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Q4 2012 Earnings Call
December 12, 2012 10:00 am ET
Robert M. McNutt - Chief Financial Officer and Senior Vice President
David B. Fischer - Chief Executive Officer, President and Director
Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division
Benjamin C. Wong - BofA Merrill Lynch, Research Division
Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division
Steven Chercover - D.A. Davidson & Co., Research Division
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Previous Statements by GEF
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The information provided during this morning's call contains forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause results or outcomes to differ are on Slide 2 of this presentation, in the company's 2011 Form 10-K and in other company SEC filings, as well as company earnings releases.
This presentation uses certain non-GAAP financial measures, including those that exclude special items such as restructuring charges and acquisition-related costs and EBITDA before and after special items. EBITDA is defined as net income plus interest expense, net, plus income tax expense less equity earnings of unconsolidated subsidiaries, net of tax, plus depreciation, depletion or amortization expense.
Management believes the non-GAAP measures provide a better indication of operational performance and a more stable platform on which to compare the historical performance of the company to the most nearly equivalent GAAP data. All non-GAAP data in the presentation are indicated by footnotes. Tables showing the reconciliation between GAAP and non-GAAP measures are available at the end of this presentation and in the fourth quarter 2012 earnings release.
Giving prepared remarks today, in order of speaking: Senior Vice President and CFO, Rob McNutt; and President and CEO, David Fischer. I will now turn the call over to Mr. McNutt.
Robert M. McNutt
Thank you, Kevin. Good morning and thank you for joining us. Before reviewing our financial results, I want to discuss the specific factors that led the company to delay our fourth quarter earnings release and conference call earlier this week.
During last quarter's conference call, I noted weaknesses identified in our internal controls in Latin America that we were addressing. In the fourth quarter of 2012, we completed our review of accounting processes and corrected errors that occurred over a number of years in that region of the Rigid Industrial Packaging & Services segment. Additionally, we made several prior period adjustments in the fourth quarter related to deferred tax assets, tax reserves and withholding taxes. We also recorded corrections related to the financing structures of 2 of the company's joint ventures formed in 2010 and 2011.
The impact of all errors and adjustments was not material to the company in any prior year. However, the cumulative effect of the correction of these prior period errors would have been material to the current year's consolidated financial statement of operations. Therefore, these errors were corrected by restating the relevant prior periods.
Some of these errors were identified late in the year-end closing process. The process to correct the errors and provide adequate time for review by our independent auditors led us to the decision to reschedule our earnings release and call. We've taken steps to specifically address these issues and are focused on strengthening our processes and controls going forward.
Please turn to Slide 3.
As we told you last year at this time, our priorities for fiscal 2012 included improving our working capital management, increasing cash flow and integrating acquisitions. We ended the year with solid achievements in each of these areas. Working capital was $202 million on October 31, 2012, compared with $353 million on the same date last year, a decline of $151 million or 43%. While lower commodity costs were part of the decline, this improvement also was a result of specific initiatives we implemented during the past year, including more favorable terms for accounts payable, improved inventory planning, better processes and increased focus on cash management throughout the company. Importantly, working capital and cash flow were well managed throughout the year, and we continued those trends through Q4 on cash generation. Cash provided by operating activities was $139 million for fourth quarter 2012, benefiting from lower working capital requirements during the quarter.
$474 million of cash from operating activities and $304 million of free cash flow in fiscal 2012 were both records. We made significant progress on working capital in 2012, and our emphasis on cash will continue to be an area of focus for the company going forward.
Capital expenditures were $166 million, excluding timberland purchases of $3.7 million for 2012. Our capital expenditure plans for 2013 are expected to be between $140 million and $150 million. This range covers the normal maintenance CapEx plus strategic projects, including amounts related to the initial phase of our multi-year ERP implementation.
We also made progress on acquisition integration during 2012. However, much of this was masked by the downturn in the European economy. This included securing synergies from bolt-on acquisitions and executing strategies in new businesses acquired during the previous 2 years. We will continue to seek additional cost savings in 2013.
In the Rigid Industrial Packaging segment, we benefited from our improved footprint for the collection and manufacture of reconditioned drums and implementation of integrated marketing in response to increased customer interest for new and used drums to meet specific objectives, including sustainability.