paper board in 2001.At least not in q 2. Beyond that, I really can't say.

Okay.And just trying to reconcile where that -- how that's falling through to your results.

You know, the two companies have totally different be hard for me to reconcile that. But I will tell you, you know, projections we have seen and for projections that we have done with our own material suppliers, we don't see a major change. Right now, in the paper board in the industry, at least for the visibility the next 90 days or so, that's all I've really got.

Okay. And how about OCC prices? Any jute look there?

They're probably up about maybe $5 a ton. We don't see a lot. As we look out and you have some visibility because the futures market and really don't see any major change in OCC prices. At least not that we can see right now.

Okay. And can you just comment on the Kalamazoo mill and if you're running full out this quarter or if you have any unplanned down time or anything that's material there?

We did. Actually, in the first quarter, we took some down time in the Kalamazoo mill, and in a couple of our carton facilities trying to adjust for the lower volume as the major customers. We took about -- we took an average of nine days down or so from the quarter from the Kalamazoo board mill.

That provides upside going through 2Q.

That's correct.

Okay. Guys, appreciate it. Thanks.

Your next question comes from Bill Hoffman with UBS War Bird.

Good afternoon. Just a follow-up on the previous question. The second quarter of (inaudible) I guess we didn't normally expect to see seasonal (inaudible) on the Coors side. Could you just talk a little bit about the seasonal trends in the second quarter and whether the inventory real alignment in the first quarter is completed or not?

Well, actually, that's a great question and I wish I could tell you I had great -- perfect visibility. I think our customers going through that and understanding in their system, as well. We'll see a pick-up. You're correct. See summer that brings a different -- a little bit different mix in beverage and cereal and other things, as well. And we're seeing that traditional improvement in April, for sure. Relative to customers restocking in inventory, I can't tell you that we have a good enough visibility over that right now to tell you that that will occur. We have seen pick-up in April across the mix. I can't tell whether it's inventory or not. I know that inventory throughout, our customer system dropped, you know, certainly dropped in first quarter.

Okay. The next thing is just in the first quarter, as well.

Not really material mix change.

Okay.

A lot of what you saw there primarily the cost savings, and within six sigma and the other programs that kicked in the first quarter.

And then just another final question. Could you give us -- Luis, can you give us the (inaudible) bank lines at this point?

Stay on the bank line, $53 million at the end of March.

Okay. Great. Thank you.

Your next question comes from Joe with Goldman Saks.

Yeah, hi. I just wanted to clarify something.Is that correct?Sorry. I meant dropped. But that's for your input, right?

Yes, it is.In terms of your selling prices because it's going to flow through.

Right. Typically, flow through. The mix is different for virgin board versus recycled board but that's a good model.

Okay. The only other question I have is if you could update us on any thinking you might have on expanding our company through acquisition. There's much going on there. You know, where your priorities might be in terms of that kind of expansion.

Well, right now, Joe, there's nothing that we have that we haven't (inaudible), and you know, we really can't comment on anything at this point in time.

Okay. Thanks.

Your next question comes from (inaudible) with Morgan Stanley.

Good afternoon. Congratulations on a solid quarter. I had two topics I'd like to touch on.I saw receivables jumped. Do you have any inventory targets?

Before we answer that question, I believe that Jeff is on the line. Jeff, could you put your phone on mute? We're get ago lot of static from the phone.A couple of factors contributed to that.

As you may recall from our February conference call, we had mentioned that December was a very slow month for us because we had a lot of our customers that shut down a lot of the operations during the Christmas holidays so as a result if you look at the change from period to period, that's a huge contributor.

Also, contracts with customers who are scheduled to make payments to us at the end of the month and as all of you know, the end of a month was on a weekend and the payments didn't come in until April 1st.As it scales up, it will hit the penal and I won't speculate.

That's very helpful.

Sure.

Great. Thank you.

At this time, I would like to remind everyone, to ask a question, press star and the number 1 on the telephone key pad.

At this time, there are no further questions.

All right. I would like to thank everybody for their time today and look forward to speaking to you July 22nd reporting on the second quarter results. Until then, thank you very much for attending.

Thank you for joining the Graphic Packaging first quarter conference call. You may now disconnect.